Welcome to the Clas Ohlson Q1 2023/2024 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to CEO, Kristofer Tonström, and CFO, Pernilla Walfridsson. Please go ahead.
Good morning, everyone, and welcome to Clas Ohlson Q1 report. My name is Kristofer Tonström, I'm CEO, and I'm here with Pernilla Walfridsson, CFO. So we'll cover a short presentation before we move into the Q&A, and I'll cover the business update and events after reporting period and summary, and Pernilla will take us through the financial development. So headlining the first quarter and also August, we have started the year well with 8% organic growth and 9% like-for-like. We've also seen improvement versus last year in gross margin and cash flow. We're ending the autumn now with a healthy and balanced inventory, which is below last year's levels. Our cost saving efforts are progressing according to plan, and we believe we're establishing a new base.
This will be extremely important as we move into the fall. Macro is still very challenging. We need to be fast and flexible, and we need to ensure that we stay very cost-effective as we see, obviously, inflation hitting us from a lot of different areas. Looking at the growth in the first quarter, it's very assortment driven. Across our five consumer missions, the prioritized destination categories, all categories are actually driving growth, which is encouraging. And we also saw continued growth moving into August with 14% organic and 14% like-for-like. Our ambition or our clear objectives are to grow 5% organic per year at a 7-9% EBIT margin, and that remains moving forward.
We also wanna be industry-leading in sustainability and deliver on our 2045 commitments. So those two areas are our key objectives moving forward. The short view on what's gonna drive growth and profit, we have three main growth drivers that we're focusing on. The first one is on assortment, making it relevant 12 months a year, and the second one is building a profitable and growing online business, and then also expansion of our store network. So those three growth drivers will be enabled by efficient customer communication, competitive cost base, and the execution of our sustainability agenda. So just a few quick words on each of the growth drivers as we're closing out the first quarter. So as said, I'll come back to the assortment in a second, but all the prioritized categories have been driving growth.
The summer season, in terms of seasonal products, was actually fairly weak, so it was very broad-based, base business growth during the summer. In terms of our online business, we are doing everything to focus on our own, e-com channel. That has now surpassed SEK 1 billion in sales, and we saw 9% growth in the first quarter. Obviously, the ambition is to grow total Clas Ohlson, but we do believe that this proportional growth will continue to come from our own e-com. In terms of the expansion of the store network in the quarter, we still had fewer stores than last year, but we also opened one new store in Norway, and we are on track for the expansion of the net 10 stores this fiscal year that we announced during the last quarter.
When it comes to efficient customer communication, a huge enabler for us is our Club Clas membership program, and that is continuously progressing, and we're also doing a fairly good job in terms of performance marketing and online communication during the quarter. Cost base, we'll come back to the details, but we have done a lot of work to reduce complexity, simplify all the ways of working, and thereby also a fairly significant reduction in terms of office functions and white collar employees. So we're actually entering the fall now with approximately 25% fewer office colleagues than we were one year ago. So that means that we're on track in terms of realizing the savings that we have been announcing over the last few quarters.
Obviously, that is gonna be important given the inflation we see in rents, salary increases, et cetera. In terms of our sustainability agenda, obviously, we wanna sell a lot of need-based products that makes a difference for our customers, both in terms of their economy, but also in terms of sustainability and being able to lead a more sustainable life. And as part of that, we are increasing our focus on spare parts to complement our assortment, and we have seen nice growth also on spare parts during the quarter. And we were also recognized on Allbright's Green List during the quarter. Taking a second, just talking a little bit about our consumer missions.
This has been a focus for us over the last one and a half years, and it's pretty clear that we wanna be a unique combination of those five consumer missions. We have seen here over the last year or two that Tidy Up Your Home and Light Up Your Home, those two missions have been driving growth, and we've also talked about reapplying that playbook onto the other consumer missions. The encouraging fact during Q1 and also August is that we start to see growth also in Connect, Fix, and also Conscious Home Environment. So right now, all the five consumer missions are driving growth, and that is crucial for us to ensure that we keep a balanced assortment while, of course, driving relevance across each area.
We've done a lot of new product launches into each of the missions, and there are more news lined up for the autumn. Apart from that, of course, we wanna work hard in terms of seasons, but we also want to be less dependent on the seasonal swings. But of course, we are entering the Christmas season, where we are a destination, and we want to continue to be a destination. Spare parts, I've already mentioned, and that is a big part of also fulfilling our sustainability ambition. On top of the five missions, those are the key things that drive traffic of customers into Clas Ohlson. We also want to complement that with a consumables assortment, and we have seen that also performing fairly well across the first quarter. We know that consumers are cautious.
Consumer confidence is recovering a bit, but are still on low levels, and we need to do everything to protect our price position. We do measure our price perception, and we benchmark ourselves with low price competitors, and we're going to continue doing so. So it's crucial for us to have the right, the right price at the right quality, for products in the market and, continuously building price perception. So, obviously, we are humble, also moving into the fall now, given the, the consumer sentiment. So with that short update, I'll hand over to Pernilla to take us through the financial development for the first quarter.
Thank you, Kristofer, and good morning to you all. Let us take a deep dive into the Q1 financial development. We are all aware that it is still quite tough times for many retailers. In this environment, I think it is positive that we can report an organic increase of 8% to the sales of nearly SEK 2.2 billion. That was up 7% compared to Q1 last year. Also, worth highlighting is that this increase was made with four less stores compared to Q1 last year, which is also illustrated by a strong like-for-like sales increase of 9%. Online was up 9% for the quarter. Online sales now stands for 12% of the total sales. Now looking at the sales development in our three markets. In Sweden, we reported organic sales increase of 9%.
In Norway, we reported total sales increase of 7% and a strong organic sales increase of 11%. And finally, in Finland, we reported total sales increase of 6%, representing a decrease in organic sales of 3%. Before moving on to the gross margin, I would like to elaborate a bit on the macro trends with business impact. And let me start with the freight cost, and let me remind you that these figures refers to spot prices and that we have a lag effect due to lead times from order placed to product sold. The sharp decline and a new normal level is a positive sign also going forward. The effect on the weak SEK, however, seems to remain. We are still at the historical high exchange rate, US dollar/SEK, which will affect us going forward.
On a more positive note, we are pleased that the NOK has strengthened lately. Let me now give you a picture on the main component explaining the gross margin improvement. This quarter, we have been able to compensate for the macro impact by favorable price and product mix. We also saw a positive effect from lower transportation cost and currency hedging. However, the negative impact from the weak SEK versus the US dollar is still significant. All in all, our gross margin increased by 3.1 percentage point to 38.2% in the quarter. As we previously have communicated, we are putting a lot of effort in making Clas Ohlson even more efficient, given the challenges in the market. The measures we presented in Q2 and Q4 have progressed according to plan, including the reduction of 85 + 75 white collar employees.
We will see the approximately SEK 210 million full effect of these savings on a full year basis going forward. We reported SEK 170 million in one-off cost in Q1, and we estimate SEK 50 million to be reported in coming quarter. Let me now give you an overview of our earnings for the first quarter. Operating profit, excluding one-off cost, totaled SEK 154 million, compared to SEK 90 million last year. One-off cost connected to our cost-saving initiatives totaled SEK 170 million in Q1. Last year, we had a one-off cost for the closure of the U.K. operation, totaling SEK 35 million. The SEK 170 million in one-off cost is more or less in line with approximately SEK 165 million we communicated in June.
The majority of the savings will be attributable to selling expenses going forward. We saw a decrease in share of selling expenses by two percentage points to 29.7%. The decrease is explained by both the highest sales and the net of one-off cost and the realization of cost savings. Administrative expenses totaled SEK 46 million, compared to SEK 44 million in Q1 last year. Also, here, our cost initiatives has had a positive effect in meeting the effect of cost inflation. So the reported operating profit was then -SEK 16 million. That is in line with the same quarter last year. And if we then turn to the inventory compared to the end of July last year, the inventory level is down with SEK 255 million, compared to last year, reflecting the lower transportation cost and strong sales.
Also, it is important to have in mind that the inventory value has been impacted by external factors, such as the weak SEK in relation to the US dollar. However, that is now partly mitigated by the significant lower transportation costs. And turning and looking into the cash flow for the quarter, cash flow from operating activities totaled SEK 328 million, compared to -SEK 35 million last year. The improvement between the quarters is mainly due to a higher profit before write downs and the difference in change in working capital, explained by the lower inventory build up during the quarter compared to last year. Net debt, EBITDA, excluding IFRS 16, was -0.1 times, which means that the financial position is well in line with our financial target. I hand over to Kristofer.
Thank you, Pernilla. So looking at events after the reporting period, and more specifically on the August sales development. So all in all, total sales was up 14%, netting out at SEK 860 million. We saw organic growth in Sweden of 15%, Norway 14%, and Finland 8%. So a solid delivery across countries. We also saw that online sales was up 11%. Looking at August, we had three stores less than August last year, and we see the trend continuing from Q1 into August in terms of all the missions actually growing versus last year. So a strong August, while obviously the mission moving forward is to deliver on our 5%, and we should not expect double-digit growth every month moving forward.
So to wrap up, before we move into Q&A, we know that the market is challenging, and there is continued uncertainty, especially when it comes to the consumer demand and the consumer spending. So we're very humble about that fact and are doing everything that we can to drive the relevance in terms of assortment, our value for money and price perception, and obviously, it's key for us to be flexible. We've shown that over the last 12 months, that we've been able to focus a lot on need-based shopping, and we need to continue being flexible based on how the consumer needs are developing. We're also expanding our store network, and obviously, it's all about quality, quality expansion rather than quantity, but we are on track versus the 10 new stores this year.
And obviously, we're also doing everything to grow our own e-com channel. As Pernilla explained, the cost-saving measures are being executed and on track versus plan. Of course, we need to continue being extremely cost-conscious and do everything to reduce complexity, but we believe that with the bigger changes we've done now, we are moving into the fall with a more competitive cost base in total. With that short presentation, we will now move into Q&A.
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 Magnus Råman from Kepler. Please go ahead.
Thank you. Firstly, congratulations to really good results in this quarter. I have a few questions. Firstly, maybe on the headcount reduction here in the office staff. How will you manage to perform sort of essential work tasks with this decrease in staff? In what ways, and if any, will you be sort of negatively affected by this reduction?
So obviously, the ambition overall is to simplify everything that we do, remove complexity, and focus on the core business. So obviously, the headcount reduction is never something we take lightheartedly, and it's based on a review across all the different functions. So it's broad-based. It has impacted all the offices, all the functions, and the ambition is to ensure that we focus on the growth drivers I laid out before. So obviously, we have taken out a few things in terms of what we're focused on historically, and we're trying to keep very focused. Of course, there is always a risk associated with making big changes like this, but obviously, a large part of the change had already been executed as we moved into the summer.
So I think it's encouraging to see that, despite those changes, we are able to focus on the biggest things. So all in all, across countries, across functions, across offices, and the ambition is, of course, to still be able to deliver on our targets, despite this.
Right. So, I mean, since it's been working so well, as you allude to, if we flip the question, I mean, you are still some sort of 500, 5,000 employees. Do you see there is further potential to reduce, perhaps that workforce with additional measures, in the coming years? Or do you think you need to grow the central staff somewhat again?
The key is to ensure we do not grow in terms of overall headcount. We wanna be, we wanna really stay on this base moving forward. There are no other news in terms of further changes. We believe that with this, we are in a competitive stage where we have a competitive cost base. But then, of course, we always need to be very open and flexible, depending on how the market evolves. And the ambition is, of course, to get better results out of the organization that we have, rather than expanding the organization or further decreasing it. So I think that's all in all where we stand.
All right. Right, that's clear. Then on your pricing, you mentioned the report, spare parts being up 21% year and year. And you have also mentioned a lot how you become more selective in your pricing and sort of betting on the price visible parts of your assortment and the opposite for lower price visibility. So I mean, for these items that you might think of maybe as lower price visibility, can you give us some sense here of the mix between volume and price? Would you say, for example, that it's a majority volume, these 21%, or is it the majority price?
Obviously, we haven't reported details of the spare parts business. It's still a fairly small part of the total, but it's when it comes to spare parts, it's mostly been driven, I would say, in terms of volume, because we have made more spare parts available across 120 stores and online. So, spare parts is obviously a category where the price sensitivity is a bit lower, potentially than on some other categories with known brands, et cetera. It's more a complement to a purchase, so it's not a very price sensitive, and it's also not a campaign in terms part of the business, but it's still fairly small, but the development is obviously encouraging.
Yeah, sure. But, still, then what you're replying is that you have taken up prices on this low price visibility items by less than 10%, nonetheless, if I read it correctly?
Sorry, again? Sorry, again.
Yeah, so what you're suggesting is that you have raised prices less than 10%, even on these sort of low price visibility items as spare parts are.
I think that's fair to say, but it obviously varies between categories, but overall, yes.
Okay, great. Great, and then, if you mention here also now in the presentation that you expect sort of disproportional growth from online or that to contribute more than the overall. But if we look at the recent, say, four months or so, I think you've had an online sales that have been sort of aligned with group sales in these months where you have strong sales overall. So, how are you gonna push then if you expect online to contribute to online sales to grow more?
Obviously, you're right. Over the last few months, we have seen strong sales development in our stores and especially on like-for-like. So, and obviously, it's never in a purpose to drive one channel above the other, so we will always optimize sales between the channels. But it's more if you take a step back and look over the next couple of years, we believe that we are still a little bit underdeveloped when it comes to online penetration on some of the consumer missions. So we do expect that structurally, there will be an increase online, but it's not an end in itself to drive online more than the rest. It's more an observation and an expectation, looking in the next few years, that online will be a growth contributor.
But, as you say, over the last few months, that, that has not been the case.
Right. Yeah, that's clear. But just to understand then, are you expecting to catch up with the sort of overall online penetration market that you, as you mentioned, that you lag? Or is it more that you think that online will grow structurally and thereby you will grow with it, so to speak, but remain your sort of lower penetration than the overall?
We believe it's very assortment driven from our end. So if you look across the, the five consumer missions, as an example, the connect mission from a total market point of view, the online penetration is significant, whereas for us, it's slightly lower than the overall market. So with the right assortment expansion, with the right, availability, we believe there is a opportunity for us to catch up versus the market. So, so it's less a prediction on the total e-com penetration as a market and more on a category level where we see headroom to grow, versus where the market is at.
All right, great. Just a final one for me, and we'll let others ask questions. So on the positive mix effect here that supported the gross margin, as you mentioned, I mean, if we would just assume that mix would remain the same in the coming, upcoming quarters, should it continue to contribute then, or sort of when do you think that would annualize that effect?
So, obviously, as you said, mix will be. I think as said in the first quarter, it's mix and pricing and less campaigning. Obviously, when it comes to pricing and campaigning, that's always also dependent on what happens in terms of competitor pricing, et cetera. Of course, our ambition is always to drive a positive mix as well in terms of what categories we focus on when we launch new products, when we expand assortment, of course, we wanna target that towards high margin. So I think it's more in general, the ambition is to continuously improving the gross margin versus last year, but most based on the dollar effect, we still believe there will take some time before we're back to kind of historical levels on gross margin.
I don't know whether that answers the question, but of course, the ambition is to drive mix, but and I can't say exactly when that will be annualized, but in our effort to expand the assortment, it's always a balance, of course, between traffic driving sales, and margin.
Yeah, so the way to try to understand it was if you think that the mix shift is mainly dependent on sort of deliberate actions from your side in altering, the assortments and so on, and thereby that we can expect these positive effects to continue ahead for some time before they sort of annualize, or if it's more that customer behavior changed from quarter to quarter, and now you have the type of customer demand that was expected?
I think it's a mix of what we do and how the customers react. If I take the summer as an example, obviously, as said, during the summer, some of the traditional summer categories were not driving the growth. It was more the base assortment, and that, of course, is favorable for mix. If you remember last summer, obviously, some of the high-ticket summer items, when the sales were slow, the prices went down across the total market, and obviously, we followed. So, that, of course, becomes a mix, but it's driven by that the prices went down in the market, if you're following me. So obviously, driving the total base is favorable for margin, but then, of course, it depends on what happens with seasonal items and more high-ticket items during a specific quarter.
Great. Thank you very much.
Thank you.
The next question comes from Andreas Lundberg from SEB. Please go ahead.
Good morning, and thank you. If I start with the exit of your cooperation on online with the various players, what's the strategic rationale for doing this?
Yeah, hi, Andreas. So.
Hi.
Yeah, we announced today that we're ending the commercial partnership with Oda and Mathem, and in general, we've been very happy with the collaboration over the last few years, and also the customers have been happy. This is more a sign of us very much focusing on our own channels. We have seen that over those years, our e-com channel is now above SEK 1 billion in sales, and also following all the things we have done to simplify our business in reducing complexity, it makes sense to focus our fairly linear resources onto our own channels. So it's also a natural step versus following the decision we took a year ago when we ended the partnership with Amazon. So it's more a reflection on our own focus moving forward rather than anything else.
We've been very happy with the partnership.
Cool. Thank you. And you touched upon, you know, sales growth quite a bit, but, but could you perhaps give some more flavor on what, you know, what's really driving here, or how is the market performing, if you have any color on that? Thank you.
Obviously, we are operating a little bit in our own Clas Ohlson universe with multiple competitors in multiple markets, and obviously, our five missions is a way for us to, to, frame where we are playing. I think there are some overall markets and categories where we've seen decline, like, anything related to connect your home and multimedia, et cetera. We have seen market decline there, whereas in some of the other categories, we've seen growth. But net-net, we believe that we are strengthening our position in Sweden and Norway during the summer. But of course, low price continues to perform well, and in certain categories, we do see growth.
But I don't have a total market for our universe, but so it varies a little bit in between the five missions.
Okay, cool. And what would you say about the net effect of USD versus sourcing cost in the first quarter, and how do you see that going forward?
So if you look at the bridge that we shared on the gross margin, and you see the three arrows that shows the factors impacting gross margin, there you also see the relationship of the USD impact. So it has a still a fairly big impact, and all else equal, the gross margin would have been down unless the other positives came in. And we expect the USD impact to continue to put pressure on us in the next couple of quarters as well. But if you look at the bridge that we shared in the deck, that shows you the relationship.
Do you think the net effect will be less severe in the coming quarters? You talked about substantially lower transportation costs in your inventory, for instance.
It's very dependent, obviously, on our own ability in terms of product, mix, and pricing, but the net effect of the dollar, of course, will also depend on how the dollar evolves now. But I think the net effect versus transportation and dollar is still negative.
So you won't like to talk about it, if it will be less negative going forward?
You mean the impact of the US dollar?
The transportation costs combined.
I think in the next 1-2 quarters, it will be similar to the first quarter, and then it will net out and be less.
Cool. Lastly, on your cash position, you turn to net cash here again. You have now a few quarters, especially the Christmas quarter, where you have, you know, typically very low, high cash inflows, and you have a low dividend in the coming days here. So, what do you wanna do with the cash position or the balance sheet? Thank you.
So obviously, the dividend that was recommended for the AGM on Friday was announced last time, and of course, that was also done in terms of ensuring some protection and security in this volatile market. So obviously the intent is to stick to and really deliver on our financial targets. But there are no other news in terms of how to use that cash. We can see if you compare it to a year ago, obviously it's gone really fast in the right direction. But nothing new on that today.
Okay. Thank you so much.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.
Okay. We seem to have no further questions on the webcast from any of the analysts or media. So, with that, we will close down the conference. So thank you very much for taking the time to call in, and then we will see you for the Q2 update. Thank you very much!