Welcome to Nelly Group AB's Second Quarter Report 2025. Today, I' m pleased to present CEO Helena Carlander-Östlund and our CFO Niklas Lingblom . After the presentation, there will be a Q&A session. Participants may submit their questions in writing on the audiocast page. Now, I'll hand over to Helena Carlander-Östlund. Please go ahead.
Thank you very much, and a warm welcome to the Second Quarter Results Call for Nelly Group . My name is Helena Carlander-Östlund, and I'm CEO of Nelly Group . I'm hosting today's call together with my colleague Niklas Lindblom, our CFO here at Nelly Group . Today's call will be divided into four parts. We'll start with a short video to introducing Nelly. Then I'll provide some comments on the second quarter of 2025. After that I'll hand it over to Niklas, who will give us a financial summary of the quarter. and as always, we'll conclude today's call with Q&A session . Please send in your questions throughout the presentation. You can submit questions until the end of the presentation.
However, we do appreciate it if you can send your questions as early as possible in the call so that we can review and answer them at the end. So Without further ado, let's start with a short video to introducing Nelly. Now Let's move on to take a look at the second quarter of 2025. We're very pleased to report that we have delivered another strong quarter. Which should be viewed in light of a relatively challenging market during this period. April and May were somewhat challenging challenging and volatile market.
I believe our performance during this period clearly shows that our spring and summer assortment was strong, and that the Nelly brand continues to gain both lasting and resilient traction across our core markets. Overall, it was a strong quarter in a challenging market. looking at the specifics, t he second quarter is important quarter for us, as our customers have many reasons to shop, ranging from celebratory occasions, like graduations to everyday events such as preparing for summer holidays. It is a very satisfying that we succeeded in both accelerating growth and improving profitability compared to last year. Net revenue grew by 15.1%, compared to growth of 8.8% in the same period last year.
Net revenue reached 361.7 million crowns for the quarter. Operating margin increased to 15.3%, compared to 9.7% in the same period last year. We generated an operating profit of 55.4 million as compared to 30.5 million crowns in the same quarter last year. T his is a strong result, highlighting the potential of the Nelly business with a clear and strong year-on-year improvement. Most pleasingly, the second quarter also marked our third consecutive quarter of active customer growth in our core markets. The number of active customers grew for the third consecutive quarter. We see that this was driven by two factors. Firstly, we continue to effectively recruit new customers.
This is achieved both through the changes in our paid advertising and how we allocate our paid spend, and importantly, organically by continuously building the Nelly brand in everything we do. During the second quarter, we continue to see strong new customer recruitment. Alongside this, we also improved our repurchase rate among existing customers. More of our existing customers having enjoyed their previous experience with Nelly, returned to make another purchase. this is a testament to both our strong assortment and the end-to-end customer experience that we have created. Growth in our active customer base is a very important KPI for us going forward, as it absolutely is the foundation for growth going forward. This is something we will be watching very closely, of course, in the coming quarters as well. Let's move on.
During the second quarter, that our own brand performance continues to deliver. Our own brand share grew to 54.8% as compared to 43.8%. This growth in the Nelly brand was seen across almost all product categories. A few categories. are worth mentioning in particular. We further strengthened our already strong position in jeans, with significant year-on-year sales growth during the second quarter. In addition the Nelly brand performed very well on tops, dresses, and knits. Knitwear is, an important and interesting category for us . Although a smaller category in the second quarter, knitwear performance was very encouraging ahead of the autumn and winter season, when it accounts for a considerably larger share of sales.
Of course, our own Nelly brand is central to our flagship store in Stockholm. Around 80% of sales in Stockholm come from our own Nelly brand. As we expand now our flagship store concept to Denmark with a store in Copenhagen later this year, the Nelly brand will also hold a central position there. Moving on to return rates. Our return rate remains a key focus. We maintained a low return rate during the second quarter of 28.4% as compared to 31.3% in the same period last year. This is the result of the continued implementation of our cross-functional return strategy.
Just to highlight a few of the elements that we work with there, we continue to work very proactively with both the design and the choice of fabric for our garments to make sure we both achieve that perfect fit, but also that fit that will actually work for many different customers. We also continue to improve the type of customer information that we provide, the type of product information rather that we provide to our customers and how we do that. We also continue to work with our IT systems enablement to manage our returns in the best possible way. It's important, again, to highlight here that easy and fast-free returns are a very important service to our customers. We have to make sure that our customers can, of course, in a very easy way, return products if they don't quite fit.
All of our work on reducing our return rate is focused on eliminating what we call unnecessary returns, returns that could have been prevented through, for example, clearer or better or more information about the products to the customer. We are very, very focused on eliminating unnecessary returns, and this has resulted in this low return rate. Also worth mentioning here is that in addition to our cross-functional strategy, during the second quarter, we also were able to, in a much more efficient way, replenish styles that had shown early signs of success. We have made some changes there as well in the way in our ways of working, essentially, to make sure that we can very early on tell which styles will be successful and will have a good return rate and then replenish those, which, of course, also then has a positive effect on the overall return rate.
Now, moving on to have a look at our gross margin during the second quarter. We delivered a solid gross margin of 54.5% in the second quarter, despite price pressures in the markets and also some cost pressures, which I will come back to in a minute. The gross margin was, of course, positively impacted by the growth in our own brand share. However, if you have followed Nelly Group AB for some time, you will notice that the link we have historically seen between growth in our own brand share and an increase in our gross margin was not quite as pronounced in the second quarter as we have seen historically. As I said, we achieved a gross margin of 54.5%, which can be compared to 54.7% in the same period last year.
The reason why this link was not as pronounced in the second quarter was because we did actually take a very conscious decision to maintain attractive and dynamic pricing towards our customers, despite a number of cost pressures. We had higher production costs, especially among the styles that are produced in Turkey. We also made a number of improvements in the quality in some of our best sellers, which, of course, impacted production costs. Despite this, we decided to maintain our key price points on some of our best sellers towards our customers, given that the market was a little bit more challenging during the second quarter. It's also worth mentioning that there were some both calendar effects around Easter and our mid-season sale, which also meant that more of Easter and more of our mid-season sales fell into the second quarter rather than the first quarter.
The impact of this was relatively seen smaller than of our decision to maintain pricing. Nevertheless, a solid gross margin in the second quarter once again. Let's move on to have a look at our marketing activities during the second quarter. We can conclude that our marketing activities during the second quarter were both efficient and impactful and represented a significant investment in building the Nelly brand long term. Our marketing costs as a proportion of net revenue decreased to 10% as compared to 13% in the same period last year. Our online traffic in our core markets grew by 8.5%, and the number of orders increased by 14.3%. Importantly, if we look at our paid advertising, we could also conclude that profitability per order grew once again compared to last year. Really, a solid result from our marketing spend.
It's also worth highlighting here again that we further increased our focus on our social channels, so Instagram and TikTok in particular, alongside also starting investment in some new channels. This focus on our social channels was both in terms of paid and also organic. The reason why we continue to increase our focus on these social channels is because we have seen that they do tend to build deeper relationships with our customers and also more solid loyalty long term to the Nelly brand. It is important, of course, that we build the Nelly brand in a sustainable way, and that is best done through our social channels. Let's have a little look ahead as well. There are some really exciting times ahead.
As I was talking about just a minute ago, we have seen really strong growth in many categories in the second quarter, both in our own Nelly brand but also in our external brands. We do believe we have yet more potential to capture there, both in terms of establishing an even stronger position in some of the categories where we have already performed incredibly well, but also in further categories where we have not yet made as much inroads as we have in, for example, jeans and tops. There are additional categories where we see significant potential going forward. This again is both in terms of our own Nelly brand but also our external brands, which, of course, are absolutely critical and go hand in hand. Establishing leading positions in all of our key categories will, of course, enable us to also expand the average basket size going forward.
We are very proud and pleased of the inroads we've made on many categories already, but there is more work to do there on further categories. Going forward over the coming quarters, we also have several new brand launches already planned with well-known international brands that we are really, really pleased to be initiating collaborations with. We are also in further discussions with brands to hopefully launch them a little bit more longer term. I think we have a very strong external brand portfolio already, which will become even stronger with these brands added. Very exciting for us.
Of course, last but not least, as I mentioned a little bit earlier, we did announce at the end of the second quarter that we are expanding our flagship store concept, which has been very successful for us in Stockholm, to Copenhagen, to Strøget, to be precise, which is Copenhagen's busiest shopping street. There we will be opening a new flagship store in this very beautiful old building that we see in the picture here later in the year. To summarize the second quarter, we have delivered a strong result with both accelerated net revenue growth and increased profitability compared to last year. Importantly, we are also winning more customers. We are growing our customer base through both new customers and more customers who enjoyed their experience and are returning, which is very pleasing. We see significantly more potential ahead of us.
Our focus over the coming quarters will, of course, be on capturing even more of the potential that we see in Nelly. With that, I will hand over to Niklas Lindblom, who will provide us with a financial summary of the second quarter.
Thank you, Helena. Let me give you a closer look at the financials for the second quarter. Net revenue in the quarter amounted to SEK 361.7 million compared to SEK 314.1 million last year, showing a strong growth rate of 15.1%. A main driver for net revenue growth was a combination of increased online sales before returns, improved return rate, and increased store sales. The return rate decreased to 28.4% in the quarter, down from 31.3%. Currency effects affected the growth rate negatively, mainly due to the depreciation of the Norwegian crown. Net revenue in local currencies grew by 18.2%. The total number of orders in the Nordics increased by 14.3%. Average order value decreased by 6.8%, which was driven by both lower average item value and lower average ordered items.
Moving on to the next slide, we conclude that operating profit in the second quarter amounted to SEK 55.4 million compared to SEK 30.5 million last year. Operating margin increased to 15.3% compared to 9.7% in the same quarter last year. The second quarter is showing record high levels for both operating profit and operating margin. Improved operating profit was mainly driven by higher gross profit through increased net revenue and maintained a high level of cost control. Let's also have a look at LTM figures on the next slide. Nelly Group AB is showing strong financials on LTM figures with an operating profit of SEK 136.6 million and an operating margin of 11.7%. Increasing both operating profit and operating margin further, Nelly Group AB has over a sustained period of time performed both net revenue growth and continuously improved profitability, showcasing good momentum and cost control.
Now, let's take a quick look at the income statement on the next slide. Once more, net revenue amounted to SEK 361.7 million compared to SEK 314.1 million. Gross profit amounted to SEK 196.9 million compared to SEK 171 million, with a gross margin of 54.5% compared to 54.7% last year. Warehousing and distribution costs amounted to SEK 42.7 million compared to SEK 42.1 million. Costs as a share of net revenue improved to 11.8% from 13.4% last year. This was mainly driven by operational improvements, optimization of distribution, and an improved return rate. Marketing costs amounted to SEK 36.2 million compared to SEK 40.9 million, with costs mainly related to paid advertising. Marketing costs relative to net revenue decreased to 10.0% from 13.0% last year.
Administration and other operating expenses increased to SEK 62.6 million, compared to SEK 58.5 million, but improved as a share relative to net revenue, amounting to 17.3% compared to 18.6% last year. Concluding the second quarter, we showcased a record high operating profit of SEK 55.4 million, up from SEK 30.5 million last year, with an increased operating margin of 15.3% compared to 9.7%. Lastly, let me talk you through some additional financials on the next slide. Operating cash flow amounted to positive SEK 104.1 million compared to positive SEK 105.8 million last year. The second quarter showed a strong cash flow from operating activities, somewhat lower than last year, affected by changes in working capital, but also affected by repayment of tax deferrals amounting to a total of SEK 25.7 million in the quarter. These were made in accordance with the approved payment plan.
By the end of Q2, we note that remaining tax deferrals amounted to SEK 69.5 million, down from SEK 105.6 million by the end of Q2 last year. Cash flow from investing activities amounted to negative SEK 9.2 million compared to negative SEK 7.2 million last year, primarily attributable to continued IT investments. Net cash flow amounted to positive SEK 87.1 million compared to positive SEK 93.9 million last year. We conclude the quarter with a healthy balance sheet with a solid equity ratio of 33.5%, improved from 23.8% last year. Cash and cash equivalents amounted to SEK 259.6 million per the 30th of June 2025. Overall, we are happy to present a quarter with strong financial performance for Nelly Group AB, with a record high operating profit and margin. With that, I hand it back to you, Helena, for some last comments.
Thank you very much, Niklas. This concludes the presentation part of today's call. Before we move on to answer your questions, I would, of course, like to take the opportunity to once again express my gratitude both to our customers, new and returning, for following our journey and continuing to support us. Thank you so much. Also, of course, a heartfelt thank you to the entire Nelly team. Hopefully, most of you are on a well-deserved break now, getting re-energized ahead of a very intense and fun, I hope, autumn ahead of us. With that, let's move on to the final part of today's call and answer your questions.
Thank you all for joining our presentation of Q2 this morning. We will continue with some questions that we have received. The first one is for you, Helena, from August. Can any additional of a long and short-term sustainable return rate be provided? We have seen a steady decrease in return rate, but a barely increase in net sales. The current 25% seems low when comparing to peers.
Yes, thank you. Good question. I think when it comes to return rate, once again, we haven't set an absolute target. We're very focused on implementing all of our different elements of our return strategy. I think what is important to remember here is that return rate is not something that you can address and then leave it, and it continues to be low. Return rate is actually something that you have to work with every day as part of your day-to-day business to keep it low.
I think it's difficult to say exactly what the return rate will be going forward, but what I absolutely can say is that we will continue to work with it very proactively every day and in all the different sort of both assortment, customer information, IT systems, and so on to make sure that we see it as a key part of managing our business, essentially.
Thank you, Helena. Another one. The last year, the return rate was much lower in Q2 compared to Q1. Can you elaborate on reasons for this and what the online sustainability in return rate is?
I think if you also look historically, we tend to have a slightly higher return rate in the second quarter compared to the first quarter. That is very much due to a number of factors, including the category mix. For example, we tend to sell more dresses in the second quarter, which tend to have a slightly higher return rate. Generally, the pattern is that we do have a little bit higher return rate in the second quarter than the first quarter. However, if you look at the last couple of years, we've been working so intensively with our return strategy that actually that pattern has been a little bit different because we've seen such steady improvement in the return rate. Probably what we're seeing now is a little bit more of a stabilizing of the return rate and a pattern that we've seen historically, actually.
All right. Thank you. Another one from John, this time, Niklas. Congratulations on a very strong quarter. I had two quick questions. First, should we expect a similar margin structure in coming quarters due to your operating leverage, or were there any one-time factors this quarter that helped profitability? Second, I noticed that inventory levels were slightly elevated in quarter two compared to the same period last year. Could you provide some color on what's driving that?
Yes, of course. Thank you, Alicia. Thank you very much for the congratulatory comments, John. I can comment that we do not account for any significant one-time effects that affected the quarter in a positive way. Regarding inventory levels, a fair question as we do account for higher inventory levels in absolute terms Q2 2025 compared to last year. However, looking at inventory levels as a share of net revenue LTM, it amounts to 14.7% compared to 14.5%. We maintain this ratio in relation to sales. Inventory balance per Q2 2025 also includes a bigger share of goods in transit compared to last year, which also implies current goods. In addition to that, we monitor sell-through closely against the target levels. Overall, we feel confident about our inventory levels.
Thank you, Niklas. Another one from Albin at Calcule. Another congratulations and well done on an expectant quarter. Is a stabilized gross margin as a result of more attractive prices to our customers to be expected going forward in order to continue growing at the gross level?
I think again here it's important to highlight that we obviously constantly optimize across a number of different factors in our business. Gross margin is one of them, price is another one. I think we will continue, of course, to do the same going forward. It depends on so many factors. You have to sort of adapt and make sure that you listen to the customer. Sometimes the right answer is to accept a little bit of a hit to gross margin in order to maintain the customer offer. There's no general answer to this, but I think it's key, as I said, to remember that we constantly optimize on a daily basis, really. How we make sure we have the right customer offer and balance that against our business, essentially.
All right. Thank you, Helena. Another question from John at SEB. Despite a soft consumer sentiment and colder weather during Q2, you provided solely year-on-year growth and note that spring-summer collection was well received. How does your assortment and assortment strategy differ in terms of seasonal goods? What do you believe enables you to outperform in Q2 despite colder weather and softer sentiment?
Excellent question. I think there's a few different parts to this answer, actually. Firstly, I do really think that we had a very strong assortment this spring and summer. We see that almost regardless of how the market is performing, if we have very, very strong products, our customers respond well to them and want to buy them. I think we did have a great sort of collection of products on offer during this spring and summer season. That was, of course, an important part. Last year, we had some challenges around availability because we did not quite anticipate the demand. This year, we were much better prepared and had secured much more depth in our assortment early on. We were able to meet the demand during that period, which was positive.
I think also the changes we have made in our marketing have meant that we more effectively target the right customer, essentially. I think the combination of all of those things coming together enabled us to deliver a good result despite, you know, a little bit of a challenging market, essentially.
Thank you again, Helena. Another one from John at SCB. You already seen strong growth in your own brands, but you mentioned that there is still significant potential to expand into more categories and increase basket size. Could you elaborate on which specific category you see the most opportunity in, and how you plan to position your own brands in relation to your external brands offering?
One important point to make here before I go into the category-specific question is that having our own Nelly brand in combination with our external brands is absolutely core to our business. We're not looking to have one or the other. We're looking to have the combination of both because we think that that is incredibly strong and important for our customer. Generally, our target audience doesn't walk around dressed head to toe in the same brand. It's important to be able to combine the right set of brands, and that's what we're offering. I think in terms of categories, as I mentioned earlier, we have a lot more opportunity in categories where we are already strong. We have a very, very strong assortment coming, I think, in tops this autumn and winter.
We also have some exciting external brand news coming both in terms of the jeans category and also the sneaker category. I think also, as I mentioned, knitwear is very interesting for us and promising going forward, given how well it performed during the second quarter when that is typically a smaller category and that then only grows as the year goes on. I think opportunity really in multiple categories going forward.
Thank you again. From John at SEB to you, Helena. Marketing costs decreased. With marketing costs decreased both in absolute terms and as a share of revenue in quarter two, given your plans to expand into new categories and launch additional stores, do you anticipate stepping up marketing spend in the coming quarter, or is 10% of net revenue a sustainable level going forward?
Excellent question. We don't really manage our marketing spend in that way. We manage it very much on basically profitability. If we see that there is more opportunity to drive marketing profitably, then we will increase our marketing activities. If we see that there isn't that opportunity, then we will dial it back. It is an incredibly dynamic sort of factor for us that we manage according to the market, the customer sentiment, our assortment, where we are in the season. The one and only KPI really that is absolute for us is that we drive marketing activities profitably.
Thank you again. Another one question, and this time to you, Niklas Lindblom, from Carl. Approximately how large part of sales comes from the physical store?
Thank you. Good question there. Our flagship store has obviously been an important venue for us to meet with customers in a new way, host events, and expose our brand. As a share of total sales, however, sales from our physical store still amount to a small share, but obviously, we've seen a lot of other positive effects from having a physical store.
Thank you, Niklas. The last and final question to you, Helena, from Carl. What have you changed in your marketing more specifically to make it more effective?
If you look at our marketing, obviously, it importantly consists of our paid marketing and our organic marketing. In terms of the paid marketing, I would say the key factor is that we have completely changed our way of working and manage our marketing spend based on where we can generate profitable transactions. We have had some very strong additions to the team over the last year. I think that team is really managing that marketing spend incredibly well for us, constantly adapting and adjusting based on the situation. I think that's made a big difference. In terms of organic, as I said earlier, we have focused very much on our social channels. We have stepped up our activities in some pretty well-established channels like Instagram and TikTok, but we've also started to work a little bit with some new channels that we see growing going forward.
We've just increased our activity there. We see that we have an incredibly positive response from our target audience. They enjoy our content. They engage with us, and they build a relationship with the brand and the products in a way that only really social channels can. I think a number of changes taken together have made our marketing, as I said, effective and impactful, which is, of course, very pleasing to see. That was the last question. With that, we conclude today's call. Thank you very much, everyone, for listening. Hopefully, we'll be talking to you again next quarter. Thank you very much.
Thank you.