Good morning, everyone, and welcome to Lyko Group's earnings call for the third quarter. My name is Tom Thörnblom, and I'm heading up Investor Relations and Communications here at Lyko. Today, we will have a presentation from our CEO, Rickard Lyko, followed up with a short presentation of the numbers by our CFO, Ylva Norlén. After the presentation, we will have time for questions, so please raise your hands when it's time for that. The call will be recorded and will be possible to reach and listen to at Quartr app. Thank you so much. I leave the floor to Rickard Lyko.
Thank you, Tom, and welcome, everyone, to the call. We are presenting the Q3 today and going into our most hectic period, going into the Q4 right now. We will start where we are. You know, we have gone through the biggest investment in the history of Lyko and launching our new automation this summer. For us, it's really now we are entering a new era of Lyko because now we have in place everything to go for growth again and also being prepared for the assortment that we need. We know it's really important for us to keep on growing. I mean, it has been quite some time since we had the capacity that we needed. I mean, we could handle the volumes that we've gone through the last couple of years, but it has been a struggle because we have four creditors. Now we're in place.
We had the ramp-up, and as you have seen, there are some bumps in that ramp-up. Even if it has gone really, really good with the ramp-up and we have an automation in full spin, it's not without some issues when you're setting off automation like that. Also, now we are preparing for going to roll out more stores and rolling those faster. We don't say exactly the timing of those 100, but there will come 100 more. The first one will be Täby, open up the 8th of November, and that's the blueprint of our new stores, which will be bigger. They are about 500 sq m, we think. It's similar to what we had before when we're looking into the footprint of hair care.
Now we're also adding the skincare, the makeup, and the fragrance because that's what we're seeing our customers want from us, and that's what they're buying online. When we're looking into other markets, hair care is not our biggest category any longer. We really need to present those other categories in the physical meeting with the consumer. Also, as you know, brand building has been the key for our success in the past, and we think it really will be that in the future as well. That's why we still think it's super important with the brand building. When we're saying doubling down on brand building, it doesn't mean that we're doubling down on investment in marketing, but we are doubling down talking about branding because we think and believe it's super important that we're not only talking about discounts and promotions.
We need to build the consumer awareness about Lyko. What we know is super important because we are selling products that are running out, and we never know when there's a running out because it's a product that you use up. We think or know it's super important that you think about Lyko. That is something we have invested in for a long time, and we see the result of, and we want to keep on doing that. As you know, we want to be the starting point of beauty. That means that we want people to come to us more than just when they are prepared to buy.
We want them to come to us to get inspired, to start the journey, to start to learn about products, seeing the new products, and putting us in the position that when you want to see the trendiest brands, seeing the new things happening in our segment in the beauty industry, you come to us. We're really starting to be in that position. Seeing this quarter, we grow even if the results are lower than we were hopeful. When we are looking into what's happening in the quarter and you put that in, we're seeing the underlying growth is where we want it to be. The result underlying is also where we want it to be. Now we're really setting the foundation to keep on growing, to keep on scaling with the new automation.
When we're entering the new automation, we had the testing before to see because we need some orders to try out the new system in this summer. We had tried that before, so we were quite sure of how that will roll out and we get enough orders to try out the new automation. We put up some of our own products in the new automation because we wanted to try them and we knew we had stock enough to handle that with those. The problem occurred because I made a misjudgment because I didn't think that the willingness or the demand of those products was as high as they were. It's something positive that people really love our own brands, so that is good. The other problem, the other misjudgment I did was the viral effect on those social media.
We didn't expect it to get that viral on TikTok and Meta. That really took us by surprise. We got very much, we got too many orders into the order system. We needed to shut that campaign off earlier than we were expected. Also, people bought other stuff as well. The plan was just to buy from the assortment that we had in the new warehouse, but that didn't work out and people bought from the whole assortment as well, which was positive in a way that they pay full price for those other products. The negative part is that we need to do a lot of cross-orders, which means that we are cross-ordered. It means that we have our new system and we have our old system, and they are connected. That works fine, but it doesn't work fine when it's getting too big volumes.
That means that we needed to start focusing on getting those orders out, doing a lot of deliverings in two orders or three orders where we normally should send it in just one package. Also, that is setting the problem in rolling out and keep on growing in the normal way because those are the peak of orders we needed to handle and figure that out. The good part with that is that we really stressed the system and tried that out, and we have learned a lot from that. Also, what we have seen as normal when we're going into a new automation investment, there are a lot of issues and a lot of software issues. The good part here is that we have taken a lot of the development of that system by ourselves, so we can fix those things fast.
The ramp-up has been working good, and you're also seeing that we're applying more people now. That means that we need to bolster the system, and we also need more people to deliver in products. Everything is working, and it seems to be working as well with the efficiency that we were thinking of the system and also seeing record numbers both in and out from the system. That is working good. Now we're really on our way going into the peak and having the system in place that we need to be able to handle the volume coming up now. This was a great success, and we have seen that here with all the new employees and all the old ones getting in, learning the new system, learning everything about that one, and learning to balance the system as well. That is in place.
We are still in a ramp-up, and there will be a time even after this where we will find out more efficiency out of the system when we learn more about it. We are in a really good phase now. Our own brands really got the peak of sales, and we find a lot of new consumers coming and learning about our brands. We know that will help us going forward because we know that with our own brands, we really can get them to use those products again because back again, it is a product that you're using up. If you get the experience, which we know you will, of products that are working very well, you probably will come back and buy them again. Another success this quarter was our calendars. There were more calendars this year than last year, and they sold out much faster.
We're also seeing that the logistics of the calendar, getting them out of the warehouse, also worked very well. That one we're starting to plan for next year already because it takes a lot of time and a lot of effort building up that to be able to handle that kind of sales and growth that we need from the calendars. Still, we have a lot of calendars from other suppliers as well, and those we will keep on selling going forward. We also launched Min Len, which was with the Princess of Sweden, works very well. We got the opportunity to do that at Drottninggatan, what we love to do, events at Drottninggatan and our other fab stores that we know also really help us building in the brand awareness that we need where we're doing stuff other than just promotion and selling products.
We also launched Mamonde, which is a new K-beauty brand together with Amorepacific, which is one of the biggest players in Asia that has a lot of brands. This is really an important step for us partnering up with those kind of brand owners because we know that they will do more launches, and we want to be a partner to have those new brands because we know that that drives attention from the consumer and also puts us in the position showing that we have the new trendy brands coming into us. Something we keep on investing but now really starting scaling is the Lyko community. Haven't you been in there? Go in and take a look. We're really, really starting to take off now with the community. We launched this summer something called Story. That is content that disappears 24 hours.
That means as you as a consumer, if you don't want to miss out, you need to go in there every day to see that kind of content. It also creates a new way for the brands and our influencers to connect with the consumer to do faster content. This is something we will keep on building on, and we're seeing really good numbers on. On the other hand, this is also a great way to play out the retail media and play out all those kinds of inspiring material that our brands are sitting on. You need to find a way to find the attention from the consumer to be able to play that out. We're really seeing that working well in the community as well. Looking into everything we do, because all the connection and all the touchpoints with the consumer, that's what's built up the brand awareness.
Looking into the brand awareness, it's a huge step we're taking in Sweden. If you look into the past, we have been keeping on getting those numbers up, but now it's really starting to take off. This has always been the best way looking into the future. If you're following these numbers, you will probably know how the growth will look like going forward. If it's coming directly or a little bit later, that we see. Taking it from 43%- 49% in Sweden, we haven't seen those kinds of steps before. That is really a proof that we're doing something right and really taking that brand awareness to the next step. Now we really can say that every second woman in Sweden thinking about beauty, thinking about Lyko. I think that was everything for me now. I hand over to Ylva and come back at the Q&A.
Morning, everyone. My name is Ylva Norlén. I'm the CFO here at Lyko, and I will take you through the details of our financials for the quarter. Starting off with the net sales of the group, we had net sales amounting to SEK 827 million in the quarter. That was an increase by 8.5%. We also want to note that we had a negative FX effect in the quarter. In local currencies, we had an increase by 9.8%. As Rickard was already on to, we had a really strong start in July with this own-brand campaign. However, it did impact our ability to sell later on in the quarter, especially during August. We then moved on to September, had a really successful calendar launch, and also a super strong Club Week. The new warehouse performed really well during the period.
Compared to last year, where we had quite a lot of orders from September being shipped in October, this effect was much smaller this year, around about half. Now we have a rolling 12-month net sales of SEK 3.7 billion, approaching SEK 3.8 billion. Looking at the gross margin for the quarter, this was down quite a lot, unfortunately. The main cause was the own-brand campaign that impacted July and August. If we look at September isolated, the gross margin then was 44.1%. Looking at our costs of operations, we also see the effect, the one-off costs that we are referring to, SEK 11.7 million, impacting the OpEx and also the personnel side. On the OpEx side, we had a one-off cost of SEK 5 million, mainly attributed towards these part shipments, so freight cost, but also the cost of consumables such as packaging.
This was offset by us also lowering our marketing spend since we couldn't really sort of accelerate the selling in the way we wanted in August. On the personnel side, we had one-off costs around about SEK 6.7 million due to this. On the group function side, we have been more or less flat now since the beginning of 2024. We keep on focusing on remaining steady in this way and generating scalability for the quarters to come. We will keep on investing in our group functions going forward, but it will be in a very sort of strategic way and focusing on where we make investments. Onto the profit for the quarter. Of course, this is not the result that we would have wanted if you just look at the SEK 2.4 million that we generated.
As we have emphasized, we did take a hit on the gross margin this quarter. We also had one-off costs of SEK 11.7 million. That has been the main factor affecting the profitability in the quarter. Just to take a look at our rolling 12-month performance, we want to emphasize that we keep and remain focused on the long-term growth and the profit development in the company, of course. Looking at our segments shortly, the net selling in the Nordics remains steady, and we grew faster this quarter compared to Q2, 9.6%. Looking at local currencies, it was a growth of 9.9%, so a negative FX effect on the selling. Looking at the profitability, we generated SEK 72 million here in the quarter. Just to emphasize, this own-brand campaign was offered to the Swedish and Norwegian customers, so the one-off costs are almost entirely taken here on the Nordic segment.
Looking at Europe, we decreased the selling 16.1% in the quarter, negative FX effect. It would have been 14.1% in local currencies. Here we are hovering around this 135 million- 140 million selling pattern. Just to emphasize again, we are doing our utmost to find a profitable business model for the European markets. If we skip to the profit side, you can see that we once again lower our losses in the European segment this quarter, - SEK 6 million. What we can also emphasize is that Poland now is the biggest market selling-wise for us and generating the highest growth, so it's now standing out in this segment. Lastly, we have had this reminder slide for a few quarters now with the logistics investment. We are now almost done with the big investment, and we are ramping up.
When it comes to the recap, it will give us 150% more capacity compared to before. We have been paying rent for the warehouse since the beginning of 2024. We have almost utilized the entire term loan frame, so now at SEK 377 million and the remaining to be paid now in Q4, but also SEK 12 million in Q1 next year. We will start to amortize in Q2 next year in installments of SEK 13.75 million per quarter. Once again, we are really also proud to share that we have not increased our stock levels. We are selling more and more, but in a more efficient way. Our stock-to-sales ratio this quarter was 13%. With that, I hand over to you, Tom, and thank you.
Thank you very much. Now it's time for questions. Please raise your hand, and we will distribute the word from here. We start up with Benjamin Wahlstedt from ABG Sundal Collier. Please go ahead.
Thank you very much. I have a few questions. First of all, you've previously shared your own brand share of sales. I couldn't see it in your presentation this time around. Is there any sort of reason for that? I think that would help the understanding of the own-brand campaign in July.
Rolling 12 at the moment, we are at 8.5%. What we reported after Q2 was 7.8%.
Yeah. Perfect. Thank you. I was wondering if you could give us an understanding of current trading in terms of growth.
Right now, no, we don't comment on that.
Do you have any indication of what the growth impact might have been from cutting down on marketing investments in August, trying to capture the underlying growth, excluding temporary events, basically?
I think you have the answer if you're looking back. You have seen what we have been moving from in quarter in the past, and I think it will be similar.
All right. I was wondering as well, I've noticed your customers have not appreciated the longer delivery times after the July campaign. Do you see any sort of reduced interest for your sites after this or as a result of this, or have you been able to reconvert the customers into Lyko Library?
I think we have been able to fix that. With that said, I mean, we have some quite slow delivering going back the last two years. I think now we are in a place where we can start being really fast again. That has been quite some time before we have been there. I think it's a huge opportunity going forward where we have the possibility to be really fast on delivering again. The ones that were experienced in long delivering in the summer, I think we have been able to handle. When I look into the data, it looks like they're coming back as well.
How does that work? Have you had to sort of compensate any customers for the longer delivery times or anything like that?
Yeah, definitely. For those that experience the longest, we have compensated.
Right. Perfect. I will get back in the queue for now. Thank you very much.
For that, we go to Daniel Schmidt, Danske Bank.
Yes, good morning, Rickard and Ylva. A couple of questions from me. It was a big surprise, at least for me, that you are really sort of pushing the accelerator on store growth. Could you tell us more about that? You were saying future 100 stores. Is that new stores, or is that basically what you think you will be in total from the store base that you have now? It does sound like you're pushing the accelerator really from 2026 and onwards. How's that going to be financed? What's the thinking behind this? Is this basically a different focus? Are you abandoning the European efforts, or how should we view this? This is quite a big step.
I think by purpose, we haven't set the time frame of it. The good thing with stores, as different compared to investing in automation and warehouses, is store by store. I mean, we don't say that we will roll out faster than we have done in the past, but that has been quite slow. We don't say which pace, and it's depending on what result we see and what's happening in the market. We're just planning and setting the target for that, to do that communication with the landlords and brands and so on, that we are going for that. We will see what time frame it will be. When we're talking about it, we talk about new stores, but sure, it will be probably some rebuilding. If we rebuild a store today that is smaller, then we will rebuild it as a bigger one.
We will not keep on opening those smaller ones. We have, by purpose, not set the time frame. It doesn't mean that we will get out a lot of stores super fast next year. We will start rolling out the Täby one, starting to learn about that, and starting to open up more ones. We will keep you updated as we're going into that phase.
Okay. I think the wording is quite dramatic, but it sounds less dramatic when you talk about it. Is it a shift in your focus, you would say, because you have been focused on trying to be successful in the European market? It has been difficult. At the same time, you have seen quite good success with stores in neighboring countries. I think it's been a couple of stores per year. Are you looking at sort of tripling that pace? To get to 100, if it's not a tripling, it's going to take forever. Is this sort of a 40-year plan? I think we need to get some more clarity around this.
I mean, if we see a super good result next year of the opening we do next year, we will probably look at how we can roll that out faster. It is really depending on that. When we're looking into the future and we say today the online penetration is at maybe 23% or something like that here in Sweden, going up a few percent in the coming years, that means that most of the business will be in the physical phase. We see that our brand awareness is going up super high. We see that we are left a lot of money on the table if we are not present in the physical room. It will still be profitable stores we want to open. We need to learn store by store and see what phase we will take and how fast that will go.
The easy answer is we don't know that yet. As long as we have set the plan and we know which phase or what speed it will go, we will communicate it. Now it's just that we see we need to be prepared or start preparing for rolling out more stores.
Okay. Is that really on the three countries where you have stores now, or are you envisioning opening stores in Denmark and continental Europe as part of this plan as well? Where is the focus?
We have said that it could be possible that we open a store next year outside of the Nordics. We will see.
It is financed through your own cash flow, basically. Is that what you're saying when you're basically taking it step by step?
It's the intention.
Okay. Maybe another question on the gross margin. The fact that it is down quite a bit and it's down quite a bit versus Q2, is that basically a function of you being very, very generous in that offering that you had during the summer? Is that how should you view it, although it is private label, which has a higher gross margin?
Yes, it was an impact from that campaign where we offered 75% off. Just to emphasize, we had, of course, tested this campaign in a test environment prior to the summer. We sort of thought that we would be able to contain it a little bit more. Fortunately for the customers now, when we went live with the campaign, it ended up being much, much bigger. It has had the main impact on the gross margin in the quarter.
Would you say that the gross margin would have been unchanged if you didn't have that campaign year-over-year?
Hard to say, but it's also, of course, intentional that we announced the September gross margin of 44.1% just to show that the sort of underlying business is as healthy as before.
Okay. You did have difficulties when it came to deliveries last year, and quite a bit of your sales sort of ran into October instead. It's different this time. You said it was half the impact. To me, my understanding back then was that that was actually a couple of percentage points. It's fair to say that more in-line deliveries this year gave you a couple of percentage points back on the sales growth in Q3 instead versus Q3 last year.
Yeah. I mean, the campaign was planned to end later this year versus Q3 last year. The campaign ran until the 28th of September, and we had the calendar release on the 25th. Just because that sort of campaign period ended closer to quarter break, we had a sort of overflow this year as well, but roughly half the impact of last year.
On a comp basis, that helped your sales growth in the quarter. That's what I'm trying to get to. If you adjust for that, it would have been a couple of percent lower, basically, than the growth that you did report, 9%.
I think it depends on the inflow in the July side of the quarter as well. This quarter around, we haven't focused so much on this since everything worked out fine for us.
Thank you. Thank you, guys. That's all for me.
We open for Magnus Råman, SB1 Markets.
Thank you. Thank you. I'd like to come back to Europe. I think, Rickard, was it one or two years ago I asked you about the European profitability? I think at that point, you stated that it would be easy to make it profitable. You would just hold your growth investments. Now we see sort of a 12-month rolling flat sales progression. I'm just curious to see how you think that sort of statement has matured, or were there any sort of misjudgment in that, or do you see that you still would be able to do this trick? Yeah, starting off with that.
I mean, the plan is to go close to the zero. Then we see if we're seeing a market. Now, as we mentioned, we're seeing good results in Poland. It will hopefully be there where we can find the growth and then going closer to zero on those other markets. That is the plan for it and to set in it. We haven't set it as hard as we could have done back then, but we are looking into how to get closer to that going forward.
Do you envision that rejigging of the European growth strategy could entail, for example, going country by country? You mentioned Poland now being closest. Is that one way that you could sort of rejig your European strategy, you think?
Absolutely. I mean, when we started off the European journey, it was under COVID, and then the e-commerce was blooming. We don't see that right now. Now we're seeing it's better to set the focus on market by market to make it to see that we can do it in one market and then taking that concept to the next one. We still believe that it's better to keep those other markets open than closing them down and then opening up them again. Keeping them closer to zero and then setting focusing on one market.
Great. It was also touched upon your store expansion and possibly that extending outside the Nordics. I guess you have looked at the lessons from historic lessons of Nordic retailers trying to expand into continental Europe and how much capital investment that would require. I assume that that would be tied into a more focused sort of online strategy with some select sort of, yeah, main select stores to enforce that online strategy rather than a part of this wider rollout that you plan for the Nordics.
Yeah, absolutely. I mean, open up the first store, learning from that one, and then seeing in which pace we want to keep on investing and seeing how that's working. When we're saying 100 stores, I mean that if we open one in Poland, then the rest could be in the Nordics. I mean, we are still having so few ones here, but that we will see. Do we see a really good result in Poland? Then we will change that. We will see and learn.
Right. Finally, for me, I'd like to ask if you can specify that you mentioned that your delivery speed has been quite slow in your opinion in the recent years, and now you will be able to speed it up considerably. Can you give any sort of days or numbers on that, how you see it improving, where it's been and where it's going?
I mean, we're really starting to empty the stock, so to speak, to make sure that all delivery is going faster and also looking into where we can have much later cutoff time delivering. Also, with the new system, we can sort it more in more ways, which means that you can have a truck going directly to like Gothenburg and Stockholm, and you don't need to go into a sorting, and then you cut off a couple of days. You can really go much faster with delivering. You could have like a cutoff time at 8:00 in the evening, and you have it in the morning the day after. I mean, that's really setting the scene. It's both the system and the volumes that make that possible for us.
Okay. It is not possible to say that we had on average this delivery time before, and we aim for this number?
Not top of my head. I can come back to that when we're seeing that probably in the beginning of next year. I will have the result of that and can come back with that.
Great. Thank you very much.
We go to Johan Fred, SEB.
Yes, good morning, guys. Thanks for taking my questions. Just a follow-up here. Rickard, you mentioned that cross-system shipments was an issue when the own-brand campaign went viral during Q3. Was this an issue just due to you not having fully launched a new logistics center, or could this be a potential bottleneck during future peak periods as well?
That was for the ramp-up because we filled up the new system with only a few items that we will put the campaign on to try that part of it out. We couldn't set the campaign that you could not buy from others, but we really were specific when we talked about the campaign. It's only on this assortment, and you can only put your order on this assortment. That works for the one we were testing before where we can make it really clear when we communicate with the consumer. When it went viral, that part of the information disappeared, and you got a lot of orders that were not suspected to do it like that. That's why we got those cross-flow. Now it's not the problem with the cross-flow. Now we can control that because we know which stock we have in each system and so on.
Okay, cool. Thank you for that clarification. That was all for me for now. Thank you.
Wahlstedt, ABG Sundal Collier.
Thank you. I came up with two more questions. You say you expect a higher marketing spend in Q4 to really drive growth in the peak season. I was wondering if you could give us more concrete guidance here. When you say higher marketing investments, should we look at the marketing to sales ratio of Q2, for example? Is that a good benchmark, or how should we think about that?
I think what we have communicated earlier is that we haven't had a target to come in lower than last year as a share of sales. So far during the year, it has been the result. In terms of trying to drive sales now in the Q4, it is still the sort of frame that we are working within.
All right. That would put you at a marketing to sales ratio of around 11%. Does that sound reasonable to get to the same sort of marketing to sales ratio?
I mean, let's see now how Q4 pans out. We don't know yet.
All right. I was wondering as well if you could try to quantify the gross margin impact from the July campaign specifically. The reason I'm asking is your own brands are typically gross margin accretive. What sort of gross margins did you realize from the July campaign, please?
We won't specify that, but I think if you look at our rolling 12-month gross margin or similar, I think you can do the analysis.
Great. Nothing else really disturbs the gross margin. It's purely the own-brand campaign, basically.
Yes, to the largest extent.
Okay. Perfect. Now I'm done. Thank you.
Do we have any more questions from the audience? I couldn't see that. With that said, we are very happy to have you all with us today from this call and hope to see you in Q4 at the 13th of February 2026. Bye-bye.
Bye.
Cheers. Thank you.