Welcome to this presentation of Q3 and the first nine months. Yeah, it's nothing really that have happened on the map, so to say. The only thing you can say is that, or repeat, is that we have started to invest in the teamwear in the US, and we built slowly up the stock during a small build-up in Q3, but mainly Q4, Q1, and Q2 next year. And we've been quite active among clients in the US, and we think it's a quite big opportunity. It's at least during a small build-up in Europe. And Europe so far has been very successful on the teamwear so weird. Quite big hope there, but it of course will take some time. In the different segments, it has really not happened anything special for us. You can say it has been a very tough market. I compare it to that.
I think it's the first time ever, actually, when corporate, gift and home furnishing are down at the same time. During the financial crash, for example, it was extremely tough on the corporates, but on the other side, we had a very strong retail market for sports, for example. Now, if we take corporate, we measure it, so it can be maybe a little bit wrong, but when we measure the corporate market among our clients, not what we sell, what the clients actually sell to the end users, it's down between 7% and 9% in Q3. If we look at sports and leisure, it's official figures, and if you take Sweden as an example there, it was -1.5% in Q3, and that doesn't sound so much, but then we should remember that it's down 11 quarters in a row.
On gift and home furnishing, the index for Q3 was down 9%. And that was 9% up on 1% last year. So it has been a very, very tough quarter and more tough than I expected, actually, if you look at the general market. And then still, I'm a little bit disappointed because in some of the countries, we grow too slow. In the big ones, with big market shares, it's very, very tough to perform so much better than the market. We do it better than the market. And I think if you look at the market share, I think it's the strongest quarter we've done in a long time because the average market in these three segments are, let's say, 7% down, 6%, 7% down. And we are at least 2% up if you look at local currencies.
But still, I think that in some countries, we should be able to do it better. Corporate. Yeah, I jumped those because it's actually no news. Craft shoes, we can talk a little bit about. We continue to grow. It's still that we miss distribution. We hope now to get into some of the bigger Swedish chains next year. And the shoes and tests and everything has fantastic results. And we have the possibility. So far, where we are selling, we are selling very good. So for example, if you go into Löplabbet and talk with them, it's really increasing. At the same time, you can say that we are not really there yet. So if we have like Löplabbet that are specialists that have more stuff in the shop, we are selling very good, which I can explain. But we're still not strong enough on shoes.
So if you put just a big shelf in a big sports shop with Hoka, Nike, Craft, very few going to pick and Craft. So we still have a long way to go there, but it's in the right direction. And we had fantastic reactions. Now we released the most technical shoe we ever have done. It was released a week ago in New York, where we had a pop-up store on Broadway. And it was, of course, a lot of happenings around the New York Marathon. And we were very, very happy with how that shoe was received and the reactions on it. Yeah, nothing new there. That's not so much to say. Yeah, one thing you can say there, and that is that it's actually a very good beer, non-alcoholic.
I must say it's okay. I'm a part of it, but it's the absolutely best non-alcoholic beer I ever tried. But it's a very small business. I think it counts for less than 0.001% of our sales. The quarter, net sales, local currencies up 2%. And again, I want to repeat that in one way. I think it's the best quarter in a very long time according to how the market was. But I'm still not the guy, or we are still not the guys that are very happy for 2%. And you can say that I would expect a little bit more, not any 10%, but I think we should have been able to make maybe 4%-5% plus, even in this climate. So it's mixed feelings in one perspective. I'm not happy. And in one perspective, I look at and compare it with the market.
I think we've done it good anyhow. Operating result a bit down compared with previous year and the operating margin a bit down. I still think compared with the market and the economy we have around the world, it's still very, very good figures and I get the question all the time about our target for operating margin but if we can do 13.6% in a quarter when it's an extremely tough market, 20% long-term don't scare me at all and we even have some companies doing above 20% also under these circumstances and one thing that, of course, takes down the operating margin is still the acquisition we made in the UK that starts improving, but from very low levels. If we look at the sales in total and including currency, it was down 1%.
We will see what's happened now with the dollar, especially when the election is done there. Promo sales decreased 1%, retail increased 1%. Here is not so much to say. You can say that one thing that I'm not happy at all about, for example, is the result on gifts, home and furnishing. On the other side, you can say we were down 1% and the market was down 9%. Even there, we gained a lot of market shares. The different markets, U.S. is much more positive than other countries. You can see there it's really Sweden where we have the biggest decrease. If you look at Southern Europe, it's more, I would say, timing effect. We will not continue to be down 6% there. It's Sweden that are tough. It's Central Europe still up.
And then you can say in the US, it's more the existing business that are growing. It's not the new investments on teamwear. I mean, we have still almost no stock there and we can't deliver. We have just started it. So it's done by mainly Cutter & Buck and Clique as brands, I would say. Other countries, it's always ups and down. I think you that follow us know that it's mainly the trading company that are there and Canada. But what is down is mainly the trading business. Gross margin, I'm extremely happy with. 0.2% higher than last year when actually most companies are going down in gross margins due to price decreases and so on. So if we also there include the B2C or the UK business that are much lower in the group, I think it's a record high gross margin.
Of course, one way could have been to give bigger discounts and so on and increase the sales more. I think, and I think it's right, that we would focus more than keep the margins up than on maximum the sales in a tough market. External costs a bit up. There is also currency affecting it down. So the cost increase in local currencies are higher. I don't know if you have the figure loss, but no, we don't. No. I think we have the costs under good control. We continue to invest in marketing and sales, even if it's a bit tougher. I think it's now when it's a bit tougher, we also can gain market shares. We will fulfill the planned investments in marketing and sales. There you don't see so much, for example, on personnel.
I think we are five more employees than last year, same quarter, but you have a change there. So we get more and more efficient on warehousing, administration, and so on, and get more and more people out on the field working on the sales. But there I think you all know that when you employ a new salesman, it takes at least a year before they contribute with a positive result. Then they, of course, start selling a little bit, but you should build a relation with the clients and you should come into it. So in the end, 13.6% in operating profit for the quarter. I don't know if you want to comment anything, Lars, about this IFRS 16 impact. Yeah, and we also had some special incomes previous year that we don't have this year. Yeah, I think we have talked about most of the things here.
What we maybe should point out is again under gifts and home furnishing, even if it's a small part of the business, we actually in Sweden have an increase in sales and that compared with minus 9% in the index. So I feel rather confident that we're doing the right things there, even if it's a bit tougher. Yeah. Cash flow, July, September, nearly SEK 200 million, an improvement from last year. And a little bit same thing as I said last year, I would have preferred a higher belief in the coming two quarters, a bigger stock and a less good cash flow. But anyhow, it's good to see quarter after quarter that we produce a good free cash flow when we're standing still or have small increases. Balance sheet, again, record high. I would maybe even there preferred a little bit lower.
That we've been able to do some of the acquisitions and so on. But an equity ratio of 60.7%, that's almost double. Our old goal before the free cash flow was actually 30. And then we raised it to, was it 35 or so? And now it's up to over 60%. So we still have really a lot of room to make things, but we must find the right things. And I feel more and more questions about why don't you acquire, why don't you buy back shares and so on. But if there's anytime we should have a strong balance sheet and be prepared to really do something, it's now. So we will continue to have that until we find the right thing to do. January to September, it's looking very much the same as the quarter. Sales flat or decreased 1%, but that 1% was currency.
It's really exactly flat. Yeah. There you can see that on corporate, we are minus three sports and leisure still plus two. Very much thanks to teamwear, I would say, on that segment and to the U.S. market. Gifts and home furnishing flat in a market that decreased quite heavy. More or less the same picture here. Southern Europe and Sweden is the most difficult ones. The U.S. is up also on the nine months. Gross margin on nine months a little bit lower, but I think still we hold it quite well. External costs then up. Again, it's personnel costs increase. That's mainly inflation, but you also have again a shift from more salesmen and less administration warehousing. You can say one salesman is more expensive than one warehouse worker, should say as well.
But it's also, of course, an effect of the inflation we have seen on salaries in many, many countries. And it comes down to operating profit on 11.9% or 800 million nearly SEK. And you can say then we hopefully stand in for in our strongest quarter in Q4. Hopefully, I say because I think it might can help a little bit that they cut down the interest rate today in Sweden with 50 basis points, I think it was. And as you have seen before, Sweden has been the most difficult country for us. But I misjudged that before. I actually thought the market should become better already in the spring. So now I'm not so positive in short term. So I hope I'm wrong again then. And it will be positive. Yeah, not so much to comment here.
Again, it's the part that are not inflation is related to sales and marketing activities, especially then in the U.S. and Germany. I'm more happy in one way in the U.S. because there, as you see, we increase sales. I'm more disappointed. I think it takes a little bit too long time in Germany. But it's very hard to say again because if it takes 6-12 months before it's payoff, you never know. And I think it's at least it has to pass 12-18 months to evaluate the investments we have done if they will give us the effect that we think or not. And cash flow so far this year, SEK 732 million, which are also, of course, I'm quite happy with.
We need strong cash flow now when we are standing more or less still to be able to do a high growth later on. Yeah, good cost control. I think it is the extra money we spend, we know where we're spending. And that's on activities or investment that should pay off. Yeah. So it's not so much more to comment there. The future, we continue to gain market shares. And of course, I think and we hope it should be a good, very good growth when the market turns around. If we can continue to take market shares and have a positive market with plus a few % instead of a big minus in general, it should pay off good. Very strong balance sheet. And we continue to look at acquisitions. That was mainly that. So I open up for questions if you have any. Yes. Thank you.
Magnus Råman, Kepler Chevreux. Maybe I can start asking about your outlook here. You mentioned Sweden where you're, of course, a big player and you suffer with the market. But if we look forward in Sweden, I mean, we have a situation now. We have the interest rate cuts and Riksbank also flagged for more to come. We have real wages growing. We have electricity prices down clearly, price at pump down clearly. We have the amortization requirement relaxation coming. We have big tax cuts coming. So I'm just trying to understand why you now switch to viewing the outlook as poorer. Is it that you see the order intake for sports retail being very soft or is it something else that you see or is it just that you don't believe in a recovery?
No, but a few things on what you mentioned were happening after I wrote this. For example, the interest cut was today and I wrote this last week
That was highly expected, even from you.
But highly expected. I highly expected it also in the spring, and it didn't come, and you can say I don't want to blame the market because again we could have done it better, but the knowledge I had last week, I didn't see any short-term turnaround. But I hope that again that I was wrong once more, and we will see a quick recovery. But in that way, you can say that I still don't understand why they didn't cut down the interest rate earlier and more. Because for me, it was quite obvious. I mean, we are active in so many different businesses.
And we saw the same thing all over, which almost never have happened or never have happened. I don't know. Can you remember any time when index is down on corporate, home furnishing and sports at the same time? And you're talking in sports, you're talking 11 quarters in a row without. But hopefully I'm wrong and all these kind of things will help. And especially the interest rate that they did today. But that I didn't know last week.
No, but so the positive take from this is that you're back down a bit because you were negatively surprised by your own outlook. But it's not that you now see, for example, on the order intake or other forward-looking factors that you have in your pocket that reasons to be more negative.
Absolutely not.
I don't know exact figures, but the orders, pre-selling orders for Craft next spring is increasing or have increased already. We have a higher demand than before. But if that is due to that people believe in the market or if it's because we take again market shares. And that's also, I don't know. And that's also why I say I have mixed feeling because being 2% up in a market that ordinarily in every 7% down is maybe the strongest we have, or it is one of the strongest quarters we have done in a long, long time. So I have no worries at all about ourselves, so to say. And then we talk all over Sweden and that's probably natural when we are founded here and public here and so on.
But we also have, I mean, Sweden today is down in, what is it, less than 25% of the sales. So of course, it's affecting also the other markets.
Great. Maybe also if you can give your view of the Trump win and possible new tariffs coming into play, how could that affect?
We are very used with that in the last 25 years. So it's nothing I even think about because except the production in the U.S., I think it's neutral between competitors. I mean, if they raise, so to say, the duty for everybody, it will not change much because the production in the U.S. and our areas is very, very small.
It's maybe it can be a bit tougher for us than someone that has a lot of production in South America if he is more kind to South America than he is to Bangladesh or Egypt or China. But I don't think it will have any big effect.
So it will be a tax on the consumer and consumer not on your margins?
Yes.
All right. And then just to understand, you say that competitors have been trying to maintain volume and using the price instruments. You report instead a stable gross margin, at least on a group level. But what is your view here? How much have competitors invested? How much are their gross margins down? Do you have any examples?
It's very, very hard to say.
I mean, we can only see that when we are losing orders because we are claimed to be too expensive, especially on basic items. So it's very hard to say. But on the basic, especially on promo wear and basic, we have seen. And there we also have seen a deflation in prices, which we said already Q1, not in margin, but in prices, which of course make it more difficult also to grow than when you take down prices. So that can be positive if Trump raised the duties with 20%. Then we will have easily, more easy to grow in the US.
True. All right. And just have one final on the IFRS 16 effects here. Was this increase sort of a one-off or was this an increased run rate now, the recalculation here?
Yes, the absolute majority of that is a one-off because we had new contracts and that was also, so to say, both new contracts or the correction, so to say, from prior quarters. So the run rate as such is only a change of SEK 1.5 million or so.
Thanks.
Yes.
Hi, I'm Anni, Danske Bank. Yes, a couple of questions from my side. I mean, given the market environment and you're continuing to invest on market activities such as sales and marketing, how long do you think that should prolong going forward?
I think it will continue, but it must soon result in a higher sale, so it gets less effect on the result. But we have no plans to cut down even if, so to say, the economy is changing.
But I think also that the thing right now is that we take the costs without seeing it in increased sales. We probably can see it, probably see it in that we take market shares. But it's still not given us. So you can say the relation between sales and marketing investments, and that should go down as soon as we start growing better.
And these investments are still mostly allocated to Germany and US, or how should we view it?
Yes. They are.
And just looking at sales stuff, etc., how much do you think is needed in additional to invest in Germany and US as well?
But we can at least have, if we're talking before, we have the same penetration as Sweden. We would need at least 100 more salespeople in the US and at least 25-30 more in Germany.
It's a long way to walk, but we can't do it at the same time because then we will sit there with an operating margin on 2% of that. We have to build step by step. But it's a marathon.
Yeah. Perfect. That's clear. And lastly here, just curious about the development on Tenson. I mean, a lot of the marketing activities is allocated to Tenson and the rebranding. What have you seen so far?
Very positive reactions. But again, also there, we don't see that it really pay off in sales in the figures we have presented. It's a very small part. But the reaction among clients and consumers are very, very positive. So I think the brand is still strong. But we need to really have it into real sales as well. And there we miss a bit, in my opinion.
So I assume the operating margin there is negative?
For sure. Yeah. I don't know. That's such a small part, so we can't say. But what do we have a negative result so far in Tenson this year? And last year, we had a positive effect. So that's when we made the acquisition, if I remember correctly. Yeah. So about 20 million SEK. Okay.
Great. Thank you.
But it's always like that. I mean, if we don't, it's very hard to make investment in a brand that pays off the first quarter or even the first year. I mean, look at Craft that are fantastic today. The big advice to us, 1997 to 2002, first five years before public was to get rid of it and sell it because it will never earn money. So I mean, and Tenson would be the same kind of process as Craft.
And maybe final then on just relating to Tenson and maybe acquisitions. Have you seen any different market activities within the M&A agenda and the inflow from potential objects to acquire?
The only difference we can see, correct me if you think I'm wrong, Goran, but the only difference is that we see much more companies that are in panic. So it's very short sales processes. And we have actually said no to what can be two, three, four that we maybe would have liked to acquire. But if you get two weeks in time and do a full, take the decision and make a full due diligence in a U.S. company to earn around SEK 2 billion, we can't do it because the risk is too high. So it's more and more companies that are actually panicking. And in one way, it's good because that gives more opportunities.
I mean, I think we still can be fast. I mean, we can do it in two months, maybe two to three months if it's a big acquisition. It's not serious, I think, to go in and buy something for SEK 1 billion. You should do the full analysis in two weeks. Some have also been in Chapter 11 already before, and already when we get the chance to look at them.
Absolutely.
Yes, absolutely. I love it. Again, you need some time, at least if it's big amounts. I mean, we have all the time to look at the possibilities compared with the risk. If the risk is too high and we're not sure, then we should not do it. Otherwise, I love that. I can even go up from one SEK to $1 if it's the right thing.
But it has been, I mean, in the case we said no to it, we should put in at least $200 million and do that like that. It's too high risk.
Great. Thank you. That was all of me.
Hi, Oscar, private investor. I'm curious about the sports and leisure segment. How do you view the sales split between promo and retail going forward? Do you expect any of these to grow faster than the other?
Yeah, I think sports will grow faster because both the main volume for teamwear and for shoes coming into that segment. But it's very hard to divide sometimes what is correct because if you have a corporate client then selling teamwear to a club, then it's suddenly corporate. And if it's Intersport or Stadium or something that do the sales to the same club, it's sports.
So I think the important thing is that we grow on both.
Thanks. Then we'll go ahead with some questions from the present investors. What is the reason for the reduction in orders for Kosta Boda? Are you making any other changes to strengthen the business there?
Reduction of staff, you mean, or what kind of reduction?
The question has not specified in that area.
Then I guess it's the reduction of staff. But it's simply to make it more profitable or less loss-making right now, but to improve the result. And therefore, we have cut down a bit. And we prefer to do that again before instead of trying to keep the demand up and go down on gross margin.
You mentioned the interest in M&A. What are you looking for geographically or product-wise? What is the dream deal?
Both.
If you start geographically, the dream deal is to come in to either a new market or a market where we have small market shares. And selling company or the company we acquire have a big client base that we can introduce our brands to. And if it's a U.S. company, it would be an extra bonus if they were big in the U.S. but not in Europe, so to say. And distribution, if you look on product categories, we have still a lot of products that we do not represent in sports, for example. There you have outdoor could be strengthened more. We have Tenson there now that we slowly built on mainly clothing. We're only clothing today. You have several more segments there.
Workwear shoes could be something where we're looking for, but something that are in the group today one way or another, but small that we need to strengthen product-wise. It could also be, for example, we have today, I think it's nearly 1,500 clubs in Sweden. We are selling to a lot of football clubs, for example, but we are not selling anything else on the clothes. There we have already talked before that we should be able in future to develop football shoes. That I see more as a development than an acquisition. But you have balls, you have all kinds of other things around.
Thank you. Is there a need for structural changes within gift and home division given the red figures?
No, I wouldn't say so. I think what we are doing right now will give a good effect.
And there we should remember that that has really been the top of the market now. As I said, in the index in Sweden, for example, was down 9% in Q3 and we were nearly flat. So I think we're standing quite strong there anyhow, even if I wish and we should deliver much better.
Thank you. That was all the questions we had sent in to us. Any further questions here? I think that's it then.
Thank you very much then.
Thanks.