Welcome to the Pierce Group Q2 Report 2025 Presentation. During the questions and answers session, participants are able to ask questions by dialing #KEY-5 on their telephone keypad. Now I will hand the conference over to the speaker, CEO Göran Dahlin. Please go ahead.
Good morning, everyone, and welcome to our Q2 2025 Interim Report. My name is Göran Dahlin, I'm CEO of Pierce Group, and I thank you for joining me today. Here is today's agenda. I'll begin with a short introduction to Pierce and our business, then walk you through the key highlights from the second quarter. After that, I'll share our outlook and priorities for the months ahead. Finally, we'll wrap up with some time for Q&A. For those of you less familiar with us, Pierce is the leading European e-commerce platform for motorcycle gear, parts, and accessories. The total addressable market was estimated at around SEK 100 billion in 2021. Although it's likely contracted somewhat since then, it remains substantial. Critically, it's still largely offline and fragmented. Pierce is the leading e-commerce player in Europe. We're not just a retailer, we're a specialist.
Our assortment is uniquely attractive, combining the strongest brand on the market with a leading portfolio of private labels. We are the number one player in the off-road category and amongst the top in on-road. We're proud to be the only pan-European company in the industry. We operate a localized website in 16 markets and serve more than 1 million customers each year. To the right, you can see some basic information about us. 2/3 of the sales are outside the Nordics. Almost two-thirds are off-road, one-third on-road, and 5% is other, which primarily is Sledstore. Parts and accessories are each 20% of our sales, and more than half of the sales is gear. Home brands are slightly lower than 40%. Now let's look a little closer at the market landscape we operate in.
Motorcycle gear and equipment make up a diverse product landscape, ranging from protective equipment like helmets and boots to bike-mounted parts to clothing and accessories. Each subcategory behaves a bit differently. Items like parts and protection gear have a high rate of wear and tear, especially for frequent riders in off-road, making replacement a constant demand driver. Others, like clothing, align more with fashion cycles. Importantly, most of the market is still served through offline retail. In fact, only about 10% of the European market was online in 2021. That means that the shift to online will continue for quite some while. Important growth drivers are that online can offer a much wider selection and better availability than offline, which provides superior convenience for the customers. The products we sell are well suited for e-commerce. A general growth driver long-term is that the base of motorcycles is increasing steadily.
The competitive landscape is fragmented and constituted of five different segments: leading online retailers such as 24MX and XLMOTO, general diversified online marketplaces such as Amazon and eBay, leading online retailers with important presence both offline and online, brick and mortar, typically local physical retailers, many of them since COVID with some online presence. There is also a small segment, direct to consumer, where the leading brands in the market mainly sell to distributors and directly to large retailers, but some are also operating their own web shops and sell directly to consumers. We have a handful of direct competitors, and while we are the largest e-com player in the market, we are the champions in the Nordics, and we are a clear leader in off-road across Europe.
Pierce is again the only pan-European player with local sites in 16 countries, with local language, local payment options, customer service, and local delivery partners. We are also the only player with a pan-European long-haul logistics setup where we have our own dedicated long-haul transportation across Europe that delivers products into the local injection points. The other players are primarily local champions in the main European markets. Most of them have a majority of their sales in on-road. Several of them have financial owners, which we believe will facilitate the future market consolidation. There is a very good possibility to create a player much larger than anyone else in the market with the capacity to carry a much wider assortment in stock than anyone else. This will provide a better selection and faster delivery time, thus providing a superior customer experience.
Furthermore, this player would have capabilities to develop fantastic own brands comparable with leading brands in the market. The sheer size of this player would create a shift in power versus suppliers, enabling a much stronger negotiation position with leading brands. Such a player would yield substantial back-office unities. We are uniquely positioned as the only listed, largest, and only pan-European online retailer in the market. With that, let's have a look at Q2. Q2 summary: we delivered a strong quarter. The revenue was up 15% year-over-year, 20% in local currency. This is actually the highest quarterly sales in the company's history, which it should be as we are a growth company. Growth was broad-based across customer segments, primarily driven by improved product availability. We have the broadest stock assortment in Europe.
We're not sure, but we think actually that we probably have the broadest stock assortment in the world, but that's more of an opinion than a fact. Gross margin was 43.7% compared to 44.1% last year. A slight decline was mainly due to obsolescence effects, which I will go through, versus last year and the strong growth in external brands that have a lower percentage margin than own brands. OpEx increased with SEK 5 million versus last year, mainly related to transformation investments. These transformation costs are tied to the rollout of our new SaaS-based IT systems, which cannot be capitalized under current accounting rules. At the same time, we're depreciating our legacy on-premise system. This temporary cost overlap will fade as we move toward completion.
From Q2 2026 and onwards, we expect to see an improved operating leverage with some SEK 30- SEK 40 million in additional EBIT on an annualized basis. Adjusted EBIT came in at SEK 32 million compared to SEK 17 million last year, a clear step up in profitability. This reflects both strong revenue growth and improved stock availability, achieved despite the continued impact of transformation cost of SEK 8 million in the quarter, which was SEK 9 million in Q1. Furthermore, we have a solid capital position. We ended the quarter with SEK 188 million in cash compared to SEK 350 million a year ago. The reduction reflects investment in inventory to support the growth and ensure product availability. Cash flow for the period was positive at SEK 13 million. Inventory levels increased as planned and will remain elevated to underpin our strategy for growth, customer satisfaction, and retention.
Taken together, these results, I think, show that Pierce is on the right track, delivering growth, improving profitability while investing for the future. Some KPI highlights: the private label share declined slightly, so we're now at 37% compared to 41% Q2 last year. The reduction stemmed from that we have had exceptional growth of external brands, and we were late launching our new collection on private label. However, the initial customer response to our new private label assortment has been promising. We're also unlocking significant growth opportunities with our external brand portfolio by enhancing product availability, and this remains a key growth driver for us, both for now and looking ahead, even if we expect it to taper off slightly going forward. As we are working to expand sales both in private and external brands, we do not expect any major shifts long-term for our private label share.
Customer satisfaction. Looking at our key customer satisfaction metrics, our Trustpilot scores remain consistently high levels across Europe, with a slight upward trend since 2023-2024. We're also seeing encouraging developments in our Net Promoter Score, which we measure but is not visible here, further reinforcing our progress in customer experience and loyalty. It's very encouraging to see that our customer base continues to expand. We had a detraction for a couple of years, and this is not a long-term good strategy. We have been very focused on increasing the gross profit in absolute terms and increasing the customer base by primarily increasing customer retention. At the same time, looking to the right, our average order value has remained stable at around SEK 1,093. That's a good sign, I think, that our growth is not driven so much by discounting but by improved availability.
Looking a little bit more on the gross margin, as shown in the chart on the left, our margin declined slightly in Q2 2025 compared to the same quarter last year. If we exclude the effects of obsolescence, it actually increased somewhat. In Q2 2024, gross margin was positively impacted by a reversal of obsolescence provisions totaling SEK 3 million, while in Q2 2025, by contrast, obsolescence had a cost of SEK 2 million, creating a negative impact compared to last year. We expect obsolescence to increase somewhat going forward. As you might remember, we increased our inventory last year in Q4 and this year in Q1 quite substantially. We added some 20,000 SKUs to our 45,000 SKUs that we previously had stocked, so we went from 45,000- 65,000 SKUs.
Our new products with our model have a 12-month grace period, and of course, when you add that many products, it's impossible to have a 100% hit rate, so to speak, and buy exactly right. Therefore, we expect the obsolescence to increase somewhat going forward. Shipping costs and geopolitical uncertainty. Our shipping costs relative to revenue increased slightly with 0.1 percentage points year-over-year and decreased by 0.9 percentage points compared to the previous quarter. This reflects the higher freight rates observed in 2024, which have materialized primarily in Q1 P&L but are now starting to fade in Q2. Given the ongoing geopolitical uncertainty, volatility in global shipping rates remains a high risk, and we are closely monitoring the development.
Looking more at our adjusted EBIT and trying to visualize what the underlying profit is according to us, we have two items that had a negative impact: around SEK 2 million from trademarks, accelerated amortization, and SEK 8 million from transformation costs. Excluding these effects, adjusted EBIT would have been approximately SEK 42 million. The trademark amortization stems from our previous decision to consolidate smaller own brands into ProWorks, and these charges will run until Q2 2026. The transformation costs relate again to the rollout of our new SaaS systems and mainly consist of overlapping licensing fees and consultant expenses. No internal time is included in the transformation cost. Looking ahead, these transformation costs will taper off as the new tech stack is completed by Q2 2026.
We estimate that this will provide some SEK 30-SEK 40 million in improvement in EBIT on an annualized basis after we have launched our new systems, i.e., from Q2 2026 and onward. Looking at our overhead cost development, we saw an increase of SEK 5 million in the quarter. The main driver was transformation cost of SEK 8 million. Without those, we actually had a decrease of the cost. We also had a positive effect from FX of SEK 2 million. At the same time, it's important to highlight the structural improvements we've made. Since starting our transformation journey, we have right-sized the company by reducing our white-collar work 30% while growing sales by 20%. This means that sales for white-collar FTEs increased with some 70%.
These gains came from working with the basics, getting back to the core, simplifying processes, reducing bureaucracy everywhere, and empowering teams to make faster decisions. I'm extremely proud of what we have achieved in this area, and I'm extremely proud of the team that has really gone through tough times together. We have faced a lot of difficult things together. The EMPS is increasing, and I think that's a clear sign that we are on the right track also from that aspect. Another thing that is worth highlighting is the labor cost pressure in Poland. The wage inflation in Poland, the statutory minimum wage, which acts as a benchmark for overall wage development, has increased nearly 50% since 2022, including an increase of almost 20% last year alone.
Given that almost 40% of our total labor cost base is located in Poland and that salary expenses represent one of the largest cost categories for us, a 20% increase in our largest cost base, as we saw last year, is extremely challenging to absorb. Despite this, we have managed to offset much of the impact through substantial reductions in FTE. Encouragingly, the trend of sharp increases in the Polish minimum wage appears to slow down. In 2026, the forecast is only 33%, but we'll see what happens. Switching to network and capital development, this has increased compared to anemic levels recorded in 2024. In hindsight, we must say that we pushed the inventory levels too low and thus lost attractiveness for our customers. We are planning for inventory levels to remain higher than last year.
This is a strategic choice as greater product availability plays a critical role in driving growth, enhancing customer satisfaction, and improving retention. It is, in fact, the cornerstone of our positioning as a leading category specialist. The significant growth observed in Q1 and Q2 strongly correlates with our improved stock availability and higher inventory levels. This clearly validates this approach. We see a very strong correlation between customer satisfaction and availability. Faster, more accurate deliveries are imperative for a good customer experience. Compared to 2023, we have a much healthier inventory profile with a reduced share of slow-moving items and a higher proportion of selling products. That said, we're not fully yet where we want to be. There remains substantial potential to further optimize our stock and unlock additional growth, as well as accelerating sales on slow-moving inventory, as we otherwise risk high obsolescence in Q4 and Q1, especially.
This improvement is something that we are working with, have been working with for a couple of years now. It is a gradual process. We've come a far way, but we are not where we want to be fully yet. We are still working on this, and we will probably be working on improving this for many years ahead. Looking forward, we are expanding and refining our assortment. We're strengthening our core, we're improving product availability, and we're shortening delivery lead times. Several IT products have already been launched. 2/4 large systems have been launched already. The full rollout of the new tech stack will be completed in the first quarter of 2026. It will gradually go from now for the remaining two major systems, which are the warehouse management system and the e-commerce system.
This will give us significantly better control over product and customer data. It would enable enhanced product information, personalized experience, and a faster, more intuitive website together with a lot of new functionality enabled by the warehouse management system, such as split orders, for example. Together, these improvements will support both customer acquisition and retention. The new systems will also enable us to do a geographic expansion. This has been impossible in the old tech stack and was one of the main reasons for us switching or upgrading the tech stack. We are present in 16 countries today, and we're going to add 12 new countries with fully localized websites. These countries are today served by the .eu domain, and they do not provide, for example, localized language. We think that local sites will unlock future growth potential, and we think that these markets are very interesting to grow in.
We also want to scale adjacent verticals. We also see a good growth opportunity in underpenetrated categories like mountain bike and mobile scooter. We already serve these segments, but with a left hand, so to speak. These can, during the coming years, be scaled efficiently through cross-selling and by leveraging existing infrastructure. That means that we will have limited incremental investments. I think it's very exciting that we have an opportunity to position ourselves for industry consolidation. The European e-commerce market for motorcycle gear and equipment, again, it's ripe for consolidation. The benefits of scale are clear, and it's not a matter of if, it's a matter of when and by whom a consolidation will occur. I think that this should be peers. We have a pan-European platform, and we're uniquely positioned to lead such a development.
Balancing margin and growth, we will continue to prioritize gross profit growth in absolute terms as we judge it to be the best road to maximize both short and long-term profitability and cash flow. While our on-road customer category, being larger and less penetrated, may grow faster than off-road, this shift may impact our margin % negatively somewhat. However, this growth also provides leverage to negotiate better terms with the suppliers, and we also remain very committed to expanding our high-margin private label portfolio. Also, leaving negative cost gear in our rearview mirror is something that I really look forward to. Our transition to the SaaS-based IT infrastructure is well underway. Once the migration is complete, both temporary transformation cost and depreciation will taper off. That will enable us to have good operating leverage from Q2 2026 and onwards. We had a bumpy Q1 with -SEK 11 million.
From March and onwards, the sales look much better. We have kept the margins under control and the cost under control. We don't think that we have that much market tailwind. We hear from all our suppliers that we are taking a lot of market share right now, and I'm very satisfied with that. I remain fully confident in our strategic direction, and I think that I'm looking forward to the autumn and winter with confidence. With that, I'm ready for Q&A.
If you wish to ask a question, please dial #KEY-5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #KEY-6 on your telephone keypad. The next question comes from Eric Thysell from Garn Invest. Please go ahead.
Good morning, Göran. First off, congratulations to a great result. It's great to see that the initiatives you mentioned over a year ago are starting to yield results. My question is regarding AI, which is on many people's minds at the moment. You seem to be like a great benefiter from this shift with regards to your specialist position, as well as in areas such as customer service, marketing, and translations. Could you please touch upon your initiatives within this area per today?
Yes, thank you, Eric. You're absolutely right. We believe that AI will benefit e-commerce versus brick and mortar to begin with. We also believe that it will benefit the specialists versus the generalists. We have taken several steps on the marketing side and on the performance marketing side to adapt to the AI environment. I'm satisfied with the results so far. I think this development is going extremely fast. When it comes to how we are structured, we have a small AI specialist department internally with a few extremely dedicated people. We also have a strategic operation with a company that helps us integrate all different AI tools seamlessly with our existing systems so that we can create the AI ecosystem. We already see some strong benefits from this, both in terms of our software development, but also in translations. We are today translating everything by AI.
We have more than 16 local languages, and we have two translators that are coordinating, so to speak, the AI tool that we have developed. We actually launched this now in Q3. That meant that we also reduced the FTE with the translators that we previously had internally. We have also developed the AI chatbot, et cetera, for customer service. On top of that, I mean, everyone in the company is using primarily ChatGPT today. We have internal educations, et cetera, on how to maximize the benefits from using AI. AI is actually everywhere in the company.
That's great to hear. Thank you. My last question is regarding the private label products that arrived late in Q2. Does this mean that there could be a delayed positive effect on cash flow coming quarters compared to last year?
No, I don't think that that will influence cash flow that much. It came late, which means that we actually have a little bit too much stock of those products. On the other hand, that means that we have something good to sell out, attractive to sell out during Black Month. I don't think that it will impact the cash flow that much. It's not that substantial.
Thank you very much. Again, congratulations to a great quarter.
Thank you, Erik.
The next question comes from Adrian Elmlund from Nordea. Please go ahead.
Hi, Göran, and good morning. Adrian Elmlund here from Nordea. Pleased to see the results. I have a couple of questions from my side. First off, could you provide us a bit more details regarding where we saw the growth rates? We know that we saw strong growth rates outside the Nordics and especially in on-road sales. Have you done anything particular in these markets? How could you sort of explain this growth in particular? Is it kind of new tech assortments? Could you provide us some more color on that?
Yeah, the growth was broad-based. Basically, all markets grew and all customer categories and product categories grew. It was a little bit different depending on the market, and that is related to both, of course, how well we did last year, but also what the competition was doing, the local competition. Since we have local competition in all markets, we're quite dependent on what the local competitors are doing during the time also. We have not done anything special in terms of countries compared to last year. I think the growth is depending on the local market conditions and the competitor actions.
As a follow-up to that question, we've seen some slight increase now in the active customer base as well. What are the reasons behind this? Would you say that it's because the market is improving? You kind of said that the market is not really growing. Is it mainly because of the new product assortments? Or is perhaps your performance marketing yielding results?
I would say that it's primarily the fact that we have a much broader and better assortment stocked in our local warehouse or in our warehouse in Szczecin in Poland. This gives a better conversion rate since the customers see that the delivery lead time is much shorter. We have also been working a lot with our performance marketing. I have not been satisfied in the past, neither with the cost nor with the setup that we've had. We have restructured everything from the bottom and up when it comes to the performance marketing. We've also changed some of the team members. We have gone into a hybrid model where we both have an internal team that does some specific tasks and an external team that does other tasks. This has proved to be successful. The performance marketing is performing much better than last year.
I would say it's both of these things. Primarily, it's a conversion rate thanks to the improved product availability. On top of that, I must say that our retention is also looking good and better and better. That has been a problem in the past. I think that this has been related to, of course, also the basics. Especially, I think that we see a very good result from our customer service, where we've gone from scrutinizing the customers quite a lot to being very generous and fast and focusing on customer satisfaction and retention instead of the short-term economics.
Okay, perfect. Thanks. Another question here regarding inventory. We have an inventory buildup that you have said that you should do for the last couple of quarters. Could you comment on where you expect in sort of normalized net working capital levels ahead? I think we're at 12% now. Also, what can you do to increase stock turnover going forward?
Yeah, this market is a bit special in that we have a very long lead time, so to speak, from when we need to put in the order until we get the deliveries. Both in terms of that we have a very high share of private label with long delivery lead times, but also the fact that there are basically no European manufacturers. All the leading brands manufacture in the same places as we do: Pakistan, Vietnam, Turkey, China. A large part of their sales is collection-based, which means that we need to put in pre-orders six to nine months ahead of the expected deliveries. There are some possibilities to do refills, but that is not offered by all the suppliers. You take quite large bets, and the lead times are long. That means that it's difficult to be precise and to have a perfect stock.
It's also building up a lot of capital that you have, and it's a bit challenging to work with the inventory currents. Having said that, I think that we should be able to improve availability further. We're not fully where we want to be yet. We still have a growth opportunity there. The target for me is not to increase the inventory levels that much or significantly from today, but focus on improving further the availability and the customer experience and the customer satisfaction and the customer base.
Okay, thanks. Last question here. With the major system launches coming up, what kind of risks do we see there? Could you lose out on sales? I assume that the types of implementations always come with a risk of disrupting sales when the kind of changes go live.
Yeah, no, absolutely. I mean, we're basically changing everything, and we're doing everything at the same time. Luckily, we're not changing the ERP years, which is something that I've been done a couple of times in my career. I really don't want to do it again. The two systems that we launched now are a bit different in nature. The e-commerce platform, we can roll that out gradually country by country. We start with our international site, the .com site. We wait for a couple of weeks and see how it works. We go to the new markets, primarily Eastern Europe, and we launch those. There, we basically don't have that much to lose because we're quite poorly represented there through our .eu site, and we have that as a backup in case things would go wrong.
We will probably wait for Black Month and Christmas sales as we do not want to jeopardize that. It depends a little bit how the first set goes. We expect during Q1 to roll out the rest of the markets. I judge the risk there to be quite low, but it's clearly above zero because it's one of our core core systems. Since we can phase that launch in several phases and learn as we go and improve, and we start with a low risk, I don't think it's as risky. Management system, that's a different beast. That's a turn off the old system, turn on the new. That is more challenging. We have a very strong team there, and they are well prepared.
We have decided to delay the launch until Q1 in 2026 to ensure that basically to safeguard Black Month and Christmas sale and not jeopardize that, and also to ensure that we have been able to test everything backwards and forwards, inside and out. We will also have the possibility to turn off the new system and go back to our old system. Since the main risk there will be delayed deliveries, I don't think that it will impact the sales that much, but it might impact the customer satisfaction, which is absolutely core, of course, long term. I think the setback will be minor in that case also. Yes, risk, but I think that we have it under control.
Okay, perfect. That was all for me. Thank you very much.
Thank you.
As a reminder, if you wish to ask a question, please dial #KEY-5 on your telephone keypad. There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
I would just like to say thank you for joining me today, and I wish you a great day and a great weekend when it's time for that. Thank you.