Hello and welcome to this Second Quarter Webcast for Kid , hosted by Arctic Securities. With me today, I have CEO Marianne and CFO Mads . As usual, please submit any questions you have in the Q&A function on your webcast player, and we will address them after the presentation. With that, I hand the word over to you guys.
Thank you, Kristian. Good morning, everyone, and welcome to our second quarter presentation. The quarter has delivered consistent revenue growth and an all-time high revenue in the second quarter, despite some operational challenges associated with the warehouse relocation. We are pleased with the gross margin performance this quarter. The growth is primarily driven by strong performance in Kid Interior this quarter. During the second quarter, we have launched a new, in my opinion, state-of-the-art centralized warehouse in Sweden, serving the entire group. This is a major project to carry out and is expected to have short-term impacts on operation and cost. The new warehouse is a strategic investment for our future growth. Mads will provide comments and details on the figures later in the presentation, so I will not get into them now.
Before I share more about our newcomer warehouse in Sweden, I would like to show you all a video that was made during the sales process of the warehouse building last year. The warehouse was previously owned by a joint venture where Kid Group controlled 50%, and the warehouse was sold in December 2024 to a fund managed by Storebrand Asset Management. The video shows the warehouse building before the final construction was completed inside. Enjoy. I've had the privilege of being a part of Kid for many years now and being a part in an incredible growth journey. After several years of strong growth, we now face a clear need for renewal and increased capacity, both within logistics, technology, and stores. The transformation is essential for future growth.
Our assortment has outgrown our store size, and we have expanded our standard store size over the last year, as you know. We need larger stores to grow further. We have outgrown our warehouse in Norway. 2024 was probably the final year in which we were able to distribute our Christmas assortment through this facility. We need more dynamic and static capacity to grow further. Since the acquisition of Hemtex in 2019, we have been operating with two different warehouse and logistical setups, one serving Norway and one serving Sweden, Finland, and Estonia. In August 2023, we decided to expand the warehouse facilities in Sweden and establish one central warehouse for all markets and to increase our storage capacity and to streamline operations. The 57,000 square meter warehouse became fully operational during the second quarter. The warehouse is now serving all markets, both across online channels and physical stores.
The warehouse was delivered on time, at expected cost, and the building has already been sold at a profit. Although all facilities are in place and the project has been delivered, the ramp-up phase takes time. 100 new employees must be trained, and it takes time before all employees, systems, and new optimization solutions all work smoothly and efficiently together. For a temporary period, we have not achieved capacity and efficiency required to meet the full demand from our stores. This has led to lower stock inventory in stores and some delayed online orders. The performance is improving every day, even though it will take some time before everything works seamlessly together and the full potential is materialized. With the launch of a new Nordic warehouse, we have established a critical foundation for increased capacity in the years to come.
Some of you have asked, how long will it take before we grow out of this warehouse? The answer is we don't know, but what we know is that we have built a more efficient and streamlined warehouse with 40% more storage capacity. With that, we will be well prepared for the future. To briefly summarize the quarter from an operational perspective, I would like to highlight that category development continues to be an important growth driver. Categories launched since 2022 accounted for approximately $25 million in revenues this quarter. Bathroom and outdoor furniture are focus categories and are standing out as primary growth drivers this quarter. The quarter was positively influenced by the timing of Easter, and we see a notable increase in sale of Easter assortment despite two fewer shopping days.
We see growth in Easter assortment sales across all markets, though sales from seasonal assortment still are higher in Kid Interior than in Hemtex. Seasonal assortment continued to play an important role in attracting customer attention, driving traffic, and refreshing our store fronts. Our spring and summer assortment also delivered strong growth and performance and increased traffic in both physical and online channels this quarter. This quarter has a high level of project activity, completing a total of 15 store projects, and we have successfully completed four extended stores in Kid and another 11 store projects, six under the Kid brand and five under the Hemtex brand. We also signed the 15th and final store for extended store for Kid Interior. That's in line with our ambition to establish a total of 15 extended stores in Norway. Finally, I would like to mention that Kid Group participates in [Textilpro RS].
It's a company that was founded during the second quarter by Virke and other Nordic retailers to support responsible textile waste management in the Norwegian market. Now, Mads, I think you will take us through the financials.
Thank you, Marianne. Good morning, everyone. For the second quarter, reported group revenues increased by NOK 58.6 million compared to last year. This represents an increase of 7.3%. I'll come back to the highlights for the segments shortly. The revenue growth is considered well consistent given the operational impact from the transition of the warehouse, as Paul already mentioned. Please also bear in mind that the positive revenue growth and the revenue development this quarter come on top of the high growth base from last year. During the quarter, we observed in general an increase in terms of the number of transacting customers to our physical stores in both segments and online in Hemtex compared to last year. Additionally, it was a positive contribution from the basket size in Kid Interior.
The online revenue share increased by 0.1 percentage points to 12.2%, and looking on the click- on- collect, the share increased by 1.5 percentage points to 18.8% this quarter. In terms of categories, we continue observing a positive underlying development across the major categories, and I would like to point out that curtains, bathroom, outdoor, and garden furniture stand out as important drivers this quarter. For Kid Interior, this brand segment performed particularly well, and I'm pleased to report a total revenue growth of 7.1%. The revenue development is driven by an increased number of the transacting customers in physical stores, partly offset by decreased numbers online. Additionally, we had a positive effect from the average basket size.
As Marianne mentioned, due to the timing of Easter this year, revenues from Easter seasonal products positively affected the revenues this quarter, partly offset by the two less shopping days compared to last year. Hemtex delivered a reported total growth of 7.7%, and we see a significant currency effect in the consolidated figures where the revenue growth in local currency was a constant currency of 1.7%, mainly driven up by online. The revenue development in Hemtex was positively impacted by the number of transacting customers in physical stores and online, partly offset by decreased average basket size across the sales channels due to the mix effect. Overall, we are satisfied with the second quarter given the circumstances and the warehouse transition, and we have a total revenue growth of 7.3%. For the gross margin, we delivered a robust margin of 62.3% on the group level.
We can see a similar development compared to last year in both Kid and Hemtex. The gross margin is strong in a historical perspective, and the development this quarter is mainly due to a result of a higher share of freight in the cost of goods sold as a consequence of the freight rates observed throughout 2024. Finally, we did early price adjustments last year to address these higher rates, which were elevated due to the unrest in the Red Sea and Gulf of Aden late 2023 and in 2024. The implemented price adjustments last year had a positive effect on the reported gross margin. Summarized, the group gross margin of 62.3% is considered robust and is well in line with our financial objectives. Reported operating expenses increased by 13.7% in this quarter compared to last year.
While this may appear high, it's important to note that the warehouse transition has been one key driver this quarter where we invest in future growth. Along with that, we also have some other underlying factors that explain this increase. Employee benefit expenses increased $19.1 million, and the increase is a result mainly of last year's wage settlement and salary increases to our employees. We have an impact from new stores to the store project and increased hours in the logistics following the warehouse transition. In terms of worked hours in our like-for-like stores, we have tight control, and the development is affected by new stores and the high level of store projects this quarter compared to last year. As you said, Marianne, we had 15 this year compared to six last year. This is important initiatives to drive future like-for-like growth.
Finally, in employee benefit expenses this quarter, we had also a significant currency effect of $4.3 million. Reported other operating expenses increased by $22.6 million. An increase is largely attributed to this warehouse transition, in addition to effects from increased floor space in our store portfolio and last-mile distribution of furniture, shop-in-shop, and online orders. The ramp-up period of the warehouse in Sweden is driving hours in our logistic operations, supported by external employees and workforce that will gradually be converted to permanent and own employees. Time spent is primarily linked to onboarding employees to the warehouse, the employees to the warehouse in terms of processes, systems, and automation solutions. In addition to that, we have moved goods from the warehouse site in Lier to the warehouse site in Viared. These activities are temporarily reducing productivity and efficiency this quarter.
During the quarter, we had non-recurring operating expenses of approximately NOK 9 million, where this is booked as other OpEx and rental costs. With reference to the previous communication of the approximately NOK 30 million, we will have for extraordinary or non-recurring operating costs for the full year 2025. Finally, we also had a significant currency effect on the other operating expenses of NOK 3.6 million compared to last year. To summarize, we have a consistent revenue development with increased revenues in both segments across all sales channels. We have a decreased gross margin, mainly due to the share of freight in the cost of goods sold, but strong in a historical perspective and well in line with our financial objectives. The OpEx space, as described, is impacted by the warehouse transition. This is resulting in an EBITDA of the second quarter of NOK 189.1 million.
Below EBITDA, I would like to highlight two following additional one-off items amounting to NOK 33.8 million this quarter. This comes in addition to the NOK 30 million in non-recurring operating expenses. The first of the two items is an impairment of NOK 25 million that was made related to the warehouse in Lier and is a non-cash item. The warehouse in Lier is now empty. It's not in use, and we have been in the process of subleasing the warehouse since early 2024. We had a principal agreement with one potential tenant, which ultimately, unfortunately, stalled due to external factors this quarter. As the subleasing process is taking longer than anticipated, an impairment of NOK 25 million has been recognized this quarter on the right of use asset and is a one-time item.
Additionally, a one-off realized effect of NOK 8.8 million was recognized and is related to the changes in the Kid Group's sourcing and currency hedge setup. The effect is linked to the currency hedge and remaining USD balances in Hemtex. This has been reported as a financial expense. In terms of cash flow, I would like to highlight the following items. The cash flow from operations was positively impacted this quarter by net working capital changes. The investments, you can see it's of NOK 98 million that is related to store projects in Norway, Sweden, and Finland, in addition to the warehouse expansion project in Sweden and some IT and other IT projects. Cash flow from financing is explained by lease payments, net interest expenses, use of overdraft facility, and revolving credit facility. Additionally, we had a dividend payment of NOK 5 per share in May this year.
The cash flow follows a cyclical historical pattern for the Kid Group. At the end of the quarter, we had the cash and available credit facilities of a total of NOK 265.5 million. Excluding IFRS 16, the net interest-bearing debt was NOK 964.7 million, resulting in a financial gearing ratio of 1.65 at the end of the second quarter. All in all, a robust financial position for the Kid Group. That said, I leave the word to Marianne to give some status on our store portfolio.
Thank you, Mads. This quarter, we have had a really high store project activity, fueling future like-for-like growth. During the second quarter, we had 15 store projects compared to six last year. In the first half of this year, we have had 21 projects compared to 16 last year. As I already told about expansion and the need of larger stores, we continue to develop our store portfolio towards the new standard store size, 600 square meters, and that we need to have enough space for the whole product range. We have outgrown our smaller stores. We know there is a potential for growth by increasing the number of square meters in both Kid and Hemtex. During the first half of 2025, we opened three new stores in Finland, in line with our Finland ambitions, and towards our 320 stores in total.
Four extended stores have been opened in Norway this quarter. We look forward to opening the two first extended stores in Sweden very soon, one in the fourth quarter and one during the first quarter next year. We have reached the final slide, I think, and it's time to say a few words as we look ahead. In the second half of 2025, we have lined up five store projects for Kid and three for Hemtex. These include a mix of refurbishment, expansion, and relocations. On top of that, two extended stores, one in Norway and one in Sweden, are scheduled to open. We are also moving forward with a digital pilot to launch the Hemtex brand in Germany and other EU markets. We will most likely go live during the fourth quarter.
In the coming months, our main focus will be to continue scaling up operations in the new warehouse. We are working on fine-tuning operations and implementing more optimization solutions to boost capacity and efficiency ahead of peak season. We expect to have somewhat low store inventory throughout the third quarter, but we are working to catch up and expect normalized stock levels by the end of the quarter. Finally, I would say that we are now looking forward to welcoming the autumn assortment into our stores. I think we should be ready for opening the Q&A session.
All right.
Yeah.
We've got a couple of questions here coming in from your covering analysts. We'll start with Håkon Fuglu at SEB and see who's first. First question, yes, a couple of ones. Can you elaborate on the strong gross margins in the quarter? Is this a result of the lower assortment availability?
The gross margin is historically stronger in the second quarter. Looking back, we had a decrease of 0.9 percentage points this quarter compared to last year. The development is mainly due to the freight part of the cost of goods sold compared to last year.
The second question, also on the lower availability of assortment, is if it impacted sales negatively in the quarter.
I guess it had some impact. Therefore, we are satisfied with the revenues this quarter, despite that we have seen some low stock in our stores during this quarter. Yes.
Moving on to the third question and on OpEx , maybe for you, Mads. How did underlying OpEx develop in the quarter if adjusted for the record high store openings and refurbishments over Q2 and Q3?
It has affected the OpEx , of course, but we do not communicate the underlying growth. The growth in the other operating expenses of 13.7% is highly affected by the warehouse transition, the significant currency effect, and also the store projects and new stores we have opened during 2024 and this year, year to date.
The last one from Håkon, at least for now. Have you done some sample tests for Hemtex online in new markets, and what is the customer feedback?
We have not done that yet, so there is nothing more to comment on that, I think.
Okay. We move on to Ole Martin Westgaard at DNB Carnegie. Should we expect some more cost related to the warehouse transition in Q3? What is left?
As we have communicated previously, we will have other operating expenses of approximately NOK 30 million for the full year that is related to double rental costs with the two warehouses we have now. It will be some ramp-up and scaling up and scaling down costs, and we reiterate the NOK 30 million as we have communicated earlier. What comes in addition this quarter? It's more like a technicality of the NOK 25 million of the impairment of the right-of-use asset for the warehouse in Lier, in addition to the realized currency loss compared or related to the USD balances in Hemtex, going out of the accounting policy.
Second one from Ole Martin. Has the sales trend in Q2 continued during the summer? Yeah, I can take a follow-up after.
I don't think we comment upon the third quarter.
That's fair. Could you strip out the Easter impact on sales in the second quarter?
In figures, no, but we can say that we had a positive impact from Easter in the second quarter and a negative impact in the first quarter. That's how it moves between quarters, depending on when Easter is.
The last one from Ole Martin. Do you expect the low inventory in Q3 to impact sales?
It's hard to say, probably some.
We move over to Petter Nystrøm at ABG. You mentioned that the sublease for your warehouse in Lier has been delayed. Is this expected to be resolved from Q3?
I hope we can bring positive news. We are working on the process on a weekly basis, daily basis to solve it, and hope to bring good news when we report Q3 in November.
Another one from Petter. You already had this one on the inventory for Q3. That's another one on the low stock level. Please submit any questions you have. We'll wait a bit more. I can take one from my side. Do you have any color on when we can see kind of the OpEx growth slow down from the refurbishment and new store openings, or should we just use kind of your business plan to model that out in the future?
I think we have the ambition of the total stores, right, of the 320 stores. That will take time. We have, in the recent years, done approximately around 30 store projects on a full-year basis. I think that is kind of a fair assumption, I think, going forward.
You mentioned some changes in basket size, did this impact the gross margin? How do you think the underlying gross margin developed in Q2 if you strip out the external factors of currency and freight cost?
I don't think the basket size is directly linked to the gross margin development. The basket size is due to the mix effect. The Easter, as Marianne mentioned, is a seasonal product. It's one example of the seasonal products comprising accessories, and the items have a lower value, meaning that the basket size will decrease.
It seems that there are no further questions. With that, oh, we've got one in here now. How does Hemtex perform in Finland and Estonia? Any differences in growth and margins compared to Sweden?
We do not usually share, or we do not share the details on the market level on a quarterly basis. What we have said is that we are satisfied with the development in the two markets.
Okay, with that, I think we're finished. Marianne, do you have some final remarks?
We're good.
Okay.
Yeah.
Thank you so much for coming, and thank you for listening in, everybody.
Thanks.