Welcome to the Matas Interim Report for 2023, 2024. For the first part of this call, all participants are in a listen-only mode. Afterwards, there'll be a question and answer session. To ask a question, please press five star on your telephone keypad. This call is being recorded. I will now turn the call over to our speakers. Please begin.
Thank you, operator, and welcome everyone to the call covering our all-important Christmas quarter. We consider this quarter a rock-solid success. In a quite challenging macro environment, we delivered standout growth, and we delivered improvement in earnings, while integrating two companies and while executing on our strategy. So, we have an agenda for today. I will give some comments on the quarters and how we are progressing on strategy. I will hand over to Per to cover the financial results, and then we will be happy to take questions. Looking at the numbers, DKK 2.5 billion in revenues from the combined company. Earnings, DKK 424 million before special items, up from DKK 296 million last year.
Organic growth, standout organic growth of 9.2% in the quarter, and an EBITDA margin before special items of 16.9%, in line with our expectations. Driven by an increase in transactions, and that's not only KICKS numbers coming in, that is also underlying growth in the number of transactions, which we consider to be the healthiest way of growing more customers coming into our stores and our online business. We maintain the guidance for the year. We upped the guidance for revenues on our trading update on January 9, and we maintain our guidance for the full year on the EBITDA margin, around 15%, and our guidance for CapEx between DKK 500 million and DKK 525 million, reflecting, of course, that we are investing heavily in the construction of our warehouse and in the core business.
This was the first real quarter of Matas and KICKS joining forces. We consider this, really a merger of two companies of almost equal size, four markets, four currencies, four languages. This could be a distraction, but really what we have seen are the two companies performing, and we have seen collaboration being very, very strong. So, this is a company with 5 million club members across the Nordics, more than a 30% online share of business, a more than 60,000 SKU base, of assortment, more than 500 stores, and around 4,000 colleagues, to deliver these standout results.
I think given the complexity that's always there in an acquisition, I think this actually underlines the performance of the quarter and is really a symbol of a very good start to the collaboration between KICKS and Matas. Looking at the strategy, it is really the strategy driving the results. We are getting little or no help from macro, of course, so this is a matter of strategy and strategy execution, delivering the results that we're reporting. On the commercial side, our growth strategy is to expand our assortment. We added brands, and I will get back to that in the quarter. It is very much a case driven by e-com growth. I will dig deeper into that.
It is also a matter of omnichannel, of using our many stores to support our online growth and using online to support the performance of the stores. It is a matter of building a portfolio of strong brands on our own that we can share across our many sales channels, and clearly, the big investment in automation, in making a logistics setup that will help us get scale benefits, when we grow e-com, to see that business, scaling even more nicely. So, the commercial strategy: to expand assortment, we added 86 new brands to the portfolio. We saw about half of the growth in Q4 coming from a new assortment introduced to our existing customers, in the quarter, indicating that customers are actually buying into the new brands, into our new offerings.
And of course, that is the key driver of our growth, and that is one of those things that will help us grow despite economic cycles. We also started sharing some of our brands. BeautyAct, one of the leading own brand in KICKS' portfolio, was launched online in Matas. And of course, that is an indication of where we want to go to share our strong brands across markets. One number, just a nice number, is 1 million unique Club Matas members shopped with Matas during the month of September. That is an all-time high, again, highlighting that this is about deepening customer relationships, getting deeper and more intimate with each single customer by offering a wider assortment and just a great day-to-day experience in the business.
E-com, again, standout growth for e-com, 22% in the quarter. 27% against the COVID peak, where everybody was at home shopping online. I think this just signals again that our strategy, that our online performance is really outstanding. We are also getting market numbers indicating that across all e-com categories, not only beauty, but across all e-com commerce categories, Matas is really strengthening its position. This of course goes for KICKS as well, that this is an omni-channel model, and we see the opportunity for assortment expansion with KICKS, with the big assortment base that Matas has, as an evident avenue for growth in the future. For KICKS, we saw strong performance in the quarter as well.
All-time high revenues in KICKS, growth in all markets, Norway, Finland, Sweden, and all channels, both e-com and stores. We did the first operational move into the new warehouse in Rosersberg. The Skincity business was the pilot to go into Rosersberg. We saw flawless execution of the operational part of that move. As I mentioned, Beauty Act launched in Matas, and the collaboration and the spirit of working together, I think, is beyond any expectations that we might have had. We have gained very good colleagues, very capable colleagues, and the two companies have come together to deliver a strong Christmas result, and of course, that is really, in a retail business, the best start that you can have to deliver results and build great relationships in the progress in the process.
So, for full year, revenue was actually upgraded as well for KICKS, driven by the performance and also positive currency effects. With that, I will hand over to Per to cover the financial results.
Thank you, Gregers. Let me just start with the usual overview we do of the business, but just want to echo what Gregers said, a very strong quarter, and delivering exactly the financial performance as we expected. So looking at the numbers, we of course, you know, as we don't have KICKS in the base, we are looking at 80% growth of our overall revenues. A slight decline in our gross margin, also reflecting the two businesses being added together, with a little bit of difference in terms of the gross margin in the third quarter, as we just passed. Highlighting here really is the fact that we were able to grow above 9% as an organic growth for the Matas.
Moving to the cost side, and again, this of course reflects the first quarter of adding two businesses together, not having KICKS in the base. Some of the key drivers, though, is of course, KICKS, but also some of the things that we need to take into account is growing our online business with 23% will increase our cost, as some of the cost is below the line. Google search, the people that we have on our web shop, et cetera, et cetera. So just to take that into account, and it also reflects our continued investment in our assortment expansion, as Gregers just highlighted.
From a profitability perspective, 43% growth, of course reflecting the KICKS acquisition, but also a strong growth in line with our expectations for the third quarter. Just wanna highlight a few more things, starting with our inventories, and as you will see, a huge increase, of course, reflecting KICKS. We also have an increase in our existing business, so to say, in the Matas, as we continuously grow our assortment and as the assortment hit our inventories. As a start-up, you will have higher inventory levels, and that's basically what you see in our numbers. In line again with our expectations for the quarter, but slightly higher when we compare to previous quarters.
Then moving into our cash flow, and very pleased with our cash flow this quarter. And when I come back to our gearing, I will comment a little bit more on that. But basically this quarter, generating a... Or for the first nine months, generating a free cash flow of DKK 600 million, and in that number, you need to take into account actually, that we have DKK 75 million of special items, and we're investing in the MLC. So from a comparable perspective, you know, we are significantly higher than 700, maybe 750, compared to the 540 last year. So just a very strong quarter.
I will though highlight, a part of it has to do with timing into fourth quarter, and let me just move into that, because I can share that with the, with our leverage. When you look at our leverage in Q3 2022, 2023 last year, you also saw a drop in the overall leverage, which is basically the same effect you see this quarter. The impact of basically going from 2.8% to 2.2% is driven by a couple of factors. In addition to, of course, a very strong cash flow quarter, we have some timing in terms of payments of our suppliers due to the very huge deliveries that we have in the month of December, and that moves into the fourth quarter.
And then the other piece you need to be aware of, once we get to the fourth quarter, that's where we have the strategic review of all our leases, all our stores, and there you would rebase the liabilities we have on the store. So you will get, you know, the IFRS 16 debt into the Q4 numbers. So you should expect also, when we move into fourth quarter, that you will see a similar pattern as you saw last year. But overall, a very strong quarter also from a cash flow perspective.
Last but not least, as we did the acquisition of KICKS, we had a bridge facility, and that has been financed or refinanced, and put into place in January, including an increased amount available in our RCF, which basically gives us a little bit more flexibility from a cash perspective.
T hat concludes the financial presentation, and we will hand over for Q&As.
Thank you. We will now start the question-and-answer session. If you do wish to ask questions, please press five star on your telephone keypad. If you wish to withdraw it, you may do so by pressing five star again. The next question will be from the line of Sebastian Graff from Nordea. Please go ahead. Your line will now be unmuted.
Hi, Greg and Per. Thank you for taking my questions. So very impressive growth in the quarter, but obviously we knew that already from the trading update. So allow me to put some focus on your margins instead here. On KICKS' gross margin, it was 47% in September, and now it's 43% for the quarter here. In comparison, Matas standalone gross margin was sort of flat this quarter-over-quarter. So can you help me please explain some of the deviation here? And on that note, what was the KICKS gross margin in Q3 last year? That would be my first question.
Yeah. So, so we are going to share comparable numbers in the coming weeks, so I won't go into the comps for, for last year for KICKS. We want to share that with, with the entire market at the same time, of course. But the 47% in September, which is one month of KICKS, of course, and we indicated at the time, is not the level of KICKS. So we are not seeing an underlying, or, or the performance of KICKS in Q3 was in line with our expectations. It's the Black Friday, it is all the Christmas campaign, the Christmas box, all that. So this was really as expected. So no surprises for us, internally on the gross margin of of KICKS or Matas.
Also reflecting, as you know, our investments in the strategy, that expanding assortment, making of a new assortment that is driving down margin in the first couple of years when you introduce new assortment.
But, but have you also introduced new assortment in the KICKS franchise at this point?
No.
Okay. Okay, fair enough. Fair on the comparables. Looking forward to see them soon here. Then on... You touched a bit upon it, Greg, on the demand picture in general, and maybe in Sweden in particular. I know, I mean, you saw KICKS sales grew year-on-year, but could you maybe put some more color to the underlying mix here? So I mean, share of high-end revenue versus mass-market KICKS and also, I mean, share of sales from promotion, et cetera. What are you seeing out there in terms of the Swedish consumers at this point?
So we're seeing a Swedish consumer in general holding back, less growth overall in retail, but beauty, as you know, is not really exposed to the economic cycles, as much as other categories. And we're seeing that in the Swedish market as well, that beauty seems to be not, I wouldn't call it a safe haven, because of course we see effects, but also, I think it's very strong performance on the KICKS part. I think good execution in stores, good execution online of campaigns, and on the operational side. So I think there is both sort of a favorable environment for beauty, and good performance, in KICKS to explain the KICKS numbers in Q3.
Okay, but are buyers seeking more sort of promotion, sales now or compared to earlier, you think? Or is it stable-
We're not seeing any sort of material shift in... And of course, KICKS is mainly and much more high-end skewed than the Matas business, so you don't see these kinds of trading down effects that we have been discussing with, with Matas. For, for good and bad, we don't see that in, in KICKS. So it's really core performance delivering the results.
Okay. And then just my last question, and I will go back to the queue. So you up your revenue guidance in connection with the trading statement, which I guess should imply some kind of margin leverage. You had to restate the 15% margin guidance. So basically, a twofold question here: Generally speaking, what is the wiggle room in your around 15% EBITDA margin guidance? So is it everything above 14.5 and below 15.5, or how should we think of it? And second, all else being equal, with you upping your revenue guidance, that should in isolate, in isolation, drive more margin. Is that right? Is that the right way to think about it?
Yeah. So we're not gonna comment on the wiggle room on the 15, because we have guided around 15, so we should leave it like that. I think what's key to understand is that when we see the growth being driven by online, we don't get the same operating leverage that we used to get when we were only stores. You can imagine when you sell more in a store, you don't have to call in new people to execute on that. So it's really the margins go straight to the bottom line, if you will. Whereas for online, as Per alluded to, you will have much more of a variable cost elements going into the PNL. So you see Ad Spend growing. I'll get back to that.
You see, of course, all the fulfillment costs, both the pick and packing in the warehouses, which is still manual, and you see the shipping, go up. And this is one area where we would like to add more transparency over time. So this is understandable. But when the growth is driven by online, you don't get the same, margin expansion that we got when the world was not digital at all. And as for the Ad Spend, this goes to strategy, and this goes into the philosophy of running the company. If we see opportunities to capture growth, to win new customers by spending more marketing than budgeted, we will do that. We absolutely think there is an opportunity in the market now to win market share and buy market share cheaply.
So we are not obsessed about, you know, just maximizing profitability at this point. This era is really about executing on our growth strategy, getting those customers on board, you know, enticing them to buy into new categories, and of course, winning market share. So we do that from just a business point of view, we think that's the right way to run the business.
Okay, thank you for taking my question.
Thank you, Sebastian. The next question will be from the line of Poul Jensen from Danske Bank. Your line now will be unmuted.
Yes, thank you for taking the questions. I have a few ones that's in the same area as we just had, about the gross margin of KICKS, with the difference between Q2 and Q3. Can you indicate what should we see as a run rate for the KICKS business going forward?
Yeah. So, so again, we will share the historical numbers. That's going to give you some more transparency, but we won't be guiding specifically on the gross margin for KICKS. So I, I, I'm not able to help you there.
Okay. Then, on the Nordic markets, you had 3% on KICKS, so all on organic growth. Anyone outperforming or underperforming that average number of the three markets?
I think we are growing. There's different growth rates in the different markets, but we're not, you know, doing that segmentation across the different markets. I think what you do get is that we have seen growth in all markets and all channels, so this is not a matter of one market or channel driving the growth. It's really broad-based, and I think that is again a healthy sign that it's not one winner and a couple of losers, it's really winning across the board.
I guess you won't give the organic growth in the online sales in KICKS either?
No, not at this point.
That was not much help. Then a question you mentioned on the business that you have provided this digital colleague to a point of sales based on AI. Can you put a little more color on what actually it's supporting the sales process for?
Yeah. So, we consider AI to be a game changer for how we can operate the business and how we can increase productivity, both efficiency, but also sales productivity, by equipping our customers with digital tools. I think this is one thing that both KICKS and Matas have been doing for many years to make sure that we don't, you know, live in a digital world in headquarters and live in a physical world in the stores, but rather try to use technology and get it out in the hands of our close to 4,000 colleagues. So what we're experimenting with, and this will be experimentation, this is, how can we use AI to speed up customer interactions?
So in customer service, when there is someone making, you know, a chat request, that AI actually gives our colleagues a prompt. How can they answer this question without having to go into the database? And similarly, for our customer or our colleagues in the stores, that they can give advice based on all the data we have from Club Matas, all the sales data across channels, and you know, re-enhance and empower that by AI to make it even more personal and even easier to use for our colleagues in the stores. But this is a theme we will get back to again and again, because of course, there is a lot of promise for a data-driven company like Matas to use AI to gain efficiency and stimulate growth.
Okay. And the final question is on the cash flow. Are there any impact from consolidation here, I think on the inventories working capital? You saw, you made the bridge, but are there any one-off like from consolidating the two businesses, or should it be seen as a more steady, normal cash flow levels?
Paul, in terms of, in terms of our cash flow for this quarter, and the way that, that the business is operating right now, is that we are running KICKS and Matas inventories and, and deliveries to the market as, as two separate entities. So in, in the numbers that you have received for, for the third quarter, there is no one-off special item in terms of pooling inventories together, at this point.
Okay. So it's only the special items which should be seen as,
Yeah.
Special.
Yeah. And the timing-
And then the timing,
Of payables
O f payables. As you also saw last year, you know, we are increasing payables in the months of, in the later part of the third quarter every year, due to the amount of products being delivered and shipped and supplied to our customers. So, so that's the, that's the normal impact you'll see there also. Of course, having KICKS on board-
Yeah, but year-over-year, that's normal then.
Yeah, but having KICKS on board, that just makes that a little bigger as well. Just so you are aware of that.
Okay. Thank you.
Thank you, Paul. The next question will be from the line of [Inaudible] from Carnegie. Your line now will be unmuted.
Yes, thank you for taking my questions. I have two. So first, go to KICKS. Can you tell us the how much of the sales in KICKS that comes from the high-end beauty?
S o you'll find that in, in the report. I don't have it right here, but you can find that in the report. Yeah.
Okay.
Around 70%.
Okay, good. Then, another question. You know, I guess your competitors are very focused on what they're doing across the Nordics today. Have you seen any responses so far from your Nordic competitors in terms of pricing, more promotion, or similar, in order for them to secure the market shares?
Not something of note. I think they are each pursuing their strategies. We're seeing quite a shift in retail. If you look broadly into the food sector, discount has been winning. Discount has less of a beauty offer, so that plays to our advantage. Some of the online pure players who have enjoyed a lot of growth during COVID and got a lot of setback after COVID, they are retreating a bit on their spend and their aggression in the market, and other players, omnichannel players, who are pursuing the same kind of strategy that we are, they are on their journey. I think what I take note of is that we are seeing our strategy deliver results both in KICKS and in Matas, despite what the competitors might be doing.
So, we're not seeing a, you know, disruptive shift or an increase or change in the competitiveness in the market. Lots of movements going on, but not one thing that I can say is a game changer.
Okay. Then, then maybe just a final question. I can see the Beauty Act has been launched in Matas. What has been the, the initial feedback?
This is a brand that nobody knows in Denmark, and it's selling. So I think that's the beauty of the beauty business, that novelty and brands they have a way of, you know, finding an audience. And of course, this is a brand we have to build from scratch. From a financial point of view, you know, it shouldn't be on the slide. This is nothing significant in numbers, but it is significant to our idea of being a Nordic group with a portfolio of own brands that we can share across our different channels to gain differentiation, but also, of course, as good support for our margins. But for now, the business, the numbers are very small.
All right. Thank you.
Thank you, Mads. As a reminder, please press five stars to ask questions. The next question will be from the line of Kristian Godiksen from SEB. Your line will now be unmuted.
Thank you. A number of questions from my side. So, so, maybe first of all, could you walk us through the implied growth in Q4, both for Matas ex Kicks and, and, and for Kicks as well? Yeah, I'll just do them one by one, but that's the first question.
Yes. So implied growth, if you do the math for a Q4, is lower than the run rate growth we have seen over the last four quarters. And of course, you have to take into account that for the first couple of quarters, for those four quarters, it was only Matas, then KICKS coming in. So, what we're not seeing, we're not seeing any material changes in the demand picture or in the market. We are not starting to question the efficiency and effectiveness of our strategy. That is still working.
We are up against tougher comps, both in KICKS and in Matas in the fourth quarter, and we are changing the warehouse in KICKS, so moving all the products from one way of running logistics into Rosersberg, and we need a bit of a safety buffer on to make sure that that goes smoothly. That would be an ordinary thing. And the final thing, just technical, we're missing two trading days in this quarter because of the timing of Easter, so you should take that into account as well across three markets. Sorry, four markets.
Yeah, that's as I had as well. So, but maybe just coming back to the buffer and revenue on KICKS, what is it the implied growth is for KICKS for Q4? You had 3% growth in Q3, but obviously, as you listed, we don't have any comparison numbers. What is it the expected reality you've guided for the full year revenue?
Yes, I-
But we don't have any comparison numbers, so.
No, this is, this is not the time. We should, we should share the numbers, and then we can have that, that conversation.
Yeah, just... But we are completely in the dark whether you expect growth or you expect a decline in revenue or, you know, can you give some kind of indication on what's the expectation for Q4?
We guide for the total group, taking into account those five factors, you know, positive, positive demand signals from the market, a strategy that is working, 2 fewer trading days, a shift of logistics, and up against tough comps. And, and those five factors pooled together is the reason we guide the way we do.
Okay. Then maybe jump to, can you maybe comment a bit on how you did compare to competitors, in the various markets?
I can't and won't comment for market by market. And, you should know that we don't have, you know, super trustworthy market data, so everything about market share is a judgment call. You know, looking at how we monitor competitors, what we can gain of intelligence. So our sense is that we are definitely winning share online, and that overall we have sustained market share, or at least gained a bit of market share looking at the total market. So that's, that's as far as I can go.
Okay, that's fine. I'm aware of the lack of data. Then maybe coming to the margin question, as some of my business colleagues have alluded on. So maybe can you elaborate a bit on the incremental margin on the online business, as you alluded to in some of the additional variable cost in enhancing online orders? So assuming, let's say, if you comment on that from the physical stores, the incremental margins, I would assume it's around 40%, then what would the incremental margin be on the online?
Yeah. So we can't give you the full transparency, but it's a very different number from 40%, because you have all those variable elements. And they, of course, in our reporting, come into some of it comes into salary cost, which is the staff in our logistics facilities, and some of it comes into our other external costs. And we are trying to give as much transparency as we can in the report. And this is an area where we will increase transparency going forward. But again, I think it's also important to take into account what we're actually thinking and doing. This is about driving growth. It's about winning market share. It's about gaining customers. It's about educating customers to buy into the wider assortment. So this is not something happening to us.
This is something that we are actually actively pursuing. And of course, the two big investments that we're making in Rosersberg and the one MLC here, it is all about getting efficiencies and effectiveness in our online business to get those variable costs down. So that business case of building those facilities has just gotten better with the, with the, e-com growth that we're seeing. But right now, it's... And it's really simple, right? We just have to bring in more hands when online growth grows this much.
Yeah, I got it. But what you're saying is also that, you know, this incremental revenue and from the revenue upgrade guidance, that you're reinvesting, you could say, so to say, some of the margin expense into-
That is correct. That is a good summary.
A ccelerating some of these. Okay. And then maybe on the, you know, you've mentioned and you spoke about the disclosure. Have you decided on how you want to report going forward in terms of the degree of disclosure, both in how you want to, yeah, how you want to report and also the details of the disclosure?
And yes, we have decided, but we have not shared, and we will, of course, share that with the market in due time.
Okay. So will that be in connection with the, when you provide us the numbers, next week, on coming weeks, or will that be in the DMV?
No, we're gonna share the numbers, the historical, and offer educational sessions for-
Yeah
T o walk through those numbers, but it, it will be when we, when we give our forward-looking guidance.
Okay. Maybe another question on the margin. Can you comment a bit on how much margin is it, gross margin is it that you sacrifice when you do this investment in the project assortment expansion?
I can give you some flavor. So, if you look at Matas numbers for last year, if you look at Matas numbers, the original guidance for Matas, we said that we would be investing around one percentage point of margin into our growing Matas group strategy. And that, of course, is both marketing and gross margin. So I can't give you the exact gross margin amount because it will vary across categories. Some categories, the investment is in the gross margin. Other categories, it might be on the marketing spend or the logistics. So it is really a combination of many factors. But as we've talked about before, when you introduce a new category, it is margin dilutive.
That's just the way it is, because you just have to market more, promote more, and it tells you nothing about sort of the average margin structure of the new assortment. We are very mindful that our business is selling relatively high-margin stuff, so we are not looking into becoming a commodity, e-com player. We are looking into relatively high-margin stuff that fits with our customer proposition and, and what we think people will buy from us. Mother child is one example. Okay, of course, professional haircare is one example. Beauty, sorry, health products is another example.
Yeah. Perfect. Makes sense. Last question from my side, and maybe could you comment a bit on how the... Yeah, how is the performance on harvesting, especially the cost, and if you comment a bit on, you know, you starting to try to get some of the revenue synergies, but on the cost synergy side, how is that faring?
So we will update on the cost synergies at a later stage, but we are progressing according to our general plan. We are confident that the number we have shared with you on the improvements of DKK 40 million and the synergies of the deal of DKK 100 million fully phased in by 2025, 2026, that is confirmed. We are moving ahead according to plan across the work streams that we have. And of course, right now we are focusing on the cost synergies and haven't really, you know, added any revenue synergies into that perspective. I think that is a matter for our forward-looking strategy.
Okay, perfect. Thanks a lot.
Thank you, Christian. As no one else has lined up for questions, I'll hand it back to the speakers for any closing remarks.
Thank you so much for joining our Q3 earnings call. We will see you soon. Thank you, operator.