Puuilo Oyj (8JQ.F) Earnings Call Transcript & Summary

Hello, and welcome. Thank you for attending Puuilo's half year results presentation covering the period ending in July. In this same presentation, we will also share our updated strategy and new long-term financial targets. I am Juha Saarela, CEO of Puuilo and joining me in this presentation is Puuilo's CFO, Ville Ranta.

Good morning.

In the half year report, we will go through the key results of second quarter and H1, that is the period from May to July and the first half of the financial year. And after this presentation, you can ask questions by calling to line. We are happy to answer your questions. Here is the agenda for the presentation. First, I will present the key figures and events of the second quarter and the first half of the financial year. And following that, Ville will provide a more detailed overview of the financial development during the same period. The third item on the agenda covers the outlook for the current financial year, including the forecast range for both net sales and adjusted EBITDA. And then we will move on to point 4, which presents our updated growth strategy and new long-term financial targets for the strategic period. And as I mentioned, we have reserved time for questions at the end. Our second quarter covers the period from May to the end of July and here, you can see the key results. First, net sales. Net sales for the quarter were almost EUR 136 million, showing strong growth compared to the same period last year. Total growth was over 13% and like-for-like growth was 1.3%. The increase in customer traffic continued to be the main driver of sales growth and sales increased in both old and new stores. Net sales grew in all months of the second quarter. The average basket size was slightly lower than in the comparison period, but the rate of decline slowed down. Then profitability. Gross margin in Q2 increased and was 38.2%, up by 0.6 percentage points compared to same period last year. The improvement in gross margin was mainly driven by increase in sales of private label products and a continued shift in the sales mix toward more off-label goods. Adjusted EBITDA in the second quarter grew by nearly 14% and amounted to EUR 28.2 million representing 20.8% of net sales. This was an increase of approximately EUR 3.4 million and relative profitability remained at the same level as in the comparison period. Then earnings per share were EUR 0.25 compared to EUR 0.22 in the comparison period. We continued our strategic expansion by opening new stores in Mäntsälä and Jyväskylä Keljo during Q2 and at the end of the period, we had 54 stores. Let's look at the first half of the year from February to the end of July. First, net sales. Net sales for the period were EUR 225 million, growing by approximately EUR 30 million compared to the same period last year. Growth was over 15% and like-for-like growth was 3.4%. The main driver of sales growth was the increase in customer traffic which continued to increase in both old and new stores. Net sales increased in all months of the period. The average basket size was slightly lower than in the comparison period, but the rate of declines lowered down. Gross margin for the first half of the year increased and was 37.7%, up by 0.5 percentage points compared to the same period last year and improvement in gross margin was mainly driven by increase in sales of private label products and the continued shift in the sales mix towards more off-label goods. Adjusted EBITDA for the first half grew by over 18% and amounted to EUR 39 million, which is 17.3% of net sales. This was an increase of approximately EUR 6 million and relative profitability grew by 0.4 percentage points compared to the comparison period. Earnings per share were EUR 0.33 compared to the EUR 0.28 in the comparison period. And we continued our expansion and we opened five new stores during the period in Varkaus, Savonlinna, Lohja, Mäntsälä and Jyväskylä Keljo. And end of the period, we operated a total of 54 stores. The performance and results for the first half of the year were good, considering the general economic situation. Customers' cautious spending and frugality as well as relatively high unemployment rate continue to be reflected in purchasing behavior. However, customer traffic at Puuilo continued to grow which is the most important metric to measure the relevance and attractiveness of our assortment, price level and overall concept. We have gained market share despite the weak economic situation and intensified competition. There are now some signals of the economic recovery and we also believe that customer confidence will slowly begin to improve. It is the effect on the real economy and purchasing behavior always comes with a delay, something to wait for. Overall, the first half of the year was good, and we have reason to expect that the end of the financial year will also be favorable. We continue our profitable growth with confidence. Good. Now Ville it's your turn, please.

Thanks, Juha. The second quarter net sales were EUR 135.8 million, up by 13.2% compared to the last year. At the same time, like-for-like net sales grew by 1.3%. Customer traffic in our stores grew by 14.6% and 2.8% in like-for-like terms. The average basket size decreased slightly in Q2, but the rate of the decrease slowed down. So the growth in customer traffic continued, and this is a very important metric for us. In Q2, we opened 2 new stores in Mäntsälä and in the Jyväskylä Keljo, which is the second store in Jyväskylä City. The new store openings has been successful. Then cumulatively, the financial year is now exactly halfway. And at the end of the H1, we had a net sales of EUR 225 million. The growth in the company's net sales was 15.2% and a good level of 3.4% in like-for-like terms. Cumulatively, customer traffic increased by 16.1% in all stores and 4.6% like-for-like terms, which we are pleased with. As Juha already mentioned earlier, a total of five new stores were opened during the H1. Then let's move on to the gross margin. In Q2, Puuilo's gross margin was 38.2% of net sales, and it grew by 0.6 percentage points compared to the corresponding period of the previous year. The increase in the gross margin level was influenced by the sales mix and the increase in the share of own private label brands in net sales. Sales growth in own private label brands was again strong, growing by 22%. Own private label products is the main factor for the good margin development in Q2. Cumulatively, Puuilo's gross margin was 37.7% at the end of H1, growing by 0.5 percentage points compared to the last year. The same factor is behind this, that own private label products are continuously increased their share of the company's net sales and bringing us better margins. Cumulatively, sales growth in own private label products was 28%. Compared to the previous year, we have launched almost 1,000 new product articles in the assortment of our own private label brands. The increase in the gross margin level was, therefore, continued, and we are very pleased with this. Then let's move on to profitability. Adjusted EBITDA for Q2 was EUR 28.2 million, up by EUR 3.4 million compared to the last year. Adjusted EBITDA grew by 13.7% in percentage terms and profitability as a percentage of net sales was 20.8%, better profitability than the previous year in both in euros and percentage terms. Cumulatively, adjusted EBITDA was EUR 39 million at the end of H1 and relative profitability was at the level of 17.3%. Compared to the previous year, adjusted EBITDA grew by EUR 6 million, and in percentage terms by over 18%. Relative profitability improved by 0.4 percentage points. The improved profitability is driven by good sales development, increased gross margin and cost discipline. Operating expenses were cumulatively 16.1% of net sales and the expense ratio decreased compared to the previous year. As a result of these factors, profitability improved. I could summarize here that all performance indicators were at good level and developed in the right direction. This graph shows the development of Puuilo's inventory levels over the last three half years. The inventory turnover rate slowed down, which is due to the initial inventories of eight new stores and the increase in the import of our own private label brands. Sales of our own private label brands have grown strongly, which is reflected in the value of the inventory due to the longer delivery cycles. However, our own private labor brands are a winning strategy for us in terms of profitability. However, we are constantly working on this to speed up the delivery cycles and improve purchasing terms. We actively monitor the inventory turnover rate and the long-term trend goal is to improve turnover rate. However, in the short term, there might be fluctuations between quarters and years for the reasons mentioned above. In Q2, Puuilo's operating free cash flow was EUR 38.1 million and an increase of EUR 6.5 million. The cash flow was driven by good net sales development and, of course, good profitability as well as positive change in working capital. We have been able to improve purchasing terms, which is natural when volumes are increasing. This is now reflected in the reported cash flow. Cumulatively, the operating free cash flow was almost EUR 52 million, which was very strong. The growth compared to the same period last year was almost EUR 18 million. Strong cash flow, which we are happy with. The company's net debt to adjusted EBITDA ratio decreased slightly compared to the comparison period due to strong EBITDA development. The current net debt to adjusted EBITDA ratio is in line with our long-term goals. The middle figure shows the adjusted net debt-to-EBITDA ratio graph, excluding the impact of IFRS 16, which decreased compared to the previous financial year. The key figure calculated excluding the impact of IFRS 16 is currently very low. According to this figure, it could be stated that company is low levered. Puuilo's cash and cash equivalents were EUR 42.5 million at the end of the quarter and the company's financial position is healthy. Puuilo's net debt, excluding the impact of IFRS 16, meaning the net sum of cash and cash equivalents and bank loans were EUR 17.4 million at the end of July. This also means that the company's absolute net debt is low. Puuilo made a financing agreement in the spring of 2025 in which the company raised additional EUR 10 million in long-term bank loans. The second part of the EUR 10 million will be withdrawn in October when the EUR 20 million increase on top of the old loan under the financing agreement has been fully withdrawn. And here are the figures as a summary, which we already went through in detail. We are very pleased with the performance of the company. And then Juha will tell you about the outlook for the financial year '25. Please, Juha.

Thank you, Ville. Then the outlook for this financial year, we repeat the outlook for this year. We forecast that net sales will grow and be between EUR 425 million to EUR 455 million. We also expect adjusted EBITDA to be between EUR 70 million to EUR 80 million. There are uncertainties related to the outlook such as the development of the still uncertain general economic situation, in addition to changes in purchasing power and consumer behavior. Additionally, there are other unusual uncertainties in the outlook such as the ongoing war in Ukraine, but also other potential geopolitical crisis or international tensions that may have a direct or indirect impact, especially on the availability and price of goods which can affect sales and profitability. Good. We opened five new stores during the first half of the year. The ramp-up of these stores has followed the same pattern as previous openings and all have performed in line with our expectations. Expansion will continue in the second half of the year in line with our strategy. We expect to open a total of seven stores this year. Later this autumn, we will open a store in Iisalmi and before the end of financial year, another one in Heinola. For next year, we have already announced two new stores, a second store in Espoo and one in Heinola. In addition, early next autumn, we will relocate our Vantaa store to a new and attractive location in the Tammisto commercial area in Vantaa. Looking ahead to next year, overall, we expect to open several new stores in line with the updated growth strategy published today. Good. And next, we will present our updated strategy and new long-term financial targets. Here, you can see the agenda for this presentation. I'll start with a brief overview of Puuilo's history. And then together with Ville, we walk through the key elements of the strategy and explain how we plan to reach the new targets. And the third section covers our capital allocation principles. And at the end, we have reserved time for questions about both, the updated strategy and the half year report. A brief overview of Puuilo's history, which is a truly unique success story. Puuilo was founded in 1982. In its early days, the company sold wooden toys and souvenirs from a small workshop, the name Puuilo originated from this. In the late 1980, many Finnish import companies began sourcing affordable products from Asia, which were in high demand. This opened up a new market for discount retail. To meet this growing demand, Puuilo acquired used buses and converted them into mobile -- as mobile stores. At its peak, six buses drove market squares particularly in Northern and Eastern Finland. Over time, the business environment evolved and by the late 1990s the popularity of bus-based retail began to decline. In 1998, Puuilo opened its first physical store in Kajaani and discontinued its bus sales operations. By 2006, Puuilo had 4 stores, one of which was located in Vantaa capital area. In 2008, the company launched its online store. In 2015, Puuilo was acquired by a new private equity investor. At the same time, a new management team and strategy were introduced, aimed at accelerating profitable growth. By 2020, Puuilo had already expanded to 30 stores. Significant investments were made in IT systems, organizational structures and logistics to support the successful execution [Audio Gap] a record number in the history of initial public offerings on the Helsinki Stock Exchange. By the end of the 2024, Puuilo had approximately 50 stores and nearly EUR 340 million in net sales while delivering industry-leading profitability. Good. And here is our new strategy for '26 to '30, which includes some adjustments compared to the previous strategy. It remains a simple, clear and highly actionable. The six key elements of our strategy are: the first one, opening new stores and continuing our expansion in Finland. Our target for this period is to reach over 90 stores nationwide. Second, entering the international market and starting it with a pilot in Sweden. Third, continuing like-for-like sales growth where there is still a significant potential. And next, strengthening our current position by increasing private label sales and being one of the most cost-efficient operators in the industry. And fifth, providing an omnichannel customer experience, a shopping experience that is easy, off label and fast is a key factor for both current and potential customers. And sustainability work and its development, we call this the responsible retailer, which covers the key elements of our sustainability efforts. Working towards the six objectives will support us in achieving our new long-term financial targets presented in the lower half of the page. Our sales growth target is to achieve average annual sales growth of over 10%. And by the end of the strategic period, we aim to exceed EUR 800 million in net sales. In terms of profitability, our target is to reach an adjusted EBITDA margin over 17% corresponding to more than EUR 136 million in adjusted EBITDA. We aim to distribute at least 80% of the company's net results to shareholders. And regarding the net debt, our target is to keep the ratio of net debt to adjusted EBITDA below 2.5x. Good. And next, a few words about the expansion of our store network. We will continue expanding in Finland with our current concept aiming to grow the chain to over 90 stores. Currently, we have 54 stores open. And if everything goes according to the plan, the number will reach 56 by end of the financial year. By the opening 7 to 10 new stores annually during the strategic period, we aim to reach our goal of more than 100 stores by the end of 2030. This total includes both Finland and Sweden. Overall, the majority of growth will continue to come from Finland with new stores in Sweden providing additional support during the strategic period. This strategy and our approach to internationalization enable us to continue profitable growth in the years ahead. We have already demonstrated this in the past and our recent performance further highlights that growth company in this sector can also be highly profitable. We are able to grow profitable, especially because we benefit from economies of scale and don't need to increase fixed costs in proportion to sales growth. Another key driver of profitability is our gross margin which we can further improve, in particular, by increasing the share of our own private label products. And then about international expansion and new markets. We are taking our first steps in the international market, starting with a pilot phase in Sweden. The Swedish market is relatively familiar to us. It is a neighboring country with mostly the same competitors and similar business environment. We know our strengths, but also we recognize that our concept may require some fine-tuning in a new market. We don't underestimate the competitive landscape, and we are aware of the challenges. But however, we believe that our assortment, pricing and overall concept will work well also in Sweden. Our first priority is to ensure competitiveness in this new market. Only after that, may it become relevant to consider expansion in the other countries. The five pilot phase in Sweden will be given the time it needs before any further decisions are made. Then about our unique concept. Our sales growth has consistently been the fastest in the industry year after year. At the same time, new competitors have entered the Finnish market. and existing players have continued to expand. Despite this, our growth expansion and profitability have remained best in class compared to competitors. The reason is simple, our concept is different. Our core assortment is broader and deeper compared to others. Customers can trust they will find what they are looking for with us. Our stores offer specialty items, branded products and private label goods, providing multiple option to meet diverse customer needs. Our pricing is consistently low and not based on campaigns or bargains. We offer reliable off-label prices. Because our customers are busy and their time is valuable, easy of shopping is a key factor in choosing where to shop. We provide shelf location and availability information for nearly all products in our assortment. Clear store layouts make shopping fast. Products are easy to find and quick to pay for. These cornerstones of our concept create a competitive advantage that drives customer traffic growth, the most important metric in this business. Next, the growth potential of our like-for-like sales. We currently operate 54 stores and more than half of them are less than five years old. New stores typically grow faster than older ones. Given that a significant portion of our store network consists of these younger stores, it is entirely reasonable to expect our like-for-like sales to grow faster than the average market growth. This growth is also supported by additional drivers, such as increased brand awareness, improved store appeal, change in shopping convenience and better product our labeling just to name a few. Good and Ville will continue by discussing the drivers behind our profitability.

Thanks, Juha. All of our stores are profitable, very profitable, in fact. The graph on the left side shows the profitability of our stores, expressed as a Finnish accounting standards EBITDA percentage, which means that it also includes rents. Our most profitable stores reached Finnish accounting standards EBITDA of well over 25%, and even the lowest level is over 15%. Notably, the stores at lower profitability are either new or young stores that are still in process of ramp-up. We see that in the future, as the maturity of the store network increases, more and more stores will improve profitability throughout scaling, which in turn, directly affects the profitability of the entire company. In addition, we have tools to further increase unit-specific profitability, for example, throughout improving workshops planning and, of course, throughout an increase in gross margin. On the right-hand side, you can see the increase in the new stores of Finnish accounting standards, EBITDA profitability from the opening months onwards. On average, a new store is profitable in two months or less. This is based on a strong increase in sales, which starts from the opening day. Our store concept scales up to be profitable in a short time. And the increase in profitability continues with the increase in sales resulting in scaling of fixed costs. From the point of view of cash flow, the new store requires a total initial investment of approximately EUR 1.8 million, which includes store equipment and starting inventory. Calculated throughout EBITDA, the payback period for the new store is roughly 19 months, which is very fast. Puuilo's gross margin is not particularly high and is even slightly lower compared to some of our key competitors. This is good to note because we clearly have a room for improvement here. Increasing gross margin naturally leads to a higher profitability. Puuilo's gross margin has been rising in a trend-like manner for several years in a row. The main driver of the increase in gross margin is the private label strategy, which we have been doing for over 13 years now. The number of private labels is growing year-by-year, and their share of total net sales in the previous 12 months was 23%. The share is growing year-by-year as can be seen in the graph at the bottom left. Private label products have a better gross margin. They help us differentiate ourselves, protect ourselves from price competition and improve customer loyalty. We have increased the number of private label products consistently. Our goal is to increase the share of private label products to 35% of total net sales in the long term. On the right side, you can see examples of Puuilo's own private label products and next to them examples of well-known brands that we also sell. Private label products are almost always cheaper for our customer. In addition, the gross margin of a private label product can be many times higher than a branded product, but of course, this varies depending on the product. We have very strong expertise in private labels and our logistical capabilities have been developed to improve this important strategy for us. Juha, please?

Retailers must serve and engage with their customers by same way using a consistent style, brand, voice and image frequently and across multiple channels. The shopping journey typically begins when a customer sees or hears an ad on the radio, television, direct mail or social media. Alternatively, the customer may have a specific need and remember that we offer certain goods. Before visiting a store, a customer can check product availability, pricing and shelf location online for the preferred store. Once in the store products are easy to find and the customer proceeds to check out and leaves. If assistance is needed, our staff are available to help. When the shopping experience is smooth and effortless, customers are more likely to return and customer loyalty increases. Our marketing is different and stands out. Our store network is broad and still expanding. Our web store functions well. Availability and shelf location information for all products is available online. Store layouts are easy to navigate and store staff are available when needed. And then a few words about our sustainability strategy. This was not updated in this round. In our strategy, sustainability is defined as a separate theme under responsible retailer. The three main focus areas of our sustainability work are supply chain, a good workplace and environmental and social responsibility. Each of these include several key sub topics such as value chain employees, working conditions and employment relationship, operational emissions and, for example, data security. We have made progress in nearly all areas, but there is still plenty of work ahead. We understand that we are still in early stages of our sustainability journey, but we are on the right path and moving towards. This was a brief summary. More detailed information is available in the CSRD, Compliant Sustainability Report, which is published alongside the financial statements. Good. And now it's, Ville, your turn again.

Thanks, Juha. Next, we will take a closer look at the financial indicators for our new strategy period. First is the development of net sales. The annual net sales growth rate target is over 10% per year. According to our forecast, with this growth rate of over 10%, we will reach the net sales of over EUR 800 million by the end of the financial year 2030. The key drivers behind this are the increase in the number of stores towards the stated 100 stores. In addition, there is a like-for-like growth where we still have plenty of potential, thanks to our young store network. We still see significant geographical expansion potential in Finland, which means opening more stores in large cities as well as smaller towns and municipalities. We already have experience with several of these types of stores, and we have been positively surprised by the sales levels, for example, in municipalities with fewer than 20,000 inhabitants. This opens up even more growth opportunities for the future. In addition, international expansion will bring us net sales growth during the strategy period. Secondly, if we look at the components, like-for-like growth continues with the help of the young store network, which I already mentioned. In addition, we are slightly accelerating the annual pace of the new store openings to be between 7 and 10 new stores. In fact, in the last two years, we have opened 7 new stores per year. The figure also includes stores opened abroad, which is why we are talking about the range here. The growth drivers described above can lead to the third factor, namely the absolute growth of adjusted EBITDA. Profitability is improved by our own private label strategy. The growth in the number of stores and the scaling of profitability here -- there as well as the continuous cost discipline at the company level, which we have successfully maintained it for years. This also -- this is also supported by the company's strong culture and simple structure. And with these actions, we look towards year 2030. And then let's end this series of numbers with some facts. Net sales have continued to grow strongly after the corona pandemic. What is significant is that the sales growth comes from both old and new stores, meaning that the background is, of course, the expansion of our store network, but also like-for-like growth, which is important to us. The rolling net sales of the last 12 months has already well exceeded the EUR 400 million milestone. The development of the gross margin has also been good. We have been able to maintain our good gross margin level all these years. These years include the global logistics challenges caused by the pandemic, the rapid acceleration of the inflation and consumer uncertainty. Despite of these factors, our gross margin level has continued to grow. Our private label strategy, already mentioned above, has a strong influence of this background, which leverages the gross margin upwards year after year. Of course, at the same time, the changes in the company's sales mix have also increased our gross margin level as demand shifted to lower-priced goods after the pandemic years. Adjusted EBITDA growth has also continued, especially in euros, but also relatively. The adjusted EBITDA percentage is already approaching the peak figures after the pandemic years. And we see that this level can be maintained or even improved from these figures in the future. Our long-term target for the relative profitability is over 17%. As the company's net sales grows, it's scaling itself to become more and more profitable. But the international expansion plans we described above require investments in the front line, especially in the beginning, which is why we are aiming for the stated profitability target. However, the company's earnings in absolute terms will be growing in the future. And last but not least, our cash flow where the graph speaks for itself. Puuilo has hundreds of cash machines at the stores, but the entire company could also be called one big cash machine. This is, of course, due to our good sales and profitability development but also to our very low investment needs as we do not build our stores on the balance sheet, but lease them. In addition, our processes for establishing new stores is efficient and requires very little capital expenditure. So we have a quite good evidence of the company's success, and we intend to continue doing the same in the upcoming strategy period, of course, accelerating growth slightly. And then Juha will continue from this.

Next, let's move on to the efficient use of capital. Puuilo's capital efficiency creates opportunities to consider additional capital return mechanism for shareholders. Here is some background on that. These don't change the previously stated profit distribution policy and targets but serve as a recap. Primarily, we always invest free capital in our current strategy and growth, ensuring its secret. Puuilo's strong profitability generate solid cash flow, which allow us to finance ongoing expansion, development projects and increase the share of our imports that tie up working capital. These are always the primary users of capital. Secondly, we may consider additional capital return mechanism such as special dividends as our efficient and highly profitable operation generate funds beyond what is required for our current growth strategy. Additionally, the company's net debt to adjusted EBITDA must remain below the strategic target of 2.5x. Previously, this was 2x. This gives us room to expand faster in Finland and in new market as store rents are treated as lease liabilities under IFRS 16. Good. And here is a recap of updated strategy and our financial targets for '26 to '30. Okay. Thank you. And now we move on to questions. So moderator, please open the line.

[Operator Instructions] The next question comes from Maria Wikstrom from SEB.

And I got to say the very good slide work today on the new strategy. I have 3 questions, which -- the first one is with your current plans, I mean, when do you think you would be ready to open the first store in Sweden?

Thank you. We are preparing in our all business units and -- but we can't say [Audio Gap] stores in Sweden. But we are -- now we are in preparing phase.

Okay. And then my second question is, I mean, you have outstanding returns on invested capital, I mean, compared to many other Nordic retailing peers. And I mean, of course, the source is higher margins, but you also don't operate your own warehouse. So now when you are increasing the scale, my question is that do you think you need to invest, I mean, more -- or you need to invest in your own warehouse capabilities? And also, if you could at the same mention, to talk a little bit about the new net debt-to-EBITDA target, which was raised from 2x to 2.5x, so where do you see you are going to invest in this money if you take more debt in the future?

Okay. If I ask first about the warehousing and distribution center question, our logistics model here in Finland is very good, and we think that we can copy that to the new market. As you -- maybe you know that we have outsourced our warehousing and transporting to the big logistics company and almost all the big logistics companies, they are operating in Nordics also. So we can use that same contract in Sweden. And as I mentioned, that we think that we can copy that. But that is one question and thing we need to investigate before we open the first store in Sweden. But at the moment, that it seems that we can copy the same logistics model to the Sweden. And then Ville, will you get the other questions?

Maria, I can take the leverage question. Yes, we decided to raise a leverage ratio a bit from the previous strategy. And I think you noticed that includes the IFRS 16 rent liabilities also. And we are preparing to acquire more rent agreements. So there is more headroom for the new rent agreements and accelerated store openings. That's one reason. And also it gives us also a possibility to use debt if we see that we need more for the investments or then for the capital allocation purposes like we did this year in a small scale. But no any decisions about those yet. So we are preparing for expansion mainly. And we wanted to well prepare and raising a little bit more headroom there.

Okay. And then finally, on the profitability, I mean, you raised the target for your own branded sales from 30% to 35%? Or is this something today's level of 23%? And previously, this has had a positive impact on your gross margin. Still you kept the EBITDA margin target at [Audio Gap] without expansion, would you have increased EBITDA margin targets? Or what's your thinking here?

Yes, good question. Of course, the international expansion, like I said in my presentation that it will require investments or well costs, at least in the first phase, and they are coming to us before we get the operations running internationally. That's the fact. We are communicating that the profitability will be over 17%. And I want to highlight here that we are not stating that it will be 17%, but over 17%. We see that the profitability development will continue as the company will be scaling up in the future also. And here, it's good to note that main of the growth will come from Finland still for this strategy period where the scaling up should continue like it has continued so far. So we believe that we can improve our profitability, but we want to be careful here because there will be some costs coming from the international expansion. And like Juha said, we are in the beginning of this process. So we are not 100% sure yet how many euros and cents it will be.

Okay. And then maybe it's too early to ask that, I mean, that the international expansion that how many like new headcount you think you would need in the headquarter operations in order to facilitate the growth in Sweden. I would think that given that you are very lean and mean concept that I mean you probably don't have all the resources as of now.

We will do recruiting very carefully. Of course, we need to recruit a new person which is needed, but we don't over-resource our expanding to new market. And we do that work very carefully. I think that this is not a big question or a problem in the future. We are -- our concept is quite a clear and we can run many, many operations in other markets also from Finland and our current headquarter resources. But of course, there are certain recruitment coming.

The next question comes from Calle Loikkanen from Danske Bank.

Gentlemen. It's Calle Loikkanen from Danske Bank. A few questions on my side. First, talking about the first half results for the second quarter, whichever you prefer, I was wondering the about the like-for-like growth of the private label sales. Is that a number that you could provide?

No. No, we are not disclosing the like-for-like numbers for the private labels. We told you the total development number, but that's all.

Okay. Sorry, okay. That's clear. And then I was wondering that you mentioned that you will open 7 new stores in this financial year. But how about the financial year 2026, so how many stores in total should we be expecting for that year?

Yes, our target is to open 7 to 10 new stores in coming years. Sometimes, it is 7, sometimes it is 10 and that is a total number in Finland and Sweden. And actually, sorry.

Yes, you don't want to specify, are we closer to 7 or closer to 10 likely next year?

It depends and there can be changes of our plans because some of new stores or new buildings, they are the building projects and sometimes they delay and reasons, there are many reasons why this happens. That is why, for example, why there are variable between years. But what is coming to -- if we talk about the next year, '26, now it seems that we can open at least 7 new stores.

Okay. Okay. That's very nice, fair enough. And then I was wondering about the comments that you said about Sweden. Did I understand correctly that you first open 5 new stores in Sweden to see how they go before making decisions on more stores and other countries?

No, no. We have not done any decision in other countries than Sweden. Now we are starting the piloting phase in Sweden during that strategic period, '26 to '30. And during that, we will open, let's say, several stores in Sweden. But we are not talking about other markets yet.

Okay. Okay. That's clear enough. And then lastly, on my part. Obviously, you had the kind of alternatives to go international, which you announced, obviously today, but the other alternative would, of course, have been to continue in Sweden -- sorry, continue in Finland, open 90 stores or even more than that in Finland by 2030 and then focus on margins, perhaps dividend distribution and so on. So I was just wondering about -- I mean, you must have thought about both alternatives and then decided on international expansion. But what made you kind of tilt towards that decision rather than the yield and dividend kind of alternative?

Yes. Well, if we look at company valuation or share price perspective, we think that stocks follow earnings by the end of the day. So we see that by doing this international expansion and reporting profitable figures internationally despite of the EBIT percentage. But as long as the revenues per share -- earnings per share growth, we see that it creates more value than just being a dividend company or like stop growing the business.

The next question comes from Frederick [indiscernible].

I have just one simple question. I was kind of curious about the expansion in Sweden. And I would like to know if you're planning on using your Finnish name when the time comes to open the first store in Sweden, so will it be called Puuilo there as well?

Yes. Puuilo brand name, Puuilo name here in Finland is funny, and it is some kind of differentiator here, and we like to use it. As you know that Puuilo doesn't mean anything in Finland also. But that is a good question. I can't say at the moment that what we -- are we changing it or not. But let's see, Puuilo name could work in add-on market also, it is a bird name, funny name. It doesn't mean anything and so on. And -- but let's see, I don't know yet.

The next question comes from Joonas Häyhä from OP.

It's Joonas Häyhä from OP. A few questions. Firstly, regarding the expansion to Sweden. Can you comment on how do you see the competitive landscape? And what kind of differences do you see between Finland and Sweden for the Puuilo stores?

Okay. In Sweden and Finland, we have, let's say, almost same players in discount retail market or variety retail market. And all of main competitors are very familiar for us because they are operating in Finland also. What is coming, the differences between Finland and Sweden, we understand that and know that there are some differences is in demand. I'm talking about customer demands. And that is the reason why we are preparing to do some fine-tuning to our assortment. And we know that there are some other reasons mainly from logistics reasons that we need to source some certain products from Sweden instead of Finland. But localization needs are quite small and we don't need to change our assortment even our concept heavily. And this is very important because by that way, we can scale our business in Sweden also.

Okay. And if I recall it right, you used to have the online store for this Swedish market, but that has been closed down some time already. Obviously, it's different if you have stores or just an online store in the country. But can you share any learnings from that online exercise that you had previously?

Did you get it? I didn't hear that.

Yes, the Swedish online stores, the experience of that.

Yes, we have had the online store, but the sales of it was quite small, and we closed it because it is not profitable or a good idea to upgrade it and maintain it because of the sales force. And we have not boosted marketing or resources to improve that. But of course, situation now is different. And this is one topic of our preparation to entering to Sweden. We will open to the home bases for Swedish customers and online store also. But I don't know when it happens, but in near future, of course, before then we open the first store there.

Okay. And a final 1 regarding the Swedish expansion. You've said that -- obviously, you said that it's organic, as you see it today. But just curious, did you look at any M&A options that may or may not have been on the table when you consider it how to go to Sweden?

We will do our entering Sweden by organic, mainly by organic, same concept and so on. But if we see certain possibilities to buy something, I don't know yet what it could be, maybe we can consider also M&As, but the big expansion to Sweden or other countries will be made by organic.

Okay. And maybe one final one from me regarding the guidance for 2025. Obviously, you've kept that unchanged, whereas I think previously, you've narrowed it down a little bit during the -- over the course of the year. And obviously, the H1 results were quite strong this year. So can you open up your thinking why did you decide to keep the guidance unchanged at this point?

Yes. Thanks. Well, last year, we changed the guidance in the same event. And we ended up to give a positive result warning. And well, thinking that now afterwards, of course, we shouldn't do that then. And now we see that our EBITDA will hit the range what we are here guiding. So I don't know, it doesn't make any difference to take like EUR 1 million out of the both ends. So the middle point will be the same, but at the same time, I would like to highlight that we are not guiding the middle point, market does. So our EBITDA will hit in the range, but we are now guiding.

Yes. Okay. And maybe one follow-up. Do you expect any costs from the Swedish expansion to occur in H2? Or is it more towards the upcoming years?

I think it's more a coming year's issue. There might be some costs coming already for the H2, but as far as I know at the moment, those costs will be quite reasonable.

The next question comes from Miika Ihamaki from DNB Carnegie.

A few questions from my side. This is Miika from DNB Carnegie. First on the international expansion, I would like to understand more what means fine-tuning the stores in Sweden in the future. I understand this, to some extent, relates to the assortment, how about layouts and ultimately, the financial profile of a store. Should we think that this will be fairly similar in financial profile as your stores in Finland? And also, based on what components have you mapped your store locations in Sweden?

We will enter into Sweden similar concept, similar layout, similar functions, and we try to do fine-tuning as less as is possible. We know that -- as I mentioned, that we know that we need to do some changes or fine tunings mainly to our assortment because, of course, every country, every market, they have a little bit different demands. But for example, coming to the brands, it can be possible that we are selling here in Finland, some very well-known brands, but they don't work in Sweden or other markets, for example. And other reason can be logistics reason because, for example, a big volume and heavy products may be that it is not a good idea to transport that kind of products from Finland to Sweden, because much more higher costs for example, transporting costs, for example. But yes, our layout and our store concept and layout works here in Finland very well and they are very efficient here, and we don't need to see the reasons why that kind of solutions don't work in Sweden. What is coming to the locations, we have not decided anything yet. We are starting to the looking store premises during end of this year and the beginning of next year. But let's see what we find.

And then secondly, following up on this, assuming there will be no significant changes to your assortment, this likely means that in the mix, gross margin terms, the relative profitability of a store should be similar then to Finland. Do you think -- and when you have studied the market that there is sort of pressure in the pricing stemming from the competitive differences, although understanding that the landscape looks to you fairly similar than it does in Finland.

We have investigated selling prices compared to our prices here in Finland. And we have done that investigations in neighbor countries, other countries also than in Sweden. And we have quite a clear understanding that the price levels in Sweden and our competitors' price levels in Sweden also. We can wait that we can deliver the very good profitability in Sweden also. Of course, there are some -- as I mentioned, that of course, there are some differences and changes that what we need to do about our assortment, fine-tuning localization or something like that. But in big picture, that kind of changes and localization needs are quite small. And I think that they don't affect to our profitability significantly there. And the next question was...

Well, about the store unit economics. So of course, it's all about the sales levels. So as more the store sales, the more profitable it is. But of course, we understand that when we are entering the new market, we are a new player there. And in our models, of course, we are expecting the, let's say, reasonable or how would I put it, like not expecting the big bang in the beginning. Of course, it takes time to build the brand awareness and by this way, build the store net sales levels up and up. But yes, like you have said, we are expecting the -- mostly the same kind of store unit economics there. Of course, let's see what kind of logistics model we choose. But if we are continuing this current model, of course, the logistics costs a little bit extra to take the goods to Sweden compared to the Finland and that might have a small effect on the gross margin side. But like I said, it's all about the stores specific sales, it starts from there.

And then on your store base in Finland. So you have previously showed a slide of average store sales for different vintage groups, including those that have been a mature plus 10 years old. Have these changed significantly in the recent years to the direction or another, meaning that, for example, has your most mature stores achieved, let's say, meaningfully higher levels than what you have shown us before?

You mean the profitability level?

Average store sales, so I believe that you have shown, for example, for a mature 10-year stores of EUR 3,400 per square meter. How have these developed recently? Have you seen that the organic capacity where these existing stores have been increasing beyond that?

Yes, yes. The over 10 years old stores are still growing. Of course, not in the same rate than the newer ones. But we are still reporting there in many, many old over 10-year stores still grows. But of course, that growth is single-digit growth. But still, we have managed to maintain growth even in the oldest store what we have currently.

The next question comes from Svante Krokfors from Nordea.

Juha, Ville, thank you for the extensive presentation. I will limit my questions to two. First one, do you have any comments on -- you mentioned that in Q2, you posted growth in all months. Do you have any comments on trading post to, i.e., August and early September?

No. No. We can't comment the current quartile, we will come out in December with Q3. Yes, that's all I can say from the beginning of the Q3.

Okay. And then the second one is regarding looking at the time of the IPO and also after that, your view on how many Puuilo stores fit into Finland has increased quite significantly. Could you in your own words explain what the reasons behind this? I guess, it's a combination of that you both see that there could be significantly several stores in the larger cities and probably also target smaller cities, but perhaps in your own words, how would you explain that?

Yes, you are right. We have changed it and upgraded our store network target 2x, if I remember right. Of course, past years, we have more understanding our potential. But at the same time, our concept and our brand is much more clear in the market and let's say that we have a big amount of customers here in Finland, potential customers, Finland, who has not visited in our stores. And that is a little bit, let's say, surprising. But of course, it is a good news. But otherwise, we have opened some stores, little bit smaller cities or towns when comparing to the past years. And the experiences of those are very, very promise -- promising and our sales runs very well. But now I'm talking about the cities where it is 70,000 people or even under it. Competition situation is favorable, for example, for us. Our all main competitors, they don't have stores in smaller cities, and that opens to the new possibilities to us.

There are no more questions at this time, so I hand the conference back to the speakers.

Good. Thank you for the questions and joining us today. I want to thank all our customers for trusting us and special thanks to all our employees of your work for great summer season. Thank you.