Hello, and welcome to Puuilo's half-year results presentation. I am Puuilo's CEO, Juha Saarela, and our CFO, Ville Ranta, is also here with me.
Hello!
We will go through how our Q2 and H1 of the year went. As usual, after the presentation, we will be happy to answer any questions. Here is an agenda of the presentation. First, I will go through the main events and the figures for both the Q2 and the H1 of the year. After that, Ville tells you about the financial development more detail during both of the periods. I will go through our adjusted outlook for this financial year, and after that, I will give a reminder on our current strategy and long-term financial targets. At the end of the presentation, we will have a Q&A. Our Q2 starts in May and ends in July. Here you can see the key figures.
Net sales was approximately EUR 120 million , and it grew strongly. Total growth was almost 15%, and the like for like growth was just over 2% . The growth still came from the strong increase in customer traffic. Customer traffic increased in both old and new stores. We experienced sales growth in all months of the Q2 and as in Q1, we also had particularly tough comparison figures from last year, so we can be satisfied with the sales growth. Gross margin increased by 0.5 percentage points from comparison period and was 37.6%. This is a good result in this business environment. Gross margin was improved by our wide and affordable assortment. Cheaper goods usually have better margins. In addition, the share of private label product increased from the comparison period.
This also supported margin improvement. EBITDA increased by 18.7% and EUR 3.9 million from the comparison period and was EUR 24.8 million . This corresponds to EBITDA margin of 20.7%, which is 0.7 percentage points increase from last year's Q2, and the earnings per share was EUR 0.22 , which is approximately a 22% increase from the comparison period. During Q2, we opened two new stores. Forssa store opened in the beginning of May, and Tampere-Lahdesjärvi mid June. Overall, summertime went well, and then here are the figures from H1 of the year. Net sales was EUR 195.4 million , and it grew over EUR 26 million from the comparison period.
Total growth was over 15%, and the like-for-like growth was just over 3%. The growth came from the strong increase in customer traffic. Customer traffic increased in both old and new stores. We experienced sales growth in all months of the H1 of the year. We opened four new stores during this period. Gross margin for the H1 increased by 0.3 percentage points and was 37.2%. The improvement was driven by the same factors which I mentioned for Q2. EBITDA increased by 17.3% and was EUR 33 million , which is 16.9% of net sales. EBITDA increased by roughly EUR 4.9 million when compared to last year, and earnings per share was EUR 0.28 , which is almost 17% higher than last year.
As you can see, earnings per share grow faster than net sales, which is driven by the increase in our profitability. If I summarize very briefly, the H1 of the year went well. We have been able to increase our sales while our relative profitability has increased. We can be satisfied. Good. Now it's Ville, your turn, please.
Thank you, Juha. The net sales for the Q2 was around EUR 120 million, and it grew by 14.9% compared to the previous year. At the same time, like-for-like net sales grew by 2.1%. The driver of the growth was, again, the customer traffic, which grew by a total of 18.2% in all stores and 4.7% on a like-for-like basis. Here, I would like to emphasize that the customer traffic continues to grow strongly, which is a very important and positive thing for us. If you look at the relationship between the customer traffic and net sales, the more modest like-for-like net sales development is solely, solely due to the decrease in the average basket.
There has been a trend here for sometime that products costing more than EUR 100 remain on the shelf, but cheaper goods sell as well as before, if not even better. The average basket decreased by 2.8% compared to the comparison period. During the Q2 , we saw some variation in the development of net sales between months. Last time, we complained about that the spring started a bit late, but it was returned in May and also partly at the beginning of June. In other months, sales was more varied. The operating environment is currently challenging from the point of view of consumers' purchasing power. But even in this situation, Puuilo performs better than the market on average. We are especially pleased with the increase of customer traffic in the Q2 , because it's ultimately the most important net sales driver for us.
Then we move on gross margin. In Q2, Puuilo's gross margin was 37.6% of net sales, and it grew by 0.5 percentage points compared to the previous year. The increase in the gross margin level was influenced by the sales mix and the increase in the share of own private labels in net sales. The gross margin was also supported by the change in the sales mix to products with a lower price point, which is therefore reflected in the average basket, as I mentioned above. As we have already said before, the cheaper products are relatively more profitable for us than the more expensive products, and the majority of Puuilo's assortment has always consisted mainly of these lower price end items.
The increase in gross margin has continued as a trend for a long time, as can be seen from the graphs on this slide. This shows the successful strategy of own private label brands, and as you can see from the figures, it also seems to work well. Let's move on to profitability. The Adjusted EBITDA for Q2 was EUR 24.8 million , and it grew by almost EUR 4 million compared to the comparison period. In percentage terms, the growth was 18.7%, and profitability relative to the net sales was 20.7%. Relative profitability was clearly better than the comparison period. The profitability of Q2 was especially affected by the good development of the gross margin, but also by the declining personnel costs and good control of other expense lines.
Regarding personnel costs, we did very determined work in a short period of time, which succeeded mainly through targeted balancing actions. From now on, we will continue to maintain the process, and we believe that it will affect our profitability in the future as well. Regarding other operating expenses, things are proceeding according to plans. The numbers closely follow the plans, and the results are reflected in the EBITDA reported now. Looking at the longer time series, it seems that the scaling of the company's profitability continues according to the strategy. Here you can see the development of Puuilo's inventory levels over the last three half years. The development of the inventory turnover rate goes in the right direction and has continued even though the absolute value of the inventory has increased.
When looking at the absolute value of inventories, it's good to note that, compared to the corresponding figure of the previous year, the initial inventories of seven new stores are included. In addition, in H1 of last year, we sold out the excess inventory resulting from the coronavirus pandemic, and the increase between periods is also due to the normalization of the situation. The absolute value of the inventories has been increased by the previously mentioned new stores, but also the increased import volume of own private label brands. We again managed to slightly improve the relative turnover rate of our inventories compared to the previous year. Then, cash flow. In Q2, Puuilo's operating free cash flow was EUR 31.7 million .
The cash flow was especially affected by the increase in the value of the inventory described on the previous slide, which was, therefore, due to the new store openings and the increase in the import of own private label brands. Compared to the last year, the cash flow shows the sell out of excess inventory already mentioned in the previous slide also. Cash flow was supported by good profitability and positive change in working capital. And actually very much the same story for H1 cash flow. H1 cash flow was strong, but decreased slightly from the comparison period. The reason for this is the same sellout of excess inventory, new stores and bookings, and also bookings from the Hurrikaani deal, which are reflected in investments.
Then, the ratio of the company's net debt to Adjusted EBITDA increased slightly from the comparison period, which was due to the increase in the number of IFRS 16 lease liabilities. The current ratio of net debt to Adjusted EBITDA is in line with our long-term targets. Then, if we look at the middle figure on this slide, the figure shows the ratio of adjusted net debt to EBITDA, which decreased without the impact of IFRS 16 effect. The ratio, calculated without the impact of IFRS 16, is currently very low. At the end of the quarter, Puuilo's cash and cash equivalents were approximately EUR 32 million, and the company's financial position is stable. The level of cash flow, cash shows the extra EUR 20 million repayment of bank loans made last year.
Puuilo's net debt without the impact of IFRS 16, meaning the net sum of cash and bank loans, is currently less than EUR 18 million . Here are the figures as a summary, which we already comprehensively went through. Steady performance and business runs well. Then Juha will next talk about the company's outlook for the financial year 2024. Please, Juha.
Thank you, Ville. Good. Then the outlook for this financial year. We specify our outlook for this financial year now, and we forecast that our net sales will increase and will be between EUR 380 million to EUR 400 million. We also forecast that Adjusted EBITDA will be between EUR 60 million to EUR 66 million. The forecast includes elements of uncertainty arising from a change in purchasing power and customer behavior, driven by inflation and interest rate levels. Additionally, the recent VAT change may have an impact on customer behavior. Ongoing war in Ukraine and also other possible geopolitical crises may have an impact, either directly or indirectly, especially on the availability of goods and the price of goods. However, good signals regarding this can already be seen, at least in the short term.
Without external distraction, the near future otherwise looks good. Household finances are currently tight, and customers consider spending their money more carefully than before. However, Puuilo screws, power cords, and working gloves will continue to sell as usual. Next, a brief look at our strategy and long-term financial targets. Our strategy is simple and very workable. The 5 key elements in our strategy are shown here. The first one, opening new stores and continuing our expansion in Finland. For this period, our target is to reach over 70 stores here in Finland with current concept. Secondly, the continuation of LFL sales growth in the market, where we have a lot of room to grow and a lot of untapped potential. Then, maintaining, further improving our current position as one of the most cost-efficient operator in the sector.
An Omnichannel customer experience, an easy and fast shopping experience, is an important factor for our current and potential customers, and last one, sustainability work and developing of it. It is one part of our strategy. This is done under the theme of responsible retailer, and under this, we include the key elements in our sustainability work. Working towards these five objectives will allow us to reach our long-term financial targets, which are presented on the bottom half of the page. By the end of the strategy period, we aim to reach net sales above EUR 600 million . Regarding profitability, our target is to reach Adjusted EBITDA above 17%. We target to reach absolute Adjusted EBITDA above EUR 105 million by the end of the financial year 2028.
We aim to distribute at least 80% of the company's net results to shareholders. And regarding net debt, our target is to keep the debt to Adjusted EBITDA below two times. Then a closer look at the further expansion of our store network. We will continue our expansion in Finland with current concept, and our target is to grow the chain to over 70 stores. Currently, we have 47 stores open, and if everything goes as planned, at the end of this fiscal year, the store count will be 49. When we open 5-6 new stores annually during the strategic period, we will reach our goal of approximately 70 stores by end of 2028. Our store opening process is very efficient, and it is our own concept also.
Every team member know what he needs to do for a new store and which he is responsible. We have a brilliant capability to continue expanding as planned. Then a few words more about our expansion. We opened five new stores in last fiscal year, which was a record year of us. All of these openings have been successful and confirm our understanding of the strong demand for our concept. This year, we have opened stores in Nokia, Ylöjärvi, Forssa, Tampere, Lahdesjärvi, and yesterday was opening of Oulu Karjasilta. Next store opening will be in Äänekoski. Also, we aim to open the store in Kirkkonummi during next January, if everything goes according to plan. This means that we open seven new stores during this fiscal year, and the amount of stores will be forty-nine and at end of it.
We expect to continue the good progress next year. We have already published the new stores in Lohja and Mäntsälä. However, there are news coming on other store openings soon. We have a good expansion rate going on, and we are continuing our expansion with high profitability. We have talked a lot about the fact that the popularity of discount retail is growing in Finland also. Additionally, we have mentioned that discount retail works well in different economic cycles. Especially during downturns, discount retail usually outperform rest of the market. At the same time, discount retail is also increasingly popular in different countries and continents, and the growth trend has already been very long. This is also the case in Finland.
To our delight, the Finnish Trade Association recently published the sales development of the non-food discount retailers in Finland, starting in 2021. You can clearly see from this graph that discount retail is performing well here in Finland, the slope of the growth curve varies slightly from moment to moment, but the direction of the trend is clear. Finnish discount retail is growing, and Puuilo is part of this trend. Good. Thank you, and now we move on to questions. So, moderator, please open the line.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Svante Krokfors from Nordea. Please go ahead.
Good morning, and thank you, Juha and Ville, for the presentation. I have a couple of questions. First one relating to the guidance, which where you took down the high point of the guidance. Is that purely relating to weaker consumer outlook? I understand that the more expensive products are selling worse, so is that. Is it mainly relating to the consumer confidence that you experience has deteriorated?
Yes, thank you, Svante. Yes, you're right. As you saw from our presentation, for example, our like-for-like development was heavily affected by the decrease in basket size, and we see that this trend will at least continue for the rest of the year. So the consumer confidence is the main reason, and it affects our business throughout the basket. And inside the basket, the question is about the sales mix. So the more expensive products are not selling so well at the moment because the consumers are looking more carefully how they spend their money. And we see that this trend will turn as the economy recovers and the consumer confidence will start to grow again.
And that's the main reason for the clarification of the outlook range.
Thank you. And then regarding sales within Q2, you said that, well, April and, sorry, May and June was partly affected by the reversal of the spring effect, but should we read it also that July was perhaps weaker than you expected? And how has August and September developed?
Yeah. Last time in Q1, we said that there a bit late spring delayed our spring sales, and we then estimated that the effect would have been like EUR 1 million . And we saw that it came back in May, and we also stated that last time, but we also saw that it partly came back even in June. The sales development was more varied after that. That's all I can say about the months. So overall, we are satisfied with the quarter, taking it into account, this consumer confidence. And also, I like to highlight here that our customer traffic grew 4.7% during the Q2, in like-for-like terms, so it's a very strong figure.
But the basket size was the reason why the like-for-like sales and sales overall were as we reported.
Thank you. And regarding logistics side, did you have any logistics issues in Q2, and did you have good availability in most product categories?
Thanks, Svante. No, we didn't have any logistics issues. Everything went as planned, and our logistics performance was very good. We have not faced any availability problems during the H1 of this year.
The higher price point products that stay in inventory for longer, do you feel that is a problem, or will you solve that problem when the consumer purchasing power improves?
No, that's not a problem for us because, Well, I can say that almost all products we have in those categories, they don't have best before date, so we can keep them on the shelf and in the inventories b y time being, and when the economic situation or the consumer confidence gets better, we can sell them out. So there is no any risk of inventory write-down for those products or nothing like that.
Yeah, yeah, and I'd like to add that, too. Part of the more expensive products in our inventory is not so big, so we can handle this quite well.
Yeah, actually, it's a very small part of the inventory.
Yeah, yeah. Yeah.
Thanks. It appears that if I read it right, all your new store openings and also the conversions of the Hurrikaani stores have gone above your expectations. So are there any stores that have had a slower start? And have you perhaps learned something from those-
Firstly-
When it comes to new store?
Okay. Firstly, if I comment the Hurrikaani stores, all those three Hurrikaani stores openings were very successful and the openings has been, and after the openings, the sales has reached our targets. We are very satisfied from them. Of course, there are some variation between the new stores and independent where we have opened them. But in, let's say, in average, all of our stores, new stores openings, they are sales are running in the same path than we have estimated. There are no big issues, but of course, there are differences how fast the certain store sale starts and runs, and they're faster or slower. But let's say that all of them are started as planned.
Thanks. And then the last question regarding the cost structure, which you have managed to keep at a very low level, I must say. And could you perhaps tell some examples of what you do within personnel costs, especially, to keep them so low despite your growth? Are you optimizing the shifts or what are. Could you give some examples?
Well, I said in my presentation that we have done balancing actions, and I really mean that we have done the balancing actions. So we have a fine-tuned work shift planning. We have fine-tuned or clarified a bit some hours in certain stores and, of course, in the whole company. So we have put in place a new. Well, it's not new, but let's say that we have tuned also the process, how we resource the stores, and now we are continuing that.
Yeah, and if I add some, maybe you remember, I like to remind that we have opened four new stores during the H1 of this year, and it is a big number to our history. And it means that there are a little bit bigger personnel costs temporarily. There are one-time costs also because new stores are not so efficient than the older stores are. That is one reason also.
Thank you. That is very helpful, and that is all from me. Thank you, Juha and Ville.
Thanks.
The next question comes from Joonas Häyhä from OP. Please go ahead.
Yes, good morning, it's Joonas from OP. So a couple of questions from me. Firstly, regarding the like-for-like traffic, it was once again very good. Did you see growth in all of the vintages, across the vintages, or was the like-for-like customer growth more geared towards the younger stores?
We saw it in all vintages, yes. So there were no big changes throughout the store network. I won't comment the individual stores here, but I can say that overall it came from the like-for-like stores, and we are very satisfied with the customer traffic growth during the Q2 in like-for-like stores.
Okay, thank you. And then regarding the logistics or sea freight, the price of which has increased since the early part of this year. To what extent did this have an impact on the gross margin in Q2?
Yes, you are right. Sea freight costs are higher than, let's say, half year, eight months ago, because Red Sea terrorist and problems there, so the sea freights need to ship around Africa. It means that the longer delivery and freight time, and it means that the higher sea freight costs. But. And it will affect in some extent to our gross margin, but same time, because we are increasing our private labels, our importing volume, it support our gross margin increasing, and by that way, we can manage the situation. There can be temporarily some affecting to our gross margin, but we don't see that there are coming the big issues to the gross margin.
Okay, and maybe a follow-up on this. Do you expect the impact to increase in the second part of the year? And by this, I mean, have you kind of cleared out the older inventory that was purchased earlier with lower freight costs?
Could you please repeat?
Yeah. So do you expect the kind of small negative impact that you've so far had from the increased logistics costs, do you expect that to increase in the second part of the year, as you have cleared out the inventory that has been purchased earlier with the lower freight cost?
Okay. There are several functions or things which can change gross margin. There are positive things, and there are negative things. We see that we can improve our gross margin during the coming months. But of course, there are some kind of risks that our gross margin will be, let's say, flat. But we don't believe that our gross margin drop down heavily in coming months.
Okay, thank you. And then finally, regarding the VAT increase that you now mentioned in the report, can you elaborate a little bit, how do you expect to manage that, and what are the expected impacts in the second part of the year?
Okay, thanks. Yeah, the VAT change is now in force, so the VAT changed in the beginning of September, and of course, we have done some clarifications to the pricing due to this VAT change, but like we have commented earlier, we have left a big part of the products as they were, so we haven't increased any prices, not even with the VAT change effect on those, but some prices, of course, has been checked, and we believe that we will maintain our affordable price image in the future as well, and we don't see that's a problem for us.
Okay, thank you. That's all for me.
The next question comes from Arttu Heikura from Inderes. Please go ahead.
Hello, good morning. It's Arttu Heikura from Inderes. I have only one question, and it's about the guidance. So has your outlook for H2 weakened from what you earlier expected?
Actually, not. We did that because we see that as we mentioned it, that the reason is why LFL sales was a little bit weaker than we expected was the, our basket size, and because customers' confidence and purchasing power are lower than before, and it affect to our, average basket, size slightly. And we don't see that, during the H2 in this year, our basket size won't increase, and that is why we, cut it to the upper line of our sales estimate. That is the reason. We don't see that there are coming to the good development or to, basket size.
All right. Thank you.
The next question comes from Calle Loikkanen from Danske Bank. Please go ahead.
Good morning, and thank you for taking my question. I just had a kind of a follow-up on the personnel costs. Obviously, very good progress if we compare Q2 to Q1, a big change in personnel cost to sales. I was just wondering, how do you think about the personnel costs in the H2 of the year, either in terms of or in relation to net sales or then on an absolute level? So, what are your expectations for the H2 ?
Thank you. Our expectation is that we can go ahead by the same level than before. As Ville commented earlier, that we had made some adjustments and a fixing to the personnel recruiting model and how we manage the working hours and so on, and we will continue to work by the same model. So it means that we can keep our personnel costs in same level during the coming months.
Do you mean same level as in absolute euros or as a share of sales?
Okay, Ville?
I can comment on this. We see that the personnel expenses ratio to the net sales will be lower on a full year level than last year. That's the short answer.
Okay
H ow you should look at it.
All right. That's very clear. Thank you. That's all for me. Thank you.
There are no more questions at this time, so I hand the conference back to the speakers.
Good. Thank you for the questions and joining us today. I want to thank all our customers for trusting us. However, success is made by our employees, and that is why I want to say special thanks to all our coworkers in Puuilo for their hard work. The work of each of you is meaningful. I wish you all a great autumn. Thank you.