Good morning, welcome to Tokmanni's Year 2023 First Quarter Result presentation. My name is Mika Rautiainen, today together with me, presenting the results is Tokmanni's CFO, Mr. Tapio Arimo. I will first present the key points of the first quarter. Tapio will share a little bit wider look at the figures. I will come back with focus areas for 2023, afterwards it's time for questions. Let's start. Record number of customers, revenue grew, but EBIT declined. Let's take a closer look at it. First of all, we had a record number of customer visits in Tokmanni stores during the first quarter. More than half a million customers during the first quarter is quite remarkable for us, and basically it tells quite a lot of...
about the customers' price focus during the wintertime in Finland. Basically, the purchasing power figures were and the consumer confidence was basically on the lowest level in history during the first quarter. It showed in the customers' purchasing behavior. Purchase is focused on discounts, offers, and inexpensive groceries. Especially non-food products were not selling that well during the first quarter. This was especially in January and February. In March, we already saw some light with purchasing behavior. Anyway, the number of products in the shopping basket decreased clearly. Basically, we could say that it was one product less compared with previous year.
The sales of groceries, high sales of groceries affected on the gross margin, as well as the discounts on apparel, during the first quarter that was reducing gross margin. We decided to basically have very strong discounts on apparel for the winter season to get rid of the winter season products. This was of course affecting our gross margin during the first quarter. The biggest increases with the cost side were in rent and real estate costs. Overall operating expenses grew moderately, slightly lower, compared with the inflation level in Finland. Inventories, which has been basically already the last 12 months on the focus area.
The inventories measured in units decreased significantly, inflation, especially inflation and the inventories from these acquired companies, Jyskän Varastomyymälä and Click Shoes and Shoe House, shoe store chain, increased the inventory value. When we look at the key figures, revenue grew by 4.7%. Like-for-like revenue increased by 2.7%. Comparable gross profit was higher compared with previous year, EUR 75.5 million, the gross profit margin was 31.7%, clearly lower compared with previous year's 32.4%. Comparable EBIT amounted to negative EUR 2.2 million, minus 0.9% of revenue. Cash flow from operating activities amounted to minus EUR 12.9 million compared with previous year's minus EUR 65 million.
This was of course due to the lower level of inventories compared with the previous year. Earnings per share diluted was minus EUR 0.07. Let's take a look at a little bit closer on the groceries and non-food. First quarter in Tokmanni, it's always been more of grocery sales. It's actually the first quarter during the wintertime. It's not really a season for non-food products. Still this time, this year, the groceries were even a bigger share of the total. The increase was 6.7% during the first quarter. Basically, it was the sales of groceries, especially food, pet products, washing, cleaning, and tissue paper products.
These were on a very high sales growth. On the other side, on non-food products, non-grocery products, especially home electronics and leisure products decreased clearly. Apparel was growing fast, but that's mainly due to the discounts during the first quarter. When we'll then look at the market share, with the red line over here, is basically Tokmanni's market share, and basically the sales sales increase, sales development figures compared with hypermarkets in the market and department stores. As you can see, during the last two quarters, we've been losing market share. With hypermarkets, they are clearly bigger with food products, and food is clearly smaller in Tokmanni compared with hypermarkets.
The inflation with food products during the first quarter was sky high in Finland, 15%-16%. Obviously this has an effect on the sales growth in the market. Obviously we of course try to do our utmost to start winning market share again. This was like a quick snapshot on the first quarter, then key figures, and Tapio, please. Your turn.
Thank you, Mika.
You're welcome.
Good morning everyone on my behalf as well. We start with the key figures. Revenue. In the first quarter, we had good revenue growth of 4.7%. As you can see, we hit the record revenues in Q1. Also what I'm very happy about is the like-for-like revenue, which increased by 2.7% as compared to last year when it actually declined by the same amount. Let's say most growth showing product categories included food, pet products, apparel, washing and cleaning products, and tissue paper. From now on, we also will start to share our B2B or business sales. In the first quarter, the B2B sales accounted for 3.5% of total revenue. Likewise, our online sales accounted for 1.2% of total revenue in the first quarter.
Looking at our comparable gross profit, we also hit a record there with EUR 75.5 million. Our comparable gross margin declined to 31.7% from a year ago of 32.4%. The gross margin was negatively affected, in particular by the increased discount and campaign sales we had, our sales mix, which focused more on grocery, and also our significant winter apparel discount campaigns during the Q1. Looking at our direct import and product labels managed by Tokmanni, we had very good progress in the Q1 compared to last year. Our direct imports grew to 25.1% of total, and import through Shanghai sourcing office increased to 15.7%.
When you look at our product labels that are managed by Tokmanni, there we also saw very good growth in the first quarter, an increase of 1.7 percentage points to 30.1%. Looking at our operating expenses, they grew about EUR 1.9 million in the first quarter compared to last year. The increase in expenses was driven by higher property costs, but of course also other cost items increased. Personnel expenses were in, I would say, in good control. There was slight increase, but as a percentage of sales, they declined, so to 14.1% from 14.5% a year ago. In total, our comparable operating expenses declined as a percentage of sales to 24.9% from 25.2% a year ago.
Our comparable EBIT declined from a year ago and was minus EUR 2.2 million. As you can see, the absolute figure is about exactly the same as it was four years ago, excuse me, in 2019. Especially in 2021, we saw the corona impact in the figures. Compared to last year, the weaker result was mainly due to the lower gross margin % and an increase in the operating expenses and depreciation. Looking at our inventory, our inventory value declined slightly from a year ago. It was EUR 300.7 million, the increase was mainly driven by higher sourcing prices and the inventories of the acquired companies we acquired during the last quarter.
If you think about our inventory in number of items, the inventories actually decreased clearly. Looking at our financial position, at the end of March, our interest-bearing debt totaled EUR 441.2 million. Out of that figure, EUR 100.4 million was in non-current loans, and EUR 51.4 million was in current loans from our commercial paper program and financial institutional loans. The remainder of the interest-bearing liabilities were then these IFRS 16 liabilities. Our ratio of net debt to comparable EBITDA declined slightly. It was 2.8 at the end of last quarter, compared to 2.4 a year ago. Our financial position remains very strong.
We have a total of EUR 139.6 million in withdrawable funds consisting of loan agreements with financial institutions and our commercial paper program. Our cash flow from operating activities was very good in the first quarter. Compared to last year, there was a significant improvement. Also looking at the previous four years, we had record cash flow, albeit still being negative. This year, the operating cash flow was particularly impacted by our prudent management of working capital during Q1. Moving forward to capital expenditure. In the first quarter, our capital expenditure totaled EUR 18.3 million. As Mika mentioned, during the first quarter, we acquired the business operations of Jyskän Varastomyymälä in Jyväskylä, then the entire share capital of two Finnish footwear shoe store chains, Click Shoes and Shoe House.
In addition to these acquisitions, the CapEx was related to our normal capital expansion, store network development and maintenance, development of our digital services, and of course, the construction of our new logistics center, which was about EUR four and a half million in the first quarter. The total value of the investment in our new logistics center is estimated to be around EUR 65 million, and it is recognized over time during this year and last year. With that, I give the floor back to Mika to talk a little bit about our 2023 plans.
Thank you very much, Tapio. Yes, the beginning of the year, as mentioned already, for our customers was quite difficult, especially January, February time, due to inflation, higher costs with food, high inflation, higher electricity costs, higher interest costs, and so on. Already in March, we could see a little bit more light with the situation. Of course, throughout Finland, the salary increases will start affecting already in April as well. Let's take a short look at the focus on Tokmanni's year 2023. We will be focusing on sales growth, improving profitability, and improving competitiveness. Basically, from sales growth, it's strengthening our destination categories. With destination, Tokmanni's destination categories, it's, for example, Apparel.
Part of the Apparel business, we decided to buy these shoe store chains, Click Shoes and Shoe House. We will be working on that very actively. We'll short come back to also an outdoor brand called Catmandoo, a traditional Finnish well-known outdoor apparel brand, which we actually acquired yesterday. But anyway, Apparel is one of these key destination category areas. Now, the beginning of the second quarter is, of course, our second biggest season, spring/summer season. Garden, for example, is our destination category. We are, at the moment, the market leader with Garden. Obviously we will be focusing very strongly on these destination categories, especially now during the second quarter.
Of course, store network will be, we will be getting new stores during this year. Previous year, last year, the construction costs were on a very high level. Now we can see a clearly lower level with the construction costs, so we're able to move on with our target of 220 Tokmanni stores. Tapio already mentioned Tokmanni business-to-business sales growth, Tokmanni Tukku. We can clearly see that when normal customers are focusing on low prices in Tokmanni stores, companies also, other businesses are also focusing on low costs, low prices with their with their shoppings, so and goods not for resale.
We will, of course, focus also on the sales growth of our B2B sales. With profitability, we already could see during Q1 that private labels were very popular due to the price level. We will be developing new private labels, and we will, of course, focus on strong sales of Tokmanni private labels. Supply chain efficiency mainly is about our new distribution center in Mäntsälä. We started to use the first part in April.
The first part of our new distribution center in Mäntsälä during April, we're basically able to finalize the external warehouse contracts during May and June actually, which will, of course, make our supply chain again a much more efficient compared with, for example, the last 2 years. Increasing inventory turnover, this is what we've been working for now, especially for last 12 months, we will continue with this one as well. Improving the competitiveness, it's Tokmanni Klubi. Our loyalty customer loyalty program, Tokmanni Klubi. We have now already more than 2.2 million members with Tokmanni Klubi, which is a great asset for the company. We're getting a lot of customer data, which will make us more efficient at the moment.
Of course, all the discounts, offers, services, different kind of benefits will be offered to our club members. This is only now the beginning. Of course, traditionally, the success with Tokmanni starts with Tokmanni employees. We will be strengthening our employees' competencies and well-being. Last but not least is the making the concrete and increasingly responsible actions, of course. These are the focus areas for 2020, 2023. Already mentioned Catmandoo, traditional Finnish outdoor apparel brand that we acquired yesterday. We will be developing this one, starting from today actually. Very enthusiastic, our Apparel team, to start working with this. This will definitely increase the quality level of our apparel offer as well. We're very excited about it.
The guidance for 2023 unchanged. Tokmanni expects revenue to be EUR 1.2 billion-EUR 1.27 billion. Compatible EBIT and euros, the guidance is we expect it to be from EUR 85 million-EUR 100 million. Thank you. That's it. Operator, now it's time for questions, and Tapio, please join me to answer all the questions. Thank you.
Thank you very much. Ladies and gentlemen, if you'd like to ask a question or make a contribution on today's call, please press star one now on your telephone keypad. To withdraw your question, please press star two. The first question comes from the line of Nicklas Skogman calling from S Banken. Please go ahead.
Good morning, everyone. My first question would be on perhaps if you could give some color on Let's say, if you would include April, how the spring season has developed. I remember last year there was this, at least in Finland, this weather impact where you basically went from winter to summer. I was just wondering if you could give an update on how you feel about this spring season, if it's looking better than last year?
Nicklas, this morning, in Helsinki, it was +2 degrees, it's a little bit early for springtime. Of course, we had some sunny weeks and it's. Yeah, it's. Of course, it's always about the weather, but it's always, it's also about the consumer confidence. Consumer confidence on their own economy. I. We're very happy that consumer confidence is improving at the moment. Of course, the inflation has been quite high. Starting from April, there were, I think, already quite the big part of the salary increases were in Finland with employees all over Finland. These are...
Of course, the electricity cost will be a little bit lower because during the springtime, even if it's a little bit chilly during the nights, it's still on a lower level. From our perspective, the consumer confidence is also a very relevant issue. Obviously, usually the springtime starts in May and we're very much looking forward to it. I would say this time it's also about the consumer confidence. Tapio Arimo, would you like to share a little bit more on this, or?
No, I think you covered it pretty well, so.
Okay.
It's been a sunny April in Finland.
That's true. At least the beginning.
Okay. Good. That was promising. The second question is on the gross margin. It sounds like it was only down because of this shift to more groceries and because of the discounted apparel and not much at all due to sort of price hikes lagging your input cost increases. I don't know exactly when this new freight agreement will actually start hitting your COGS.
In the beginning.
Later in the year or not.
Uh-
It sounds more positive than for the gross margin outlook in the second half.
Maybe I should go a little bit. It's absolutely true that the groceries, the growth with grocery sales that was affecting our gross margin. With Apparel, as you know, we have to make the orders for apparel almost a year before the sales. A year ago, it was still, you know, quite good growth on business. Basically the discounts on our winter season products. That had a quite strong effect on our gross margin. We decided to get rid of the winter season products with Apparel just to make sure that we can in future do healthy business. With the new freight contracts, that's already from the beginning of April.
Yes, there are a lot of positive things also happening at the moment. The costs, the additional costs from the external warehouses, we're getting rid of them by the end of May and by the end of June. Obviously, it will affect our 2023 in total. Not that much maybe during the second quarter, but for the whole year it will have an effect for sure.
Okay. This new freight it's an agreement effective as of April 1st or is it that you will?
April first.
... sort of the effects of the lower agreement will come into play in your COGS as of April first?
It's, starting from April 1st, so everything already happening now in April is with the new contract.
Everything you order now?
Yes.
Okay. Good. I think those were my questions actually.
Thank you.
Thank you.
Thank you very much, Nicklas. Operator, any more questions?
The next question comes.
Mm-hmm.
Yeah, of course. The next question comes from the line of Svante Krokfors calling from Nordea. Please go ahead.
Thank you, Mika and Tapio for the presentation. I have a couple of questions. The first one relates to the consumer behavior. You mentioned that you saw a bit improvement towards the end of the quarter, I don't know, is that more based on consumer sentiment data or what have you observed yourself in your business during January, April?
Yeah, well, January, February, we could see clearly that the customers were very cautious with their shopping behavior. If you remember backwards the January, February timing, it was quite a lot of discussion regarding electricity costs, interest rates, record high food inflation, things like this. We could clearly see that the customers are very, very, very cautious with their consumption. Coming more often to our stores, focusing on discounts and low price products. Already in March, it was a little bit more like a, like a normal situation.
It was probably due to the fact that the winter wasn't that bad afterwards or the winter wasn't that bad with the costs, for example, with electricity costs, probably it wasn't that bad and so on. When we start looking at the spring season, obviously people will be or customers will be still cautious, but probably it's not that critical the situation as it was in January, February.
Okay. Thank you. That's helpful. Next question about the inventory. How much inventory did you acquire during Q1? Or I'm actually asking how did the, let's say, like-for-like inventory develop there?
Well, of course, I mean, the overall inventory was down from a year ago. Of course we have the acquisitions in there. Obviously the, in a way, the like-for-like inventory was lower. We don't disclose the exact amounts of the acquired company's inventories.
The like-for-like inventory was clearly lower if we take the effect of the inflation.
Yeah
...the higher buying prices out of it. So unit-wise, it was clearly lower compared with previous year. We feel at the moment that we're on very much on a right track with our inventories. Of course it usually with a seasonal business, usually takes 12 months to get back on track because, you know, like for example, spring season products, it's very difficult to sell during the Christmas time and so on. Obviously we feel at the moment that we're very much on the right track with inventories, as we should, of course.
Thank you. I didn't see any numbers disclosed regarding Catmandoo acquisition. Can you elaborate a bit on the magnitude of that? Not perhaps price, but sales.
Well, unfortunately not. It's basically it's been like a wholesaler who's been selling Catmandoo products to different retailers in Finland. It could be that the other retailers are not that happy buying Catmandoo products from Tokmanni. Obviously, we're happy to sell to other retailers as well. We clearly see a space for Catmandoo type products with Tokmanni apparel sales. Actually, it's been something our customers have been asking for a little bit higher quality level with apparel products, especially outdoor, which is selling quite well in totally in Finland at the moment. This fits our outdoor offer in total. Very excited with this.
Yeah, it's gonna be a little bit of a, of a shift, because it's we're buying the Catmandoo brand from a, from a wholesaler.
Thank you. Last question regarding Tokmanni Tukku business to business sales. What's the share or how big is it now and what are the growth rates there?
Yeah. I think we said it was about 3.5% of total sales in Q1. I think we can say that we plan to grow it significantly over time. We have a, let's say, a very good plan for that to expand on those sales.
Yeah. Instead of, as we were calling it, business to business sales in Finnish. We obviously noticed that, a lot of companies in Finland, they don't know that, we do have like this kind of business to business section, and now we're using, a name called Tokmanni Tukku. Tokmanni has a very good price image in Finland for our customers. Obviously, the same price image goes for companies as well. We've seen several very, very positive contacts with our business to business customers, finding out that Tokmanni is actually doing business to business sales. This is something where we can see that, there's definitely space for real good growth.
Okay. Thank you, Mika and Tapio. That's all from me.
Thank you, Svante.
The next question comes from the line of, Hugo Mas calling from Sycomore. Please go ahead.
Yes. Hello. I would have some questions. The first one is regarding the price effect that you had in Q1. Please, if you could quantify a bit, what sort of price effect did you have in the Q1 contribution, please?
Um-
I guess you mean price effect on the, on the net sales, you mean?
Yeah, yeah.
Yeah. Yeah. Obviously the net sales increased and taking into account the inflation, so the volume was still negative slightly. The growth is driven by the increases in prices.
Does it, that it is sufficient to cover your cost inflation in Q1 at least? Is it a bit lagging behind in terms of, yes, sales, cost inflation between cost inflation and price increase? Is it well covered?
Yeah. Of course, you know, we do our best to keep prices very competitive to our customers. Typically we are not the ones increasing prices. Of course, we negotiate very hard with our supplier base as well to try to, let's say, contain the input pricing as well. Of course, in this kind of environment, the input prices also go up on average.
Okay. Okay, right. Yeah. When it comes to gross margin and EBIT margin, it has been some quarters since you really decline in this metrics. Do you expect, given the main tailwind that you mentioned on logistics, on freight, maybe a return to a better mix in terms of sales, with better sales of non-grocery products in the spring, do you expect to come back to an improvement on your gross margin and EBIT margin in Q2, for instance?
Well, of course, the Q1 is also always our worst quarter and due to the seasonality. Of course, we do expect the numbers to increase from Q1. There's definitely the spring sale season that drives also the product mix a little bit more towards the non-grocery part of our business. That will have an impact on the figures as well.
Okay. I meant compared to last year, compared to the first quarter, obviously.
Yeah.
given it is
Okay. Yeah.
in the negative territory. I...
Yeah. Last year, I think we talked about the missing the spring season in a way last year, that it was a very, very poor season for our traditionally strong sales. Comparing to last year, I think we do expect an improvement also.
Okay, very good. Last question is for me is on inventory as well. If you could give us an idea of the decline that you observed in unit terms on your inventory in Q1, please.
It's difficult, of course, when the inventory mix is different every quarter, so you can't say exactly. Let's say we had input inflation in the average prices in the inventory of, you know, somewhere around a little bit less than, I would say, the average inflation. If you add into the mix the, let's say, additions into the inventory from last year in terms of the acquired businesses, then the unit numbers are clearly lower, I would put it that way. Without saying anything specific, it's a notable difference in the inventory unit numbers.
Okay. Okay. What would you say in terms of inventory nomination in terms of figures? What would be a good inventory figures for you at the end of this year, given you expect strong progress in the coming quarters?
I don't think we can give a specific number, but if you look at our historical figures, we've had, I would say, about maybe 18 months of high inventory now, 15 to 18 months, Mika, correct me if I'm wrong. If you look at, you know, figures.
Sorry, what was the level? Sorry.
If you look at, let's say, at the end of the year, if you look at our figures 2-3 years ago, maybe 3 years ago, and then you add in the, all the, let's say, business acquisitions that we've done, I think that's a good sort of target level.
Okay.
Without being too specific.
Yeah. Yeah. Yeah, okay. I see. On the inventory risk, I would say in terms of potential for the discount on other categories, do you see any categories at risk today where you could apply some discount going forward?
At the moment it's about, of course, the spring season. As last year, unfortunately, we have to rely a little bit on the weather circumstances in Finland during the springtime. Unfortunately, we cannot really affect on the weather circumstances. That's of course the, I would say, only issue with our possible discounts during the coming quarters. If, let's say, if we have like a same kind of spring season as last year. Actually, we can already say that it's been much better during the beginning of April, it's always affecting a little bit like the business, how the weather forecast or the weather circumstances are in Finland during the spring season.
That would be probably only thing that would cause some discounts in certain areas, especially garden, outdoor furniture, things like this. Otherwise, we're not seeing.
No
issues like that.
We are being very careful now with ordering the products. I think we have put a lot of effort in our improving our forecasting capabilities.
True.
We are hoping to hit the numbers better. Of course, you have to remember that we need to order the seasonal stuff 6 to 12 months in advance, and you never know exactly what happens between the time we place orders and when we actually sell them. There's always some risk of, you know, running out of stock or ending up with too much inventory. That's just the nature of the business. I think we have clearly improved our capabilities in the forecasting in the last 12 months.
Okay. Very clear. Thank you.