Good morning, welcome to the Clas Ohlson Q1 report. I'm Kristofer Tonström, President and CEO, with me today, I have Pär Christiansen, our CFO. As always, we'll start with a short presentation, then we'll move into a Q&A. I'll do a business update. Pär will take us through the financial development and the events after the reporting period. I'll do a summary and an outlook. We'll do the Q&A. Headlining the first quarter, we have delivered a solid quarter with strong profitability, a little bit more than SEK 2 billion in sales and SEK 147 million in operating profit. The operating profit is slightly down versus last year, it's the second-best Q1 ever, 86% above Q1 in 2019.
We've done that by being agile and adapting to the very fluctuating market conditions and by staying very focused on our core business. To just dig a little bit deeper, looking at the first quarter, we saw organic sales like-for-like decline 2%, and the total sales - 1%. Worth noting here is that this traffic to our stores has been lower than the sales decline, which really shows that we've been able to convert more of the visitors into customers. That is a sign of us being able to adapt to the conditions and ensure we have the right category to the right customer at the right time. Online sales grew 19%, and our gross margin increased slightly to 39.5%, and our EBIT came in at 7.2%.
We also have a continuous, strong financial position with a strong balance sheet and strong ability to generate cash. Digging a little bit deeper into the market dynamics, starting with supply chains that we've been talking about over the previous quarters as well. There are obviously global imbalances and something that is reported broadly across the industry. We see strained container situations. We see increasing transportation costs, increasing raw material and component prices. Pär will come back a little bit to this, but obviously we remain firm on our financial targets, and we will do everything to offset any increases. Worth noting is that the first quarter, the impacts were limited, but we expect to see, obviously, costs go up further in the year.
Looking a little bit more at the market dynamics locally, we see that the traffic to our stores is growing month-on-month over the summer period, but it's still below last year. We also see that click and collect continues to grow in demand as it has in the previous quarters. Our online traffic remains strong. To just give a little bit more of a flavor on our omni-channel dynamics, and also put a little bit the e-com growth number into perspective. Looking at different age groups, we saw, as an example, that the customer group 65+ was the biggest customer group that drove growth in our e-com last year. Now this group, as we can see in the graph here on the slide, has gone back to visit stores more frequently, and therefore, they actually have a minus development on our e-com.
Still, we grow with the age group, and we grow a lot of the other age groups within e-com. I think this is a good indication that we need to look at total development, total growth, whereas the channels obviously will interact with each other. Moving it a bit into our focus areas that we talked about last time. We have three big focus areas for this year, and the first one is strengthening key product categories. I already mentioned the fact that we have been driving strong conversion in the first quarter. Despite the traffic drop, we've converted more customers. One of the explanations of that is our ability to drive our destination categories, but also to adapt to the needs of the customers within each respective month, week, day.
Couple of examples, we've talked organized before, which is a broad spanning across a lot of categories from your kitchen to your basement. We kept growing that mega category 9%. Looking at outdoor living and home climate, we grew double digits. Some examples in there is we were able to adapt to weather conditions, and when we saw heat coming, we adapted to selling more home climate products like air conditioners, fans, et cetera. I think this is a good example of balancing seasons with destinations. Looking at the second focus area, which is capturing traffic. We have done a launch of our new visual identity in the quarter, and I'll come back to that separately. We've also been able to continue to grow our membership, number of members in our Club Clas membership program.
In Norway, we have now added 800,000 new members in the last year, and we have approximately 3.5 million members in our membership database. This is a key thing for us to drive higher sales per customer, more value per customer, and capture the traffic that we get. On the last point, which is growing e-com, as said, we will focus on growing the total business, and e-com is obviously a key component of that. It's good to see that the investments we have done in our digital channel has paid off. We see shorter lead times, faster deliveries. We've been able to improve our customer promise on our website, and that improved customer promise actually drives higher conversion. We're becoming better and better, and we're building our e-com stronger and stronger.
We still have room to continuously grow, but we've seen good progress in the quarter. Moving into our new visual identity. We just launched our new visual identity in the last quarter, which basically is a complete upgrade of our brand. We have a new logo that actually is a version of our logo from 1972. You can see it here on the screen. It's actually still on the walls of our office of Insjön. We have also upgraded color palettes, the look and feel of us as a brand to drive more distinctiveness, more standout, but also to reflect the transformation that we're undergoing as a brand and as a company. We are doing this in a very responsible way. We are not spending millions to rebuild and throw away everything we have and replace with new.
We have implemented this digitally already. We are doing it in terms of physical assets step by step when we anyway need to change assets. We're not planning to spend SEK millions to change everything overnight. It's going to be a gradual rollout. That is also the right thing to do from a sustainability point of view to do this responsibly. Last but not least, in terms of our progress on our sustainability agenda, during the quarter, we signed a new agreement for green financing. Pär will mention a little bit about that. It shows that we are focusing on progressing on key sustainability targets. We also work hard with our audits of our suppliers. Looking back over the last 15 months, 99% of all the suppliers that we work with are achieving and reaching our very high demands in our code of conduct.
We have actually executed 335 supplier audits over the last 15 months, and we will continue doing so. Our ambition is to get every supplier up to 100% to ensure that we do things responsibly. We have also reached our gender distribution target across the company, and we're upping that further and aiming at even more 50/50. With that short intro, I'll hand over to Pär Christiansen to take us through the financial development.
Thank you, Kristofer. Good morning, everyone. Looking at the sales development in the first quarter, we saw a small decline with 1% of total sales to SEK 2 ,0 56 million. Development in Sweden was flat. Development in Norway was a decline, and in Finland also a decline. Online sales was up 19% to SEK 219 million, and now it corresponds to 11% of total sales. Looking at the gross margin in the quarter, we had the increase of the gross margin to 39.5%. The positive contributors were the US dollar and also little bit improvement of the sales currency NOK and somewhat reduced sourcing cost. On the negative side, we saw the effects of the hedges on the NOK. Some exchange rate effects relating to the inventory delay. Negative effect from product mix and little bit higher campaign intensity. Moving on to the share of selling expenses.
The share of selling expenses increased by 1.8%. The main factor was, of course, that the total sales was down, so the base was lower, but also that the last year, the same quarter, we had a very high cost control, but also effects from the COVID with staff being temporarily laid off and also other cost measures. Our administrative expenses decreased somewhat by SEK 1 million to SEK 50 million. Looking at the operating profit in the quarter, it decreased to SEK 147 million compared to SEK 166 million previous year. The EBIT margin also decreased to 7.2% compared to 8% the year before. If you exclude the IFRS effect, the EBIT margin was 6.2% compared to 7.1% previous year. Earnings per share was SEK 1.63. Investments in the quarter amounted to SEK 49 million. Main areas was new stores and refurbishment, IT systems, and also investments related to our distribution system.
Inventory levels in the quarter increased to SEK 1,793 million at the end of the period. We increased somewhat the turnover at our distribution center to 5.8 x. As said from Kristofer in the beginning, we have a healthy financial position and a positive cash flow. The cash flow from operating activities amounted to SEK 272 million, compared to SEK 414 million year before. The year before, we have a higher decrease in inventory levels, as well as some effects of opportunity to pay later with taxes and government charges that now came back on the negative side. We have a net cash position, which is very positive, and we have approved credit facilities of SEK 850 million at the end of the quarter. Just after the quarter, we have signed a green financing agreement with a sustainability-linked loan, where our sustainability targets will affect the interest rate.
We also are reducing the amount of credit facilities in August and going forward, given the lower risk in the industry and for Clas Ohlson. As said before, the proposed dividend is SEK 6.25 per share, and it will be paid in separate payment with SEK 3.13 in September this year and SEK 3.12 in January 2022. This is in line with our dividend policy and guidance. Looking at the events after the reporting period, August sales came in at 3% up in total sales to SEK 711 million. Organic sales was up 3% and like-for-like was up 3%. We saw growth in Sweden of 8%. Norway had a small decline, but very tough comparables. We saw growth in Finland and also online sales was up 22%. Mention a little bit of the macro trends. This also was mentioned by Kristofer.
We see that container and shipping cost, as well as raw material and commodity prices are somewhat up. We see also impacts from translation and transaction effects on the sales, mainly the NOK. We see effects on hedging and other policy effects, also, of course, pricing effects. We are keeping our financial goals and therefore working with counteracting activities such as pricing, optimizing our price mix, sourcing. As we said before, we're opening up new sourcing offices to be able to have a diverse sourcing strategy. We're also optimizing our sales mix with private label product and category mix. We will also look into further into products and also how they're packaged to further improve the logistics cost of that. Handing back to Kristofer.
Thank you, Pär. To wrap up a little bit before we move into the Q&A. We will continue to build on our strengths. We believe that we are well positioned for the future. We are playing in a very attractive SEK 90 billion market where we have less than 10% market share. We also have a very strong financial record and a lot of flexibility to move. We also showed that we are an industry leader in sustainability. We continuously need to do more in that area, but we are already reporting good progress across all the priority areas. We have a very strong brand and a strong market position. We have 3.5 million loyal members and hundreds of millions of visits every single year. We are strengthening that brand even further with the relaunch of our new visual identity to give us even more flexibility.
As you might have seen from the film, it's also getting its way into the product. We're, again, phasing it in across also the product range, which lifts the full private label assortment as well. We do see compelling growth opportunities, and we believe it's really about focusing on category and customer. Channels are very important and we need to continue driving those and become more effective, but we need to focus even further on what we sell to whom. We are equipped with a strong winning team. That team has the ability to maneuver, and we have shown that over the last year and we continue to work hard moving forward. We're guided by our strategy, where we put the coworker and creating a winning team as number one, which then creates happy customers.
If we do that well, we will create shareholder value over time, and we're really guided by our purpose of making a difference to customers in all kinds of homes. Our ambition is obviously to continue to achieve our financial targets. We've delivered on our operating margin over the last year. We've not yet delivered on the sales, and our ambition is to get to that level. As previously mentioned by Pär, despite obviously macro fluctuations and cost increases, we do everything to offset that to still deliver on our targets. To just reiterate the focus areas for this year, the first one is strengthening the key product categories. Again, moving from not only we will always work seasons, but not only seasons, but also destinations, which gives customers a reason to visit us all around the year.
We really want to solve the overall most important problems for our customers, and that goes beyond the product into guidance and also services. Again, we want to grow destination categories. We want to go deep and have a relevant assortment among a few chosen destination categories rather than trying to have everything for everybody. On the second one, we want to capture traffic. Of course, we want to drive traffic, but we are also preparing for a world of continuous traffic pressure on physical retail. It's really about leveraging our brand, optimizing marketing to drive traffic, and then also capture what we get. I think we've shown that in the quarter with increasing conversion rates.
As a key part of that, it's really about seeing our customers, and the Club Clas program is a key thing to do that, to drive value per member, drive loyalty, and keep growing the brand in the minds of our most loyal customers. Last but not least, e-com. We want to talk total business, but still we have a bit of catch up to do on e-com. It's about shortening lead times, improving the digital customer meeting, but also then, at the end of the day, really integrated with other channels where the physical store plays a key role in that customer journey. With that short wrap up, we'll now move into the Q&A. I'll hand over to Niklas to moderate that.
Thank you, Kristofer. Let me start by asking if we have any questions from the telephone conference.
Thank you. If you do wish to ask an audio question, please press zero one on your telephone keypad now. We have a question from line of Carl Dunberg from Carnegie. Please go ahead. Your line is now open.
Perfect. Thank you very much, and good morning, Kristofer and Pär. First, a question here on the shipping cost. You've talked in your annual report that you source around 40% of your products directly from Asia and China in particular, and you're also highlighting that as a risk here going forward, the container cost in particular. Could you say anything a bit more, what you expect here on the gross margin? Are we talking about a severe contraction, or is it just a few basis points that you're expecting here in the near term? Maybe also understand a bit, if you could say how large your share of private label is also right now to understand your pricing power to end customers. That's my first question.
Yes. To start with, as you say, we source a lot of product from China. Having said that, a lot of our other suppliers, of course, then have components also coming from China. There will be probably discussions in those value chains as well. Looking at the total cost of transportation and how that affect the gross margin, I think it's very important to look at both the price we purchase the products of the raw materials, mainly the dollar, and the transportation cost as a whole, before we say the impact on the gross margin. As Kristofer said, we will look at this product per product, category for category, and see what's the best strategy to work with this, to balance the gross margin, but also to increase total sales.
If I can just comment on the private label question. The overall private label share of sales is around 35% right now. Obviously we work with a fairly sophisticated way with pricing, both on private label but also on A-brands. In some categories, we start seeing a bit of a shift upwards. We will always be very responsible to deliver value to customers, but we will also ensure that we take pricing where need to in terms of category and product. It's of course the balance between A-brands, which is obviously much more broadly across the categories, or the market than on the private labels.
Okay, perfect. Maybe a follow-up on that one as well. How would you say that your visibility into this situation is right now? Can you take precautionary measures here already, or is this situation that is changing for you day by day? You seem quite keen to keep the margin target unchanged. I'm just wondering how you're hedging for this external environment going forward.
If you look at the process, there is a process where you place orders, and then it then obviously goes to shipping, and then there's a lead time of the container going to Sweden. I guess we have a lot of information before the product actually hits our distribution center and we start to sell it. I guess we could change the price to the customer quite quickly. We have a quite high visibility of the cost of the products before we sell them. I guess it's a choice for us to discuss how to take the actions and why. I guess we have a quite a lot of visibility, and also, it seems that at least the container pricing and everything is rather stabilizing on a rather high level, but it's not, as we expect in short term, going up much further.
Of course, others are taking countermeasures also to increase capacity. Over time it will be a lesser problem. Right now, I think we have a quite long visibility chain of the cost of the product before we actually decide to sell it.
Maybe just worth adding as well. Looking longer term, I think this is also an opportunity for all of us in the industry to become much more effective. I think, if you look at the products we're shipping, decreasing air in transportation, making products more logistically friendly, if you like, that's going to help us on the cost side, but it's also going to be the right thing to do from a sustainability point of view, and at the end of the day, in terms of customer experience, e-com, logistics, et cetera. We're using this as well to really drive that process even harder. That, of course, is longer term. I fully agree with the short-term countermeasures that Pär talk about.
Okay, perfect. I have a question on current trading here and what you're seeing in traffic. You're talking about improved conversion rates, and you also mentioned a few initiatives here that have been increasing your average order value. I'm just wondering. In your previous report, you talked about traffic normalization to your stores by September. That was what you estimated by then. What do you see where you are today? Have you seen a normalization where you are today already, or do you see it more going gradually later throughout this year?
As shown a little bit, the traffic has increased month-on-month, but it's still below last year. In one of the markets, Sweden, there were yesterday, obviously, news about opening up in terms of almost removing all the restrictions by September 29. We've received previously similar messages from Finland. Overall, obviously positive for society that those decisions can now be made. For us, of course, it proves the hypothesis we had last time, which is that by end September, at least hopefully from a restrictions point of view, there shouldn't be too many barriers. That said, as we also talked about last time, we need to be very open-minded in terms of following now the customer behavior, because even though you're allowed to go back to work fully as of September 29, nobody really knows exactly what it will look like.
I think the key thing here is focusing on the things we can influence. We will, of course, do everything to get traffic back, and now we can do so safely. We have not driven traffic to physical stores last year. Now we can do that. That said, we need to focus on then converting every visit we get. The good thing for us is we have lots of customers and lots of visits. Yes, we're dependent on traffic, but we need to become even more independent by driving value per member, value per visit, et cetera. Obviously, a little bit too early to tell, but at least our hypothesis of a more open society in September seems to be happening.
Okay, perfect. Very well. Thank you for taking my questions.
Thank you.
Thank you. We have a question from Niklas Skogman from Handelsbanken. Please go ahead. Your line is now open.
Yes, good morning. We'll see what sort of answer I get from this question, overall, what sort of price increases on average for your product offering would you expect to offset both the input cost commodity, input cost inflation, and the cost inflation from higher shipping costs? Are we talking about 10% increase on prices on average, or?
Do you want to take that or shall I?
No, it's not necessary to increase prices by two digits to offset the cost. It's much lower than that. As said before, it's different factors combined that we'll cater for our decision to increase prices. We do that daily, weekly, monthly, yearly, for all other reasons. There's inflation all years. I guess this is just 1 factor that has changed quite quick. It's just a new factor, but it's not that big in terms of to increase it by two digits.
Also, we will not just take every single product and make a big price change. That's not how we work. We work with category product, price elasticity, obviously different products have different roles to play in terms of driving the price perception versus customers. Maybe in some areas we have an opportunity to take more, and in others we actually need to take down prices. We try to be very dynamic and doing that more and more. Of course, the input cost is one of the variables, but there are also many more. We can't give one answer on overall price development.
Okay, thank you. I guess price increases, freight costs, commodity, et cetera, that's one part of maybe the issue right now. I'm thinking about product availability, and then maybe more specifically as we move towards the important Christmas season, how confident are you that you will have fully stocked shelves going into Black Friday and the important Christmas season?
Now, we have taken, I think we mentioned that last time, we have made the decision to bring product home earlier than usual. Some of the products have already arrived, but obviously others are still either on the oceans or being packed and shipped. We are trying to do everything to get product earlier. The other thing is, obviously, we have a broad assortment, so even if there are issues on some technical products, we also have a big, broad assortment. It's obviously a changing environment, so this is something we track every single day, and it's impossible to be 110% confident. However, I think what we have shown is that we can adapt. If we find that there is an outage on one product in one category, we will do everything to then focus on something else versus customers to cover that gap.
I would say we've done everything we can from an internal point of view to be prepared to have full shelves by Black Friday. As you say, it's obviously a volatile market, but I think we have done what we could so far, and now it's about tracking day by day what we get and how we get that out.
Okay, perfect. I assume increased promotions will be part of the strategy to drive more traffic to the stores. To combine more promotions in this very inflationary environment, could that be tricky to avoid gross margin taking a hit there?
That's one of the reasons we're focusing so much on our membership program. As you say, if you do big, broad promotions that targets everybody all the time, then obviously that will have a direct overall impact. The key thing is really following the highest value customers, giving them the right offers to come back one more time and to be even more loyal. The good news for us is that a small part of our customer base represent a pretty big part of our profit and sales. Becoming a bit more sophisticated, working even more with loyalty, with our program, our CRM program, so we don't need to give blanket promos to everybody all the time.
Of course, we'll also do overall promotions, but a way to offset and not have the broad gross margin impact that you talk about is by being a bit more strategic on how we do the offers and think more longer-term customer lifetime value than just the transaction.
Yes, perfect. Last question. August sales, were there any calendar effects, either negative or positive there? In Norway, what are you seeing there? It seems like the previously very strong sales in Norway are starting to slow down a bit.
Last year, I think Norway was up 9% in August, around that. Obviously we're meeting pretty high numbers. In terms of calendar effects, I don't think we have any calendar effects for August this time.
All right. Thank you very much.
Thank you.
Thank you.
The next question comes from Andreas Lundberg from SEB. Please go ahead, your line is now open.
Thank you. Can you hear me?
Yep.
Cool. Going back to this inflation or gross margin question. If you combine the effects from the US dollar, which seems to continue to be very positive for you, and also that you had some positive hedging or value of hedging contracts by the end of July with this inflationary environment, what would you say would be the net effect?
I don't think I want to comment on all the details there, but as you say, in this quarter, we reported we had a very positive effect from the US dollar, because a lot of the goods was bought at a very decent US dollar rate, and then the expectations was that the US dollar should go even further down, and now it's been going a little bit up and stabilized around that. Looking ahead, it's very hard to comment on each currency, how it will develop. There's a lot of factors now with central banks changing the interest rates and changing the flow of money, and I guess Sweden sometimes is a winner or a loser in this as a rather small currency. I won't comment on that. Overall, as you saw in this quarter, we had a positive effect compared to last year.
Going forward, we will have negative effect from mainly the cost increases from freight. If you look in the report, the sign of the hedges has gone from a negative to a positive, so of course, we will get positive effects, everything same as of reporting day.
The US dollar effect on sourcing looks to be possible to going forward. Is that not correct to assume that?
Everything the same, yes.
Cool. Then on the cash position, obviously very strong, SEK 750 million or so. What are you going to do with the cash?
Obviously, we have the dividend now in September and then in January. Of course, as we communicated the board's decision last time, obviously, we also want to have a bit of flexibility. Yes, the restrictions are easing, but we are still in obviously a volatile environment, and we want to be able to have a strong cash position so we can act on opportunities, invest in the base business, but also be prepared for eventualities. Obviously, the step 1 is the dividend coming.
You also generate some SEK 500 million-SEK 600 million in free cash flows.
Yes.
At least the last two years, which I guess covers the dividend.
Yes.
How much cash do you need?
As Kristofer said, we want to have a strong cash position, and whether that will render in new dividends or investments or other opportunities in taking growth opportunities, I guess we have to come back on that. Our first aim to create a positive business environment and then take the opportunities as they come.
Okay, thank you so much.
Thank you.
Thank you.
As there appear to be no further questions, I return the conference to the speakers.
Thank you. We have one question from the webcast. It's from Stefan Stjernholm, Nordea. He's asking if you can give some flavor to your collaboration with MatHem, sales in absolute numbers and year-on-year growth. He's also asking if the collaboration is dependent on Clas Ohlson being an owner in MatHem.
Yeah, starting with the first one, we have a commercial relationship with MatHem. It's not dependent on the investment. We still have our share in MatHem, we're keeping that, it's not dependent on that. We have now a very solid commercial relationship since a few years back, we intend to continue that. When it comes to MatHem, obviously, they're not reporting their numbers exactly on sales development. What we do see is that what we have mentioned before, every fourth, fifth bag in MatHem containing a Clas Ohlson product, we see that remaining. Of course, we are, as always, dependent on the development of the MatHem business, I'm not in a position to comment that.
We are continuously happy with that collaboration, and we see that MatHem is a way for our customers to get this even more day-to-day interaction with Clas Ohlson as a brand when they anyway do their grocery shopping. It's also obviously a limited assortment versus everything we offer in our own e-com. It's a complement, and it's a brand builder, and it's a customer satisfaction driver.
By that, we don't have any further questions, so I hand back to you, Kristofer.
Yeah, thank you very much for calling in, tuning in. As said, we've delivered a stable quarter. The year has started in a stable way. As said, there are, as always, clouds at the horizon. That's why we have a strong, happy, creative, and winning team in place at Clas Ohlson to take on all of these challenges and still deliver on our targets and objectives. With that, thank you very much. See you all soon again.