Hello, welcome to the Clas Ohlson Q2 2020 report. Throughout the call, all participants will be in a listen-only mode. Afterwards, there will be a question- and- answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present CEO, Lotta Lyrå. Please go ahead with your meeting.
Thank you very much. Good morning, everyone, and welcome to this presentation of the second quarter results, 2020 for Clas Ohlson. My name is Lotta Lyrå, and I'm the President and CEO, and I will do this presentation together with Pär Christiansen, our CFO. Pär will also be acting CEO as of Saturday as I leave the company to take on another job in another industry. Pär will be acting CEO until February 8, 2021 when Kristofer Tonström joins Clas Ohlson as the new CEO and President. Next slide, please. In this report, we see an improved result in an uncertain world. We see positive impact of the effects. We see positive impact of the actions we have taken to handle the effects of the ongoing pandemic.
Organic sales are down 1%, we also see negative impact from a weaker Norwegian krone, which impact the total sales. The EBIT margin amounts to 6.4%, and our financial position is very solid, where net EBITDA is -0.3. We continue to execute on our strategy to increase competitiveness. As part of this, the report today, we also announced the sales numbers for November, including the so important Black Week or Gift Week, as we call it in Clas Ohlson. In November, we saw organic sales increasing with 2% and strong online sales. Next slide, please. Summarizing Q2 2021 in brief. Organic sales and like-for-like were down 1%, and we will come back with some more details around this.
As a consequence of the weak Norwegian krone, total sales were down 6%. Online sales increased 25%, impacted by changes in our inventory management systems in early autumn. Gross margin was improved, growing from 41.1 %- 41.8%, and our EBIT margin improved from 6.1 %- 7.3%, and if excluding the IFRS 16 effect, from 4.9%- 6.4%. Next slide, please. Of course, again, the COVID-19 effects have impacted society and Clas Ohlson during this quarter. After a somewhat safer summer, we have again during autumn seen the spread of the virus increase. We have during both actually summer and autumn taken extraordinary measures to safeguard the safety of our coworkers and customers, and that is our top priority.
We also, especially now during autumn, have been balancing high sick leaves, both in stores but also in our distribution center. We still see only marginal disruptions in the supply chain, but we have seen some more impact in specific product categories. Of course, we have, again, during autumn, seen rapidly changing customer behavior, driven by both the restrictions that have been imposed, but also the fact that people are again spending more time in their homes, both working and for leisure. Next slide, please. Taking a moment to reflect a little bit more on the changing customer behaviors. Basically, all Clas Ohlson stores are affected by restrictions right now, and approximately 40% of our stores are affected by explicit authority advice not to visit stores.
This is especially apparent in Sweden, where we see severely reduced traffic in city locations in Sweden, but also in Finland. Again, stores that usually benefit from cross-border sales see a heavily reduced traffic pattern. We have spent a lot of time and energy on ensuring a safe shopping experience in our stores to safeguard both coworkers and customers. At the same time, we see online shopping increasing significantly. This is both coming from people that usually shop online, that shop more online, but also new customer segments shopping more online.
As an example, people, with an age, above 65 have increased their shopping online with 82%. The current situation has also created an increased need for more flexible delivery options, including Click & Collect, pick-up outside stores, and more, home delivery options, as well as delivery to, for example, Instabox, to further reduce, the physical interactions between people. Again, people spending more time at home, increases the focus on the home environment, both for work, leisure, but also as right now preparing for Christmas. We see that in the light of this, the new platform that we have created for growth has been very useful and an important part of being able to continue to develop the business also, during this pandemic. This includes, the steps we have taken in our stores.
Of course, moving the role of the store from being only a shopping outlet and a point for personal service to also being part of the logistic network and a hub for e-commerce, which enables short lead times and home delivery, is extremely important in light of the pandemic. We also see that the improvements we have made in our online channel, which includes both the customer experience when shopping, online as such, moving from 14 clicks just a couple of years ago to four clicks now, as well as the improved logistics, in terms of having more delivery options, have been crucial in being able to serve customers during this pandemic. Since two and a half years ago, we are also present on MatHem and Kolonial, and the sales on these platforms have been booming during the pandemic, and this continues.
Again, it's an important part for us to be able to serve customers in this situation. We continue to develop our delivery options to being even more convenient. Of course, the core of who we are our products and services that simplify life at home. Many of the assortments that we carry, everything from things that enable us to work better from home to how we maybe cook together or now, right now spend Christmas, are very relevant. In the light of a change in customer behavior, we believe that the new platform that we have built for growth has been very relevant. Next slide, please.
To give some more details on how we see traffic patterns evolving in this very special situation, we have here three concrete examples of three stores in different sorts of locations. The green line shows a store in a large city in the middle of the city center. The blue line shows a store in just the outskirts of a larger city. The yellow-orange line shows a store in a large city outside the city center, but with convenient parking, meaning that the parking is close to where the Clas Ohlson store is. These graphs then show the traffic development in these three different stores.
What you can see here is that during the year, when the pandemic started to hit in week eight, nine or so, the traffic to the store that is in the very city center of here, dropped immediately and have been constantly on a lower level since, and very recently dropping further. Looking at the blue line and the orange line together, we can see that when the pandemic was very intense during spring and again now since week 41 or so, we see that it has meant a lot for the traffic to the store, whether the parking is close or not. This shows how concrete it becomes where you are located and how people really want to be sort of at as little time as possible in the big crowds. Next slide, please.
Then, along with this, we have seen traffic development online increasing drastically. This line shows the traffic development to clasohlson.se, .no, .fi. You can see that, when the first wave hit in March, April, we had an increase leading to a new level, traffic-wise. Then, as I mentioned before, in September, we consciously reduced our commercial level because we changed our inventory system, so it went down slightly. Again, as we resumed the normal commercial level and at the same time, the second wave hit, we saw a very steep increase again in traffic.
I hope that this gives you a good picture of the traffic development that we are seeing, varying traffic impact in- stores depending on location and the closeness to parking, as well as how online traffic is increasing as a part of the new customer pattern.
Shopping patterns we see as a consequence of the pandemic. With this introduction, I would like to hand over to Pär for the business update.
Thank you, Lotta. If you change the slide, please. Looking at the business update, if you change slides once more. We'll take a step back, a little bit reflecting on the first two years that we ended in Q4 2019- 2020. We ended the strategy implementation first with a platform including cost savings that we have mentioned before of around SEK 225 million-SEK 250 million. We also started a lot of growth initiatives, being able to increase sales per customer, being able to increase sales per square meter as well as online sales. This platform is now delivered and support us going into this current year.
If you take the next slide. If you look at one of the perspectives here, smartness and simplicity, we are continuously striving for best class efficiency, meaning that we are continuously streamlining and creating an efficient organization to be able to deliver cost savings over time. We have also looked further into our global sourcing strategy, establishing a new purchasing office in Europe, and we're expecting to be able to double that procurement in Europe the coming three years. We have also in the quarter and long-term improve the logistics to create a more competitive and scalable foundation for long-term growth. What we can see is that we see more and more synergies between the physical stores and the online channels, the Omni experience.
We are establishing feed er stores closer to where people live, so we can have even faster deliveries. We are increasing the automation in our DC. Just to mention, we set up new feed er stores just before the Gift Week here, being able to support even further growth. If you take the next slide, please. Looking at the customer offer, we are trying to seize every business opportunity for continued growth. We were awarded here in Sweden for the best Omni experience as well as the Retail Chain of the Year, which was a really nice reward for us. Looking at the shopping experience and smart products, we have now launched online Click & Collect, which means that we can deliver within 30 minutes, which is a super offer.
We saw that now during the Gift Week that was a really strong offer. We have also launched Instabox box smooth and fossil-free deliveries as well as the contactless delivery options for those who don't want to meet any person. We have now sustainability as a business opportunity, offering more and more sustainable products to our customers. As we mentioned before, we now have rental offerings available in all our stores. If you take the next slide, please. Looking at our customer service, we have launched Club Clas in Norge, Norway. We had 200,000 members the first two weeks, now we're soon reaching 400,000. It's a really steady growth. In total, we have 3 million Club Clas members in Sweden, Finland and Norway.
What we can see is that there is this increased customer spend for members compared to non-members, which is a strength going forward. Looking at customer service that can simplify everyday life for our customers, as I mentioned before, we have Click & Collect, but we also now during the pandemic have Click & Collect also available outside the stores. We have also opened the stores a little bit longer with special opening hours for risk groups. We have launched Clas Video Assistance on the mobile phone for those who don't want to or who can't visit the store, can get product advice. Right now we are helping our customers to find the right gifts with having a Clas Tipsar on the webpage. Next slide, please. As a big part of our strategy, we're looking at sustainability.
We launched very ambitious sustainable goals not long ago. The strategy is now built on the impact on our Planet. We're aiming to be fully circular by 2045. Around People, we want to be a sustainable long-term employer with happy coworkers reflecting all kinds of homes. Society, we want to contribute to a fair and prosperous society for future generations. We want to be a child ambassador. The sustainable growth is part of our strategy. We see that sustainable business goes hand in hand with our overall business goals, so we can reduce cost, increase profit, and grow even further. Next slide, please. Let me summarizing, we believe that the continuing clear direction is more important than ever.
We have a platform so we can keep the lights on to be even stronger competitiveness. We also have customer insights from our Club Clas program to elevate customer and shareholder value to achieve our financial targets of 5% organic growth as well as a 6%-8% operating margin. Next slide, please. Going into the financial development. Next slide, please. Looking at Q2 sales. Sales was down 6%. Organic sales was down 1%. Like-for-like sales was down 1%. We saw a positive momentum in Norway with 8% organic growth. Online sales was up 25%. We have decreased our store network with four stores compared to the same period last year. Next slide, please. Looking at the six-month period, total sales is down 2%.
Organic sales is up 3% and like-for-like sales is up 4%. We can see a very positive growth in Norway with 15% and online sales is up 43% according to our targets. The number of stores was unchanged compared to previous year's six-month period. Next slide, please. Looking at gross margin. Gross margin was up to 41.8%. We saw a positive impact by improved product mix. We had a lower campaign intensity. We have positive effects from currency hedging in the NOK and also currency forwards and change rate effects related to inventory delays. On the negative side, we had a weaker sales currency in the NOK and also still a stronger purchasing currency in the U.S. dollar and somewhat higher sourcing cost.
We are continuously reviewing and reducing purchasing prices as part of a strategy, and of course also continuously reviewing product offerings and pricing on products. Next slide, please. Looking at the share of selling expenses. The share of selling expenses decreased by 0.3 percentage points in the quarter, and it also was impacted by lower cost operating the store network, as well as lower cost in the U.K. and Germany connected to the store closures. Next slide, please. Administrative expenses in the quarter was down to SEK 60 million, a decrease of 14%. This is in the trend with our expectations, and our objective is to maintain and continuously improve this cost over time. Next slide, please. The operating profit in the second quarter was improved to SEK 148 million.
We had positive effects from IFRS 16 of SEK 17 million. The EBIT margin improved to 7.3%. Earning per share was SEK 1.65 . Next slide, please. Looking at the six-month period, operating profit was improved to SEK 314 million. We had positive effect of IFRS 16 of SEK 37 million, and the EBIT margin improved to 7.6%. Earning per share was SEK 3.49 . Next slide, please. Total investment in the six-month period was SEK 115 million. We had investments in the store network, in IT systems, and also into the distribution system. Next slide, please. The inventory level decreased to SEK 1.898 million. We had increased inventory turnover rate to 5.9 compared to 5.7 previous year.
We believe that we have a well-balanced inventory at the moment. Next slide, please. The cash flow for the first six months and financial position. Cash flow from operating activities, excluding IFRS 16, was SEK 368 million. We had a net cash position in the period, and we right now have approved credit facilities of SEK 1 billion. A very strong financial position. Next slide, please. Looking at the events after reporting period. Next slide, please. We today also released the sales for November. Total sales was down 4% to SEK 960 million. We saw a 2% growth in organic sales and 2% growth in like-for-like sales. We had a negative calendar effect of 2%. Online sales was strong and up 64%.
We had a reduction of two stores compared to the end of November last year. Next slide, please. We have seen a steady online growth in line with our target to double online every second year. We have upgrade our platform from 14 clicks to four clicks, and the speed of the site is improved significantly. Also supporting this growth, we have a better online experience, as we mentioned before, with, for example, Click & Collect in 30 minutes, delivery to Instabox and other options. Improving going forward. Next slide, please. As I mentioned before, we're mentioning the current situation in this quarter, and we have done before. We see still a tough situation in the NOK/SEK relation.
It has continued to be on a low level, at least compared to historical levels. We have seen little bit of a trend change in the USD/SEK, it little bit bounced back. To mitigate that, we of course work with the delays, with hedging and also looking at pricing effects. We're looking at sourcing as part of this to improve our cost and of course, improving the sales mix. As we said, it has a quite heavy impact on the NOK/SEK relationship in the quarter. Summary and outlook. Next slide, please. Next slide again. Summarizing this quarter, we have a clear strategy for profitable growth and improved results for the second quarter.
We are monitoring the development and evaluate the adaption to the COVID-19 situation. The impact going forward will depend on the macro development on currency and of course, the customer behavior. We are doing everything we can and focusing on what we can impact ourselves. We continuously capitalize on the transformation we have made, which has a significantly lower cost level, but also options for continuous growth. We have as a base, a very strong financial position and a financial preparedness for the future. Next slide, please. Handing over to the Q&A.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. You can ask however many questions you wish, but please just ask one at a time. Our first question comes from the line of Niklas Ekman from Carnegie. Please go ahead. Your line is open.
Thank you. Just a couple of questions. Firstly, on earnings here, you talk about improved earnings. Obviously last year, you had transformational costs of SEK 45 million, which is quite significant. These costs were 0 in this quarter. I'm curious here, if you adjust for this, of course, you're seeing a fairly significant decrease in underlying earnings. I'm just curious if you could elaborate on this because the gross margin was quite solid. What happened on the cost side? If you could just elaborate on the underlying trend rather than the year-over-year trend.
Yeah, of course. I mean, we saw a drop of in the sales, of course. If you look at that into detail, it's not a linear development. Underlying that you have very different and very unbalanced sales. For example, if you look at the stores that Lotta describes, you can have a Norwegian store with a lot of traffic and a lot of sales. Maybe there you have to have even more people in the store. Then you have as a worst case maybe a store in Sweden with very low traffic and very low sales where we cannot reduce the demanding or the opening hours because we don't want to, but also we can't.
Looking at the average is little bit confusing, because of this pandemic. I think underlying, we still have the cost savings that we have mentioned before. I think also in addition, changing the warehouse management system in the quarter, increased the logistic costs somewhat to when we closed the system and started up the system, it was not as effective from the start as you could expect. Now it's running on a so to say, normal level.
Okay. These this new inventory management system, is that something that adds tangible extra costs specific to this quarter? Is that a number you would care to share with us?
Yeah, yeah, it has some sort of a tangible, limited cost from starting up and then getting the system up and running, doing a little bit more during a more limited time. We're not sharing that cost, but it has somewhat bigger cost than normal.
Okay. Okay. Fair enough. In November, you saw very strong online sales. Is this mainly a result of a favorable Black Week sales? If so, does that mean it's been done at a lower gross margin?
We saw a very good November during the full month. Of course, the Black Week was part of that. This year, we had what we call the Gift Week, where we had the offers, trying to offer Christmas gift and not a flat discount. I think we wanted to spread out the sales during the month, but also have a good control of the gross margin.
Okay. Very good. You talk about the second wave here. I'm trying to see whether this is a positive or negative in terms of your sales and earnings. In Q1, you clearly saw a positive impact with a significant increase in sales. Is there any reason to believe that the second wave would be very different? Have consumer patterns changed? Is there less pent-up demand for kind of stay-at-home products? Or, could the second wave be almost equally positive from your end financially as the first wave?
Well, I think the second wave, it was very hard to predict when it should actually come. When it came, we saw a restriction first in Norway, in around Oslo and then Bergen, then it started in Skåne, going up to Uppsala, then it covered almost full Sweden. What we saw when this restriction comes, there is a first type of reaction from customer behavior trying to understand how to behave and maybe visiting store less. After a while, people are adopting and understanding the delivery options we have. Of course, there's the initial effect when the restrictions come, then people learn how to shop.
I guess, going forward, it will be dependent on how the restriction will be and also how people behave for us to be able to capture sales. We have done everything in our hands to have a safe store experience, but also Click & Collect in the store, outside the store, delivering to parcel lockers, shop with MatHem or Kolonial. I think we try to offer as a wide delivery options as possible to able to capture all customer needs during Christmas. Having said that, we also expected that November should be focusing on gifts because people would probably shop earlier, being afraid of not getting the gifts they want.
We expect the December to be more focused on being at home, spending time with family and friends, doing things together, lighting and everything around that. That's what we're putting our offerings around. If that will be what people want, I think we're in good shape for that.
Very good. Thanks. The cost savings program you talked about here, the SEK 225 million-SEK 250 million, can you update us on where you are on this? Have you fully delivered on this? How much is potentially left in additional cost saving?
I think the run rate is delivered and activities have been implemented. Of course, some of the costs are volume-related, so you'll see in absolute term, a higher cost saving in the big quarters compared to the smaller quarters. Of course, on some costs, you have a more flattish over the year. So we don't have from the cost saving program any more activities delivered. Of course, given the situation, we're very careful about cost and we're doing everything we can to balance the sales and the cost to be able to deliver decent profit.
Okay. Very good. Thank you very much for taking my questions.
Thanks.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. Our next question comes from the line of Nicklas Skogman from Handelsbanken. Please go ahead.
Good morning there. Looking at your Swedish website, there's been a message now for a few weeks saying that delivery times, if you order home delivery, is between five to 10 working days, i.e., up to two weeks. What is the reason for this? Are you doing any picking in stores? As you showed, many stores, especially in Sweden, I would presume, have seen a pretty sharp reduction in traffic, which should free up, you know, some staff time to do picking. That's the first question.
Yeah. I mean, it's correct that we have seen longer lead time for certain type of orders. To be fair to our customers, we have been very transparent on the lead times that you could expect longer lead times. It's little bit dependent what type of products you order. Some are picked in one day, and some could take little bit longer dependent on complexity. We have, as I said before, pick-in-store using the store network and through the store delivery options where you can get it within 30 minutes. For some days during the Gift Week, we had 50% pick-in-store, meaning that 50% of the online customers got their order within 30 minutes. I think it's quite broad range.
The reason for the longer lead times is that we have seen, for certain days, very, very big volumes. It's not easy to adopt minute- by- minute to that. We want to be very transparent to the customers, giving them an experience that so they understand what's happening when they order the products. We always have options where they can get the products quite quick, with pick-in- store or to store, to parcel lockers, for example.
Yeah. I mean, maybe the 50% picking store rate, is driven by the, you know, two-week potential home delivery time. My question of pick- in- store is more perhaps related to, do you do any store picking which is then home delivered?
Yes, yes. I mean, right now, we have six city stores, meaning that they have the full assortment. If you order that, you can now get home delivery for the full range. If you go, for example, with Budbee Sweden, you can get the product delivered to your home same day.
What has been sort of the average delivery time in the last couple of weeks?
No, I think it's been varying between maybe, a couple of days to somewhat longer directly after the change of the warehouse management system.
Just to add, it's Lotta here. I think it's important to sort of, to divide this question up, because as Pär said, approximately 50% is Click & Collect, and that mean that it's all pick- in- stores and delivered to the customer. On top of that, we have a flow from feeder stores to home delivery through Budbee, Porterbuddy, to Instabox, and so on. That is also pick- in- store. On top of that, you have a flow coming from DC that you can divide in two parts. Part of that goes through our new automation. There the lead time is very short, which is approximately half, and the rest goes through a more manual flow in our DC. That is where we have the longer lead time.
Yeah.
It's, it's very... It's not... I don't think it's useful to give an average. I think it's to divide it in these different parts and both the Click & Collect flow, as well as the flow that goes directly to people's homes through Budbee, Porterbuddy, or to Instabox, goes through our stores, and it's picked there.
I can also say that this type of automation that Lotta has mentioned is going to be improved step- by- step, where we get more and more of the picks automated in the DC, bringing down the average lead time even further during the spring here. I think with the heavy growth on online, the longer-term investments had already determined project time, which means that it's very hard to leapfrog into that. During the spring, we will implement even more automation in DC, bringing down the lead times.
Okay, great. Then I've been wondering, have you carried out any surveys of some sort among your new online customers that indicate how likely they are to use online as their primary channel for shopping with Clas Ohlson also going forward?
I'm not 100% sure of your question, but I guess during our Club Clas, which is now 30 million members, we follow our customer behaviors, and what we see is that more and more customers are getting into what we call Omni, meaning that they both shop online and in the stores. They are the biggest growing group, but also the most profitable group for us as a company. I think that is comforting going forward.
Okay. My last question on the gross margin. As things stand now with the FX, what do you expect to be the net effect from FX in Q3? I presume the NOK hedges are starting to expire.
I mean, I'm looking at the report right now. I mean, we have the current positions in the report, so you can look at them, and I will give you the latest. On page 16, you have it. Looking at it per October 31st, 2020 we had some positive effects still remaining on the NOK/SEK relation of SEK 4.1 million and the NOK/USD of SEK 3 million, and SEK/USD was flat. At that point, it was SEK 7.1 million on the positive side remaining on the hedge position on the October 31st, 2020.
All right. Perfect. Thank you very much.
As there are no further questions, I'll hand it back to the speakers for closing remarks.
Thank you. We have two questions from the webcast to begin with. The first question here is from Stefan Granholm, Nordea. He asked, is it fair to assume less campaign activities year on year also in the second half of the current fiscal year?
I guess it's a climate here where we don't want to drive unnecessary traffic due to the restrictions and the pandemic. I guess it's you can expect that probably going forward and dependent on the pandemic development. We're not pushing sales unnecessarily right now, which means that the gross margin is protected.
Also, have you made any price increases to offset negative effects in Norway?
I guess looking at Norway, it's a market where you have to look at Norway isolated and I guess it's more dependent on the Norway to U.S. dollar situation. We have, like most of the competition, increased prices somewhat given the high cost for purchasing goods. Of course, we're not changing prices because of the translation effect to the SEK. I mean, that is not due to the market in Norway, so you cannot compensate for that.
Thank you. There were no further questions from the webcast, so I'll hand back to Lotta then.
Thank you very much, Niklas. Before ending the call, I would just like from my side to say a big thank you to all of you for constructive dialogue and questions during my time as CEO for Clas Ohlson. I wish Pär best of luck in his job as acting CEO, and warm welcome to Kristofer Tonström as he joins in February. With that, thank you, merry Christmas, and goodbye.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.