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

Welcome to Matas Group's Q2 2025 Financial Presentation. Today's call is being recorded. [Operator Instructions] I would now like to introduce CEO, Gregers Wedell-Wedellsborg; and CFO, Per Johannesen Madsen. Gregers, please begin.

Thank you, operator, and welcome to everyone covering -- looking at Matas. We will be covering the first half of the financial year. And of course, a special call as well. This is my last call as CEO of Matas Group. So we are reporting a quarter that is, in our view, a rock-solid quarter, but also an eventful quarter with a lot of moving parts. And we are going to cover why this is the way we interpret the quarter. But what we see is a Matas Group delivering on our ambitions and a Matas Group progressing on our strategy. So as we look at the quarter, this is a stable business with a lot of moving parts. But I will get into that. I will start out by doing the general comments. I will hand over to Per for a deeper look at the financial results, and then we will take a step back and look at the totality of the quarter, but maybe also talk about what does this quarter tell us about the state of our total business. First of all, I want to go back to our Q1 reporting and the main message from our Q1 reporting, namely that 2 years after the acquisition of KICKS and 2 years into the integration of KICKS and Matas into Matas Group, we are entering a new phase. We have been investing in infrastructure in our 2 warehouses, and we have been investing and working on integration. And at the same time, we have seen KICKS and Matas grow and even outgrow the market for 2 years. And now we are shifting into a phase that is more focused on operational excellence, more focused on cash generation while maintaining the ambition to grow faster than the market and reach our long-term financial ambitions. And I just want to point out that this is still the case. This is exactly how we see the business with a couple of add-ons. In the quarter, and I will speak more to this, we have launched our one digital platform across the Nordics using the Matas platform on the KICKS markets. And I will get into what that means. It offers a lot of opportunity and a lot of benefits to the business. And to substantiate and underline that we feel that the business is in good shape, I think the one number that stands out to me in this report is that our transactions, so the number of shoppers that have come into the business is up by 0.5 million in the first half of the year, 200,000 up only in the Q2. And that is the ultimate sign of health for a business that customers, they flow into our stores, they flow into our online businesses. So fundamentally healthy, fundamentally progressing. We are also seeing margin improvement. We have had some FX headwinds, but underlying margins are improving as expected as well. And therefore, we feel confident to maintain our full year guidance, but also no changes to our long-term financial ambitions, no changes to our strategy. It is about execution, execution, execution. All right. But let's dig into the quarter. We see continued growth. We see the underlying margin going up despite some negative in-quarter effects, and I will speak to those in more detail affecting our KICKS business. So 4.4% growth year-on-year, currency neutral, reported 5% growth, 12.4% EBITDA margin before special items. If we adjust for FX, we see 12.7% against 12.5% of last year. So what's going on in the quarter? We see continued growth and the growth trajectory continues. And what we have to be mindful of is that the launch of the One Digital platform drags our group sale by about 1%, all in KICKS because Matas has made no changes, so all in KICKS. But on group sales, around 1% drag on sales. Matas growing very briskly, helped by a hot summer because Matas sells a lot of sun care, but also driven by the assortment expansion strategy that we have been pursuing since August 2021. So a Matas in top shape delivering helped a little bit by the sun, but is just continuing to deliver really strong growth numbers again this quarter. KICKS, a couple of changes in the quarter. First of all, a hot summer is not great news for KICKS because what happens, KICKS is not a sun care destination, not yet at least. And the Swedes particularly decided to stay on the beach rather than go to shopping malls over the summer. This affected all of retail and of course, KICKS as well. So that's an in-quarter effect. And the other one is the ODP, the one digital platform, and I will touch on that in more details later. And those of you who follow us closely will also remember, as you look at the KICKS numbers, this is the last quarter, and we are very pleased to say that. It is the last quarter where Skincity is in the base in any meaningful way. So you have to take that into account. And taking out Skincity, we saw growth in KICKS despite the hot summer and despite the effects of the ODP. What we can also say is that KICKS is gaining share. And that is quite important as we assess the strength of KICKS. For the gross margin, again, some currency effects due to the stronger Swedish krona, buying in Swedish, selling in Norwegian is not great for margins. But what we are seeing is the group gross margin is flat. Matas gross margin is helped both by mix, but also by the synergies and by the strength of our in-house brands, including our sun care sales. KICKS margins are down mainly due to effects, but also due to some category and channel shifts. And of course, Skincity that was a higher gross margin as well. Also of importance, continued cost control. We are in very good control of our costs. And we are continuing to see that the synergies we expected when we announced the acquisition of KICKS, we are getting those synergies, but we have also announced that we see additional synergies, and we are well on track to deliver additional synergies in the next financial year. And then ahead of the big quarter here, perhaps most importantly, our Matas logistics center is fully operational and ready for Q3. So all in all, when we look at the business, we see a rock solid, stable business with some events that are in quarter. And therefore, we feel confident in maintaining our guidance for the financial year, revenue growth of 3% to 7%, around 15% EBITDA margin, CapEx 3% to 4% of revenues. And I'm noting that the share buyback that we announced is also still ongoing. And deeper into the numbers, and I just covered this, really strong growth in Matas, including our Danish subsidiaries, driven by the effects I just mentioned, negative growth in KICKS, but taking out Skincity, positive growth and the factors that I alluded to earlier on. So what does this say about the execution of the Win the Nordic strategy? Well, it tells you that even though we are in a transition period for the CEO role, this is a business that is moving forward at full steam. There is no putting on the brakes. There is no vacuum. This is full steam ahead on execution of our strategy and being present in the market. And I will pick out a few things of note. I just want to highlight one thing from this overview is that we have brought on board a very senior, very tenured person to lead our Norwegian business and to lead the expansion of our Norwegian business. I think a really good win and a testament to our belief in the Norwegian market. Looking at highlights, I think the most interesting thing about the business from a commercial point of view is that we are now really seeing the benefits of being one Nordic group when it comes to our offering to consumers. So we managed to secure a very attractive brand, Charlotte Tilbury, for launch exclusively in KICKS. This is a brand we've been wanted to bring into the business, both KICKS and Matas. And now as one Nordic Group, we are a more attractive partner, and we've been able to launch Charlotte Tilbury to great success. And at the same time, we have our in-house brands. And one of the big events in the quarter is the launch of Nilens Jord, a very well-known fully owned subsidiary of our business, very well known in Denmark, 0 awareness in Sweden, Norway and Finland. And in the quarter, we have launched that brand. We have put marketing behind it, and we have seen a surprisingly good reception of a brand that nobody knows, thanks to the strength of the brand, but also thanks to the strength of the KICKS organization in introducing new brands to consumers. So from a product point of view, and these are just examples, we are seeing that momentum from being a Nordic group that we have hoped for and planned for. We are seeing that in the real world happening. Customers are seeing it, and we are seeing the numbers come back in a good way. Second, and I think this is again and again, what are the most important numbers to follow if you are a long-term investor in Matas, if you are a management, what are the most important numbers to follow. And I think attracting new customers and seeing customer satisfaction and sales per customer go up, these are numbers that we look at very carefully as we judge the performance and the long-term health of the business. 500,000 more transactions in the first half, loyal customers shopping more frequently. That's our plan, but also attracting new customers and in particular, attracting younger customers. And we are seeing that reflected in our membership numbers as well, plus 100,000 new members in our club across the Nordics in the quarter, predominantly young people shopping for some of the new brands we have introduced in our stores. We have a small element we call it hot on social in the stores. So brands that are trending on TikTok and Instagram and elsewhere that the customer is able to actually find those in our physical stores and online very fast. So that is a real testament to the health and the strength of the business. And then finally, the big thing or the big thing in the quarter is the launch of one digital platform. And what does this mean? This means that Matas and KICKS has thus far existed in 2 different technical environments, 2 different platforms. And we, in this quarter, aligned those platforms and used the Matas platform that we have been investing in for years and years and years and adapted that to the Swedish and Norwegian market following a test before the summer in the Finnish market. This is a very important step for the future. It creates a better customer experience, and we are seeing that straight away in the feedback we get from customers. It is opening for better business performance when we look at the metrics for conversion or category upsell, all these things, even in-store sales, it enables. And then it also enables us to do a lot of the things that we want in our strategy, including launching a KICKS app, including building our retail media business on our digital platforms, including integrating more closely with social media. So these are all the benefits. And from a CFO perspective, one of the wonderful benefits is that every time we invest DKK 1 into the platform, we now get a return on investment in 4 markets, and we can share best practices completely seamlessly. That is super important. Introducing such a platform comes at a price, a short-term pain because you can't do this and then fuel sales at the same time. So this is what you see in the quarter. And as you look at the quarter, around 1% effect on total group sales from the introduction of the one digital platform. So that's the online piece. I think looking at the quarter as well, store openings just continue to surprise us how well received store openings are in the market. On Friday -- last Friday, we opened the biggest Matas ever outside of [indiscernible] in Rosengård Center and beat all previous records for sales on the first day of opening a store. And we have also opened stores in Norway, in Sweden, and in Finland, in Turku, and we saw 700 people lining up in Turku for the opening of the KICKS store in the Hansa shopping mall. A testament to you as investors, but also to us as management and to our entire organization that the combination of being really strong, fast, attractive online, but also having well thought-out, well-planned, well-executed portfolio of stores staffed with great people. That is, in our view, the winning formula, and this quarter is a testament to that as well. And then finally, repeating what we said in the first quarter, we have lapsed the 2 big investments, the 2 biggest investments in infrastructure in our -- in the history of the company, KICKS last year, that business and that facility outside of Stockholm is just running really, really smoothly. We've had 0 disruptions in -- since we opened that facility. That is a real testament and a real pat on the shoulder to the team running that facility. And we also, as you know, opened our new Matas Logistics Center, focusing only on e-commerce sales, and that business as well is running more and more stably, and we are seeing that business also showing efficiency gains as we had hoped for. So 2 facilities that we needed to have in place for our long-term growth are now in place, well ahead of the Christmas quarter. Market, and this is a question we get a lot. So what do you see in the market? And I would say that overall, we really see the same situation that we saw in the previous quarter and the quarter before, namely in Denmark, a consumer that says, I'm concerned, consumer confidence is actually very low in Denmark, but a consumer that continues to shop and continues to shop for beauty and well-being in particular. So no changes to our assessment of the Danish consumer and the Danish market and no changes to the fact that the consumer still shops and Matas is still growing briskly in that market. In Norway, we said limited impact. It might actually be slightly too negative. We've actually seen good numbers in retail in Norway. We keep a little watch out because KICKS is a high-end position business and therefore, a little bit more exposed when consumers are cautious. But we are detecting, I think, for overall retail, but also for our business, we are detecting improving conditions in Norway and a strong performance from our Norwegian business. Finland, absolutely no changes. And again, we are not a big player in Finland. So Finland for us is about market penetration, market share gains, less than where the consumer overall is. And then, of course, Sweden has been the market that we have paid most attention to because that's where we have seen signs of slowdown in the past couple of quarters. And that is still the situation. It's not getting worse, it's not getting better. And you have to be really mindful when you look at the numbers of the in-quarter effects that we just discussed and not confuse the ODP or the very hot summer with the Swedish consumer and the sentiment of the Swedish consumer. So really, Sweden unchanged with a very slight sense of might it change in a better direction for the consumer. We are seeing a little uptick in Swedish consumer confidence and some Swedish macro numbers as well. So that's something to watch out for, hope for and perhaps plan for. All right. With that, I conclude my part, and I will hand over to Per to cover the results in more detail.

Yes. Thank you, Gregers. And I will take you through some more details on our financials for the quarter. So just starting out with the revenues. And just actually repeating Gregers, a very stable quarter with the Matas actually growing quite nicely at 6.8% and KICKS growing 1.4% when we exclude the Skincity impact. And if you then think about the impact we had from an overall perspective on group, you would actually have seen KICKS more in the range of around 4% had we not had the impact from changing what is needed for the future on our digital platform. If we look at the different channels, really looking at the online business growing plus 12.5%, excluding Skincity and stores growing 1.7%. And in that number, I just want to highlight the fact that Matas really growing like-for-like in stores 3%, which is a very strong sentiment in terms of the value we have in the stores as we also move forward. Online, again, Matas 16.8% and KICKS, of course, being impacted overall, but our transition into the e-commerce platform. Again, as we said, this is the last quarter where we have Skincity of sizable numbers. And as we move into the second half of the year, it's going to be very limited numbers that we are carrying from the closedown of Skincity. Going to the gross margin. And again, here, we have some different movements. Starting with Matas, again, our product mix, the assortment, we are driving improved margins. Some of the synergies that we want to realize this year is also improving the margin. So all in all, Matas really showing the development that we are planning for. KICKS -- in line with expectations, though that we are impacted by the FX. It has an impact. And that negative impact, as you'll see, is 0.7% of the margin. And then, of course, we have, as in previous quarters, been investing in pricing in the market to make sure that we have the right pricing on our products and also making sure that we have the right campaigns, the right initiatives for our consumers. And last but not least, the other segment showing very good improvements and really driven by some of our subsidiaries getting a much better impact in the market. Overall gross margin, if we adjust for the FX impact, basically in line or slightly above last year, which is where we wanted to be. Moving on to cost, really 2 factors. But overall, if we look at our staff costs, it's slightly down compared to as a percentage compared to last year. And what is really driving that is around our workforce planning, both in stores and online and slowly as we become even more efficient on our 2 logistics centers, that's where we'll see the impact as well. And we are streamlining the approach that we have in terms of how do we plan our people in our stores and in our logistics centers. Having said that, we are also building the capabilities to drive growth going forward. We talked about pricing excellence. We continue to work on that. And we have actually introduced electronic shelf labels in Norway, and we are seeing the value coming into play of putting that into the way of going to market. We are also working on our assortment, as we already alluded to, and that continues to pay off, and we have the right people in place. Last but not least, we're also working on AI, and I know there's a lot of talk out there about what AI can do. We are working with that as well. I don't think you should expect big changes in that, but it will, over time, impact our business and improve our business. So a continuous focus on that. And logistics centers, I just want to repeat what Gregers said, very pleased with the development we've had, both from a KLC perspective, but also MLC. We launched it this year, and we are starting to see very good momentum. And we have 2 logistics centers, which are really ready for the weeks to come, which we're all very excited on. On our other external costs, yes, we are in control of that, and we are seeing some of the efficiencies or synergies coming into place there as well. Though keep in mind that part of our variable cost is really the shipping cost. And when we have a strong e-com business growing 12% for the quarter, that will also impact our other external costs. Moving in just to summarize. So we see a quarter where we basically grow our EBITDA 3.4%. If we adjust for the FX impact, we are growing in line with our top line. And this is just a summary basically outlined 12% growth on our e-com revenue impact, as Gregers has already talked about, from the warm summer in Sweden and our change in the e-commerce platform. Gross margin improving, especially in Matas. We're investing a little bit more in KICKS on the pricing and then cost basically under control, which leads us to a slight improvement versus last year on our EBITDA percentage compared with an FX adjustment on the cost of goods. Moving into a topic that we always cover and that is, of course, our inventories. And as you'll see in this quarter, which is also impacting our cash flow, as I'll come back to in a minute, is really that we have had supplies getting ready for the very big season slightly earlier this year again, especially on the KICKS side. And that will give us the products we need to have for the high season. It will ensure that we have the right level of stock in our stores for us to be able to meet the consumers as we move into the very important quarter of Black Week and Christmas sales. So looking at the cash flow, basically comparing that to last year, slightly higher cash flow out for the quarter, which is really driven by the working capital. And that's around DKK 100 million, which is the predominant reason for the change. And that is, as I already covered, linked into the buildup of inventory, especially in KICKS. That also impacted our gearing level, we are at 3.1, so slightly above our long-term target. Again, this is a quarter where we have built up for the most important quarter of the year, the Black Week and the Christmas and we're confident once we move into the next quarter that we will get the leverage back into our long-term range. And with that, just closing off on our financial guidance, as Craig has already covered earlier, but we maintain our guidance for the full year, so 3% to 7% growth underlying, around the 15% EBITDA margin, and we continuously invest in our CapEx as planned, so around the DKK 330 million. And that basically concludes our presentation and actually, before we leave it for Q&A, I just want to use this opportunity actually to thank Gregers. This has been an amazing ride for me for 3 years. I know this is your 33rd quarter to present and closing off with another stable quarter and a business that is in really good shape for the future. I just want to say thank you. And then I think we should hand over for Q&A.

Thank you, Per. And operator, over to you.

Thank you very much, Gregers. [Operator Instructions] The first question is from the line of Sebastian Grave from Nordea.

First, I would like to extend my congratulations to you, Gregers, a solid run indeed, and I wish you the best of luck going forward. Also congrats to you, Per. I look forward to the continued collaboration here. Now on to the questions. First, I would like to get my head around the growth profile in the quarter in KICKS, minus 1.4% currency neutral. And then you allude to in-quarter effects from e-commerce transition, weather and Skincity. Can you help me getting to a number, sort of the underlying growth number? What is the underlying development here? And how does that square with what we've seen in the past quarters in KICKS?

So Sebastian, when we look at KICKS and also from the report, you will see that -- we have roughly have DKK 20 million of impact from Skincity in the quarter comparison. That is equal to around 2.8%, which basically takes the business from minus 1.4% to a plus 1.4% when we exclude Skincity. If you then adjust for the ODP, which we have said is roughly 1%, and that is actually pretty much equivalent to the same number one more time, which basically means that we are looking at on the positive side, around 4% underlying growth in KICKS if we exclude those 2 effects. I think that's probably the way you should look at it from a continuation basis and the way we look at the business going forward.

But I guess if you look back last quarter, doing the same exercise with KICKS, the sort of the underlying growth in KICKS was 8%. So a quite steep deterioration in the quarter here. I guess, could you maybe expand a bit on this development?

I think the last piece that we did mention, but didn't mention is the hot summer. And this is one of those things. We have a different profile for Matas and KICKS, when the sun shines, Matas sells a lot of sun care. It drives traffic to the stores. It does all kinds of good things. It enables cross-selling, all that. In Sweden, in particular, we had an unseasonably hot summer, and this affected all of retail. So we did see a dip in quick KICKS sales, especially in the shopping centers over the summer. And this is the kind of lost sales you don't recover. It's not deferred demand or anything. It's just lost sales. So with that bit. That's the last piece that I would point to that's an in-quarter effect. But what we are doing, which is important, Sebastian, what we are doing is we are expanding the assortment available to KICKS consumers, especially online. We launched Nilens Jord in the quarter, a very important launch across both online and in the stores. So -- and this has consumed a lot of attention as well to get that right in a very good way. So I would say in KICKS, a hot summer, ODP, skin city comparisons, that models the picture. But what you should really see is a business that continues to drive strategic progress and do all the things that we have listed in our strategy.

That's completely fair. And thank you also for clarifying with the summer. But sorry for staying a bit on this topic because, I mean, on the flip side, you're also alluding to glimmers of stabilization or improving sentiment in both Norway and Sweden, which was sort of not the case in Q1. So again, I mean, on an underlying basis, I guess, this begs the question about the competitive environment or market shares in the quarter. Is there any change here? Are you seeing competitors being more aggressive? Or what are the dynamics there?

No, I would absolutely -- and I remarked on the state of how we see the market. That is not reflected in the quarterly numbers. This is a more current sort of assessment of what's going on with the consumer confidence and the most recent signals from the market. So don't take that as an indication that we think in Q2 that the market environment has changed because it has not. The market environment is soft. It's particularly soft in Sweden. We do see industry numbers that are down. And do remember, those of you who follow us closely, do remember that the KICKS business is much more high end. And therefore, the KICKS business is a much more cyclical business. And that's just in the nature of KICKS the way KICKS is today. And that's bad news when we have a soft consumer, but it's really good news when we have a more bullish consumer. And we just have to take that into account and not jump to conclusions on KICKS based on the market sentiment or a single quarter. That's our message. So our belief in the KICKS platform, the fact that we are seeing more customers coming to the business across the Nordics, 100,000 new members, the underlying development of the business and of the KICKS business is completely unchanged to what we have seen before. And then you have to take apart the import effects.

No, that makes sense. I just have a last question. I will jump back to the queue. I want to touch upon the FX headwinds that you're seeing on the margin. So I mean, quite similar picture as we saw in Q1. And I understand you highlight the underlying developments to show sort of progress in your profitability, but what is the real message here? Is it that we should adjust for this headwind going forward, i.e., you will be able to offset it and on top of that, continue to harvest synergies? Or are we to expect that given, I mean, the current balance between SEK and other currencies that we are going to see this headwind persist for the time being?

I will comment very briefly. I mean, we haven't changed the guidance. So that's our assessment of the totality of the quarter and the totality of the business and what we see in the market. And then I'll leave to Per given that I won't be around for the next quarter. So I'll give it to Per.

Yes. I think just to -- as Gregers said, we haven't changed our guidance, and we are seeing a little bit of headwind. I think it's important when we report the numbers that you have a clear sight to what is actually the underlying part of our business and where we impacted slightly negatively from the exchange rate moving as they are right now. That, of course, also applies if they move in the different direction. So I think our task is really to present the numbers. So you have a very clear understanding of what's the movement. And I don't want to at least not stand and speculate on FX rates for the coming quarters because if I knew what they were, I should probably do something very differently, and I'm not. So I think we will continue to provide the information for you to assess and evaluate the underlying of our performance in our business.

And I think maybe one remark that's echoing what we said the last time. We don't consider FX just to be an externality, something that happens to us. We, of course, address FX. We have conversations with our suppliers to make sure that we share the pain and share the gain if FX changes. So don't think of it as something that just happens and then we look at the business. This is, of course, something we react on. We make our mitigation plans. We have conversations with suppliers as well. So it's just part of running the business. But we want to be clear because it's important in assessing the health of the business that this has impacted and give you the information you need to assess the underlying health of the business.

And next one we have Yiwei Zhou from SEB.

I have 2 questions here. Firstly, on the market outlook. You have commented on the consumers' confidence. There's no change. And Q2 still looks quite good for Denmark. But can you confirm that the trend has continued into Q3 and especially considering some large companies in Denmark just recently implemented cost cutting? And secondly, a question to Per. You have explained the inventory build-up for the upcoming season. And you also commented on the high inventory was due to the wider product assortment. I was wondering if this is also a structure change in the business. And if yes, and could you remind us if you have any soft guidance on the working capital to the sales ratio?

So I would say it would be breaking with 33 quarters of tradition if we were to comment on current trading. So I'm not going to do that. So I think that the main takeaway for the market outlook is that we don't really see material changes in our assessment of where the consumer and the market is. We might see glimmers of hope or glimmers of concern, you can judge that. But as a basis for evaluating the future, we kind of say this is most likely unchanged, and that is what lies beneath our guidance for the full financial year.