Hi everyone, welcome to this first quarter earnings call with me, Ebba Ljungerud, and you, Joakim. How are you this morning?
I'm great. I'm feeling good. Thank you.
Good, good. We will do this the way we normally do it: start with a bit of a business update that I will run through, then Joakim will focus on the financials, and then we will have a Q&A in the end. I would also like to point out that the images in the presentation that you will see are from various campaigns that we've released during the quarter. Most of them are actually from our outdoors campaign for rugs that work both outdoors and indoors. We have also started playing around quite a bit with AI and to AI-generate the images. There are one or maybe two in there, so feel free to guess which ones when you, when we go through the report. If we start with the business update, we think we have had a very strong beginning to the year.
Super happy with that. Top line came in at SEK 197 million, so that's an increase of almost 12%. Apart from one of the COVID Q1s, it's actually the best Q1 result we've had, so that's very nice. January did start a bit on the slow side, and then the quarter picked up. I think it's fair to point out that the comparables in March are a bit skewed because Easter was in March last year, which is normally not the best sales period for us, but still, very, very happy with the top line. And then if we move over to the orders, they increased by a little bit more than 17% compared to last year, to almost 97,000 from 82,000. And here you can see the quarterly order development.
The top one is quarter by quarter, and the bottom one is rolling 12 on a quarter level, so to speak. You can see that this is not news to those of you who have followed us for a while, but we are growing quite consistently on orders over time, which of course we are very happy with. Customers also grew, 69,000 compared to 60,000 last year. Actually, both orders and new customers were an all-time high for the first quarter in the year. Also strong numbers. You have heard me talk a lot about average order value. We came in almost flat quarter on quarter, and down 3% year on year. Here you can see the development over time.
What we have done is we've done a lot of changes on the site during the quarter to mitigate the drop that we've seen previously. We've also consistently really worked with how we plan our campaigns. I think we will continue to work with this, but I think it's important to point out that this will shift quarter to quarter because it does depend a lot on what we do and how we plan both discounts and how we plan campaigns and what types of rugs we have in the campaigns, et cetera. If we move over to the profitability, we had a gross margin of 64%, which is higher than normal, and it comes from stronger fundamentals, really. We had a decreased marketing spend, 29% compared to 30.5% last year. In Q4 last year, it was almost 33%.
This is something that fluctuates, quarter by quarter, so it's not a consistent, sort of downward trend. It is also true that over time we are trying to reduce this a little bit, even though not huge amounts. Also important to look at is that our sessions on site increased by 53%. This comes from the shift that we are in the middle of and still working on, optimizing, where we have gone from being very, very close to the customer, doing a purchase, to being much higher up in the funnel. This really, in reality, means that we have shifted from more or less only being in search engines to being on much more visual platforms as well, like Meta, Pinterest, and TikTok, ee cetera., and also really changing our ads and the formats and making them more visual over time.
and then this led to an EBIT of SEK 27.2 million compared to SEK 20 million last year. That is a margin of 13.8%. The improvement is actually 36% compared to last year. Also very happy with that. If we look at the market, consumer sentiment is still actually decreasing in several of our main markets. If we look here, this is just a snapshot of three markets. Sweden is backing a little bit. That is the top one. Germany also. France is quite stable. I think this is something to be aware of, and it is of course something that we do pay attention to. It is of course connected to the general uncertainty in the world that we are seeing.
What we are doing is that it becomes even more important for us to be active in choosing where we push sales efforts and marketing efforts and what markets and how we balance what we sell and what rugs we sell to get the best ROI. On that note, I've said many times that we have seen that customers trade down when they come onto the site. This is still, in some cases, true, but it really depends on what type of rug and what type of customer. We have seen a shift that we sell a lot more handmade, and that comes from more visually driven customers. That really helps with balancing the AOV for this quarter. If we look a little bit more on our focus areas, the move is coming up.
We've been talking about this for what, two years now?
Yeah.
It's a very big move. Of course, the warehouse is the big move, so that will happen. We'll start early June with that. Then the office will move later in June, but that's, of course, a smaller part of this very big project. We are moving to a lot more automated processes, et cetera., in the new warehouse. We are also currently undergoing a lot of training and looking over how we work and so on. We are continuing to refine our assortment, both in reviewing the total range, what we have and what types of rugs we have. Also, we are being a bit more cautious in expanding our essential range, which is our cheapest range that we have.
Customer journeys continue to be a huge focus for us and will continue to be a huge focus for a long time ahead. Being in the whole vertical means that we have a lot of different customers that want to buy different rugs. The importance of guiding them to end up on the right part of the site is super important. We can do this a lot by what we market and how we market and our search functions and the CRM, but there is still a lot of work when it comes to personalization on site and localization that needs to be done. You will hear me talk about this for a long time. You will hear us talk about it. Last but not least, I want to mention our customer KPIs that we continue to be very, very proud of.
Here you see the development. This is Trustpilot. We did a shift in November, where now we split. Before, everyone just got the question, how do you feel about the whole purchase experience? From November, we actually split. Half of the questions go, what do you think about this specific rug? and half go to what do you think about the whole experience? This gives us a better indication on, for instance, qualities that are great or less great. It gives us more granular feedback, which is really good for us. That also means that we are now pushing more of the customers, and hence you only see the Trustpilot score here, to answer this. We get more input and more feedback on that. With that, over to you, Joakim, and some financials.
Thank you, Ebba. First, before the financials, just a quick comment on a change we made to the interim report. Previously, we reported our performance across three segments, as you know, B2C, B2B, and MPO. Starting this quarter, we're presenting a single consolidated group segment. This change much better reflects how we managed and reported the business internally. Now moving on to the financials, Ebba already took you through the underlying order growth, average order development, and more, and mentioned that we delivered a 12% increase in net revenue. The regional breakdown you see to the right is representing 100% of the net revenue and not just as before in the B2C segment. DACH grew by 14% with Germany alone up 13%. The Nordics continued to be our fastest growing region with an increase of 19%.
The rest of the world increased by 8%. The slightly lower growth here is mainly due to a 5% decline in France. That is our largest country in that segment. If we exclude France, the rest of the world region grew by 12%. Next, looking at profitability. We have seen a clear improvement in variable cost, which has driven the increase in both EBIT and EBIT margin. Product expenses are flat year on year, almost a slight increase, while shipping and other selling expenses are down by 2.3 points, mainly due to lower freight rates and a more favorable freight market. As a result, our gross margin has improved by 2.4 percentage points, reaching 64%. We have also increased marketing efficiency, reducing spending by 1.5 points.
At the same time, we had incurred around SEK 1.6 million in costs related to the move to our new warehouse and office building and non-recurring costs. Still, total external expenses are 2.1 points lower than last year. Personnel costs are up by 0.2 percentage points, but on a comparable basis, they are actually lower. This is because some personnel costs were capitalized last year, whereas this year they are fully expensed. Other operating expenses include exchange rate effects from revaluing assets and liabilities. As you have seen, there was a significant SEK appreciation during March against most of the currencies. Depreciation and amortization have increased primarily due to the start of amortizing our webshop from the end of quarter two last year and due to the indexed rent increase on our leased properties.
All in all, if we sum this up, we have achieved an EBIT margin of 13.8%, up 2.5 points year over year, even after absorbing a 1.4 points negative currency impact. Now on to inventory. Inventory levels are in line with both last year and year-end and remain within our target range, although slightly on the lower side. This is intentional. We are managing inventory tightly ahead of our upcoming warehouse move. Also, if you visit our web-shop, you will see that we have a clearance sale ongoing. The purpose of that is to reduce stock further before we move to the new facility. Last but not least, a few comments on cash flow and cash position. Cash flow from operating activities is down compared to last year, primarily due to a less favorable effect from working capital, mainly driven by the timing of tax payments.
In terms of investing activities, you can say we have shifted the type of investment. Last year, investment centered around a capitalized development cost for our web-shop, as you know, and this year we invest in tangible assets like machines, equipment, racking, et cetera., for the new facilities. We continue to have a strong balance sheet with SEK 222 million in cash. Looking ahead, we have the planned dividend payment in quarter two, pending an AGM approval, of course. We are also continuing investments in the new warehouse, where we previously communicated an investment of a total of SEK 55-SEK 60 million. So far, we have invested SEK 12 million in the last six months. You see the SEK 2 million here and SEK 10 million in the prior quarter. We are also entering the lower season, during which we will build up inventory for the coming high season.
Yeah, I think that's a very important thing to point out, that because of the move.
Exactly.
We are a bit not low, but on the lower end. We do plan to ramp up.
Exactly.
Late summer and early fall.
During the low season. All in all, I think we are in a very solid cash position to support these upcoming activities.
Mm-hmm.
Twelve percent on top line and margin that is higher than we usually deliver, lower marketing cost and other expenses overall in line with what we have planned, drives a good EBIT and EBIT margin increase. Ebba, with that, I'll hand it back to you.
Okay, great. Thank you, Joakim. Even though a bit of an uncertain world, we see a promising start to the year, with an all-time high in both orders and new customers for the quarter, I should be clear on. You said it already, Joakim, but top line is up 12% and EBIT is up 36%. AOV is fairly stable, although it will fluctuate over time. Tough world still for many of us, but we did manage to balance the assortment and the country mix really well to drive the results in this quarter. We continue to focus very, very much on the customer, the journeys on site, especially how and where we build differentiators depending on what type of customer one is and where one wants to enter the site. Still a long way to go, but lots of stuff going on there.
The assortment is now in the middle of summer, spring-summer 2025, that season. You see here, one of our outdoor rugs. We have seen a really nice development of that range. As I said before, handmade is also growing a lot, and this is very much due to both the assortment itself and how we plan and push in our different channels and on site. Last but not least, we have our AGM on the 21st of May, where all owners are welcome. It will be in Malmö. Normally we have it in the office. It's almost like a party in the office, but this year, due to the move, it will be with Mannheimer Swartling, close to the central station in Malmö. It's at 11:00 A.M. on the 21st of May.
For any owner who's interested in coming, all the details on how to sign up is on our website. I think that's it for the presentation. Now we move over to a Q&A if we have any questions.
To ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Benjamin Wahlstedt from ABGSC. Please go ahead.
Good morning, Ebba and Joakim. Well done this quarter. You speak about changes to your site that supports the AOV development. I was wondering if you could give us a bit more flavor on what these changes are, please.
I've said this before as well, we're not, it's not a silver bullet, this thing. It's many small things. One very important thing is what types of rugs we push. For instance, outdoors tend to have a lower AOV than many others. So then we try to balance that with campaigns for more expensive handmade rugs. On the site, if you go in and look at the site, you can see that we have changed to what we refer to as nice price, which is a different rounding of the prices. Is that rounding? You, yeah.
Yeah, it's a rounding.
Yeah, a rounding. The point of that is that we are a company that works in the design part of the world. We want things to look nice, hence the price, the nice price name that also had a small price increase in it.
Exactly.
Yeah.
We didn't round downwards.
Yeah. The other thing that you can see is that the rugs are now, again, something we refer to internally as clustered cards. You see one rug in one shape, if you will, rather than seeing every single rug, which means that we can show a much larger assortment to someone who comes in, and then you could choose both color and size once you enter the product page. Continuously, we also today work a lot more actively with our algorithms, what we present, where, and how on the site. Those are a couple of examples of things that we are doing.
Perfect. Thank you very much. Another question on the AOV, perhaps just to clarify, you comment that you expect seasonal changes to the AOV from here. Should we also interpret this comment as you stating that you are confident that the AOV trough is behind us?
I don't know. It depends what we decide to do. I'll give you an example. We are moving, so we want to make sure that we don't take with us a lot of rugs that are discontinued lines. That then means that we drive discounts for those rugs. That, of course, affects the AOV, downwards rather than upwards. I think the thing to keep in mind, and the thing that I think is important, is that we make conscious choices around this. If we for some reason decide to, as in this case, we want to do discounts because we want to not move these rugs, it's still a conscious choice. It's not something that just happens, so to speak. I think that's maybe the thing to take with you.
Do you, is that a good answer, Joakim?
Yeah, I totally agree. It is probably more about our conscious choices than it is about the total economic environment.
Yeah, exactly. We affect it.
Yeah.
Perfect. And a follow-up on that then, what do you see in terms of consumer behavior as it relates to discounts, compared to, say, a quarter back or two quarters back?
Yeah, I said it, or I touched upon it. We do see that, historically, we have seen a lot of trading down on site. We do not see that in the same way. We see that it depends also a lot on what and how we push on site. There is a difference there for sure.
Perfect. Thank you. One final one for me. I was wondering if you could give us an update on expected costs related to the warehouse move in total.
Yeah, we haven't communicated a number on how much that will be. We have incurred SEK 1.6 million in quarter one, which is in the early stages of the move, but we haven't been clear on how much the total will cost. I guess as investors and analysts, you will still regard those as a non-recurring cost.
Sure. Yeah, I just thought if you had, if you had a number, now that.
No.
Some of the transportation.
No, sorry, we haven't. No, we don't do that.
All right.
We can tell you, Benjamin. It's a single-digit million.
Yeah. Perfect. That's all for me for now. I'll get back in line. Thank you.
Thank you.
Thanks.
The next question comes from Emmanuel Janssen from Danske Bank. Please go ahead.
Good morning, Ebba and Joakim. Thank you for taking my questions here. I'm just curious, is it possible, I mean, quite impressive growth here with 12% organic growth. Is it possible to maybe give us some commentary on the overall market development? I know it's hard to say a general market growth figure, but I assume that you have at least seen what competitors have been doing this quarter, gaining market shares, would you say.
The truth is we don't have market numbers on an aggregated level. It's more we can see in certain countries, etc. We think we are probably gaining a little bit of market share, but we don't have exact numbers. It also varies a lot from market to market, is fair to point out. It's not like it's growing everywhere or anything like that. Do you have anything to add, Joakim?
No, I think we don't have much of market numbers. What we do see, both in quarter four and in quarter one, we saw different types of surveys that were indicating that the intention to do discretionary spend as a general, was going down. I think in light of that, the order growth of 17% and 12% net revenue is, we are quite happy with that.
Great. You mentioned the handmade rugs. Is it possible to state on the growth in this quarter of handmade rugs?
Sorry, what did you say? Is it possible to?
How much handmade?
Yeah, to give us maybe growth, how much they grew?
No, we don't disclose on that level, unfortunately.
Fair enough. No, no worries. I mean, looking at the order growth here, 17%, I know maybe a little bit more easily comparable last year. Do you think, I know as well there is a balance between AOV and orders growth, but I mean, going forward in the short term, you are able to keep up with this orders growth now in the recent two quarters going ahead?
I mean, it's hard to respond to because, of course, it depends on what happens in the world and since we don't really give indications going forward. We do see a lot of effect from our, at least if I talk backwards, so to speak, we see effect from that we are changing our marketing mix and that we are more visual and maybe more embracing the fact that we are selling a design product to many customers. Some of our customers are mainly interested in getting a rug to keep their feet warm, but a lot of customers are interested in enhancing their home, so to speak. I think there is something there, but of course, it's hard to predict the future, especially now. I don't know if you want to, do you want to?
No, and what you mentioned before there also, Ebba, I mean, we are making some conscious choices to do some clearance sales, not to move as much stock to the new warehouse. That will, of course, also affect the average order value.
Yeah. Perfect. And lastly, maybe can you give us some commentary on the trend within the quarter? Did you see a high growth in January or in March, et cetera?
Yeah, January started slowly for us, and then it, the quarter ended, much better. As I said before, it's just to remember that March had very easy comparables because Easter was in March last year, or relatively speaking, easy comparables maybe I should say. Now, of course, Easter was in April this year.
Yes.
Okay, great. For now, so thank you very much, Ebba, Joakim.
Thank you.
Thanks. Bye-bye.
The next question comes from Johan Fred from SEB. Please go ahead.
Hi, good morning guys. Thanks for taking my questions. A first one on your marketing investments. Marketing spend fell as a percentage year on year, and was relatively flat in absolute terms. Could you just elaborate on what changes you've done to your strategy, as you mentioned in the report? Do you see these changes as a sort of a structural shift, or is the lowering marketing spend in the quarter more relating to Q1 specifically, if you get my question?
Yes. Let's see. Let's start with the strategy. The big shift is this being higher up in the funnel. Since we are seeing that we get the effect we want from this, we will absolutely continue. The other shift I would say that we have done that we will also continue is to be more conscious in the choices in what countries we invest in. Historically, we've been a bit more driven by we want to be big in country X or country Y. Now we're more driving towards here we see the best return on investment, balanced with that this is an important market for us. It's not crazy to think that the big markets are relevant, for instance, but more of an active balancing work there. That was the strategy. Then you said, is it a structural?
I would say the percentage is probably a little bit low compared to what we think the trend for the year is, because Q1 is a little bit of a cheaper quarter than, for instance, Q4. Yeah.
Yeah, like you said, Q4.
Got it.
Very clear. Yeah, okay.
Yeah, please, Joakim, continue.
Yeah, I was just going to add in what Ebba mentioned before, that still, the long-term strategy to bring these costs down as a percentage is still there, but that quarter one might not be the new level, so to say.
No, no. Got it. Very clear. Thank you. The question on sort of the outdoor category or the outdoor seasons, have you seen any change year over year in the demand for these products? When this hit, so to speak?
I think the short answer is yes, we have seen a change, but it's not super easy to know if it's because we have become a lot more active in that category or if it's actually a consumer demand. I think we have continuously for the past three years, three, four years, grown this assortment and really put more effort into the designs and also the presentation of them. It is a combination, I think, of what we do ourselves and that it's also a trend in people's lives to have rugs outdoors as well as indoors.
Yeah. Looking at the year-over-year trend, did you see the outdoor season starting earlier this year?
It started a little bit earlier this year, but again, we started the campaigns earlier. It is also likely that it is driven by us starting the campaigns earlier.
Yeah, just a week. So it's about, yeah, so it's about the same. Yeah. Okay, okay. Fair enough. Thank you so much. The final one on Germany then, return to strong growth in Q1, albeit against pretty easy comps. I guess you've answered this question maybe in your previous answers, but is there something that you've done differently in Germany, or is this the result of sort of an overall market improvement? What are you seeing?
We are doing things differently in Germany, both in terms of the mix in channels and also what types of rugs we push. We are actively externally in our marketing pushing slightly more expensive rugs. We think that helps driving the growth. In terms of the sentiment in the country, we do not see huge uptakes of the sentiment, the general sentiment in the country, to be honest.
More so on, on better strategy on your part, you would say?
Yeah, yeah, or more conscious at least.
Got it. Thank you so much for taking the time. Those were all of my questions.
Thank you, Johan.
If you wish to ask a question, please dial pound key five on your telephone keypad.
Okay. We have an activity feed here with the written questions that have come in, so I can read them up. We have a question here from Filip, and that goes, with your current strong cash position, what strategic opportunities do you see for deploying that capital going forward?
Do you want to maybe repeat what you?
Yeah, I was mentioning that, while the dividend is coming up in quarter two, pending the AGM approval, we're also having these investments bigger than ever. You know, a normal year we've invested what, two, three, four million in tangible assets apart from the web- shop, and that is now SEK 55-60 million. So we've got quite some spend coming up there. We also have going into the lower season, and we have consciously taken down inventory. So, there is a lot of cash that will be needed to build up inventory for what we hope will be a strong Q4. We have quite some cash going out, in the plan already. That was not the question though. The question was, what strategic opportunities do you see for deploying that capital going forward?
If the question is, are we doing mergers and acquisitions, we have said that we currently see so many opportunities where we are.
In our own world.
Yeah. We can drive initiatives to increase sales, increase top line, increase profitability without having to pay for an acquisition. That is the current strategy.
Next one is from Sebastian. Is the scale down, scale of inventory due to the movement of the warehouse affecting gross margins for the rest of the year more than in Q1? No.
No, of course, sellout will affect the gross margins. Quarter one was an exceptionally good quarter, but that it would take a major hit to the gross margin over the coming quarters is not likely. We have a question from Alexander. Gross margins, impressive gross margin in the quarter. Any reason to not extrapolate this level going forward?
I think it's worth pointing out that the biggest effect comes from freight costs. It depends both on what countries we ship a lot to, where it's different costs for different countries. You know, we don't charge for returns and we don't charge for shipping. I wouldn't maybe extrapolate the whole thing, so to speak. Of course, we are not actively driving to increase the freight costs. Is that a?
Yes.
It is high. That's worth pointing out.
Yeah. Also, in addition, I mean, the product cost is going up. What you have seen lately.
Yeah, that's very true.
It's going up and down. What you've seen lately in the currency markets is that, pre-Trump, it was 1.0678 for euro versus dollar. Then Trump got elected, it got down to 1.02. That's a number of percentage points there. Now it's 1.0, I don't know, 12, 13. The dollar has depreciated a lot. Of course, depending on when we make our purchases, how sustainable those movements are, we have a net outflow of U.S. dollars for the purchases, and we have a net inflow of euros. That affects our margins. We are very fast in responding to that in terms of making price increases if required. You know, the lead time we have for implementing a price increase is probably a day or so. We can respond to those changes very well.
We hope that answers the question. We have a question here from Tobias Kastenhouber. Can you give us an overview about which currency you purchase the rugs? Is it euro or U.S. dollars? The answer is yes, it is euros and U.S. dollars. If you are more interested in our net flows in the different currencies to see our exposure, we have note 16 in our annual report. We have about SEK 100 million in positive inflow in euros and slightly less than that in negative outflow of U.S. dollars. Given that we only sell 7% of our sales in Swedish krona, we have 93% of our income basically in foreign currency.
You can conclude from those numbers that we have a pretty good internal hedge, meaning, we get a lot of incomes in euros, but we also spend on freight and marketing and so on in euros. The net numbers are not that big, although we may be impacted from it from time to time. That was the last question, I believe.
Was there one more up there? How did you manage to grow sales 13% in Germany? We've seen from other online retailers in various segments that the German market has been very challenging. We touched upon this before, but it's quite connected to that we have pushed in different channels and we have pushed more expensive rugs would be the short answer to that.
Okay.
Yeah. I think that's it, right? From a questions point of view, no more. We say thank you very much for listening in and attending. Thank you, Joakim. I look forward to speaking to you for the Q2 report if you're not at the AGM, and that will be on the 14th of August.
Yes.
Yeah. Thank you very much.