Bang & Olufsen A/S (BO) Earnings Call Transcript & Summary

Welcome to this Bang & Olufsen Annual Report 2025-'26. Today's call is being recorded. If you have any objections, please disconnect at this time. [Operator Instructions] I would now like to introduce interim CEO and CFO, Nikolaj Wendelboe. Nikolaj, you may now begin.

Hello, everyone, and thank you for joining today's webcast. I will start by taking you through the highlights of the past year and provide an overview of the developments across the business. I will then walk through the financial performance with focus on the fourth quarter as well as our outlook for the coming year before we open the line up for questions. Please move to Slide 3. Let us begin by looking at our full year performance and how the financial year progressed. In '25-'26, we continue to drive transformation, improving our retail network and operating model while adapting to a challenging macroeconomic environment. The financial year '25-'26 marked our centenary, a proud milestone celebrating our legacy and century-long commitment to sound, design and craftsmanship while shaping the future as a global leader in luxury audio. We delivered another record high gross margin and the highest gross profit in 8 years, and we advanced in key strategic initiatives. During the first half of the year, we launched 3 product innovations, the earpieces Beo Grace showcased Bang & Olufsen at its best and a strong commercial performance that validated market demand. In parallel, the introduction of the Reloved program reinforced our leadership in circular design and sold out monthly drops confirmed strong client interest. In contrast, the launch of the Beo -- soundbar, Beosound Premiere, was challenged and highlighted improvements were needed in the commercial operating model. We ended the year with a clear ambition to continue investing in the development of the business. As the year progressed, external market conditions became more challenging than expected, and that, in combination with sales of Beosound Premiere being significantly lower than anticipated, we adjusted our full year outlook in March '26. At the same time, we withdrew our midterm ambitions through 2028. All in all, revenue for the year was DKK 2.5 billion, corresponding to a decline of 1.6% in local currencies in line with the adjusted outlook. EBIT margin before special items was negative 0.5%, and free cash flow was negative DKK 141 million. The development in EBIT margin before special items was impacted by the planned strategic investments in retail optimization, development of the product portfolio and marketing investments. In Q2, we had extraordinary marketing costs of around DKK 38 million for activation across the globe, celebrating our centennial. During the second half of the financial year, we adjusted elements of our strategic execution and implemented efficiency and cost measures. This also included an adjustment of the cost base, and I will come back to these topics later in the presentation. Finally, and as stated in our annual report, the Board expects to announce a permanent CEO during Q1 '26-'27. And today, we will have no further comments regarding this topic. Please move to the next slide. During the year, we launched 3 product innovations. In November '25, we launched the Beo Grace earpieces. Beo Grace marks a new expression of Bang & Olufsen in-ear design crafted from hand-polished aluminum and built on our proprietary Amadeus software platform. The product was well received and sales performance has been strong, driving double-digit growth in the earphone revenue. In December '25, we launched Beosound Premiere, adding a soundbar to the portfolio designed for TVs from 42 inches and above and centered on spatial audio and system connectivity. The sales performance of Beosound Premiere was lower than anticipated, and the product was relaunched in March '26 with 2 additional colorways, with improved in-store display and a revised lower price point. Sales performance improved during Q4, although still at a lower-than-expected level. In October '25, we launched the Reloved program, offering inspected, refurbished and certified pre-owned products with a Bang & Olufsen warranty through our own e-commerce channel. The launch was successful. Across 8 monthly drops from October to May, all products sold out before the next drop and some were sold out within 24 hours. In addition to our new product innovations, we also presented our outdoor product in development, the speaker Beosound Haven expected to launch in '27. This offering underpins our vision to provide fully integrated solutions for our clients' homes, bringing the Bang & Olufsen experience from indoors to outdoors. Please move to the next page. In addition to our product innovations, we also engaged in several product collaborations, which, in addition to being revenue drivers, also cements our brand presence in different parts of the world. This year, we engaged with 3 partners and launched limited editions of selected products. The partners were Tokyo-based design studio, Fragment Design; the Korean-based global artist G-DRAGON, and the British-based design house, Vollebak. Throughout the year, we cemented our global brand presence through a curated program of marketing activations, collaborations, partnerships, cultural initiatives and centenary celebrations, reinforcing our brand's position at the intersection of craftsmanship innovation and culture. The program was activated globally, spanning window takeover in Harrods in London; digital out-of-home activations in Times Square, New York; and our centennial exhibition, 100 Years and Counting, which premiered in Shanghai and attracted more than 10,000 visitors alongside activities in Copenhagen, Tokyo, Hong Kong, London and many other cities worldwide. A reinterpretation of one of our most iconic speakers from 2015, the Beolab 90, was introduced in 5 Atelier Anniversary Editions. All featured distinctive materials and color expressions while preserving our signature acoustic excellence. The collection was unveiled through activations across global cities, including London and San Francisco, creating immersive experiences that combined sound, design and storytelling to elevate client engagement and emotional connections with our brand. Please move to the next slide. Our Win City concept was implemented in Tokyo, San Francisco and Los Angeles, increasing the total number of active Win Cities to 7 by year-end. The Win Cities delivered double-digit sell-out growth of 18%, while further elevating the brand experience. We are pleased to report double-digit Win City sell-out growth for 8 consecutive quarters. Our latest brand equity results also support this. The direction was further supported by flagship openings in Paris, San Francisco and Los Angeles. We continue our ambitious retail plans in the coming year. In addition to these openings, we expanded our presence with the opening of a new store in Hamburg, and by upgrading the first 2 stores in Asia to a culture store concept. Across our network, we are strengthening our position in high potential locations by relocating selected stores and opening new sites in key cities and districts while closing underperforming locations that are not aligned with our brand ambition. In parallel, we are enhancing our distribution model through closer collaboration with like-minded monobrand partners, combining the strength of company-owned stores with a strong partner network. We are improving store productivity by driving consistency in retail execution. This includes optimized visual merchandising and store design, focused sales training and a more structured approach to clienteling. As a result, we aim to deliver increasingly personalized client experiences and drive engagement across our global network through a clearly defined and seamless client journey. To support the client journey throughout the store network, we are implementing a new retail IT platform to replace current systems. In '26-'27, the platform will be rolled out across all company-owned stores, and the first 2 stores have been piloted during the last month. In summary, during the year, we made more than 65 retail footprint adjustments and our ambitions for the coming year are as ambitious. Now please turn to the next slide. To secure continued investment in the development of the business for future profitable growth, we have in the second half of the financial year adjusted elements of our strategic execution and implemented efficiency and cost measures. In addition to the retail focus I have just outlined on the previous page, the adjustments initiated covers both go-to-market and product development. We are evolving our commercial operating model and have significantly improved the coordination of marketing planning and investments, retail execution and product launches during the second half of this financial year. We expect this to enhance our go-to-market execution across both existing products and new launches. Entering '26-'27, our operating model is better equipped to support our targeted marketing position. At the same time, we are reallocating our cultural partnerships towards music in line with our ambition to deliver beautiful sound and elevating our heritage and brand distinctiveness. I'm pleased that we have recently signed an agreement with a global brand ambassador, which we will announce shortly. We have revised our product development model and have, amongst others, rebalanced the use of external suppliers while sharpening our focus on core strengths and improving speed and cost efficiency. This will enable us to better serve aspirational clients in future offerings without compromising our strong gross margin. The changes made ensure we are able to prioritize continued investments and transformation, and we trust the new ways of working will be effectively led by our newly appointed Chief Product Officer, Janne Jakobsen; and Chief Marketing Officer, Peter Hobolt Jensen. In the last part of the year, changes have been made to simplify the organization and focus efforts on strategically important areas. Efficiency measures have reduced our underlying cost base and includes, amongst many initiatives, a rightsizing of the organization. This has resulted in a workforce reduction across the organization of around 60 people, corresponding to around 5% of the total number of employees. Saying goodbye to dedicated and talented people is certainly not easy, and we do so with gratitude for their valuable contributions. All in all, with the changes introduced during the last 6 months, we have cleaned up, we have regrouped and we have put the company in a better position to drive long-term profitable growth. I will now go further into the details on our Q4 numbers, if you move to the following slide. Starting with sell-out. We delivered positive like-for-like growth of 11% at group level. This led to a full year like-for-like sell-out growth of 4%. For the quarter, positive sell-out growth was reported across regions and 13% growth was reported for our branded channels. For both EMEA and Americas, like-for-like sell-out grew by 4%. Brand channels reported growth in both regions driven by company-owned stores. Sell-out reported from the eTail channel declined in both regions. It is encouraging to see positive like-for-like sell-out while revenue growth in these 2 regions was negative. In general, the difference between sell-out and sell-in was caused by inventory depletion among our partners. For APAC, sell-out grew by 28% and like-for-like sell-out for China grew by 14%. The strong growth in the region was in general reflecting growth across all channels and supported by double-digit growth in branded channels. In addition, double-digit sell-out growth was reported for eTail and multi-brand in China as our own operations have delivered improved commercial impact on JD and Tmall. As highlighted earlier, our active Win Cities consisting of New York, London, Paris, Hong Kong and now Tokyo continue to perform strongly, delivering double-digit sell-out growth for the eighth consecutive quarter. Please move to the next page. Turning to group performance. Revenue decreased by 3.1% in local currencies, while reported revenue declined by 3.8%. While the sales performance of Beosound Premiere improved after the relaunch and price adjustment, its performance continued at a lower-than-expected level, and was the primary reason for the decline. In terms of channel performance, the decline was driven by the monobrand channel in EMEA. Within branded channels, revenue declined by 3.7% in local currencies. While our company-owned stores delivered double-digit growth, it was more than offset by the performance in the monobrand channel. E-commerce was largely on par with last year. Gross margin continued its positive trajectory improving to 58.7% in Q4, up 2.9 percentage points year-on-year. A refund of paid U.S. tariffs had a positive impact of DKK 20 million. Overall, gross margins improved across regions. EBIT margin before special items was 5.7%, reflecting the higher quality of revenue and a positive impact of the mentioned DKK 20 million from tariff refunds. Special items related to EBIT amounted to negative DKK 30 million, mainly comprising the reorganization announced during the quarter. Please turn to the next page. Product revenue declined by 2.7% in local currencies. In EMEA and Americas, revenue declined by 11.9% and 5% in local currencies, respectively. In APAC, revenue increased by 15.5% in local currencies, driven by strong momentum in China, especially from eTail and continued growth across branded channels in the entire region. Gross margin improved across regions. In the Americas, gross margin was 78.5% in the quarter. This reflects the tariff refund of DKK 20 million related to the U.S. tariffs. When excluding the refund, the gross margin was 50.1%, which was an increase of 1.4 percentage points compared to last year. In APAC, we continue to see a positive effect on the gross margin from the direct operation of the Tmall flagship store, which had a positive impact of around 1 percentage point on the gross margin for the APAC region. Finally, revenue from brand partnering and other activities declined year-on-year. HP license income was discontinued as expected, and TCL revenue declined year-on-year due to quarterly fluctuations. The TCL partnership is ramping up as planned on a full year basis. Please move to the next slide. Turning to cash flow and working capital. Free cash flow for the quarter was positive of DKK 5 million, reflecting improved operating performance and a lower level of operational investments, partly offset by working capital developments. Net working capital increased by DKK 78 million to DKK 349 million, driven by lower payables and higher receivables, with the receivables increase related to the U.S. tariff refund and higher sales in Q3 -- than in Q3. Inventories ended the quarter at DKK 418 million, down by DKK 33 million compared to the end of Q3. That decrease reflects our continued focus on inventory management, and it's partly offsetting the effect of payables and receivables and net working capital. Capital resources amounted to DKK 294 million at the end of the quarter compared to DKK 262 million at the end of Q3. Of the DKK 294 million capital resources, the available liquidity was DKK 94 million, which is DKK 18 million lower at the end of last quarter. While available liquidity decreased, the undrawn portion of our committed credit facility rose by DKK 50 million during the quarter, which led to an increase of DKK 32 million in capital resources. Now please move to the next page. Before I present the outlook for '26-'27, I would like to give a bit of detail on how we currently see the memory chip situation impacting our business. Memory chips, or more specific, DDR4 RAMs are currently facing critical supply constraints driven by sustained demand growth from AI and data center applications. At the same time, 3 of our 4 suppliers have scaled back or ceased DDR4 production to prioritize higher-margin DDR5 capacity. This dynamic is tightening overall memory supply and materially constraining global production capacity. We are in the process of securing supply to cover production and maintain operations for products where DDR4 RAM are required and we have initiated the development of an upgraded Mozart hardware platform. The impact on cost is partly mitigated by price adjustments, July 1, reducing the net impact on the gross margin to approximately 0.5 percentage point. An expected cash impact of around DKK 35 million to DKK 45 million is included in the outlook for next year. And let's move to the next page. Turning to the outlook for the full financial year. While uncertainty persists in the external environment, our differentiated strategy and ongoing transformation position us well for the future. Our focus remains on executing our strategy through improving our go-to-market operating model, implementing our new product development methods, reshaping our retail execution and footprint and continue to focus on prudency on cost, CapEx and cash management. Revenue growth is expected to be in the range of 1% to 5%. EBIT margin before special items is expected to range from 1% to 3%. And the free cash flow is expected to be in the range of DKK 25 million to DKK 100 million. Our recent prioritizations and efficiency measures have allowed us to fund continued investments in the business while managing the overall cost base. In '26-'27, that investment goes into our retail network, both new openings and the upgrades of the existing stores, the rollout of our new IT platform for retail and our product pipeline. As a result, we expect capital expenditure to increase to around DKK 270 million to DKK 310 million, while capacity costs are expected to remain broadly flat compared to '25-'26. On retail specifically, we expect a positive contribution next year from openings and upgrades. The plan we laid out in '24-'25 is unchanged and remains the right one, though some openings have taken longer to execute than originally planned, and that phasing is reflected in our expectations. At the same time, we continue to be affected by market uncertainty. On tariffs and the outlook for the U.S. market, in particular, we are currently seeing some hesitance and caution among our monobrand partners. The broader geopolitical backdrop, including the wars in Ukraine and in the Middle East adds to that uncertainty. On a related note, the U.S. tariff refund has not yet been received, so there's a cash timing effect still to come. Finally, on products, within our outlook, we assume the launch of 3 or more products during the financial year. The first, the Recreated Classics, was launched in June, and we expect the remaining product launches no earlier than the fourth quarter, impacting seasonality over the year. And with that, I will open up for questions.

[Operator Instructions] The first question comes from the line of Poul Jessen -- I'm sorry, comes from the line of Poul Jessen from Danske Bank.

I have a few ones. If you come back to the organizational changes you made in May. Can you put a little more color on what you changed and what kind of functions that you have taken out of the 60 positions?

Yes, most certainly, I should take that question immediately. So it's fairly broad-based. So we've been looking at our strategy and prioritizing to continue to invest and have the right level of capacity in the areas of retail, execution, our COCO stores that we're opening more, we'll also see more headcounts coming in. So we have reduced across the board in sort of the more back-end related functions. We have reduced also, as part of our -- so that's in administration, of course. We have reduced across some of our product development function as part of our new way of working with developing products where we will use our -- or have decided to use external suppliers in a different way. So we are also reducing the number of headcounts in parts of our product development organization. And then we are, as part of reviewing our go-to-market operating model, we also adjusted specifically on the marketing side on a number of positions globally. So it's quite broad-based across the company.

A question on product development. You're changing the way you're using external partners. Does it mean that you are doing more external partnerships now than doing in-house development, and why?

It means that we are adjusting on specific product offerings, especially within the Bluetooth category. We are adjusting the split of work between our in-house development functions and the development functions of the partners. And we are doing that because we want to achieve a faster development cycle in Bluetooth products, and we want to achieve a lower cost of developing. And our analysis has shown us that if we adjust the split of work between us and our suppliers, we will be able to achieve this.

Has this temporarily meant that you have longer development processes? I'm just thinking about Haven. I think earlier it was indicated that it would come to the market this year and now you say '27, so...

I think Haven is not a particularly -- no, so Haven is not -- it's really not a very good example of that because it's a different type of product. But if we look at the Bluetooth category, which includes headphones, earphones and Bluetooth speakers, here, we have seen quite long development cycles in our in-house development model, and this is what we want to shorten in the future.

If we then come to the European market, is it business as usual what we have seen in the last 12 months or has there been any changes during the last quarter? And also, I can see now you have reduced number of European branded store from 280 to 220 over 2 years. Where do you see it flattening out before you have a net increase or a stable situation?

No, I expect for the coming years that we will still see a small decrease in the European store network. Net-net, we will not reduce with as many stores as we have done this year, but there will still be a little bit of a reduction. But at the same time, we are also opening next year flagship stores in really, really key locations across the world, but especially also in Europe. So we will have a much stronger network when we are looking 1 year ahead than we have today.

And the market sentiment?

Sentiment in Europe is -- has been challenging for the most of this financial year. It's still very centered around the sort of Northern, Central European countries, the DACH region, and Germany, specifically, have been challenging. The Nordics has not been easy. As I said before, U.K. outside London has also not been easy where we see better traction in Southern Europe. So that has not changed materially in the fourth quarter.

Okay. So it's business as usual for the last 12 months?

Broadly, it's business as usual.

Okay. Then about the new IT platform that you're going to roll out in stores, you say, '27 that's COCO stores. Then you still have more than 300 where it's not to be rolled out. When will it be -- I guess it's not voluntary. So when would it be across all stores? And secondly, what is it going to give you new opportunities?

So first of all, on the timing, we will properly roll it out to the most important markets first. So we are taking probably a staggered approach to rolling out. So we focus on the high potential markets and key partners in rolling it out. We are doing COCO as I said this year in '26, '27. And then we will after that and after having taking our own medicine and make sure that the platform works exactly as it should, we will roll it out to the monobrand partners afterwards. What it will give us is one point-of-sale system across the stores. It will give us one unified CRM system across the stores. It will enhance the operations in the stores. So the store staff will use much less time on admin work and can spend more time on client-facing work. It will enable proper CRM and clienteling activities in the stores as we will have a much more unified view on all our clients. And it will also enable, when we have the rollout to the monobrand partners, seamless reporting of the important key metrics that we need to have in order to run a retail and luxury business. For instance, sell-out, inventory data, traffic data, CRM data, client data. So it will create a basis for really professionalizing the retail operations of our business.

A final question from my side on the guidance. You narrowed it, you said there is still a high uncertainty, but you narrowed the revenue growth range to a spread of 4 points from earlier 6 to 10 points in previous years. How should we look at this? You're more certain? Or are you just taking a conservative view and give the range there and then potentially, it could be better? Or how should we look at you saying that you have continued high uncertainty, but you narrowed the range?