Good morning, good day, and welcome. Thank you for joining Puuilo's presentations of the first quarter results for the financial year, which ended at the end of April. I am Juha Saarela, CEO of Puuilo, and with me is Ville Ranta, Puuilo's CFO.
Good morning.
In this presentation, we will review the key financial and operational highlights for the period from February to April. What is our first quarter of the financial year? After this presentation, you can ask questions by calling the line. We are happy to answer your questions. Here is the agenda for today's presentation. First, I will present the key figures and events of the first quarter of the financial year. Following that, Ville will provide a more detailed overview of the financial development during the same period. The third item on the agenda covers the outlook for the current financial year, including the forecast range for both net sales and adjusted operating profit. Next, we will briefly go over our strategy and key objectives. As usual, we have reserved time at the end for questions.
Our first quarter is from February to the end of April, and here you can see the key results. First, net sales. The sales for the quarter were just under EUR 90 million, showing strong growth compared to the same period last year. Total growth exceeded 18%, and like-for-like growth was 6.5%. The main driver of sales growth was the increase in customer traffic, which continued to increase in both old and new stores. Net sales grew in all months of the first quarter. The average basket size was on the same level as in the comparison period. Spring arrived slightly earlier this year than last, which also contributed to the sales growth. As we know, no two years are alike, and this year was no exception. Cross-margin in Q1 also increased and was 37.1%. The cross-margin increased by 0.5 percentage points compared to the same period last year.
The increase in cross-margin was mainly driven by significant sales growth in private label products and a continued shift in the sales mix toward more affordable goods. Operating profit in the first quarter grew by over 31% and amounted to EUR 10.8 million, representing 12.1% of net sales. This was an increase of EUR 2.6 million and 1.2 percentage points compared to the same period last year. Earnings per share were EUR 0.09 compared to the EUR 0.06 in the comparison period. We continued our strategic expansion by opening new stores in Varkaus, Savonlinna, and Lohja during Q1. At the end of the period, we operated a total of 52 stores. Good. Now, Ville, please.
Thanks, Juha. As usual, let's start with the net sales. The net sales for the first quarter was EUR 89.3 million, and it grew by 18.4% compared to the previous year. At the same time, like-for-like, net sales grew by 6.5%. The customer traffic in our stores grew by 18.4% and 6.9% in like-for-like terms. As you can already conclude from the growth rates of customer traffic and net sales, the average basket size was at last year's level. In Q1, sales of all main product groups increased. Also worth mentioning is the strong performance of our online store in Q1, where we reported growth of 19.6% compared to the previous year. The start of the new financial year was therefore quite excellent from a net sales perspective. We opened three new stores in Savonlinna, Varkaus, and Lohja, and their launches have been promising.
Let's move on to the cross-margin. In Q1, Puuilo's cross-margin was 37.1% of net sales, and it grew by half percentage points compared to the same period of the previous year. The increase in the cross-margin level was influenced by the sales mix and the increase in the share of own private label brands in net sales. Sales growth in own private label brands was quite strong, growing by 37.7% during Q1. Own private label brands are a key part of Puuilo's growth strategy, and as the figures show, the strategy is working. Regarding the rest of the sales mix, we are in the same situation as we have already stated earlier. We sell relatively more goods at a cheaper price point than in previous years, which raises and maintains a good relative cross-margin level.
As can be seen from the sales figures in the previous slide, their volume has also grown. The increase in the cross-margin level has continued, and we are very satisfied with the result. Let's move on to profitability. Q1's adjusted EBITDA was EUR 10.8 million, up EUR 2.6 million year on year. In percentage terms, adjusted EBITDA grew by 31.2%, and profitability as a percentage of net sales was 12.1%. This is clearly better profitability than in the previous year, both in euros and percentage terms. The improved profitability is due to good sales development, increased gross profit, and cost discipline. Operating expenses were 19.5% of net sales, and the expense ratio decreased by 0.9 percentage points compared to the previous year, which we consider an excellent performance. As a result of these factors, profitability improved.
I could also summarize here that all performance indicators were at good level and developed in the right direction. This slide shows the development of Puuilo's inventory levels over the three same quarters. The inventory turnover rate slowed down, which is due to the initial inventories of eight new stores and the increase in the imports of own private label brands. With the increase in inventory, we prepared for this year's spring and summer season a little earlier than normal, as well as for the new stores to be opened in the first half of this financial year. We also prepared for possible supply chain challenges in advance during the first half of the year.
In terms of timing, a relatively large number of new stores will be opened in the first half of the current financial year, a total of five new stores during H1, of which four have already been opened so far, with the Mäntsälä store already in the second quarter. We actively monitor the inventory turnover rate, and the long-term trend goal is to decrease the turnover rate. However, in short term, there may be fluctuation between the quarters and years for the reasons mentioned above. In Q1, Puuilo's operating free cash flow was EUR 13.6 million, and it increased by EUR 11.4 million. The cash flow was influenced by good net sales development and, of course, good profitability, although the value of inventory increased slightly, as I explained on the previous slide.
The good cash flow also reflects the spring season that has started well, and we expect this to continue in line with Puuilo's seasonality. Good cash flow makes Puuilo a good dividend payer for shareholders. The company's net debt to adjusted EBITDA ratio decreased slightly compared to the comparison period due to strong EBITDA development. The current net debt to adjusted EBITDA ratio is in line with our long-term targets. The middle figure shows the adjusted net debt to EBITDA ratio graph, excluding the impact of IFRS 16, which decreased compared to the previous financial year. The ratio calculated excluding the impact of IFRS 16 is currently very low. Puuilo's cash and cash equivalents were approximately EUR 27.7 million at the end of the quarter, and the company's financial position is stable.
Puuilo's net debt, excluding the impact of IFRS 16, meaning the net sum of cash and cash equivalents and bank loans, is currently EUR 22.1 million. The company's absolute net debt is also low. Here are the figures in summary, which we already went through in detail. We are very pleased with the performance of the company. Juha will tell you about the outlook for the financial year 2025. Please, Juha.
Thank you, Ville. Good. Here is the outlook for this year. We repeat forecast that net sales will grow and be between EUR 425 million-EUR 455 million. We also expect operating profit to be between EUR 70 million-EUR 80 million. There are uncertainties related to the outlook, such as the development of the still uncertain general economic situation, in addition to changes in purchasing power and consumer behavior. Additionally, there are other unusual uncertainties in the outlook, such as the ongoing war in Ukraine, but also other potential geopolitical crises or international tensions that may have a direct or indirect impact, especially on the availability and price of goods, which can affect sales and profitability. Good. Next, a brief look at our strategy and long-term financial targets. Our strategy runs until 2028. Here are our key actions and objectives.
The five key elements in our strategy are: first one, opening new stores and continuing our expansion in Finland. For this period, our target is to reach over 70 stores in Finland with the current concept. Second, the continuation of like-for-like sales growth in the market, where we have a lot of room to grow and lots of untapped potential. Then, maintaining and further improving our current position as one of the most cost-efficient operators in the sector. Then, an omnichannel customer experience, an easy and fast shopping experience is an important factor for our current and potential customers. Last one, our aims to be a responsible retailer. This theme includes the key areas and goals of our sustainability work, including a responsible supply chain, being a great workplace, and our environmental and social responsibility.
Working toward 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 goal is the same as before: to reach adjusted EBITDA above 17%. We aim to distribute at least 80% of the company's net results to shareholders. Regarding net debt, our target is to keep the ratio of debt to adjusted EBITDA below two times. Good. During the past financial year, we opened seven new stores. It is a record number of openings for Puuilo. All of these openings have performed in line with our expectations. This year, our expansion continues in line with our strategy, and we currently expect to open another seven stores.
Next week, next Wednesday, we will open a new store in Keljo, Jyväskylä. Later, in the autumn, a store will be opened in Iisalmi and toward the end of the year in Heinola. For next year, we have already announced a new store opening in Espoo. It will be our second location in the city. We have also announced a store opening in Hollola. Looking ahead to next year, we expect to continue expanding at a pace aligned with our growth strategy. Good. Thank you. Now we move on to questions. Moderator, please open the line.
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.
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Okay. Yeah. Sorry. Sorry. This is Calle Loikkanen from Danske Bank. Sorry. Sorry. I was waiting for introductions from the line, but never mind. Let's kick off. I have a couple of questions. First, I was wondering about the private label side. Could you perhaps elaborate a bit on the success here? The growth was really strong in Q1, but can you open up a bit more? What sort of products have you been introducing? Is there still a lot of product and product categories where you can enter and so on?
Thanks, Calle. Yes, that's true that we are pushing the private labels up as we have done many years for now. We have introduced a lot of new assortment in the private label side. Maybe compared to the previous years, we are focusing more on the lower-price tech items there. For example, if we are giving some examples there, those are typically, let's say, building accessories and these kinds of things. Also, tools, also pet products, and stuff like that. The number of articles are growing fast at the moment, but like I said, the items are smaller than a few years ago.
Okay. That makes a lot of sense. That makes a lot of sense. I was wondering about the store opening or the pipeline of new store openings. You have seven new stores for this year, of which five in the first half and then only two in the second half. I was just wondering about the second half that obviously the team that's opening up the new stores have been really busy in the first half. Do they need a bit of holiday in the second half and only open up two new stores, or do you think that there could actually be more than seven new stores this year?
Good. Let's say that years are not brothers. Sometimes we open more during the same period, quarter, or, for example, in this year, five new stores in the first half of this year. Sometimes it happens, depending on the situation, negotiations, and of course, some of our new stores are new buildings. Sometimes the building projects ended, let's say, in the same time and so on. It depends on the situation. We have resources to open stores, seven, even eight new stores per year, and we have resources to open in the same time if needed. This is not a problem for us. As I said, that years are not brothers, and this happens sometimes.
Thank you. That makes a lot of sense. Lastly on my side, in Q1, you benefited a bit from the warm weather, the early spring weather, but now, especially May, but also June, have been colder than last year. Can you give any kind of comments on the trading in Q2 so far? I mean, basically May, early June trading. Any comments?
Good. Yeah. Worked a bit, is right. As you know, our first quarter ended one month later than typically. As we know, springtime comes to Finland in different times depending on the years. Now, it's not time to do any conclusions how our first half is going or how our business is running. The time to do that is after the second quarter. Let's say this is very normal, very typical. If we compare this year to the past years, we can see that there are the same kinds of influences in different years. This is very normal for us, and the time to conclusion is after the second quarter.
Okay. Okay. Thank you. That's all from me. Thank you.
Thanks.
The next question comes from Svante Krokfors from Nordea. Please go ahead.
Good morning. Thank you, Juha and Ville, for the presentation. A couple of questions. The first one, could you tell a bit about your business-to-business sales development? You have had some campaigns, at least heard on the radio commercials a lot. Could you tell a bit about how that is developing?
Our concept is a consumer concept, but of course, the B2B customers are one part of our customers and one part of our sales. We have had many years of service for B2B customers. We do not have the new business model at all. We started with, let's say, different marketing at the beginning of this year. It seems that we have something new. Of course, by that way, we try to get new B2B customers and improve our sales.
Thank you. I was cut off there during Calle's one question. Regarding the development in February to April, you said that there was growth in all months, but was April the strongest of the three months?
Yeah. Thanks, Svante. Yes. Yes, April was really good. Of course, the early spring was helping us during Q1. As everyone knows, April was really warm. The whole spring season has been unusually warm, and the winter was really short. Maybe I can put it that way.
Thank you. The cost control seems to be quite good still. Do you see any challenges on the fixed cost side?
No, no, no at the moment. Yes, you can see from the cost ratio that the cost ratio came down. I would say that it is more about scaling the cost. We are not in any—we do not have any kind of issues or situations with the costs at the moment. We believe that we can continue this way.
Thank you. You commented also that new store openings have all begun well. Have you had any disappointing new store openings at all, or have all been equal successes?
No, at the moment, all those openings have met our expectations. Of course, there are variations between new stores, let's say, after one week, one month after the opening. Of course, stores are different, areas are different, cities are different. All those openings have met our expectations, and they are running as we are waiting for.
Okay. Thank you. That is all from me.
Next question comes from Arttu Heikura from Inderes. Please go ahead.
Good morning. It's Arttu Heikura, Inderes. I have one question regarding private label sales, which grew quite strongly. How sustainable do you see this growth? Were there some extra marketing during Q1? Could we expect double-digit growth also in Q2 or going forward?
Sorry. Are you asking about the private label products in Q2 growing rate?
Yes. I'm kind of trying to see how strong—how likely do you see the growth continuing also going forward? Because it was pretty strong in Q1, is this sustainable?
Yeah. The strong growth came from the new articles, of course. Of course, there is some effect of the warm spring. There are new and old private label products mixed in that figure. As we reported in our management presentation, private label growth during Q1 was almost 38%. We believe that the growth will continue. The background for that is there are now a lot of new articles. Like we said in our presentation, we are pushing the private labels up, and our long-term target is to reach even higher share, let's say 30% or something like that in the long run. We are pushing the private labels towards that target. Now we have introduced a lot of new articles.
Like I said, in tools, building accessories, also in pet accessories side, practically in all main product groups has been introduced a new private label products.
Okay. Thank you.
Next question comes from Mika Ihamäki from DNB Carnegie. Please go ahead.
Thanks for a good presentation. This is Mika. You mentioned that product mix was still a bit more towards affordable goods, but also was one to drive your gross margin. Now going forward, there are some trends that you have also mentioned about macroeconomic factors improving, which could imply better consumption trends in Finland that could push up also those higher average selling price items in the consumer's basket. My question is that how should we think about the gross margin development going forward, Q2, Q3, etc.? Should we expect sort of similar gross margin run rate improvements, or would you say that you see that the potentially higher basket sizes could sort of hamper the development, although you see your private label share increasing?
Thank you. There may be various customizing varies between quarters. That is very normal and typical. In the future, we see that the private labels and growth of them is the main driver to our gross margin development. As Ville said, and we have mentioned before, we try to push that share up year by year, let's say one percentage point, even more annually. That push drives our gross margin up in the future. If we continue that work, it will maintain our gross margin.
Okay. Thank you. Just coming back to fairly strong like-for-like sales growth that you see this quarter, which was clearly above what we've seen in the previous quarters and last year. I get that there was positive impact from the unusually warm spring, perhaps. Have you seen that the increased activity would anyhow resonate with improved consumer outlook or confidence that you especially expect to help your operations in the second half of the year? Have you gained confidence through these figures and the customer development?
Yeah. We see that customer confidence, it hasn't changed still. We are, let's say, more or less in the same situation with the consumer confidence. The economy is not growing. Warm weather, I would say that, yeah, it explains in some extent the Q1 performance, but it's not the full explanation. Of course, as you see from the customer traffic growth numbers, there could be transition also from the competitors to our concept. We can't say what the effect or amount for that might be. If we look at the rest of the year, we know that, for example, there is now, for example, the union agreements come into force. There will be salary increases widely in Finland. That might help to improve the basket size for the rest of the year.
Let's see how it goes and how the overall economy goes and how these geopolitical tensions and customer minds are changing for the rest of the year. It's too early to say.
All right. Thanks very much. That's all.
There are no more questions at this time, so I'll 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. A special thank you to all our employees for your continued hard work, commitment, and flexibility. Happy summertime to everyone.