Lindex Group Oyj (LINDEX) Earnings Call Transcript & Summary

Good morning, everyone. I am Susanne Ehnbage, CEO of Lindex Group. And I would like to warmly welcome you all to our webcast, where we will walk you through the key highlights of April to June 2026 financial performance. And I have, as always, with me, our CFO, Henrik Henriksson.

Good morning.

Now let's continue to the agenda on the next page. We will start with the highlights of Q2, and then we will also have the business update of our 2 divisions, Lindex and Stockmann, and then we will look more into the financials. We will finish with an update on our way forward. And after our presentation, we will have time for your questions. And we can now move on to the next page, please. Let's begin with our business update for Lindex Group as well as the Lindex and Stockmann divisions. And let's first have a look at our consumer confidence, as you can see on this page. Our home markets continue to report relatively low consumer sentiment levels during the second quarter, as shown on this slide. However, we saw some improvements towards the end of the quarter, especially in Finland. Our focus remains on staying close to our customers with a relevant and also attractive offering and securing excellent service and good supply capability. Now let's have a look at the group level key messages of the quarter. Lindex Group delivered strong adjusted operating results and revenue growth during the second quarter. Lindex division's revenue increased by 4.2% and adjusted operating result increased by 32%. Revenue in the Stockmann division declined marginally, but comparable revenue showed a slight increase and the profitability continued to improve. Work to reach full operations at the Lindex division's new omnichannel distribution center progressed steadily during the quarter and the first efficiency improvements have been achieved, marking an important milestone in the development of this significantly important facility. As earlier communicated, the valuation of the strategic alternatives for the Stockmann department store business continues, and the outcome of the strategic assessment will be communicated when appropriate. We can now move on to the next page, please. To briefly sum up the Group's Q2 development, Lindex Group's revenue increased by 2.2% to EUR 259.5 million and by 1.2% in local currencies. The Lindex division grew by 4.2% or 2.8% if you look at it in local currencies, while the Stockmann division's revenue declined slightly, but increased in comparable terms. The Group's adjusted operating results increased from EUR 22.2 million to EUR 30.5 million. The improvement was mainly driven by a stronger gross profit in the Lindex division and a continued profitability improvement in Stockmann, supported by efficiency measures. Let's take the next slide, please. Looking into the Lindex division, we delivered sales growth and improved profitability, supported by a relevant commercial offering. Womenswear was the best-performing category, and we continued to strengthen the offering through selected launches, including Female Engineering collaboration with Mammut and our new loungewear collection. Work to gradually reach full operations at our new omnichannel distribution center progressed well. The property development has been completed with full ownership of the facility transferred to Lindex. Our focus has shifted from implementation to optimization. And towards the end of the quarter, we began to see the first positive efficiency benefits, which are expected to increase gradually as operations continue to optimize. We also continued our market expansion, signing an agreement to open our third store in Denmark in Aarhus, and we're also strengthening our partnership with Magasin -- Magasin du Nord. And we have opened 2 new stores in Reykjavik in Iceland. To support continued growth, we made further progress in our digital and also circular transformation, improving both personalization, navigation and order tracking, strengthening digital tools in our stores and building AI capabilities in areas such as translation and also content creation. On circularity, we have partnered with BASF and its loopamid solution to accelerate textile recycling with an initial focus on lingerie, where polymer is an important material and Lindex has a really strong position. We also strengthened our focus on women's empowerment and menstrual health through our WaterAid fundraising and awareness initiative with an Lindex matching donations and supporting the equivalent of more than 26,000 menstrual health education sessions. Let's then turn to the Stockmann division. The second quarter marked another step in Stockmann's transformation journey with solid profitability improvement driven by a stronger customer offering, improved operational and cost efficiency and disciplined commercial execution. A key highlight was the strong performance of the fashion category, where the curated offering continued to resonate with the customers, supported by new brands, concepts and premium experience. Omnichannel momentum has also continued, supported by the new Stockmann App, digital in-store tools and also ongoing renovations of the Helsinki flagship, all strengthening the customer experience. Crazy Days also demonstrated strong omnichannel execution and performed better than the previous year despite a leaner operating base. We were also pleased to see that the loyal customer base continued expanding with more active and new MyStockmann customer -- members and also a higher loyalty share of revenue and growth in the younger loyal customer base during the first half. Overall, Stockmann's second quarter shows that strategy execution is translating into a stronger customer engagement and improved profitability. We will continue to strengthen differentiation, omnichannel competitiveness and loyal customer value while maintaining a disciplined focus on profitability. Let's move on to our guidance on the next page. We maintain our full year guidance. We expect the revenue in local currencies to grow compared to 2025 and that the Group's adjusted operating result is estimated to be EUR 70 million to EUR 95 million. And as I said earlier, foreign exchange rate fluctuations may have a significant effect on adjusted operating results. With that, I would like to hand over to our CFO, Henrik.

Thank you, Susanne. And now let's look more closely into the second quarter, and we can jump to the next page, please. And on this slide, we are presenting the Lindex division's revenue and adjusted operating result for the second quarter 2026. And the Lindex division revenue increased by 4.2% and ended up at EUR 179.6 million. In local currencies, the revenue increased approximately 2.8%. This positive revenue development was driven by a well-received customer offering, combined with successful commercial execution. The revenue from our physical stores increased by 5.9% in local currencies. Looking into our digital revenue, it accounted for 17.7% of Lindex total revenue. And the lower digital revenue continued to be temporarily affected by the stabilization phase of the new omnichannel distribution center operations. However, as Susanne earlier told, work to gradually bring the new center to full operation progressed according to plan and the first efficiency benefits started to materialize towards the end of the quarter. Looking into our gross margin, it increased to 68.4%, and this is due to favorable currency impact and proactive management of sales margins. Our comparable operating costs increased slightly to EUR 70.6 million compared to the comparable period of EUR 69.7 million, and this is due somewhat to higher personnel costs and sales volume-related operating costs. Our adjusted operating result came in at EUR 30.2 million, and this is due to improved gross profit and disciplined cost management. Then let's jump to the next page, where we will then look into Stockmann division's revenue and adjusted operating result for the second quarter 2026. And here, we can state that the division's revenue came in at EUR 80.0 million and it declined slightly to comparison period. But looking into comparable revenue, excluding the impact of the Itis department store closure and the transfer of the furniture assortment to our new partner, Vepsäläinen in September, grew versus the comparison period. The division's main category, fashion, performed well, and its growth had a positive impact both on revenue and margin development. Looking into the sales in the food category were in line with the comparison period, while sales in beauty declined slightly and the home category declined significantly due to the changes of business model. Stockmann's gross margin increased to 45.5%, and this is due to lower share of clearance sales, good campaign tactics and successful margin management. And adjusted operating result improved mainly due to improved gross profit and successful efficiency measures. And next slide, please. And with this slide, we would like to visualize how the division level changes and their impact on the Group's revenue and adjusted operating results during the second quarter. The left-hand side shows the revenue, which ended up as an increase compared to the comparison period on group level. Lindex division contributed by EUR 7.3 million due to well-received customer offering combined with successful commercial execution and Stockmann's revenue decreased by EUR 1.7 million, but as previously mentioned, grew in comparable terms. Looking into the right-hand side, here is the adjusted operating result, and it increased to EUR 30.5 million on group level. And here, the Lindex division -- adjusted operating result contributed by EUR 7.4 million due to improved gross profit and disciplined cost management and the Stockmann division supported by EUR 1.3 million. And that gross profit was driven by gross profit improvement together with successful efficiency measures that contributed to the positive outcome. If we then turn page and look at the Group key figures for the quarter. As earlier mentioned, our revenue increased from the comparison period by 2.2% and in 1.2% in local currencies. Adjusted operating result increased to EUR 30.5 million. Operating result ended up at EUR 30.0 million and the net result increased to EUR 15.8 million. The gross margin for the Group improved to 61.3%, and that's compared to 58% in the comparison period. Earnings per share increased to EUR 0.09. And we can then turn page. And this is starting by saying a general comment on the Lindex Group's first half year development. We can see that there was a continued progress in both revenue and profitability, and it was supported by gross profit and disciplined cost management in both divisions. Looking into the Group's increase, it was 2.8% and ended up at EUR 452.4 million. And this was driven by the Lindex division who contributed by EUR 14.7 million due to strong customer offering and successful commercial execution. And we have the Stockmann division with a decrease of EUR 2.2 million, but grew in comparable terms. The Group's adjusted operating result increased to EUR 18.5 million from EUR 13.5 million, and the improvement was driven by Lindex division's gross profit improvement and disciplined cost management and Stockmann's improved gross profit and lower operating costs. Let us then jump to the next page, please. And with this slide, we would like to visualize the profitability performance over time. And the profitability for both divisions has improved significantly over the past years. Lindex continued to operate at a substantially higher earnings level than before the pandemic, demonstrating the strength of its customer offering, our commercial execution and profitability-focused growth strategy. Looking into the Stockmann division has delivered a sustained turnaround in profitability. Following its first full year positive adjusted operating result in 2025 after many, many years, the division has continued to strengthen its earnings performance in 2026 and with rolling 12-month adjusted operating result reaching its highest level in recent years. We can then turn page, please. And here, let's spend a few minutes reviewing our operating free cash flow development and capital expenditures. On the left-hand side here, we're showing the Lindex Group's operating free cash flow, and this is excluding the investment in the Lindex omnichannel distribution center. We came in at minus EUR 11.4 million compared to minus EUR 17.3 million previous year, and this is driven mainly by strong operational performance. Looking into the right-hand side, we see the operating free cash flow in a rolling 12-month perspective. And for the Lindex division, it came in at EUR 90.4 million. And for Stockmann division, it was minus EUR 25.3 million. Looking more specifically into the Stockmann division, the inventories ended up at EUR 58.0 million versus EUR 54.1 million previous year. And this increase is due to a business model change for one of our key brands. And in addition, the planned later start of the seasonal clearance sale affected the inventories and thereby result in operating free cash flow. And we don't foresee this trend to continue. Looking into the inventories for the -- on group level, it decreased to EUR 174.9 million compared to previous year, EUR 183 million. And looking at the Lindex division, the inventories at the end of the quarter decreased to EUR 116.9 million compared to EUR 129 million. And this is supported by strong sales performance, active inventory management. Looking at Stockmann's division at the end of the quarter, we were above the comparison period, as I already mentioned. Looking into the second quarter, our capital expenditure ended up at EUR 6.9 million versus EUR 9.1 million previous year, which consisted of investment related to digitalization projects, omnichannel development and the omnichannel distribution center. And by the end of June, approximately EUR 104 million of the total omnichannel distribution center investment of EUR 110 million has been paid. We can then go to the next page, please. And here, we would like to take a closer look at our cash position, and the graph presents the changes in cash position per item from the beginning of the year to the end of June in relation to the comparison period. And at the end of June 2026, cash and cash equivalents ended up at EUR 103.9 million compared to EUR 85 million in the comparison period. And during the second quarter, total cash flow was generated corresponding to EUR 32.2 million versus EUR 32.5 million in the comparison period. And cash flow was impacted by the final transition of the OCDC building to Lindex. We can then turn to the next page, please. And here, we would like to illustrate how the Lindex Group's financial position has improved during the latest years and which has and will enable our future growth. And in the graph here, you can see that the net debt has remained on a good level. Excluding the IFRS 16 items, the interest-bearing net debt was positive at EUR 30.7 million. Our equity ratio improved further and reached EUR 65.6 million (sic) [ 65.6% ], excluding IFRS items and 33.3% including IFRS items. The lease liabilities under the IFRS 16 reporting standard totaled at EUR 582.3 million (sic) [ EUR 582.8 million ]. And the lease liabilities related to the Lindex division came in at EUR 290.3 million compared to EUR 280.3 million previous year. And the Stockmann division came in at EUR 292.5 million compared to EUR 318 million previous year. Our interest-bearing liabilities stood at EUR 73.1 million. And after the reporting period in July 2026, the Lindex Group repaid its maturing senior secured bond of EUR 73.1 million. And then we can look into the next page, and that is just to briefly summarize our Q2 results by saying that we saw good progress in the Group's performance during the second quarter. The positive development in the Lindex division was mainly driven by improved gross profit and disciplined cost management and Stockmann's focused efforts on the division's strategic priorities continued to strengthen competitiveness and the gross profit improvement, together with operational and cost efficiency measures improved the profitability. And with that, I would like to hand over to Susanne, who will pave the way forward. Thank you.

Yes. Thanks, Henrik. So let's now move, as Henrik said, to our way forward, starting with the Lindex division. And for the Lindex division, we have established a solid foundation to accelerate global growth while continuing our transformation towards a more sustainable business. At the same time, we are improving scalability and efficiency to increasingly decouple costs from growth. Looking ahead on the next page, realizing long-term efficiency, cost savings and growth benefits enabled by the omnichannel distribution center remains a top priority for us. We have begun to see positive efficiency benefits, and we expect this to increase gradually as operations continue to optimize. Our focus is also to continue strengthening our market presence and customers by reaching a multichannel growth. We will continue to grow in Denmark through our physical stores and also deepen our partnerships. Building on our progress, we will also continue enhancing the customer experience by strengthening our technology foundation further and continuing our AI journey to enable more efficient and stable ways of working. At the same time, we will continue to advance our sustainability agenda, focusing on climate, circularity and human rights to drive long-term value and support the transition to a more sustainable fashion industry. Looking at the Stockmann division strategy on the next page. Our key target is to improve the financial sustainability and competitiveness of the division. Stockmann's division is strengthening its financial stability and competitiveness through 4 strategic must-win areas, which are to improve operational efficiency, differentiate through curating offering and grow and leverage loyal customer base, and optimize omnichannel performance. Looking ahead on the next page, Stockmann will continue the disciplined execution of its strategy with a focus on profitability and competitiveness. So the key priority remains, and systematic work on cost and operational efficiency improved by -- supported by improved ways of working, processes and digital capabilities and partnerships. At the same time, Stockmann will continue to strengthen its offering and customer relevance through a curated brand mix, including selected new partners and further development on its own brands. Examples include the launch of the globally recognized Gap in Stockmann's assortment in September and the expansion of Essentials by Stockmann into menswear. The Helsinki flagship remains central to Stockmann's positioning and the next renewal phase starting this autumn will support the development of evolving premium and luxury offering. The upgraded women's accessory area will further strengthen the flagship's position as a destination. Stockmann will also continue to strengthen the MyStockmann loyalty program, which celebrates its 40th anniversary this year with a focus on customer value and long-term engagement. Overall, Stockmann's priorities for 2026 are clear: continued profitability improvement, stronger competitiveness through a relevant offering and a deeper loyal customer relationship. And by that, we now open up for questions from you.

Very good. Then I -- let's take the first question to Susanne. What kind of measures and plans do you have to continue to secure positive revenue development for 2026 for the Lindex division?

Thanks. First, if we just think overall for the Group, our outlook remains, of course, subject to continued uncertainty, both in consumer confidence in broader macroeconomic environment. However, we have clear priorities in place to support continued positive revenue development in 2026. And this include realizing the full benefits of the omnichannel distribution center, which I talked about, and ensuring reliable fulfillment and strong product availability and also strengthening our product offering and customer experience. We are continuing with our work to expand our market presence through selected new stores and also strategic partnerships that should also improve the revenue development. So together, these measures support further revenue growth and will strengthen Lindex's scalability and also competitiveness over time.

Yes. Thank you. Then we go over to the Stockmann division, and we could stay with you, Susanne, here. You mentioned in the report that you started the summer clearance sales later for Stockmann, and this affected the inventory levels and cash flow. Why such a planned decision?

Yes. This has been part of our commercial planning and also execution and to support the targeted revenue and gross margin development. We expect the impact on the inventory and cash flow to be timing-related and thereby temporary.

Thank you. Then we go over to the Lindex division and a question related to the omnichannel distribution center. So this would go to Henrik. Do you intend to pursue a sale-and-leaseback transaction for the Lindex omnichannel distribution center now that the final transition has been completed?

Well, we have not made any such decision at this point. And as with any significant business decision, potential alternatives will, of course, be considered and evaluated based on the Group's strategic operational and financial priorities at the relevant time. So not any decision at this point.

Thank you, Henrik. Then we stay at the omnichannel distribution center and its impact on the result development. Do you expect your new warehouse to have a negative impact going forward?

I guess I can take this one, Marja, right? And I would say during the past couple of months, we have seen that the transition to the OCDC has had an impact, particularly on our digital channels lately. However, we continue to make good progress, and we are entering a new important phase. And the focus that we have had is gradually now shifting from implementation towards standardization to realizing also the long-term efficiency improvements, where we're talking about cost savings and also growth benefits enabled by this strategically important facility. And also, I can say that towards the end of this quarter, we began to see this positive cost efficiency effect, and we expect this to gradually also increase as operations continue to optimize. And therefore, we do not expect that the OCDC to have any negative impact going forward, but rather to increasingly support both efficiency and scalability and also growth.

Thank you, Susanne. Let's stay then in this OCDC, so omnichannel distribution center topic. And we have a question from the audience, how its impact on our EBIT development. So do you rely on savings from the OCDC omnichannel distribution center to arrive at your EBIT guidance for the full year? Would that go to Susanne or Henrik?

Maybe you can start, Henrik, and then I can chip in if needed.