Welcome everyone to Simpson Group's Q and A session as we release the Intro Report for the First Quarter twenty twenty five this morning. My name is Frieda Lem, and I'm Head of Investor Relations at Simpson Group and the moderator of this Q and A. Today, I'm joined by our CFO, Per Hjad Blom and our CCO, Jimm Engstrom. Those of you watching this live, you can ask your question in the YouTube chat and we'll try to answer as many questions as possible. We have also our analysts from joining us.
I would like to hand over to Yang Yang from Citi. Welcome, Yang. Hi,
thank you thank you for hosting the call. I'm just going ahead and start with the first sort of big picture question. Would you be able to give us a roundup of what you're seeing in different markets that you operate in, any country in particular that might have changed for the worst or for the better in terms of consumer health in Q1? And any change that you are anticipating for Q2? Thank you.
Yes. No, what we have seen is that the consumer sentiment is similar to what we've seen in fourth quarter. But of course, the consumer confidence indexes in all countries basically has been impacted a little bit in a decline way given the increased uncertainty in the world.
And I want to flag Denmark specifically because I saw in the press release you mentioned weaker consumer. Is it related to the consumer index that you just mentioned? Or is there any sort of further color that you can provide on a potential sequential deceleration?
I mean the Denmark is a challenging market in general, and we are addressing that by improving our store footprint, not number of stores really, but larger stores. We have had historically too many smaller stores, and we are expanding our store area. Copenhagen is a specific case where we also add more stores, for example, flagship stores. So that's how we address the consumer market in general. In the first quarter, we were impacted though by application of the regulation regarding creditworthiness assessments, are technical, but really, it's something that had an impact when it was introduced.
The new regulation affects Lifestyle customers. And when it was introduced, this regulation, it affected new sales of our lifestyle subscription. From the first quarter, the application of these rules mean that also prolongings are affected, and that has had a negative impact in Denmark on top of the general weak consumer trend.
I definitely want to ask you a little bit more about Denmark, but maybe I will save it for a bit later when I want to go through the different countries. But still saying, you know, staying at the group level, I'm looking at the churn rates, which has been holding steady sequentially. But if I look at a bit longer back, the last few years, it seems to have drifted from a number that is closer to, say, 2% before 2024 to a number that is inching towards a 3%. Since then, is there any particular reason that has been driving this drift? Is it a natural function of the lifestyle and space growing?
Yes. No, I mean, the churn has come up. And parts to that is, of course, the more the technical pattern coming from the cohort development. But I think in the context of churn, I think we also need to go back to the sort of the fundamental of the business. I mean, after all, it's a vision correction that we are addressing with our products and services.
Those vision correction needs are typically lifelong, meaning that even if you sort of churn from the subscription, you will still be in need for optical products and services in the future. So if a customer has churned from the subscription, eventually when their vision change, they damage or lose their pairs or they want a new design, they will come back into the market again. And then decide, of course, do they want to go to Sam? And if they go to Sun Sam, will they buy cash or a subscription? So we also see that a large number of the sort of the churned lifestyle subscribers, they're coming back to Sunsum and then they purchase again either cash or subscription, roughly fifty-fifty.
Understood. And is there any sort of targeted churn rate or aspirational churn rate if you think of a longer term?
Okay. Aspirational churn rate, of course, we wanted to go down. That's without doubt. If you look at the trend and where it will plateau, it's too early to say. But I mean, all what we can say is we're taking measures to mitigate churn.
And at some point, it will plateau. We haven't communicated the exact level yet.
Got it. And now thinking about store openings. So I saw in the press release that there's a mention of fewer store openings being planned for 2025 and 2026 versus 2024. Can you, first of all, confirm whether you're still sticking to the original guidance of 90 stores over this three year period? And I'm asking this question because there were 43 stores that were opened in 2024.
So a 90 store target would always imply smaller numbers in 2025 and '26 anyway?
Yes, exactly. We keep the 90 store target. That is exactly what we communicated, and we stick to that. That means with a large number of store openings in 2024, there will be fewer stores in 2025 and 2026, respectively. We opened 46 stores in 2024, by the way, yes.
It's also a matter of calibration. I mean, it's very important for us to calibrate growth and profitability. And a large number of store openings, we took advantage of opportunities in 2024 to actually grab some very good locations. That has a certain impact. We have a quick ramp up of profitability, but for a limited period of time, these stores need to get up to profitability, and that affects us a few quarters, in Q1, for example.
So for us, it's also important, as I mentioned, to calibrate this. So we therefore want to get at a somewhat lower level of number of store openings this year in 2026. But that being said, I mean, we still open stores. I mean, we had we opened five in Q1. So it's part of our strategy. This is just a calibration exercise.
Yes. Got it. And so against this comment about sort of recalibration between growth and profits and your sort of outlook of opening nine to 11 stores in Q2, which is a step up from the five new stores that you reported in Q1. How should we think about the pace of openings for the second half of this year then?
I mean, in total, in 2025, '20 '20 '6, we're going to have fewer store openings. And also in total, 25, of course, fewer store openings than 2024. We stick to that. The exact level of second half, we haven't communicated yet, but we will not try to get at the same level as 2024. We want to calibrate once again.
So there will be a limited number of store openings.
Okay. Now if I could go through different countries, and I suppose we should start at Denmark because we mentioned it just at the beginning. Around the effect of the credit legislation on extensions specifically in addition to new sales this quarter, can you perhaps provide a bit more details around this? Why are you seeing impact on extension only starting now? How much of the lifestyle is split between new sales and extensions, etcetera?
Yes. I mean, as a group total, not talking about Denmark, but group total, in the quarter, around 50% is renewals, prolongings of total Lifestyle sales. Around 36% is new sales. And then we have what we call Evergreen. I won't go into the technicalities of that, but people who are outside the binding period, 9%, and some other.
Lifestyle cash in Denmark, by the way, 2%. Denmark, there we don't really have Evergreen. So that's the difference if you look at the total group split. That being said, the group the split between the countries shouldn't differ too much from the group split. Once again, Denmark don't have evergreens.
So that gives you a rough picture of how it looks like. I hope that was a sufficient answer regarding a split between renewals and new sales.
Yes, thank you. And why are we only starting to talk about the effect on expansion from Q1?
No, it's an application of the regulation. There's a this is a new regulation, which took effect from July 1, and we have ongoing discussions on how to apply this. It was obvious that it should be applied on new sales. It wasn't that obvious that it should be applied to customers who have already gone through a regular credit check. These are existing customers, and we do have credit checks.
But it proved when we look at the it became obvious that we, from Q1, needed to apply this also on existing customers, although they have gone through a credit check. So that's a new application of the existing rules.
Okay. And just so that I'm clear on this, the application on extension customers only starts from Q1? Or is there any sort of retrospective applications that you need to take into account when you think of the renewal customers between July 23 and the end of twenty twenty four?
No, it's the Q1 effect, 2025.
Okay. Ignoring the extension customer for a second, if you just look at new sales, we have seen some good signs of recovery towards the back end of last year. Are we still seeing that continued momentum on the new sales part, thanks to your mitigating efforts? And what else can you do to mitigate the extra additional impact on the extension?
First, we need to be clear that when the stores got sort of experienced this once again, first on new sales and then on prolongings, it does have a psychological effect on the total lifestyle sales in Denmark. We need to be very clear on that. And therefore, we need to reboot once again the how we sell lifestyle, how we coach the stores. So we need to redo that work so it won't be fixed for next quarter. So it's a continuous effort of adapting the offering to the new conditions.
Lifestyle cash, we introduced in directly in July 2023, where you don't have to go through this credit check because you get all the benefits but pay cash. And we have a continuous dialogue on how to fine tune the concept. But once again, I want to mention that the large project we have in Denmark to kick start growth and profitability is the improvement of the store network, larger stores, better assortment, Copenhagen specifically.
Yes, exactly. And I mean that goes, of course, in line with our strong belief. And what we have seen have been sort of a success concept so far is to have the best store in town in every town with the best assortment, best service offering, etcetera. And that we are continuously strengthening in Denmark. And of course, quarter by quarter, the network improves more and more.
And then in addition, we have the Copenhagen area where we, for example, now open up a fantastic store, a flagship store in the heart of Copenhagen now in the January.
Very helpful. Thank you. And so thinking between the sort of the new credit environment, legislation on the one hand and all of the new store openings and growth efforts on the other hand. How do you think about the midterm growth of Denmark in particular compared to the outlook that you set out in the last Capital Markets Day? Has anything structurally changed when it comes to this market?
If you talk about Capital Markets Day, had in January 23, I think you referred to that one, right?
Yes, correct.
Yes, that was before the credit regulation took effect. So that was a new ballgame, I would say, from July 23, which took effect half a year after our Capital Markets Day. We need to be clear on that regarding Denmark. So we're working now with a new situation and try to improve from there, Okay.
Got it. And so departing from Denmark, if we go to Norway, which reported very good growth number, I think on my math, even if you were to exclude the tailwind from Easter calendar effect days, organic growth in the quarter was probably still around the double digit mark plus or Definitely.
Easter has an effect, but not very large. So very good growth, also stripping out Easter effect, yes.
Yes, indeed. So could you perhaps talk about the contributions of iView in the quarter, expectations for iView contribution going forward?
Yes. I mean, the iView project and the rollout that we have seen in Norway has, of course, meant that we have improved the capacity a lot in Norway and also then the accessibility, shortening waiting times for consumers. And as we report now, 20% of the eye exams in Norway in this quarter was conducted by Sunser MyView. And this is a large contributor. But in addition, I mean, we have had a program in Norway under the new management team there in order to conduct operational improvements, and that has sort of paid off as well.
And that is why we see such a strong growth in Norway in this quarter despite also in Norway, of course, a weaker consumer market.
Okay. Very helpful. And staying on the topic of iView, we also have iView being rolled out in Sweden, and you guys are expecting full implementation this summer. Do you expect, first of all, the experience with iView Norway to be very closely replicated in Sweden, both in terms the magnitude but also of the time it's taken to ramp up to a certain capacity?
Yes. I mean, how iView works in practice is very similar in Sweden and Norway. But in Sweden, we have more stores and more employees that needs to be trained. And we are underway now of rolling it out completely in Sweden, and that should be completed by mid summer, and then we should see sort of the full impact from that. But we are also now opening up for consumers to book the ZYNSAMA IV examination as well online, and we do that also in Sweden in the close future.
And we talk we don't talk about magnitude really. I mean although Sweden and Norway are quite similar in many respects, Instead of talking about magnitude, we can mention the effects once again in Sweden when we this is rolled out. On the one hand, of course, we don't have the rollout costs anymore. That's one thing, which affects us during the rollout. Number two, we get increased capacity, and that's the main thing.
We can take on more customers, which is very good for the customers as well. And thirdly, we save money on optician consultants, which we wouldn't need after that rollout. So three components that would affect Sweden when it's fully rolled out.
That makes sense. And so until the full implementation in mid summer, would there be any driver and I'm thinking of Sweden now, would there be any driver for sequential growth improvement in Q2 aside from an easier comp? Or is it a matter of waiting for iView to fully roll out and then seeing an improvement in sales growth in the second half of the year?
I don't want to give forecasts regarding specific quarters, but I mean we do have a certain drag on capacity during the rollout, and that continues during Q2 in Sweden. That's we can say at least. There is also a big consumer market right now. So when we talk about the effects of this IG rollout, we already see potential for good effect from Q3. And we would be in a much better position for summertime when people our employees regularly go on vacation and so forth.
The increased capacity will help us take on more customers actually from start Q3 in a good way, we believe.
Yes. And I mean the capacity is, of course, I mean, increase month by month because this is a rollout after all. So we have batches of stores where we roll this out and train the employees and also, of course, the way of working in those stores. So it's a gradual improvement up to this top level of capacity when it's fully rolled out.
Makes sense. And so now I'm going to think through the rest of the P and L. I guess the first questions, and it's a little bit of a a technical modeling one. With regards to Lens valuation charge of 28,000,000 SEK in the quarter Yeah. Could you confirm where this booked individual EBITDA?
And is there any further costs related to this topic going forward?
First, it affects the gross profit and gross margin. And then, of course, the same level affecting EBITA, EBITA, EBIT. That's it affects the income statement. It does not affect cash flow. It's noncash charge and is isolated to Q1 specifically.
No further effects going forward from this write down. However, this valuation method and the write down is part of a larger project we have. Of course, this was an effect of our ability to, with more precision, value the lenses, the change method. But it also this large process we've initiated helps us get better control of our of the glass of lens deliveries and reduced errors and also certain currency effects, positive such going forward, if the SEK stays where it is now against the euro. A bit technical, but it is part of a larger effort we made.
And this new valuation methodology became a byproduct, you would say, of that new process we initiated.
Understood. I think my question was more along the line of if we look at the breakdown EBITDA into different countries and also the other and central functions, where do you recognize the SEK 28,000,000 on that level? Is it in all in Sweden? Is it partly in Sweden, partly in other? Where should we find it?
I would say in order of magnitude, it's Sweden, then Norway, some in Denmark and a little bit in Finland, both in absolute terms and also on gross margin impact. So largest impact once again in Sweden, some impact in Norway, actually a small impact in Denmark and a quite small one in Finland.
Okay, that's helpful. And related to the FX tailwind to gross margin that you just mentioned, can you let us know at this current exchange level what is the absolute contribution to gross profit that you're expecting through the remainder of the year?
I would say, if SEK is as it is now, we expect a few million of positive effect each quarter from Q2 and onwards. That's what I can say. I don't want to predict the secular rate, but if it is as it is now.
Of course, FX is a tricky business indeed. Still thinking about COGS and gross margin, I noticed that you mentioned unfavorable sales mix in three countries, but positive mix helping gross margin in Finland. Can you provide a little bit more color around this? And how do you expect the sales mix to develop going forward maybe in the near term?
Please talk. Yes. Okay. I mean regarding the sales mix, of course, the consumer sentiment is impacting that. And I mean not all consumers are equal, but we see groups of consumers that when they do their purchase, they might trade down a little bit when it comes to their selection of frames and lenses. So that's basically the answer.
If you look at the potential, not the forecast, but the potential, I would say is we have a potential of identifying the customer needs in a much better way regarding lenses, and thereby making customers upgrading if that is their need. So that's something we work on. And an upgrade of lens quality would help us sales wise and gross margin wise, actually. That's the potential we have. With the growth we have in the e commerce business and generally in the contact lens subscription business, there is I mean, are good businesses on EBITDA level.
But on a gross margin level, these businesses have a lower gross margin. But they are still good businesses on the bottom line. So when these grow, will have a negative impact on gross margin percentage wise specifically. So it goes in both ways.
Okay. And just as a follow-up on this. I understand the point around consumer trading down and the macro environment and what you can do to offset that. But specifically in Finland, I think the mix was helpful to you guys in the quarter. What's happening there?
Is there any specific efforts that you guys are carrying out in Finland to help with mix?
No. I mean, of course, work a lot with to train our staff to be able to explain, of course, the products in the best way and the benefits of having a better lens. But also, as Per mentioned, it's very important to match this as good as possible to the individual consumer need. So how well we succeed with that, of course, impacts the what the customer eventually will buy. This is assisted selling.
And the better we are to match the true needs of the consumer and to explain the benefits of a better lens, the more likely consumer is to select a better lens. Finland has done that in a good way.
Makes sense. And the other influence factor on gross margin was sales campaign in in most countries. When we are in a environment where we'll we'll worry about the macro climate, how do you think about, you know, the efforts behind campaigning and and promotions in these countries?
It's how should we put it? We work mostly with is to improve our offer, to get better selection to get better frames and more frames in the stores, to identify customer needs in a much better way, strengthen ourselves. We're good today, but we can get better, of course. Then it depends sort of how the industry develops. I mean, if we have a significant downturn in consumer sentiment, of course, could increase in the industry.
That goes without saying. However, I want to mention now that, I mean, there is a weak consumer environment, But in total, in Q1, it's not that much different from Q4, to give some background. But we monitor this continuously going forward, how it develops. Do you want to add, Jaime?
Yes. Yes. No, exactly. And I think also we should also remember that optical retail is a little bit different from retail in general in the sense that our products and services is something that customers typically prioritize. I mean when the vision change or they need a new pair of spectacles, they sort of need to come and visit us to get that sorted out.
So that always is helpful also when there is, in general, a weaker consumer market
Yes. Thank you. And I just have one final topic I want to touch upon on this call is around house brand. I noticed in the press release also that you guys have launched additional brands, additional house brands. So two questions on this.
The first thing is, can you give us what's the updated split of house brands in your revenues, in your revenue mix? So that's the first one. And the second one is, is there any color that you could provide when it comes to the gross margin profile of your house brands on average? Yes,
exactly. We're going to launch more house brands later in the year, exactly. So that's something we work continuously also in our own factory. Yes. Do you want to elaborate on
Yes, exactly. And also what we have mentioned is that in our production and innovation center here in Sweden, in Frosa, North Of Sweden, we are now currently developing and preparing for new collections to be launched in the year.
And is there anything you could comment on the average gross margin profile of these house brands as compared to your group average?
We have previously communicated five to 10 percentage points on the house brand frames compared to external board frames.
Helpful. Thank you. And I think that takes me to the end of my question list. Is there any topics that we haven't touched upon that you think we should be talking about on this call?
No, I think it's just worth mentioning Finland as well. I mean we have seen a strong performance there in this quarter, continuous one with an increased growth and also profitability. And that is, of course, something that we see positively on.
You. And thank you guys for answering all my questions. And I will pass it back to Frieda.
Thank you, Jan. Time is running out, but we take also one question from the chat. And can you give some color on the revenue recognition for Lifestyle and how it compares to Lifestyle Cash? How is Lifestyle revenue recognized during the binding period of the lease?
Exactly. The revenue recognition, regardless whether it's lifestyle cash or regular lifestyle, you might say, so we will take revenue upfront. Of course, that's where the main lever is.
Thank you. Great. So it's time to wrap up. But before we do so, Panjim, anything you would like to add?
No. I think, I mean, we can summarize a strong growth in this quarter despite the weaker consumer sentiment. And as we have mentioned, we have invested in growth both through the strong greenfield expansion in 2024 now ramping up, improving our network and accessibility, but also the investments conducted in the Zunsam iView, which will also further improve our capacity and accessibility as well as improving the effectiveness and the overall customer experience.
Thank you. A big thank you to Per and Jimmy and to all of you watching this Q and A session live. If you have a question you have not received an answer of today, you are welcome to email the question to email address below. See you next time. Thank you.