Earnings Call: Q2 2024

Aug 23, 2024

Welcome everyone to Sunstad Group's Q and A session as we release the interim report for the Q2 2024 this morning. My name is Frieda Laim, and I'm Head of Investor Relations at Sensen Group and the moderator for this Q and A today. I'm joined by our CFO, Per Hedblom and our CCO, Jaime Ingstrom. Those of you watching this live can ask your questions in your YouTube chat, and we will try to answer as many questions as possible during this Q and A session. We have also our analysts from Citi joining us. So I would like to hand over and welcome Birnika Dubajeva from Citi. Excellent. Good morning and thank you, team so much for making the time for our questions this morning. Maybe we can just start high level, if that's okay. And I'd love to understand what you are seeing from a sort of customer consumer macroeconomic perspective. Obviously there's been a lot of noise in the market around the health of the consumer. Your results this morning seem pretty interestingly resilient. I know you've talked about the business being resilient, but maybe if you can us update a little bit on what you're seeing on the ground, that would be a great starting point for the conversation. Yes. No, it's a good question. I mean, we still see that we are in an economic downturn and the consumer sentiment is the same basically as the quarters the previous quarters. But despite this, we are performing very well again in Q2. And as you mentioned, we believe that we have a resilient business model for this and a strong underlying demand for our services. Okay. And have you seen any changes in terms of consumers' willingness to trade up, pay for premium products? Or do you still feel that kind of there is willingness to invest into good optical technology if it's available and sold appropriately? Yes. I think that's I mean, that's what we mean by resilient that consumers tend to prioritize our solutions and offerings. But then of course, what will happen going forward if interest rate decreases, we there might be a lag as well. So I wouldn't say that one would talk about it trading up really. But that is resilient, we have really seen, I would say. Okay. That's very helpful. And then maybe while we're on the topic of the consumer, obviously the subscription business continues to grow well, but the churn rate keeps increasing. And I'm just curious what you think is driving that growth in the churn rate both year on year and sequentially from Q1 to Q2? Yes. No, I mean, the churn is stable as we see it, but we saw a slight increase this quarter. And I mean there is a part of it basically that it can be vary quarter by quarter. And for us, it's very important to always work with the customer satisfaction. And we see that in the lifestyle program, the NPS is higher and the lifestyle subscribers are typically more satisfied. But this is something that we, of course, follow closely and we work continuously to develop the subscription program in order to improve it even further. But we see it as stable but slightly higher this quarter. Okay. Okay. So there is nothing kind of specific we should be reading to it either when it comes to the health of the consumer or attractiveness of the program to the consumer, you wouldn't say? No, we wouldn't say that. It's of course, we always want the churn to be low. But we wouldn't see any sort of consumer sentiment specific factors in this really, not today, I wouldn't say. Okay. That's very helpful. And maybe we can kind of dive into things country by country. And certainly, I was pleasantly surprised by Denmark. Would you agree with that? And I guess maybe what is happening? Obviously, we've had this headwind from the credit legislation changes. You know, are those dissipating? Is this the mitigation efforts that you've put into place or something else happening there that sort of really drove that surprise on the Danish side? Can you start? Yes, I can start. Yes, yes. Well, I mean, we've always said that this consumer regulation change, the effect would be mitigated over time because consumers would start to learn that this is how it works in Denmark right from now. And also our employees get used to it and things will settle down. And we see that that has maybe started to some extent. Also our Danish organization have, of course, worked very hard with delivering value to consumers. I mean, when we've had this headwind, they really focus their efforts in a good way, we believe. We also look at, I mean, measures we are taking, which are starting to yield results and we will continue with that is to broaden our assortment, move stores to improve our offering. We have still too many small stores in Denmark, and we want to expand our store area, so that Denmark, Danish stores will be more similar to the attractive stores we have in Sweden and Norway and Finland. That has not always been the case, and we are in the beginning of that journey. That was a long answer. Do you want to add? Yes. No, the only thing maybe to add is, I mean, we have a strong presence in Denmark as well. And the management team and the Danish organization is doing a fantastic work. And it is impressive to see actually that we are coming in with a record quarter in Denmark in Q2 despite being in an economical downturn. So we are thinking that what we're doing in Denmark is working. And when we see that the actions that we are taking are exactly the right ones to improve even further going forward. Okay. Okay. That's helpful. And do you think we're now back to positive growth trajectory for Denmark for the rest of the year? Or is are you confident in that? I would say we can't give sort of forecasts that way. But it's I mean, this year up until Q2, we have had sort of a quarter, so we compare to a situation before the regulation changes. From Q3 and onwards, we will compare apples with apples, if you understand what I mean, with sort of the regulation changes came into effect 1st July. So the comps will be different in a positive way. That's what we can say. Understood. Very clear. Okay. And then switching to the other countries, I guess, I know you talked about in Sweden that there's been a bit of tension in the media on the subscription program and folks having some misunderstanding around whether they get to keep the spectacles after the program ends or not. Was that a factor at all in Sweden? And do you feel that you have now built a better understanding of what, you know, how the program works in Sweden? I mean, if I start, I mean, the important thing for us is to deliver customer value. So that is what we're focusing on and that we believe will yield results. And also ensure that our employees are confident when selling lifestyle despite what is the media attention. Then we need to take, I mean, customer satisfaction, we take it very seriously. And that is our recipe, I think. Yes. No, exactly. And I mean, we, of course, follow this, and we are humble and always want to improve the customer satisfaction in every single customer case. So that is, of course, very important. But as we said previously, we also see that we are approaching now 800,000 almost subscribers in total, And we have a strong NPS among this group, which is, of course, very good. And in Sweden's case, I think also we are still a bit constrained about regarding the capacity in the stores. We work a lot to improve this. So that is maybe the most important task in the Swedish organization to increase the capacity in order for us to take care of all the customers that wants to come to Sunsoft. Capacity in a second because I was going to talk about the new store openings first and then about the efforts to increase capacity. So maybe just looking at the new store openings, impressive quarter, 13 new stores. I think you did 9 in Q1. You're planning another, I think 9 or 10 if I remember from the press release for Q3. Correct me if I'm wrong, by the way. Clearly a strong year. Maybe comment on how the store openings are progressing, how important they have been as a contributor to growth? And are you able to attract opticians and sales rep, sales staff to work in the stores how it is going? Yes, exactly. Should I start again? I mean, yes, of course, no store openings is one important part in our growth story. And that's why it's important that we keep momentum. And we have set out this goal to establish 90 new stores, 24 to 2026. However, I also want to point out that the like for like growth was also reasonably high in the quarter. So with 6.8% April to June. So we are not I mean, we need to have and we want to have and we do have a strong like for like growth as a base. And then the new store openings comes on top. But of course, new store openings are one key component to achieve our organic growth targets. Yes. And Per, should we be thinking that this year we will do more than the 30 stores for the full year? Is that a fair working assumption? Well, mathematically, that will be the case if we have communicated 9% to 11% in Q3. So that would be above 30%. So that mathematically, yes. Okay. And is this a catch up on 2023 or is this more a pull forward from 2025? How should we think about that? Well, since we have a target, we have a target of 90 stores. And if we exceed that in 2024, I mean, we maintain that target. So there may be some pull forward from 2025, 26, I would say. So we haven't moved that target of 90 new stores. Okay. That's helpful. Excellent. Very good. And then what about the capacity efforts that you have? And Jimmy, you touched upon that. Give us an update on how you're getting on with that and how much longer you think it will take until you are not capacity constrained in Sweden? No, I mean, we are continuing to work with the iVIEW program. So we are increasing our capacity from that quarter by quarter, month by month. So we have a good progress there. But on the other hand, we have also a growing subscriber base and more customers wanted to come to SunnSim as well. So we are not there yet that we are all the way where we want to be regarding the capacity. But we're going we're increasing quarter by quarter in a good pace. Okay. And any kind of negative feedback you're getting either from customers or from opticians around IView? Customers are generally more satisfied when they do an IBI exam somewhat more satisfied than in a regular eye exam. Opticians? Yes. And but with that said, we have typically high satisfaction rate in when we are conducting eye examination. So but in both cases, it's very good. But it's slightly high even in the eye view when we measure it. Okay. Okay. That's helpful. And then maybe final question before we move to the rest of the P and L, just around the Easter effect. I think you called it out in Norway specifically, but how much of a contributor to organic growth was that for the group? I mean, for the group, I mean, we how should I put it? As you know, we achieved a 10.7% organic growth in Norway in the second quarter. And for the first, we had SEK 4,200,000,000. And I mean, there's quite a lot of fluctuation and some of that fluctuation, some of it can contribute to the Easter effect. Okay. But I mean, since Norway is just one of our markets. I mean, the total effect will not be I mean, it's like around 20% of our total net sales. So if you have a few percentage points in Norway from East Coast. Yes. And you take that times 20%, then we it will not be a large effect on the overall. It's net of total. Okay. And no Easter impact in any of the other regions, it's just in Norway because of the time that people take off, yes? Not too significant, no. That's how I communicate Norway specifically in Q1. Okay. Okay. Thank you. Well, maybe we can move to the rest of the P and L. And I guess my biggest question this morning from the print was when I look at the EBITDA, it's actually not about the divisionals or the regional performance, but it's about the central cost items, which were actually positive versus, you know, dollars 18,000,000 plus $18,000,000 whereas normally they run at sort of a negative $20,000,000 to $30,000,000 there. Can you help us understand what happened there? What drove that swing? And is this a new sustainable number or are there some one offs here that we need to be wary of? Yeah. I mean the central element can say so both central costs and some central operations as well as central revenue. And in the quarter, we had some positive effect from our vendor agreements. We do have some contribution from vendors which belong centrally rather than in the countries and that had a certain positive effect. And we also had sort of internal profit when we sell from the Central Warehouse to the stores. When we have to adjust to that internal profit that affects Central and that was positive this quarter compared to negative last quarter. So that how should I put it? That I mean, we I would frame it like this. We had a quarter when a lot of positive factors were lined up centrally. So that's sort of a message I will give regarding that item. And are these one time effects? So the income you have from the agreements, the shipments from the warehouse to the regions, are these one timers? There's something unique about them this quarter? Or is this the sort of new normal that we should be thinking about for the business going forward? I would like to put it in between. Because when you say one off, it means like it won't happen again. New normal means that you should count on this every quarter. I would say, we will always try to get good results, both in countries and centrally. This quarter, we were quite successful on all points, I would say. That's all I can say at this stage. Okay. Okay. Understood. And then when we look at the regional profitability, any particular country that surprised you when you looked at the Q2? Not surprised because we have a plan, but we believe it's positive that Finland is moving in the right direction also in terms of profitability. I wouldn't say surprise from our side, but we want to hide that as well. Okay. That makes sense. That makes sense. And maybe just brief word on sort of input costs and wage growth. Just remind us what you're seeing in the market. I'm thinking from your suppliers, are you seeing any pressure from them, any price increases either in lenses, frames, finished spectacles? And then likewise, when you think about wage growth, obviously, you have iview that's helping you manage capacity, but obviously, what are wages growing at? If you start with wages, I mean, we have opticians and non opticians. And we have collective bargain agreements in our countries. And that is we I mean, we follow these agreements and it's a fixed percentage. So that's nothing dramatic. Opticians, I mean, there's still sort of some shortage regarding capacity on opticians, which has some impact sometimes on personnel costs, also use of optician consultants. Regarding wages. But that's nothing new that has been the same for a long time. That's it. Okay. Input costs, do you want to add anything? Yes. Regarding input costs, I mean, we in 2022 and the period after that when the inflation started, that was when we, of course, experienced the biggest part of that. But we're always working with the negotiations and everything to keep good terms. And we think we have a good supplier mix that enables us to do this, but still ensure that we have the best and most attractive assortment. Okay. Okay. Excellent. I think this is it for me. So Frieda, I will hand it back over to you for now. Thank you. Thank you, Veronika. Great. We have also a couple of questions in the chat. So the first one goes, what can you say about the Norwegian market in the second quarter? And what do you see looking forward? Yes. So what we see in Norway is that we are having a good momentum, as was right in the report, and that we have performed well despite also Norway being impacted by an economical downturn. And so in that context, we see that we are performing strongly in Norway as well. A second question also regarding Norway. The cost saving program had a positive effect in Sweden and Norway. How comprehensive have the program been in Norway? And what effect have you seen? Well, first of course, program affects both central costs, the Swedish operation, number 2, and then Norway, number 3. And in Norway, it's mainly about increasing efficiency in certain selected stores. So it's important to maintain and increase profitability in Norway, absolutely. But it's very targeted to certain stores where we need to increase efficiency basically. Thank you. So it's time to wrap up. But before we do so, something anything you would like to add before we I think we can summarize that we are conducting a record quarter despite being in an economical downturn. We are performing well in all four countries. And that we see and we believe in our strategy and our value creation agenda, and we look forward to continue to work with that also in the quarters ahead. Great. A big thank you to Panjimi and to all of you who watch this Q and A session live. See you next time. Thank you.