RugVista Group AB (publ) (RUG) Earnings Call Transcript & Summary

Welcome to the RugVista Q2 2025 Conference Call. [Operator Instructions] Now I will hand the conference over to the speakers, CEO, Ebba Ljungerud; and CFO, Joakim Tuvner. Please go ahead.

Hi, everyone, and good morning. Welcome to this second quarter earnings call. My name is Ebba Ljungerud, and I am CEO. And I have Joachim Tuvner, who is our CFO with us. Good morning. The structure will be as we normally do. So I will start with the business update a bit more high level, and then Joakim will dive into the numbers. And last, of course, we will have a Q&A for any questions. I would also like to point out that the images you'll see in this presentation comes from a campaign that we just kicked off in our Rustic collection. It's a bit more automy in the look and feel, a lot of coziness and lit candles, even though this is probably the warmest day we've had in Stockholm for a long time. But we are slowly moving into the fall. So we have already kicked off the fall campaigns. And this campaign actually has a lot of -- a mix of designs, both new designs for the season, including this rug you see here and also some of our previous top sellers that we have made new versions of for this season. Anyway, so start with the business update. We had a very good quarter, we think, and we're very proud of that. Our net revenue landed on NOK 150.5 million, which is a growth of 17.2%. And organically, if we take in exchange rates, it's actually 22.3%. And by some margin, this is, for a long time, our best Q2 actually in almost all of the KPIs. It was a pretty even quarter when it comes to top line. It started off a bit slower because Easter was in the beginning of April and the year before it was in March. But otherwise, it's been a fairly even quarter. If we look at the orders, they are up from NOK 59,000 to 74,000 -- and if we look here, you see the quarterly development. So it's a 26% increase compared to 2024. And then if you look at the rolling -- the bottom chart there is the rolling 12-month quarter development. And there, you see that it does continue to grow over time even when you look at it in this manner. When we talk about customers, we had 52,000 new customers compared to 41,000 last year. So that's a 26% increase, which is again an all-time high for the quarter. And if we look at the AOV, the average order value, that was down a little bit this quarter. It declined by 7%, which in part -- I'll move over to the next slide, so you can see the quarterly development here. In part, it's driven by that we -- and I think we mentioned this already in the Q1 report that we have been driving a lot of sales in the quarter due to our warehouse move. But there is also some FX effect in this. So if you remove the FX effect, it is not quite flat, but I think it's down around 2%, if you include that. This is an area that I think we need to continue to work with. I think -- and I believe that the average order value, we have more work to do. It's not a silver bullet. It's a lot of small changes, and we do it all the time. We work a lot with how we plan our campaigns. We work a lot with how we make the algorithms for the site, et cetera, et cetera. So this work will continue, and we don't want it to keep on declining. So I think that's very worth pointing out. And of course, it fluctuates quarter-over-quarter. So it's not going to be a consistent move, but it's still -- it's important for us. Moving over to the profitability. The gross margin landed on 62.5% compared to 63% from last year. This is actually almost solely driven by the clearance sale, where the product cost percentage was a little bit higher than before. Our freight costs are still looking really good and were down just as they've been for the past couple of quarters. And if we look at the first 6 months for the -- of this year, so January to June, the gross margin actually increased from -- to 63.4% compared to 62.2% last year. Marketing spend, this is a big investment for us, and it decreased by 0.6% -- and I think it's just worth pointing out that we -- even with this increase, managed to grow organically by 22%. So that's a trajectory that we're very happy with. We have done this shift trying to catch customers earlier in their buying process, and we do see that it continues to look good for us. The volumes in branded search are increasing as well quite substantially. So basically, when you search for the name RugVista rather than a product. And one of the sort of side effects of being earlier in the process for the customer and being more visual in the ads is that we want to build the awareness of the brand over time. And through the increase in organic search. We believe that we are succeeding in that as well. I would again like to point out that this fluctuates a lot quarter-by-quarter since we are spending a lot with search engines, it depends a bit on how our competitors are doing and how much keywords are, et cetera. So this is not a clear downward trend, but it's something that we want to make sure that over time, we are always in control of this. Looking at sessions, again, to a large extent, based on the fact that we have switched in our marketing mix. We have a large increase in sessions, 49% from almost SEK 6 million to almost SEK 9 million. And just as previous quarters, this does affect the conversion rate. But when we look at the total economics for the marketing investment, we see that it's actually very worth it. Looking then at EBIT, we landed on 7.1% compared to 2.4% last quarter, it's almost 3x better than the last year. The margin ended at 4.7%, and this includes one-off moving costs of just north of NOK 4 million. So we have a chunk there that we've also been quite clear on to a large extent coming in Q2. And then if we look at the market climate, we do see that consumer sentiment continues to fluctuate a lot. And if we go into this slide, we can look at some of our bigger markets. Even though we've had a strong quarter, you see here that Sweden is the top one, quite low on consumer confidence. Germany is a tiny bit better and France is also actually quite low. It doesn't always reflect in our results. I don't think you can draw too many conclusions. But of course, it's important for us to know how the total market is doing. And for us, this really means that we need to optimize our spend for return on investment even more, and we must be good at growing in smaller markets to balance when the bigger markets aren't performing as well as they have previously. And I think it's worth pointing out, I actually see this as a strength for us that since we have our total market share in any given market is quite small, that also gives us opportunity to move and be a bit more nimble than if we were very dependent on just a few markets. And then if we look a little bit at the fall ahead... Of course, a very, very big thing for us in Q2 has been to move our warehouse. And it has, I'm happy to say, gone really well. Amazing work by all our teams there. Even though the move itself is coming to an end quite soon, we will continue to optimize and this we see as really a continuous area for improvement in our company. We will continue to build on automation, and we will fine-tune. And of course, we have peak coming up in a couple of months. And ahead of that, we want to make sure that our processes are really, really strong. We are also building buffer stock at the moment, basically building up for peak and for later seasons. And for that reason, we've actually decided to keep one of our old warehouses to make sure that we have the space we need for this. So -- and then the assortment, our rugs. Here, we are also developing a lot for the fall. I already mentioned the Rustic collection that you see here. But most of our news will actually come a little bit later. They will be in the more classic collection and also modern collection. Classic looks much more as the oriental rugs and modern or as the name implies, modern in their design. A actually quite a lot of color this fall coming. So we see a lot of color in all the interior trends. We do all of our design in-house. So that design process has already happened and now all of the news are actually coming into the warehouse, which is very exciting to see. If we look at the assortment overall, we are slowly trying to shift a little bit away from some of the very cheap rugs and find the sweet spot in value for money and having quality no matter what price range we're in. We are in many different price ranges. So it's just about being qualitative in that price range. And we also see that outdoor has performed very well in Q2 and actually Q1, but now it's coming down a little bit, which is normal for fall and winter. And that also leads -- for us, it leads to that we can push a little bit more handmade rugs, Outdoor tend to be machine-made and handmade rugs tend to be somewhat more expensive, which we hope will also help us a little bit with our average order value. One thing you've heard me talk a lot about that we continue to work on during the fall is the personalized customer journey. Because of that, we have such a wide assortment within the rug vertical, it is important that the customers find what they want on site. So there's a lot of things that are happening during the fall around this, and this will continue to be a big focus area for us. And then I would also, of course, like to just brag a little bit about our Trustpilot score. We are super proud that we managed to keep this high score, 4.73 in Q2. And this is including the move, which even though it's been very, very smooth, there have been a couple of customers where there's been hiccups in the deliveries. So we're very proud of this. And I think it's -- our purpose for the company as a whole is we help people to a home they love. And I think that's very important to remember in this context that it's for the whole company and for anyone who invested in us as well. Yes. And with that, I hand over to you, Joakim.

Thanks a lot Ebba. So starting to the left in this slide, EBA has already been through that our net revenue growth was 17%. And after adjusting for the negative currency effect, we grew organically by 22%. And as you said, Ebba that was 26% order growth and minus 7% in average order value, of which 5% then was the currency impact, the negative currency effect. But we're happy to see that all regions are driving the growth. If we start with DACH, grew by 18%, of which Germany, which is the biggest market in that region, grew by 10%. The Nordics grew by 32%. And there, we have seen Sweden for the last couple of quarters being the driver of that region, but now Sweden grew less than the region. So it grew by 19%. And we see the same pattern in the Rest of World, which is then mainly the rest of Europe. We see that the 2 main markets, U.K. and France, were actually in decline, smaller declines, but the region grew still by 11%. So all in all, you can say that we saw bigger fluctuations between the markets than usual, but still with a good growth in all regions. So I move on to the cost ratios and the EBIT margin. And I already touched that expenses, product expenses are down or we lose 1.4 percentage points. So the cost is up by 1.4 percentage points. And this is driven by the stock clearance that we had planned in order to facilitate the move to a new warehouse. So a little bit higher discount is driving that. Shipping and other selling expenses, which is then our shipping cost to our customers, -- that continues to improve versus last year, although somewhat higher than in quarter 1. So this is then due to lower freight costs and also due to some internal efficiency that we've been driving. So that sums up to a gross margin drop of 0.4%. You see that it doesn't sum up or add up 100%. But as we note at the bottom of this slide, there are some rounding differences in this slide as well. So moving on to other external expenses. As Ebba mentioned here, we have moving costs of NOK 4.2 million in this line, and that is equivalent to 2.8 percentage points. So that is explaining the slight increase we have there. And this line also the big cost here is the marketing cost, which, as you saw earlier, went down from 29.8% to 29.2%. So there is a 0.6 percentage point reduction that I think you have to see in light of that 22% growth. On to personnel expenses, these are down by 2.8 percentage points. And there in last year, we had some one-offs. We had SEK 2.5 million in one-offs. And we have 6 fewer FTEs in this quarter compared to the quarter last year. And we also have some economies of scale that drive down the percentage as we grow the top line. Other operating expenses is the FX effect from revaluing assets and liabilities that we carry in foreign currency. And last year, that was a minus. This year, it was a plus. So it's a 1.9% gain versus last year. Depreciation and amortization then has increased, and that's primarily due to the start of amortizing our web shop. We stopped capitalizing expenses on our web shop in June of last year, then start to write it off or amortize it. And that's the main explanation, but it's also that we have higher cost for our leased properties. as of 1st of June, we have added then the new office and warehouse building. And when that is then adjusted in IFRS 16, it comes in this line and in the interest line. So all in all, we see an EBIT margin increase of 2.9 percentage points despite the moving costs of 2.8 percentage points. So let's take a look at the inventory. So you see here to the left that during the course of this year, we have decreased our inventory with SEK 6 million. This was a planned decrease. And also if we compare to prior year, we have increased the inventory by 19%. If we look to the right in the picture here, we are actually below now our targeted range, which is 17.5% to 22.5% of the last 12 months of net revenue. and we are at 17.3%. And we have already have quite some number of deliveries in July, and now we're beefing up the inventory to prepare for the high season in quarter 4 and not let the quarter 4 drain our inventory into quarter 1. So last but not least, improved cash flow. So we have changed this graph here to not only include the quarter, but year-to-date, the quarter is quite a short period to analyze cash flow. You can see here that starting upper left that the operating cash flow increased by SEK 15 million, and that is driven by the increased EBITDA. In the left bottom corner, you see the cash flow from investing activities, whereas we, in prior year, had very few tangible investments, and we were investing SEK 4 million in our web shop, whereas we, in quarter 2 of this year, have SEK 31 million going out for the investments to mostly equipment to the new warehouse. And as I earlier said, we have stopped capitalizing on our balance sheet, capitalizing development costs for our web shop as end of June last year. So we have no intangible investments during this quarter. So the cash position then. We are roughly at the same cash position as we were about a year ago despite the investments, we have paid the dividend during this quarter. We have a drop of SEK 62 million since the year-end. And you can say that generally, our year-end cash position is artificially high. I mean, of course, we have a very good cash flow in quarter 4. It's high season, but we have also, most of the time, decreased our stock levels, and we also have quite a big payable of VAT that we have gathered up during the quarter 4 that is paid in quarter 1. So it's artificially high, I think you can say, in end of quarter 4. So SEK 158 million. And with that, I think we have a strong balance sheet to finance this inventory buildup that is coming up, the final fixed assets purchases that we have to pay in quarter 3. And I think we stand strong going forward. So Ebba, with that, I'll hand it back to you.

Thank you. And just to sum up, we're proud to present our Q2 numbers with strong top line growth and also quite decent EBIT even including the moving costs. The fall assortment is starting to come in. We're very excited about this. We have lots of news coming, and we hope to see strong sales. The move is coming to an end. But as I said before, we will continue to work with automation and improving our processes now and we have better really conditions to be able to do that going forward. And our personalization projects are going to continue to be focus areas during the fall. So with that, I think it's time for Q&A.

[Operator Instructions]

Victor from DNB Carnegie. A couple of questions from my side. First one, are there any positive sales effects here in Q2 that from perhaps more aggressive marketing or discounting than compared to normal and maybe related to your clearing sales that will not be material going forward? Or would you say that your Q2 performance is representative of your underlying performance and thus it sustainable?

I would say that there isn't any major impact by specific marketing drivers or the big sale that we had. It's also true that we do sales every quarter. So it's not -- it was a little bit bigger in Q2 because we wanted to clear out some of the stock before the move. But in general, it's no. So yes, a long way of saying no. Do you agree, Joakim?

I totally agree. I mean the total volumes that went out in that clearance sale were mostly focused on slow-moving products where we had only a few SKUs of reach and hence, there wasn't a big volume going out. So it was more like any other normal strong campaign, we can say.

Perfect. Very interesting. And then on your high web traffic growth, I'm curious here, how do you want to improve conversion going forward to catch all these new visitors that are finding RugVista?

I think the personalization is very important here to make sure that -- of course, I think it's normal to see lower conversions when you drive a lot more traffic, but we really want to make sure that people find what they want. And even though I love our website, I still see room for improvement, if I put it that way. And it's not -- again, this is not something that we do very quickly. It's more slow changes and a lot of A/B testing over time and finding out what works. But I see that, that is where we need to put a lot of effort going forward.

Yes. And then some other questions on marketing. I'm curious what you are seeing here in the European market post de minimis changes on tariffs in the U.S. You mentioned your Chinese competitors and others before. So I'm curious what you are seeing in terms of competition on ad spend and marketing in your markets.

Yes. Joachim, do you want to add?

Yes. I think the tariffs doesn't affect us directly so much. It's more like creating these uncertainties and in the consumer sentiment. We saw there was -- in the consumer sentiment went down quite a lot in April, and that was when there was a lot of tariff discussions going on. So I think it's -- the tariffs affect us more in terms of the whole -- how the whole economy moves. And we know that when consumer sentiment is down, what normally is hit the worst is then discretionary goods. So I think that is the impact we see from the tariffs.

Okay. But what about -- my question was more about competition on digital marketing from large international players moving to Europe from the U.S.

Yes. Competition is always very fierce for us. And then you could argue that it fluctuates and it's higher in Q4 than in Q2, which is true. But we haven't seen any major shifts. Some keywords go up a lot. We have seen a couple of new competitors that we haven't had before that are coming in, but it does fluctuate all the time. So -- while yes, we know that some competitors have moved a lot of marketing spend to Europe from the U.S., it hasn't affected us majorly. And I think you see that in that we managed to keep the marketing spend under control even in this quarter with that type of uncertainty.

Okay. Perfect. A final question from my side, and it's also on marketing. So you spend roughly 29%, 30% of sales on marketing, a little bit lower in the lower end this quarter, and you invested in your new website to drive more organic traffic. But what I'm curious about here is what do you expect the impact on your traffic from AI operators that are reshaping search engine optimization. What are your thoughts here for the future?

Very important shift, I would say. And that's something that we are both already doing a lot of work in that area and also keeping a very close track. We don't know exactly what the shift will be, but we are sure that there will be a shift. So for us, it's important to keep track of what's going on and what's moving where and how people -- how our customers search and where our customers come from. So without saying that we see a clear direction to going to this platform or that platform, we are convinced that there is a shift that is happening. So it's more about keeping track and being very nimble and also very attentive and not take things for granted.

Yes, it's going to be interesting to...

The next question comes from Benjamin Wahlstedt from ABGSC.

Well done on a strong quarter. I want to speak some more on the warehouse clearance. I was also wondering on the impact on the AOV from the warehouse clearance. Is it positive because you're selling mostly slow runners, large items, unique rugs? Or is it negative, please?

It is -- even though you're right that it is a bigger slow-moving rugs that tend to be a little bit more expensive that we have been selling, it still has a little bit of a negative effect on the AOV because of that type of stock otherwise brings up the AOV. But it's -- I wouldn't say that it's a huge impact, but it tends more downwards than upwards with small movements.

Yes. All right. I was also wondering about Q3. You have been making some changes to your assortment when it comes to Q3, especially thinking of, for example, outdoor rugs here, which makes judging underlying comparable growth figures a bit more tricky. I was wondering if you could say anything about how you judge the comparable figures in Q3 versus Q2, please?

Yes. I think we had quite a poor quarter in quarter 2 of last year and the same in quarter 3. So I think they are somewhat comparable in that sense. Yes.

Right. So somewhat comparable underlying in Q3. And then finally for me, I was wondering if you could say anything about what moving costs, if any, you expect in Q3, please?