Good morning, everyone, and welcome to Lyko Group's quarter report for the third quarter. My name is Tom Thörnblom. I am heading up investor relations and communications here at Lyko. We will today give you a short presentation of the report. First, it will be Rickard Lyko, our CEO, followed up with some dig into the numbers by Ylva Norlén, our CFO, and after that, we will open up for questions. The call will be recorded and will be found on Quartr platform where you will be able to listen to the entire call. With that said, I leave the floor to Rickard Lyko.
Thank you, Tom, and welcome everyone. Yes, let's jump into the presentation. See if I am able to shift. Can I shift the slides here or is it Let's fix the magic here. Now I think we are into the slides. I think it's a quarter where we are meeting easy number from last year. We had some problem with the go live of the automation. That means that the comparative number is not as relevant. But I think if we compare to the last quarter, we see that it's a steady volume of sales because those two quarters are quite similar. But compared to last year, 23% up on the sales and we see the good part is that they are falling through in the result.
I think this is an example of what we hopefully will see continuously now when we are taking down our cost, but keep on selling the product. We see the margin rise. It's still tough competition out there, and we are able to handle that and hopefully we will be able to work on that one going forward. But we also knowing that that's our shifting from quarter to quarter, dependent on how the campaigns and how the competition looks like. Own brands is keep on growing and then we should remember that we had tough number to reach from last year because we have the go live campaign, which drove a lot of sales on the own brands. So also here, if we look into back to the quarters that have been passing, we are seeing it's a steady growth of that.
We also knowing this quarter is a lot dependent on the calendars. I think the calendar sales has been good compared to last year as well. But this year we have a lot of more calendars. But those will keep on selling in the quarter as we are going into. The cost-saving program is in line, what we have talked about and what we should do on that, and we also knowing that the biggest impact of the cost-saving program will be when we go into Q4 with higher margin. But with that said, it's the first quarter where we have more effect of that one. Own brands is a lot in this quarter and the coming quarter about calendars. Those ones are selling good, but we have increased the volume a lot to make sure that we can catch the sales from the consumer.
We also want to build our position as a calendar destination. We have a lot of calendars from other brands as well. The automation is working very good now. We have much better pace that we had than last year going into the peak period. A lot of the automation is more efficient, the new one that we have built. Most important part is that we have built out the capacity. The capacity is really come to use when we are going into the peak period, like a Q4. That is when we can operating in the full level with our new automation. Up to this point, it has been built for bigger volumes and that is what we are seeing coming now. So we will see improvement on the fixed cost side on the logistic part. Our community kept on growing, and we have added some more functionality.
We can post in this community, we can make looks, we can make reviews and stories, and now we are also adding repost. This is a long-term investment that we are doing into the consumer to make sure that we have a unique position in the market and building our own social platform at our app. This seems to work very well. This, in a combination with retail media, can be an important part going into the future and we see good growth from that. What we also keep on doing is the event part and doing things differently and also building our position against the young consumer, both in Sweden, Norway and Finland, where we have done these activities for some years now. We see this year, I think we.
Take it one step further. Thank you and we got so many organic spread from this. So I think this is also something that building our position for the long term. Talking about position and talking about our physical footprint and other important step that we have taken is that we are launching Yves Saint Laurent makeup now at Drottninggatan.
The brand by itself will probably not make that big of a difference for us in sales-wise, but it makes a huge difference in the position-wise that we are seeing that we c an handle the more prestige part of the beauty business, and this is something we believe is important going into the future to make sure that we are the number one position in the markets where we are when you are looking into beauty, and that need to be included with the prestige part of the beauty business. We have also communicated that we will open our 37th store on Black Friday at Örebro. The good and interesting part with this one is that it will be our second store in Örebro. So it will be interesting to see how that affects the sales and how that makes possibility to have a double establishment in cities like Örebro.
I think that was everything from me. I will hand over to Ylva to go into the numbers. Thank you.
Hello, good morning, everyone. My name is Ylva Norlén. I am the CFO here at Lyko Group, and it is my pleasure to take you through some further highlights of our Q3 results. Of course, starting with the net sales growth, we had a really strong quarter and grew once again above the SEK 1 billion mark and delivered SEK 1,024 million in sales. That is a 23.8% growth against last year. We had in local currency a growth of 21.4%, and we had some nice tailwind, especially in the NOK. Of course, the growth in Q3 was quite considerable, but that was due to a softer Q3 last year. But also standalone, this is a really good quarter and it is the first time a third quarter is bigger than the second quarter.
Of course, this growth was enabled through strong campaign execution, good calendar start, and also new stores. Especially Sweden and Norway delivered in the quarter, and growth year-to-date is at 8.7%. Coming on to the gross margin. Here we are almost level to last year, and actually on the product margin, we are on par with last year. The headwind here has been in FX and also some stock scrappings that were taken in the quarter. When it comes to the external costs and also the personnel cost, this is where we now see really big impact from the cost savings program. We come in at 18% share of sales on the OpEx side, and this is of course due to the bigger sales volume and especially a big cost saving on the freight cost side.
Personnel costs decreased as per plan, and we are now starting to really see the effects from our cost savings program done in the spring. Coming into the EBIT side. This is the second most profitable quarter for Lyko in history, and of course, super strong. We deliver SEK 58 million. This is a little bit more than in the previous quarter, and we are super proud to present a 5.6% margin. Of course, the main underlying reasons are the strong growth and also the effects from the cost savings program. Coming into our segments, the retail segments grew by 25% up once again above the SEK 1 billion mark, and this was mainly attributed to Sweden and Norway. On the EBIT side, SEK 111 million was delivered. This is a substantial growth from last year and corresponds to 10.9% margin.
Coming on to the group functions and other, here we have the sales from our external overcapacity in production and 3PL, and we decreased slightly from last year, delivering SEK 12 million . This is due to us scaling down those external services and focusing more on our internal needs. Here, as you can see on the cost side, we continue to decrease the group function cost. It is now at SEK 52.6 million in the quarter, and this is of course as per plan and a consequence of the cost savings program. As we usually share, when it comes to investments and cash flow, we have approximately SEK 70 million planned in CapEx for the year, and during this quarter, we were at SEK 9 million. We recently announced that we will open the second store in Örebro, and this will happen on Black Friday in Q4.
We also communicate that we have an appetite to open around eight or invest in eight more store projects during next year. If we look at the inventory side for the quarter, we finished the quarter with SEK 536 million in stock value, and this is a very steady level we have been on now for four years. With the growth in this quarter, this means it was the first time we were below 13% stock-to-sales ratio. So now 12.8%, which is really a strong result from having a much faster and more efficient automation in Vansbro. Cash at the end of the quarter was at SEK 220 million . With that, I hand over to you, Tom.
Okay. Then it is time to open up for questions, and we will be happy for everyone to raise their hands. Just a second. We have some-
We start with a question from Magnus Råman.
Thank you very much. First of all, congratulations. I think it is worthy to say this. Surprisingly strong growth, in my opinion, even considering the easier comparables that you just mentioned, especially since you have been very clearly pointing out your emphasis on profitability. Perhaps this is my first question, if you can elaborate a little bit on how you could end up with this strong and more historic number growth when you have had this profitability focus?
I think a lot of the growth is coming from our Sweden and Norway market, which we always had a good profitability from, and that in combination with lower cost, I think that is what sums up the results.
Sure. It is also impressive, I think, to see that you make this strong operating margin improvement, especially now in the light that you still have d eclining gross margin and rising marketing to sales, which we might typically think of as the margin driver. It is a very impressive leverage on this sales increase from that perspective. Maybe I can try to ask you, Rickard, since you have the ability to steer a little bit the magnitude of top line in investing in price and investing in marketing, if you would have settled with, say, 5% or 10% top line growth in this quarter, would you care to give a guess of the gross margin difference and the marketing to sales difference in that case?
I think a big impact also is that we are seeing that all orders are more profitable due to that average order value keeps on steadying on a higher level than it was a year ago, and that has also impacted it. But I do not know, it is very hard to say if we will go for a little bit less growth, how would that affect the margins and so on. I think it is a mix. I think we are in a place where we are operating on the balancing, where we are choosing the more profitable orders and saying no to the ones that are least profitable, which a lot of times means that they are really small orders where we are seeing less profitability.
This is tied to your strategic refocus on how you give discounts, so to speak, and tie it more to basket size or number of products in basket, correct?
Yeah, it is effective.
Right. Then I just have two very quick, maybe two a bit more detailed questions. You mentioned here FX affecting gross margin negatively and that underlying it should have actually been rising. Would you care to say roughly the FX effect on the gross margin?
There are several factors impacting the gross margin, the 0.7 points down. It is partly stock scrapping, partly lower other sales revenues, such as freight revenues. But the biggest effect came from the FX side and the NOK that we then saw a sort of tailwind on the top line on.
But do I understand you correctly that the negative FX effect is still less than 70 bps?
Yes, it is the major part of the 70 bps.
Right. Great. The final one for me is, you mentioned also that this is the first quarter where you see a material effect on white collar staff reduction and in terms of staff costs, but that it will continue, I think you wrote something into Q4, or I read it as increasing into Q4. Can you elaborate a little bit on this? How much more staff cost reduction potential do we have in Q4 compared to what we saw now? All else equal.
Yes. I will not give you a financial steer on that, but we still had some colleagues working in this quarter that left in this quarter. But now that side of the cost program is executed. So, that is what we will communicate.
Thank you so much, guys.
Thank you, SB1 Markets. Then we go over to ABG Sundal Collier, Benjamin Wahlstedt.
Perfect. Thank you. Following on the previous speaker's question, would you care to give an estimate of the run rate savings on the personnel cost line in isolation? I think your initial comments on savings were taking every cost line together, if I am not mistaken. So what would be the run rate impact on personnel costs specifically?
Yeah. We will summarize more on that when we close the full year. So it is nothing that we have decided to communicate firmly on in this quarter.
All right. Rickard, you mentioned a larger focus on the AOV, perhaps, or at least that was my interpretation. Could you give us any indication of what part of growth is volume and what part is AOV?
We do not disclose that, but it is a mix for sure of it. The thing is, when you are driving higher average order value, you are missing some orders, so you need to compensate that with more sales. But it is a balancing act, but I do not have the exact number on which part has effect how much.
I will give you another impossible question. Maybe grew very well in this quarter, and you are saying you actually left some sort of orders on the table because they were less profitable. What would you have grown had you not given up these less profitable orders, do you think?
I think on the online side, it is super easy to grow more all the time because we can just lower the prices and go for all orders and buy a lot of traffic. So you can always do that, and it is quite easy. The hard part is to balance it and make it profitable.
Yeah. I guess in the last three quarters or on a year-to-date basis, your marketing ratio has been 8.5%-ish, representing quite a big improvement from the year prior.
Yeah.
Is it possible to give us any idea or any sort of indication what a good guess for marketing ratio is Q4 2027, something like that? Is this a temporary lower marketing ratio, or have you found ways to just market more efficiently, or what's happening here?
I think it's a mix depending on what the volume will be, with some part of it being a fixed investment going into quarters. Then it's affecting depending on how the sales will go. But we have also pushed some of the marketing investment in front of us, and part of them we will take, but then seeing what those will fall out in numbers, we don't comment now. But we think that we would want to keep on investing in the marketing side. It's not a cost that we see should keep on decreasing, then we hopefully can take that in other part of the business instead to keep on investing in the marketing.
You don't really seem to need these postponed marketing investments, so to speak, considering today's result.
Building a strong brand, you can always decrease it in the short term, but in the long term, you need to keep on investing, and then it is just a matter of which is the level for that. But exactly as you are on to, sometimes if you invest in that and you have a higher growth, then the marketing ratio will be lower. As we go, it probably should be lower, and it has been lower in the markets where we are strong, like Sweden and Norway. Now when the bigger part of the sales, we are not as focusing on growing other markets, then we can see we can drive it down and still keep on investing it in fixed costs, we put more into the market.
Perfect. Final one on marketing, perhaps. Is it possible for you to give us a rough indication on, let us call it top funnel versus bottom funnel marketing? So top funnel being brand marketing, bottom funnel being very variable with revenue. What share of the marketing budget is-
We have it exactly in detail, but it is nothing that we disclose. I think also not to make it as clear for all our colleagues in the business as well. So it is nothing that we comment on.
All right. I will hand over to the next analyst. Thank you.
Yes, then from there, we are going over to Johan Fred of SEB.
Yes. Good morning, guys. Thank you for taking my questions. Starting off with the strong sales growth, any chance that you could elaborate on the contributors or drivers in terms of campaigns contributing to the growth or stores, and also maybe just underlying market demand? Essentially, how much was a recovery from last year's warehouse disruptions?
I think if we look into Q2 and you look at the sales, it is quite similar. Before, the story has been that Q2 has been higher on activation. We have equalized that in some sense where we have bigger campaigns even in Q3. I think it is more about equalizing out those quarters, and we know that that is the sales in the market. We do not have that much of the seasonality in our products. Then we have, for sure Q4 is bigger, and there we have some seasonality. But in between Q2 and Q3, it should not be that much of a difference. That, I think, has been a lot through the go-live of the automation last year.
Okay, got it. Thanks. Going back to the gross margin here. As I remember in Q3 last year, gross margin came in weaker than expected, and I think you mentioned that the margin then bounced back in September to what you call a normalized level of around 44% in September. Now here in Q3 this year, the gross margin declined yet again. How should we think about this? Is this a new seasonal pattern that we should take into consideration for Q3? Or how should we think about the margin trajectory here in Q3 but also going forward?
Yeah, I think that is the pattern. It is more similar to Q2, though, to having more activation even in this quarter as well. That I think is following to the competition in the market that we see that we need to be more active on price, and then this is more steady margins where we are.
Okay, so we should think about the lower gross margin essentially helping to keep the marketing spend roughly or slightly lower. So there is a trade-off between price investments and marketing investment. Is that how we should think about the trade-off between gross margin and marketing?
I think it is for sure a mix of those and depending on the activation and so on. Then we also know that we have much difference between what we are selling in our stores, where we have much more steady margin and higher margins, and when online is growing rapidly, then it affects the margin in total more.
Got it. The final one here. Any chance that you could quantify the cost savings that you have realized year to date?
It is nothing that we will disclose at this present, since we are still assessing the turnout. It is what we communicated in the beginning of the year, in end of January, is that we were targeting SEK 100 million savings during the period from 1st of February to last of January. So we still have a few months to go there. We will quantify it once we are on the other side of the year.
Yeah, got it. I knew the answer to that question, but you have to ask. Thank you so much for taking my questions.
Thank you, SEB. Then we go over to Kristian Smolle, Pareto.
Good morning, guys. Two questions here from my side. First of all, can we get an indication of the like-for-like growth here in stores?
What I can communicate is that in the net sales growth for the quarter, roughly two percentage points were non-comparable store growth.
Perfect. Thank you. How does the competitive and promotional environment look so far into Q4 compared to last year?
It is hard to tell because I do not think it really has started yet. It is 11 of November when we will have the answer on that. I do not have any indication yet, but we are prepared that it should probably be harder than it has been in the past.
You expect harder or more promotional activity this year compared to last year?
That's what we plan for also when we're looking into the future. We need to be competitive, and we know that with lower cost and higher average order value, we can be that because the profitability of each order becomes better. That's what we are prepared for. Then we will see. I think also when you look into the numbers, we are preparing for that. If that should not be the case, then we should see that in the margins. But we don't believe that that will be the case, not at least this year.
Perfect. Thank you very much. Those were my questions.
Thank you, Pareto. Then we go over to Victor Hansen, Carnegie.
Hi, good morning, Rickard , Ylva, and Tom. A couple of questions from my side. I think you can see me here on the video as well. So a strong report, obviously. Sales growth or sales rather similar to Q2 here in Q3. But on the competitive side, earlier in the year, you mentioned, especially after the Q4 report, that the Swedish market has too many players, too many competitors. We know that two competitors at least have been struggling. They were expected to exit the market, but both have been saved by new owners. So for the Swedish market, what should we think ahead in terms of competition?
I think the market by itself or in our industry, the beauty industry, is probably growing a few percent. Everything above that is taking some volume from somewhere, and that should probably get the result of some consolidation in the market. I think we will continue seeing that even with new owners. It is just a question of what can you do different? I think a lot of our competitors have done what they have been able to be doing. I think you need to have the consolidation that we see similar in other markets, and that is what we believe in. We also think that will help a lot now with the rolling out of more stores, because we are knowing also the turnover that we are taking through the stores is taking part from the market as well, which also will affect the total market.
Perfect. Thank you. I have noticed, so Norway is your second largest market. It seems to me that the competition within beauty is picking up lots of pace here. Somewhat from April, but then much more from September, looking at some of your competitors specifically. Anything in particular that you have noticed in Norway from, say, September?
Not as we have seen. The only thing that has been happening is that Blivakker, which is Cocopanda here in Sweden, has withdrawing their company from Sweden. So that is the only new news that I have seen through the quarter.
Okay. You mentioned eight new stores in 2027. When are you planning on opening them?
Probably quite even through the years. We cannot handle open eight stores at the same time, so probably two years.
Perfect. Then I noticed in the report here this morning that you are planning on closing the local office in Poland here in October. Previously, I believe you said you wanted to keep Poland. So what made you change the decision? Are you still seeing good growth in Poland as well?
What we are going through now as a company is that we are really looking through everything we do and see how can we optimize and lowering the cost. Because even if we have gone through a cost program, it does not stop with looking at our operation and seeing how can we operate in the best way. And in this case, we see where we are right now and what we see in the coming years is better to operate it from a central point, and that is why we are closing that office.
Yeah. Then a follow-up on the country sales, and some of my analyst colleagues here have already asked about it. But you mentioned here that sales was driven by Sweden and Norway. Is there any chance you could quantify the sales growth a bit further in terms of per geography? For instance, are both these countries above, say, 20% sales growth?
We don't comment on that.
Understood. Final question. Any update on the hiring process for new CFO? How is that progressing?
The process is ongoing, but no more news than that. When we have some news, we will communicate that.
Okay. Thank you very much. Those are my questions.
Let's see. Do we have any more questions from the audience? No hands right now. Then we thank you all for the attention this morning and hope to see you all the 12th of February when we come with the year-end report. Thank you very much and goodbye.
Bye.