Okay. I think we'll start. First of all, welcome everybody. It's yes, yes, you're more than usual, so it's positive. As usual, we will start with a little bit of a lottery.
First of all, we have some gifts for you today too, of course. This is a way to make sure that the Saturday evenings are positive in your homes, SEK 25 special mail package only at Europies, only at Europies. And then this flower, which I'm not going to try to say the English word for it, it's in Norwegian, 29.90. If you bring it home, your wife's or your better half will be very, very happy. So please make sure that you take a plastic bag on the way out.
Also, we will have a lottery, of course, in order to make sure that so many people continue coming to our presentations. This time, it's spring now. We have trampolines. Of course, we have many different types of trampolines, but we thought that we would give out one of them. And I will ask Atlef, you can if you draw yourself there That's also a bit embarrassing, I must admit.
Very good. Okay, okay. Is like the American election, okay. Very good. Yes, here you are.
Okay. So that sounded suspicious. Yes, I know. Okay. So welcome to the quarterly presentation Q1.
As all of you know, it's the smallest quarter of this year. And as every year, it's Easter versus first half kind of thing. But that being said, it was in isolation a very good quarter, driven by good Easter sales, but you have to look at Q1 and Q2 in total, of course. So that's one of the key messages. But once again, I think we are proving ourselves to be the champion of the seasons in Norway, and I'm very happy with that.
Now we're going to try to make a season all of the year. That's the key challenge going forward. Also keep in mind not to get too distracted into this quarterly jungle, but keep in mind the long term vision. I think that there are few places as exciting as Europe is in the long term. I think we are in a sector that is growing.
And with digitalization and digital opportunities, I think that a concept like Europe is has many exciting opportunities in a long perspective. So don't get too focused only on the quarters. I think long term, it's exciting times. If we look at the quarter highlights for the Q1, the timing of the Easter, as I said, the stores' comparability both on sales but also on gross margin percentage, We had a strong increase, 8.1 percent total growth, 5.3 percent like for like, mainly driven by solid performance during Easter and once again proving we are the seasonal champion of Norway. Good gross margin performance.
As you know, Easter sales is good for sales, and it's sort of putting a little bit of pressure on the margin. But despite that, margin was slightly up.
And we
had a very positive OpEx development. We have taken more franchises and we're building out of new stores. With that being sort of leveled out, we have a very good and positive OpEx development. Opened 2 new stores in this quarter and took over 4 franchise stores. I'll come back to that.
Yes, champion of the seasons and beating the market, which is maybe the most important, solidly in this quarter, both on total growth but also on like for like. This is an interesting slide. We didn't give it to you last time, I think, because we were early in the Q4 presentation. But every year, we look at our different vintages and we try to analyze the historic vintages to make sure that when we open new stores, they are treating first of all, they have to meet or exceed our business case. Every new store has to meet some very strict criteria.
And afterwards, we go back and we audit it to make sure that they're actually doing it. And we saw that the most recent vintage, the 2016 vintage, they outperformed our business case. So they are actually doing better than what we thought when we said yes to establish new stores. And in isolation, you can also see that the average sales and the profit is slightly up. Although that can vary a little bit from year to year depending on exact location, I think the key message is that our new stores are performing very well.
And of course, this is the reason why we are opening new stores. This is the reason why YULA is opening new stores. This is the reason why Biltema is opening new stores. This is the reason why Ristha is opening new stores. This is the reason why Action is opening hundreds of new stores in Europe.
This is the reason why the Dola stores are opening thousands of new stores in the U. S. So they are profitable, and they are meeting their or exceeding their business case. And of course, we will continue to open new stores as long as they do. This is another exciting thing that's even more fun than talking to you guys, which is more the work we're doing at the moment on enhancing the central control of planograms, spacing, seasonal space.
You will not see anything of this in the quarterly figures, but this is the kind of actions we have done over the last 3 to 6 months that we will hopefully see the fruits of in the quarters to come and later in 2018. But it's basically all about making sure that we increase the breadth of assortment that we have a central control on. We make sure that we plan it in detail all the way through to the implementation. And I think that with this kind of planning, we are getting very close to the forefront of our segment in sort of worldwide in Europe in terms of planning and concept development. This is very I think this is very exciting things.
And as I said, we have a robust pipeline of new stores, but we are not, I'll say it again, I said it last time, we will not open any new stores just to open it. We will only open new stores if they meet our strict investment criteria and we will every year go back and audit the previous vintages to make sure that we are disciplined. So there's no point in opening new stores if they're not profitable and meeting our very strict investment criteria. But obviously, there's no point also in not opening new stores just because other segments in the retail having trouble with the physical stores. And if you go to the U.
S, as I said, dollar stores are in the homeland of Amazon. They are opening thousands of new stores. I think both those segments are doing well. There's not one black and white model for retail in the future. With that, I will give the word to Espen, who's going to take us through the financials.
Yes. Thank you. Yes. Starting with the gross margin, which was 42 no, 41.2 percent in the quarter, up from 40.9% last year. And as normal, we've done some franchise takeovers at year end.
This year, we took over 4 franchise stores with a negative impact on gross profit of $3,400,000 on 1st January. Last year, we took over 8 stores with a negative impact of $10,100,000 So a little bit less negative impact from franchise takeovers this quarter compared to last year. Longer term, these takeovers will have a positive impact on the margin. When we look at the quarter, we also had very high sales of low margin seasonal products during Easter, and that had a negative impact on the margin this quarter. That will be reversed next quarter.
So underlying, we are actually quite positive with the development in the gross margin. When we look at operating expenses in percent of sales, that was 37.3% in the quarter, down from 37.8% last year. And as Paul said, the franchise takeovers continue to impact our numbers a little bit. That's the key driver of the increase in operating expenses in absolute numbers. We took over since last year, 10 we opened 10 new stores, took over 5 franchise stores, so the increase in the directly operated store base by 15.
And keep in mind that 5 of the stores we took over last year was taken over on 1st March. So this year, we have full effect in the operating expenses of these stores that we took over last year. Last year, we also had the 25 year anniversary that has the price tag, but it was worth it, dollars 4,800,000 that one off cost was, of course, not recurring this year. Underlying, as Paul said, we have a very good cost control and focus in the organization, and we continue to keep a very strict eye on costs in the organization at the moment. And that also impacts the adjusted EBITDA, which was SEK46 1,000,000 in the quarter.
That was up by SEK12 1,000,000 from last year's SEK34 1,000,000 and of course, driven by the like for like sales growth, especially during Easter and the improvement in the gross margin. On cash flow, that was negative in the quarter but less negative than last year because we see now seasonality in the cash flow, especially the timing of Easter is important. While this year have Easter behind us, when we end the quarter, it was right in front of us when we started when we ended the Q1 last year. So the Easter inventory was, of course, down in the stores this year compared to last year. In addition to that, we had an inventory buildup early last year over springsummer seasonal items as we had an early Chinese New Year and we shipped the goods in early.
So that impact is not coming this year. So this is as expected, a more normalized situation when it comes to deliveries from Far East. Cash used in investing activities is down from last year. That is mainly due to the fact that we have paid less for the franchise stores we've taken over, so less payments in connection with that. And also it's 1 less store new store openings and a slight reduction in modernization of new store of the old store base.
At the end of the quarter, we have a solid cash position and the liquidity reserves of the group was unused. I think it's the outlook, Paul.
Yes.
So as we said before, I think that we are in Norway, We are in discount variety retail. This is positive for the sort of long term outlook. We encourage you to look at the first half as a total, but also just not to get too focused on each quarter, but really have the long term vision in mind. I think we are in a sector that is very exciting. And I think we are in times that are very exciting where we can have a lot of opportunities to develop the concept even further with digitalization and further growth.
Yes, so I think it's a good start to the year, but the fun is coming in the next quarters, of course. I think we'll open up for questions.
Martin Stanson from Danske. Could you please comment on the revenue growth, if you could, on the split between price and volume growth?
We have it's a little bit different difficult because of the timing of these, which is a key traffic driver. So it's a little bit difficult to give exactly on split on that. But of course, it's somewhat driven by price, especially on the Easter seasonal products, which is linked to the candy and sugar tax.
Now in Q1, we had Easter. Would you be able to say anything about the basket size in a quarter with Easter? Is it, let's say, flat, up or down since the last Q1 with Easter?
Well, it's up from the last Q1 where we have Easter, but that's basically over time that continue to grow due to price. But the size of the basket varies a little bit if you have a late or early Easter because when you have a late Easter, you also start selling seasonal items items for the spring summer. So it's a little bit difficult to compare.
Yes. And the sugar packs also distorts the picture.
And then it was interesting to see the 2016 vintage. Would you be able to say anything about any, let's say, common factor of, let's say, the stores in that vintage that, let's say, outperform the average in terms of size or location inside, outside shopping center? Is there any pattern?
I think that the I think the key message is that we are succeeding in places you wouldn't believe we could succeed. And I think that's the key message. It's the diversity of the portfolio of Europe, please. Most of them are standalone stores. We have a few in the shopping centers, but like Straumann, but not a lot.
So I think that it's just a diversity of the concept. We are in small places where we get a very loyal customer base. And then we are in some of the biggest shopping centers and marketplaces in Norway, where some people don't even know we are there yet. But there's a 1,000,000 people in the Kaczmare area, so we can take the time to grow.
Just to show a slide on the initiative you started 3 to 6 months ago in order to enhance sales in between, let's say, seasons.
Yes.
And you showed also some products there. Could you be a bit more specific in exactly what you have done in centralizing the decisions on what kind of products to sell?
It's basically, as I said, the results you will not see yet. You will see them in Q3 and Q4. But what we're doing is if you go through a European store, basically we are taking even more control of the best selling spaces in the stores, so the end of the aisles. There's also in within the shop in shop. There's the products that are closest to you in the pathway as a customer.
And also that's one big area, so all the best selling products. And there's not very exciting new things happening there. It's the kind of best sellers from previous intergers. But we just make sure that we analyze it in a more coherent way and we make sure that the best products with the gross margin increasing sort of features are in those places. So that's one thing and we take the control all the way through to implementation with the volumes.
That's one big area. And I think that's puts us at the forefront of the industry in Europe at least in terms of planning. And then we also take more control of the seasonal space when it's not a season, which of course we have 2 50 square meters of seasonal space in the stores. I mean, you don't have a distinct season. Of course, you have a season in September, October too, but not as big as spring, summer or Christmas.
So then you need to have a smaller seasonal assortment and then you need to have bestseller kind of consumables. And that we are taking more center control of to optimize the assortment and make sure that we get it through all the stores. So that's something also which is I think there's only a few players in this segment in Europe that is doing and it's exciting things.
There's a number of new stores planned for 2018 2019. Would there be any new stores in the Greater Oslo area?
Yes, there's actually 1, 3rd May in the basement parking lot of Ricken, which is maybe not the most fashionable place to be. Ricken is fashionable, I'm not offending anyone here, but putting a store in the garage actually in the parking space might not be what you would dream of, but I think it's fantastic. It's going to be a success, I know. 3rd May, just come to the opening party. It will be good.
Otherwise, it's sort of
all over. And then lastly, it's important to look at H1 in total versus H1 last
year.
Would you have any comment on what do you think about H1 compared to H1 last year? No. No? Fine. Thank you.
Petter Nystrom, ABG. Is it possible to quantify the negative effect on the gross margin due to Easter in Q1?
It's not to do it exactly, but it should be affecting the margin in the range 0.4% to 0.5% approximately.
Then finally, one question. Previously, wholesale to franchise has moved down due to the inventory reduction. Is that now back to a more normalized level?
Yes. We are normalizing that, but still, it's a little bit I think it's a little bit too
low. Perfect. Okay. Markus from SEB. Could you reflect a little bit on your SKU base now versus 2014 when you IPOed?
What's the SKU base looking at looking like today versus 4 years ago, the size, type of products, say, average price, etcetera? Good question. We have IPO ed in 2015. But I think we are sort of total we have had a focus on keeping the number of SKUs quite stable and slightly reducing. Yes, slightly going down, but not dramatic.
I think it's not a big change. I think it's the biggest we have a little bit more in some categories like pet food, pet accessories. We have more assortment, wider assortment.
Somewhat more brands?
Somewhat more brands. I think it's like a 2 percentage points of sales or something increase in share of brands. I think that's sort of the biggest thing. The average price has gone a little bit up, mainly due to if you compare with 'fourteen that was pre sort of the dollar versus NOK. So I think that's slightly
Rune Martijn, You commented in the Q4 report that you were to open for home delivery. What's the timing of that?
The team that is doing it was dreading that I was going to say it, but it's going to be June. So yes, we'll start it, but we'll have a soft start.
And just on the price and volume mix, can you give any sort of flavor of what how you see the market in retail in general between volume and price for 2018, not from Q1 specifically, but how is the market? Is it do you expect prices to be a driver of growth? Or is it only volume? Or how is how do you see that for 2018?
In 'eighteen or if so far and on the market so far, I think you look at the figures and you analyze it as well. So I think the market so far has been as far as been soft, but it's early in the year and the biggest seasons are ahead of us. So I think it's a little bit early to say.
And on the season that is ahead of us, have you done anything specific differently this year compared to last year that we should be taking notice of?
Not maybe we are trying we have this team internally that is going to be a little bit better every time, and we are going to be a little bit better this year. If you picked up that brochure that we showed you, these 2 fantastic brochures. If you look at these 2 and you compare it to the ones last year, you will see that we are a little bit more authority, a little bit more sort of assortment wider assortment, more exciting assortment, some new product features. It's not going to dramatically change, but I think that we are if I ask the team, I'll be a little bit better this year than we were last year? We always ask ourselves that question at the start of the season.
I think the answer this year is yes, we are. Better planning, better products, better material, better execution. And then we'll see in the next few months whether it pays off or not. But I think we are always getting a little bit better. And this is retail, it's operations and always getting a little bit better for each season.
And do you see the sort of start of spring as normal compared to last year?
It's a little bit slower because of the snow and the early and the cold temperature in the beginning of April. But if you look outside now, I mean, spring is starting. So I think that you have to actually look at Q2 to get comparable figures. We've been on the list for a few years now and there are some Aprils that have been fantastic and some Aprils that has been slower and then the quarter can be totally different. So I think that it's really important to look at first half.
Ulf Lendbourn, Olne. Reducing the number of franchise stores, does that create any noise in your organization? And when will this conversion be finalized?
I assume you probably asked me, but no, I don't think it creates any noise. Of course, it's a little bit tougher to get margin in 2 parts of the sort of operations. So I think that most of those franchisees we take over is the franchisees coming to us and wanting to sell their stores. We don't have a specific target because we don't really we're not driving this ourselves. It's more driven by franchisees coming to us.
And I think that there will be a natural sort of reduction in number of franchisees. But we also have some franchisees who most franchisees are positive figures and are doing well. And I hope that they will continue and do well and work with us.
But you're not opening any stores under the franchise model?
No, we're not. I think it's a little bit the fact that this business is getting more and more sort of integrated. So that's the key we have message. Okay. Should we take any questions from the web?
Several questions from the web, starting with Mikko Ervasti from Nordea. How much of the 5.3 percent like for like growth must be tied to Easter? And how much the overall Q1 growth that would be sustainable this year?
It's very difficult to answer because it's not really comparable to last year because of the timing of the Easter. And it's a big difference if you have an early or late Easter due to that you also get the start of the spring season. But I would say that the significant part of those growth in Q1 was driven by Easter.
2nd question from One Invest. Please can you indicate whether the sales year to date, I. E. Till today, are positive like for like? Easter obviously had an impact on advertising and marketing costs in Q1.
Could you give an indication of this phasing impact?
We are reporting on the Q1 numbers. Now as we've said quite clear, it's important to look Q1 and Q2 together because you need to see it combined.
Question from Global Assets. The gross margin was higher than same quarter last year, but you referred to negative one offs such as Easter and franchise takeover. Is it an underlying trend this year with the gross margin higher than last year or just a really good Q1 considering the one offs?
Adjusted for those 2 actually, this year, we had a positive compared to last year from the franchise takeovers, the gross margin effect from Easter sales was negative. Adjusting for that, we see a slight positive underlying performance in the gross margin.
Question from Tushar Jain at Goldman Sachs. How shall we think of impact of Easter on like for like and profitability?
Same answer as before.
And second question from him. On competition, is the pressure still increasing? And if so, specific categories that you are facing pressure?
I think that the pressure
is not necessarily increasing, so it's not keeping. But I think that in certain segments, you have some pressure like in personal care, there's the entire market is down. But that's one small segment. We have a lot of other categories. In general, I think that we're not I mean, we're not really feeling that someone is targeting us in any way.
So I mean, it's a general kind of the same as previously. A little bit more pressure in the grocery sector, but not because of us, just because between the grocery players.
Question from Idar Baki. Do you use much bargain prices that EPR loses money on to get people in the stores?
No.
Question from Max Veram at Solinvest. Can you isolate the growth in the week before and during Easter relative to last year?
I think technically, you could, but it doesn't really make sense. You need to look at this business on a longer base than week on week.
That's it.
Okay. So thank you for coming and make sure, Otto, that you get your trampoline and sit in the front next time and you get an opportunity to win. Okay. Thank you.