Boozt AB (publ) (BOOZT.ST) Earnings Call Transcript & Summary

Thank you, and good morning all, and welcome to our Q2 2025 call. Let's turn to the first slide. I think it's fair to say that the first half of the year has been challenging due to quite difficult market. Despite this, our revenue for the first 6 months was slightly positive in local currency. While this is below our long-term ambitions, we are satisfied with the performance given the strong consumer headwinds, particularly in Denmark. Looking at Q2 was flat in local currency but with a 3% currency headwind our reported revenue declined by 3% to SEK 1.8 billion. This is broadly in line with what we anticipated when we updated our guidance in April with the variation that May was significantly worse than we expected and June was stronger than anticipated. In the quarter, Booztlet continued its strong performance with revenue growing by 14% or 17% in local currency. The strong growth is a direct result of our inventory clearance strategy. As we have said earlier, our inventory going into the spring/summer season was too high. So we have used Booztlet to manage our stock levels effectively mitigating inventory risk and keeping our offering fresh. As was intended when we launched Booztlet, this channel now is providing its value as a crucial part of our business model. In contrast, Boozt.com saw a revenue decline of 6% or 3% in local currency. While this was impacted by a muted demand for fashion, sales were also affected by our strategy to limit promotional activity in Boozt.com to protect our brand value. We believe this is the right decision to preserve the long-term health of the Boozt.com brand, even though it affects us short term in a difficult market. Our profitability or adjusted EBIT margin for the quarter was 3.4%, down 1.5 percentage points from last year. The decline was primarily driven by 2 factors; a lower gross margin due to the clearance sales of Booztlet and a higher marketing cost ratio. The increase in marketing was a result of a planned higher spend marketing, mainly focusing on the nonfashion categories. However, with consumers holding back on spending, we did not get the expected returns on those investments in the short term. Partially offsetting the decline in margin, we saw a continued solid trend in our operational costs with significant improvements in both fulfillment and admin. These ratios improved by close to 2.5 percentage points combined compared with last year. A highlight for the quarter was our strong free cash flow, which more than doubled to SEK 186 million, up from SEK 90 million last year. The improvement was the result of our disciplined inventory management as well as the repayment of the wrongfully paid customs in Norway related to 2022 to 2024. The strong cash position [indiscernible] our commitment to shareholders as we repurchased SEK 94 million worth of shares in the quarter. In total, we have now already repurchased shares for SEK 109 million of the SEK 200 million program initiated in April. We are on track to return to shareholders from the Danish listing proceeds. To meet this commitment, the Board has initiated the process to increase the current share buyback program from SEK 200 million to SEK 300 million. Finally, our financial guidance for 2025 remains unchanged. We expect net revenue growth of 0% to 6% and an adjusted EBIT margin of 4.5% to 5.5%. With the addition that we now also guide for a free cash flow of at least SEK 500 million in 2025. I'll provide more detail on the outlook at the end of the presentation. Now turn please to the next slide. We normally do not provide a detailed breakdown of the monthly performance. But given the big swings we have seen in trading, we believe it is important to highlight how sales have developed on a month-by-month basis during the quarter. As you can see from the slide, after a relatively stable Q1, sales started to decline in April and reached a low point during May. The weak performance should be seen in the light of a challenging trading environment, where very low consumer confidence as well as a cold May in the region impacted consumer demand. However, with consumers' confidence starting to see some optimism, trading in June improved significantly with revenue increasing with double digits for the month. This was driven by all categories and [indiscernible] fashion. This positive trend at the end of the quarter gives us confidence as we move into the second half of the year. Next slide, please. We are strategically fueling our business for future growth by 3 key areas: Hiring; AI and integration and curation. First, let's talk about our people. We have made new high-profile recruitments in our buying and merchandise teams to significantly strengthen our organization. The move of our headquarters to Copenhagen has been instrumental in attracting very experienced and talented buyers and merchandisers. They bring strong fashion backgrounds and valuable industry relationships that will complement our data-driven approach in a powerful way. Second, we are making use of AI across all parts of our value chain. We are leveraging AI to generate content for banners, campaign images and also product descriptions, which allows us to scale our creative output. We're also building AI assistance to support our technical engineering, financial tasks as well as customer service teams, making our operations more efficient. Crucially, we can now deliver highly personalized recommendations to our customers. Based on the order and behavioral data, we can do it more efficiently and with greater precision. Finally, is inspiration and curation. All these initiatives, particularly those driven by AI are designed to increase customer loyalty through tailored content. By offering product descriptions through better curation and styling tips, we are confident that we can make the shopping experience more engaging and inspirational for our customers. To further support the business, we're also enhancing our engagement and focusing more on social media. These strategic initiatives are all focused on making us more agile -- more agile and responsibly equipped to succeed in a rapidly changing market. We are confident that these actions are the right steps to build a stronger foundation for our future growth. Please turn to the next slide. Going back to the performance in the quarter, we continue to see an improvement in the share of our customers who buy from more than one category in Boozt.com. As most of you know, moving customers to buy from more categories is a key priority for us. Customers buying from more than one category are more loyal and they buy exponentially more [indiscernible] customers buying from just one. In the last 12 months, 53% of customers bought from more than one category, which is an increase from 51% in the same period last year. As mentioned in the beginning, we have invested in offline media to increase the awareness of the nonfashion categories. It has had some effects as but it has not been as effective as we had hoped for. With this, I will hand over to Sandra for a more detailed run-through of the numbers for the second quarter. Please, Sandra.

Thank you. So let's start with a look at our revenue for the quarter. Revenue declined 3% and it was flat currency. The decline was driven by Denmark, which was down 8% or 4% in local currency, while Sweden continues to perform above par, delivering 4% growth in the quarter. Looking outside of the Nordics, revenue was down by 3%. While the Baltics are still performing well for us, Germany and the Netherlands saw a decline. This is mainly because we're holding back on marketing here as we remain focused on being profitable on every single order in these countries. The gross margin was 39.1% in the quarter and down 2.7 percentage points compared to last year. This was mainly driven by a lower gross margin on Booztlet, where we are clearing inventory at higher discounts. Additionally, the gross margin was impacted by currency, resulting in a headwind of close to 1 percentage point. The adjusted EBIT margin was 3.5%, down from 4.9%. This was largely lower gross margin as well as the increased marketing spend in the quarter. These negative impacts were partially offset by a continued solid progression in fulfillment costs as well as administrative costs, which I will come back to in a minute. Turning to our 2 platforms. Boozt.com saw a revenue decline of 6% for the quarter, which translates to a 3% decline in local currency. While the difficult market conditions had an impact, it's also important to note that our strategy of maintaining a more premium pricing on Boozt.com, which we do to protect our brand equity is likely impacting short-term sales in the current environment. Despite this, we onboarded close to 200,000 new customers on Boozt.com. However, as consumers remain hesitant to spend across the Nordics, we also see that they're buying on average less frequently. The number of active customers in the last 12 months was flat compared to last year, while the average order value increased 2% to SEK 934. In the Nordics, Boozt.com revenue was down 6% or 3% in local currency, and this was driven by a 10% decline in Denmark, which translates to a negative 5% in local currency, while Sweden was down 3% in the quarter. Consumer confidence in the Nordics continued to decline in the quarter, though we have seen a slight improvement towards the end and especially in Sweden, which was also reflected in the strong performance in June. Sales outside of the Nordics declined [ 8%. ] As mentioned earlier, this was impacted by lower sales, mainly in Germany and the Netherlands. The adjusted EBIT margin for Boozt.com declined 0.8 percentage points to 3.8%. The decline was mainly driven by a lower gross margin impacted by currency as well as a higher marketing spend. This was partially offset by the increased efficiency in fulfillment and distribution, supported by the transfer sales that we introduced in 2024. Additionally, margins were positively impacted by Boozt no longer being subject to customs payments in Norway as well as the staff reduction. If we move on to Booztlet, revenue increased 14%, supported by the ongoing clearance sales introduced last year. In the quarter, we successfully continued to clear out all the products from prior seasons to keep our inventory fresh. This has been well received by customers, particularly in Sweden, where sales increased 30%. Active customers during the last 12 months increased 19% to more than SEK 1 million, while the average order value increased 2% to SEK 933. This was achieved despite the lower prices offered on Booztlet and was due to an increase in number of items per basket. The adjusted EBIT margin for the quarter was 1.9%, down from 5.9% last year, and the decline was mainly due to the current clearance sales on the site. So if we move to the cost ratios. Starting with fulfillment, we're very pleased to see the continued good development in our fulfillment cost ratio, which was down to 10.5% for the quarter compared to 11.4% last year. This is a direct result of the operational efficiencies that we've been working on. The transfer sales we installed last year are now fully up to speed and combined with better distribution deals, they are generating meaningful savings for our business. Our marketing cost ratio increased to 11.5% from 10.8% last year, and there are 2 main reasons for this. First, we continued, as Hermann mentioned, with the planned offline marketing spend to build awareness for our non-fashion category. The second reason is that we did not see the expected return on these investments due to the challenging environment and particularly with women holding back on spending, also somewhat impacting other categories. We do not plan to spend the same level on offline marketing in the second half. If with admin and other costs, the ratio continues to improve and decreased by 1.5 percentage points to 9.7%. This improvement was driven by 2 significant factors. First, our administrative costs benefited from no longer having to pay customs in Norway. The other major driver was the positive effects of the restructuring that we completed in February, which reduced our permanent positions by approximately 10%. we're very pleased with the increased efficiency that this has delivered. This is now projected to have a positive impact on our adjusted EBIT margin of up to [indiscernible] points in 2025, an increase from our earlier projection of around 0.3 percentage points. Our depreciation cost ratio increased to 4.1% from 3.6%, and this was also due to 2 factors: The new depreciation cost associated with the lease of a new bulk storage hall and the installation of the transfer sales at the fulfillment center last year. These are strategic investments, and we expect to grow into these costs as our business expands. Finally, it is worth noting that costs related to share-based payments resulted in a positive adjustment this quarter. This was due to lower share price and lower projected performance than initially anticipated. Consequently, the non-adjusted EBIT margin for the quarter increased to 5.8% from 4.2% last year. The next slide, please. Cash development. So we ended the quarter with net working capital of SEK 1.3 billion, corresponding to 15.5% of revenue, and this is to be compared to 12.2% last year. The increase was mainly related to a decline in accounts payables, which was primarily due to reduced inbound deliveries during the second quarter. Inbound deliveries are anticipated to pick up during Q3 ahead of the autumn/winter season. Inventories, they are on par with last year but significantly down compared to the last couple of quarters, supported by the ongoing clearance sales on Booztlet. CapEx was slightly down compared with last year, SEK 36 million in the quarter versus SEK 48 million last year. The decline was mainly related to intangible investments. Investments in intangible assets was at SEK 12 million and among other things, relates to investments at the fulfillment center for a new semi-automatic system for garments on hangers, which will increase and productivity even further. Free cash flow in the quarter was SEK 186 million compared to SEK 90 million last year. The improved cash flow was mainly due to the effective inventory clearance during the quarter as well as more cautious buying behavior, given the difficult trading conditions. Furthermore, cash flow was positively impacted by the repayment of customs duties, which we incorrectly paid in Norway in 2022 to 2024. These 2 factors were partially offset by a decline in our accounts payable. Our net cash position was SEK 75 million at the end of the quarter, down from SEK 297 million last year. And our cash position continues to be impacted by our share buyback program. In the last 12 months, we repurchased own shares for SEK 292 million. So this ends the financial overview. So back to you, Hermann.

Thank you, Sandra. Yes, our performance since changing our guidance in April has been broadly in line with our expectations. We were clear then that we did not foresee trading improvement until the second half of the year. Although June saw a significant improvement, this was preceded by a weaker-than-expected May. Looking forward, with sales now returning to growth, we remain confident in our current guidance for the full year. So the guidance remains unchanged with 0% to 6% growth -- revenue growth and an adjusted EBIT margin of 4.5% to 5.5%. This indicates that we need to achieve between 0% and 11% growth in the second half of the year. While this is a broad range, it also illustrates the continued uncertainties we are facing. Additionally, of course, it's worth noting that the comp [indiscernible] for the second half of the year higher than what we faced in the first half of the year. Currency remains a headwind. However, with a slightly weaker SEK, the top line headwind is now down to 2% from 3% in April. The margin headwind is slightly lower as well, bumps up to around 1 percentage point. Our capital expenditure guidance also remains the same with SEK 150 million to SEK 170 million to be spent in 2025. One thing to mention is though is that we are slightly postponing our capacity expansion plans. This is partly due to significant improvements in operational efficiency and better-than-expected utilization of our existing capacity but of course, also a result of the lower-than-expected growth we've seen since communicating the plan in April last year. This means that you should not expect us to spend around SEK 500 million from 2025 to 2027 but rather that these investments will be deferred by 1 to 2 years. Finally, as mentioned initially, we are now being a bit more firm on our cash flow, driven mostly by the positive development in our inventory position and supported by the clearance on Booztlet, we now expect to generate a free cash flow of at least SEK 500 million in 2025. This compares to around showing a significant improvement. So yes, this concludes the presentation, and I would like to hand over to the operator for questions, please.

[Operator Instructions] The next question comes from Niklas Ekman.

Can I start with a question here on current trading? And I know you don't usually comment on this but given the huge variations we've seen here in April, May and then June, it's just difficult to see what -- which of these were a one-off. Can you say anything about the start of Q3, whether we should look at June or if we maybe should look at the entire Q2 as an indication? That's my first question.

Yes, it's a good question. As you said, normally, we don't provide current trading and also July and August are kind of left over from the spring/summer sales. But I can tell you that we're back to growth, even though it's a modest growth, but we're back to growth, of course, is supporting the guidance for the second half.

Very good. And the guidance here, as you said, it's also a pretty wide range. And if I just look at sales in H1, it does seem that the -- at least the upper end of that guidance is more optimistic, and it seems to be pointing more towards the lower end of your guidance and a little bit the same on margins if you adjust for import duties. Is that -- do you share that view? Or is it the easy comps that make you more optimistic about the possibility of reaching the mid- to high end?

I think it's a combination of easy comps, better stock alignment and probably a more optimism that we see going forward as the revenue side. On the cost side, we're actually very, very well in control of the costs. So I think the midpoint is a good bet but definitely not the lower point of the guidance on EBIT.

Very clear. And just to clarify as well because last year's earnings were, of course, impacted by these import duties, the Norwegian import duties. Can you confirm that your underlying margin in Q2 was in the range of 5.6%? And also, I think that in Q3, your margin was -- should have been around 1 percentage point higher, around 4.3%. Am I getting the math right on that?

So you're referring to the last year's margin, right?

We don't really get your question. Can you elaborate where...

I'm looking at the underlying margin, if you adjust for Norwegian import duties, which you did pay in Q1 to Q3 and then were kind of repaid in Q4. So the underlying margin was that 5.6% in Q2 and around 4.3% in Q3?

Well, we have a tailwind. If we look at this quarter, we have a tailwind from the customs of 0.7 percentage points. And full year, it's around 0.5-ish, something like that.

And for Q3 was the margin would have been around 1 percentage point higher, excluding these import duties. Is that correct?

That sounds a bit much, but I don't remember Q3 number from last year right now but...

Maybe we can come back on that.

We can come back on that. That's no problem.

Yes. Okay. Final question to you, Sandra. How much longer are you staying? And also, I'd like to take the opportunity to thank you for your contribution over all these years.

Thank you. That's very nice of you. Well, actually, I'm going to have a few days off here but today is my last day at the office.

I'm sorry, it was breaking up here a little bit but thank you so much.

The next question comes from Benjamin Wahlstedt from ABGSC.

First of all, I was wondering about your guidance. As you point out in the presentation as well, since the Q1 report, FX rates have sort of been moving your way again. And I was wondering how and if this was taken into account when deciding on the guidance commentary in this report or the -- if it was taken into account when deciding on whether or not to change the guidance in this report.

Well, we think that's too early to say, obviously but we think that when we provided the guidance, that change -- that room like covers it. But obviously, if it continues down, then we will be more specific in Q3. But for now, we keep it as it is.

Perfect. I was also wondering about the ongoing perhaps inventory clearances. In the beginning of the year, you noted that you expected an H1 inventory clearance through Booztlet. We've seen signs in the reported figures. And I was wondering if you could give us any additional flavor on the quality of the current inventory? And what are sort of your thoughts about the need for further clearances into Q3, please?

As you see, our inventory now is in line with last year. So we actually have been managed to clear that. Inventory position is actually quite good. We still are a big spring summer on Booztlet, and we'll continue to do that. But of course, the focus now is to have the right inventory on Boozt.com. And as we said right in the report is that especially the women's category has been muted dresses and that has been corrected for the fall. So I think that we have -- already now and within deliveries that are coming into warehouse, we have a quite good inventory position. We -- at least now, we no longer have too much inventory.

No longer have too much inventory. Sounds promising. Final question from me. You have changed your commentary around expected admin ratio savings from the headcount reduction to now be 50 basis points as opposed to 30 basis points previously. Could you talk a bit more about this decision, please?

Yes, we can just see the effect of our savings. And when you do restructurings, you, of course, some of it is just redundancies, some of it where you need to kind of replace people with some kind of other types of people or other levels. And we have seen that it's less than expected. So the effects of our rightsizing have been higher than expected, which is quite encouraging because our operation costs are very much in control and we believe we are kind of quite a fit company.

The next question comes from Daniel Schmidt from Danske.

A couple of questions from me. And I think you answered most of them already but I think you, Sandra pointed to the fact that you will be less pronounced going forward when it comes to offline marketing and non-fashion categories for the second half of this year. Is that going to be neutralized by increased marketing when it comes to fashion-related items? Or how should we view that statement?

Marketing cost ratio was too high in the quarter. So the ambition is still 10% and below for kind of long term and marketing cost ratio of 11.5% was too high and it was due to our marketing campaign. And part of it, of course, it ran in May, which -- where consumers were holding back and part of it was basically our concept was not good enough. So we are back on the drawing board. And of course, our plan is still to increase the awareness of the categories, which -- because we believe it is very strong. And I think the best proof of the categories how they contribute is that the basket size has actually gone slightly up in an environment where item price on fashion is going down, people on Booztlet. So actually -- so this only encourages us to focus more on kind of forgetting the women's because it's still the women that are driving the purchases in other categories. And if women come into the site to shop for themselves, they typically add to basket of other categories. So a long answer, Daniel, to your question.

Yes. I think I heard you're breaking up a little bit actually during the call. So maybe I missed some of it. But did you say that you aim to get to rather a 10% ratio for the full year on marketing? Is that what you said?