Synsam AB (publ) (SYNSAM) Earnings Call Transcript & Summary

Welcome, everyone, to Synsam Group's Q&A session as we released the Interim Report for the second quarter 2024, this morning. My name is Frida Leim, and I'm Head of Investor Relations at Synsam Group and the moderator for this Q&A today. I'm joined by our CFO, Per Hedblom; and our CCO, Jimmy Engstrom. Those of you watching this live can ask your questions in your YouTube chat, and we will try to answer as many questions as possible during this Q&A session. We have also our analyst from Citi joining us. So I would like to hand over and welcome Veronika Dubajova from Citi.

Excellent. Good morning and thank you team so much for making the time for our questions this morning. Maybe we can just start high level, if that's okay. And I'd love to understand, what you are seeing from a sort of customer-consumer macroeconomic perspective. Obviously, there's been a lot of noise in the market around the health of the consumer. Your results this morning seem pretty interestingly resilient. I know you've talked about the business being resilient, but maybe if you could update us a little bit, on what you're seeing on the ground, that would be a great starting point for the conversation.

Yes. No, it's a good question. I mean we still see that we are in an economic downturn and the consumer sentiment is the same, basically as the quarters -- the previous quarters. But despite this, we are performing very well again in Q2. And as you -- as you mentioned, we believe that we have a resilient business model for this and a strong underlying demand for our services.

Okay. And have you seen any changes in terms of consumers' willingness to trade up, pay for premium products? Or do you still feel that, kind of, there is willingness to invest into good optical technology, if it's available and sold appropriately?

Yes. I think that's -- I mean, that's what we mean by resilient that consumers tend to prioritize our solutions and offerings. But then, of course, what will happen going forward, if interest rate decreases, we -- there might be a lag as well. So I wouldn't say that [indiscernible] talk about the trading up really, but that is resilient, we have really seen, I would say.

Okay. That's very helpful. And then maybe while we're on the topic of the consumer, obviously, the subscription business continues to grow well, but the churn rate keeps increasing. And I'm just curious what you think is driving that growth in the churn rate both year-on-year and sequentially from Q1 to Q2?

Yes. No. I mean the churn is stable as we see it, but we saw a slight increase this quarter. And I mean, there is a part of it basically, that it can vary quarter-by-quarter. And for us, it's very important to always work with the customer satisfaction. And we see that in the lifestyle program, the NPS is higher and the lifestyle subscribers are typically more satisfied. But this is something that we, of course, follow closely, and we work continuously to develop the subscription program in order to improve it even further. But we see it as stable but slightly higher this quarter.

Okay. Okay. So there was nothing kind of specific we should be reading to it, either when it comes to the health of the consumer or attractiveness of the program to the consumer you wouldn't say.

No, we wouldn't say that. It's -- of course, we always want the churn to be low, but we wouldn't see any sort of consumer sentiment, specific factors in this really, not today, I wouldn't say.

Okay. That's very helpful. And maybe we can kind of dive into things country-by-country. And certainly, I was pleasantly surprised by Denmark. Would you agree with that? And I guess, maybe, what is happening? Obviously, we've had this headwind from the credit legislation changes. Are those dissipating? Is the mitigation efforts that you've put into place or something else happening there? That sort of really drove that surprise on the Danish side.

Yes. Well, I mean we've always said that this consumer regulation change, the effect would be mitigated over time, because consumers would start to learn that, that this is how it works in Denmark from now. And also, our employees get used to it and things will settle down. And we see that, that has maybe started to some extent. Also, our Danish organization have, of course, worked very hard with delivering value to consumers. I mean, when we've had this headwind, they really focused their efforts in a good way, we believe. We also look at, I mean, measures we are taking, which are started to yield results, and we continue with that is to broaden our assortment, move stores to improve our offering. We have still too many small stores in Denmark, and we want to expand our store area, so that Denmark -- Danish stores will be more similar to the attractive stores we have in Sweden and Norway and Finland. That has not always been the case, and we are in the beginning of that journey -- that was a long answer, do you want to add?

Yes. No, the only thing maybe to add is, I mean, we have a strong presence in Denmark as well. And the management team and the Danish organization is doing a fantastic work. And it is impressive to see actually that we are coming in with a record quarter in Denmark in Q2, despite being in an economical downturn. So we are thinking, that what we're doing in Denmark is working. And when we see that actions that we are taking are exactly the right ones to improve even further going forward.

Okay. Okay. That's helpful. And do you think we're now back to positive growth trajectory for Denmark for the rest of the year? Or are you confident in that?

I would say we can't give sort of forecast that way, but it's -- I mean, this year, up until Q2, we've had sort of quarters that we compare to a situation before the regulation changes, from Q3 and onwards, we will compare apples with apples, so what I mean with -- sort of the regulation changes came into effect 1st of July. So the comps will be different in a positive way. That's what we can say.

Understood. Very clear. Okay. And then switching to the other countries, I guess, I know you talked about in Sweden that there's been a bit of attention in the media on the subscription program, and folks having some misunderstanding around whether they get to keep the spectacles after the program ends or not? Was that a factor at all in Sweden? And do you feel that you have now built a better understanding of what -- how the program works in Sweden?

I mean, -- if I start what it is -- I mean, the important thing for us is to deliver customer value. So that is what we're focusing on and that we believe will yield results, and also ensure that our employees are confident when selling lifestyle, despite what is the media attention. And we need to take -- I mean, customer satisfaction, we take it very seriously. And that is our recipe, I think.

Yes. No, no, exactly. And I mean we, of course, follow this, and we are humble, and always want to improve the customer satisfaction in every single customer case. So that is, of course, very important. But as we said previously, we also see that we are approaching now 800,000 almost subscribers in total, and we have a strong NPS among this group, which is, of course, very good. And in Sweden's case, I think also we are still a bit constrained about -- regarding the capacity in the stores. And we work a lot to improve this. So that is, maybe, the most important task in the Swedish organization to increase the capacity in order for us to take care of all the customers that wants to come to Synsam.

Capacity in a second, because I was going to talk about the new store openings first and then about the efforts to increase capacity. So maybe just looking at the new store openings, impressive quarter, 13 new stores. I think you did 9 in Q1. You're planning another I think, 9 or 10, if I remember from the press release for Q3. Correct me if I'm wrong, by the way. Clearly, a strong year. Maybe comment on how the store openings are progressing, how important they have been as a contributor to growth? And are you able to attract opticians and sales rep, sales staff to work in the stores, how that is going?

Yes, exactly. So I'll start again Yes. I mean, yes, of course, no store openings is one important part in our growth story. And that's it important that we keep momentum. And we have set out this goal to establish 90 new stores 2024 to 2026. However, I also want to point out that the like-for-like growth was also reasonably high in the quarter. So with 6.8% April to June, -- so we are not -- I mean, we need to have and we want to have, and we do have a strong like-for-like growth as a base, and then the new store openings comes on top. But of course, new store openings are one key component to achieve our organic growth targets.

Yes. And Per, should we be thinking that this year you will do more than the 30 stores for the full year? Is that a fair working assumption?

Well, mathematically, that will be the case if we have communicated 9 to 11 in Q3. So that would be above 30. So that mathematically, yes.

Okay. And is this a catch-up on 2023? Or is this more a pull forward from 2025? How should we think about that?

Well, since we have a target, we have a target of 90 stores. And if we exceed that in '24, I mean, we maintain that target. So there may be some pull forward from '25, '26, I would say. So we haven't moved that target of 90 new stores. So...

Okay. Okay. That's helpful. Excellent. Very good. And then what about the capacity efforts that you have? And Jimmy, you touched upon that, give us an update on how you're getting on with that? And how much longer you think it will take on, so you are not capacity constrained in Sweden?

I mean we are continuing to work with the IV program. So we are increasing our capacity from that quarter-by-quarter, month-by-month. So we have a good progress there. But on the other hand, we have also a growing subscriber base and more customers wanted to come to Synsam as well. So we are not there yet, that we are all the way where we want to be regarding the capacity. But we're going -- we're increasing quarter-by-quarter in a good pace.

Okay. And any kind of negative feedback you're getting either from customers or from opticians around EyeView?

Customers are generally more satisfied when they do in EyeView exam. Somewhat more satisfied than in a regular eye exam opticians.

Yes. And -- but with that said, we have typically a high satisfaction rate in -- when we are conducting that examination. So -- but in both cases, it's very good, but it's slightly higher in the high view when we measure it.

Okay. Okay. That's helpful. And then maybe the final question before we move to the rest of the P&L, just around the Easter effect. I think you called it out in Norway specifically. But how much of a contributor to organic growth was that for the group?

I mean for the group, I mean, we -- how should I put it? We -- as you know, we achieved a 10.7% organic growth in Norway in the second quarter. And for the first, we had 4.2%. And I mean, there's quite a large fluctuation and some of that fluctuation, some of it, currently contributed to the Easter effect. So -- but I mean, since Norway is just one of our markets. I mean the total effect will not be I mean it's like around 20% of our total net sales. So if you have a few percentage points in Norway from Easter -- and you take that times 20%, then we -- it will not be a large effect on...

Okay. And no Easter impact in any of the other regions. It's just in Norway because of the time that people take off, yes?

Not to a significant [indiscernible]. That's why communicated Norway specifically in Q1.

Okay. Well, maybe we can move to the rest of the P&L. And I guess my biggest question this morning from the print was when I look at the EBITDA, it's actually not about the divisional or the regional performance, but it's about the central cost items, which were actually positive versus 18 plus $18 million for us normally. They run at sort of a negative $20 million to $30 million. Can you help us understand what happened there? What drove that swing? And is this a new sustainable number? Or are there some one-offs here that we need to be wary of?

Yes. I mean the central element [indiscernible] are both central costs and some central operations as well as Central revenue. And in the quarter, we had some positive effect from our vendor agreements. We do have some contribution from vendors, which belongs centrally, rather than in the countries and that had a certain positive effect. And we also had a, sort of internal profit, when we sell from sell-on the central warehouse to the stores, when we have to adjust to that internal profit that effect Central and that was positive this quarter compared to negative last quarter. So that -- how shall I put it, that, I mean we -- I would think, we had a quarter when a lot of positive factors were lined up, centrally. So that's all of the message I will give, regarding that item.

And Per are these onetime effects, so the income you have from the agreements, the shipments from the warehouse to the regions, are these one-timers, there's something unique about them in this quarter? Or is this the sort of new normal that we should be thinking about for the business going forward?

I would like to put it in between cost we say one-off, it means like it won't happen again. New normal means that we should count on this every quarter. I will say we will always try to get good results posing countries and centrally. This quarter, we were quite successful on all points, I would say. That's all I can say at this stage.

Okay. Okay. I understood. And then when we look at the regional profitability, any particular country that surprised you when you looked at the second quarter?

Not surprised, because we have a plan, but we believe it's positive that Finland is moving in the right direction also in terms of profitability. I wouldn't say surprise from our side, but we want to highlight that as well.

Okay. That makes sense. That makes sense. And maybe just a brief word on sort of input costs and wage growth. Just remind us what you're seeing in the market? I'm thinking from your suppliers, are you seeing any pressure from them? Any price increases either on lenses, frames, finished spectacles. And then likewise, when you think about your wage growth, obviously, you have EyeView that's helping you manage capacity, but obviously, what are -- what wage is growing at?

If you start with wages, I mean, we have opticians and nonopticians. And we have collective bargaining agreements in our countries. And that is -- we -- I mean, we follow these agreements and it's a fixed percentage. So that's not nothing dramatic. Opticians, I mean there's still sort of some shortage regarding capacity opticians, which has some impact sometimes on personnel costs, also use of optician consultants, regarding wages. But there's nothing new that has been the same for a long time. That's an input cost, do you want to add anything?

Yes. No, regarding input costs. I mean we -- in 2022 and the period after that, when the inflation started, that was when we, of course, experienced the biggest part of that. But we're always working with the negotiations and everything to keep good terms. And we think we have a good supplier mix that enables us to do this, but still ensure that we have the best and most attractive assortment.

Okay. Excellent. I think this is it for me. So Frida I will hand it back over to you for now.

Thank you, Veronika. Great. We have also a couple of questions in the chat. So the first one goes. What can you say about Norwegian market in the second quarter? And what do you see looking forward?

Yes. So what we see in Norway is that we are having a good momentum as was written in the report and that we have performed well, despite also Norway being impacted by an economical downturn. And so in that context, we see that we are performing strongly in Norway as well.

A second question also regarding Norway. The cost-saving program had a positive effect in Sweden and Norway. How comprehensive have the program been in Norway? And what effect have you seen?

Well, first, the cost program affects both central costs, the Swedish operation, #2; and then Norway, #3. And in Norway, it's mainly about increasing efficiency in certain selected stores. So, it's important to maintain and increase profitability in Norway, absolutely. But it's very targeted to certain stores, where we need to increase efficiency basically.

Thank you. So it's time to wrap up. But before we do so, something anything you would like to add before we...

No, I think we can summarize that we are conducting a record quarter, despite being in economic downturn. We are performing well in all four countries, and that we see and we believe in our strategy and our value creation agenda, and we look forward to continue to work with that also in the quarters ahead.

Great. A thank you to [indiscernible] to all of you who watch this Q&A session alive. See you next time. Thank you.