Hello, and welcome to the Clas Ohlson second quarter 2019, 2020 report. Throughout this, all participants will be in listen only mode, and afterwards there'll be a question and answer session. Just to remind you, this is being recorded. Today I'm pleased to present CEO Lotta Lyrå and CFO Pär Christiansen. Please go ahead.
Thank you. Good morning, and welcome to this presentation of the Q2 results 1920 for Clas Ohlson. My name is Lotta Lyrå, and I'm the CEO, and I will do this presentation together with Pär Christiansen, our CFO. Going to page 2. This is a quarter with organic growth and improved profitability in what we see as challenging Nordic home market conditions. We have, during the quarter, done a major upgrade of our eCom platform. We have also taken steps within our action program, Clas Ohlson 100+, and the implementation is on track. We see in this report positive effects from the implemented activities, and we have high speed in both growth and cost saving initiatives. The closure of stores in UK and Germany has been completed during the quarter, all according to plan.
Turning to page 3, where we see the agenda for this presentation. I will go through a business and an update of our strategic action program, Clas Ohlson 100+. Per will take us through the financial development and the November sales. I will do a summary. We'll have a Q&A. Turning to page 4. Q2 2019-2020 in brief. We grew in the Nordics during the quarter organically with 3%. Total sales were unchanged. This is impacted by the closure of stores in U.K. and Germany. Online sales were up 21%. Gross margin at 41.1%. All in all, this leads to a strengthening of the EBIT margin to 6.1%. We show an improved operating result, both reported and underlying, all in line with the guidance we have given.
We have, during the quarter, continued to have strong focus on lowering our costs in implementing our program, Clas Ohlson 100+. Turning to page 5. I will now do an update of our strategic program, Clas Ohlson 100+. Starting on page 6. Our strategy has been broken down into an action program. This program shall give us the preconditions to deliver on our financial targets, which are an average annual organic sales growth of 5% during the current five-year period, and an operating margin of 6%-8% from financial year 2021 and onwards. We will do this by implementing a number of strategic initiatives. Some of them are geared towards cost savings of, in total, SEK 200 million-SEK 250 million. Other initiatives shall give the preconditions for growth.
All in all, these initiatives mean that we are, during financial years 2018-2019 and 2019-2020, investing 1%-2% of the underlying operating margin to drive the initiatives, both to drive sales and cost savings. Turning to page 7. The cost saving initiatives shall deliver SEK 200 million-SEK 250 million. We are working with 3 different areas in this part. The first one is a more efficient organization, the second one is a more optimized assortment, and the third one is a more systematic approach to both indirect purchasing and our supply chain. One important event during the quarter is that we have finalized the organizational review impacting 150-200 coworkers. Also, we have during the quarter, taken steps in further optimizing our logistics, focusing on the inbound flow in our distribution central.
All in all, these are important steps to achieve a lower cost level in Clas Ohlson. Turning to page 8. We also have growth initiatives. The aim of these initiatives is to secure continued growth of 5% organically on average during the 5-year period. We are working within 3 areas: to increase sales per square meter, to increase sales per customer, and to double sales online every other year. I will now, a little bit more in detail, update on some important initiatives or things that have happened during the quarter within these initiatives, both within online and in our stores. Turning to page 9. I will start with the online part. During the quarter, we have done a major upgrade of our eCommerce platform. This is to give preconditions for future online growth.
Basically, we have moved from 2012 technology to 2019 technology, and we have, at the same time, significantly improved the user experience, not least for mobile users, who are so important and critical for growing further online. We decided to do this upgrade in mid-October. The purpose of that is to ensure best possible trading conditions for Black Week and Christmas. The timing was also set to not significantly impact these important trading periods. The upgrade was done in mid-October. During a number of weeks, after the implementation, paid search and campaign were temporarily reduced in order to stabilize the site. This is normal procedure. What we see after this period is that we have really improved the customer experience.
The site is now fully responsive and gives a faster and better shopping experience, both for mobile users and people using tablets and desktop. We also see that this upgrade leads to more traffic, and in addition, since we have done the technology upgrade, it will be easier to, going forward, implement changes to this platform, so it is more scalable and cost efficient for us going forward and will allow faster and continuous improvement. Turning to page 10. All in all, this was an important step to have the right foundation to build further on. The sales during the first seven months in 2019-2020 online have grown 17%. Black Friday was the single biggest online trade day for Clas Ohlson ever. Online represented 25% of the total sales on Black Friday and 10% of the sales during complete Black Week.
What we see is that the new online site has a significantly improved page speed. It has been cut in half. We see an increased share of mobile transactions and overall increased transactions and conversion rates. Apart from developing clasohlson.com, we are also expanding into other channels online and are now moving on to page 11. In September, we went into a partnership with Kolonial.no, the biggest online food store in Norway. It has been a very positive development and already now, with the limited number of 250 products present on Kolonial.no, 1 out of 10 grocery bags at Kolonial contain a Clas Ohlson product. Also, the collaboration with MatHem is progressing very well. 1 out of 5 grocery bags now contain a Clas Ohlson product. We are also looking into new ways of meeting the customer online outside the Nordics.
For a while, we have had a pilot project in the U.K. with Amazon. Approximately 100 products have been present on Amazon, representing the Clas Ohlson brand, carrying our own brand. This pilot project has given us reason to believe that this will be a good business for us going forward, and it will be therefore be scaled up to include more products. For 1 year now, we have also been present in the service business through the pilot with Clas Fixare. We see an increasing demand for this service and high customer satisfaction. Today, this service is available to customers in the larger area of Stockholm. We are now looking into further streamlining this service, as well as preparing for rollout in more regions in Sweden.
Part of the unique recipe that we have in Clas Ohlson is the combination of our own online presence on other platforms, and our store network. I'm now turning to page 12 to update a little bit more on exactly that. We believe that a dynamic approach to the store network is the recipe for profitable growth. We also believe that the role of the store is to provide customer experience and service, also to be an important part of our logistic network throughout the company. Today, that means that goods ordered online can be picked up through Click & Collect in the store, also that stores serve as a hub for same-day delivery all the way home to the customer. During the quarter, Clas Ohlson became the second store chain worldwide to host Google's new global shop-in-shop concept.
That is a way for us to improve and make the customer experience more exciting. We are also testing a new store concept and a specialty shop for organizing for the home in Norway. As part of that, we are now offering Vinden storage services both in Sweden and in Norway. An important step in improving last mile has been to rebuild part of a store outside Oslo to serve as a logistic hub for last mile delivery in the complete Oslo region. Turning to page 13. Other actions in the store network is to continuously make sure that we are in the right locations with the relevant format with the right leasing conditions. We are working with a continuous re-review of our leases for existing stores. It means that we will close and relocate non-profitable stores.
We will change store format and sizes. We will selectively open new stores in areas where we see potential. Far in 2019-2020, we have taken some steps exactly in line with this. We have closed 2 stores and we have 5 more closures to come. We have relocated 2 stores and we have opened 2 new stores in Sweden and Finland, where we see better sales per square meter and profit per square meter potential than in the ones that were closed. The review of our lease conditions are proceeding. That concludes the business update. Now I will hand over to Pär Christiansen for the financial development.
Thank you, Lotta. I will now go through the financial development of the quarter and the first 6 months. Moving on to page 15. Total sales for the quarter was unchanged. Organic sales was up 1% and like-for-like sales up 1%. In the Nordic, we saw a bigger growth of 3% and organic growth of 3%. We saw growth in all the Nordic countries, so it is Sweden, Norway, and Finland. Outside Nordic, we saw a decline as per plan. Online sales was up 21%. As Lotta said, we also had the site affecting the sales during this quarter. We reduced the total number of stores by 5 stores compared to last year. Moving on to page 16. Sales development for the first 6 months, we saw a growth of 2% totally.
Organic sales up 2% and like-for-like sales up 3%. The sales in the Nordics was up 4% and organically 4%. We also saw growth in all Nordic countries for 6 months. Online sales was up 20% for the first 6 months. Moving on to page 17. The gross margin in the second quarter was down 0.5 percentage points to 41.1. The main impact came from a stronger purchasing currency, US dollar. To counterbalance that, we are continuously reviewing and reducing purchasing prices as part of our Clas Ohlson 100+ program. We're of course, also looking into pricing of products as well as the product offerings to mitigate any gross margin pressure. Moving on to page 18.
The share of selling expenses in the second quarter was down to 32.3%, down by 4.1 percentage points. Excluding the IFRS 16 effects, the decrease was 3.1 percentage point. Moving on to page 19. Our administrative expenses in the second quarter was down to SEK 57.6 million. Moving on to page 20. The reported and underlying profit in the second quarter was improved to SEK 133 million compared to SEK 33 million the previous year. The underlying EBIT increased by 23% to SEK 153 million compared to SEK 124 million previous year. Reported EBIT margin improved to 6.1%. Moving on to page 21. The reported and underlying profit for the first six months was improved to SEK 212 million compared to SEK 65 million previous year.
The underlying EBIT for the first six months improved by 31% to SEK 244 million compared to SEK 186 million previous year. EBIT margin for the first six months was 5%. Moving on to page 22, looking at the investments for the first six months. Total investments amounted to SEK 83 million. Moving on to page 23. Financial position. We still have a very strong financial position. Cash flow from operating activities amounted to SEK 455 million compared to SEK -89 million last year. Our net debt to EBITDA ratio was 0.6, well in line with our framework. Moving on, looking at the November sales, turning to page 25. November sales was up 2% in total, organic 2%. Looking at the Nordic, we improved to 4% increase and organically 4%.
We saw growth both in all the Nordic countries as well as online by 7%. As Lotta said, we had the highest sales ever on Black Friday online. We have reduced the number of store by six compared to the end of November last year. This concludes the financial development and November sales. Now I will hand back to Lotta.
Thank you, Per. Turning to page 27. All in all, this report is about improved profitability in line with the guidance on margin that we have given. This is due to a continued delivery on our Clas Ohlson 100+ program, and we are now starting to see the effects of that in our result. It's also due to the increased organic sales in our Nordic markets. We see growth in all channels, in all markets, and this gives us a good position for continued growth. In the next step, we will continue to focus on adding customer value by improving our offering, and also in an even stronger way, linking product and service offerings all together across our channels, both in stores and online.
We will continue to have strong focus on our daily operations all the time, making sure that we have efficiency in sight to deliver cost savings. This is what will enable us to deliver an operating margin of 6%-8% from 2021 and onwards. That concludes the presentation part, and I will now hand to the operator for Q&A.
Thank you. Ladies and gentlemen, if you wish to ask a question, please can you press 0 and then 1 on your phone keypad now in order to enter the queue. After I announce you, just ask that question. If you find that question has been answered before it's your turn to speak, just press 0 and then 2 to cancel. There'll be a brief pause while questions are being registered. Our first question is over the line of Anton Wilén at Bloomberg News. Please go ahead, your line is open.
Hi, good morning.
Good morning.
Can you hear me?
Yes.
Yeah. Yeah, good. I wondered about, you said that you experienced challenging market climate in the Nordic region during the fall. Can you explain what you mean with that?
I think a part of it is in line with what we have seen during the last 12, 18 months, and actually what we built our strategy to sort of respond to. Part of it is the fact that we see retail in the Nordics being impacted more by global competition, where online actors are coming in and putting pressure on prices and so on. We see that development continuing. We also see a fight for the customer wallet, not only within our own segment, but also in other segments.
Then, in during summer, we saw a positive effect from people spending more time at home than going to the vacation due to the weak crown, and also tourism coming in, that impacted the summer positively in this challenging climate. We haven't seen so much of that during autumn.
With global competition, you mean online sales then, or is it?
Yeah, online actors. I mean, as a consumer today in the Nordics, you can shop from anywhere in the world. That, of course, means that our competitors are both local and global today.
All right. regarding that, online sales were up 20% this quarter, following 21% last quarter, if I'm not mistaken. Was it the opposite, perhaps? anyway, it comes down from a quite higher, level before. is this only due to the platform remake or how much.
Yeah. Yeah.
Would online sales have been up if you exclude the platform?
Yeah. We took the decision to make this upgrade because we believe it's necessary in order to be able to grow further. The platform we had basically maximized as much as we could, and it was not scalable in a way that we need for the future. It has taken us a big part of this financial year to actually develop and implement that. The online performance during the first 7 months has been heavily impacted by this fact. Both the actual implementation, but also that we have prioritized this and maybe not been able to do other changes, so to say. I believe that this has been the absolutely right way to go.
We see the evidence in Black Friday being our biggest online trade day ever and the big portion that online represented both in Black Week and during Black Friday.
You can also add to this that we have said to the market that during this year, we will focus to really establish the foundation for going into the next level of margins as well as growth. We're really focusing on getting all the activities together in both the SEK 200 million-SEK 250 million savings, as well as establish growth potentials, both in the background and in the other parts of the company, so we can execute on that next year.
All right. Do you see any more, kind of negative effects from the remake of the platform going forward?
No, I think, the sales during Black Week and Black Friday shows that we are back on track.
Thank you. That's all for now.
Okay. Just to re-prompt, if anyone else has any questions, could you please use this opportunity and press 0 and then 1 on your phone keypad now. We go to the line of Nicklas Skogman at Handelsbanken. Please go ahead.
Yes, hello. I was wondering if you could tell us what run rate you were at in the quarter in terms of the cost savings, also whether you think you'll be at the bottom of the bottom of the range or at the top of the SEK 200 million-SEK 250 million range?
Yes. We have previous year talked about this in a way that we will end this year by having the full run rate of SEK 200 million-SEK 250 million, and that we still stand at our position. In addition to that, we have also said that closing of the stores of in U.K. and Germany in October will conclude that period, so we will have the full run rate of the SEK 75 million starting of November. We have not given any guidance on how this savings otherwise will come into each month or each quarter, and I will not guide on that now either.
You don't want to say what it actually was in the quarter that passed?
No. We guide that we will go from 4%-6% margin this period and go into 6% to percent margin coming next year. That is the framework we are guiding on.
Okay. The organizational review, you say that's done. I assume all of those savings-
Yeah. Yeah.
Should be at least in the coming quarters.
Yeah. What we have said is that we're investing 1%-2% of the margin, then going down to 4%-6% in EBIT. As we have said, the savings come from 3 main areas, and one is the organization review and efficiency and that will come into phases. We announced a couple of months ago now that we will improve the efficiency in our distribution center, for example, and previous we announced on our head office. This will come into phases during the full complete year, and then we will have the full run rate. The other part is savings on the COGS, on the purchase price of the products we sell and all the connecting cost of that.
The third area is the indirect cost that we have said before that we're concluding around 7% of the SEK 1 billion we're spending on that. How this will come into the P&L, we have not guided on per month or per quarter. We have said that the full effect of this SEK 200 million, SEK 250 million will come into next year.
Okay. Thank you.
One more time, if anyone has any final questions at this stage, please press 0 and then 1 now. We have a final question, and that's of the line of Andreas Lundberg at SEB. Please go ahead, Andreas. Your line is now open.
Thank you, and good morning, everyone. What about the cost savings from the U.K. and German store closures? How much do you expect from that? Is it fair to assume that most of your, so say, cost savings so far are related to the store closures rather than the SEK 200 million-SEK 250 million program? Thank you.
All the stores in UK and Germany are now closed. As we have informed about before, the full run rate of the 70 yearly saving of SEK 75 million from the closure will start as of November 1st. That is still valid now, so to say.
Okay. You expect some SEK 75 million from the store closure in savings, so that, is that correct?
Yeah. That is what we have communicated, at the upside of these closures.
Is it fair to assume that most of your savings so far are related to the store closures rather than the larger sourcing program, so to say?
No, no. I would actually say the the opposite.
Okay. Thank you.
Thank you.
Okay. There is a final question on the line of Anton Wilén . We'll go back to Anton at Bloomberg News. Please go ahead.
Hi again. I'm wondering about how your condition to reduce the purchasing prices has fared?
Can you repeat the question again?
Yeah. You previously said that you're working with the purchasing department to reduce prices.
Yes.
I wonder if, how you've been succeeding with that.
Well, I mean, the COGS is our biggest cost. It's about SEK 4 billion. What we do is, of course, looking into reducing that and about almost half of that is coming from Asia, and the other half is coming from Europe and Sweden. We have a little bit different methodology to reduce the cost. One thing that has been previously presented by Lotta is the category reset program where we look into reducing the number of SKUs within our assortment, which then reduce the number of articles and also drive up volume on certain articles. That is one of the leverage we use to get better purchasing powers and then put more volume into certain suppliers.
On top of that, we are getting better and better in benchmarking our prices and therefore, putting pressure on the suppliers. We also work together with them, to understand how we can support them in reducing their costs and therefore sharing the cost savings together with them. There is a little bit different methodology in getting these prices down.
All right. Thank you. one last question also, regarding the Amazon project. Have you been thinking about other markets outside U.K.?
That is part of the considerations that we have ongoing. We don't inform specifically about that today. The first step is to to widen the product range available at Amazon in the UK.
From those 100 items, can you say something about how big the increase will be?
We will come back with that as well. It's both about making sure that it's sort of the right product mix, but it's also to secure that we have the complete logistics and supply chain to actually be able to deliver all of the products in a good way. It's a combination of optimizing the product mix and making sure that the value chain is in place to do this in a good way also so that customers are happy. We will inform more about that once we have concluded the next step.
All right. Thank you for taking my questions.
Thank you.
That was the final question on this quarter's call. May I please pass it back to you for any closing comments?
Thank you everyone for dialing in and, we look forward to meeting again when launching the Q3 results. Goodbye everyone.
This now concludes today's call. Thank you all very much for attending and you can now disconnect.