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

Welcome to the Rugvista Q3 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. Good morning, everyone. Welcome to the Q3 earnings call. I am Ebba Ljungerud and I'm CEO of the company. And I also have Joakim Tuvner, who is CFO, with me here today. I'd like to start by talking a little bit about the photos or the images in this presentation. You will see these images come from 1 of our 4 collections. We have 4 collections, Classic, Modern, Rustic and Scandinavian. And as I'm sure you can already see in this photo, this is the classic collection. This is our heritage. It's where we come from with the unique rugs. So we have a lot of unique rugs that you will see here, but also new designs and some big sellers that we've had for many, many years. So I hope you like them. The structure is as it always is. I will start with the business update, then Joakim will go through the numbers in a little bit more detail, and then we will finish with the Q&A at the end. So, if we jump straight into the business update. We are very proud, I have to say, of this quarter. Once again, we had good growth. We landed the top line on almost SEK 167 million. So that's up 15% from last year and organic growth, that's just north of 18% growth. And by some margin, it's actually our best Q3 ever. So very happy about that. If we look at the order count, we grew in orders. We did see a little bit lower order growth at the end of the quarter. I'll come back to that. But if we look here quarter-by-quarter, you see that it's more than 19% growth in orders. And at the bottom there, you see the rolling 12, which also continues to grow over time. I want to talk about new customers, almost -- well, 57,000 new customers compared to 49,000 new customers last year. So that's a 16% growth. And I think here, it's worth mentioning that over time, we tend to be on around 70% new customers. Q4, where we're at right now is normally a little bit higher, but over time, it's around 30% returning customers and 70% new customers. Looking at the average order value, that was flat year-on-year, SEK 2,952. And looking at the development over time, if you take FX into account, it actually grew 3.1%. But you can see here that it's stable quarter-over-quarter, which I'm very happy about. And September was the strongest month. And coming back to the orders, we see that when AOV grows, orders -- the order growth is a little bit lower. So that is a very important balance, and you've heard me talk about it many times before. But we, of course, continue to work on this, and it will always be a very important balance for us. Moving over to the profit, improved profitability, and that's even including our moving costs. So gross margin ended up on 63.4%, 1% higher than last year. We think this is a good level and the growth there comes from a lot of different things. We had lower discount rates in the quarter. We continue to work on the freight cost. And we've also earlier in the year, had some price adjustments through the nice price change that we did, which basically means that all currencies end in even numbers rather than just the exchange rate numbers. And looking at the gross margin for the period, January to September, that also ended up on 63.4%. And compared to last year, it's 1.2% higher than last year. Marketing spent, it's almost flat, 29.9% versus 30.1%. It's higher than we've seen earlier in the year. And as we pointed out before, it tends to be higher in the fall. And of course, now we're moving into Q4 where the competition is much more fierce than in other quarters. So, it does fluctuate quarter-to-quarter. We see this year that there is a lot of competition already when it comes to the Black Friday. It used to be a day, then a week and then a month and now it's almost a quarter. So that period is definitely growing over time. Sessions on site increased by 39%. This is due to -- partly due to the fact that we are marketing much higher in the funnel, which means that traffic comes in and the conversion is a little bit lower, but more people come in and get to know our brand and our products. So, this is, of course, still a big jump. We are now moving into more like-for-like comparables, because we started with this more visual advertising about a year ago, but we're still growing. So, we're very happy about that. And then last but not least for this slide, EBIT ended up on SEK 12 million compared to SEK 9 million last year. So that's a margin of 7.2%, and that is including almost SEK 2 million in moving costs for the quarter. So, we're happy with this solid result here as well. Looking a bit more on the market climate. We see that customer sentiment continues to fluctuate. If we look here, we have three markets that we follow a bit more closely. You see that Sweden is moving up a little bit, while Germany is backing quite a bit and France is stable, even down a tiny bit. So, for us being in 30 markets, this is, of course, something that we need to look at, but also balance. And we can't really rely on just the big markets driving our growth, and you saw that in the report, and you've seen it before. For us, it really means that we need to optimize the spend and move quickly from one market to another. And it also means that the small markets are also important to us to balance. And just a couple of examples in Q2, Germany grew by 10%. And now in Q3, it grew by 17%. And Sweden grew by 16% in Q2, and it grew by 6% in Q3. So, it does vary a lot from market to market. And then I also think, it's worth mentioning that our organic search continues to grow. We see both strong growth in branded search, which we think is very connected to that we are higher up in the funnel when we market and have much more visual ads. But we actually also see very good growth in nonbranded search. And to us, it's a sign that our big efforts in SEO are paying off. And then now we are going into peak, or we're actually already in peak. So just a couple of things from last quarter that have been important for this. First of all, the move has been finalized. Total CapEx of that will land around SEK 45 million. Very, very happy with how that move has progressed. We've done it in a very structured way, and we've had very little disturbances. And I also think it actually would have been difficult for us to handle peak in our old setup. So that's really great. We have a lot of new processes and automations, and we will continue to work on that. This will now be continuous improvement. The assortment, the base of what we do, all our beautiful rugs, we have launched around 45 new designs this season. And we've also adapted both on sizes and colors on our most popular big sellers. And this rug that you see here is called Previous, and this is a handcrafted rug from India that I really like, so, and we know a lot of customers like it as well. We have finally really kicked off personalization and getting personalized customer journeys. This is a big step for us, and we're doing a lot of tests at the moment. This is, of course, also a continuous improvement. For us, we've more or less always done one size fits all when it comes to marketing, no matter what the country or who the customer is. It is a big shift, and it's really a way for us to utilize new technology to communicate differently with different customers. So, it's very exciting for us. And then last, but of course, not least on this slide is that we have stable and high Trustpilot scores even though the move has happened. And you can see here on this slide that we are continuously on 4.7, rolling 12, which we're very happy about. And this is something we track very diligently as we know that the customer is liking us. It's really the base for everything we do. And with that, I hand over to you, Joakim.

Thanks a lot, Ebba. So, I'll start with the top line. And as you already mentioned there, top line grew, net revenue grew by 15.1%. And in local currency, we grew by 18.4%. Looking at the region, we had good growth in all regions, DACH being the best, plus 26%, whereas Germany grew 17%, the Nordics growing 12% almost, and of which Sweden grew 6%. And then in Rest of World, which is rest of Europe, basically, we grew by 13%. And as you may recall from quarter 2, the 2 biggest market there, France and U.K. were flat. Now in this quarter, France is plus 23% and U.K. is flat. But bear in mind then that over the past few years, not the last year, but over the past few years, U.K. has been a good source of growth for us. So, all in all, a good growth in all regions. So, moving on to cost ratios and the EBIT margin. The product expenses came down 1%. I already mentioned a few reasons, the biggest one being that we had a lower discount rate average over this year compared to prior year, but we also have this nice price increase that we did earlier in the year. Shipping and other selling expenses almost flat. So that sums up then to a gross margin increase of 1% due to the lower product expenses. Other external expenses, the biggest one there is marketing going down from SEK 30.1 million to SEK 29.9 million. So that's a 0.2% decrease versus last year. And the biggest negative variance versus prior year is then the moving cost of SEK 1.8 million, which is 1.1 percentage points of net revenue. Personnel expenses are going down 3.3 percentage points, and that's mainly due to that we had nonrecurring costs in last year, but also a bit on the positive side from the economies of scale we get. In other operating expenses, we record the revaluation of assets and liabilities that we carry in foreign currency. And that's the only thing we have in this line. As you can see in prior year, this was an income of SEK 0.5 million. And this year, it's SEK 0.7 million cost. So, it's a SEK 1.1 million difference. You can see at the bottom of the page, we note that there are some rounding differences that may occur and here is one example of that. Depreciation and amortization. Here, we have 3 major things. We have our lease agreements. We have the depreciation of the tangible assets, and we have the amortization of our intangible assets, that is our web shop. If we start with the tangible assets like Ebba said, we have invested SEK 43 million. We have started depreciating those at the beginning of the quarter. So, we almost have a full quarterly charge that we will carry going forward. That is SEK 1.2 million increase, which is equivalent to 0.7%. Also, we have the new lease that we have for Lodgatan, our new office premises that has been added. And at the same time, we have the Limhamn costs still in here. That's about SEK 1.2 million. We haven't included that in the moving cost. We were operating from that site. But as of 1st of October this year, we don't have this at cost. We will not have that cost anymore. So, all in all, it sums up to an EBIT margin of 7.2%, an increase of 1 percentage points. Moving on to inventory. So, we have increased inventory by SEK 14 million, which is normal during this period of the year. We build up for the quarter 4. If we look to the right, we see the share of the last 12 months of net revenue, where we are at SEK 19.4 million. It's in the middle of the target spend that we have defined. It seems like we have decreased a lot versus prior year. We have, but we feel that we are well stocked up for the quarter 4 season that we are in. Then on to cash flow. Cash flow from operating activities increased mainly due to the increased earnings due to the increased EBITDA. You can also see that the working capital decreases less than it did in last year. So, in last year, we had more of an inventory buildup than we have had this year. At the bottom left, cash flow from investing activities. This is a bit unusual for us as a company. It's the biggest investments that we have done. We have invested SEK 33 million in cash going out for the tangible assets. And the intangible assets, we stopped putting on the balance sheet on the 1st of July last year. So now we expense on those costs in the P&L. So all in all, to the right in the picture, despite having then invested SEK 33 million in tangible assets, we end the period with a SEK 29 million higher cash balance than the year before. So, if I then try to summarize a little bit, Ebba, good growth in all regions. You spoke about the positive average order value. In local currency, it's plus 3%. It's flat in Swedish krona. But in local currency, AOV is up 3%. And then on the balance sheet side, despite these investment intangible assets, we have an even higher cash balance than Q3 of last year. So, we stand with a strong balance sheet. So, I hand it back over to you.

Thank you. So to repeat what you said once again, a strong Q3 leading into peak with both top line and customer KPIs are all on all-time high levels. The fall assortment is here with lots of news in primarily modern and classic those styles, and we're actually already seeing some very nice signs of new best sellers in this group of products. And personalization is our focus. Of course, at the moment, peak is our main focus, but personalization will continue to be a focus going forward. So, I'm very excited that we have managed to kick this off finally. And with that, let's go over to the Q&A.

[Operator Instructions] The next question comes from Benjamin Wahlstedt from ABG SC.

First off, I'd like to ask about your comments regarding the end of the year. It is -- at the same time, both -- I mean, it's optimistic. You're saying you have good momentum, but you also note that your growth in percentage terms might vary, something that I think would be interpreted as being basically a comment of softer growth currently. And my question is, could you clarify if that was the intended message?

Benjamin, I think that, yes, we are going into tougher comparables, and we have had fairly soft comparables during Q2 and Q3. But we are still seeing -- we're still happy with how we're doing. So -- but it's more pointing that out. I don't know, if you want to add anything Joakim.

No, I think we can just add that in Q3 last year, we were detracting. We were minus. We had a start of a good growth period in quarter 4 of last year. We have had quite a good order growth throughout the year with 20% and up 19% this quarter. And as we have been fighting the average order value, it's always like you point out several times, but it's a balance between average order value and order growth. And the more we get the average order value up, of course, the harder it will get to drive the same order growth as we've been used to.

Perfect. You notice as well that your gross margin strengthened due to a lack of high discount campaigns. You should have a gross margin tailwind from FX by now, if I'm not mistaken due to the soft dollar primarily. Is this correct? And if yes, what is the magnitude of this tailwind?

It's correct that we should, over time, have that. The U.S. dollar started to depreciate about beginning of quarter 4, right? But it takes some time before we sell that through. We don't do that in a quarter or 2. So there will be an effect of that. However, we also have an impact on the top line. So, as you know, we have about 3 percentage points on the top line in negative effect. So that will counter a part of that.

All right. So, the tailwind from FX is expected to be larger in quarters to come on flat FX rates basically?

Correct.

Yes. I was wondering as well if you could give us some additional flavor on the D&A development, please. What portion of D&A is related to having, I guess, triple or quadruple rent in this quarter? I think you said a leasing depreciation of SEK 1.2 million from Limhamn in Q3 figures that should be phased out. Could you say anything on sort of the run rate D&A with only the new warehouse and the buffer inventory in numbers?

Yes. I mean, what we will leave out in quarter 4 is the SEK 1.2 million for Limhamn, so that's 0.7%. And then we are basically at our run rate. So that's the short story.

All right. So down SEK 1.2 million, and that's a good estimate for a run rate quarterly in D&A.

Yes.

And finally, from me then, could you give us any indication as well whether or not the new warehouse is working fully as intended now or if there are still any sort of quirks that remain to be ironed out?

It's working fully as intended. And when I said before that, it's continuous improvement, it's more about -- I mean, you've seen the automation that we have launched now. And of course, there's more potential automation in the future. So, it's more that we will continue to develop this over time. But it's up and running, the way it was intended when we sort of projected the whole project, so to speak.

The next question comes from Johan Fred from SEB. Please go ahead.

Building on Benjamin's question earlier, as mentioned, you stated that you had a strong end to the quarter. Could you just remind us how sales developed in September last year, i.e., should we interpret this comment as sort of if you're seeing good momentum into Q4? Or is this solely a result of easier year-on-year comparisons?

We had a moderately strong Q3 -- end of Q3 last year, right? The quarter was fairly weak last year, but it didn't end like weaker at least. So yes, it was okay last year.

Okay. So sort of a mix between the 2?

Yes.

And secondly, sort of a more high-level question on sort of your guidance for volatile sales growth between quarters. You've now delivered several quarters of improving or improvement across your key KPIs and especially so in Q3. As we look into 2026, how confident are you that Rugvista can sustain sort of double-digit growth? Or are you moving towards more the mid-single-digit trajectory based on what you're seeing in your -- across your markets and sort of key KPIs and metrics?

I think we've done so many changes to the company that are sort of solidifying who we are as a brand and strengthening who finds us and where they find us. So, I think that we have a good trajectory going forward as well. It's very hard to put that into a number here, but I'm confident that we are on a good road, if I put it that way.