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

Yes, that's great that you mentioned that because Finland has, for a very long time, have had a lower gross margin than the rest of the group. And it's been a conscious approach actually to reduce discounts in Finland. And that has paid off the last -- this quarter. And that's very encouraging that we maintain this high growth rate even though discounts have been reduced to some extent in Finland specifically.

How do you think about this sort of balance between operating leverage and supplier negotiations against discounting plans as we head into Q4? Should we still expect further gross margin contraction in Q4, saying that it's the holiday season, maybe there's more campaigns that we might be running? Or should we expect to see improving dynamics here?

Well, it's tricky actually to -- we're in the middle of the fourth quarter. So it's really too early to talk about gross margin specifically in fourth quarter. I mean it's continuous challenging conditions in the market, and we are taking the actions we need. We are in the middle of the fourth quarter, too early really.

I suppose, in general, and especially given a weak consumer backdrop, do you -- would you expect to be running more campaign just to stimulate that kind of big holidays demand as a principle?

No, we can't go into that in this call. It's too operational.

Okay. Makes sense. And then further down the P&L, I want to refocus back on Denmark because, again, it performed very, very well in Q3. Can you talk to the drivers of Denmark margin performance in the quarter? And how sustainable are they going into the next couple of months or going to the New Year?

How should I put it? We -- I mean this is -- it's becoming too much of a forecast. I mean, of course, when you talk about sustainable going forward, I mean, we are taking actions, as Jimmy mentioned, we are adding assortment. We are upgrading our stores. And focusing on the parts of the business that we can really affect. And we all do -- we do this in order to long term improve Denmark. So we believe Denmark has potential to improve long term. But we cannot talk about how sustainable certain margin level is for a certain quarter or something. It's -- we can't do this here, unfortunately.

Yes. No, I think I was thinking more about we were talking about a lot of different investment into store network, into assortment in order to counter the credit legislation. And I was very happy to see that despite all of those investments, the margins in Denmark turned out to be very solid in the third quarter.

Yes, indeed.

I was wondering whether you still expect to see sort of your ability to improve the profitability profile in Denmark despite all these investments.

I would say it's -- okay, then I misunderstood your question. It's quite simple, actually. I mean, if we are able to maintain a healthy growth in Denmark, a positive growth, there is a potential for margin improvement because it's very much an operational leverage situation. If we will be able to improve growth, then we would have a positive effect further down the income statement in Denmark. That's the mechanics really. So it's not -- I mean the cost for doing these type of exercises you talked about, Jimmy, are not significant. It's more about adding some inventory. It's a certain amount of CapEx, but it's more that we need to do these things in the right order.

And I think, I mean, as we see in all markets, it also is the case for Denmark. The best store in town strategy or that ambition that we have to have the best store in every town, in every mall. When we do this, it, of course, helps us attract customers and also then to support all the business drivers of that store. So that is sort of the underlying sort of ambition also in Denmark in all locations.

Makes sense. Maybe just take a step back and think about operating margin at the group level. Can you give some examples of what initiatives are being done through the OpEx to partly offset the gross margin pressure from planned increased campaigns? And specifically, are you still seeing some monitoring costs related to Synsam EyeView?

I mean, the big rollout exercise was performed up until June this year in Sweden. It was performed until Q4 last year in Norway. So the large rollout costs, we do not have anymore. We do have some central functions still, which we need to have to monitor the improvement, which we expect going forward. So we do have some central teams. Also, we look very much at optician consultants, that the cost of optician consultants could be reduced somewhat going forward. We have some extra actions to do there. That's what I can say really. I also want to mention, though, quite important here regarding the group as such, which is not part of your question. But I mean, our factory is improving continuously. And gradually, we are improving sort of increasing volume, which has a positive effect on profitability for the factory as well. That's one detail, which we should mention as well, I think.

Yes. And I think regarding Synsam EyeView, although the sort of the rollout was completed before summer, there is always an ongoing work in order to trim the processes in every store, in order to utilize everything on an optimal way. And that is, of course, something that we continuously work with on individual store levels.

Very clear. And still on the topic of margin, but just looking at a few years out, how do you see the group margins and whether it's gross or EBIT margin? How do you see it trending given that the higher growth regions are likely the ones with lower margins today? And specifically with regards to Finland, where do you think -- once you get to scale, where do you think the margin for Finland would get to?

I mean important here, we set a financial target of 12% to 15% EBIT margin on group level. And that's the interval we want to be in. We're slightly below that right now. And we want to move further up in that interval over the years. That's important. And if you look at Finland, well, yes, they do have a lower margin than the rest of the group. But we have seen, as you mentioned, the improvement in gross margin, and there are some scale benefits as well. So there is a certain margin improvement potential in Finland as we grow. Whether Finland will move into the same territory as, let's say, Sweden? That's -- I don't want to say that here. But there is potential for margin improvement in Finland over the years.

That's clear. And for the next few questions, maybe I will step away from the financials, get a bit into the new products, and we were very excited about that when I saw you guys at the CMD. So first of all, the smart glasses, all the hype at the moment. Maybe talk a little bit about the uptake of smart glasses in your stores so far and remind us what models are currently on sales.

No. I mean, during Q3, we have rolled this out, as we mentioned in the Capital Markets Day in the first batch of stores. And it has been sort of a gradual rollout also with new products. And currently in the store, we have both the Ray-Ban Meta and we also have the Oakley Meta in these stores. And the rollout continues over the winter. And regarding the uptick, it has been positively received by the consumer. There is an interest, and there is a buzz around this for sure. And it follows sort of the expectations overall, I would say.

And in terms of the purchases that you have already seen, is there anything you can comment in terms of the mix between consumers buying the smart glasses with plano lenses versus the prescription lens? Any details on that?

No, I don't think we can give exact numbers, but there is a mix between that. And there are definitely a lot of consumers that want with prescription, but it's also accessible to buy plano, both in stores and in our e-commerce business. And you can buy it as well cash, if you want, and you can have it as a part of your subscription offering as well.

That's helpful. And then the other kind of new tech-driven products that we spoke to is the -- I think you guys call it the hearing spectacles. Again, can you talk about the uptake of this? And I also want to understand whether they are being sold only in your sort of standard Synsam eyewear store? Are you also selling them in the Synsam hearing stores?

No. New ones, as they are called, this new type of hearing enhancement glasses, we launched actually just a week ago, a little bit more than a week ago. So it's very new, of course, in our operations. So we launched it in the first batch of stores. And the same goes there that we will continue to roll it out in Sweden in the winter and over next year. And then also the case in Denmark as we have communicated. And they are very interesting, of course, since it is, after all, a product where you can get hearing enhancement for mild to moderate hearing losses. And as we see, this is a big area. I mean there are roughly 2.5 million people in the Nordics with a mild to moderate hearing loss. And to have a product that can help you see and to help you hear well, while also, of course, it's being hidden in the frame, taking away a bit of that stigma that a lot of consumers could feel of having other type of hearing enhancement solutions. But we look very positively on this and with large excitement to see how this will develop. And then -- but it's too early to say any numbers because it's just launched now a week ago basically.

That's very exciting. Do you -- are these glasses already sold in the hearing stores? Are you planning to be selling them in Synsam hearing stores?

We can sell this in all our stores as it does not require an audiologist per se in the customer meeting. It's as in the case also in the -- in other markets in Europe. So the hearing -- the stores where we also have a hearing business, we sell them, but also in other stores. And we have rolled out the first batch of stores, and we'll continue to roll out for the remainder of stores gradually.

Makes sense. Is there anything that I should have asked related to this quarter that I haven't asked?

I can't think of anything. We try to be quite transparent in our reports with a lot of data to help everyone to understand our business. So I think we have communicated what we think is important. I don't think of anything else really.

Well, that's very clear. I think that took me to the end of my question list, and I will pass it back to Frida.

Thank you, Giang. Thank you. And we also have some questions from the chat. So here is one. What actions are you taking to increase sales growth for the group?

To increase sales growth? Well, to increase -- to have a growth target of between 8% and 12%, we can say, I mean, our strategy to be best in town.

Exactly. To be best in town, that is sort of the umbrella concept that we try to achieve. And with that, of course, comes a lot of things to have the best assortment, the best offering, the best service and so on. And this is something that we have worked on for a long time, building a solid platform, a strategic platform for the group, and we'll continue to do so.

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

Well, as we talked about, this was a strong quarter regarding both sales and EBIT and in a cautious market. So we believe it's been a strong quarter actually for us.

Great. Last words. Big thank you to Per and Jimmy. Thank you to all of you looking -- watching this live. See you next quarter. Thank you.