Björn Borg AB (publ) (BORG) Q3 FY2025 Earnings Call Transcript & Summary

Good morning, everyone. It's a Friday. Not only is the weather beautiful, and it's time for our compulsory sports hour in about a few hours, it's also time to present our Q3 results. And we're super happy to share with you that our sports apparel collection continues to drive growth. So of course, as you probably recall or remember, we've been talking about this now for many, many quarters in a row. The whole dream with Björn Borg is to transition this in the past beautiful men's underwear brand into a bigger arena to build a sports fashion brand. And with that, of course, growing. But more than that, also inspiring people that if you should give something to yourself today, it's to move. Whether it's walking to office, taking the bike or doing a triathlon, doesn't really matter. Movement is the best gift to yourself. Not only will you be happier, you also will live a bit longer, and it's going to be a lot of fun, perhaps not always doing the workout, but certainly afterwards. So Q3, another quarter where our sports apparel collection continues to grow. So absolutely fantastic and by far, of course, the biggest highlight of the quarter. If we look at the sales, it's a record quarter. We never sold more than SEK 300 million in a quarter. So that's, of course, fantastic. We like to break records. Also, our gross profit is improving versus last year. And that, of course, consequence lead to a strong also EBIT uplift versus last year, where we're growing EBIT with 7.3% and closing at SEK 45.1 million in profit. So overall, a solid quarter behind us. So that is making me really, really happy, of course. But first, just a reminder, if you want to accomplish anything in life, you need to have a long-term goal. And of course, our ambition is to become a global iconic sports fashion brand. That's where we're heading. And it takes a bit of time to get there, admittedly, but we are making progress. Every quarter, we get a bit closer. Our mission and partly, I would say, it's a bit unique, at least we like to think that. So this is not about building a sports brand for athletes that wants to break world records. You can buy the stuff, too, but we think that training is so much important than that. So it's all about talking about this idea that we want to inspire you, unleash your own potential, remind you that you are the captain of your own destiny and that working out and training with you, your friends, your kids is something absolutely fantastic that will give you a lot of different benefits. And that's why and how we create the entire sports apparel collection. Looking at our financial objectives, we want to grow. We want to make money, of course. We want to make sure that we have a high dividend. And of course, we want to have a solid equity ratio, asset ratio. So that is all in place. And of course, the business strategy has been to focus on multichannel, so handling both wholesale. We believe that's super important, both brick-and-mortar and e-com and also, of course, our own e-com and then distributors and a few of our own stores. So managing those different channels, we believe, is a key strength. It's clear that if you want to grow, if you want to win consumers, you simply need to be where the consumers are. And looking at how far we got. So a couple of brand KPIs. The brand is tracking in the right direction. Of course, I am sure if you are working out, if you do some running events, you will see our Borg tee almost for certain no matter where you're working out right now. So that product has really been instrumental in our quest to move the brand into a bigger arena. And of course, it's 100% recycled polyester T-shirt. It's beautiful crafted, perfect fit and, of course, a very, very strong signature with the Borg on the left and right arm. So a very, very strong and what turns into being an iconic product. We launched it 10 years ago, and it's still our most sold apparel, and I think it resonates really well with what we want to bring to the market. Looking at a few of the KPIs here, I'm super happy that our work in Germany is continuing to grow in terms of that the brand is getting stronger. Germany as such is actually declining, but that's due to Zalando. So it's not sales towards German consumer because that's actually growing 26%. But Zalando is declining, of course, and here we can do a lot better and need to do so, of course, as well. Looking at consideration, I think this is one of the slides that makes me most happy. So of course, here, we ask 440 consumers in all of our different markets. So from Germany into the bigger ones in Sweden, a bunch of different questions. And one is, out of this list of sports brand, who would you consider buying? And here, we are #3. So ahead of PUMA, Under Armour and a bunch of other brands. And of course, this means that there's just a huge potential for us to continue to drive sports apparel growth. More people out there wants to buy our stuff than what they currently are doing. That is what the sign is or slide is telling us. So that is, of course, good news. But let me bring you back in time a bit, not that far. But I think for me, personally, the highlight in Q3 was August 16. So it was a Saturday. The weather was as beautiful as it is today, late evening, and I was surrounded by 35,500 runners, all wearing our Diva Pink Borg tee. And this was only the Stockholm midnight run. We also did that, of course, in other cities, but I participated in the Stockholm race. It was absolutely incredible. And of course, it really showcased how far we have come compared to when we started this journey back in 2014 and just being surrounded by all these runner all wearing the Borg tee was absolutely incredible. And also, I think, Midnattsloppet really resonates well with how we want to approach sports. So of course, there was a few that did it really, really quick and we're competing. But for the most part, those that participated did it because it's fun. It's good to have a run, and they work out with different things throughout the week simply to be better and perhaps live a bit longer and do it simply because they feel stronger by doing it. And that's why I think the Midnattsloppet really resonates with what we do. It's all about train to live and not the other way around. So absolutely fantastic. Looking at our top line, again, so we broke the world record, well, at least for us, so SEK 300 million. So never sold anything more in an isolated quarter. If we divide into the countries, of course, super happy to share with you that both of our big markets, so Sweden and the Netherlands is continuing to grow. Germany and Belgium are the only ones declining. Germany is a bit concerning. It comes down to Zalando. And, of course, here, we need to be better. It's all about managing discounts, putting the right product in the right distribution channels. And here, we can do more, and we need to do better in order to change that negative trend. Looking at our channels, wholesale is doing really, really well, so growing double digit. E-com has slowed down a bit. It's partly due to us being a bit more selective with discounts and, of course, finding our way with all the changes that is coming our way with Google as such. But we believe, of course, ongoing that e-com is a very, very important channel for us. And looking at the year-to-date numbers, of course, we're still up close to 18%. So very, very strong performance. Own retail. So here, we are closing down stores. This will be closer to last year where we closed down stores. Looking at next year, the store base is where it needs to be. And from there, we will rather actually add retail stores if we would want to do anything. So we found a good balance now with outlets that are really performing well that can take care of excess inventories. They're all profitable. So now it's about really building them. So we can expect then retail numbers to start growing again as opposed to, of course, then been declining in the last couple of years due to us cleaning up our store portfolio. Distributors are struggling. There are some good news depending on where you look. So Austria is doing really, really well. But the biggest one, Norway is declining. So of course, here, we need to do a better job. It's not a priority of ours, but still, of course, we need to maintain our business there as well. The big focus for us, obviously, is own e-com and really partnering up with the right wholesale partners to drive growth in those 2 channels and continue to win consumers. And I think we do that fairly good. And here, we've been tracking since 2018, our share of online business and it goes down a bit in Q3, but of course, still a very high share of our business is done online. And that's, of course, been a part of our digital-first strategy that is working out really, really well. Looking at some categories, so brought some highlights. We launched a new category called Loungewear. It's just building on our underwear, but really soft hand feel apparel for men. We will do a collection for women's also in the future, but that's going to come next year. And that is working very, very well. So plus 57% versus last year. Again, our apparel has continued to grow. So in the quarter, 24%. Full year, it's growing more than 20%. Bags is also growing in the quarter. I haven't showcased it here, but of course, the disappointment in the quarter is the footwear collection. So we need to do it better. We have reinforced the team. We do a lot of product testings, and I'm really happy to share with you that the product that we're trying right now that we're currently selling in are performing really, really, really well. So footwear, that's the area where I see the biggest potential, but also, of course, where it requires most of our focus to really enable that to also then become a growth engine, which is currently not the case. With that said, of course, there's also a lot of numbers in terms of the bottom line. And as you already know, we're earning more than last year. So that's good news, but Jens will share some more light into that. So Jens, why don't you fire away?

Thanks a lot. Thank you. Well, fantastic. Before I start, I've been home sick for a few days, and that made me realize how much I miss being part of the energy that you find in this company. I certainly missed my colleagues and be back in the office people like [ Jessica Kim ] probably watching today. How are you? But it's good to be back soon. So I'm really looking forward to that. In terms of the numbers, so the gross margin is now increasing again slightly, certainly partly due to a positive currency change that we see at the moment, especially the euro-dollar, but also the Swedish krone versus the dollar. So that's a good thing for us. So slightly going up again. The profitability, as you heard from Henrik before, is increasing SEK 45 million in Q3 and year-to-date, as you can see in the slide, doing really, really well. So really good to see. In terms of the bottom line, SEK 37 million in the quarter, again, a very strong bottom line result. And in terms of net income year-to-date, we already passed last full year -- last year's full year numbers. So that's good to see. A few numbers on the balance sheet. So the equity through assets or the solidity is again climbing up in 2025 after Q3 to 51%. So really solid and strong line that you see here, which is very good for the company, obviously. The net debt is slightly increasing compared to previous years, mainly due to the footwear integration that we said earlier, which require more working capital clearly. And in terms of our working capital, if you put that in relation to a rolling gross sales number, we strive to be around 20% now in the -- towards the end of the Q3 this year, slightly above, but not concerning at all, a bit more overbuying the inventories to cover the markets that need that, but certainly the right inventory at the moment. So no concerns regarding that. We are stable around 20-ish percent, which is good for us. It's a good KPI for us to keep track of. That's all I wanted to say this morning. Have a wonderful Friday and good week, and I'll leave the word again back to you, Henrik.

Yes, yes. Good to have you back, Jens. You don't sound 100%, but of course, since you are 120% normally, I guess you are still running on the 100% then. So a couple of key takeaways. The first one, we see an ongoing strength in our brand. So the consideration slide that I showed you, of course, is going up. We see strong brand traction. And of course, here, we need to continue to invest even more. We do know that we have a good traction in big cities, and we need simply to focus even more on those to continue to elevate the brand, given, of course, that brand is one of the things that are making us unique. We own the Björn Borg brand, and that's a very, very strong asset. So here, we need to continue to invest. We see good traction. That's very, very good. Secondly, of course, I think one highlight, as I said, we are growing in our biggest market. That's super, super important, especially Sweden is doing very, very good, 13% up. But also Holland, some of the smaller markets, Denmark is also really, really performing well. Finland, one of our midsized markets also performing good. We need to work harder with Germany and Zalando to make sure that we can find a strong balance between top line and discounts to continue to drive that account. Our Hamburg push is working really well. So sales towards German consumers actually is up 26%, which is fantastic. So here, we're doing a lot of things right, but we need to continue because one clear objective is to win the German market. That will, of course, be a massive game changer for the entire company. And last, of course, if we look at categories, as I said, now many quarters. If you want to follow this brand and our journey, look at the sports apparel numbers. That's really what will showcase if we are successful or not. So continuing to have double-digit growth also in Q3. So we're growing well, 4x the pace of the market. We're taking market shares. And of course, also now is getting to a fairly sustainable part of the business. So this is really our growth driver. So super happy with how the sports apparel collection is developing both year-to-date, also the last 10 quarters and, of course, also the just closed Q3 quarter. So with that said, have a fantastic Friday. Enjoy the Friday. My last word probably goes to train to live. We believe that one core ingredients of creating a strong brand is to have a strong purpose to create a meaning into what you do. So if you disappear, people will actually miss you. Our whole idea is to inspire people that you should train not because you should win medals or compete, but training will give you the control over so many other things that is the cure to a lot of the stuff that is happening around us in the society right now. And it's also something that you simply can do. It's not up to someone else, even though it might be hard somewise to get it going. And it's not about how fast you run. It's about just getting that run or that walk going. So that's really what we want to do to inspire you and myself, of course, and everyone around us that move, work out, have fun. Doing that will make the rest of the life even more fun. So with that said, you have a fantastic Friday. If you want 11 to 12 in first week, we have our compulsory sports hour, you're welcome to join. And before I close, I'm sure that Hjalmar has a couple of questions that he's dying to ask me.

Of course, of course. Thank you so much for the presentation I figured we could start with the gross margin. I mean it is improving year-over-year, but you also mentioned some increasing discounts here. Could you highlight this a bit? Is this mainly relating to individual customers? Or do you feel sort of like a wider price pressure maybe in the wholesale segment?

I think the margin, of course, is getting impacted by many different things. And of course, one is the customer mix. And we do see here that the bigger are getting even bigger and the smaller are disappearing. And of course, the bigger you are, the bigger volumes you buy and also that comes in then to better terms. And in some occasions, it's actually more discounts. So of course, with having the bigger accounts, so our very strong sort of key account focus like win with the winner approach means that those accounts is growing. And of course, even if they don't get more discounts than what they had in the past, they have more discount than some of the smaller accounts. Of course, that's one thing that is happening. The other one, of course, is the product mix. So of course, depending on which category you are selling, that's also going to have an impact on the gross margin. And of course, we have done a lot of work with sports apparel. So of course, the margin is really, really strong. However, of course, it's not as strong as underwear, for example. So of course, as the ratio is changing, of course, that's also changing the margin. And in this case, of course, it drags it down a bit. We've done a fantastic job, especially I think in footwear actually, where the margin is increasing drastically versus last year. But again, we know footwear growth, of course, we don't really benefit that in the overall picture because footwear is doing well -- not very well. So of course, that's one, so the category mix. And then, of course, the other one is the channel mix. So if you look at the quarter, we see that then own e-com is having a slightly lower share of our overall business than what we had, for example, in Q2. And of course, that also means that the margin goes down because, of course, e-com, we have very, very strong gross margins versus wholesale where we have slightly lower. So of course, here, we talk 15 percentage points lower. So of course, adding all those together, that's the stuff that's sort of dragging down the margin a bit. And then, of course, on the other side, we're working with price increases because, of course, the brand is getting stronger. We're working with reducing discounts towards end consumers. Of course, that's going to improve the gross margin. And of course, the currency have a massive impact on the margin as well. So of course, if we look at Q3 isolated, the margin is up. But of course, that is solidly due to the currency impact. So of course, if we would have taken that out, the margin is declining a bit. And of course, we wanted to grow also without currency help. But super happy because, of course, as you know, since 2014, I think the U.S. SEK conversion then was SEK 6.60 or something. And even though, of course, it's SEK 9.40, SEK 9.41 right now, it's still a completely different business than when I started. But however, of course, we came from almost close to 11%. So currency is where it is. I think we need to continue to drive profitable growth independently on what the currency is.

Yes, yes. And on the shoe or the product mix side, I mean, you mentioned maybe some current pressure from the shoe segment. But what do you see in the long-term prospects here? Can this segment as a whole be sort of gross margin accretive? And what has to, I mean, develop favorably for this to happen?

Well, I think we know from the past that if you do leisure footwear, the way you should do them, the margin should be as high or higher than sports apparel. So that's the clear conclusion from, of course, many, many years at adidas, who is very, very good at sneakers. So of course, that's the midterm goal when it comes to footwear and margin. Then, of course, we do know and we feel that there is an expectation and also there's a lot of consumers out there that would want to buy performance footwear from us. So we're currently, of course, reviewing that. And that, of course, comes with a slightly different price tag in terms of margin pressure. So that's not going to be a margin uplift if we do performance footwear, so stuff that you can actually run in, that will probably be dragging down the margin. But again, of course, that will be incremental business. That's going to drive growth on the other hand. But so it's all about finding that right balance. We believe that our ambition has been to be around 55% and has been -- we've been going up and down a bit. But of course, we are a bit too far away still from the 55% target. So -- but that's still what we're aiming towards. And of course, if we managed to do that, well, that's a very, very strong margin if you would compare to other sports brands or some of the other D2C players, of course, most of them are probably just high 40, just shy of 50. So we believe that we have a very strong margin mix. So that's, of course, a high focus going forward.

Yes, yes. And then on the own online channel, I mean, you mentioned maybe -- I mean, you're facing tough comps, of course, because last year growth was very impressive there. But could you elaborate a bit on -- are you seeing some challenges maybe relating to, I mean, paid marketing or something like that? You mentioned Google there as one of the challenges.

Yes. No, but I think there's -- well, online, as with everything, of course, it's changing. The environment around you is constantly moving. So what worked yesterday might work tomorrow, but potentially not. And of course, that is only increasing. So we see, of course, AI overviews with Google. We see a lot of different things that is just happening in the various different platforms that we're working with that if you're quick, it will enable us to continue to grow. If you're not quick, clearly, what you did yesterday is not going to work as good tomorrow. So you need to be quicker and even more agile to continue to drive growth. So that's just a conclusion. And we've seen that trend probably the last year, but it's really picking up. You need to be really, really on your numbers and also really looking into the engine room for e-com to continue to drive a profitable growth. And then also, of course, we elaborate with discounts. We want to ideally, of course, sell all our products at full price. So we took away mid-season sale, for example. We will participate in Black Friday, but not as aggressive as potentially some of the other brands because we believe that we have the right price points already before any mid-season sale or Black Friday discounts. But it is a commercial happening. So of course, a lot of the volume created in the whole industry is done in those periods. So we want to be there as well. But that's also an impact, of course. So a bit tight on discounts. On top of that, of course, we had a fantastic success last year on e-com with Wooly, which is a women's footwear winterized model, and it's been an exceptionally nice weather. It started out in August, which was simply incredible. It continued into September and actually it's still really, really warm. And of course, now we're into Q4. But of course, that means that you won't sell as much jackets and some of the more expensive items. And that's not so much related to us, but I'm thinking about in general and the sporting goods industry. So what needs to happen right now for the whole industry is snow. And then, of course, I expect the Black Friday and Christmas to be record sales for the industry as such.

Yes, yes. And like you mentioned, I think, I mean, you managed previously to sort of drive sales without participating in maybe the campaigns that the wider market sort of are. Are you confident that you still can do that in the direct-to-consumer channels? Like do you see currently any sort of campaign pressure from competitors? Or how do you sort of like view the current landscape as of maybe now going into the campaign season here?

No, I think the pressure there is increasing. So of course, we see, of course, on one hand that consumers have more money, and that goes for almost the entire Northern Europe than what they had a year ago. However, of course, they are still as worried as they were a year ago. We see consumer confidence shifting a bit, so actually growing a bit in Sweden. I think Denmark is a bit flat. Germany is a bit up. But so something is happening. But unfortunately, of course, the world is not turning into a more stable place, at least not as quick as I was hoping. And of course, that affects a bit how we consume. But the feeling I'm getting when we're out there talking to end consumers, but also customers is that the expectation is that there's a bit of a -- there is a desire to purchase, but people are cautious. Of course, off-price has been almost like a new -- well, perhaps not a new, but a sport. You want to buy exactly what you want, but you simply want to have a bit of a discount. And of course, with that, you need to participate, but of course, you need to be cautious how you participate, so you can also long term build a very, very strong brand. And we are constantly, of course, evaluate the right approach. So we will definitely participate in Black Friday, but we will not be the most aggressive ones. But with that said, I expect us still to be able to grow Black Friday because I really foresee the Black Friday to become a record sales period, not perhaps so much for us in that sense, but for the whole consumption. I think people have been waiting a bit. And everyone wants to make a good deal, obviously.

Yes. And then you mentioned the loungewear concept. Could you elaborate a bit on this? Is this a concept that you're targeting current customers? Is this sort of like an upselling challenge to current customers? Maybe some on what customers you're targeting here and what potential you could see?

Yes. No it's really to build on this very, very strong underwear heritage. So similar distribution points. So perhaps you bought our organic cotton stretch for many, many years, you really love the underwear. And then, of course, the next step will be then to buy lightweight organic cotton T-shirt or like a soft product that you could wear at home. So it's close to like a pajamas kind of a feeling. That has been received very well. So we'll also add actually a collection for women's in the future. It's not a big business, but I think it's something to add towards our really loyal underwear customers. And of course, we see in the quarter has been perceived and received very, very well, growing 57%. So that's super happy. And somewhere in between underwear and the sports apparel that you train in. So we need to continue to elaborate a bit and try new things in our journey to become a sports fashion brand.

Yes. And on sort of like a big picture kind of question, do you see with the product offering that you have and that you are developing, is the fashion risk increasing maybe the risk relating to individual collections and so forth? Or do you still feel that, that is roughly the same as it has been previously?

Yes, I don't think -- there's no risk in terms of changes in fashion so that we do a color that for fashion reasons is not relevant when it's been launched. I think our biggest challenge and our biggest opportunity and our biggest focus is all the same, and that is to create really, really good stuff. And it sounds easy, but of course, it's not that easy. And for us, it comes down to creating product that has a unique expression; and of course, this one says Borg, so of course, that makes it unique, but they also create garments that perhaps without a logo looks like a Björn Borg product. So that's one thing. The second one, of course, we want to create stuff that has a very good fit. So when you put it on, it needs to be perceived as this is simply perfect for me, just like underwear. And this one is oversized, so it should be a bit bigger. Some other stuff is not. So of course, perfect fit is the second attribute that we really are focusing on. And then it's about making the products good in terms of functionality. But here, we've said that there's no point in overdoing the training T-shirt because most people don't need a compression T-shirt for EUR 200. It's enough with a recycled polyester is really nice for EUR 40. So let's do that instead. And then, of course, we work with long-lasting quality, which comes then to a very, very high sustainability focus. And also, of course, not creating product that is not on trend. We want to create stuff that makes you look good today, but you can wear the same T-shirt 4 years down the road and will still make you look good. So no concerns that we are entering into fashion. And by that, of course, being vulnerable for trend shifts. But of course, I'm always concerned that we're not making the best product we can and that we need to continue doing and continue to invest in.

Yes. Okay. And then, I mean, maybe we could finish off with the -- you mentioned the consumer sentiment in Sweden. We see an uptick here. Some actors are predicting or sort of quoting expectations on a very strong Q4 in terms of retail apparel sales in the market. Like do you feel optimistic about Q4? And what can we expect like going ahead?

So -- and we try not to, of course, give any forecast on Björn Borg. So I'll leave Björn Borg on the side and then just talking about what I see around me. And what I see around me is a quarter that I believe will be finishing strong, but there will be a high share of off-price business that I think will increase more. So if we look at how November and December will finish off in Northern Europe versus how we will finish off last year, I believe that the volume will be much higher, probably 5% to 10% higher than what it was last year in total. But I also believe that the off-price business in general will be having a higher share versus last year. So that's my view in terms of what happens outside Björn Borg. Then, of course, for us, it's about continuing on our journey, focusing on doing the right things, so not getting distracted and jump on too big clearances because that will help our short-term result, but rather to build every quarter, so it becomes better and better. But in a -- well, ideally, of course, a quick pace, but in a solid pace. So we don't do something that will then simply later hurt us. So yes, that's the world that we're living in to sort of balance that off.

Yes. Thank you. And then we actually have a viewer question as well on the share repurchase possibilities. Could you elaborate a bit on the prospect for this? And how are you reasoning with regards to share repurchases?

So what we do, of course, we have a very, very active Board. And of course, that's when we have those conversations. So of course, in the same light as we talk about the dividend. My personal, of course, view on share price repurchase is that it needs to be a long-term strategy. So those that have done it really, really successful. I think Swedish Match is one that they usually use as a reference, has done it over time. So for me, I think it's a possibility. And I think it comes down then to a bit of a change in direction in terms of how we would want to evolve the company because I believe if you want to do it successfully, it's about doing that over a 5-, 10-, 15-year period. That's when you're going to make the biggest impact for the benefit of the shareholders. If you are too optimistic or too perhaps entrepreneurial, whatever you want to call it, and then you do it once, but not then, then I think that's going to not be good. But again, that's a discussion with the Board. So what will happen next year, we will see. We'll do that, of course, together when we talk about the dividend. But if we will start doing that, then I would think that's going to be then part of sort of a long-term strategy because that's clearly what will be the best interest for the shareholders, such as myself. So of course, I want to make sure that my shares are going up and being a solid investment, which, by the way, they have been doing. So I'm super happy from an investor perspective as well. But yes, that was that on, I think, on share repurchase.

Thank you so much. And I'll leave it to you for any concluding remarks.

No, thank you so much. Happy to be here. Join our sports hour. And of course, for those that are tapping in and listening to me and to us, we're super grateful for all of you, shareholders. You can't have a public company without having a lot of fans believing in what we do. So I'm very, very happy for that. And I think, again, the clear highlight and, of course, what makes me really proud is the team and our efforts in really repositioning the brand and moving this whole brand into a new arena. And I think the midnight run that Saturday evening was just the pinnacle of that when I stood there surrounded by 35,500 whatever, Diva Pink Borg tees, it was clear that we have a long road ahead to become a global iconic sports brand. But also when I look back, we've come a long, long way from when we started this journey with colorful underwear. So it made me super, super proud. And of course, thank you all for joining us on this quest to take a fairly small Swedish company and turn into a global iconic brand. And perhaps we're not even halfway, but at least we're making progress. So have a great Friday, and thanks for listening in.