Good morning to you, and welcome to Puuilo's Half-Year Financial Results Presentation. I am Juha Saarela, CEO of Puuilo, and with me is Puuilo's CFO, Annu von Weymarn.
Good morning, everybody.
We will go through the key results for Q2, which was from May to July, as well as the results for the first half of the financial year. After this presentation, you can ask questions by calling to line. Here is the agenda for today's presentation. First, I will present the key figures and the events of Q2 and the first half of this financial year. Following that, Annu will provide a more detailed overview of the financial development during the same periods. The third item on the agenda covers the outlook for the current financial year, including the forecast range for both net sales and adjusted EBITA. Then we will move on to point four, which is a reminder on our current strategy and long-term financial targets. As I mentioned, we have reserved time for questions at the end. Let's look at Q2 first.
Our second quarter is from May to end of July, and here are the key results. Net sales for the quarter were approximately EUR 153 million, increasing by nearly 13% compared to the same period last year. Like-for-like growth was over 6%, which is clearly stronger than the comparison period last year. Customer traffic continued to increase in both old and new stores and was once again the most important driver of growth. We also saw a slight increase in average basket size. Gross margin, it increased to over 39% and improved by one percentage point compared to the same period last year. Especially the significant increase in the share of the private label sales had a positive effect on gross margin. Adjusted EBITA was nearly EUR 34 million, which is approximately 22% of net sales.
Compared to the same period last year, adjusted EBITA increased by almost 20% or EUR 5.6 million. Earnings per share were EUR 0.30 compared to the EUR 0.25 in the comparison period. We continued to expand according to our plans, and during the quarter, we opened a new store in Espoo, Espoonlahti. At the same time, our Vantaa, Virkamies store was relocated to Vantaa, Tammisto. At the end of the quarter, we had 59 stores compared to the 54 last year. As part of executing our strategy, we continue our internationalization and preparations for entering the Swedish market. The preparations for our first pilot stores are progressing according to plan. The first store will be opened in Örebro by the end of this year and the second one in Sundsvall during early next year. All in all, it was a good quarter.
Let's look at the first half of the year, which covers period from February to July. Net sales were EUR 257 million and increased by EUR 32 million or over 14% compared to the same period last year. LFL growth was nearly 7%. Growth continued to come mainly from increasing customer traffic, which we saw in both old and new stores. We also saw a slight increase in average basket size compared to the comparison period last year. Gross margin, it increased to over 39% and improved by 1.4 percentage points compared to the comparison period. This was mainly driven by a significant increase in the share of private label sales. Adjusted EBITA increased by approximately 28% and was EUR 50 million, corresponding to nearly 20% of net sales. EBITA increased by EUR 11 million and relative profitability improved by over 2 percentage points.
Earnings per share were EUR 0.44 compared to EUR 0.33 in the comparison period. Overall, the first half of the year was good. Customers continue to pay close attention to their spending, and this is still visible in purchasing behavior. However, customer traffic at Puuilo continues to grow, and that is the most important measure of how well our assortment, pricing, and overall concept are performing. We have continued to grow and gain market share despite an increasingly competitive market environment. We are now seeing some early signs of improving economic conditions, which is, of course, a positive thing for us. The first half of the year was strong, and we have good reasons to expect a favorable second half of this financial year as well. We continue our profitable growth with confidence. Good. Now it's Annu, your turn, please.
Thank you, Juha. First, we will take a look at the net sales development in Q2 and in H1. First, on the left-hand side chart, we can see that the net sales for second quarter was EUR 153 million, and they increased approximately 13% in total. In like-for-like stores, net sales grew by about 6%. This increase mainly originates from customer traffic, but now we also saw a slight increase in the average basket size. Customer traffic increased with 12% in all stores and by 5% in like-for-like stores. A chart on the right shows the net sales development in H1. Cumulative net sales were EUR 257 million, and with increase of 14% compared to last year. Like-for-like growth was almost 7%. Also in H1, increase in customer traffic explains the main part of the sales development, but also average basket size grew slightly.
These figures include one new store in Q2 and three new stores in H1. This positive development in customer traffic is a very important sign for us that our concept works well. We also saw a slight increase in basket size, which tells us that the market environment is improving. I can say that we are very pleased with the development of the net sales. Next, we will move on to gross margin. Here, again, we will start with the Q2 figures on the left. In Q2, gross margin was a bit above 39%, and it increased by one percentage point compared to a year ago. This change mainly originates from the increase in the share of private label sales. The chart on the right side shows the cumulative figures, and there we had the same gross margin as in Q2, that is 39.2%.
There we had an increase of 1.4 percentage points compared to last year. Here, the change originates from the increase in the share of private label sales, but also from the change in sales mix. In Q2, sales of private label products grew by 19%, and in H1, the development was +23%. So gross margin development has remained strong, and we are very pleased with the continued improvement. Next, we will take a look at the profitability. Development in Q2 can be seen on the left chart, where the adjusted EBITA was almost EUR 34 million, with an increase of EUR 5.6 million, or almost 20% compared to last year. In relative terms, the profitability was 22% compared to last year's a bit below 21%. This means that the relative profitability has increased from a year ago. Adjusted operating expenses in relative terms were slightly lower than last year.
H1 figures on the right. Adjusted EBITA was about EUR 50 million with an increase of 28% compared to a year ago. It grew by EUR 11 million. Relative profitability was 19.5%, and it grew by more than 2 percentage points. Also in H1, adjusted operating expenses in relative terms were lower than a year ago. The reasons behind the improved profitability are the familiar ones: good sales development, positive gross margin development, and good cost control that is typical for Puuilo. To summarize the first half of the financial year, our business model continues to scale well. All earnings metrics were at a good level and developed in the right direction. Next, let's move on to inventories. This chart shows the inventory levels over the last three comparable periods. At the end of July this year, inventories were about EUR 130 million, and it increased by EUR 10 million compared to last year.
The inventory increase originates from our growth. We have opened five new stores during the past 12 months, and those inventory figures also include private label products for stores that we will open after the end of the reporting period. That has also affected inventory levels. We can say that this inventory growth is an investment in growth. We have also increased the volume of private label products, and that has also had an effect on inventory levels. As you can see in the chart, our inventory turnover has improved, and this is something that is in line with our targets. To summarize this, inventories have grown, but in a controlled way, and they are consistent with our network expansion. It's also worth noting that there is natural variation between quarters and years, so movements during a single period should not be overread.
Next, we will take a look at our cash flow. Our cash flow was very strong. On the left, you can see the operating free cash flow in Q2, and that was a bit over EUR 43 million, and it increased by EUR 5 million compared to a year ago. The chart on the right shows the operating free cash flow in H1, and it was EUR 60 million, and the increase was EUR 8.6 million. Cash flow has now improved for three years in a row, both on quarterly basis and also cumulatively. This is something that tells us that our growth is healthy. Cash flow was supported by the same factors, both in Q2 and in H1. Those are good sales growth, improved profitability, and positive change in working capital. A strong cash flow gives us financial flexibility.
We are able to execute our strategy and expand our store network, both here in Finland and also in Sweden. This can be made through internally generated funds. At the same time, we are able to distribute profits to our shareholders in line with our target, which is paying out at least 80% of net profit. Next, financial position. The strong cash flow shown on the previous slide is directly reflected in the balance sheet. In the first chart, where you can see net debt to adjusted EBITA ratio, there we can see that the ratio has improved in two years from 1.3 to 1.1 this July. This is in line with our long-term target, where the ratio is less than 2.5. At the same time, we have grown by 13 stores in two years period.
We can see that the growth has not come at the expense of the balance sheet. The middle chart shows the net debt to adjusted EBITA, excluding the impact of IFRS 16, meaning lease liabilities, and there the ratio stood at 0.2 at the end of July. It has also improved from two years ago. On the right, cash and cash equivalents. They were more than EUR 51 million at the end of July. At the same time, bank loans were approximately EUR 70 million. This means that net debt, excluding the impact of IFRS 16, was EUR 18 million. This means that the company's net debt is relatively low, and our financial position is strong. Next, we will have a summary of the figures we already went through in more detail.
To summarize this second quarter, the quarter was very strong in terms of both growth and profitability. The quality of growth was good, as it was supported both increase in customer traffic and improving gross margin. The development of earnings, cash flow and balance sheet shows that we are able to grow in a controlled and profitable way. This means that our strategy is progressing according to plan. Next, Juha will go through the updated outlook for the current financial year.
Thank you, Annu. Then the outlook for this financial year. As announced on 1st of this month, we have revised our guidance for this financial year. We forecast that net sales will grow and be between EUR 495 million-EUR 515 million. We also expect adjusted EBITA to be between EUR 87 million-EUR 97 million. Like-for-like store net sales growth in the first half of the year has exceeded expectations. In addition, profitability has been supported by positive gross margin development and disciplined cost control. Therefore, we have increased our guidance for both net sales and adjusted EBITA compared to our previous guidance. There are uncertainties related to the outlook, including changes in consumer purchasing power and consumer behavior.
In addition, geopolitical crisis and international tensions may have direct or indirect effect on inflation, interest rates, product availability and product prices, which could in turn affect both sales and profitability. Lastly, the outlook includes the budgeted set-up expenses for Puuilo's international expansion, which we expect to remain at approximately EUR 1 million and in line with our previous estimate. Good. Then a reminder about our strategy and our financial targets. The six key elements of our strategy are, the first one, opening new stores and continuing our expansion in Finland. Our target for this period is to reach over 90 stores nationwide. Then entering the international market, starting with the pilot in Sweden. Third one, continuing like-for-like sales growth where is still significant potential. Then strengthening our current position by increasing private label sales and being one of the most cost-efficient operators in the industry.
Fifth, providing an omnichannel customer experience. A shopping experience that is easy, affordable, and fast is a key factor for both current and potential customers. Then sustainability work and its development. We call this theme as responsible retailer, which covers the key elements of our sustainability efforts. Working towards these six objectives will support us in achieving our long-term financial targets, and they are presented in the lower half of this page. Our sales growth target is to achieve average annual sales growth of over 10%. By the end of the strategic period, we aim to exceed EUR 800 million in net sales. In terms of profitability, our target is to reach an adjusted EBITA margin over 17%, corresponding to more than EUR 136 million in adjusted EBITA. Then we aim to distribute at least 80% of company's net results to shareholders.
Regarding net debt, our target is to keep the ratio of the net debt to adjusted EBITA below 2.5 times. The figures for the first half of the year show that we are making good progress towards these targets. Then expansion in Finland. This year we have opened stores in Hollola, Jyväskylä, Vaajakoski and Espoo, Espoonlahti. Also, we have relocated our store in Vantaa, Virkamies to Vantaa, Tammisto. During remainder of the year, there will be five store openings. New stores, Lahti, Holma and Kangasala, will open their doors on 17th of this month. Store in Raasepori opens during autumn and Kurikka and Turku near the end of this year. For the next financial year, we have already announced store openings in Ylivieska and Jämsä.
In addition, our Kajaani store will relocate to new premises during the summer 2027, and our Jyväskylä Seppälä store will move to the new premises during next year. We will provide updates on other new stores openings in due course. The ramp-up of new stores has followed the same pattern as in our previous openings and has been in line with our expectations. Growth is therefore continuing according to plan. Let's move on to our expansion into Sweden. As we have communicated before, we are preparing for international expansion into Sweden alongside our continued growth in Finland. All preparations are progressing according to plan. We have already announced our first two pilot stores. The first store in Örebro will open towards the end of this year and the second one in Sundsvall during early 2027. We will provide updates on other store openings in due course.
We will continue to update this on our progress as we reach the next milestones in the pilot phase. [Non-English content] . Good. Thank you. Now we move on to questions. 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 Maria Wikström from SEB. Please go ahead. Maria Wikström, your line is now unmuted. Please go ahead.
Sorry about that. This is Maria from SEB. Had it on muted. I have a few questions. Wanted to touch first on the gross margin development, your gross margin grew 100 basis points in Q2, supported by the higher private label sales. Is that the level that we should expect for the remaining quarters of the year, or is there some seasonality when it comes to the private label share between the quarters?
Thank you, Maria, for the question. Well, as we went through our increase in gross margin, that is mainly based on increase in share of private label sales in total sales, and there we expect that our solid performance will continue. We are not expecting anything that would dramatically change our gross margin. But at the same time, our business is growing and also we are working on our private label products. In past year, that has also increased our gross margin. There may be some variation between quarters, but you should always look at the long-term trend also in our gross margin.
Thank you. Then I wanted to touch on the current trading environment, given that the Finnish consumer confidence figure was the highest year to date in August. Do you see the sales trend continuing similar from the Q2, or how do you see the improving consumer confidence impacting your trading environment?
Thank you, Maria. Our concept works very well in the tougher economic situations and environments. If we look our last year's performance when the consumer confidence has been very low, we have gained new customers and get a better profitable. But now, consumer confidence is in highest level in, let's say, three years. It is not very good, but anyway, it is a bit higher. We can get a benefit of this situation also. It is very difficult to say how much, but anyway, that kind of situation is supporting activations and purchasing in consumers. This situation is good, and we are waiting that there will be a bit better situation and higher consumer confidence in near future. But yes, this situation support our growth and our gross margin and profitable development.
Thank you. Then finally, maybe a little bit on the expected inventory levels now when you are expanding to Sweden. What kind of an inventory setup you will be doing in Sweden? Should we expect the inventories to come up somewhat, follow the expansion to Sweden that you would then build up inventory for your own private labels? Or how should we view the inventories going forward?
We are going to Sweden with the same concept, with same assortment. Practically it means that new stores in Sweden will be quite similar than in Finland. We do not expect that there are coming dramatic or significant inventory values. As I said, they will be similar stores with similar inventory values than in Finland.
If I may add there, we are going to Sweden with the same logistics model as we are using here in Finland. In that perspective, for example, we are not going to have a centralized warehouse separately in Sweden. They are kind of similar stores that we have here in Finland, also in Sweden.
Thank you. I have no further questions at this point.
The next question comes from Miika Ihamäki from DNB Carnegie. Please go ahead.
Hi, this is Miika Ihamäki from DNB Carnegie. We had yesterday a major announcement in Finland for data center build-out. This of course suggests the prolonged period of construction activity, and it should be largely supportive for economic outlook overall. Although Puuilo is predominantly a consumer-focused rather than a B2B distributor, you have categories such as tools, work accessories, safety equipment, et cetera, in your offering. Do you expect these investments to provide a tangible sales tailwind for Puuilo over the coming years, is my first question.
Yes, we saw very nice news from northern part of Finland. I think that it will support the demand in that part of Finland and, of course, to some extent to the B2B business. Our business and business model is basic for the consumer business and not basic about that. Let's say that, of course, we can get a bit benefit of those investments which are coming. So, let's say it that way.
Thanks. Based on strong like-for-like sales development in the first half, can you just talk us through the performance between the months May, June, July, flag if whether there were any meaningful differences between those months? Furthermore, is it fair to assume that Q3 has continued with a similar positive momentum?
Well, to begin with, sales in Q3, we are not commenting that on this stage. As before, we are not commenting on a special or separate month's movements. I can tell you that much that there hasn't been any major events or any one-offs that has increased our sales, but our sales increase has been broad-based.
Thank you. Then lastly, given your visibility into the second half, what specific cost items are you assuming within the second half that weren't already present in the Q2 run rate?
Yes, we are expecting the costs to be at the similar level. Of course, there will be salary increases according to union agreement, but we have faced those also in previous years. So we are not expecting to have any dramatic change there. In other costs, of course, there is always pressure for cost increases, but we are not expecting any dramatic changes there either.
Okay. That's all from my side. Thank you very much.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Svante Krokfors from Nordea. Please go ahead.
Yes, good morning. Thank you, Annu, for the presentation. A couple of questions left. First one regarding the average basket size has started to grow slightly. Can you tell if consumers are already moving to higher price point products or what is the main explanation behind the increase in basket size?
Thank you, Svante. Typically, we see when basket size is decreasing or developing, increasing, it means that the customers buy more items when they shop in our stores. This is the typical effect how it works. Of course, there can be some effect from the a bit more expensive product span, but so far we see that the customers are buying more products than before.
Okay, thank you. Regarding private labels, which grew 19% and obviously the share of private label is growing. Which categories do you suggest growth in your private label assortment?
That this development has been quite broad-based. We don't comment at where it's mainly coming, but let's say that we are increasing private labels almost all our key categories, and that is why private label share is broad-based.
Thanks. Your online share is relatively small of your sales, but it has been growing quite nicely now. Have you made some efforts or what is the explanation behind the accelerating online sales growth?
It is growing alongside our sales growth. The online store is a very important part of our concept and it is some kind of a new way how the customers when they are sourcing or looking for the products and availability, prices. So in same time it is a very important marketing channel, but same time it is a very important part of our concept. We are waiting for that the online business will grow with our total sales growth, like for like sales growth, but we are not expecting that it will grow dramatically faster or to be very important part of our share of our sales.
Thanks. Then on the Swedish expansion, I think I know what your slogan will be there. [Non-English content But is there any major differences in how you're going to implement your marketing in Sweden compared to Finland?
It is too early to say, but Puuilo concept is we have differentiators here in Finland. Of course, we try to create the same differentiators to Sweden. So at the moment I can't comment anymore. We are creating our marketing concept and we will publish them when we open the Örebro store.
Okay. Looking forward to that. Thank you. That is all from me.
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 would like to thank our customers for the trust in Puuilo. Customer traffic is an honest measure, and its continued growth is the best feedback we can receive. We have had a busy spring and summer, and at times there has been more work than people available to do it. Therefore, I would like to give special thanks to all Puuilo employees for their flexibility, commitment, and hard work. Our next report, the Q3 business review, will be published on 10th of December. Thank you for your attention, and I wish you all a very pleasant autumn