Kid ASA (KID) Earnings Call Transcript & Summary

Good morning, and welcome to this Q1 presentation for Kid. We're happy to have CEO, Anders Fjeld; and CFO, Mads Kigen, with us here today. [Operator Instructions] So Anders, the floor is yours.

Thank you, Joachim, and good morning, everybody, both for you who are here at Pareto and for those who are present on the web. Well, we are pleased to present our third consecutive quarter with double-digit growth. Our value for money position and concept remain resilient amid continued challenging market conditions. Growth in the quarter was accelerated by -- oh, I need to put -- sorry. Here we go. That's better. Growth in the quarter was accelerated by store projects, combined with our omnichannel and category development initiatives. Historically, store projects mainly focused on refurbishing and relocating existing stores, whereas we today consider expansion and additional and very important growth driver. In constant currency, the group revenue increased by 13.7%, and our like-for-like revenue increased by 13.5%. With a significant improvement in gross margin, we increased EBITDA from NOK 67.9 million to NOK 124.5 million. And as you can see, the EPS increased from minus NOK 1.15 last year to minus NOK 0.23 for the quarter. Well, as said, the third consecutive quarter with double-digit growth. We -- categories launched since 2022 accounted for NOK 27 million in the quarter compared to NOK 9.8 million in last year. A majority of this growth comes from the initiative in the Extended program. In addition to new categories, expansion of existing categories and increased inspiration level in the stores was an important growth driver in the quarter. The Extended concept was launched online and in selected larger stores in Hemtex during the quarter, meaning that we now have the Extended program across all markets. We are satisfied with the results from the launch and look forward to continued rollout throughout the year. Our omnichannel model and the category development and with the store projects has accelerated the growth throughout the quarter. And we are pleased to also update you on that our warehouse credit in Sweden is on schedule. As previously communicated, we estimate the operation in the common warehouse for the group to commence mid-year 2025. So with that, Mads will give you some details on the revenues.

Thank you, Anders. Good morning, everyone. I will present some financial numbers for the quarter, and I'll start with the group revenues that increased by NOK 91.1 million in the period compared to last year, representing an increase of 15%. On constant currency basis, the total growth was 13.7% and the like-for-like growth was 13.5%. This is driven by both physical stores and online. And also note that we observed growth in all months during the quarter for both our segments. The robust growth is driven by increased basket size and number of customers in all markets. And in terms of categories, we continue to see a positive development across several categories, whereas bedlinen, curtains and furniture stands out as important drivers for both segments. Regarding online revenues, I'm satisfied to point out that we had the quarter with a strong growth of 16.2%, excluding the currency effect. The group online share was 12.0%, up by 0.2 percentage points from last year. For Kid Interior, reported revenues were up by 13.4%, and the like-for-like growth was up by 12.7% compared to the same quarter previous year. The like-for-like growth includes an online growth of 33.3%. Excluding the online revenue growth, the online revenues from the like-for-like growth from our store was still 10.4%. And new categories, as Anders explained, is an important growth driver and initiatives to fuel our growth. And we have updated the definition from the reporting from last quarter, where we reported new categories since 2017, where we now report new categories since 2022. And those categories accounted for NOK 27 million in the quarter compared to NOK 9.8 million previous year. Also, I want to underline that we had successful Easter assortment impacted the growth positively despite reduced shopping days. For Hemtex, we experienced a strong reported growth of 17.9%. And on a constant currency basis, the growth was 14.3%. Like-for-like growth was driven by a growth in our stores -- our physical stores of 18.2% and somewhat negative offset by the online development. And the online development is explained by a change in the campaign -- in the January campaign, and which we also reported last year the same quarter. And we also want to say that we saw a positive development throughout the quarter towards the end. Summarized, I am pleased to present a strong like-for-like growth of 13.5% on a constant currency basis. Then the gross margin for the quarter increased by 5.5 percentage points to 61.5% for the group, driven by both our segments. Kid Interior increased by 6.1 percentage points, and Hemtex by 4.2 percentage points. This is a record high margin for the group on a historical perspective, and the improvement to the gross margin is attributed to the price adjustments implemented to meet higher currency hedge levels going forward combined with an inventory currently comprising relatively lower freight costs due to freight rates returning to historical levels in the quarter. I want to also highlight that we had a strong Q4 last year, which also then consequently reduced the need for seasonal clearance sale compared to historical periods with a positive impact to our margin this quarter. About the freight situation, I just want to note you that we are monitoring the situation of the Red Sea closely and take -- and are ready to take necessary actions if needed. In terms of the operating expenses, the OpEx-to-sales ratio excluding the IFRS 16 reduced by 3 percentage points to 57.5% in the quarter. The reported OpEx base increased 7.6% in the quarter, where overall key drivers were general salary increases to our personnel. We also have significant currency effects from the Swedish to the Norwegian krone. We have the increased marketing investments and also increased last mile distribution costs from our furniture produced in the Baltics. Give some more details on the employee benefit expenses, that increased by NOK 18.1 million, and that is mainly due to the general salary increases as mentioned and somewhat increased hours worked in Hemtex compared to previous year. And that is also as a result of the strong performance we have delivered this quarter. We also have an increase in logistic employee benefit expenses, and that is mainly explained from the logistic operations in Sweden we have taken in-house. So last year, this quarter, we had external third-party logistics provider, where we now have the internal process. So we have a line shift from other OpEx to employee benefit expenses. And finally, we had NOK 1.9 million attributed to currency effects compared to last year also and drive all the numbers reported for employee benefit expenses. The other operating expenses increased by NOK 3.3 million. Increase is mainly explained by marketing costs, where we increase the digital spend. We have also launched the extended assortment in Hemtex. Some of the explanatory factors of the development. In addition, we have also positive development in our furniture produced in the Baltics, where we have some increase of NOK 1.2 million related to the last mile distribution to the end customer of these items. And finally, we have this line shift item from other operating expenses last year related to logistics through the employee benefit expenses. Summarized the development in the first quarter. We have increased revenues from both stores and online of NOK 91 million. We have robust gross margin development increase of 5.5 percentage points and the OpEx base as explained, resulting in a first quarter EBITDA of NOK 124.5 million. And then some flavor on the cash flow. I would like to highlight the following items. The cash flow from operation was impacted by inventory build-up during the quarter. Please bear in mind that we, in Q4 last year, reported historically low net working capital, and this is linked to this. Cash flow from investments mainly relates to capital expenditures to our store portfolio and store projects and new openings. And the cash flow from financing is explained by lease payments following the IFRS 16, net change in debt due to the overdraft facility and the net interest expenses. This resulting in a change in cash of NOK 232 million during the quarter. And I also want to note and comment that this pattern we see is a cyclical pattern for the group, which is normal. And then the cash and credit facilities. At the end of the quarter, we have cash and available credit facilities of NOK 554.7 million, which includes a new term loan from Q4 last year of NOK 125 million to be used financing the project -- warehouse project in Sweden. Excluding IFRS 16, the net interest-bearing debt was NOK 568.9 million, resulting in a financial gearing ratio of 0.95x compared to 1.94x last year. All in all, satisfactory liquidity position and financial position for Kid Group in total. That said, I will leave this to you, Anders.

Yes. Thank you, Mads. As commented earlier, we maintain a high investment in the store base. I will go a bit more in the details, but just to make a few comments on this slide. As seen on the top, the store in Egersund and the store at Vetlanda and Ringen in Stockholm has already opened. So they are running and performing well from day 1. And as you see on the bottom right, we now have signed 5 new extended stores making -- that comes in addition to the 5 stores that are up and running. I'm pleased to say that we have our first store that will open in Bærum, Grini, a shopping area where we used to have a store a few years ago, but that was closed. But now we will open a new Extended in the beginning of June. We also have -- we will open in [ share ] Tønsberg, as mentioned earlier, and also at City Nord. And there's 2 more leases that have been signed, but they are subject to final approval by the landlord, which we hope will be finalized within the next month. So we want to take this opportunity to share some insights related to the optimization and development effects of our store portfolio. Existing categories and products needs at least 600 square meters to be displayed in a physical store, which is the foundation for our new standard store size. Out of the 271 stores that you see on the chart, nearly 87% of the stores are smaller than our new store format. In plain terms, this means that they are too small to display the assortment we ideally want to showcase, and lack sufficient space for inspiration. We will work to develop the store portfolio towards the new standard store size by expanding and/or relocating existing stores across all markets. Preliminary conclusion from the Q1 2022 presentation has been verified, and the increased site in the store portfolio is to -- increased size in the store portfolio drives profitable growth. Historically, we have seen that the full potential is performed in year 3. So as you can see on the chart, we are moving towards larger store formats that drives contribution, and this will be an important goal going forward. The overview also includes the 5 existing -- the 5 Extended stores, as you see on the far right side of the chart. Please note that even though these were operating throughout 2023 all of them, only one of the stores was Extended for the entire year. The remaining 4 stores were enlarged and opened during the first 4 months of last year. 14 Kid stores and 15 Hemtex stores were refurbished or relocated with our latest concept in 2023 and outperformed the remaining store portfolio. Expansion combined with refurbishment and -- sorry, expansion combined with refurbishment or relocation is considered as an important growth driver. 53 Hemtex stores has been upgraded to the Kid concept. Bear in mind, the acquisition was done in May 2019. But many of these stores also need to be enlarged. So that doesn't mean that 53 other stores have the ideal store format. We already have started to enlarge some of these stores. An example is Sickla that was opened in Q4 last year with a -- targeting our new store format. That has been highly successful after the opening. The compound annual growth from '21 to '23 was 5.4% for these stores compared to 1.1%. We will continue to ramping up the store investment program going forward as we'll come back to. Compared to '21, Kid and Hemtex have increased their average store size by 4.3% and 9.5%, respectively. The 5 extended store is excluded from the overview. The Kid Group is aiming to develop the store portfolio towards the new standard of 600 square meters. As mentioned earlier, there's a large number of stores that we -- that will be increased in size. We do not expect every single one to reach 600 square meters, but a clear majority will. Additionally, we will see that some of the stores exceeds 600 square meters in cases where the layout or the condition for the premises allows for this. It's important to emphasize that Hemtex, as you have seen on the previous slides, has a greater potential for increased store size. Historically, Hemtex has had smaller stores than Kid. And as shown, the store projects in Hemtex have had a very positive impact, with increased store size being one of the driving factors for revenue growth. And the store portfolio figures for '21 was reported in our Q1 '22 presentation, which is included on the upper table for comparable purposes. In the first half of this year, we have so far signed 15 store projects in Kid and 12 in Hemtex. We have raised our ambition and plan to increase the number of Extended stores from 10 in Norway to 15. And we already have some interesting discussion with landlords and expect to sign more leases within the next months. Additionally, we remain committed to open 3 Extended stores in Sweden. Made-to-measure technical sun screening was launched in Hemtex only a few days ago, both in physical stores and online. And group revenues in constant currency were up 25.5% compared to a drop of 5.1% in April, and up by 16.6% year-to-date per April. The revenue was highly impacted by a change in the campaign plan in Kid fueling the April development at the expense of revenues in May. And please also note that the number of shopping days in Kid was 25 in April compared to 22 last year, and the number of shopping days were 30 days in both years for Hemtex. Sale of our Swedish warehouse property will be considered over the coming 6 to 12 months and Colliers has been selected as the adviser. We have also updated our financial objectives. The acceptance for our concept is, in general, very positive. And on the back of the 3 quarters with significant growth, we have raised our like-for-like growth ambitions with 1 percentage points from previously 3% to 4% to 4% to 5% going forward. The targeted growth is partly fueled by investments in stores. Expected maintenance CapEx is consequently increased from NOK 100 million to NOK 125 million per year. In addition, new stores are expected to trigger an additional NOK 3 million or NOK 6 million for Extended stores. OpEx relative to sales are expected to stay at current levels. And the targeted dividend payout ratio stays at 80% to 100% of the adjusted net profit. A complete list of the financial basis you see here, and we will also launch and present this in our annual report for 2023. So with that, I think we are ready for Q&A. So I'll leave the floor to you, Joachim, and Mads and I will do the best to answer the incoming questions.

So I guess I can start with the question. I'm sure you were expecting this, but could you elaborate a bit on the sort of changes you've made in the campaigning plan that impacted April sales and will impact May sales as well?

I will not say a dramatic change. We have updated the campaign plan for 2024, mainly impacting Kid not Hemtex. The changes were done in Hemtex last year. This means that you will see some changes between months. But if you look in the quarter, in total, is comparable to last year. So what we've seen in this quarter in April is that it positively impacting April. But you will see a slightly more negative effect in May as mentioned. But in total, the quarter will be comparable to last year.

Fantastic. So one more question for me. Another really strong quarter in terms of sales predisclosed, of course, but could you share a bit information on sort of the split between volumes and price development in Q1?

Yes. I'm not sure if we share the numbers, historically. But of course, it's a major price effect, but we also have positive volume effect in the quarter.

This is important. Like Mads said, it has price effects but also positive volume effects due to the -- how to say, the initiatives that we have mentioned during the presentation.

Yes, fantastic. Other than that, it seems like everything was crystal clear from you guys today because there are no questions in the chat.

Any questions from those of you present in the audience?

Yes. Go ahead, please.

And for the April, you mentioned 25 versus 22 shopping days in Norway. So I assume that, that effect of about 10%. The shopping day effect is about 10% for Kids sales total for April versus last year?

It's hard to give you exact number. I'm not going to go into an argument if it's 10%, 8% or whatever. But it's probably be a good assumption that's in the range of 8% to 10%.

And could you also elaborate, you said that there was an improvement during the quarter in the first quarter. Is that both for Kid Interior and for Hemtex?

What I said was about the online revenues in Hemtex. Yes, where we have negative growth in total for the quarter, but we saw positive development by -- towards the end of the quarter.

That's a change in the campaign plan where we have an extremely aggressive campaign on e-commerce last year, which is a desire not to have this share. But going out of the quarter, we had very good e-commerce sales in Hemtex.

Okay. It seems like we have some questions now, actually. So I'll start with the first one from [ Francisco Inches ] . A few questions about the extended concept. Is there a product or set of products that is performing particularly well?

We will not go into specific details. But as mentioned, large furniture is one of the product group, but there are also additional product groups in the Extended concept. We are very happy with the performance of the new categories. So as Mads and I mentioned during the presentation, we have disclosed the figures for the new categories. But bear in mind, there's 2 additional growth drivers for the Extended program. It's also growth within existing categories. We've been -- we are very satisfied with the numbers we see internally. We've not disclosed these numbers. And also, we have more inspiration in the store, which we also see drives profit -- revenue, sorry. But we must also said that the 3 categories we highlighted for the quarter was bedlinen, curtains and larger furniture where larger furniture is a new group related to the Extended program.

Next question, are you seeing any changes with respect to gross margin as you open new stores?

No. There are no changes in gross margin. We have, as commented earlier, there's a lower margin within larger furniture. But as you can see with the record high margin we have in this quarter, that doesn't negatively impact the gross margin in this quarter. So there's no large effects on the gross margin side.

Does online or physical store shopping tend to predominate for this type of product? I guess, relating to the Extended products you elaborated on.

We saw in the beginning in Norway that we have a larger online share. We maintained throughout last year growth in online, but the growth in the physical stores were stronger towards the end of 2023. I believe this is related to having more furniture displayed in stores while we have the full portfolio of products on the e-commerce side from day 1. So I predict that we will have both good growth in e-commerce and physical stores going forward. And this is sort of the secret or one of -- what we like with the Kid is the omnichannel functionality. Our customers will visit stores, see our furniture or other products, and they will either buy it in stores or through our e-commerce platforms. We do not try to use -- I'll say force the customer to choose platform. They can shop if either is e-commerce or a physical store, and that's the strength of the omnichannel concept.

Right. Next question from Hakon Fuglu. Can you clarify on how many of your Extended stores that are included in your store pipeline overview?

For going forward, we have signed 5 new leases for the Norwegian market. And as I said, we are -- we have raised ambition as that was previously 10 stores. We have raised it to 15. So we have good discussion with landlords and expect to sign more leases for Extended stores in the Norwegian market, targeting 15 stores. In Sweden, we also have good discussions. But so far, no leases has been signed.

Next up, Petter Nyström. You raised your ambition from 10 to 15 Extended store for Norwegian. In which time frame do you see this happening? Yes. So the time line of your 5 additional extended stories in Norway.

It's hard to say exactly, but going out of 2025, we will be close to the ambition of 15 stores. If there will be a 13 or 15, I'm not sure, but that's what we're targeting right now. Bear in mind, there's only 5 leases that has been signed and 2 of them are subject to final approval by the landlord.

Final question for now. Regarding the strong growth in April, can you share some light on which categories that performed very strong? What about spring/summer products? Did that impact April of which categories?

I think we will come back to that on the next quarterly presentation, and then we'll give you more flavor on that.

Yes. Good. Any final questions from the audience? Yes. No. Okay. So thank you again, Anders and Mads, and have a great day, everyone.

Thank you. Bye-bye.