Lindex Group Oyj (LINDEX) Earnings Call Transcript & Summary

Good morning, and welcome to our financial statement 2022 session. As before, I have our CEO for Lindex, Susanne Ehnbage; and our group CFO, Annelie Forsberg. The Stockmann Group's annual revenue and profit clearly improved for both divisions and we reached an all-time high revenue and operating result for Lindex. If we summarize our achievements in 2022, operating results clearly improved, undisputed restructuring debts were paid, investing in growth and efficiency in both divisions, and we had a record number of new customers last year and sustainability agenda is strengthened for both divisions. If we look now quarter 4 2024, we faced the difficult market situation, but we managed it well. When we look at the Stockmann Group, fourth quarter revenue declined slightly due to the decrease in sales in the Lindex division because of the unfavorable rate of exchange rates from Swedish crown to euro. So the revenue was down by minus 1.8%. And operating results decreased by EUR 3.5 million. If we look Lindex more closely, the revenue in euros was down by minus 3.2%. But when we look at it in Swedish crowns, it was up by 4.5%. And adjusted operating result was down in euros by EUR 1.3 million. But when we look at it in Swedish crowns, the result was almost positive. Stockmann had a plus 0.7% growth and reached almost EUR 100 million -- a little bit over EUR 100 million revenue. And the sale in the brick-and-mortar stores grew by 3.1% due to a healthy improvement of visitor flows. When looking at the Stockmann division operating -- adjusted operating result, it's important to remember that we sold this property in April 2022, and the depreciation impacted our results roughly EUR 5 million for last year. When looking at the group results for the full year, the Stockmann Group revenue grew by more than 9% which, together with efficient cost management, clearly improved the adjusted operating result for both divisions. So the group was up in revenue by 9.2%, and the adjusted operating result increased by EUR 11.5 million. Lindex revenue was up by 8.8% and the division reached an important milestone of revenue exceeding in SEK 7 billion. So in Swedish crowns, the Lindex revenue was up by 14.1% and the operating result, all-time high, up by EUR 9.7 million, reaching EUR 90 million. Stockmann division revenue was up by 10%, reaching over EUR 320 million, and the increase was driven from the brick-and-mortar sales due to the higher number of visitors but also increased average purchase for the customers. So Stockmann division halved almost the losses being still negative but again, highlighting the impact of the depreciations for last year was EUR 5 million. When we look at the group by markets, it's clear that we are very much Nordic-based. Sweden being the biggest with 36%; Finland, 33%; and Norway, 14%. Lindex represents 67% of the group's turnover and Stockmann is 33%. And we are a fashion company, fashion representing over 80% of our turnover. Now let's look closer to Stockmann division. So as I said before, the revenue was up by 0.7%, reaching over EUR 100 million. The brick-and-mortar sales grew by 3.1%, and the share of online sales was 14.7%, slight decline versus previous year. But when comparing with 2019, our online share was 8.7%. The gross margin was slightly declined, and this is due to the higher share of clearance sales. The operating cost, excluding depreciations, decreased by EUR 0.4 million to EUR 36.2 million due to the cost saving actions, which also mitigated the impact of inflation-driven cost increases, especially increased in energy. Adjusted operating result was plus EUR 3.3 million. And when looking at the operating results, it's good to remember that the Crazy Days campaign was 8-day long campaign, started 28th of September and ended 5th of October, so partially also falling into the quarter 3. The sales for this campaign increased 6.4%. And clearly, fashion was the best-performing category in this campaign. Looking at Stockmann division full year, I would say it's a solid revenue growth, and we clearly improved our results. So the revenue was up by 10%, and it was, in brick-and-mortar, plus 14.6%. And the visitor flow increased -- or visitors increased by over 22%. We had a significant increase in nonmerchandise income and strong annual sales in fashion boosted by 70 new brand launches. Adjusted operating result increased to minus EUR 5.4 million. Strong sales and improved gross margins is the reason, and cost-saving actions. Again, the impact of the agreements selling the property, the depreciations are impacting EUR 5 million in 2022. And we expect the impact to be this year between EUR 6 million and EUR 7 million. So strong customer focus paid off. Great achievements. We got over 88,000 new loyal customers last year. And as you know, we measure our customer satisfaction with an emotional value index. And there, we have a clear improvements, which is indicating customers to be more satisfied, what we are doing. We celebrated last year our 160-year anniversary with unique partner collaborations together, for example, with Minna Parikka, Artek, Marimekko and Fiskars. Also, the systematic sustainability work is continuing, and Stockmann division will invest in -- more strongly, in product ranges and services that support the circular economy. Stockmann has been selected to the circular design program, which is part of the implementation of Finland's circular economy program. And for the future, we have a strong focus on improving Stockmann division profits, customers and sustainability. We are targeting profitability, investments and focus on digital growth and omnichannel capabilities. We want to increase our nonmerchandise income, including the rental and commissions income as well as the media sales, and we will keep a close eye to our cost. We -- the core of Stockmann division is the customer-centric way of working. We will drive our offer more to premium positioning and widening in luxury and semi-luxury offering. We will build even more better omni-experiences with our data-driven decisions, making to optimize customer touch points and personalized offerings. And as I said, systematic sustainability work will continue, and we are developing our products, plans and services and selections with this sustainability and circular economy in mind. And now I would like to hand over to Susanne. So Susanne, please, welcome.

Thank you. And good morning, everyone. So we will now continue with the Lindex division, and we will start with the fourth quarter, yes. So the revenue for the fourth quarter was EUR 172 million, and that meant that revenue was down by 3.2%. But if we instead, look at this in the Swedish krona, we increased the sales by 4.5%. During the quarter, we can see that we had a little bit of a channel shift, where the brick-and-mortar stores increased in sales but, at the same time, we had a decrease in sales in the digital sales. And that is due to some extent that we had some pandemic impact the year before and also that we had a lower intake from the global e-commerce platforms this year. And this meant that the share of the digital sales was approximately the same. It was 19%. The business area, Lingerie increased the most and was up by 7%. And that meant that it stood for partly about 30% of the total sales for the third -- fourth quarter, sorry. The gross margin increased to 64.8% versus 64.6% the previous year. And this was despite the fact that we had a more expensive purchase price this year. And that was due to a historical strong U.S. dollar, together with that we also had increased price for the raw materials. But we were successfully handling this mainly due to efficient sourcing and also that we've managed to increase the full price sales, that meant that we had a lower markdown, and also that we had a bit of a shift in the channel mix together with the product mix. We have also increased prices towards our customers, but we have not fully compensated for the cost increases that we have received because we think it's so important that we continue to have a really strong price value. If we then continue to the operating cost, they decreased by EUR 6.5 million. And the main reason for this is that we have a currency impact between the Swedish krona and the euro, but the overall is that the cost has increased during the quarter. We can see that we have a more normal business compared to the previous year that we again, had some pandemic impacts and also that we have seen that inflation has increased during the quarter. But we have handled this successfully, and therefore, we have a really good cost situation also for the fourth quarter. The adjusted operating result was EUR 23 million compared to the previous year, EUR 24.3 million, which is then a little bit lower. But again, if we look at this in the Swedish krona, we can see that we actually increased the operating result also for the fourth quarter. The CapEx was EUR 18.5 million. And this is mainly due to our very important investment in the omnichannel warehouse, and that stood for EUR 15.5 million. If we then continue to full year result. The past year has been again, a quite a turbulent year. We started with some pandemic impacts in the beginning of the year. Then, unfortunately, we had the war in Europe that started a year ago. Then it will continue with quite a difficult situation in the supply chain. Then we had the inflation rising and also the increased cost for the U.S. dollar. But we have been able to manage this, and we have actually taken Lindex to new profitable levels. And I'm happy to say that we have reached all-time high sales and also autumn high full year result. The sales in revenue was up by 9%. And in Swedish krona, it was up by 14.1%. This meant that we reached a really important milestone for Lindex to be above SEK 7 billion in sales. We increased our sales in all markets and in all business areas, and we had especially strong sales in the brick-and-mortar. The adjusted operating result increased to EUR 90.3 million and was up by 21% versus the previous year. If we then take a look at, like the really important highlights for the full year, that also will be really important for us for the coming years. I would like to bring forward four things. And that is that we have invested in the omnichannel DC. This will be a critical enabler for the future growth, especially concerning the digital sales. The other part is that we have been able to recruit 1 million new customers, thanks to a really good setup that we have this really strong employee engagement, together with our offering and customer centricity. And this means that we now have almost 5.7 million registered customers that we can have an ongoing dialogue with. We also entered the very interesting fintech market, and we successfully launched Female Engineering. And during the year, we have continued our work within the sustainability and also the circular transformation. And here, we have done a lot of pilots. For example, we have had a secondhand pop-up store. We have done this online. And we also did a very important investment in the new viscose fiber once more. And this is a blend where we're using recycled material together with material from the forest. And here, we have now produced 1 million new garments. And we have those now available in our sales channels. And the beautiful dress that you can see in the picture is one example of this. Then I thought it could be a good idea just to get an overall view on how it has been looking for the last couple of years. And here, we have the base year of 2019. And over the last couple of quarterly reports, we have offer related this to the prepandemic year or the normal year. And as you can see here, we, at that time, had a sales of EUR 576 million. And then in 2020, unfortunately, the sales dropped due to pandemic impacts. For Lindex, it meant that we needed to close down all the stores in 15 out of 18 markets. But already, in 2021, we were able to increase the sales and be above prepandemic levels. And we have continued with the sales growth also in 2022. This meant that the sales increase has been approximately 15%, mainly driven by the digital sales. The digital sales has increased from EUR 38 million to EUR 122 million during these years. The adjusted operating margin has improved from 7.1% to 13.6%. And this is mainly driven by the increased sales, together with an improved gross margin and also a good cost control. For Lindex then, I would also like to explain the Lindex currency exposure. And on the top graph, you can see the development between the Swedish krona and the U.S. dollar over the last 2 years. And as you can see, it has increased approximately with 25% in 2022. And for Lindex, we buy then about 80% of all of our volumes in U.S. dollar. The second part is then the euro versus the Swedish krona. And here, we can see that Lindex then is converting our group results then from SEK to euro when then presenting this as part of the Stockmann Group. And here, we also have an exposure. And the euro versus the Swedish krona has increased by approximately 10% during 2022. And then looking at our way forward. We believe that the uncertainty and the challenging market within retail is expected to persist. However, we have already been taking a lot of cost saving actions during the autumn that will have an impact already this first quarter of 2023. We will continue to have a flexible approach. And by that, I mean that we will review our priorities, cost and development products. But in the long-term perspective, our strategy remains strong. This means that we have high set targets to deliver, and that is focusing on a global, digital and sustainable growth. This means that we will continue our investment in the omnichannel warehouse and also to invest in digital tools and digital sales. We will continue with our investment in the fintech market, and of course, the important work within the sustainability, where we also have very high set targets to deliver. We will launch our sustainability report within the next couple of weeks, where you can read about our development so far. And just looking at the first couple of weeks, the 8 first weeks of 2023, our sales growth have continued. And I know that I can speak for the whole Lindex team that we do look forward to improve the customer offering also for 2023. And that, I would like to hand over to you, Annelie.

Thank you very much, Susanne, and hi, everyone. Yes, we can conclude that Stockmann Group stood strong here in quarter 4, and that was despite -- sorry, yes. That was despite that we had a difficult market situation where both inflations, currencies and also consumer demand impacted the business. The group revenue decreased to -- with 1.8%, but we can see that if we compare with the same currencies we had 1 year ago, it actually increased with 3.1% if we have used the same currencies. The gross margin stood strong as well, 57.4% compared to 57.7%. And here, we can see, like Susanne explained, that the Lindex division stood strong and also the Stockmann division was impacted by more clearance sales. The group operating cost declined -- decreased due to that -- the currency effect. Although when we exclude the currency effects, we can see the cost actually increased, most for Lindex division, and for Stockmann division, it actually decreased when we exclude depreciations. So that is a good action. So the group adjusted operating result ended up with EUR 26.1 million compared to EUR 29.6 million. That is a decrease of EUR 3.5 million. Here, you can see that Lindex division had a decrease from EUR 24.3 million to EUR 23 million, but this is explained of the currency. And Stockmann division had a decrease from EUR 6.3 million to EUR 3.3 million. And that is due to the high depreciations. The group operating result in total ended up with EUR 24.6 million compared to EUR 50.6 million, and that is explained by that we, last year, had this capital gain when selling the real estate in Tallinn. For the full year, the revenue increased and the profit reached new levels. We can see that the group revenue was up with 9.2%. But if we do the same calculation for the quarter 4, and compare with the same currencies we had 1 year ago, it actually was up with 12.8%. And like Susanne said, there was an all-time high revenue for Lindex, and also the Stockmann division improved the revenue with 10%, like Jari said. So the group adjusted operating result increased to EUR 79.8 million compared to EUR 68.3 million. And that is actually a double result compared to 2019 that was pre-pandemic. The group operating result, when we also include the capital gains of selling the real estates and also the restructuring cost, was up to EUR 154.9 million compared to EUR 82.1 million. If we look at the division's profitability over the years, we can see that Lindex has improved the profitability. So -- and they are now on a very high level. And Stockmann division is steadily improving the result as well and are almost on plus. Yes. Sorry. Yes, the cash flow. The cash flow for quarter 4 was positive, and that is due to that it was a positive operating result. And also, that it was a change in working capital, which impacted in a good way. If we see the cash flow for the -- on a year-to-date basis, we can see that it slightly declined, the cash, due to that we have heavy investments in the Lindex omnichannel distribution center, together with also repaying the pandemic loans. If we look at the interest-bearing net debt, we can see that during the last couple of years, it has been quite high level. But since selling the real estate of Helsinki in quarter 2, the group is actually in a net cash position now and has a positive cash. And the equity, let's see, yes, the equity ratio further improves and the cash position is strong. As we can see here, the equity ratio now is 53.4% compared to 40.9% in 2019, and that is due to a lower balance sheet but also a higher equity. And the adjusted earnings per share is stable and that is despite more shares. We can see that there now is a positive net result due to a positive operating result and also lower interest costs although there are more shares, which dilutes the adjusted earnings per share. But it's on a very high level -- on a stable level anyway. The guidance then, yes. The guidance. In 2023, Stockmann expects the group's revenue to be in the range of EUR 960 million to EUR 1,020 million and that the group's adjusted operating result will be in the range of EUR 60 million to EUR 80 million, and this is subject to foreign exchange rate fluctuation. This guidance is based on the assumption that there will be a continued high inflation that will increase cost from 2022 but, at the same time, the Stockmann Group will continue to take firm measures to minimize these impacts on the cost increases. And the market outlook for 2023 is that there will be, and there is, a current challenging geopolitical situation and the high inflation level are expected to continue. However, we -- it's predicted that the inflation will slow down compared to the latter part of 2022. But this, together with high interest rates is forecast to have a negative impact on the consumer confidence and purchasing power. So the retail market is expected to remain challenging. So that was all for the presentation. So then we open up for questions.

We have also participants here in the room. So do you have any questions? Or do we have any questions online?

Yes, we have plenty of questions online. Shall we start with them? Or do you -- yes? Okay.

Okay. First, we have here a question. How much was the currency effect on Stockmann Group's operating result?

Well, since the euro to SEK is approximately -- the euro is 10% more expensive, then we can see that the adjusted operating result for Lindex should have been EUR 2 million higher if we had calculated with the same currencies.

Okay. Then, how do you see Yeezy Holding becoming a shareholder in Stockmann? Have you met them? And are there some changes they would like to the organization?

We do not comment the owners related questions.

And then we have a question, why does the company's -- why doesn't the company settle the rest of the legal cases and exit restructuring program?

Well, as we said before, there are this disputed claims, mainly coming from the landlords. And as we saw, there was a Supreme Court decision in December, which was again in favor of Stockmann and the restructuring program. We strongly believe that this will be, and focus this year, is to clarify and get out of the restructuring. But they are in the district court hands, and we try to find a solution, how do we solve the remaining on the disputed claims.

And could you please specify what is meant by valuing strategic options that are mentioned in the CEO comment? And what options are on the table?

As Annelie showed and as we've been explaining that we have paid our debt. We are cash positive. That creates new opportunities for the group for both divisions. And this is part of our strategy process, what we are currently going through and looking all kinds of options moving forward in this new situation as we are facing.

Yes. Will the separation of Lindex and retail be discussed in CMD? How about the ticker change, reflect the strong position of Lindex?

We do not speculate or comment speculations regarding the separations. But the CMD, we have decided to postpone that further because as I said, we are just currently going through our strategy process and we want to be more clear about the future options for the group and for the division. So we will come back with the date for the CMD.

How about, when do you expect to be able to pay dividends?

Well, this is obviously linked to the restructuring program. We need to get out of the restructuring program, and we need to solve this or disputed claims now. And the focus is fully to solve this during this year.

Susanne mentioned about cost saving actions in autumn that will already have an impact in Q1 2023. Could you talk more about the cost-saving actions?

Yes, of course. These are cost-saving actions that is within the whole company. We have expectations for the Q1 and Q2, that this will impact for approximately EUR 4 million to sort of mitigate the inflation that we see is coming and will hit us during these next coming months.

Then about our flagship store in Helsinki. Would it make change to keep the flagship store in Helsinki City Center as it is today? Are there enough volumes in the top floors? Would there be a possibility to transfer the top floors to apartments or offices?

Well, as we sold the property last year, now we are going through a full program of how do we improve and renovate the building. And obviously, this, we do closely together with our owner. But as we speak, we are going through floor by floor, what is the way forward. And what we have already communicated, we will open the biggest toy store in Nordics this spring in the sixth floor, and we will open a new kind of a children's wear store also in the sixth floor. So work, ongoing, and we will come back when more information to be shared.

Okay. We still have some -- yes. The audience.

Rauli from Inderes. Question on your guidance, you're basically, guiding flat sales and slightly lower EBIT on a group level. Can you say anything? Is that picture for the two divisions? Or do you see some other kind of varying drivers for the divisions?

Well, the retail market is challenging at the moment. So it's very difficult to predict the consumer confidence and what will happen. Although we see that we will be in the same range with different actions for the revenue. And for the adjusted operating result, we see that inflation will hit the result, together with also high purchasing prices. Although we will try to mitigate this in the best possible way.

And can you say anything on the divisional level? Is the picture similar? Or are you expecting something different?

No, I'm sorry, I can't do that.

Okay. And then I was actually wondering the Lindex, you were presenting now figures in euros and in SEK, which I think both been mixed by the FX impacts, one way or other. So could you share the kind of sales growth in Q4 in local currencies?

If we -- the currency is impacting in many different ways as we are acting in so many markets. And we haven't published the all up -- bottom up. But if we calculate from SEK to euro, we can see that this has an impact of approximately 10%. So that is the effect. So it's approximately EUR 8 million on the revenue side.

But in local currencies, we see that we are approximately a little bit above, that we have an increase as well.

Yes, that's what I would estimate as well, but that would be a helpful figure definitely to have in comparable currencies rather than having the FX one way or another mixing the numbers.

Sam Henriksson from Nordea Markets Credit Research. You mentioned the cost consciousness many times and also in your outlook, but could you give some more color on, for example, what kind of concrete actions be -- like cost mitigations in the inflationary environment contained? And also more color on why price increases actually aren't a viable solution? You mentioned customer value, but just to give more intel on that.

Do you want to start, Susanne?

Yes, I can try to do that. Regarding the cost measure, of course, in the short-term perspective, it's looking to ours and what we can do in the short-term perspective. In the long-term perspective, we're talking about the landlords, renegotiations, investment in automation and so on. I mean a good example of this is the omnichannel warehouse that, for sure, will drive a lot of efficiency for us going forward. So it's a mix of both short term and of course, long term.

And when it comes to Stockmann division, we have been -- we have had already 3 years of very heavy cost saving program. Now it is the nonmerchandise revenues where we are focusing how to increase that. That means media sales, how are we working with different partners, and we will come back to that more in the future with the clarity. But obviously, it is, like Susanne said, also seeing the hours we use in stores, how do we adjust according to the customer behavior. But Stockmann division is increasing the prices. So we're not impacted same way as Lindex is, with the U.S. dollar or euro. So when we are buying ready branded goods when the suppliers increasing the prices, Stockmann increase the prices. More questions online?

Yes. We have -- then we have, is the Lindex warehouse CapEx plan still EUR 110 million? And how much of that was invested in 2022?

In 2022, EUR 38.5 million was invested and the total amount is still there to be EUR 110 million.

And this year, we estimate roughly EUR 60 million.

Yes.

Yes. And has there been any contact with the people from Yeezy Holding in trying to make retail division more competitive?

Well, as I said, we, as operative management, we work with the Board of Directors, and we do not comment at owners related topics.

And then how much of your revenue comes from global fashion platforms today? And how do you see this -- the change of the Lindex omnichannel investment is completed? And then there's one more follow-up question. How is the margin for third-party platforms compared to your own core margin?

All right. Regarding the global e-commerce platforms, we do not share exactly the share of sales that we have there, but it's not a major part of the digital sales. I think everyone that is following how the development has been for the big fashion platforms. We can see that it has been a tough year for them, and therefore, we have also seen that in the Q4 development, but we have started to see an increase in their intake during this year, which is positive. Regarding the gross margin, as for all companies, you can see that the margin for this kind of business, a little bit lower. On the other hand, we also have lower cost that we need to carry. And regarding the omnichannel warehouse, this will definitely be a good enabler for us to do this sales increase within the digital sales channels, that is both our own e-commerce, but also the global e-commerce platforms, really, really crucial.

And then still about this logistics warehouse. When will the new logistics hub will be operational? And how much cost savings you expect from that?

Yes. We expect it to be up and running during 2024, and depends. You can look at this cost in many different ways. We have looked at it in the leases. And here, we expect approximately around 40% lower lease costs than we have today. Because today, we're renting several warehouses to be able to handle our ongoing business. So therefore, we will have a positive impact in that sense. And also the new warehouse will be automatic, both concerning the brick-and-mortar and the digital channels. And today, we do not have any automation at all for the e-commerce.

Yes. Then we have a couple of currency-related questions. You already commented then the impact of that on our revenue. But how about then -- how big was the negative effect from U.S. dollar to the Q4 EBIT?

Well, we have estimated this effect to be approximately around EUR 10 million that impacted the gross margin although, like Susanne explained, we have mitigated this by certain actions.

Yes. And how about, how do you see then our view on euro versus SEK and U.S. dollar versus SEK as going forward on the group level?

On the group level, we have estimated in our guidance that it will be in the same level as it is today.

And then how much in total did the real estate divestments increased depreciation in Q4 and in total on an annual level?

Like I said, for 2022, we estimate it was roughly EUR 5 million. And for 2023, we are estimating the impact will be EUR 6 million to EUR 7 million.

And are you planning to do a sale leaseback on the new warehouse when completed?

We have many different options that we look into regarding future financing, of course, as well. So that is one of the options, but not something that is more positive than anything else.

And how about then our Q1 sales, how has it started in '23 so far?

Yes, I mentioned it, and we see at Lindex that the first 8 weeks of this year that we have a sales increase that is very positive.

And same applies to Stockmann, very good.

And then I think that we have a question related actually not to the financial statements, but more to our remuneration policy that has been published today as a material for the Annual General Meeting. So there has -- why was the severance pay of the CEO increased from 9 months salary to 12 months salary? So not...

I think that is something for the Board of Directors to answer. Difficult to answer.

Yes. And what lender is the -- sorry, what lender is the EUR 40 million pandemic loans repayment related to?

It's related to -- during the pandemic, Lindex division received loans during the pandemic and support. And those loans were -- in 2020, it was approximately EUR 20 million. And in 2021, it was another EUR 20 million. And those loans has now been -- have now been paid back, EUR 40 million, during this year, 2022.

Thank you. Then in regards to Stockmann, was increase in revenue driven mainly by increase in sales volumes or price increase?

It's mostly prices, but there is a clear volume increase also, especially in fashion. So I can state that we have clearly taken shares last year in fashion in Finland.

Do we still have some questions from the audience here in our flagship store? No, then I think we are done with the questions then from the webcast.

Then we thank you all. And as before, you are welcome to Shop at Lindex and at Stockmann, our stores are for you here. Welcome shopping -- to shopping.

Thank you.

Thank you.

Thank you. Bye-bye.