Earnings Call: Q1 2021

Apr 30, 2021

Good morning, and welcome to our first quarter results review. Stockmann Group improved our adjusted results despite very strict COVID restrictions during this quarter. When we look at the Q1 results, the group revenue was EUR 156 million, and it was down by 7.1%. Gross margin up in Lindex, but down in Stockmann. Operating result increased in Lindex and declined in Stockmann. When we look at the group margin, it was 56.3% versus the previous year, 54.2%. Lindex revenue was down only by 0.7% and reached almost EUR 100 million. Growth in the online sales was 193.4%. Operating costs were at the previous year's level, and the operating result increased by EUR 2 million to EUR -13.2 million. Adjusted operating result increased by EUR 7.5 million, leading to the operating result of EUR -7.7 million. When we look at the Stockmann division, the revenue was down by 17.4%, leading to almost EUR 57 million. The growth in the online sales was 53%. Depreciations was EUR 7.2 million compared to last year, EUR 12.5 million, so down by EUR 5.3 million. The operating result was EUR -12.1 million. Our cash flow was strong, 115.4% versus previous year, 42.9%. Now I will move into the Stockmann division and look more closely at the Stockmann side. This picture is illustrating the rapidly changing operating environment we have been facing during the COVID time. If we look at the Q1 2020, we need to keep in mind that January and February were still normal business environment. As you can see, mid-March, the business collapsed completely. Ever since, we've been seeing rapidly changing environment, like a rollercoaster, during this year. If we look now Q1, where we've been facing COVID throughout the Q1, the Q1 was down by -17.4%. If we compare Q1 2020, that time Stockmann division revenue was down by 25%, almost 26%. It is also important to remember that during the Q1 2021, Riga has been in a lockdown mode almost from November onwards, and only last couple of weeks ago, Riga department store was opened. Our Tallinn department store has been in lockdown the whole March month, and the opening of our department store will happen next week. The total revenue was down by 17.4%, and the brick-and-mortar was affected due to the lack of visitors, and in Baltics, due to the lockdown. Our online share revenue increased by 53%, and the share of online was 23.7% versus the previous year, 13.2%. If you look at the Stockmann division performance, the revenue was down EUR 12 million, and sales declined due to the ongoing COVID situation. Growth in the online was 53%, and if we compare with 2019, the online growth has been 172%. The share of online was almost 24% versus the previous year, we had 13.2%. Gross margin was down EUR 6.6 million. If we look more closely, the relative gross margin from merchandise revenue declined due to the COVID, and price campaign was 34.1%, leading to EUR 17.2 million, and the previous year it was 35%, EUR 21 million. The margin affected was from the other revenue. That was EUR 6.5 million, and last year it was EUR 9.4 million. The decline is mostly due to the termination of sublease agreements in 2020 in relation to our company restructuring proceedings. Because of these proceedings, we were able to then negotiate our lease agreements, and that leading to our depreciation being now EUR 7.2 million versus the previous year, EUR 12.5 million, and down by EUR 5.3 million. So the operating result for Stockmann division was -12.1. So if the top-line revenue declined EUR 12 million, our results were only down by EUR 1.5 million. The key highlights during the Q1 2021 for Stockmann, as we all know, the Helsinki District Court approved the restructuring program, and the restructuring proceeding have ended. We faced a strong digital growth and customer satisfaction. Home category performed exceptionally well during this quarter, and the increase is 9% versus previous year. We were also able to handle our stock levels by -14% versus the previous year. Our Crazy Days campaign this year was only 8 days compared to last year when we had a 2 weeks campaign, and it was in March. The increase in this Crazy Days campaign versus the previous year was 8%. Due to the lockdown situation, we faced in Baltics a strong growth in Crazy Days, where it was almost 150% growth versus the previous year. We have also been listening to our customers, and we've been working with MyStockmann loyal customer program and members. We can see that during the Q1 2021, our revenue and visitors have increased in all age groups. We introduced our Stockmann Magazine, which was a hope or wish from our customers. Now as we measured the results, 92% of the customers were really satisfied. Customer centricity is key in everything we do. We have also introduced new artificial intelligence in terms of understanding better our customers, and now we have implemented an emotional experience. We measure customer feedback in every channel, in every contact point when the customer is in contact with Stockmann. Now, if we look at Stockmann way forward, focus on digital development and customer experience is key, and we will be strengthening our omni-channel setup. The sale and leaseback process of our department store in Helsinki, Tallinn, and Riga is proceeding as planned. We have renovated our Jumbo department store, and Tampere is almost ready. We also told last week that we will improve our restaurant and cafe offering at Helsinki flagship, and Chef Mikael Björklund will open a Barbecue Royale restaurant and Café Royale during the May month. We also took a step forward secondhand shop, and we are happy to announce that Relove is opening a restaurant and a shop in Helsinki flagship. Of course, we continue improving our execution capabilities for the chosen strategic priorities. Now I would like to hand over to Susanne. Susanne? Thanks a lot, Jari, and hi, everyone. The first quarter, if you take the next page, Jari, was again affected by the local restrictions, where up to 114 stores were closed. If we compare this quarter to the previous year, we had no closed stores in the beginning of the quarter in January and February, but in March, 92 stores were closed the previous year. This meant that our total sales in the first quarter decreased with 1.8% in comparable currency rates versus 2020. However, despite the situation of having more closed stores than the previous year, we managed to increase our sales in March. This shows that we have successfully handled the situation thanks to many effective actions. Our total digital sales in Q1 almost tripled compared to 2020, and compared to 2019, it more than quadrupled. If we then take a look at the financial performance on the next page, our revenue was EUR 98.7 million, which is a decrease of 0.7% or 1.8% in comparable currency rates. The strong online sales did almost compensate for the loss of sales in brick-and-mortar, and our online sales stands now for a share of 28.7%. This means that our total digital sales amount to EUR 100 million, during the latest 12 months. We continued to have a better sales development than the market for all of our Nordic sales countries. Our gross margin increased to 64.7% due to better intake margins, successful stock handling, and also a lower US dollar. Our operating result is in line with the previous year when we take into account the adjustment of EUR 5.4 million concerning an agreement for two stores in the U.K. where we had the possibility to end the existing leasing contracts earlier. The U.K. is an important market for Lindex, mainly driven by e-commerce, but we see that our physical format in the U.K. will look different in the future, and we are therefore investigating new possibilities and solutions going forward. Our operating result amounted to minus EUR 13.2 million and our adjusted operating result was minus EUR 7.7 million. We improved our adjusted operating result by almost 50% compared to previous year and 30% compared to 2019. If we then take a look into our highlights for the quarter, we can see that our actions was well-received. We succeeded in meeting a very strong digital growth, both in our own channels and also in collaborations with partners. Our own e-commerce increased by 171% compared to 2020, and our sales with external online partners increased by 460% compared to 2020. Kidswear was our strongest business area and increased by 30% compared to previous year, and our more sustainable baby assortment continued its successful sales growth. We had a lower stock with high share of new products despite the corona situation, and during the first quarter, we have had some inbound delays due to the global sourcing and freight situation, although we have managed to handle the situation in a sufficient way. During the spring, we had two strong brand-building campaigns. We had one underwear campaign celebrating women's differences and also a new baby film with a core message with the future in mind. We also launched a new inclusive activewear, where we will see more drops of this one going forward. We also released our sustainability report for 2020, which describes our goals, progress, and challenges, including how we handled the pandemic. We faced unprecedented challenges across the entire operation while simultaneously working to protect the health and wellbeing of our employees and the people in our global value chain. By these learnings, the growth and the struggles we have faced, I believe we as Lindex are emerging with an even stronger sense of who we are as a company, what we stand for, and which direction we want to lead the industry. Taking a look then forward here, our action to create a strong and resilient Lindex have been successful, and we will continue our focus and way forward according to our plan. We will continue our global and digital development and strengthening our omni-channel setup. We have successful collaboration with fashion marketplaces and will grow and develop our collaboration as well as optimize potential in our own e-commerce. Besides growth, we have a cost focus together with creating flexibility. We will do that by proceeding with our cost reduction program and also have an agile approach in everything we do. Exploring more sustainable and innovative business models is an important part of our sustainability promise and our journey ahead. Our pilot with Lindex second hand is an example and one step for us to work to prolong the lifetime of our products and use our resources in the smartest possible way. We have gathered many great learnings from our test last autumn, and we are now collecting as many garments as possible with the aim to scale it up. Our next step is to prepare for selling Lindex second hand garments later this year in selected stores in Sweden. Today, 74% of our garments are made from more sustainable material, example, organic cotton or recycled polyester. Our aim is to increase this share rapidly within the coming years. We will, of course, continue optimizing our inspiring offer based on customer insights and needs. This means that we will continue to develop and growing our online editions, which we see are successful today. We are also exploring new innovations which we will introduce and continue develop cross-functional collections based on our strengths. This is an example on the next page where we can see our extended and new strong customer offerings developed through co-creating and cross-functional design and purchasing team, enabling increased cross-selling. We have our successful Mini me collections, both kidswear and womenswear. Added to this, we have the maternity clothes and sportswear where we are using also our lingerie strength for tops, loungewear and swimwear, a co-creation between womenswear and lingerie. We also have Closely, our new underwear and sports brand. To summarize, I'm really proud of how we have managed to stand strong in the pandemic. Our positive development shows that our actions and efforts have had a successful effect and where everyone's great flexibility, contribution, and commitment have been key. I'm humbled that it's continued uncertain time, but we see a positive trend where we have gone from a situation of having almost 114 stores closed in March, to be able to reopen more than 60 stores now during April. Looking ahead, I'm convinced that we, as Lindex, with our flexibility, speed, and amazing commitment of all employees, will continue to stand strong and well-positioned for the future. By that, I would like to thank for listening and also hand over to Pekka. Thank you, Susanne, and a very welcome from my behalf as well. In our business, Q1 2021, due to seasonality, is always the weakest of the quarters. As you can see from the graph on the right, our quarterly operating result is always loss-making during the first quarter, and our performance is improving during the following quarters due to the fact that first quarter, our top line is low and due to seasonality, the top line is improving during the following quarters. But now to the first quarter this year, our revenue was EUR 156 million, down EUR 12 million. Our gross margin improved, consolidated by nearly 2 percentage points up to 56.3%. Thanks very much of Lindex's good performance. Our depreciations at the group level went down by EUR 8 million. Like Jari explained in Stockmann division, that is very much due to the fact that during the restructuring proceedings, Stockmann division renegotiated the lease agreements. As we are reporting our figures according to IFRS 16, the decline in lease expenses is visible mainly in the depreciation line. For those who are willing to discuss more deeply IFRS 16, I'd be willing to take that offline. But at this point, this is the main message. Our adjusted operating result improved by EUR 6 million and was loss-making EUR 21 million. We had, at group level, items affecting comparability EUR 6.5 million, EUR 5.4 million of that is coming from Lindex UK, like Susanne explained, and EUR 1.1 million is coming from Stockmann division due to the restructuring proceedings. Moving on to key figures, starting with the balance sheet total, that was nearly EUR 1.4 billion, down from last year's first quarter by EUR 300 million. Big decline is coming from the lease liabilities, which were more than half a billion euros a year ago. Now they are EUR 336 million. That as well is due to the fact that we renegotiated the lease agreements during the restructuring proceedings. Our inventories were clearly below last year's level and due to seasonality, they were higher than the end of the year. Our cash was a strong EUR 115 million, very much above what it was year before, and due to seasonality, slightly lower than it was in the end of the year. Our net result for the period was negative EUR 30 million, and when it a year ago was EUR 35 million. Then adjusted operating result, as discussed already earlier, improved and was a negative 21%. Moving on to next page, our guidance and outlook for 2021 is unchanged. As COVID still is impacting our business, we will provide new guidance when the market visibility improves. The market outlook is unchanged. To sum up, during this year, Stockmann division will continue to execute the restructuring program and Lindex will drive efficiencies and explore new growth opportunities like Susanne already explained. With these words, I think we are happy to take Q&A. Yes, please. Now we are ready for your questions. There are no pending questions so far, but let's wait for someone to come. The message was crystal clear. Yes. So it seems. So far, no questions, so just please ask if you want to know something more. Okay. If no questions, then we would like to thank you for participating this meeting. We wish you all a very good 1st of May celebrations tonight and tomorrow. Let's keep the COVID restrictions still in mind how do we proceed. Both Lindex and Stockmann welcomes you to do shopping with us. We are ready to serve you whenever. Thank you.