Welcome to Boozt Q1 report 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. I will hand the conference over to the speakers CEO, Hermann Haraldsson, and CFO, Sandra Gadd. Please go ahead.
Thank you, and welcome all to our Q1 2023 webcast. Just let's dive into the first slide, the key highlights. Yeah, we would like to stress that the continued execution of our Nordic Department Store strategy has enabled us to continue growing the business profitably in the Q1 of 2023. This was actually despite quite summer spending and also some late spring, summer 2023 sales due to the cold weather conditions in the Nordics during March. Considering this as well as strong comps last year, the quarter is actually slightly better than we expected, both on revenue growth as well as adjusted EBIT.
From the start, we expected the high promotion landscape that we experienced during the Q4 of 2022 to continue into the H1 of 2023 due to quite elevated inventory levels across the industry. During the Q1, the elevated promotional activity in the market continued, while we successfully offset part of the impact with selected campaign buys, the gross margin was slightly impacted. The underlying business drivers continued the trend from last year and all pointed in the right direction. The shining star is the average order value that has continued to increase. We reached a new high for the Q1 with SEK 938 after VAT and returns for an average basket on Boozt.com this quarter. This was quite strong.
The development is mainly supported by our successful migration of multi-category customers who add more items per basket. This serves as the best testament, kind of to the strength of our Nordic Department Store strategy. On top, we also saw some tailwind from FX. Return rates are developing positively and slightly down from last year. We are successfully diversifying our category mix, especially with strong growth in beauty and home and a comeback for men in the Q1. All categories raise than the average. As always, we continue to get more sophisticated with our unique pay-as-you-use concept to limit fraud as well as abusive return behavior, basically effectively shutting down customers who have no real intention of shopping with us.
Our inventory position is attractive and healthy, and we have managed a satisfactory sell-through of the SS23 season, even though the season has started late. We believe we are in a strong position to be opportunistic and to target accelerated market share gains for the rest of the year. We're backed by a quite solid start to the year. We reiterate our outlook for 2023, and we expect to deliver accelerated market share gains throughout the year without compromising on profitability. Having said that, going to the next slides, the customer satisfaction KPIs, the most important ones. During the quarter, we have maintained our five star rating on Trustpilot, and we've managed to deliver an NPS at a stable and best in industry level.
I'm quite pleased that we continue to meet and exceed the expectations of our customers in terms of selection, price, as well as convenience. Going to the next slides, the order development, we can see that the number of orders were up 1.6% from Q1 2022 at Boozt.com, supported by our historical cohorts and a solid intake of new customers. Average basket size continues to develop positively, impacted by customers adding more items in each basket due to the continued expansion of the Nordic Department Store, along with quite a successful migration of customers from single category to multi-category buyers. In the Q1 of 2023, we had approximately 40,000 additional customers buying in two or more categories compared to the end of 2022. This is great.
I'm excited to see that the ongoing work to build the best selection across all the Department Store categories is acknowledged by our customers as they're trying out more categories and ultimately putting more items in each basket. Moving on to the next slide, the cohort development. We end the quarter with an active customer base slightly up compared to the end of 2022 in a quarter where we were more successful in acquiring new customers than the last couple of quarters. The number of orders per active customers increased slightly during the quarter, driven by a higher share of net revenue from existing customers that on average shop more frequently. Continued at a strong level of 6.9. Same as last time, with cohorts displaying similar buying patterns as our historic cohorts despite the ongoing pressure on consumers' disposable income.
Having said that, I will now hand over to Sandra for some perspective on the financial performance.
Thank you. As Hermann said, the net revenue growth was 7.1% in the Q1 for the group. Growth was positively impacted by currency effects of 2.9% points due to the strengthening of the DKK and the euro compared to the Swedish krona. Growth was the strongest in Finland, where we continue to see great opportunities to grow significantly over the coming years. Denmark and Sweden also performed relatively well, while the development in Norway was a bit disappointing. Return rates were slightly lower than last year in the quarter due to product mix effect. Other revenues decreased slightly compared to. The gross margin was 38.5% in the quarter, 0.8% points lower than last year due to the higher promotional activity in the market. The lower gross margin in the quarter was in line with our expectations.
By ensuring that we had an attractive inventory mix and satisfying availability of campaign stock, we were able to hedge against some of the negative pressure on product margin. The adjusted EBIT margin increased with 0.5% points to 1.1% in the quarter. I will come back to the development of the cost ratios and the drivers for the improved profitability soon. We can conclude that the department store model stands robust in the environment that we currently experience. Despite high pressure on product margins, we are able to deliver improved profitability, which is especially strong since the Q1 for most retailers in our industry is loss-making. To the next page, we can see that the net revenue growth for Boozt.com was a solid 12.3% in the Q1, positively impacted by the strengthening of the DKK and EUR.
Our inventory position allowed us to continue to gain market share in a market that was highly promotional, driven by low consumer spend and high inventory levels across the industry. As the full quarter was winter-like in the Nordics, spring/summer sales were delayed into the Q2. The acceleration of sales was driven by a strong performance across categories and geographies with an increased average order value in all markets. Overall, the average order value increased 11.8% to SEK 938 due to lower returns and diversification of sales across categories. The increase is also positively impacted by currency effect. Beauty, home, and men were the categories that performed the best during the quarter, where beauty grew more than 60%, home above 40%, and the men's category above 20%.
The number of active customers decreased slightly, 0.9% compared to last year, due to the macroeconomic situation with high pressure on disposable incomes. With an increase in the customer base compared to the end of 2022. Buying patterns for our active customers was stable. The number of customers who now shop in two or more categories was around 20% higher than last year, displaying the loyalty of our customers and the great advantages of the department store strategy. The true frequency was in line with last year and slightly up compared to 2021. With the very strong growth of our flagship, Boozt.com, we are more than definitely taking market share in this type of environment, showing the strength of our business model.
The adjusted EBIT margin improved to 1.7%, which is to be compared to 1.4% last year, as we gained operational leverage on the cost base. This leverage was partially offset by the high promotional activity impacting the gross margin. If we move on to Booztlet, net revenue decreased 13.7% in the Q1. Just as we experienced during the H2 of 2022, Booztlet was negatively impacted by the high promotional activity among online and offline players in the market. In addition, we saw a negative effect from the strong sell-through of the AW22 season on Boozt, affecting inventory availability for Booztlet. The average order value increased significantly during the Q1, reaching the record high SEK 920 as the number of items per basket increased while the assortment on Booztlet broadened.
While we are very happy to see that the average order value continues to grow, we believe that it's likely that the typical Booztlet customer has been hit harder by the pressure on disposable incomes, as we have seen an increasing number of customers who on average shop less often. Looking at profitability, the adjusted EBIT margin improved from a - 2.4% to a - 2% during the quarter. Despite this quarterly improvement, we have now for some time worked on how to take action to fuel growth and profitability for Booztlet. When I have finalized this financial update, Hermann will talk you through how we now recalibrate the Booztlet concept to achieve this. If we move on to the next page, we see the development of the cost ratios.
The fulfillment cost ratio decreased with 0.5% points in the Q1 to 12.1%. Looking at the rolling 12-month number of 11.3%, it is in line with our short-term ambition of a cost ratio around 11%. We've seen increased productivity in our operations. However, some of those improvements are negatively offset by inflationary pressure on costs such as packaging material. The marketing cost ratio decreased 1% points to 10%, which is in line with our historic average. We keep a high marketing spend in order to continue to attract customers and build a strong household brand in the Nordics. As always, we steer our marketing investments based on a principle of having customer acquisition payback period of 16-18 months.
The adjusted admin and other cost ratio decreased slightly from 11.3 to 11.2% in the quarter. The depreciation cost ratio increased 0.2% points to 4% as expected. As a consequence of the higher available capacity at the BHC after the investments made over the course of the last 12 months. As per January 23, the latest expansion of our automated warehouse capacity was taking into operation. We expect to gradually grow into the current excess capacity over the next couple of years. The increase was partially offset by the reassessment of the useful lives of selected parts of the group's fixed assets that mainly relates to the AutoStore installation.
If we move on to the next page, we see that the net working capital was 9.7% of the net revenue for the last 12 months, which is 2% points higher than last year. Free cash flow for the quarter was a negative SEK 731 million. That is to be compared to a negative SEK 502 million last year. Our inventory position was 11.4% higher than last year, driven by higher item value rather than number of increased items. Quarter with a lower than expected stock position as sales were stronger than expected in the Q4 of 2022. Therefore, we have focused on attaining campaign stocks to ensure an attractive selection and position to offer attractive price points to the consumer for the H1 of 2023.
In addition, the delivery of the planned spring/summer 2023 season goods has proceeded well and according to plan. Now we stand with a confident stock position coming into the Q2, where we will be able to continue to gain market share even if competition is high. Building this stock position impacted net working capital and cash flow negatively in the Q1. In addition, cash flow from operations is meaningfully impacted by the timing effects of payments. CapEx for the period was SEK 34 million, whereof SEK 23.6 million is related to development costs for our platform. As expected, we made limited investments in fixed assets due to the high level of investments in the warehouse automation during 2022.
As communicated earlier, we expect CapEx for the full year in the level of SEK 150 million-SEK 200 million. We also expect to be free cash flow positive on a full year basis. Our cash position at the end of the quarter was SEK 964.6 million. That is to be compared to SEK 1,118.9 million last year. That concludes the financial update. Back to Hermann.
Thank you, Sandra. As Sandra has pointed out, the mothership, Boozt.com is doing very well. Growing with 12.3% with an adjusted EBIT of 1.7% is actually best in industry metrics. For us, that is the most important thing as it is the basis of everything we do. In some ways, the success of Boozt.com has come slightly at the expense of Booztlet. As many of you know, Booztlet was launched back in 2016, initially as a means to handle inventory risk and to improve user economics for clearance of stock for Boozt.com, while also increasing the addressable market. Since then, a lot of growth has been achieved, and honestly, at a pace that has exceeded our initial expectations.
The business today is SEK +1 billion. With the current size, combined with our ambitions as well as customers' demand for Nordic Outlet, we have initiated the next phase of Booztlet's growth journey. Going forward, the Nordic Outlet will be a strong multi-category shop reflecting the same core categories as Boozt.com. Up until Booztlet has mainly operated as a fashion outlet. Going forward, we will take the next natural step and transform Booztlet into a full assortment outlet covering fashion, kids, sport, beauty, and home. We will introduce new brands mainly focused on the entry-level, catering to customers looking for more affordable price points. In short, we put our focus going forward on creating more width and depth in terms of selection and assortment on Booztlet.com.
With the new mix and more focus on delivering a 365 offer to the consumer, we intend to improve Booztlet's gross margin, which has been under pressure in the last two years due to the elevated promotional activity in the market, as well as less availability of higher margin goods. We have taken some quite immediate steps to initiate this next phase, and we expect to see a gradual positive effect from it in the coming quarters. Moving on to the next slide. What is kind of the Nordic Outlet fashion, kids, sport, beauty, and home. The next phase of the journey will focus on five core elements in terms of selection and assortment. We will be adding new and improved tools to our toolbox in terms of basics, volume offers, and spot deals.
This will increase availability of goods to make sure that we have a full 365 offer. On top of that, Booztlet will still focus on stock clearance both during and at the end of the season, as well as attractive selection of campaign goods. The increase of width and depth of the assortment will cater to both our so-called double store customers, the most profitable customers in our business, as well as the off-price enthusiasts looking for affordable price points, inspiration, and good bargains. We are positive that the market for a Nordic Outlet is very attractive in terms of growth as well as profitability. Our ambition is to grow Booztlet with double digits both in the Nordics and rest of Europe, while gradually delivering profitability that will be margin accretive for the group as a whole.
Now we move on to the outlook for 2023. As expected, the market for fashion and lifestyle items has had a slow start to 2023, along with a promotion environment that is somewhat heavier, if I say, than normally. On top of that, we have had some weather conditions in the Nordics that, considering historical patterns, delays the sale of Spring/Summer. In our view, we are talking about a delay of some two to four weeks. Still, the outlook and priorities for 2023 are unchanged and well within reach. We will continue our efforts to secure continued access by finding best in industry margins. The midpoint for both revenue and EBIT is still our best bet, but to re-reflect the volatile and more cautious consumer spending, we reiterate the widened range for both net revenue growth and adjusted EBIT.
As the year progresses further, we expect to narrow the range as we get more visibility. For the group, we expect net revenue growth in the level of 5%-15% as we continue to cement our position as the leading Nordic Department Store with a growth well ahead of the market. In terms of profitability, we still expect to deliver adjusted EBIT in that to SEK 375 million, implying a margin of 4.4% at the midpoint of the outlook. For 2023, we still expect a modest level of investment in fixed and intangible assets with CapEx between SEK 150 million and SEK 200 million. This concludes our presentation, and I would like to hand over to the operator to get the Q&A session underway.
Thank you. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Daniel Ovin from Nordea. Please go ahead.
Yes, good morning, Hermann and Sandra, thank you for taking my questions. My first question is on this line of other revenues, which after being up now for a while, seems to be down around 6% year-over-year. I think you have BooztPay, et cetera, in that line. Can you talk a little bit about that? Is there any particular reason for this slowdown? That's my first question. Thank you.
Yeah. If we start with that one, it's, you know, in relative terms it's something, but if you look at the actual millions, it's around SEK 5 million. There are some of it that is related to Booztlet being a lower share of our total revenue, which decreases the share of freight income because you pay for freights to a higher extent there. There are some millions related to marketing, but as I said, it's just a few million. It's I don't think you should interpret too much into that number.
Okay, perfect. Thank you very much. Then another question also on the spring/summer start here. March apparently was weak, very cold month. Here during April, we had a few weeks with quite more summer, spring-like weather. Can you say anything about the start on Q2? Has you seen, has that been developing in line with your expectations, if I put the question that way? That's the second question.
This is where Ronnie always looks at me and says, "We don't comment on current trading," I can't say that. Obviously, you know, if it's like freezing in March, you won't buy your summer clothes or your spring clothes. When you walk in Copenhagen or Stockholm and the sun is shining, you can see that the mood is increased. I think you should expect that, of course, influences the mood and the buying behavior. Obviously, you know, that as I said in my closing remarks, I believe that the start of the summer or spring season has been delayed like two to five weeks. That is as far as I'm allowed to say.
Okay, perfect. Great. Thank you. Also one question on this cash flow, this negative cash flow from payments. It looks like it's almost SEK 460 million. Is that something that we should expect to reverse in Q2 already? Maybe you can talk a little bit about the reasons for that. That's my last questions. Thank you.
Yeah. I'm sorry. It is timing effects. As I said, we have the cash flow or free cash flow expectation for the full year. It is a timing effect of the payments, and it looks more different or stranger than it actually is. You shouldn't interpret too much in that either, actually.
hank you. maybe also one last question, just for this expansion in Booztlet to other categories. My thinking was that apparel seems to be an unusually good category for this markdown or discount business as you have these different seasons. But when it comes to beauty, home, and sports, et cetera, I guess you don't have the same kind of seasons there. Do you really see the same kind of potential in those other categories as you do in apparel? Perhaps you can talk a little bit around that
Yeah, I think that, you know, beauty and home stuff, that's a part of it, but also kind of that we would be offering a basics destination, meaning that you could buy your T-shirts, your underwear, your socks in the outlet, as well as we will have some entry-level brands that maybe doesn't kind of where it doesn't make sense to sell it in a shop that is charging, that we have free shipping and returns, but where you can get a good deal. I think that is kind of... It's the full mix of being able to offer all the categories as well as making sure that you can have your basics covered as well as some entry-level brands. I think that is kind of a...
It's a more rounded and a full-scale department store than only buying leftovers from industry.
Okay, perfect. That's all my questions. Thank you very much.
You're welcome.
Thank you.
The next question comes from Benjamin Wahlstedt from ABG. Please go ahead.
Good morning, guys. Sandra, going back to the working capital timing effects and payments. When you say timing effect and payments, are you referring to the Q4, Q1 effect, or are you referring to the Q1, Q2 effect there, please?
Mostly the beginning of the year. As you remember, I guess you remember that the cash flow in the Q4 was strong, maybe a little too strong, actually. Yeah, it's mostly there.
Yeah. Okay. Could you perhaps also touch a bit more on inventory levels? Obviously, it's inflated by a higher purchasing price. Is it possible to say anything about where you are in terms of number of items compared to like a preferred level here, please?
Well, looking at the inventory position overall, I think we stand very strong. The reason for that is since if we look where the most inflation is, it is in the seasonal goods. Looking at the market development, we see that people are turning more towards this never out-of-stock items. It could be like basics, greens, and t-shirts and stuff. We have handled our risk by taking down the outcome buy. Looking at the inventory mix, it is, it's more flexible now than it usually is, which is very good in this environment. There's some available stock on the market. We made some pretty heavy investments into campaign stock during this quarter, which makes us attractive going into the Q2.
That also impacts the cash flow that we bought quite a lot during this period. Normally, we do that buy a little earlier, but due to the insecurity, we waited basically to the year end or the beginning of this year. That impacts both the stock levels, but also the cash flow. We believe that our inventory position now is.
Perfect. Thank you. Going back to the pre-season versus in-season discussion. I guess some of the reduction in payables can be year on year, I guess, can be explained by different allocation in purchasing. Am I correct in stating that?
Yeah, it is timing effects, yeah.
Yeah. Yeah. One final question on Booztlet. Obviously, Booztlet declined slightly in the quarter. Could you discuss the possible dynamics or the possible development for the rest of the year, please? I guess what I'm asking is how quickly can you ramp up own buying?
The kind of the change that we're doing, basically, it's in effect now. We can react quite fast. As we said that we have been buying, practically buying campaign goods, and we are adjusting kind of the or recalibrating the different levels. We are kind of We have started and are gradually seeing a good improvement. It's actually, no, it's not something that we have to make big changes to before we can start to present anything. It's basically, it has already started.
All right. Perfect. Thank you very much. Those were all my questions.
You're welcome, Benjamin.
The next question comes from Aurora Tigerschiöld from DNB Markets. Please go ahead.
Hi. Morning. Thanks for taking my questions. I had a few. First one was about the high promotional activities that we saw during Q1. Is that likely to remain or continue into Q2 as well? I know that April has been. You've had some campaigns in April as well.
Yeah. Good morning. Yes, I, I expect so. You know, Of course, you know, at all, I think the entire industry is coming out with numbers, basically, I think this week, more or less. We will see kind of how inventory levels are. I would, you know, I would be positive, positively surprised if inventory levels had come down and if the promotion level would kind of subside. We are still expecting the promotion level to be quite high. I think that as long as the financial outlook is as it is, it will probably be high during the entire year.
Okay. Perfect. That makes sense. Then regarding the share-based compensation, is there more to come in the following quarters, or should we just want to look at it for Q1? How does that work?
Well, share-based compensation, we have that in every quarter. That is fluctuating, and it's kind of unrealized cost because it's based on the assumptions on the outcome. Also it's related to the share price. That goes up and down between the quarters. It's very hard to predict.
Okay. Last question. I know, Sandra, you mentioned it, but could you possibly repeat? You said, you had a positive growth in all categories with best performance in beauty, but how much was beauty up?
Beauty grew more than 60%.
Perfect. Thank you so much. That was all of my questions.
Thank you.
Welcome.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Nicklas Skogman from Handelsbanken. Please go ahead.
Yes. Hi, good morning. I'd just like to go back to this other revenue question. I thought I heard you say that the decline was partly due to lower freight income at Booztlet. Was that correct?
Yes.
Okay. Other income for Booztlet is down 2%, while other income for Boozt.com is down 10%. It's broadly from that.
Yeah. It's very small. Yeah, yeah. It is for Booztlet, that's part of it, and the other part is marketing. When you're looking at the actual millions, it's not too much.
Yeah. Yeah, sure. It's not, it's not that much, but, I mean, historically it's been going up. I was just wondering, if you could...
Yeah.
Since it's very high margin on these revenues.
Yeah.
What is driving the decline?
If you look at the upfront buys, as I mentioned regarding the stock position, we have hedged our inventory position due to that we expect the promotional activity to be quite tough going forward also. We reduced our upfront buy for the season, and some of the marketing income is related to how it. That part has been reduced in the same way.
Okay. That it's purely that that's driving the lower marketing income. It's not that brands are less keen on advertising or marketing with you.
We haven't seen that in the numbers, but obviously if the brands have a hard time, there might be, you know, if you look at marketing investments overall, it's probably something that they consider. We believe that our offering and also offering this BDI that where they get the data insight, you know, we continue to build our strength if you're gonna choose to place your money somewhere, it should be with us. I guess we believe that they will continue there, but obviously we are affected if the brands' financial health is suffering, then that might also impact us.
Okay. Great. Then I don't see the number of site visits anymore. Does that have to do with? I think you mentioned on the Q4 call that it's not really representative or something like that.
Yeah. You know, you With the new cookie directive, you know, it's like, yeah, basically you can't trust the numbers anymore. This is why we've stopped giving them because it does no, Visits conversion rate, it just doesn't compare anymore. Yeah, I think it creates more confusion than anything else.
Okay. Thank you very much.
Welcome.
There are no more questions at this time. I hand the conference back to the speakers for any questions from the web.
There doesn't seem to be any questions from the web, so this is a short and sweet call. Thank you for your questions and for listening in and have a good day, and we'll see you again in three months' time. Thank you very much.