Anna Tuominen. I'm the IRO of Marimekko, and it's my pleasure to welcome you to our Q3 webcast. Thank you for taking the time and joining us today. We will first hear a presentation by our President and CEO, Tiina Alahuhta-Kasko, and after that, we have time for your questions with Tiina and our CFO, Elina Anckar. You can type in your questions during the presentation using the chat function of the webcast platform. Without further ado, Tiina, please go ahead.
Thank you, Anna, and good afternoon also on my behalf. It's such a pleasure to be talking you through our performance in the third quarter of the year. So why don't we get started? Overall, our good development continued in the third quarter of the year, and our net sales grew, and operating profit improved. In total, our net sales increased by 9% and totaled EUR 47.9 million, and this increase in net sales was driven especially by growth in wholesale sales, both internationally and in Finland. Actually, the wholesale sales grew in all of our market areas. Then in our home market, in Finland, our net sales grew by 6% as the non-recurring promotional deliveries increased domestic wholesale sales, and retail sales amounted almost to the record high level of the comparison period.
On the international front, a very good development, and our international sales grew by 13%. And especially boosted by the increased net sales, then our comparable operating profit increased to EUR 13.1 million, equaling to 27.4% of net sales. Overall, we're very happy that the positive development of our business has continued, and this, together with our strong financial position, really enable us to continue making the investments to further reinforce our competitiveness and support our long-term growth. We firmly, at Marimekko, believe that some key ingredients for success, regardless of the general market situation, include the desirability of the brand, commercial expertise, and agility, and we're very eager to continue on our path to scale up our business and growth in the upcoming years.
So then, let's have a look more closely to the drivers behind the result. So first, Q3 net sales, which I mentioned, increased by a total of 9%, and this increase was driven particularly by the growth in wholesale sales, both internationally and in Finland. As said, the sales in Finland grew by 6%. The non-recurring promotional deliveries increased the domestic wholesale sales, and despite the weak in general consumer demand, retail sales in Finland amounted nearly to the record high level of the comparison period. So we're very happy with the progress, also in our important Finnish market.
In our international markets, as said, very positive development, with an increase of 13% in our net sales, and in our company's second biggest market, the Asia-Pacific region, our net sales increased by 11%, especially driven by wholesale sales in the region. When we look at our cumulative development, our net sales increased by 5% to EUR 123.5 million, boosted especially by the increased international wholesale sales. The sales in our home market in Finland were on par with the comparison period. The retail sales grew, but in spite of the strong third quarter, the cumulative wholesale sales in Finland were below the same period a year ago as a result of the weak in general consumer demand.
On the international front, our international sales grew by 10%, and this growth was driven especially by the good development in wholesale sales and in licensing income. In the Asia-Pacific region, our second-largest market area, our good development was driven especially by the wholesale sales and licensing income. On the international sales, our wholesale sales increased, especially in the Asia-Pacific region, North America, and Scandinavia. When we look at the net sales split per market and by product line, so first of all, we're very happy that our net sales in the strategically important Asia-Pacific region grew by 18% in the first nine months of the year.
As many of you might remember, that Asia represents the most important geographical region of our future international growth. So no major changes, foreseeable in the split per market, in, in our net sales distribution, and, when it comes to the, the product line split, again, not, not major changes there, but of course, what is very positive is that all the three product lines grew. In total, 16 new Marimekko stores and shop-in-shops have been opened in the first five months, very much in line with our scaling strategy. And in numbers, the largest number of Marimekko stores and shop-in-shops is already located in the Asia-Pacific region. In total, there are today 166 Marimekko stores and shop-in-shops around the world. As to our performance in our brand sales, our cumulative brand sales increased to 200...
landed at EUR 280.8 million. When we look at the first nine months of the year, actually 68% of our brand sales were outside of our home market. In the third quarter, 59% of the brand sales were outside of the home market. As mentioned, brand sales represent the reach of our Marimekko brand through the different distribution channels, and this is calculated by adding together our company's own retail sales, the estimated retail value of Marimekko products sold by other retailers, such as in wholesale and in licensing.
Then when it comes to our result in the third quarter, our comparable operating profit increased 18% and landed to EUR 12.9 million, but the comparable operating profit totaled EUR 13.1 million and represented 27.4% of net sales. So very, very high, good level. The operating profit was boosted especially by increased net sales, but also the improved relative sales margin. On the other hand, an increase in fixed costs had a weakening impact on our operating profit. What is then behind the increased fixed cost? They grew particularly due to the increased employee benefit costs, which are a result from higher personal costs in the stores, now after the recovery from the pandemic, and also earlier investments in the building blocks of our international growth.
Very much the planned investments to fuel our long-term international growth. The relative sales margin, on the other hand, was supported by lower transport costs. Then when we look at the cumulative operating profit, our cumulative comparable operating profit was at the excellent level of the comparison period, landing on the comparable terms to EUR 23.7 million and representing 19.2% of net sales. What is behind the strong operating profit is, of course, the increased net sales. On the other hand, then, higher fixed costs and lower relative sales margin decreased the operating profit. Again, very much the same drivers as in the third quarter, behind the increased fixed costs, so the earlier recruitments that we have made to strengthen the building blocks of our international growth, as well as the higher personal costs in the stores.
The relative sales margin, on the other hand, was weakened, especially by the higher discounts and lower licensing income than in the comparison period. On the other hand, then again, lower transport costs supported our relative sales margin. Then, if we look into some key events in the third quarter, like, quite a lot of activity, I must say. So first of all, in August, we kicked off the sixtieth anniversary celebrations of our most iconic print design of all time, Unikko, by presenting our Spring/Summer 2024 collection at the Copenhagen Fashion Week. This fashion show brought together hundreds and hundreds of key opinion leaders, media representatives, as well as friends of Marimekko, because we actually hosted an open-for-all event during the Fashion Week.
This open-for-all event concept was a reflection of our over 30-year tradition of hosting public fashion shows in our home city in Helsinki to celebrate the beginning of the summer. As we know, Marimekko's objective in the now-started new strategy term is really all about increasing and scaling up our brand and growth, especially in the international markets. We approach our key markets through key cities, and our aim is to build a strong omni-channel ecosystems in these key cities, strong local communities in these cities, and through these, then enable meeting and serving our customers in their preferred channels and in the important moments in that local market.
Therefore, we're very excited that as to Scandinavia, during the third quarter, we opened a completely refurbished flagship store in Stockholm, and actually, after the review period, we also celebrated the opening of an entirely new Marimekko flagship store in Copenhagen. These stores represent our most recent dynamic, ever-evolving creative flagship store concept, and these really represent strategic investments to really bring up the awareness of our brand, cement our positioning in the fashion world, and supporting then omni-channel sales more widely in the region. In the first half a year, in Asia, in our most important geographical area for international growth, six Marimekko stores and shop-in-shops were already opened. In the third quarter, nine Marimekko stores and two pop-ups opened their doors in Asia. So again, why Asia? It's a growing...
There are growing markets in Asia. We already have a track record for over a decade to see that our brand generally resonates with the local consumers, and thirdly, we have a proven track record with the loose franchise business model as our choice to go to market and expand our business in this region. Out of the 9 new Marimekko stores opened in Asia in the third quarter, 3 were opened in completely new markets for Marimekko, namely in the globally important metropolises of Singapore and then also in the fast-growing market, Vietnam. Singapore really represents an important global hub asset, and the presence there also echoes more widely in the Asian region. Vietnam, and also after the review period, we have entered also the Malaysian market.
Those really represents these fast-growing markets, and we, together with our partner, have felt that this is the right moment for us to start introducing our brand to the local consumers and also the travelers in these markets, and this way, capture the interesting growth opportunities that they provide. Then let's have a look into the outlook of 2023. So first, in general, of course, the uncertainties related to the general development of the global economy, they can influence consumer confidence, purchasing power, and behavior, and as a result, they can have an impact on our business in 2023, especially in the important domestic market of Finland. Also, the different exceptional situations can cause even significant disruptions in production and logistic chains, and may thus have a negative impact on our sales, profitability, and cash flow.
But of course, as always, we're closely monitoring the general economic situation, the development of consumer confidence and purchasing power, as well as any exceptional situations, and we will adjust our operations and plans according to the circumstances, if necessary. Then, if we have a look into our net sales development, so first of all, Finland. Finland traditionally represents about half of our company's net sales, and this year we expect our sales in Finland to grow on the previous year.
The Finnish wholesale sales this year will be positively, and are positively affected by the non-recurring promotional deliveries, the total value of which is estimated to be substantially higher than the year before, and the vast majority of these deliveries will take place in the second half of the year, as we have now also seen in the third quarter report.
What is also good to note is that the sales in Finland are, of course, strongly impacted by the general economic development, particularly the development of consumer confidence and purchasing power. Then, if we look into the second-biggest Marimekko market, the Asia-Pacific region, the net sales in the Asia-Pacific region are expected to increase in 2023, as are our international sales. And overall, in 2023, our aim is to open approximately 15-20 new Marimekko stores and shop-in-shops, and as similar to previous years, the most of the planned openings will be in Asia. Then a few words about the seasonality. So because of the seasonal nature of our business, the major portion of our euro-denominated net sales and operating results are traditionally generated during the second half of the year.
For the full year, good to note that our licensing income is forecasted to grow from the record level of 2022. When it comes to growth, investment, and costs, of course, we are developing our business with a long-term view, and our plan is to scale our growth, especially in the international markets, during our strategy period for the next five years. Therefore, our fixed costs are expected to be up on the previous year, this year, and also our marketing expenses are expected to grow from the previous year. Of course, the general cost inflation continues to also affect Marimekko in 2023, and what is good to understand is that our early commitment to product orders from supplier partners, which is typical of our industry, implies that changing in costs affect Marimekko with a delay.
These early commitments have been also further emphasized in the exceptional situations, which weakens our company's ability to optimize our product orders and respond to changes in demand and consumer behavior, which also then augments the risk related to inventory management and relative profitability. The domestic non-recurring promotional wholesale deliveries also raise these inventory risks, but of course, we are actively working to ensure the functioning production and logistic chains. We are actively working also to mitigate the negative impacts of generally increased costs, as well as to enhance our inventory management. And today, we also reiterate our financial guidance for 2023, so we estimate our group's net sales to grow from the previous year, and our comparable operating profit margin is estimated to be approximately some 16%-19%.
The development of consumer confidence and purchasing power, the global supply chain disruptions, and the general inflation development, in particular, cause volatility to the outlook of 2023. But with these words, I would like to end my little presentation, and I think we're ready to open for questions, and I would like to invite our CFO, Elina, here, with me on the stage.
Hi. Hello, nice to meet you, all of you. Actually, we do have plenty of questions.
Great!
and I'm trying to group them into some logical order.
Great
that we could, like, take one of the, sort of areas one by one. There is lots of interest regarding our new store openings.
Mm
in Asia and in new markets as well. And actually, a couple of questions which are so precise that we are not able to explain that more in detail, but it's great that there is more interest to know about them. But overall, what could you tell about those openings? Because you were there yourself-
Yeah
... as well, how the-
Yes
... feeling was and-
Yes, so I must say, Marimekko has been, you know, very warmly, and in an excited manner, welcome in the new markets. The new stores, the two stores in Vietnam and the store in Singapore, were opened in September. And after the review period, also the first store was opened in Malaysia. There will be another one that will be opening in Malaysia during the ending part of the year. And in addition, the Marimekko online store will be opened in all of these three new markets during the course of this year.
I must say that, after the years of the pandemic, of course, you know, the pandemic as such has not gone anywhere, but we're in a new phase, it is very exciting to be in a point where we can, together with our partners, start, you know, expanding our brand also in completely new markets. For example, Vietnam, Malaysia, they really represents fast-growing new markets. There's a lot of interesting retail developments happening, and I think that this is generally a great time for us to enter and start introducing our story, our very unique value proposition to our customers. Singapore, on the other hand, is already a very established market, and ION is one of the most famous kind of malls on Orchard Road in Singapore.
So we believe that this store will also have a positive impact to the wider geographical area through the brand presence.
... Thank you, Tiina. And we still stay with the same area where we discuss about the international sales. So there is a question that, what is behind the great growth in North American wholesale sales?
Yes. So, of course, we're very happy. North America is one of our main markets, and we developed the North American market with our own omni-channel retail and wholesale, and of course, licensing plays a role there as well. And we're very excited about the fact that we've been able to continue the good development visible in our wholesale sales, actually throughout the course of the whole nine months this year, and this was, of course, very visible here in the third quarter. What is good to then note when it comes to the retail sales in North America is that in the comparison period, we hadn't yet opened our new New York creative experiential flagship store.
There's been quite a lot of changes in the retail environment or retail presence of Marimekko in North America, but we're very excited about these good developments, and of course, it also shows that our brand resonates.
Absolutely. Then to a totally different kind of angle. So, there is a question about, like, what are the Marimekko's next steps in a digital transformation journey? What is going to change, and what kind of impact are you anticipating after the new CTO, Mikki Inkeroinen, starts leading the new formed tech unit?
Yes. So we started from the beginning of this year our new strategy term for the next five years, 2023 to 2027, focusing on scaling up Marimekko's brand and growth, especially in the international markets. And as one of the five key strategic success factors enabling us to capture the growth opportunities out there in the world for us, we have identified end-to-end digitality. What does end-to-end digitality then mean? So of course, when we look at our performance in the past years, Marimekko has become already very competitive in our online commerce capabilities.
And of course, you know, our strong performance in online sales has been one of the key success factors also in the previous years, also during the pandemic. Naturally, we will continue constantly developing our digital experience and omni-channel experience to serve our customers even better and even more seamlessly. But now in this new strategy term, we have also decided to widen our view in digitalization and start even better capturing the opportunities offered by technology and data in terms of increasing our efficiency and increasing the seamlessness of our omni-channel experience.
Some very concrete examples of what this activity or these actions are: so first of all, the adoption of 3D design and how can we actually utilize 3D to make our development process more agile, for example. We are also exploring the use of AI to further strengthen our own planning. We are looking into automation to improve our processes and let go of unnecessary manual work.
And then, of course, you know, the digitality also opens up new business model opportunities, and maybe one quite obvious of them was the introduction already last year of our pre-loved Second Cycle platform. So we are taking a much wider view, and we announced last week the appointment of Mikki Inkeroinen as our new Chief Technology Officer. Mikki joins us actually after having served almost 8 years, or 8 years in the Marimekko board of directors, having a very versatile digital leadership experience. And he will start within our management board and in our team at the end of January. And of course, Mikki's role will be to lead our kind of digital IT technology development and end-to-end digital transformation across our value chain, together with our strong teams.
Thank you, Tiina. And then there is actually a question regarding what would be the typical lag between our raw material purchases and sales, but I would actually turn it the other way around and maybe explain a little bit more what kind of products do we actually produce. So we have three different kind of products. First of all is the printing mill fabrics that we actually print here in Herttoniemi, where we are actually speaking. And then we have a second type of products where we utilize the fabric to a, to another kind of product, for example, for clothes and for home products or canvas bags or anything like that, that. So that is like semi-produced production. And then we have fully finished goods, so we actually purchase finished goods.
So they all have different kind of production cycles, and then they have a different type of timing in conjunction with our sales. Then also remembering that we do have two different type of products as well, so-called continuous products, which are always available, and then we have seasonal type of products. So this is just to iterate that there are many factors that are actually impacting the timing of the raw material purchases to the sales.
I think that what I would just add
Yeah
to that is that we follow the normal fashion industry cycle.
Yeah.
For example, now we're preparing to start selling into the wholesale channels, our fall 2024 collections. We are constantly working with quite long lead times, which is typical of this industry.
Thank you. Then, there was a comment that our gross margin in Q3 was very strong, and would like to ask to elaborate the main reasons. Actually, we have written the main reasons to the release. So there were the lower transport costs, which were supporting the relative sales margin in Q3, and then, also a notion that the discounting costs were on par with the last year's level. There was a expectation that we could also answer that how about the Q4? But actually, we don't guide the gross margin, but of course, our EBIT guidance. We just reiterate what we have said from the very start of this year.
A question regarding our licensing income that we are guiding the licensing income to grow from last year, but we are still EUR 500,000 behind this target.
Mm.
So it would be, of course, very, very nice to know more precisely, are we talking about here 2% or more like 10% growth? But we just reiterate our guidance that we are expecting it to grow. And, and then, there is a question that how do we actually see the weak domestic market affecting our domestic wholesale sales going into 2024?
Mm.
Maybe we could just say that, of course, we are, we are in the middle of our next year's financial planning, and in overall, like, following the situation very, very precisely as always. But then we will let you know more when we come out-
Yeah
... with the fiscal year-end report.
I think that, you know-
Yeah
... of course, that, like, the overall macroeconomic sentiment in Finland is grim. It has been for some time already. At the same time, for example, in the third quarter, we were able to grow our net sales in Finland by 6%. And we truly believe that it is during these more challenging macroeconomic situations and times where the true winners of tomorrow are defined. So we are firmly concentrating on constantly ensuring that our brand and our collections are desirable, and we're able, through our lifestyle concept, offer our products and attractive Marimekko products across different price points. And at the same time, we're ensuring that we keep on the pulse of the consumer, of the market, and we are relevant and competitive with our commercial actions, and agile.
Of course, this agility is something that we have gotten to rehearse during the pandemic years, and I would say that that is one of Marimekko's main advantage. We are very determined and eager to continue in our journey to scale up Marimekko's brand and growth in the upcoming years, and I think after also the third quarter, we're well positioned to do that.
Thank you very much.
Thank you, Elina. Thank you for the questions.