Good morning, everyone. I am Susanne Ehnbåge, CEO of Lindex Group, and I would like to warmly welcome you to our webcast, where we will walk through the key highlights of our January and June performance together with our CFO, Annelie Forsberg. Now, let's continue to the agenda. We will start with the second quarter business updates for our two divisions, Lindex and Stockmann, and then take a look at the financials more closely. We will finish with an update on our way forward, and after our presentation, we will have time for your questions. We can now move on to the next page, please. Let's begin with our business update for the Lindex Group, as well as the Lindex and Stockmann divisions. And here you have also the key messages for today. During the second quarter, the fashion market was challenging.
In June, we saw a clear decline in visitors in our stores, which affected the revenue and also the operating result. I'm pleased that the Stockmann division improved its result and increased revenue. This was due to both a successful Crazy Days campaign and also cost efficiency measures. In June, the Science Based Targets initiative approved Lindex Group's science-based climate targets, which is to reduce greenhouse gas emissions by 42% by 2030, compared to 2022, both in our own operations and also our value chain. And this validation encourages us to continue accelerating climate actions while growing our business profitably and also sustainably. During the second quarter, we reached yet another settlement agreement in our restructuring program, and at the moment, we only have one disputed claim left in the program.
Finally, I would like to state that our strategic assessment, where we aim to crystallize shareholder value by refocusing the group's business on Lindex, is still ongoing. The schedule remains the same as we have communicated, meaning we expect to finalize the assessment during this year. We can now move on to the next page, please. To sum up our Q2 revenue development, in April, the fashion market declined in two out of our three main markets, and in June, the drop was even worse. In May, the market developed positively. However, our revenue at Lindex Group developed well in both divisions in April and May. In June, we saw a clear decline in visitor numbers in our stores, especially in the Lindex division, which led to a decrease in revenue.
The Stockmann division's Crazy Days campaign contributed fully to the second quarter, while in 2023, the campaign was partly in the first quarter. Also, this spring's Crazy Days performed better than the previous year. Let's take then the next slide, please. Our adjusted operating result in Q2 was mainly impacted by planned growth investments. At Lindex Group, we are targeting to accelerate growth and also value creation. This means that we have currently, are planning also for high cost for marketing and digital development to enable future growth. The challenging market situation in June had a negative impact on revenue and also the adjusted operating result. I'm pleased that the Stockmann division improved its adjusted operating result month by month compared to the previous year. Next, slide, please.
During the quarter, Lindex division continued its expansion with marketplaces, and we have added four new markets on Zalando, and we are now selling on Zalando marketplaces in seven markets. During the spring, we have also broadening the offer on Zalando and added Closely and Female Engineering assortment, reaching new markets and customers. We're also happy to have launched a selection of Lindex Kidswear assortment in Stockmann department stores and online. In addition to the range of closer products, this is also a good example of capturing the synergies for the Lindex, the group. Our crucial investments for continued global, digital, and sustainable growth are progressing at full speed, just as our digital transformation to increase customer satisfaction, efficiency, and sales. We're currently working intensively with implementing our new omni-channel distribution center and also our digital store program to future-proof all of our stores.
The rollout of the RFID in all of our stores is completed during Q2, and the implementation of our new POS system is also proceeding well. We have continued our transformation into a more sustainable business and taken further steps in our circular transformation. Our investments in raw materials from recycled textiles is one of several important steps to a circular assortment. Currently, 84% of our garments are made from recycled or more sustainable resources, and our goal is to reach 100% by 2026. Let's then take a look at the Stockmann division. As said, Stockmann improved its performance throughout the quarter, and as earlier mentioned, the performance of the Stockmann's Crazy Days campaign improved both from the previous year, both in stores and online, as well in terms of revenue and operating result.
As the campaign was held in April, it contributed to the Q2 revenue and also the result. Stockmann's cost saving measures were continued, and the operating costs were down by EUR 1 million. In addition, investments in operational efficiencies improvement were made. An example is the new data-driven staff planning solution that was implemented to further enhance operational efficiency. During the quarter, the Stockmann division started implementing its revised organizational structure, which also supports the efficient strategy implementations. The changes will improve efficiency and simplify management structures, as well as clarify roles and responsibilities. This has affected the part of the Stockmann division's personnel in all three operating countries. The new organization is valid from the 1st of July 2024 and onwards, and the changes are estimated to generate annual savings of EUR 2.7 million, materializing from 2025 and onwards.
Leveraging loyal customer base is one of Stockmann's strategic must-win areas. The amount of Stockmann's active and new loyal customers continue to grow, and share of revenue from loyal customers increased. Customers' communication was further enhanced through personalization and data-driven marketing automation. As an example, personalized product recommendations have been launched. In line with its strategy, Stockmann continues to elevate its offering towards premium and luxury. As an example of this, we can mention the launch of the Mulberry brand in the Helsinki flagship store, introduction of premium and luxury sunglasses in most Finnish Stockmann stores through a concession partner, Synsam, and the niche perfume concession partner, Crème de la Crème, launched in Latvia. We can now go to the next slide, please. Due to the volatility of the fashion market, we have updated the Lindex Group's guidance for revenue.
The 2024 guidance regarding the development of adjusted operating results remained unchanged. We expect the revenue in local currencies to be in the range of -2% to +2% compared to 2023. The group's adjusted operating result is estimated to be between EUR 70-90 million. Now I would like to hand over to my colleague, Annelie, for the financial update.
Thank you, Susanne. And yes, and thank you, Susanne. And I will now walk you through the key financials of Lindex Group's second quarter and half year results. We can go to next page, please. Starting here with Lindex division then, in the second quarter, Lindex division experienced mixed results. Our revenue performed well in April and May, but we saw a decline in June due to fewer visitors to our stores. This affected our ability to match last year's strong results and sales record for that quarter. Despite the challenges in physical stores, our digital sales continued to grow, showing a 0.8% increase in local currencies for this quarter. Lindex gross margin rose to 67.5%, primarily due to lower share of promotional sales. This improvement helped mitigate the impact of higher freight costs experienced throughout the year.
In line with our strategic plan for future growth, our operating costs increased, mainly due to higher investments in marketing and digital development. The combination of the June revenue drop and higher operating costs led to an adjusted operating result of EUR 30.8 million. Next, let's review the performance of Stockmann division on next slide, then please. Here we saw encouraging results this quarter. The timing of Crazy Days campaign significantly boosted both revenue and adjusted operating results. Even excluding the effects of this campaign, our results were good. The gross margin for the Stockmann division decreased to 44.4%, primarily due to the Crazy Days promotions. Our successful cost-saving measures led to improvements in the adjusted operating result across all months of the quarter. Now, we can move on to the group figures on next page, please.
Here is a detailed breakdown of the divisions-level changes and their impact on the group's revenue and adjusted operating result during the quarter. For Lindex division, the revenue declined by EUR 6.5 million, fully due to the challenging market situation in June. For Stockmann division, the revenue increased by EUR 6.1 million, driven by the successful Crazy Days campaign. The adjusted operating result declined by EUR 2.1 million for the group. This decline was primarily due to the challenging market conditions and planned increases in costs related to growth initiatives. Stockmann's improved result helped mitigate part of the overall decline. Then turning to next slide, please. In this slide, we can see that the drop in revenue for quarter two was 0.2%.
Operating result totaled EUR 20.3 million, and net result declined to EUR 7 million due to restructuring costs, where disputes have been settled... The group's gross margin was on par with the comparison period at 60%. Earnings per share declined to EUR 0.04, primarily due to the lower net result. Then let's proceed to the next page, please. For the first six months of the year, the group experienced a 1.3% drop in revenue and a lower result of EUR 6.2 million. The revenue for Lindex division grew until May, but the decline in June impacted the total revenue for the full year - for the half year. This also meant that the adjusted operating result decreased due to the lower revenue and planned strategic cost increases.
Stockmann division saw a general decline in fashion sales, consistent with the market trend, but encouraging is that the Adjusted Operating Result improved by EUR 0.5 million due to cost savings. Go into next slide then, please. Here we show the profitability of the divisions as rolling 12-month results. Here, it's evident that Lindex profitability has improved significantly during the years. It's also important to note that the currency has had a negative impact on Lindex reporting figures during the latest years due to the weak SEK and NOK. Stockmann has improved greatly compared to 2020 and 2021, although still reports negative numbers. It's worth mentioning that the timing of the Crazy Days event has influenced these figures, especially for quarter 3, 2023, and quarter 1, 2024. Then we can turn to next page, please.
The group's Operating Free Cash Flow dropped during the first 6 months compared to previous year. Main reason was the higher accounts payables and temporary accruals in the comparison period. Also, a lower result, together with increased lease payments, impacted the cash flow. Stock was at the comparison level and was at the balance level as well. For Lindex division, the longer lead times due to logistic challenges increased the value for goods in transit. Meanwhile, Stockmann division decreased the stock. The group's Capital Expenditure totaled EUR 16.9 million, and it was mainly used for digitalization projects in both divisions. The comparison period included higher investment for the Lindex new distribution center. By the end of June, EUR 85 million of the total investments of EUR 110 million has been paid. Let's take a closer look at the cash position on next page.
Here you can see the changes in cash position per item from the beginning of the year to the end of the half year, and also for the comparison period. Cash totaled EUR 137.5 million at the beginning of the year and EUR 103.1 million at the end of June. Adjusted EBITDA was below comparison period, and the changes in net working capital impacted negatively due to lower accruals and account payables in end of June. Lease payments were higher, but investments, including OCDC, was lower, and together with lower tax payments, the changes in cash position were at the same level as previous year. If we turn to next page, here, it's illustrated how Lindex Group financial position has improved during latest years.
Excluding IFRS 16 items, the group has a positive cash position at EUR 30 million end of June. Equity ratio improved further and reached 60.5% when excluding IFRS 16 and 28.6% including it. The lease liabilities increased to EUR 640 million, explained by prolonged lease agreements together with higher interest rates. The interest-bearing liability consists of a bond which increased to EUR 73.1 million due to a settlement of the restructuring disputes. As a summary in next slide, here, I would like to show the highlight for three topics in our financial performance. Firstly, on group level, our revenue and gross margin remained on par with the comparison period, despite the challenging market situation in June. Secondly, at the Lindex division, the volatile fashion market development affected our revenue.
After a good start in April and May, we saw a decline in June. As a third point, I'd like to highlight that Stockmann performed well and improved its Adjusted Operating Result in every month of the quarter. Now, I'd like to hand back over to Susanne again.
Thank you, Annelie. Let's now go into our way forward and the next slide, please. We are consistently implementing our strategy, which we launched last autumn. We have built a strong foundation and with a clear strategy going forward with high set goals. We're focusing on accelerating our growth while continuing our transformation into a more sustainable business and improve the scalability and efficiency of our business. Let's now take a closer look at our strategic progress this year on the next page. As I had mentioned earlier this year, 2024 is a year with many important launches and where we will deliver essential strategic initiatives for fulfilling our growth and also our profitability plan. To accelerate our global growth efficiently with a multi-channel setup, a crucial step is bringing our new omni-channel distribution center into operation.
The establishment is progressing as planned, and right now, we're testing our new facility in Alingsås. Our planned start-up operations is during Q4. We will continue to invest in enabling future growth. This means higher cost levels for this year, but at the same time, we have a strong focus on cost efficiency and mitigation, mitigating the cost increases. We will further strengthen our foundation for efficiency, flexibility, and innovation while continuing to implement our digital store program. We will also continue improving our efficiency by digitalizing our supply chain, with a primary focus on enhancing supplier collaboration and 3D design to increase flexibility, and also to reduce lead times. To accelerate growth, we will focus on scaling up and drive growth with our e-commerce and on global fashion platforms, as well as expanding through new sales channels.
We aim to grow in both existing and new markets with our strong and differentiated offering. We will continue our transformation into a more sustainable business, exploring new business opportunities and also circular business models. Creating sustainable growth and further developing our offer with the customer's needs in focus, are essential to our journey ahead, and where our ongoing investments are critical enablers. Then, if we take a look at the Stockmann division's strategy, our key targets is to ensure profitability and future growth. While building the base with operational efficiency, we are elevating, offering, growing, and leveraging loyal customer base, and ensuring a seamless omni-channel experience. All these contributes to both profitability and growth. Looking at the next slide, when it comes to the Stockmann division's way forward, we pay a special attention to improvement of the operational efficiency, supporting profitability development.
And at the same time, we always have the customer in focus. In the area of operational efficiency improvement, we have a lot of good work ongoing. That is to be continued, and we have identified potential for further improvements. As an example of digitalization and leveraging available technology, RFID will be taken into a wider use at Stockmann. We'll also continue piloting AI-assisted processes, and we see that further supply chain digitalization, as well as process automation, will offer opportunities for efficiency improvement. When it comes to improving organizational efficiency, as I told you earlier, about Stockmann's revised organizational structure, that became effective on the first of July. The new structure supports both the strategy implementation and also improves the process efficiency.
We will also deepen our collaborations with our suppliers and continue expanding our revenue streams with concession partners and tenants offering services and experiences to our customers. On top of operational efficiency improvements, Stockmann continues to focus on growing and leveraging its unique and loyal customer base. We create growth and efficiency by developing customer communication and engagement by utilizing marketing automation, enhanced data, and AI-assisted processes. We can now move on to your questions. Please, we're happy to take your to answer your questions now.
Okay, we have several questions related to the market decline and our revenue development, so we can combine some of them here. So first of all, could you please elaborate on the revenue analysis conducted that led to the conclusion that the revenue decline in June was a result of a drop across the entire fashion market? And then, I continue, there are then similar questions. Please outline how much the fashion market declined in June versus how much Lindex declined in June, so market versus Lindex performance. And then, there was also a question about that, on which month did the most significant revenue drop happen, and why do you see Lindex lost market share, especially in Sweden, in Q2, all the marketing expenses were on an elevated level?
All right, let's see if I can try to answer those then. So, regarding the revenue decline in June, we can see that we have some market figures, and the preliminary market data for fashion market shows a decline in our key markets for June. We have data from Finland that the fashion market declined with approximately 11% in June. We have that the decline in Sweden was somewhat less according to HUI data. It was -5%, and we have also data from Swedbank. Unfortunately, not yet for the full month, saying that -10%. So that is not capturing the full month. So still, unfortunately, we are waiting for some data, and also that some of these data then are preliminary.
But we can say overall, it was a significant drop across the fashion market and the market that we are then at. And when it was regarding the marketing expenses for Lindex, that was also mentioned in a question. Of course, we are investing in both marketing that is related to the current month, but during this quarter, we are also have invested in marketing that will be used for long-term use. That is, for example, production. It's also related to Female Engineering, where we see a very positive growth, which is then the newest brand for Lindex. So I do hope that this explained a little bit the questions that we received here.
Thank you, Susanne. And then we continue a bit on market development, and here's a question actually, which is referring already to the month of July. So going into July, how have Lindex's markets performed so far after the market weakness in June?
Related to the external market data, of course, we don't have that yet for July, and it's too early to comment. I would say the July figures for Lindex, that we can do for July, August, and September in the Q3 report. But as we have stated in our plan for the full year, since we are now a bit minus compared to the previous year for the first six months, we are expected to increase our revenue for the coming six months.
Yes. We continue with questions, then, to Susanne. Is there any update on the timing of disclosing the outcomes of the strategic review for the Stockmann department stores?
Unfortunately, I have no news on that one. It's the same that I've answered before, that the strategic assessment is ongoing, and as communicated, we expect the assessments to be finalized during this year.
Mm.
That answer still stands.
Yes. And then there is a question that links to the same topics, but then relating also or related to the restructuring program. So is the strategic assessment of department stores set to be completed only after the restructuring program has finished, or can we expect news on that field also before we would have finalized the restructuring and the last open case?
Yeah. Yeah, and I think my answer will be the same, that we cannot comment that this further, but we plan to come back during the, this year-
Mm
with more answers on these topics.
Yes. And we have some questions regarding the distribution center. I will just double-check if there are... Yes, there are two questions. So could you give any color on the state of the new logistics center and possible schedule of a sale and leaseback?
Mm.
Mm.
Yes, and as I said during the presentation, we are right now testing the new distribution center, also with physical goods. So it's a lot about testing at the moment, and it will be taken into use during the Q4 of this year. And then the full use will be done in 2025, and we have not made any decision on possible sales and leaseback at this time, but different options will be evaluated further ahead.
Yes, thank you. And then another question regarding the distribution center. The rate of investment in the new Lindex omni-channel distribution center seems to have slowed down over the last three consecutive quarters. Please elaborate on which, on why this is the case.
Well, it has to do with that currently, we have invested EUR 85 million into the new distribution center. We have mentioned that the total investment will be approximately EUR 110 million. And for the time being, the building and the automations are in place. So I think now we are more entering the more the critical phase of testing, which means that most of the heavy investments then are already taken.
Yes. Okay. Then we go over to, here we have a question about, Stockmann division and, lease agreements. So please elaborate on what is meant by the prolonged lease agreements for some department stores.
Mm-hmm.
The question relates then to the sentence in the report.
Yes, yes. Yes, and we have extended the contracts for Tampere and Turku. Considering the central and strategic location of both these department stores, we have extended the lease agreements, also enabling us to proactively develop both locations. And this has also been some rent indexations that impacts the lease liabilities.
Okay. We can continue with Annelie maybe regarding Lindex inventory days. Please explain how Lindex inventory days developed during Q1 and Q2 in response to the global freight situation mentioned.
Yeah, the global freight situation is. It's a bit tricky at the moment. It means longer lead time, and for Lindex, this impact the stock. We have approximately one extra week that takes us to get our goods from Asia, from previous year.
... Yes, and then we continue with questions to Annelie regarding OpEx. Whether OpEx in Q2 was an abnormally high level, or can we expect marketing and digitalization expenses to be higher also in the future? Or Susanne, who-
Mm-hmm. Well, as our strategy is to expand and grow, we will continue having costs for future growth also as going forward. But that being said, this shall not risk us to not meet our guidance.
And we continue still a bit with Annelie. Please outline what is the EUR impact of increased freight prices during Q1, and clarify whether mitigation in Q2 means the EUR impact was it nil during Q2, or how was that mitigation-
The euro-
Realized?
Yeah, the euro impact didn't affect the group's figure for this quarter. It was on approximately the same level as previous year. So, and that also. Yeah, I think I can end with that. Of the euro.
Yes, thank you, Annelie. Then we have regarding the synergies between the Lindex division and the Stockmann division, and the launch of kidswear in the Stockmann department store. So there's a question: Why does the report talk about these synergies between the divisions, Lindex clothes being sold at Stockmann, if the best way to create shareholder value is to divest the department store business? Is this a hint about the future?
Shall I take that one then, maybe? I think this is just a good way where we can expand and sell Lindex offering in more places, with together now with the Stockmann division. So that's how we view it, reaching more customers together with Stockmann division.
Yes. Then, we have the costs related to restructuring program. So could you please elaborate, a bit on what the higher costs related to restructuring program were, and other disputes related to during the quarter? And could you also explain how much is expected to reoccur, going forward?
Should I or Annelie take this one?
Yeah, yeah. Please go ahead.
Okay. The costs related to the restructuring program and other disputes are reported as items affecting comparability, and in Q2, they were EUR 7.7 million. And we only have, as we explained now in the presentation, one disputed claim in our restructuring program, and we have ongoing discussions here, but we cannot speculate with the possible outcome, and then how much that will then impact potentially in the quarters to come.
Thank you, Susanne. And then we still have one result-related question. So in Lindex segment, the sales were down, yet the gross margin improved to a very high level, impacted by less campaigns. Was this a decision to focus on more margins than supporting sales with campaigns? And is there a need for high amount of price campaigns, markdowns in July, given the weak June?
Yes. First of all, we are happy to see that our gross margin improved. Here we have to bear in mind that we have seen, as we also got a question about, that the prices for shipping has increased, but we were able to mitigate this. However, I'm not satisfied with the revenue outcome for June, and, for sure, we want to improve profitability, and that is to both have a focus on increasing the revenue, but still have in mind to have a strong gross margin. I know that this is might not be a super clear answer, but I think we will have focus on both of these topics for the months to come to improve the revenue and the gross profit.
Thank you, Susanne. Then we have a question regarding Stockmann and Stockmann's loyal customers. So Stockmann quotes often that it has 1.4 million loyal customer base, and today we heard the amount of active loyal customers has increased further. What is the number of active loyal customers, and how is that defined?
Mm-hmm. Yes, so the 1.4 million loyal customer base includes then all of our loyal customers, and when we're speaking about active loyal customers, we mean registered customers that have made a purchase during the last three years, and these customers have been around 0.8 million customers. Then to be super clear here, what is what.
Mm.
I hope that was then answering the question.
Yes. Thank you. These were, at the moment, the, all the questions what we have received, during the webcast. Is there still anyone who would like to pose a question to Susanne or Annelie? No, we don't seem to have any further questions, so let's then move on and hand over to Susanne.
Thank you, Magda. Thank you all for your good questions this time. Please be in touch with our investor relations via email if something comes up later, and we can then just mention here that at this point also, I would like to thank Annelie for a great job working as the CFO of Lindex Group. This was also then her last result webcast together with us, and we will next time meet in late October with the Q3 results. Our newly appointed CFO, Henrik Henriksson, will also be joining us. But for now, I wish you a wonderful summer, and we will meet again in the autumn. Thank you so much for listening in.