Lindex Group Oyj (LINDEX) Earnings Call Transcript & Summary

Good morning, and welcome to our Q1 interim report. Together with me, I have here in our Helsinki office also our CEO, Susanne Ehnbage; and our new CFO, Annelie Forsberg. First quarter is typically negative for both divisions due to the seasonal variations. And despite a very difficult COVID restrictions in the beginning of this quarter, we delivered a strong result for this first quarter 2022. If we look at the group revenue, it was almost EUR 200 million and was up by 27% in comparable currencies. Our operating results increased clearly for both divisions. And when we look our rolling 12 months revenue increased with almost 21% and our adjusted rolling 12 months results improved by EUR 92 million. If we look at Lindex, Lindex revenue was up by 36% and was EUR 134 million. We had a growth in digital sales 8.2%. But also, it's clear that the customers are coming back to brick-and-mortar stores. And at Lindex, almost 48% increase in brick and mortar. Operating costs increased slightly due to the increased sales, and the operating results improved by EUR 18.5 million, reaching EUR 5.5 million. Also in Stockmann division, the revenue increased by 9.2%, reaching EUR 62.2 million. The sales in brick-and-mortar stores grew by almost 22%. And as part of our operational efficiency program, our operating cost also decreased by EUR 0.6 million. And operating results improved by EUR 18.5 million and reached EUR 6.3 million. Also, I would like to highlight our strong cash position, which improved also from the previous year, reaching almost EUR 131 million. Now if we look closer to Stockmann division. The revenue, as I said, increased by 9.2%, and the strong sales growth is coming in the brick-and-mortar stores. And this is due to visitors traffic is increasing. It's clear also that during the first quarter, our fashion market share grew in Finland with a good development in all fashion areas. As we told previous meeting also, we launched our -- improved our MyStockmann upgrade in February, and now we have the integrated link to the Stockmann numbers. And we have a great start also for the Crazy Days campaign, which basically fell into the April month with 18%. This is a year of 160 year special editions, and this is a year of celebrations and limited editions like Minna Parikka and Oiva Toikka glass design are great examples of great results. And as a part of our operating model renewal, the new merchant unit heads are now in place, and every department store, every channel has a clear responsible person for our profit and loss. And also, our new initiative with Textile recycling pilot with Helsinki, the environmental services increased, and we generated already 10,000 kilos material for this. And because of the Ukrainian situation, the charity donations, both in Finland, Estonia and Latvia, were completed in Q1. This resulted the results of EUR 62.2 million, which is 9.2% increase. And as I said, brick-and-mortar increased by 22%. And it is also clear that as customers are more now with visiting the stores, the average purchase has increased. Our sales online was 12.2%. And there, we have a clear increase versus 2019 with an index of 169. Gross margin increased, and this is again better full price sales and full price products. And there, you see a clear improvement. And operating costs, because of our efficient cost program, decreased by EUR 0.6 million. We reached an operating result of EUR 6.3 million. Or if we look to adjusted operating, it was minus EUR 7.3 million versus previous year minus EUR 12.1 million. And if we look at Stockmann division rolling 12 months results reaching minus EUR 5 million compared to previous 12 months, which was almost EUR 50 million. So this is a great improvement in Stockmann division. If we look now Stockmann division way forward, the strategy journey proceeds systematically. In 2019, we started this customer-centric journey. And of course, '20 and '21 restructuring and COVID challenged our way of implementing our strategic initiatives. But we've been implementing and focused on the journey, and now 2022 marks a new phase for Stockmann division with a full focus on value creation, sustainable growth and improving our profitability. Spring fashion assortment arrived according to the plan, and minor effects from the global supply chain challenges. We can clearly see that our April sales are now reaching already over 2019 levels. And if we look in terms of e-com, we have over 300 index versus 2019. Our focus areas now moving forward is to become the curator of lifestyle, the #1 source of inspiration. We want to build a seamless omnichannel experience with better services, faster last-mile deliveries as some of the examples. But also, the customer-centric road map for more personalized and tailored services is one of those where we want to really differentiate from the market, and the systematic sustainability work will continue. We want to improve our CO2 footprint. And as we have communicated, we are participating in the science-based target initiatives. MyStockmann loyalty program, the launch, as I said, has been very successful. And as there is a clear link now to our Web store, we have increased the sales by 163 indexes. The visitor indexes are already from MyStockmann directly to web store, 261, and we have doubled the unique users at stockmann.com. We will launch also MyStockmann and a new web store in the Baltics in the coming weeks and months. So our focus is now also to get the Baltic customers to be part of our MyStockmann program and being part of stockmann.com. This is a celebration year, so this is our 160-year celebration, and we will continue with our limited edition offerings. We will have more exclusive products and customer events throughout this year. And also, we have a cooperation with John Nurminen Foundation to save the Baltic Sea as part of our 160 years celebrations. And now, I would like to hand over to Susanne.

Thank you, Jari. It's nice to be here, and good morning, everyone. So today, I will present Lindex performance for the first quarter of 2022, and it has started really well. The revenue was EUR 134 million, an increase by 36%. And if you compare it to pre-pandemic levels, that is 2019, it has increased by 18.7%. It's also nice to see that the customers are back in our stores, and the brick-and-mortar increase, 47.6% and it's almost in line with pre-pandemic levels. And despite seeing that customers then are returning to stores, we continue to increase our digital sales, which was up by 8.2%. And if you compare this to 2019, we have increased the sales with 660%. The share of the digital sales was 23.6%. And if we look at this quarter, we have increased our sales in all sales channels and also in all business areas. And the business area that has increased the most is womenswear, where we have a sales increase of 52%. And I think this is a sign that we can see that more and more people are getting back to work and having a more normal behavior. Just to add also regarding the brick and mortar in stores, we can see also that we have less restrictions in this quarter, even though we had some restrictions in the beginning. But if you compare these figures to previous year, we had a lot of closed stores due to the pandemic. Looking also at the first quarter, we increased our market share in all of our main markets. The gross margin decreased slightly. It was down by 0.3%, and this is due to the currency effect towards the U.S. dollar. The operating costs increased by EUR 1.5 million to EUR 61.8 million. And this is due to increased sales. It's also due to that we have been able to have all stores open this quarter and that we are investing in growth. The operating result improved by EUR 18.5 million to EUR 5.5 million. And the adjusted operating result is the same. But if we look at the last year's figure, you can see that this is a little better, and that is due to that we did a settlement last year regarding 2 U.K. stores, which impacted the result with approximately EUR 5.5 million. And then rolling 12. The results, and this is the adjusted result. It has improved by 128% to EUR 93 million. And then just to get a glance on how we have started in April, we have increased our revenue so far this month. It's up by 34% versus previous year and up by 20% versus 2019. So if we then continue to the highlights. And just as Jari said, we are really happy to have a positive result in the first quarter that has not happened in a long, long time in Lindex' history. Also, it's nice to see that the brick-and-mortar are back on track. And if we look at March, we are above pre-pandemic levels. And we can also see that 98% of our stores are profitable if we look at the rolling 12 months result. Then during this quarter, we also informed that we are entering the femtech industry. And this we see as a very attractive growth market, and this contains 2 parts. First, we have the Female Engineering. Here we will launch our first products during the summer. It will be a period proof underwear. But later on, we will also have products within the maternity and the menopause. The other part is Spacerpad. And here, we have a majority stakes in the startup company and its patent-pending innovation in menstrual protection. And these products will be focusing on the developing countries. We have, during the quarter, also had a brand building underwear campaign, which is Your Invisible Support. And this shows how we at Lindex support the women through life and that our fantastic products are always there for her as an invisible support. We also, during this quarter, did an extensive survey in the Nordic countries, where we found out that women in the Nordic countries can find her bra size at Lindex to 93% of the cases. Of course, this is a great number, but we want to improve it. If we continue regarding the sustainability and our progress here. During the first month, we announced that we have a new member in the management team, and we have appointed Anna-Karin Dahlberg as our Director of Sustainability. Also, we released our sustainability report for 2021 that describes our progress within this area. And we have tough targets. We have said that we, by 2023, that we should be climate neutral within our own business. And then if we look at the entire value chain, we have said that we want to decrease our climate by 50% until 2030, where we had the base year of 2017. And so far, we have decreased our climate impact by 22%. We have also decided to scale up our Lindex secondhand to all kidswear garments. And then we have the Women in Cotton program. And this is an initiative that we have been working with 350 female cotton farmers in rural India. And here, we have educated them how to produce organic cotton. And then later on, we have been able to buy this cotton to produce 1 million got certified baby pajamas. And this is, of course, an important step for us to move forward and have a fully transparent cotton supply chain. And then we are now also a member -- a full member of the Ethical Trading Initiative, which is the -- ensuring worker's rights. And we have first quarter just as Stockmann donations to UNHCR's important work, where we want to help people affected in the war in Ukraine. So far, we have donated SEK 1 million from Lindex. And together with our customers, we have done a roundup campaign in our stores. And this has then delivered SEK 5.5 million. And added to that, we have also done local initiatives. And then if we continue to Lindex way forward. So during the last couple of years, we have developed our Lindex business, moving away from a wide offering in few channels or even maybe one channel to a more distinct offering in many channels. We will continue on this path and build upon Lindex as our main brand, but we also see the possibility to build upon those strengths that we have at Lindex to also add new business opportunities. And this is why we've seen Female Engineering. We have Spacerpad, and Closely and these are built upon our strength in the lingerie. We have ambitious long-term targets where we want to achieve significant growth with high profitability at the same time as we shall reduce our climate impact. Therefore, we will invest and focus within especially logistics, digitalization. We will also enter new markets and continue to develop new business and growth opportunities at the same time as we will also invest in sustainability. During the first quarter, we carried out our Lindex global employee survey. And here, we've got a score of 66 in the Net Promoter Score. This is then top 5% in the consumer industry. And I see this result as a direct link between the high engagement that we can see among Lindex employees and the nice results that we have presented during the last couple of quarters. It all comes down to the people that we have at Lindex and how we do things together, and this is also what will drive our future success. So by that, I would like to hand over to my colleague, Annelie.

Great. Thank you, Susanne, and good morning, everyone. My name is Annelie Forsberg, and I'm the new CFO for the Stockmann Group. I'm new in this role, but I'm not new in the company since I have been the CFO for the Lindex division since 2018, and I've also been a part of the Stockmann Group management team since summer 2020. So like I said, I'm new in this role, but I am familiar with the company. The restructuring program proceeds according to plan. Now all the department store properties are sold, and we have new long-term leaseback agreements in. Tallinn was sold in December '21. Riga was sold in January '22 and also affecting the Q1 numbers now, and the Helsinki real estate was sold in April '22. And in April, it meant that all secured and unsecured restructuring debt has been paid. So now we have no interest-bearing debt remained, excluding the IFRS 16 leases that we have, and also that we have a 5-year bullet bond of EUR 66 million that we will have until 2025, although there are still disputed cases with approximately EUR 95 million. And these are disputed due to the termination of long-term leases that Stockmann did in the beginning under restructuring. And the landlords now means that all the outstanding amounts for the lease periods must be paid, while the administrator of the restructuring program means its justified to pay 18 months, and that's also the amount that Stockmann has made provisions for EUR 16.3 million. And most of these claims will be settled by arbitrations proceedings. And important to say here that it must be sold before the restructuring process can end. If we then look into the financial performance of the quarter 1. Just like Susanne and Jari has mentioned, we have a good revenue increase. It's 27.1, where Lindex is 36 of that. So -- and the Stockmann Group is -- Stockmann division is 9%. So in average, 27. If you compare it to 2019, it's a decrease with 5.4. But as said before, that was before the pandemic. And also that in quarter 1 2019, we had Crazy Days there, which now in '22 is in Q2, the main part. The gross margin has increased due to Stockmann division, while Lindex division slightly has decreased due to currency effect. The operating costs are higher due to that we now have all stores open again and also that we have higher sales, of course. So the operating result ends up at EUR 9.8 million compared to last year's minus EUR 27.6 million. But if we adjust for the capital gain of selling the Riga real estate and also restructuring costs, then we actually have an adjusted operating result of minus 3.7 compared to last year's minus 21.1. And compared to Q1 '21, that's an improvement with EUR 17.4 million and also compared to 2019 before the pandemic is an improvement with EUR 14 million. To look at the trend, we have also added the rolling 12 figures to see the development. Here, we can see that from quarter 1, we have increased the revenue with 20.8%. Compared to 2019, there's a decrease of 2.2%. But like I said before, that was before the pandemic. So it's strong revenue anyway now. The adjusted operating result then, which is excluding selling the Tallinn and Riga real estates and also restructuring costs. Here, we see a significant improvement. Now we have an adjusted operating result for rolling 12 of 85.6 compared to minus 6.7 1 year ago. So that means an improvement with EUR 92.3 million. And as seen here in the graph, it's a double result from quarter 4 2019. This slide also shows the division's development during the years. And the darker staples here is Lindex. And as seen, Lindex has doubled the results during these years. The Stockmann division is light green here. And as we see here, it was big challenges during the pandemic. But from then, we can see how the result really has increased in a good way. So it's almost on plus now. Since the real estate now are sold, the interest-bearing net debt has been repaid. So this illustrative interest-bearing net debt chart shows that after selling the real estate of Helsinki, it's actually that we have a cash plus position. So that's positive. Also looking into this graph in the net results during the latest quarters, we can see that we have a positive net result during the latest quarters. In quarter 4 2020, there was an impairment test of the goodwill of Lindex and a write-down was done with EUR 250 million. And of course, that affected the equity. But since Q2 2021, it's been a positive net result affecting the equity in a good way. So this also means looking into the equity ratio that it has been improved during the latest quarters. Here, we can see the light gray, which is light gray line, excluding IFRS, and then our equity ratio is 53.6%. And that is due to the equity improvement and also repaying the interest-bearing debt. And the black line here is including IFRS. And here, we can see that now the equity ratio is on par what it was before the write-down of the goodwill of Lindex. So we have also done a chart to show how the lease liability will look like after selling the real estate of Helsinki. And then we will have a lease liability of EUR 568.8 million where of the Helsinki City Centre would be EUR 192.5 million of that, so quite big part. The other Stockmann premises will be EUR 96.5 million, and the Lindex stores would be EUR 274.2 million. So the guidance then and outlook for 2022. The guidance is unchanged. Stockmann expects an increase in the group's revenue and that the adjusted operating result will be clearly positive. Although there is a geopolitical instability in the world with high inflation and challenges in the supply chain as well as logistics and also that we have the challenges of COVID-19 restrictions, and this requires that both divisions must be adaptive and flexible to meet the future. So with that, we open up for question and answer. So Jari and Susanne, please.

Yes. And the first question will be, what our current synergies between Stockmann Retail and Lindex, or are there any? Yes. The first question will be, what are the current synergies between Stockmann Retail and Lindex or are there any?

Of course, as a group, 80% of our turnover is fashion. So when we look fashion, both divisions are looking in fashion from many different angles. But also, as Lindex is sourcing over 98% of all garments from their own sourcing with our own sourcing channels, Stockmann is benefiting with the private label. So Stockmann private labels are coming also through the Lindex channel. So there, we have a very close cooperation.

Yes. And then [ Jenni Honganan ] asking, mentioning that the department stores increased and a positive development. The average purchase has increased. How much is the average purchase at the moment per customer?

It varies by channel and by store. And we need to be very careful how do we look. For example, if I take a concrete example, Yumbo, you don't come and visit, you come and do the shopping. So the way we do shop in different department stores varies versus Helsinki City Centre, where you have a constant flow of visitors, you might be buying something, but it's clear that now after COVID restrictions, and we clearly see, for example, in Crazy Days that when we did last year, Crazy Days only on crazydays.com. And now as people came back to brick-and-mortar, we are also selling more normal priced products during this campaign. So the average basket size is increasing. And as I said in my presentation, it's clear now after restrictions, which we also see in Lindex, that fashion is moving much faster than during the restriction time. So people are coming back to work. You want to look your wardrobes and also, all kinds of festives we are dressing up again.

Yes. [ Rouleva ] asking. Hi, what level of cost inflation pressure are you seeing currently? And how are you able to mitigate those?

Well, we are starting to see inflation in many areas. It's depending on which market we look upon, of course. When we look in how to mitigate the inflation, of course, we must always adjust prices for compensating the inflation in the best possible way. But of course, this is also sensitive, so we must do that with smartness.

And if I add here, again, the categories have differences. If we look food departments in Riga and Tallinn, of course, we are adjusting to prices every day. But then depending on the category, depending when it was purchased and so on and so on, we are reflecting with price increases constantly.

Those were the questions so far. Let's wait a while to see if any more questions are coming.

If no more questions, then we say thank you for listening us. And we wish you here in Finland, Happy Vappu. And of course, we welcome you to come and shop in every channel in every store we have wherever you are. So have a nice weekend. Thank you.

Thank you.

Thank you.