Rusta AB (publ) (RUSTA) Earnings Call Transcript & Summary

Good morning, and thank you for joining us for Rusta's presentation of the first quarter of the financial year 2026, '27. My name is Cathrine Wigzell. I'm the CEO of Rusta, and I'm here together with our CFO, Sofie Malmunger. Rusta delivered a solid start to the new financial year, and we're pleased to take you through the quarter today. Looking at the agenda, I will begin with a business update and the highlights of the first quarter, then Sofie will take you through the financial performance in more detail. After that, I will share a few words on the outlook ahead and then we will finish by opening up for questions. Let's start with the business update. Rusta delivered a solid first quarter with sales growth and improved profitability across all segments of our business. We welcome more customers to our stores. We saw higher conversion and increased sales per customer, great combination for driving growth. We opened 5 new stores in the quarter and the expansion continues at the high pace. Only for this fall, we have 14 stores in the pipeline. Our store concept renewal continues to support like-for-like growth, and we're rolling out the next phase, Health and Beauty, starting now in September. The gross margin continued to develop positively, driven mainly by our assortment renewal and by positive currency effects. Finally, we have started the tuning of the automization project at our central warehouse. Capacity is increasing step by step as the system is calibrated and the ramp-up is progressing according to plan. Looking at the quarter in figures, net sales grew by 9.9%, and like-for-like growth, excluding currency effect, was 2.2%. Sales increased in all segments with other markets in the lead with a growth of 13.2%, excluding currency effects. The gross margin increased by 1.7 percentage points to 44.3% driven by our successful assortment renewal and supported by currency tailwind in line with the previous guidance. EBITA amounted to SEK 330 million compared to SEK 280 million last year, an increase of 17.6%, delivering an EBITA margin of 9.5%. We also saw strong cash generation. Cash flow from operating activities increased by almost 61% to SEK 758 million. So gross margin expansion and cash conversion are all moving in the right direction at the same time. Taking a closer look at our store network and our expansion plans. We now have 248 stores across our markets, 129 in Sweden, 57 in Norway, 52 in Finland and 10 in Germany. On top of that, we have a solid pipeline of signed and approved locations with new stores planned in all our 4 markets. We expect to open 14 new stores this fall, of which 3 stores were opened in August and 1 store was opened now in September. And we maintain our guidance of 65 to 80 new stores over the coming 3-year period. our expansion potential grows as our brand recognition increases, which makes it possible to open in smaller cities than before, as an example, we had a really strong start for our new store in Vagnhärad in Sweden, which opened in the first quarter. And this is a really good example of us being able to drive traffic and high sales in a smaller community. A softer real estate market also gives us opportunity to good locations on attractive commercial terms. And our strong financial position allows us to act when the right opportunity appears. As always, our bar of entry remains high and the quality of the pipeline is good with a large share of locations in or around major cities. A few words on the renewal of our store concept, which is an important driver for like-for-like growth. Phase 1 of the updated concept was launched in the autumn of 2025, and the rollout has continued since then. The results are encouraging and support our guidance of an uplift in sales growth for the updated rooms following implementation. The next step is the health and beauty area where rollout has started now in September with great engagement among our colleagues in the stores. The concept renewal is a key part of how we grow sales in our existing stores. It makes it easier to shop, it improves efficiency and it strengthens the customer experience. I will now hand over the word to Sofie to go through our financial performance in more detail.

Thank you, Cathrine. Turning to the financial performance. Rusta delivered a solid first quarter with profitable growth across all segments. Net sales increased by 9.9% and excluding currency effects by 8.7%. Like-for-like sales, excluding currency effects, increased by 2.2%. Growth was supported by more customers, higher conversion and more items per customer. Gross profit increased by 14.5% and the gross margin improved by 1.7 percentage points to 44.3%. The improvement was driven by strong results from our assortment renewal and positive currency effects. EBITA increased by 17.6% to SEK 330 million, corresponding to a margin of 9.5% compared with 8.8% last year. This reflects the combination of strong gross margin development and continued good cost control. Looking at the segments. All 3 delivered sales growth, positive like-for-like growth and improved profitability in the quarter. Starting with Sweden, net sales increased by 6.6% and like-for-like growth was 2.4%. Customer footfall and conversion continues to improve while the updated store concept supported sales, particularly in home decoration. EBITA, excluding IFRS 16, improved by 2.4 percentage points to 21.4%. In Norway, net sales, excluding currency effects, increased by 7%. Like-for-like growth, excluding currency effects, was 3.2%. Strong campaigns increased footfall and conversion and updated store concept again contributed positively. EBITA excluding IFRS 16, increased by 1.8 percentage points to 13.7%. Other markets delivered the strongest net sales growth of 13.2%, excluding currency effects and like-for-like growth, excluding currency effects, was 0.7%. Growth was driven by new stores and the positive development of Rusta Online. EBITA excluding IFRS 16, increased by 2.5 percentage points to 6.2%, supported by effective cost control and strong overall sales growth. Overall, the quarter shows profitable growth across all segments with strong performance in our mature markets and progress in other markets despite continued challenging marketing conditions in Finland and Germany. If we look at the profitability drivers, the improvement reflects both stronger gross margin and continued cost discipline. Sales KPIs developed positively across the board. We had more customers, higher conversion rates and more items sold per customer. The gross margin increased by 1.7 percentage points to 44.3%. And the main drivers were strong results from our assortment renewal and positive currency effects. Operating expenses as a share of net sales decreased by 0.3 percentage points to 32.9%, reflecting good cost control throughout the value chain. This is particularly strong given the 5 new store openings in the quarter compared to none last year. The negative contribution from other reflects mainly negative currency translation effects on balance sheet items compared with last year, together with higher depreciation, despite this, EBITA increased by 17.6% and the EBITA margin improved to 9.5%. Turning to cash flow and the balance sheet. Starting from the middle in the picture. Cash flow from operating activities increased by 60.7% to SEK 758 million compared to SEK 472 million last year. The improvement was driven by stronger profitability and a positive development in working capital. Net working capital decreased to SEK 1,243 million, reflecting a good turnover of our summer assortment. Our financial position strengthened further, we ended the quarter with a net cash position of SEK 587 million. This strong balance sheet gives us continued ability to invest in new stores in the supply chain and in other long-term growth initiatives. Let me finish with a few words on our financial targets. Our medium-term target remains unchanged, and we are well positioned to deliver on them. We aim for an annual average net sales growth of around 8%, like-for-like growth above 3% and an EBITA margin of around 8%. Our dividend policy is to distribute 30% to 50% of net profit each year, taking our financial position into account.

Thank you, Sofie. A few words on the outlook before we move over to the Q&A. Our expansion continues in a high pace. So far this financial year, we have opened 9 new stores, and we have an additional 11 new stores in the pipeline for the fall. The store expansion is complemented by the continued development of Rusta Online that is now available in all our markets. We also continued the rollout of the updated store concept. And as mentioned, health and beauty is the next area for renewal. On current trading, we see stable sales development in August. We expect the continued geopolitical uncertainty to lead to higher freight costs and cost of goods by the end of the second quarter, but we expect this to be mitigated by currency tailwind. As you might have seen, this year, Rusta celebrates 40 years and we will continue to meet our customers with very strong offers throughout the anniversary. With that, I would like to open up for questions.

[Operator Instructions] The next question comes from Alice Beer from ABG Sundal Collier.

Starting off, first, on the gross margin increase, you attribute it to assortment renewal and FX tailwinds. But if FX is the larger part and purchasing prices and freight rates, rise to the end of Q2. I mean, what's the sustainable margin into H2? Could you quantify something with the FX?

I mean if you look at our gross margin, it's built up from several factors. You have ordinary prices and the intake margin that we have there. Then you have news value, which in this quarter have supported on a very good level with home decoration in the lead. Then you have the positive currency effect that we had in the quarter. And out of these factors, that's how we decide how much price investments we can do and how much campaigns we can drive in each quarter. So it's built up from various factors.

Okay. Great. I'll move on, I mean, if we look back on last quarter, you opened 6 new stores in other markets and yet the EBITDA, excluding IFRS 16, in other markets, it grew by almost 100% now in Q1. One might assume that new stores should say weigh on margins. Have you done anything different with these new stores to boost initial profitability? And how should we think about this going into Q2 with all the new store openings?

We have a high bar when we open new stores. It's a thorough process before we decide where to open. So we know that the stores that we are opening should contribute to positive both sales and profitability to the group. If we look at the different quarters, it can differ both in segments, in cost and so on, depending on how many stores we are opening. So for this quarter that we are presenting today, the first quarter, we opened 5 new stores in our most mature markets, which is Sweden and Norway that has a slightly different effect on the cost side if you compare to a quarter if we would open in more immature markets. So there can be differences between quarters, between the years depending on where we open the stores.

Okay. Great. Moving on then to Norway. The profitability the margin improved almost percentage points. How much of that margin gain survives with your NOK?

The profitability development in Norway is supported by a stronger NOK. So the gross margin has increased in the first quarter in Norway.

Yes. But if there no cost to turn, I mean how much of the margin increase is sort of organic and how much is FX?

Okay. We don't comment on that for the specific markets. But it has a very positive effect, of course, especially if you compare to last year, which was heavily negative when it came to FX effect for the Norwegian segment.

Okay. Perfect. And just one final question for me on the upcoming new ERP system. Do you have a guidance for costs on this and approximately the split of how much will be capitalized?

Yes, we have. Just as you say, we are transitioning to a new ERP provider. And the purpose of that is to gain access to retail specific functionality and more tailored system capabilities. So our current ERP provider will not support with these capabilities going forward, and this is -- this project is something we look very positive to its way to unlock new potentials. And when it comes to guidance, we say that the total investment is estimated around SEK 80 million, which will be split between CapEx and OpEx. But this is in line with our investment in future growth and expansion for the group. So it will not be of any effect, we're still targeting towards our financial targets.

Okay. Great. But you don't have any specific guidance on how much will land in OpEx?

No. we have the total amount, and then it's a split.

The next question comes from Daniel Schmidt from Danske Bank.

A couple of questions. And maybe starting with other markets. where you did see a quite good EBIT margin development year-over-year, but you also write that the Rusta Online gross margin had a positive development, while the macro environment in Finland and Germany remains challenging. If you take out the Online business, which is I guess, a lot of Sweden, some Finland maybe and some Norway, how much was sort of the organic development for Finland and Germany in terms of EBIT margin program?

We have -- just as you say, other markets is divided between our -- it's the newest markets, so Finland, Germany and online as a channel. We have a positive development in the profitability all over in that segment.

Okay. But you do highlight Rusta Online as a big contributor, which makes you believe that the offline business in Finland and in Germany is not really progressing, but it is. That's what you're saying? In terms of profitability?

That's correct.

Yes, they are all progressing. Yes.

Okay. Another maybe detailed question. When you state in your accounting, the profitability by market and then you have the central function costs below that; have you done any changes to your accounting on this particular line. That line is up 33% in a year, which is quite a lot, actually.

Yes. It's the same accounting as before, but we have a different level on the dollar FX. So -- what has happened during the quarter is that the dollar went from -- this is very technical, Daniel, now. But the payables that we have in dollar when we ended last quarter, you had $1 of SEK 9.27. But when we ended this quarter, it was close to SEK 9.60. And in a period where we are all the Christmas assortment is coming into our warehouse, and we have a high share of dollar in our payables, you get a negative effect due to that change in the currency. So it's just a currency revaluation effect, but everything is the same.

Okay. Good. Good. Sort of maybe coming back to the gross margin. You have previously and you talked about how you sort of prioritize your investments depending on a number of factors. You have previously talked about returning to a normalized gross margin. And when I look at your rolling 12 months gross margin is very close to 44%, which is a number that you've mentioned before. Is it -- should one interpret your communication when it comes to FX sort of investment in price, freight cost and purchase cost coming up and all that. that you're sort of happy with the level where gross margin is and that you see better value creation by investing if there's any net impact from FX [ interface ] simply?

I think as a company, we're never happy. But if we -- I mean, we don't guide on the gross margin. But if we look historically at the Rusta margin, around 44% would be a quite normal margin for Rusta also given -- or taking into account the financial goals that we have.

And just to say that you -- I mean, as you mentioned, we have a currency tailwind, and we can decide to use that to invest in pricing or improve our offering or mitigate increased costs such as sea freights and purchase prices.

But just when you read it and given your comments is my feeling that you want to do both and the sort of you're happy where the gross margin is right now. So since it's back to where you once were, and that's your -- in your target basically? Anyway...

I think for us I mean, we want to be a price leader in the market. So for us, it's important to always be able to continue to price invest in the market also to gain market share. So I think for us having a positive tailwind when it comes to FX, we will try to give that to our customers by lowering our prices and having higher campaign sales.

Yes. Okay. And then just really on the new warehouse automation ramp-up. You talked about sort of that entailing extra cost in quarter. Could you quantify how much? And is there going to be any ramp-up cost for Q2? Or are you done by Q1?

I mean, the automation project is progressing according to plan. We are now in a ramp-up phase and capacity is increasing day by day. So we are not yet at the final acceptance test, but we are progressing and ramp-up is -- or ramp-up is continuing.

So we had the ramp-up during the summer, and we're waiting for the final acceptance test before we close the project. And so far, everything looks very good. We're not at full capacity, but we are very positive. So during, of course, the ramp-up phase, we have extra cost as you usually have when you drive a project like this. But as you can see on our total OpEx side for the first quarter, we have decreased the share of operating costs. So overall, we managed to do this in a very good way.

Okay. Would you say that the cost has been neutralized by the lower social cost for young people?

Yes, I mean, the buildup of the [ CapEx ] is quite complex. Of course, we have a positive effect of that. So a share of that is, of course, decreasing our total share. But there are many factors into the OpEx.