Good afternoon, ladies and gentlemen, and welcome to Marimekko's Q3 webcast. My name is Anna Tuaminen. I'm the IRO of Marimekko. And with me today, we have our President and CEO, Tina Alahutta Kasko and our CFO, Erina Ankar. We will first hear Tina's presentation about the results.
And after that, we'll have time for your questions. You can type in your questions already during the presentation on the webcast side. Tina, go ahead.
Thank you,
Anna Maria,
and good afternoon, everyone. And it's my pleasure today to open up Marameco's performance in the Q3 of the year. So getting started, looking at the big picture, the Q3 of Marameco was a good one despite the challenging circumstances as the coronavirus pandemic continued to heavily impact the fashion industry and specialty retail sector all over the world. Thanks to a good trend in wholesale sales and prompt adjustment measures, we were able to increase our net sales and improve our results in this challenging operating environment. At the same time, while the pandemic impacted our customer numbers in stores in the Q3 as well, our continued strong online sales supported our retail sales.
Overall, the rapid adjustment measures and an increase in net sales improved our Q3 results. Our fixed costs were also reduced by subsidies granted in various countries to mitigate the negative business impacts of the coronavirus pandemic. We can also see that in managing this exceptional crisis, in addition to us having a really topical relevant brand gaining further gaining interest in its international attractiveness paired with our ability to react swiftly in this exceptional circumstance. Also amongst our strengths in this situation has been our comprehensive lifestyle range of products as well as our diverse business and distribution channel model. Further, within the past months, in order for us to respond better to the requirements conduct a consolidated negotiations in Finland as well as corresponding processes in our organizations in Scandinavia, North America and Australia in order to reorganize and streamline our operations.
However, now we have a new, even more customer centric organization based on omni channel thinking and we're convinced that this organization will improve our operating capabilities in this highly transforming market. And then when looking into more in detail in the performance with regards to our net sales and operating profit in the first in the third quarter. So in the third quarter, our net sales grew by 10%, driven especially by wholesale sales in Finland and EMEA. In total, our wholesale sales increased up to 37%. And especially in Finland, we saw tremendous growth of 66% during this period under review.
In Finland, the strong wholesale sales were also supported to parts with non recurring promotional deliveries. And as said, while the pandemic still heavily impacted in the form of decreasing footfall into the physical stores, At the same time, our retail sales actually ended up declining only moderately, namely 5% on a global level, due to the continued strong performance in online sales as well as total retail sales in Finland remaining on par with the comparison period, which is a great accomplishment in this highly challenging environment. What is good to also note is that the retail sales figures also include about €1,000,000 in sales, which were left unrecognized as revenue in the Q2 of the year due to the logistic challenges posed by the pandemic situation. And then when we look at the performance in the January, September period, our net sales in the end declined only 5%, but were definitely the decline was due to the impacts of the coronavirus pandemic. But the decline in the net sales was offset to at least a good degree via the booming online sales and the strong trend in the Finnish wholesale sales that was partly also supported by the non recurring promotional deliveries.
Naturally, during when we look at the full year, the 1st 9 months, the temporary closure of stores and significant decline in the customer numbers caused by the pandemic did indeed have a clear effect on the retail sales. And therefore, the when we look at the group's net sales, the decline was attributable especially to the decreased retail sales in Finland and North America as well as a decrease in the wholesale sales in the Asia Pacific region. However, what is good to remark that actually in the Asia Pacific region, we also have an exceptional delivery pattern in the comparison period, which had a negative impact on the wholesale sales development compared to the comparison period. But overall, I would say, really strong performance in this highly exceptional circumstance. And then when we look at the split between the different key markets net sales split between the different markets, no major changes within the past 9 months.
However, when we look at the breakdown of net sales by product line, we see a we have seen a tremendous increase in our home products, especially now in the Q3. And that is very sort of logical understanding that the pandemic has sort of expedited the increasing interest of consumers towards home decoration. And again, this is a great indicator of the strength of the Marameco lifestyle business model that we're able to cater our customers also in this new situation. Also, what is even more evident in our current fashion collection is this sort of casual and relaxed feel look and feel, And that is definitely something that has appealed to consumers around the world, and we can see that content of the collection is supporting our performance also in the ready to wear line. And when we look at our global footprint, so in the 1st 9 months of the year, 57% of the modern Eco Stores and shopping shops are located outside of our home market, Finland.
And we have a total of 151 Marameco stores in 15 countries, while e commerce serves our customers in 32 countries. Our brand sales increased in the 1st 9 months by 18%. And in Q3, around 62% of our brand sales came out of our home market. And we can definitely, when we look at the 1st 9 months performance of the brand sales, which consists of the estimated sales of the Maremeco products at consumer prices, we can see a nice uptick in the brand sales, especially in Asia Pacific region, which is our 2nd biggest market area. Then when we look at our operating profit, so as said, thanks to the prompt adjustment measures and increased wholesale sales, we were able to strengthen our operating profit from €7,800,000 in the previous year or in the corresponding period previous year to €10,500,000 The earnings, as said, were boosted by a considerable decrease in fixed costs due to the adjusted operations and the decreased fixed costs were also supported by the subsidies granted in various countries to Maremeco to mitigate the negative business impacts of the coronavirus pandemic that we've been confronted by this year.
A decline, however, in the relative margin had a weakening impact on the result, and this was due to the largely this was due to the higher logistic costs attributable to the increased online sales. And when we look at the year to date, so the 1st 9 months, so of course, we're very proud of the fact that we were able to strengthen our profitability in these challenging circumstances. Our operating profit increasing to EUR 14,400,000. It's pretty much more or less the same drivers behind. So naturally, the earnings were boosted by the considerable decrease in our fixed cost, thanks to the prompt adjustment measures that we've been agilely taking starting from the beginning of the year.
However, we did see a decline in our relative sales margin, again, mainly due to the higher logistic costs, resulting from the increase in online sales as well as reduced net sales had a weakening impact on the results. Then looking into some of the key events in the Q3. So very exciting was that actually in the early fall, we gave the first sneak peek to next year to the 2021 collections of Marameco. And the 2021 year marks quite a special year for Marameco because it is our 70th anniversary year. So, we sort of gave a little teaser on our collections in this anniversary year by organizing a digital presentation of our pre spring 2021 collections at the Copenhagen Fashion Week, which currently is considered as one of the top for our in global fashion events.
This digital presentation was filmed here at the Marameco house at our textile printing factory, really celebrating our key differentiating point, our unique art of printmaking. And this digital format really allows us a great opportunity not only to talk and present our collections to our industry media and other professionals, but also to our consumer audience. And this way, further strengthen our important values of inclusivity and equality. What was also quite a fun detail in the presentation was that to really pay tribute to our commitment to timeless and long lasting sustainable design, the new pre spring 2021 collection looks well styled together with some vintage gems from our archive. And the fun part is that it actually is quite difficult to say which one of the products is new and which one is from the archive due to the essential timelessness of our products, which is extremely topical, especially today.
Beautiful news also in the Q3 was that our work together with the Finnish fiber technology company Spinnova was recognized in Fast Companies Repudent Innovation by Design Awards. We were chosen as a finalist. And this award came from the work that we have done together with Spinnovant. It was in February 2020 when the Marimekko prototype outfits produced as part of the collaboration, namely the first ever printed clothes and bags made of Spinola's sustainable fiber were introduced. And overall, the Spinamo Fiber really is a great example of a very promising new sustainable material innovation that we believe that can tremendously, once commercialized, impact the fashion and textile industry by reducing its environmental impacts.
As mentioned earlier on, in order for us to better respond to the intensified pandemic expedited intensified structural changes in our industry as well as dramatic transformation of consumer behavior, We needed to initiate consulting negotiations in Finland and corresponding process in our organizations in Scandinavia, North America and Australia in August to reorganize and streamline our operations. And actually then in October, we were able to announce our new even more customer centric organization based on omnichannel thinking. And we believe that this new organizational monopay appeared with our long term strategy. We have a strong recipe in sort of mitigating and mitigating also through the exceptionally uncertain times created by the pandemic and operate successfully also in the new realities that arise from all of this. At the same time, we also had a couple of changes in our management group, namely Dan Trapp starting as the Chief Sales Officer actually a couple of days ago now and Sannekaisa Nikko starting in the Chief Marketing Officer position already before mid October.
Then when we briefly look into our outlook for the remainder of the full year 2020, so as we've overall stated also before, the coronavirus pandemic is the worst crisis experienced by our global fashion industry in decades, and it has indeed taken uncertainty over the global economy to a completely new level. And definitely, that has an impact on consumers' purchasing behavior. It's evident that these exceptional circumstances can have an impact on our sales profitability and cash flow, and they may also affect the operational reliability of our value chain. When it comes to the depth of the economic recession in different markets caused by the pandemic, naturally, the duration of the pandemic, the infection waves and the way that the crisis is handled has a big influence in that. Then when we look into our 2 major markets of Finland and the Asia Pacific region, if we start from Finland, which traditionally as our home market represents around half of our company's net sales, the outlook of our domestic market and therefore the company's consolidated net sales and earnings are influenced by the trend in customer numbers in retail stores during the rest of the year and whether online sales continue to perform well.
What is good to note and remember is that in Q4, many of our significant sales campaigns are taking place. What we have also informed about before is that the domestic hotels in 2020 are boosted by these non recurring promotional deliveries, the total value of which will be substantially higher than the last year and the vast majority of these deliveries taking place in the second half of the year. And then if we look into the Asia Pacific region, our 2nd largest market area and playing a crucial role in our internationalization, When we look at the sort of impact of the pandemic to the year 2020 in this market area, we see that the possible new infection waves and the speed of recovery from the pandemic in the different countries can affect especially our company's sales outlook for the coming year in the Asia Pacific region. And overall, despite the pandemic, we do at Marebequoisie increasing demand for our products in the region in the longer term view. Then also, we have, as many of you might know, last year, become aware of some cases of unfortunate cases of grain imports and have taken due action.
And these control measures, we estimate to have a clear weakening impact on our company's sales and earnings in 2020. What is positive though is that the licensing income for this year is now forecast to be higher than in the previous year, thanks to the better than expected estimated development, really speaking actually for the growing interest towards our brand. The import of e commerce in our company's business has continued to grow in 2020, and we do expect the online sales to perform well also in the last quarter of the year. Overall, when we look at our full year outlook for retail sales, That essentially depends on the return of customer flows to stores during the rest of the year in each market as well as the possible new infection waves, which may or may not require temporary closures of Maremeko's own retail stores. And as said, due to the non recurring promotional deliveries in Finland or these non recurring promotional deliveries in Finland wholesale, those will be supporting our full year wholesale sales altogether.
It is still in our plans to open approximately 10 new Marameco stores and shop in shops in 2020 with the main thrust of them being on retailer owned Marameco stores. What is positive is that to date, these exceptional circumstances created by the pandemic have had so far only minor impacts on our supply chain. However, in the early part of the year, we did indeed face challenges to our logistics due to the exceptional situation. The net sales and earnings for the rest of the year do essentially depend on maintaining the operational reliability of our distribution centers and logistics in the pandemic situation. And furthermore, as a result of the growth in online sales this year, the company we do expect the full year logistic costs to increase noticeably compared to the previous year.
Fixed costs, as you know, we've crafted up early in the year an ambitious fixed cost savings plan to adjust our operations to the new reality. And we do expect our fixed costs to continue to decrease during the remainder of the year compared with 2019. In addition, also marketing expenses and investments are estimated to be lower than in the previous year. And we gave our financial guidance to the market in mid September when we concluded that we have better visibility now to estimate the impacts of the pandemic to our business. And today, we have reiterated that we expect our group's net sales to be lower than in the previous year in 2020, and comparable operating profit is also estimated to be approximately at the same level as or lower than the year before.
So net sales expected to be lower than the previous year and comparable operating profit to be approximately at the same level or lower than the year before. And maybe now it would be time for some questions.
Thank you, Tina.
We have
a few questions here already, but if you would still like to ask questions, please type them in the message board. The first question is actually a follow-up on the outlook, detailed question related to gray import. Yes. So gray exports, the question goes you're still indicating that they will have an impact. What are they related to?
And what's exactly going on? So what are gray exports and what's happening?
Yes. So what gray imports or parallel imports or exports means is that Marameco has a selective distribution system. So we basically have a set of requirements that any kind of distributors or retailers need to comply to in order to be able to be our resellers. And in the Asia Pacific, our loose franchise partners are our exclusive distributors. And what we have now found out is that in some of those markets, there have been some resellers selling our products who are unauthorized.
So basically, we're talking about the sale of original Marimeco products, but the sellers are unauthorized sellers.
There's also a question related to our new digital platform, new online commerce site. The person would like to know a bit more about our plans online and digital services coming in 2021.
Yes. Okay. This is a great question as well. So it goes without saying that the role of digital commerce has been only increasing in its importance, especially now in 2020, but also years before that. And because of that, we've been actually already for multiple years been investing in the development of digitalization at Marvepka and overall online commerce, maybe our own, but also e tailer business.
So, as announced also in today's interim report, we are planning to revamp our online flagship experience at the beginning of next year. And this in our industry, it is super important for us to be always on top of our game when it comes to omni channel customer experience. And basically, the online flagship renewal is part of this ongoing work that we're doing. But of course, now with digitalization further being amplified during the course of 2020, this is an area which we are now studying rigidly in order for us to be able to provide the best possible inspiring and customer servicing experience, may it be in our online store or in the physical store. And naturally, the overarching being that we want to develop the seamless omnichannel experience to our customers.
And more details then later. Yes. There's also another question related to that, e tailers, as Amazon has just opened in Sweden and is expected to target also Finland, which is one of our biggest markets. Do we have Amazon strategy is the question? Or what do we expect how do we expect this to affect our online sales?
Yes.
And I think that this is for example, Amazon now spreading into further markets. This is a result of the ongoing sort of amplification of digitalization in the marketplace. And it goes without saying that at Armar Remeco, it is super important for us and our teams to have a close eye on the developments in the digital sphere of the business and digital marketplace of our business. At the moment, when we look at the digital channels, of course, the most important digital channel for us today is the Marameco online store. That's the kind of heart of our online community and that's very often the case the first touch point in the consumer journey to our brand.
But while we invest in the development of our own channel, we do see opportunities also within e tailers. Also due to the opportunities that they allow for us to recruit also new customers, While being sales channels, they are also marketing channels for us. But this today, the sort of digital also the digital marketplace of our industry is highly developing and disrupting. So we monitor the situation very carefully and then align our approaches.
And do you expect this to have an impact on our own online sales or overall profit margin in this region?
On the Amazon. Amazon. Well, I think that's too early now for us to say. But as said, we need to keep on monitoring the development of the overall digital marketplace. And as said, today, our main digital channel is naturally the Marimekko online flagship store, while at the same time, we do make efforts to also increase our e tailer presence.
There's another question related to brand sales. Brand sales were up nicely, while overall sales cumulative sales were a bit down. Can you explain the difference?
Yes. So and maybe Elena, you can also pitch in here. But basically, in essence, so the brand sales are the Marimekko sales converted into retail sales across touch points. So it sort of measures the reach that our brand has. And for example, in the Asia Pacific region during the 1st 9 months, we've accumulated nice licensing income.
So that is also something that can then translate nicely into brand sales. Or Elena, would you have anything to add?
No, I think you put it in a good way. You can join here. Yes. I will join you here so you get some. Yes, time to breathe as well.
Yes.
Any questions? And wholesale sales also play a role in brand sales.
Yes, definitely.
So exactly the same method there.
I have
a question for Elena as well related to inventories. Is there a need for discount sales or are inventories at a healthy level after weak sales figures in the spring?
As you can see, our inventories are at the end of Q3. They are 2,600,000 above last year, but the situation has improved since the end of June. And knowing that our products are timeless, so we have more time to sell them as well And also knowing that we have an outlet chain visible in Finland. So we have the tools to actually sell them out. And also we can utilize them in different campaigns.
Yes. The Q3 result included or the fixed costs were also reduced by some subsidies received in different markets. There's a
question, can we expect subsidies also for Q4? That's a very good question. And actually, that is very much related also for the fact that how does the second wave of COVID-nineteen will continue in different markets. So we've been getting subsidies in those markets where we actually run our own retail. So in case those governments in those countries will grant more subsidies, of course, we will seek for them as well.
In the report, there was
a mention about significant sales campaigns in the last quarter. Can you give any updates on that? So what kind of are there or
Yes. So overall, in our industry, the Q4 is known to be a really important sales period. And I think that within the past years, there are more and more sort of industry related campaigns that take place during this time. So in addition to the obvious holiday sales, there are the Black Fridays. For example, at Maremeco, we have always typically have had our friendship sales during the Q4 of the year as well.
So these are just some examples. So overall, it's the Q4 represents an important time for sales.
There's a question about the licensing income. At the beginning of the year, Varimeco estimated that it would be markedly lower this year. And Q2, the licensing income outlook was a bit upgraded to the similar level. And now in Q3, the report says that the licensing income is expected to be higher than previous year. Can you walk us through what has happened during the year with these licensing income expectations?
And actually, the answer is quite short. Our outlook has improved during the course of the year. And I think that this is a good indicator of the increasing interest international interest to the Marimeco brand. So actually, we started the year with a more negative outlook. And during the course of the year, the outlook when it comes to the anticipated licensing income for the full year has improved.
And now we expect it to be higher than in the previous
There's one final question, if no more questions will come, is about the new product categories or new product development. How do you approach in general opportunities to enter new product categories? And in specific, there would be potentially demand for Marimekko branded face masks, for example. So why haven't you capitalized on that yet?
Yes. So overall, if we look at the big picture and as what I mentioned at the earlier part of the presentation is that we have seen that in the mitigation during the crisis the pandemic crisis, what has really played to our advantage is the comprehensive lifestyle portfolio featuring the 3 product lines, namely fashion, bags and accessories and home. And as said and as visible in the 3rd quarter results is the consumers' increasing interest in home decoration, which we've been able to really nicely capitalize on, knowing that we are known to be one of the first real lifestyle brands in the world who has had also home as part of our offering ever since the beginning. Within the last years, understanding that we have a wide offering of products, in order for us to really celebrate the hero products of Marimekko, we've been actually we have been actually optimizing our lifestyle portfolio quite a bit, also a bit also meaning that we have been quite careful when it comes to adding sort of new SKUs or new product lines. We have believed that by focusing, we can create even better hero products within our collections.
And that sort of philosophy really holds true even today. And I think that going ahead, it will be kind of a strong asset going forward as well. Having said that, of course, it is important for us and our design to keep constantly on the pulse of our consumers' preferences and needs and maybe changing daily lives. And I think what is fascinating is going to be going to be to see how the pandemic may be, for a longer term perspective, impacts the way that consumers believe their daily lives and what is important to them. And with that, of course, we need to then understand whether there are new opportunities that where we could become present in the lives of people and then obviously tap into those opportunities.
So, it's continuous work that we're doing. But overall, our intention is not to spread the lifestyle timeless, long lasting, sustainable classic hero products.
Thank you, Tina. And thank you, Elena. We have no further questions at the moment, so I would like to thank the audience as well. And we hope to see you next time with our Q4 results.