Matas A/S (MATAS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Matas Q1 Report. [Operator Instructions] This call is being recorded. I will now hand it over to the speakers. Please begin.

Thank you, operator. Welcome to the conference call covering the first quarter of our financial year. I'm Gregers Wedell-Wedellsborg, CEO of the company. I'm joined by Per Madsen, who has joined as CFO, August 1. So we're now a new lineup to lead the company. And we're happy to report on the first quarter of the year with a stable business, growing business, driven by rising customer traffic, and I will go through the agenda, which is to give some comments and some flavor on what's happened in the quarter. I will then hand over to Per to cover the financial results for the year. I will return briefly to the guidance and open for Q&A. So the overriding impression of this quarter is that it's running in line with our plans and expectations. We have seen growth of 3.2%, driven by underlying like-for-like growth, in particular, but also some effects of our acquisition of Web Sundhed, which we made in the same quarter of last year and some increase in wholesale sales as well. But overall, a growth of 3.2% and correcting for special items, and there's only 1 special item, a big party that we had to celebrate all our many colleagues after COVID, a stable EBITDA margin of 18.2%. As we look across the business, we are seeing progress on all our strategic initiatives. I will dig deeper into just a few selected ones of the most important items, the first 3, which is that we want to expand our assortment. That is our key growth driver for the coming years. And I will look into the online channel in particular, which is going to be our strategic growth driver, but also take a look at the physical stores. We are seeing some interesting things in the physical stores happening and new initiatives in the physical stores. But otherwise, we have 3 areas where there's really no news today. We, as you know, have introduced some of our brands in Germany. We can't report anything other than now the products are on the shelves, and we will get back to the performance, of course, in due time. No news on our big Matas Logistics Center project in this quarter. And we are continuing to work on ESG issues across both E, S and G and, of course, have hired a new director to front our ESG efforts. So highlights. 3 highlights. One is that our overriding growth driver for the coming years is to introduce an even wider assortment, especially on matas.dk, so that customers that already like shopping with Matas can get access to new brands, to new categories covering new needs. And of course, this is an area we follow very, very closely, because already back in August of '21, we started introducing new categories and new brands. And we are really seeing progress and momentum on that exercise of finding, identifying, buying, sourcing the new brands and figuring out the ways to market those brands to the consumers. So this is just a taste of new brands that we have introduced in the quarter, 80 new brands all in all, since August of '21. Professional hair care and dermatological skin care as 2 areas where we have started out and are seeing really good progress. A lot of new lifestyle and well-being brands that we have in pipeline to be introduced in the second quarter of the year, so right now, and also coming up a very big expansion of our assortment in all things related to Medicare and over-the-counter. So very good progress on our assortment expansion, which is the big growth driver going forward. Second, e-commerce. And as you might have noticed, e-commerce sales are flat compared to last year. I just want to highlight that e-commerce growth compared to pre-COVID, the financial year '19/'20, is 171%. So what we saw during COVID and all our colleagues in -- across retail store was a massive boost in e-commerce sales. And we're actually quite pleased to see that we can maintain that level because the market overall is probably declining or is declining a bit. So we're gaining market share online. We do believe that the structural growth to online will for sure return. And given that our strategy is driven by the fact that we introduced new products and not only that we are converting physical sales to online sales, we follow that very, very closely. And what we see is that when we introduce new assortment to our customers online, they appreciate it. We get more traffic from Google. We get more cross sales. We get more customer satisfaction, more repeat sales. So those early indicators that customers are actually appreciating the new assortment and willing to buy, we are seeing those early indications. We also invest heavily in customer satisfaction and delivery speed is really one of those drivers that we have been focusing on for actually for years and years. And what we recorded in this quarter is the highest net promoter score, customer satisfaction score that we have ever recorded online, which I think is really a testament to the team's effort to work across all touch points. Also, there are quite big changes, and you might know there's quite big changes in how you can use data to advertise to customers, and there are big limitations on how you can use third-party data, and we have a true and lasting competitive advantage in having access to first-party data, which allows us to market directly to every single customer and address her needs specifically. So Club Matas, which was also always a very valuable part of our business, is actually even more valuable now. Above and beyond just being a product called catalog, the online channel is evolving into an experience that mirrors the experience that we have created in the physical stores that this is not only about buying product and fulfilling. It's also about providing advice, experiences. And just one example is that we populate all our products with as much content as we can and especially some of the key items we populate with lots of videos and advice on how to use the product, something that sets us apart from our competitors. And then finally, health is one of the areas where we think we can grow over the coming years, and we have launched a new channel, new sales channel focused on health, operated by our partner, Firtal Group that we acquired in the fall of 2018. Finally, I want to touch on the physical stores. As you can tell from the report, the physical stores are growing. Customers have returned to the physical stores. They're very happy about the physical stores. And also in the physical stores, we are seeing net promoter scores at record levels. So really happiness to be back in the real world after years of lock down. We are investing in the customer experience in the stores and 3 examples of that. Mobile POS, the ability to skip the line in front of the cashier and instead pay when you're on the floor when you have that conversation with the beauty adviser to close the sale and close the transaction on the floor on a mobile POS, something that's highly valued by our customers and allows us to give personal advice based on Club Matas data to the customer. Second, we have tested and rolled out a new fulfillment concept, which is basically then rather than pick in our central warehouse for fulfillment in store, we pick from the shelf. And we're actually seeing -- that's a wonderful customer experience. You place an order online and then you get a notification within the hour that your package is ready for you for pickup in your local store. That's a really great customer experience. And finally, we are leveraging our strength as an advisory company that's someone who's building the customer experience and professional advice to customers, and we have introduced a booking module where customers can actually book an appointment with a beauty adviser in the physical store and get that tailored experience, 4,000 bookings in Q1 with a very attractive sales per customer index on that. So that -- with that, 3 highlights from how we are running the business. And I will now hand over to Per to cover the financial results.

Thank you, Gregers, and I'm very pleased to be here for the first time, and I will take you through our first quarter. Basically, a very stable quarter in line with expectations. As already mentioned, a growth of 2.9% like-for-like, basically rolling through our different key measures, gross margin in line with last year and the same goes for our EBITDA margin. One thing I just want to highlight is our profit for the period, as you can see, a growth of 28%, which is linked to the fact that in last quarter, of the last financial year, the Matas trademark was finally amortized, which basically means that we have an upside on a running basis on our amortization of around DKK 18 million, DKK 19 million. Moving on in terms of our trend lines for the last 12 months moving. As you'll see, very stable numbers again. You can say stable numbers coming out of the COVID period. You'll see our EBITDA margin, a very stable development over the last 6 quarters, which basically brings me to a couple of other elements. I'll just touch on costs first. You'll see our employee cost, staff cost is increasing by 1.5%, and that is also including the fact that we're investing or deploying more competencies and more resources in growing the Matas Group as outlined by Gregers. Last, but not least, our external cost is up by DKK 4 million, which is majority of that is basically linked to what we're all facing in terms of increasing energy prices. I will move into the cash flow. But before I do that, I just want to highlight one of our key areas of focus, and that is our inventory levels. We are focusing on optimizing that on a comparison to our revenue line. And as you can see, quarter-by-quarter, actually for the last 9 quarters, you will see the development that we, quarter-by-quarter, have lowered that and hitting an all-time low in Q1 with 21% of our last 12 months running revenues. The development you see on the right side, and I think the positive note there is really that introducing new brands -- even with introducing new brands, we are able to keep our inventories at a good level compared to our revenues, which basically leads me into the last point of today's presentation, which is our cash flow. In first quarter 2021, '22, we acquired Web Sundhed. And if we adjust for that and then we take into account the improvements we've seen in our working capital, that basically is the reason why we're generating DKK 100 million more in free cash flow this quarter compared to the quarter last year. And that concludes the presentation on the financial piece, and I'll hand over to Gregers.

Thank you, Per. And I will just final -- round off by reiterating the guidance. We have no changes to the guidance after this quarter. We expect growth to be between 1% and 4% and EBITDA margin between 17% and 18%, reflecting that it is a year where we will invest in our growing Matas Group strategy and support the initiatives that we have outlined and a CapEx of DKK 225 million to DKK 250 million, of which around DKK 100 million is of a nonrecurring nature. So with that, we will conclude the highlights and the overview of the quarter. And operator, we will open for questions.

[Operator Instructions] The first question is from the line of Mads Quistgaard from Carnegie.

I have a few here. First of all, on other external costs, so how much of the other external cost relates to the expansion into Germany in this quarter?

I don't think we break out that number, but it's not material. It's mainly, Mads, as you know, we have built up the organization over the last year to be ready. So there's no real material change in this particular quarter on that compared to last year.

Okay. It's just the reason I'm asking is because when you gave the guidance, you mentioned that there will be 50 bps impact on your full year margin guidance. If you do sort of the back-of-the-envelope calculation, it translated into a negative impact on EBITDA of DKK 22 million. So if you only booked, let's say, DKK 4 million in the quarter, DKK 2 million in the quarter, why are you then still keeping your margin range of 17% to 18%, that must then be quite conservative...

You'll see a ramp-up of costs associated with the strategy as we go through the financial year. We only now introduce the products and the merchandising to the physical stores in Germany. So no changes to our plans, no changes to our guidance. It's still the same approach that we have taken so far.

Okay. Fair enough. Then on Germany, so when should we expect some feedback on the performance in Germany? I know it's early days today.

You gave the answer. It's early days. So we only, at the end of the quarter, put the merchandise on the shelves. And of course, when we have something material and something that we can draw conclusions on, we will come back and we will communicate on that initiative.