Good afternoon, ladies and gentlemen. My name is Anna Tuominen. I'm the IRO of Marimekko. It is my pleasure to welcome you to our Q3 webcast. Our President and CEO, Tiina Alahuhta-Kasko, will first walk you through our key developments during the quarter, and after that, she and our CFO, Elina Anckar, will be answering your questions. You can type in your questions using the chat function on the webcast platform already during the presentation. Without further ado, Tiina, please go ahead.
Thank you, Anna. Good afternoon, ladies and gentlemen. It's again my pleasure to walk you through our performance in the third quarter of 2021. To get started, overall the good development of Marimekko continued also in the third quarter, and both our net sales and result increased. Our net sales actually grew by a nice 11%. The net sales grew, especially in Finland, by 25%, and those net sales were largely driven by a good development in wholesale sales, which were supported by non-recurring promotional campaigns. Also, overall, we can see that our long-term work to develop the Marimekko brand and our collections, also modernize them, we can see that that long-term work shows the fastest in our strong home market.
On the international front, our international sales declined by 10% due to our actions to control gray exports. Of course, as Marimekko is in the brand business and we're an internationalizing brand, which has unfortunately meant, in the past years that we have encountered some cases of gray imports, it is important for us to address these issues and take care of our brand image globally. To that end, we have now worked for, as mentioned, several years to control gray exports, and in the past quarter, such actions taken by us had a negative effect on these international sales. However, these actions that now in the third quarter show us a decrease in net sales are investments into building our brand in the longer term.
I said we are in the branded business. Thanks to the good development in our net sales, also our comparable operating profit improved significantly and landed to EUR 13.3 million. Also, the improved relative sales margin contributed to the results. On the other hand, an increase in fixed costs had a weakening impact in earnings, and overall, fixed costs are expected to increase clearly also during the fourth quarter as a result of changes in accounting principle as well as our investments in growth. As mentioned, Marimekko's success in mitigating and navigating through these exceptional circumstances within the past one and a half years have even further strengthened our trust and confidence in our long-term international growth strategy.
Therefore, we believe that it's important that we have the courage to invest into fueling the international growth, and while at the same time we of course monitor the situation related to the coronavirus pandemic and adjust our operations if needed. If we have a more closer look into our net sales and operating profit development. First in Q3, our net sales, as mentioned, increased by 11%, and especially the wholesale sales in Finland developed very favorably, supported by in particular these non-recurring promotional deliveries. On overall total level, our retail sales grew by 3%. As in the comparison period, the majority of Marimekko stores were opened during this time. Our wholesale sales continued really strong performance with an increase of 23%.
On the other hand, as mentioned at the beginning, our net sales were especially weakened by reduced wholesale sales in EMEA and lower licensing income in the Asia Pacific region, and these reduced wholesale sales in EMEA are connected now or related to the gray import control measures that I just briefly discussed. Maybe one more thing I would like to mention here. When looking at the Asia Pacific market area development, the decrease there is driven by this lower licensing income. On the wholesale side, we slightly declined by 3% in the Asia Pacific region, and that decrease is due to the different kind of weighting of deliveries versus the comparison period and also due to the somewhat worsened pandemic situation in some of the countries.
On a total level overall, when we look at the full- year, we estimate the Asia Pacific wholesale or Asia Pacific sales to increase. When we look at the year-to-date numbers, we see really nice growth numbers. In the year-to-date, first nine months of the year, our net sales grew by 21%, and we saw growth in particular from wholesale and retail sales in Finland, as well as from wholesale sales in the Asia Pacific region and Scandinavia. Sales in Finland in the strong home market grew by 29%, and international sales increased by 11%.
When we look at the net sales development, in light of compared to the time pre-pandemic, the first nine months of this year compared to the first nine months in 2019, the growth is +15%. We're very happy about having bounced back to a nice growth trend even in these exceptional circumstances. Some things to be noted when looking at the year-to-date numbers. Of course, the wholesale sales in Finland is good to remember that they were partly supported by the non-recurring promotional deliveries. Sales growth in the Asia Pacific region was partly due to the transfer of some of the wholesale deliveries for the final quarter of 2020 to the first quarter of the current year.
However, overall in the Asia Pacific region, as we saw there, growth of 12% in the year-to-date numbers, actually in the wholesale sales side, where we also recognized the sales to our Asian partners who run the Marimekko stores, we saw growth of 24%. The kind of decreasing factor there was the somewhat lower licensing income versus the comparison period. If we look at the net sales development in the first nine months, broken out into the market areas and by product line, there are no major shifts in these breakdowns. Of course, Finland seeing the extraordinary strong growth in this year, there is a strong home market and largest market.
The second biggest region for us is Asia Pacific. When we look at the product line development, as mentioned, we have seen growth across all the product categories, with the strongest category in terms of growth being home. Naturally, when we look at this development, it's sort of easy to explain it also connected to the interior decoration trend that has further ignited during these exceptional circumstances when people have been spending more time in their homes. We think that it's also a fantastic opportunity to Marimekko to really capitalize on our strong lifestyle concept.
When we look at our omni-channel footprint, so today there are in total 152 Marimekko stores around the world, with Asia Pacific region having the greatest number of these stores already. Our online store serves customers in already 35 countries. Our Marimekko brand sales developed in the first nine months positively by growing 18% to almost EUR 250 million. In the third quarter, 62% of our brand sales came outside of the home market. There, when we look at the numbers within the first nine months, we can see that especially a strong development in the brand sales size in the EMEA region.
When we look at our comparable operating profit, first in the third quarter, I mean, it goes without saying that the results developed very strongly, and landed at EUR 13.3 million. As already mentioned at the beginning, naturally, the increased net sales contributed to the improved earnings, but also the improved relative sales margin supported the result. Behind the improved relative sales margin are the strengthened product margins, as well as lower discounts. Very healthy factors impacting the improvements. On the other hand, an increase in fixed costs had a weakening impact on earnings. When we look at the fixed costs, where did the increase come from? Especially, for example, marketing costs. These are again investments into our growth, as we have stated.
When we look at the first nine months comparable operating profit development, we saw a significant improvement in our result, the comparable operating profit landing to EUR 24.4 million. Very similar contributors also when we look at these first nine months versus the Q3. Especially the increased net sales contributed to the strengthened earnings, but also the improved relative sales margin. Actually, in the relative sales margin, the factors driving that good development include the strengthened product margins, but also relatively lower logistic costs than in the comparison period.
It's good to remember that in the comparison period, we saw larger, you know, relative logistics costs due to the temporary store closures that pushed us or where we made the decision to actually take all of our promotions online. On the other hand then, an increase in fixed costs had a weakening impact on results. If we look into some of the key events in the third quarter of our 17th anniversary year, we're extremely excited about our collaboration with Adidas. Earlier in the summer, we announced our first ever collaboration, limited edition collaboration with Adidas. Now in September, we announced our second limited edition sportswear apparel collaboration collection. We really see that this capsule collection embraces both of our brands' commitment to sustainability, originality, and empowerment.
These kind of brands top-level brand collaborations really allow Marimekko the unique opportunity to build our global awareness and acquaint even completely new audiences to our brand. This is the way that the global brand collaborations actually support the core of our strategy. Also in the third quarter, we organize a very exciting pilot, namely, our first ever secondhand pilot that we launched on our revamped online store called Marimekko Pre-loved. This pilot was extremely enthusiastically received, and it is our plan in the future to overall offer more comprehensive services to lengthen our product lifetime, as well as support our community to resell and recycle our products. This initiative is very much part of our values. This initiative is very much connected to our even heightened ambition in our sustainability strategy and approach.
Also, in the third quarter, we collaborated with another exciting party called Bukowskis, the auction house, and we actually created together a special auction honoring our timeless and sustainable design. This way, you know, also this auction gave a very practical possibility to again lengthen the life cycle of our products and at the same time provided a unique opportunity to tell the story and celebrate the timeless and lasting Marimekko design and the creators behind it across the years. In August, we also presented our debut Spring/Summer 2022 collection made under the creative direction of our relatively new creative director Rebekka Bay at the Copenhagen Fashion Week. In conjunction, we also opened an experiential, continuously evolving pop-up space in the city.
At Marimekko, even in the digital world, we believe that physical stores have an important role. They just need to redeem their role anew in this new reality, and the focus in the physical experiences will be very highly concentrated on providing inspirational and experiential meeting places and really centering around personal service and seamless connection across channels. This remains a key development area for us, and we see that our brand has big potential in building these and creating these meaningful customer experiences. Also, in the third quarter, we gained visibility from several pop-up stores both in Japan and in Hong Kong. For example, in Tokyo, in the Marimekko co-created special collab at the famous Dover Street Market Ginza store.
Also, in September, an experiential pop-up concept was created together with Japan's largest bookstore, Tsutaya, in Tokyo to present our 70-year-old brand. This collaboration with Tsutaya and the concept actually was extended to four further cities in October. In addition, also a new Marimekko pop-up store was opened in Hong Kong. I think all together within the first nine months have taken place or have been launched in Asia, and we do believe that pop-up stores and other kinds of creative retail concepts play an important part of the omni-channel customer experience. Actually, those kind of creative concepts role will be even further magnified in the new post-pandemic reality. If we have a glimpse into our outlook for 2021.
Just in short, as we know, the coronavirus pandemic has been the worst crisis experienced by the global fashion markets and does continue. As mentioned, we're closely monitoring the development of the situation in each of our market areas, and we will adjust our operations and plans according to the situation. If we look at our two biggest markets, Finland and Asia Pacific, a little bit more carefully. As we know, Finland traditionally represents around half of our company's net sales, and we expect sales in Finland to clearly grow on the previous year this year. Just maybe worthwhile still mentioning or repeating that the domestic wholesale sales this year will be boosted by these non-recurring promotional deliveries that we also saw supporting our sales end result in the third quarter.
The total value of these promotional deliveries is estimated to be at a substantial pace in the second half of this year. If we look at the Asia Pacific region, which is our second-largest market and plays a significant part in our international growth. Net sales in the Asia Pacific region, as mentioned, are expected to increase in 2021, and also most of the planned Marimekko store and shop-in-shop openings of 2021 will be in Asia. I think that what I also mentioned about the several pop-ups in addition to new stores opened, it really demonstrate that both our wholesale and retail sales will increase this year. The growth is expected to be particularly strong in wholesale sales, which is good to remember, also includes our sales to partners operating Marimekko stores.
All the Marimekko stores in Asia are partner operated. Good to also note that the development of the coronavirus situation, vaccine coverage, and possible restrictions and recommendations in different market areas during the year, on the other hand, they influence footfall in stores and hence the outlook for both retail and wholesale. The pandemic situation has also led to disruptions in global supply chains, and unfortunately, Marimekko has neither been immune to this. We've experienced some coronavirus-related supply disruptions which have resulted in delivery delays. If the disruptions continue, they can impact the availability. Also, net sales and earnings depend on maintaining the operational reliability and efficiency of our distribution centers and logistics in these special circumstances. As mentioned before, we will continue our actions to control gray exports. This is actually work that we have done now for several years.
Now in this third quarter, those actions became very visible, which will have a clear weakening impact on the company sales and earnings in 2021. As said, these are investments to our brand and our brand image, ensuring its desirability and strength also in the future. Licensing income is forecast to be approximately at the same level or lower than in the previous year. As mentioned, we are very confident when it comes to our long-term international growth strategy and our success in mitigating these special circumstances has further strengthened our confidence.
Therefore, fixed costs are expected to be up on the previous year, especially during the second half of the year, and the growth of the fixed costs is estimated to be especially strong in the fourth quarter of the year. It's also good to remember that last year in 2020, fixed costs were reduced by partly also temporary cost savings, as well as subsidies granted in different countries to mitigate the negative business impacts of the coronavirus pandemic. Also, as part of the investments to the future international growth, marketing expenses are expected to grow and take place, especially in the second half of the year. What is also good to note is that IT costs are expected to increase clearly due to a change in accounting principles.
Overall, we are estimating preliminary that the change in these accounting principles will increase our fixed costs and accordingly lower the company's investments approximately by EUR 1 million during the financial year of 2021. We are working and will finalize the calculations during this fall, and the possible impacts will be accounted for retrospectively. Due to this as a result, the total investments are estimated to be clearly lower than the year before. Because of the seasonal nature of our business, the major portion of our company's euro-denominated net sales and earnings are traditionally generated during the second half of the year.
What is also good to note is that the relative growth of the net sales is expected to slow down during the second half of the year, as the coronavirus pandemic has such an exceptionally negative effect on the net sales during the first six months of 2020. Last but not least, the financial guidance of Marimekko for 2021. We expect our group's net sales for 2021 to be higher than in the previous year, and our comparable operating profit margin we estimate to be higher than in the previous year as well. It's good to still remember that the instability caused by the coronavirus pandemic in our market continues, and therefore there still are significant uncertainties associated with the trend in our net sales and earnings.
With these words, with this update to our, like, short recap of our Q3 performance, and I think that the floor is open for questions.
Thank you, Tiina Alahuhta-Kasko, for the presentation. We actually have quite a lot of questions this time. First, there are few questions related to development of international sales.
Yes.
Beginning with the gray export situation. Could you clarify a bit what's happening, what's ongoing control means, and also, to what extent do these controls continue?
Yeah. As mentioned, imports came to our attention, and we have been actually ever since working on controlling gray imports. What gray imports basically means is that Marimekko has a selective distribution model, and this selective distribution model is managed by our partners in Asia within the regions that they operate. For some reason, in those markets, we have found our product in channels which are not authorized to sell Marimekko products. Gray exports are not copy products. They are real, authentic Marimekko products, but they're just distributed in channels that do not apply to our criteria. In order for us to foster and take care of our global brand image, we've taken measures to control this. First, find the sources, and then control these gray imports.
We have been working on this for many already quite a long time. Now in this third quarter, the measures were especially visible and then caused a decline in the EMEA wholesale sales and was the main driver for the decrease in the international sales in the third quarter. However, it's good to remember that these control measures are also investments in our brand and to ensure the lucrativeness and desirability of our brand in the future.
There's also a question of their impact on sales and profitability, but you already mentioned that.
Yes.
They will have a negative impact this year.
Yes. As we have said, and I think we also said that in the previous year as well, what I would just like here to sort of leave it at that in this particular quarter, these measures were especially large, and therefore they're so visible. But we have been actually working on this and doing the controlling measures also in the past quarters.
It was mentioned that there are differences in the weighting of deliveries. The question is this a case where Q3 deliveries this year were delayed to Q4, or did the comparison period just have some extra deliveries which increased revenue then, or is it just something else?
No, it's. I can imagine this question because, of course, as we know, you know, there have been some disruptions and hurdles in the global supply chains that have been causing delivery delays as well. As mentioned, we have also encountered some unfortunate delivery delays. You know, partly it's delay related, partly it is just, like, basically pure waiting of, you know, it might be that a market has placed, compared to the comparison period, higher orders in a different quarter than just this year. It's more this kind of a timing issue. Also when it comes to the Asia Pacific in Q3, it's good to note or remember that actually in Q3, the coronavirus situation, due to the Delta variant, worsened quite a bit.
For example, in Thailand, the Marimekko stores were closed temporarily. That worsened situation also had an impact in some countries, which then reflected in the Asia Pacific wholesale sales. As I said, when we look at the full, like, nine months performance, the Asia Pacific wholesale sales, which include the invoicing to our Asian partners, it has grown by 24%, so really strong development there. We also estimate our Asia Pacific net sales to increase this year.
Yeah. You mentioned the supply chain disruptions. Is it possible to give more details on that, how big delivery delays there've been or categories they have impacted or anything else?
This, first and foremost, I mean, this is a real global supply chain issue, so unfortunately we haven't been immune to this. I think in 2020 we were very lucky that our, you know, our supply chain was not impacted so largely. Unfortunately, this year that is not the case. It has basically meant that in some of our suppliers' factories, the capacity has been lower due to the pandemic, and that has then caused delays. Of course, our teams are working really hard on this and finding ways working together with our partners who are our, you know, strategic partners to mitigate those impacts and basically diminish the possible delays.
As said, you know, should these delays continue, there is a possibility that they impact our product availability, and this way also our net sales and profit, also this year. Our team is working on this very hard. It's a global issue, and unfortunately we're just not immune to that either.
Also, the price pressure on materials is a global issue that many companies are facing. Is it possible to give any update on what kind of impacts Marimekko is expecting?
Yeah. It is of course very clear that, when it comes to the general development of material prices, we're not immune to that either. We work in the global business. Maybe something to be noted is that when it comes to Marimekko, which is quite also typical in our business, is the early commitment to inventory. Basically already now today we're working with our 2023 collections, so then occur at some time in the future.
Let's just put it that way, that it's our team's normal work to always, you know, manage and mitigate possible impacts in material prices, so our team is, I think that it's fair to say that during the course of the pandemic, our teams have found also completely new kinds of ways to work in this volatile environment and mitigate the possible negative impacts. Of course, when it comes to global trends, in these matters, we're not immune either.
Of course. There's one more question related to international sales. The licensing revenue in the Asia Pacific region also came down during Q3. What is behind that development?
Unfortunately, we can't open any kind of specific contracts, as said. When it comes to licensing revenue, at Marimekko, we have two streams of licensing revenue. One is the brand collaborations, and when it comes to the brand collaborations, they also have different kinds of contracts, different kinds of revenue recognition timing, so that really can vary depending on quarter. When it comes to more traditional licensing, which probably has a little bit of a smaller role in our business at the moment, traditional licensing refers to products that sort of complement the Marimekko lifestyle concept, but where we don't have the distribution or production knowledge. Let's say Marimekko eyewear or they relate to products that require really high localization, for example, bedding in some countries.
In those, t hat's the other stream of licensing income, and there we might have a little bit more stable revenue streams in general. Again, licensing contracts really vary, and the timing of the revenue recognition varies, so that can cause also some volatility overall.
Is that also a reason in the changing outlook for licensing income in Q1? The outlook was pretty similar as now, but in Q2 it was temporarily raised.
The reason is really that, as mentioned in the licensing agreements, the revenue recognitions really vary depending on contracts and so forth. There might be this sort of variation between them. Overall, last year we had very strong licensing income development, and we have a good, solid outlook also for this year.
While the reported net sales outside Finland declined during Q3, brand sales outside Finland grew 40% almost.
Yes.
What is the reason behind these numbers telling such a different story?
Yes. It's a business model question. Actually, in the brand sales all the sales from all the kind of Marimekko resellers are converted into retail sales. Brand sales give an indication of the reach of the brand. You know, basically if all the business was basically Marimekko's own retail, in other words. This is, of course, an estimation, but basically I think that really today and also helps shed light into the business model impact. For example, in Asia, you know, all the Marimekko stores are operated by our loose franchise partners, which translates to Marimekko as wholesale sales. A big part of our international sales growth even when that is also, you know, where we also focus on Marimekko omni-channel retail.
The big part of that is it translates to Marimekko into wholesale sales.
There's few questions related to the brand collaborations. One question relates to choosing the partners.
Mm-hmm.
Why Adidas? Wouldn't Nike have been more sort of better fit for the U.S. market or maybe even in Japan where Nike's popularity is quite big, especially among the younger-
It's been like a long dream come true for us at Marimekko. What really we see connecting in the collaboration is both of the companies, both Marimekko's and Adidas' commitment into sustainability, into originality, and into empowerment. That really kind of bridges to the other part of my answer, like how do we choose our partners? Who do we partner with? We only partner with brands with whom we share values. We only partner with brands where we see that the other brands, the partners' own expertise complements ours, and together, by both of us kind of contributing, we're truly able to create something exciting and engaging and even surprising for the global customers.
This is the way that together we're able to build brand equity, we're able to build brand awareness, and this way for Marimekko we can support the core of our strategy.
How would you describe the success of Adidas collaboration? Have you seen impact, for example, in your own collections or store traffic or some other KPIs?
Well, dream come true and of course, when it comes to the second collaboration, a big part of that actually is being launched now in the fourth quarter side. We're very content.
Unikko, the poppy print, is one of the prints used in the latest collaboration. There's a question related to that. It seems to the person asking the question that Unikko is almost like Marimekko's new logo. How long do you think you can use Unikko in different ways? Yeah.
I have to say that the fact that we have these strong design icons like Unikko in our repertoire, in our collections, that is one of the biggest strengths. In the global fashion industry, having a recognizable handwriting, visual language, is one of the strategically most important levers and drivers for success. For us to have Unikko and also at the same time other renowned and recognizable prints, that is one of our key success factor.
Of course, probably what you have, many of you have noticed, the way that we work with the prints is a way, is in a way where we actually always ensure, that, the prints are sort of celebrated, to their, like, authentic spirit, but also that they are also translated in exciting, surprising new kinds of ways. We believe that's really kind of the recipe of ensuring the longevity of our brand and, ensuring the kind of, well ensuring basically the thriving of the Marimekko brand also in the future. But the fact that we have these kind of almost like symbolic, very highly recognized prints is one of the key strengths. How we work with them is the key to maintaining the relevance and meaningfulness.
There's a question related to the margin levels in Q-
You could maintain this good gross margin level that you had in Q3. Of course, in Q3, just to sort of recap, when we look at our comparable operating profit, it was really the net sales that contributed to the improved profitability and in addition also the strengthened relative sales margin had an impact. There, as mentioned, the key drivers, for example, in Q3, were the improved product margins as well as lower discounts. What we've also said unique growth opportunities that we can see for Marimekko in the international market.
A question related to the stock or the share. Do you think that splitting the stock would attract more smaller investors? Is there any discussions to split the share?
Naturally, these kind of discussions are our Board of Directors topics, and at the moment there's no such plans. Yeah.
You mentioned the investments in the future. What can you tell us already about the 2022 after the anniversary year? Will you be taking a break from these big campaigns, or, are there any plans to have similar campaigns next year?
Well, of course, we will then guide the market of 2022 when the time comes from that. I don't think that our efforts will be in any way diminished when it comes to, you know, building our brand awareness and building our internationalization story. We're very passionate and excited and confident about the long-term international growth opportunities for Marimekko. This is long-term work. Just like we started our brand and collection modernization work some years ago and now it's really bearing fruit, internationalization, and we're making now the investments to further fuel it in the long term.
Thank you, Tiina. That was all the questions. Thank you for everyone joining us today.
Thank you very much.