Hello everyone. Welcome to the presentation of Puuilo's Third Quarter Results for this fiscal year. I am Juha Saarela, CEO of Puuilo, and Puuilo's CFO, Ville Ranta, is here also with me. We will go through the key results of the third quarter, which ended in October, as well as the cumulative figures for this fiscal year, and at the end of the presentation, you have the opportunity to ask questions. Here is the agenda for the presentation. First, I will go through the key figures and events of the previous quarter and the first three quarters of the year. After that, Ville will provide a more detailed overview of the financial development for the same periods. The third point of the agenda is the outlook for the rest of the year, and the last topic, we have reserved time for questions and answers.
Our third quarter is from August to October, and here you can see the key figures. First, net sales. Q3 net sales were approximately 102 million EUR and grew strongly compared to the same period last year. Total growth was 10.8%. Like-for-like growth was on about the same level than Q3 last year. However, customer traffic continued to grow in both old and new stores. Like-for-like sales was still affected by lower basket size and the later start of winter season in this year. We experienced sales growth in all months of the quarter. We also faced quite tough comparison figures from last year, so we can be satisfied with the sales growth. The gross margin in Q3 also increased and was 38%, up two percentage points from the comparison period last year. I think this is a good performance in this business environment.
The gross margin was particularly improved by the increased sales of private label products and the sales mix shift towards cheaper goods, which have better gross margins than more expensive goods. The lower average basket has affected sales because more expensive goods are not selling as well, but we continue to sell higher-margin goods to a growing customer base. Adjusted EBITDA in Q3 grew by almost 29% and was nearly EUR 20 million, which is 19.2% of net sales. It increased by EUR 4.4 million, and in relative terms, it is 2.7 percentage points better than the comparison period. Earnings per share were EUR 0.17, which is almost 30% higher than the comparison period. During Q3, we opened a new store in Oulu Karjasilta. Oulu has now three stores, which meets well the demand potential of that area. Here are the key results for the first three quarters of the fiscal year.
Net sales were approximately almost EUR 300 million, which grew by EUR 36 million compared to the same period last year. Total growth was about 14%, and like-for-like growth was around 2%. The growth was driven by an increase in customer traffic, with customer numbers growing both in old and new stores. We have experienced sales growth for each month in the period. As in Q3, the average basket has decreased during the year and decreased LFL sales growth to some extent. The gross margin increased by 0.9 percentage points and was 37.5%. The same factors that improved the gross margin in Q3 are behind that. Adjusted EBITDA grew by 21.4% and was nearly EUR 53 million, which is 17.7% of net sales. This is approximately EUR 9.3 million higher than the same period last year.
Earnings per share was EUR 0.45, which is over 20% higher than the comparison period last year. Earnings per share grew faster than our net sales due to improved profitability. During the first three quarters, we opened five new stores. Overall, the first three quarters of the fiscal year have gone well, considering the current business environment. We have been able to increase our sales, continue to accelerate our expansion, and improve our profitability at the same time. We can be quite satisfied with this. Good. Now, Ville, please.
Thanks, Juha. Let's start with the net sales. The net sales in the third quarter was EUR 102.2 million, and it grew by 10.8%. At the same time, the like-for-like net sales declined by 0.4%, which was affected by the long continued decline in the average basket size. The average basket fell by 3.4% in Q3, which is, in our view, affected by the continued decline in the purchasing power of consumers, which is reflected in the decrease in the share of goods at the higher price point in sales. This affects also sales volume in product pieces. The growth in customer traffic continued. Like-for-like terms, customer traffic grew by 2.5%, and in all stores, a total of 14.7%. We are especially pleased with the growth in customer traffic because it is ultimately the most important driver of revenue for us.
During the third quarter, we opened one new store in Oulu, which was the third store in the Oulu city area. Cumulatively, our net sales is already approaching the EUR 300 million milestone, and the like-for-like growth was 1.9% and 13.8% at the company level. Cumulatively, the development in customer traffic is still strong. Then let's move on to the gross margin. In Q3, Puuilo's gross margin was 38% of net sales, and it grew by 2 percentage points compared to the previous year. The increase in the margin level was affected by the sales mix and the increase in share of own private label brands in net sales. The gross margin was supported by the change in the sales mix to products with a lower price point, which is reflected in the average basket, which I already mentioned above.
As we have already said before, cheaper products are relatively more profitable for us than more expensive products, and the majority of Puuilo's assortment has always consisted mainly of these lower price-end products. In addition, the increase in the gross margin level was strongly influenced by the aforementioned increase in the share of own private label brands in net sales. Within own private label brands, the sales mix is focused on high-margin products, which means products with a lower price point. It is worth noting that the reported 2 percentage point unit increase in the gross margin was affected by a minus 0.6 percentage point adjustment to gross margin in the corresponding period last year, which makes the reported change appear slightly higher than in a comparable sense. Looking at the cumulative time series, our gross margin continues to increase in a trend-like manner year after year.
We believe that this year we will achieve a higher gross margin level than the previous year, and this is based on a proven growth strategy and in particular the importance of our own private label brands in the company's overall gross margin composition, then let's move on to the profitability. Q3 Adjusted EBITDA was EUR 19.7 million, up EUR 4.4 million year on year. The percentage growth was 28.9%, and the profitability relative to net sales was 19.2%. This is an excellent profitability level. Relative profitability was therefore clearly better than the comparison period and excellent, like I said. Q3's profitability was particularly affected by the good development of gross margin, but also by declining personnel costs and good control of other expense lines. We worked in a very determined way on personnel costs in a short time, which was mainly achieved through targeted balancing measures.
We will continue to maintain the process from now on and believe that it will also affect our profitability in the future. Other operating expenses are progressing according to the plan. The figures are closely following the plans, and the results are now reflected in the good EBITDA reported. Cumulatively, our profitability has scaled in line with our strategic goals. However, for the rest of the year, we are moving towards a quieter trading period in line with the seasonal fluctuations, where the profitability levels are traditionally a bit diluted by lower net sales levels. This shows the development of Puuilo's inventory levels over the last three quarters.
The inventory turnover rate has slowed down slightly, which is due to the initial inventories of seven new stores and the fairly strong growth in the importing of our own private label brands, which we used to prepare well in advance for the next year's high season and the rush to open new stores in the beginning of the next year. Juha tells you later that the next year's calendar is already quite full of new store openings, most of which will be in the first half of the year. More inventories are needed to feed all these new store openings. In addition, compared to the previous year, the figures are affected to some extent by the disposal of excess inventory last year. We actively monitor the inventory turnover rate, and we see a downward trend in the long term.
However, in the short term, it may fluctuate for the reasons mentioned above because we want to make sure that there is inventory to sell in any situation. In Q3, Puuilo's operating free cash flow was EUR 10 million and a decrease of EUR 3.9 million . The cash flow was particularly affected by the increase in inventory value reported on the previous slide, which was due to the store openings and the increase in import of own private label brands, as well as store openings coming next spring. The cash flow already reflects the liquidation of excess inventory compared to last year, as reported on the previous slide. The operating free cash flow was supported by good profitability but weakened by the absolute inventory growth. Cumulatively, the operating free cash flow was strong but decreased by EUR 12.2 million compared to the previous year.
The decrease was due to the inventories, the sellout of last year's excess inventory, new store openings this year, and items resulting from the Hurrikaani transaction. 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. The middle figure shows the graph of the ratio of adjusted net debt- to-E BITDA, which decreased without the impact of IFRS 16. The ratio calculated without the impact of IFRS 16 is currently very low and remains at the same level than the comparison period. At the end of the quarter, Puuilo's cash and cash equivalents were approximately EUR 27 million , and the company's financial position is stable.
Puuilo's net debt without the impact of IFRS 16, meaning the net sum of cash and bank loans, is currently EUR 23.5 million. Here are the figures as a summary, which we already comprehensively went through: good profitability performance from the Q3. Then Juha will next talk about the company's outlook for the financial year 2024. Please, Juha.
Thank you, Ville. We repeat the outlook we gave in our half-year report in September. We forecast that our net sales will increase and will be between EUR 380 million-EUR 400 million. We also forecast that the Adjusted EBITDA will be between EUR 60 million-EUR 66 million. The forecast includes elements of uncertainty arising from changes in purchasing power and customer behavior driven by inflation and interest rate levels, and in addition, strikes in Finland, geopolitical crises, and tensions may have an impact on the availability and price level of goods. The everyday life of Finnish people and our customers is financially tight. There is uncertainty in the air. The cost of living has increased, and there is a shortage of workplaces. This naturally affects confidence in the future and also leads to very cautious spending. Puuilo has made good progress and results even in these times.
We have been able to demonstrate that our concept withstands difficult times. This is not generally the case across the entire retail sector. Of course, we also hope that the economic situation becomes better and customer confidence will increase. We believe this will be reflected in the growing number of customers for us, as well as an increase in the average basket size. In any case, Puuilo's future looks good, and profitable growth continues. Then a few words more about our expansion. This year, we have opened six new stores, which are Nokia, Ylöjärvi, Forssa, Tampere-Lahdesjärvi, Oulu Karjasilta, and in the end of November in Äänekoski. All new store openings have been successful, as expected. The goal is to open the Kirkkonummi store in January. Thus, we will open seven new stores in this fiscal year, and by the end of the year, we will have 49 stores.
This year is a record year for us in terms of openings. Next year, the expansion will continue. We have announced new openings in Savonlinna, Varkaus, Lohja, Mäntsälä, and Jyväskylä-Keljo, and more opening news is coming. There is room to grow in the market, and we are filling it, but in a controlled and profitable way. 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. First question regarding the outcome in Q3, the like-for-like growth, which can be described as flat year on year. Was that a surprise to you, or was that as you had anticipated, given the development of the average basket size declining during the year?
Thanks, Svante. Yes, of course, we expected that the decrease in basket size will start to, let's say, lower a bit, but now it seems that the consumer confidence and purchasing power are still on a very low level, and customers are still seeking the things to save money. And that was the reason how we see it behind the decreasing basket size. And the basket size was the biggest driver on, let's say, moderate like-for-like number because, as we told our customer, traffic still increased in Q3.
Okay, thank you. And you mentioned also that the private label share of sales increased significantly, and that supported the gross margin. Was there a clear step up in the sale of private label products?
We are increasing our private label product numbers and sales with our strategy. It is true that we have boosted that development during this year, and now we see the results of it. That leads to the better gross margin and also to better profitable. We will continue that work.
Thank you. And then on current trading, you said that there was growth in all months in Q3 and also all months in the year. Do you have any comments on Q4, i.e., November and December start?
Of course, there are differences between years and between quarters, but at the moment, it seems that this trend goes ahead as normally, and we are waiting for the quite typical Q4.
Thank you, and then regarding your inventory level, which I guess is developing largely as planned, but given that more expensive products are not selling, do you have any problems with the inventory when it comes to the more expensive products? Do you believe that you will need to have some campaigns to get rid of those, or I guess it's quite products that don't get old very soon?
No, we don't have excess inventory issue at the moment. Like we presented last year, we sell out the excess inventory, the rest of it, and there is no excess inventory issue at the moment. The inventory growth is clearly due to this volume growth in own imports, so we are pushing, according to the strategy, hard our own private label share up and importing goods with, like Juha said, with an accelerated speed. And the inventory growth is due to this, so we are ordering more and maybe earlier than before. And that's because, as you know, the delivery times are a bit longer from Asia at the moment, as you know the sea freight situation in the Red Sea, and also, we are preparing a big bunch of new stores in the spring, as we have already announced that we are opening five new stores during the H1.
It's natural that we have to order all the own private label stuff way before we open those stores that we have goods to sell from the private label side in all those new stores what we are opening during the spring.
Thank you, Ville, and then the last question. I think I asked this also after Q2, and I will repeat it again. I think, to me, the EBITDA guidance for the full year 2024 sounds quite cautious given that you have made now EUR 53 million in the first nine months, and the midpoint is EUR 63 million, and last year in Q4, you made EUR 10.7 million in EBITDA. So basically, the midpoint indicates that Q4 EBITDA would actually be a bit lower than last year, and given the growth in EBITDA in all the quarters this year, how do you comment on that?
We are disclosing the range, and we think that we will hit the range. We are not guiding any midpoints officially. I understand that mathematically the midpoint is 63, but that's not the number what we are guiding. We believe that it will be in the range of EUR 60 million-EUR 66 million in the end of the year.
Thank you. That is all from me.
Thank you.
The next question comes from Arttu Heikkura from Inderes. Please go ahead.
Good morning, and thanks for the great presentation. I have a couple of questions. You said that postponed winter was one of the factors that impacted your like-for-like growth. So how significant the factor, the impact was?
Maybe you remember that last year the winter season started much more earlier. In October, we have snow almost all of Finland, and of course, it helps and affects the seasonal sales. And compared to this year, winter season started a little bit later, and it affected in some extent. Typically, we get same sales back in the Q4, or when we are talking about the spring season, sometimes spring and summer season starts earlier, sometimes later, and typically same sales can get. But of course, situation when we don't get snow to a big part of Finland, it affects more. But currently, situation is not that. Let's say that it's affected in some extent in Q3, and we see that we will get same sales in Q4.
Okay. Then about the EBITDA of EUR 20 million, was there any one-timers, positive or negative, that affected your EBITDA?
No, no, there were no one-offs this time. Like we said, last year we had this adjustment to a gross margin, but this year there is no such items.
Okay, so it's fair to expect that gross margin and fixed cost would going forward develop as the same.
Well, of course, the gross margin may fluctuate a bit one way or the other, but from the cost side, we think that we can maintain and keep the cost discipline as seen now.
Okay. And then about the fixed costs, in which you made some balancing actions in personnel costs. So are you expecting this to improve further, or is this the level that all the balancing actions are done?
I think that we can continue to maintain this level where we are now. As you see from the numbers, our personnel expenses and the full fixed expenses line are very competitive at the moment. Of course, we don't know yet what happens next year, for example, due to the union agreements and salary increases. So we don't know yet, and that might have, of course, next year effect when we get to know what the salary increase levels will be. But we still think that we can continue the same cost ratios more or less by increasing our sales in the end of the day.
Okay, then my last question is, you said that you may be opening up to seven new stores next year. So how confident are you landing all these seven new stores? And given that you are now opening seven new stores in this year, so is your engine fit enough to continue open seven new stores, or do you need some extra investments to handle the growth?
Yeah, we will open five new stores in H1 next year if everything goes as planned. And next year seems that we have possibility to open seven new stores. But of course, there are uncertainties because sometimes, for example, construction projects and those kinds went well. Sometimes they delay in some reasons. But now it seems that we can repeat the same kind of expansion that we have done this year, and we can repeat that in next year. We don't need extra resources to do that. We can grow with our own cash, and by that way, we can grow in a very profitable way also. Next year seems quite good.
Okay, thank you, and good luck for the rest of the year.
The next question comes from Calle Loikkanen from Danske Bank. Please go ahead.
Good morning, Juha and Ville, and thank you for taking my question. I have two questions, and you might have answered this already. I had some issues here, so I'm not sure if you answered it, but I was wondering about the OpEx in Q3. The operating expenses increased only 3% in Q3, even though you had six or even seven more stores than a year ago. So I was wondering that how did you achieve this low growth in OpEx, especially in personnel costs, because typically the OpEx growth has been double-digit. So any comments here, please?
Yes. Well, first of all, it's tight cost control. We are known for that, so we know how to handle costs. But of course, when you're looking at the ratios there, like we said that we have done actions, for example, for the personnel expenses, and I would like to highlight here that we have done balancing actions. So it means that we have adjusted the hours in the stores, and especially in some specific store units. That's one. But also, we have developed the process at the same time. As we have told earlier, we have implemented, for example, an automatic workforce planning system, and that helps us to get the performance all over the company and in all units. And then what comes to other than personnel expenses, cost lines, we have been very determined with those.
So of course, the absolute euros are growing there as we are growing bigger, but the ratio to the net sales is targeted to keep on the same level or even scale up. And there are some line items where we have managed to even scale up the fixed expense ratios as the whole company's idea is to scale up and deliver better EBITDA and profitability.
I'd like to add something. I would like to remind you that we opened quite a big number of new stores at the beginning of this year, and we set extra resources to do that because we opened them a little bit faster than typically. Maybe you remember that we reported that that is one reason why our personnel costs were a little bit higher than typically. End of this year, Q3, we don't have some kind of opening calendars at the beginning of this year.
Okay, thank you. No, that's very helpful. That's very helpful, but okay, that's clear. And then my second question on the gross margins and Q4 specifically, I was wondering that what sort of gross margin should we expect for Q4? Should it be in line with what we've seen year to date, or how should we think about it?
Good question. I think if we talk about the full year gross margin level, I would expect something like what we have now on the table in the cumulative sense. So 37.5% or something around that. So we don't see that there will be a big step change in gross margin during Q4 because there are no factors on site that might affect that heavily. So I think the full year level will be what we have now cumulatively reported.
Yeah, okay, that's clear. And then I was wondering about, I mean, next year, obviously you haven't given any guidance for next year, and it's hard to say what's going to happen. But according to your kind of plans and I guess hopes and wishes as well, what sort of gross margin improvement rate are you aiming for when we go into 2025?
We don't like to say about the gross margin next year. We will continue that work. We keep our company very profitable. We improve our importing private labels and so on. We can wait that our profit table will stay or improve next year, but what is coming to gross margin, I don't like to estimate just now.
Okay, okay, that's fair enough. Thank you. That's all for me. So thank you very much.
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. Lastly, I want to thank all our customers for trusting us. Also, I want to say special thanks to our employees. It has been busy at times. Warm thanks for your commitment and adaptability. You have enabled the company's good success. Merry Christmas to everyone.