Clas Ohlson AB (publ) (OHCB.F) Q1 FY2026 Earnings Call Transcript & Summary

Welcome to the Clas Ohlson Q1 2025/2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Kristofer Tonström; and CFO, Pernilla Walfridsson. Please go ahead.

Good morning, and welcome to the Clas Ohlson's Q1 report presentation. My name is Kristofer Tonström. I'm the CEO, and I'm here with Pernilla Walfridsson, CFO. So we'll go through a business update. Pernilla will take us through the financial development, and then I'll cover the events after the reporting period and then the strategy update and summary before we move into Q&A. So overall, looking at the first quarter, we've had a strong start to the new year, and we have shown again that we can deliver both growth and profitability. Looking at some of the highlights, the first quarter sales came in at 10% organic growth and the operating profit came in at SEK 278 million, which is up 37% versus last year. And this resulted in an operating margin of 9.9%. Also cash flow was strong, coming in at SEK 468 million versus SEK 413 million last year. So the financial position is still strong with a net debt to EBITDA of 0.3, and we ended the quarter with a net cash position. EPS came in at SEK 3.27, also that up versus SEK 2.3 last year. And today, we also reported the August numbers, and we saw a solid start also to the second quarter with 7% organic growth in August. Moving into the business update and starting with our strategic position. We can -- we continue to execute on the strategy that we laid out back in '22. And we're doing everything to solidifying our competitive advantages related to our assortment, the Clas Ohlson brand and the customer meeting. And we are doing a lot of work to differentiate ourselves by focusing on our multiple niches and we are doing a lot of work to develop a scalable and also efficient operating model that's cost competitive. We measure ourselves versus the discounters and low-price players in the market. And we want to generate a strong free cash flow that we can then reinvest into our ABC. So looking at the financial targets, we are overdelivering on the targets, both when it comes to sales and the margin in the quarter, and the financial position remains very solid. Now looking at some of the highlights from the first quarter. We laid out three growth drivers for the year ahead. The first one is related back to our assortment, making it relevant 12 months a year. And here, we've had a continued high pace in terms of renewal. And we saw over the summer that we have seen strong performance both across the base business, seasonal products, but also niches. And we have also done a lot of work to become more flexible when it comes to purchasing. And we saw that we were able to meet the peak demand of seasonal products back in July when the weather turned very warm. Second, on the profitable and growing online business. We see that the B2C channels show very positive development. Reported sales on e-com was plus 10%. But if we look in isolation on the Clas Ohlson part of the business, e-com was actually up 28% in the quarter. And the online-only assortment, which we have also worked on over the last few years is driving significant growth, and we now have more than 4,500 products that are web only. Last but not least, on the growth drivers. We continue to work to building a more robust store network. In the quarter, we saw strong like-for-like development and also customer satisfaction remained very high during the summer months. And we are now preparing for even further rebuilds of more stores and also more store openings happening now in the second quarter. So the ambition to launch 10 new -- or add 10 net new stores this year remains as we move forward. When it comes to the enablers, in terms of efficient customer communication, we keep working with a big focus on digital marketing, which is flexible and scalable. And it is supporting both online but also in-store growth. When it comes to the competitive cost base, here we continue to work with the -- across the organization to be competitive across all parts of Clas Ohlson and also not adding any structural costs, even though we're growing significantly. Looking at the sustainability agenda and highlight here is that we see strong growth on spare parts, both on the Spares business, but also within the Clas Ohlson business. And here, the ambition is very much to deliver more and more sustainable business model where consumers buy products they really need, use for a long time, but also are able to repair. Looking at the customer relevance and satisfaction. This is very much a few numbers that highlights the ABC, so we are very much in the sweet spot that we want to be in. Product reviews remain very strong. We get lots of reviews from our customers and the quality that the customers play back is that we have a very high-quality assortment. When it comes to affordability, we continue to be competitive also versus the low-priced players in the market. And on the Net Promoter Score, we are still within very high levels across all the channels where we meet the customers with an NPS at 57% for the quarter. So looking ahead, we are continuing the effort to strengthen Clas Ohlson across the five prioritized niches. We do look at ourselves as multi-niche players, and we could see across the quarter that we have been growing all prioritized niches and the work continues to further solidify ourselves across each of those five areas. So with that, I will hand over to Pernilla to take us through the financial development.

Thanks, Kristofer, and good morning, everyone. Let's run through the numbers more in detail, but first, I would like to remind you of the changes in our reporting that comes into effect from this quarter. We have moved from the function of expense method to the nature of expense method. The main reason for the change is that this way of reporting profit and loss is how we already work internally and as a management reduced operations. This means simple way of working and more efficient processes. And we also believe it gives more transparent information on significant expense categories. This change has no impact on net sales and operating results and no impact on our financial targets. What you will see later on in the presentation is that it impacts our gross margin. Looking at the performance during the quarter, we can conclude that sales were strong with total sales up 7% with 10% related to organic growth and minus 3% relates to currency effects. Like-for-like sales was up 7% and online sales, where as Kristofer mentioned, strong during the quarter, totaling SEK 542 million. Looking at the home market. We had strong organic growth figures across the board, but obviously, with extreme strong figures in Norway. As previously communicated, sales in markets outside Sweden, Norway and Finland, which is dominated by Spares business to businesses were down by 35% due to changing market dynamics following the weakening of the U.S. dollar. When it comes to macro trends, we are less concerned about transportation costs at the moment as they have remained at a reasonable level, even if there has been an increase in spot prices during the summer. The U.S. dollar remains at lower level than in the last couple of years, which, of course, is positive for us as it is a big purchase in currency. Impact from NOK continues to be negative and unedited due to a large share of sales in Norway. As I mentioned, our gross margin looks a bit different than we are used to due to a change in reporting method. All historical figures are, of course, available in previous reports. No matter reporting method, gross margin improved significantly from last year. The main factor behind the increase was lower purchasing costs. Currency effect was slightly positive too as positive effect from lower purchasing [challenges] and hedging compensated for the negative impact from selling currency NOK. But all in all, gross margin increased by 1.4 percentage points to 45.7%. The income statement shows a record strong Q1. Operating profit amounted to SEK 278 million compared to SEK 203 million last year. Also note that we did not have any items affecting comparability in the quarter. The EPS for the quarter was SEK 3.27, an increase from SEK 2.3 in last year's Q1. If we look at the inventory, the total inventory level is down compared to Q1 last year and at a very good level despite more stores compared to previous year. We are still very pleased with availability of product, and we think the stock in trade is fresh and well balanced. Cash flow for the quarter was strong. Cash flow from operating activities totaled SEK 378 million, an improvement from SEK 346 million last year. Free cash flow amounted to SEK 306 million compared to SEK 247 million last year. Since we are highlighting the free cash flow, I would also like to mention that we define free cash flow as cash flow after investing activities, including amortization of lease liabilities. Net debt to EBITDA, excluding IFRS 16, was minus 1x, so in other words, a maintained net cash position. And with that, I will hand back the presentation to you, Kristofer.

Thank you, Pernilla. So moving into the events after the reporting period and the August sales numbers that we reported today. So all in all, another month now of about the SEK 1 billion in sales with a 7% organic growth, and we saw currency effects of 2% (sic) [-2%]. So solid development both in Sweden and Norway with 8% organically and a flat development in Finland. When it comes to the store network, we were up 9 stores versus the same period last year. So overall, a solid start also to the second quarter sales-wise. So then moving into the summary. So first of all, we are targeting a big and growing market. So we still see a big potential forward. The overall market opportunity for Clas Ohlson is SEK 340 billion across the market, Sweden, Norway and Finland, which means that we, today, have just above 3% market share. The brand is strong. We have approximately 1/4 of the population across these markets as members include Club Class, and we're now approaching 6 million members in Club Class, so all in all, the market potential is big, and we have shown over the last few years that we are able to progress across those five missions. So when we look ahead, we do see a clear path to continued growth and value creation. We are well positioned across those niches. And as I just outlined, they represent a big market opportunity. We do see profitable growth across all the niches and also all the sales channels, which is a competitive advantage that we're able to let the customers choose whether they want to convert in a store or online. We also have a very needs-driven product assortment and high customer satisfaction. We continue to renew the assortment and also the fact that we're focusing on needs-driven products. We also believe that no matter what happens with the household spending and market economy, we should be relevant also moving forward. We also have very central store locations, which enables a full-scale e-commerce. We have high volumes flowing from the stores when it comes to the online business. And we've also proven that the marketing is effective to drive online growth development, and we continue to work to solidify the store network. And last but not least, we do have a high cost focus. And we are doing everything to be in a position that we can do more work in terms of investing in growth initiatives. So with that, we will now move into Q&A.

[Operator Instructions] The next question comes from Niklas from Ekman (sic) [Niklas Ekman from DNB Carnegie].

Yes. Can I start asking a little bit about the gross margin. Very strong here, up 140 basis points year-over-year. First thing, just you mentioned the hedges here that had a positive impact. I'm just trying to understand whether this was an unusual positive effect that you saw or if the hedge is merely mitigated what would otherwise have been a negative effect? That's, I guess, my first question.

No. So there was a positive effect from the hedges. But if you zoom out, I would say that the biggest driver of the gross margin improvement was the purchasing prices. And then if you look at the net effect of currencies, the combination of the U.S. dollar improvement, the hedges were able to offset the Norwegian krone, but I'm not sure if it was an unusual effect in terms of the hedges. We can have a look at that separately, but that was -- that helped.

Okay, okay. Fair enough. And also looking at how currencies have continued to evolve and as well as transportation costs, et cetera. I'm assuming that these tailwinds that you saw in Q1 should be even more pronounced in the coming quarters, all else equal, based on kind of current spot prices. Am I correct in that? Or do you see this quarter as being unusual?

No, you're correct in that we will get more tailwind everything else equal, obviously, especially related back to the dollar and the transportation. That said, it's important to remember also that the Norwegian krone has established itself on a fairly low level. So also looking at the next few months, we have to look all the way until April '26 to start meeting the same levels as we are today. So there's going to be a continued pressure on the Norwegian krone for the remainder of the month this fiscal, if it remains at SEK 0.93, SEK 0.94 versus the Swedish krona. And as we saw in the first quarter, we were able to offset that effect and we hope that we're going to be able to offset that effect forward as well. But there will still be some pressure there, but gradually, of course, the impact of U.S. dollar and transportation will help more as we move further into the year.

Very clear. Can I also ask about store openings? I note that last year, middle of the year, kind of from March to September, you opened 12 new stores. And since then, it's been more limited with store openings. You talk about 10 or 10 stores net for this financial year. I think you have five contracts so far. How confident are you that you can sign another five stores and open another five stores before the end of April? And what is your view in general on store openings? Are you pleased with the stores -- the recently opened stores? Do you think that this is the way to go going forward to continue with the kind of 10 stores per year in store openings?

So -- yes, so first of all, obviously, you're right that we have five contracts. We're still comfortable on the TAM. And then as we have said before, if it's plus 1 or minus 1 versus that ambition, we're still comfortable. Obviously, we are very picky when it comes to store openings. We are very happy with the store network that we have added to the business over the last few years. We consider the portfolio of new stores are adding value and delivering well. And then that, combined with the strong like-for-like development really encourages us to continue store expansion. But again, we are very picky. We have lots of ongoing discussions right now across the countries. So we're confident in finding the right locations, but we always go for quality rather than quantity here, and we want to see a strong return on the investment that we put into a new store. So overall confident, but as always, we are very picky and go for quality versus quantity.

Very clear. Finally, I just have to ask, as you said here, you're very much overdelivering on your targets. You have a margin target of 7% to 9%. You're now on a rolling 12-month basis at 10.5%. Is there anything that you see here over the next year or so that suggests that this margin should return to the margin range of 7% to 9%? And why are you sticking to that target?

So there's nothing in the near term that shows that we should go down, and we're not doing any initiatives from our end to dilute the margin with pricing or promotion, et cetera. And then, of course, the biggest volatility for Clas Ohlson is as always, currencies. We have had a pretty big headwind for a few years now when it comes to the macro factors. Now we're, as we talked, about starting to see some tailwind, which, of course, will help that. But all in all, we do not see any signs that we will go down from this level.

[Operator Instructions] There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments. The next question comes from Erik Sandstedt from Kepler Cheuvreux.

I'm Erik Sandstedt with Kepler Cheuvreux here. I got a couple of questions as well. Firstly, in terms of marketing, you mentioned that marketing costs were higher in the quarter. Should we view that as more of a one-off effect or a sort of sustained higher level going forward?

Yes, Erik. No, the market increase that we saw this quarter was similar to what we reported last quarter. And it is something that we expect to remain, but it will vary a little bit. We are -- we have allocated more and more of the marketing spend into digital channels, which means that we are buying more based on available traffic out there and then on preset profit levels. So we will continue to spend as long as we see a strong ROI. So of course, there could be market dynamics that impacts this, but it's very much the flexible and scalable digital marketing that is higher in the quarter now versus last year, but we will continue working with that methodology because it works extremely well for us, and we saw that in both online numbers and also the overall growth. So it's hard to tell exactly where we'll land quarter-by-quarter, and we work with it flexibly -- in a flexible way each month. And as long as there's profit to get, we will continue.

Perfect. Great. Then just a question on the online business. I know you elaborated a little bit on it. But could you say anything more about the profitability of the online business, both how it compares to the store margin, but also to what extent it contributed to the strong profit development in this quarter?

So overall, we have had that ambition for many years now that we want to have a profitable and growing online business. So as you know, we do not report profit per channel. But what we can confirm is that the online business is very profitable. And we do not see any issues in letting the customer choose sales channel, i.e., it is not a big difference between channels and then, of course, can vary in months and quarters. But all in all, we're very happy with the profitability in our online business. And that we do see as a continued competitive advantage moving forward.

Great. Then finally, just a question on August sales. It was -- sort of the growth rate was slightly lower than we saw in July and August, still above your target though. But could you share any more light on this? Was the summer months sort of exceptionally strong thanks to weather or what sort of were the difference between June, July versus August?

Yes. So first of all, August, we view it as another solid month with 7% organic growth. Then as you highlight, of course, growth was higher in July. And I guess the comment on July could be that if you look at the underlying business, we saw a similar organic growth rate and then we had a big effect of the seasonal products that came in on top. So the underlying growth was strong in July and June. And then in August, obviously, there is less seasonal effect. August is also very much of a transition month for us as we move away from the summer season focus, we move into back-to-school, autumn, et cetera. So it's always a quarter where we shift focus or sorry, a month where we shift focus. And then as always, months -- the growth rate per month varies a little bit, but we still view August as a solid performance.

Well done on a strong quarter.

There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

Yes, we do have a couple of written questions from the webcast. I'll start off with a question from one investor that we have touched upon already regarding the profitability target. And if there would be -- makes sense to at least remove the floor of the margin target. Comment on that, Kristofer.

As I outlined before, the margin, our ability to deliver a solid margin is, of course, a huge focus, and we do not see anything that will take this down in the near term but the margin target is still the same as it's been also for this year.

And we have a couple of questions from [indiscernible] representing Watch Media in Norway. First -- firstly, any comments on the strong growth [indiscernible] we've seen in the last couple of years.

Yes, overall, the -- obviously, we have picked up significantly when it comes to our sales. If you go back five, six years, we have like-for-like of 0% to 1%. And then over the last few years, we've seen that we've raised the minimum level significantly, and we've gone from approximately SEK 9 billion to SEK 12 billion now in the last three years. Obviously, it's a combination of the factors that we talked about with assortment, the growing online business and the store network. And all in all, if you look at the Club Class numbers, we do have a bigger and more active member and customer base. So we have kind of raised ourselves to the next level. And then as always, it's a combination of the factors that interact.

And a second one from Watch Media, any particular comments on the development in Norway as it is significantly higher revenue per capita in Norway compared to Sweden, for instance.

The Norwegian business, obviously, is very strong and it continues to perform really well. We are -- from a brand point of view, extremely strong in Norway. We've been -- we're seen as one of the strongest brands in Norwegian retail. So when it comes to the growth drivers in Norway, it's very much similar to what we've seen in Sweden. So the same factors impact but then, of course, per capita, we do have almost the same number of stores in Norway as we have in Sweden despite the half more or less of the population in Norway. So the brand is incredibly strong. The Norwegian team has done an excellent job in meeting customers, being relevant every day in each of the stores and also the e-com business are supported. So the strength of the Norwegian business is built on the same foundation as other markets. But obviously, it's performed tremendously now. And we will do everything we can to keep that momentum.

And lastly, from Watch Media, a question about Clas Ohlson's potential and -- for further local presence in rural areas. And if you see any limits to market potential in terms of smaller cities, et cetera.

And I think here, Norway is an interesting example. In Norway, we are -- as I said, we do have almost the same number of stores as in Sweden, which means that we are performing extremely well also in smaller cities. And in Sweden, we have been more focused on the bigger cities, but we have also started to open stores in slightly more rural areas. And of course, that's an opportunity for us in Sweden, but especially in Norway, we've been able to succeed with that in a good way.

And the final question from the webcast is a question from Peter asking whether we want to comment anything on the slightly lower number of product reviews in the quarter.

Yes, well spotted. So yes, slightly lower number of reviews. At the same time, though, if I look at the absolutes here, I think we are -- compared to the market, we have extremely high levels, and we get reviews on a huge part of the assortment. I don't know any specific reasons for why there was a slight drop in terms of number of reviews that was especially in the fourth quarter. We saw it pick up a bit in the first quarter. So we are obviously encouraging our customers to give reviews. So there is no specific reason. But in general, the base level is very high, and we do get a lot of feedback from our customers on a going basis, which helps us continue strengthening the assortment.

And that was the final question from the webcast, so I'll hand back to you, Kristofer, for some final words.

Okay. Thank you very much for taking the time this morning, and now we obviously will start to gradually move from the important autumn season into the very important Christmas season. So everybody is doing everything now to ensure that we can meet customers and the big inflows now across also the important months ahead. So we'll see each other in December when we report our second quarter. So thank you very much.