Tokmanni Group Oyj (TOKMAN) Earnings Call Transcript & Summary

Good morning, and a warm welcome to Tokmanni Group's Third Quarter 2024 Results Presentation. My name is Mika Rautiainen, and I'm going to first go through the highlights of the third quarter. And afterwards, Tokmanni Group's CFO, Mr. Tapio Arimo, will join me and dig deeper with the financial figures. However, I have to say that Tapio is recovering from a bad flu, so if he has some issues with his voice, then I'm going to jump in and try to cover his part. Anyway, afterwards, it's time for questions. So let's start. For Tokmanni Group and the third quarter, revenue grew and EBIT improved, which is, of course, a very good thing. It's now been a bit over 15 months after the acquisition of Dollarstore. And I have to say that we're all very happy about this decision to do the acquisition. Teams in all countries, Finland, Sweden, Denmark, the teams have been doing an excellent job. There are already very good synergies. And at this point of time, we can already see quite a lot of benefits coming out of this acquisition. So we're actually very decisive with going -- continuing the growth and also opening new stores. At the end of September, there were 375 stores. Still now during this year -- by the end of this year, there will be 7 new store openings in Denmark, in Sweden and in Finland. And actually, yesterday, we opened one here in Finland as well. So we're really looking for this growth and also the target of being the leading variety discount retailer in the Nordics. That's, of course, our target with the growth. Some key facts regarding the third quarter. First of all, the customer visits increased in both segments, in Tokmanni and Dollarstore. And that's mainly due to the customer confidence and the higher level of customer confidence, both in Finland and in Sweden. And actually, at the moment, the customer confidence in both countries is going or it's improving, especially in Sweden, but also in Finland, it's already on a bit better level compared with a couple of months ago. Grocery sales increased. Share of non-groceries declined. This was very clear development during the third quarter. Especially with the high-ticket items in the nonfood categories, the sales declined clearly. So groceries and, of course, offers and this kind of product -- products were increasing a lot. Comparable gross profit margin improved, clearly. Especially in Tokmanni segment, inventory levels increased due to Christmas sales preparations and moving to direct imports at Dollarstore. Now I think that we -- both segments are extremely well prepared for good Christmas sales. And of course, with Dollarstore moving from the traders to direct imports, that's, of course, increasing the inventory levels in Sweden. And the joint assortment between Tokmanni and Dollarstore is developing very well, as well as the cooperation. The Tokmanni Group key figures, revenue grew by 14.3%, EUR 416.3 million. Like-for-like revenue increased by 0.8%. Comparable gross profit or let's say comparable gross margin was 35.6% compared with previous year's 34.8%, so clear improvement with gross margin. And we'll come back to that a little bit later. Comparable EBIT amounted to EUR 29.5 million, which is, by the way, the record high third quarter result for Tokmanni Group, representing 7.1% of revenue. Cash flow from operating activities amounted to EUR 8.1 million compared with previous year's EUR 36.8 million, and especially the preparation to this Christmas season and direct imports in Sweden are causing this one, a little bit lower cash flow level. Earnings per share diluted was EUR 0.28. And then about Tokmanni segment, the comparable customer visits increased by 1.8%. The marketing department was doing a very good job during the third quarter, and we were able to get, clearly, actually, quite a lot of new customers also in Tokmanni stores. However, the average basket was slightly lower due to the decline of the high-ticket items, especially in nonfood. Anyway, revenue increased by 1.3% and like-for-like was at 0 level, and that's due to the lower average basket. Comparable gross margin was 34.9%, EUR 106 million. And over here, you can see that there is a clear improvement with Tokmanni segment gross margin, and that's actually due to a very good job of our buying department. First of all, the purchases were more accurate. There were no -- I mean, there were actually a lot less products for sales after the summer period. And over here, there are already some synergy savings coming from the joint buying together with Dollarstore. Comparable operating expenses were 20.3% of revenue due to -- I mean, it was a bit higher compared with previous year. And there are some personnel expenses due to salary increases, and then slightly higher marketing expenses. Comparable EBIT was 8.3%, so the same level as last year, and EUR 25.2 million compared with EUR 24.9 million. So actually, it was on the same level. Inventories were EUR 319.2 million during the end of September. And then about Dollarstore segment, the comparable customer visits increased by 0.5%. Revenue increased by 6.3%, and like-for-like increased by 3.1% in local currencies. So actually, Dollarstore was able to improve average basket during the third quarter, which is, of course, very good. Comparable gross margin was 37.6%, slightly lower compared with previous year, and this is due to the fact that Dollarstore was selling the old inventory, especially in July, clearing the old inventory for the new joint products together with Tokmanni. So this was a clear decision to do this. And yes, it was also successful, so we are able to do more of these joint buys at the moment. The comparable operating expenses were 22.7%. Comparable EBIT margin was 4.6%, and the comparable EBIT, EUR 5.1 million. And here, I need to say that the last year's figure, 2.9% and EUR 1.8 million, that's, of course, only for 2 months, meaning August and September. The acquisition was made in the beginning of August last year, so it's like a comparison of 3 months to 2 months. And value of inventories was EUR 126.8 million, clearly higher compared with previous year. Then about Tokmanni and Dollarstore cooperation, continuous growth according to the strategy, so we move according to the strategy. We are proceeding with -- according to the strategy, which is, of course, very good. By the end of September, as already mentioned, we've opened 3 new stores. And now, during the rest of the year, there will be 7 new store openings in all operating countries. And of course, the goal is to attract new customer groups to Dollarstore and strengthen the offering for current customers a via wider assortment and, of course, new products. There are currently around 2,500 product items on sale in Dollarstore that have been purchased together. Actually, we've had very good results on the joint efforts. For example, the Halloween season, where actually Dollarstore is very famous in Sweden to be very -- the best possible Halloween store. So actually, in Tokmanni, we copied that in Finland this year, and the results were excellent. So -- and if I've understood the correct report that I got yesterday, there are approximately 700 Kotikulta private-label products at the moment in Sweden in Dollarstore and in Big Dollar in Denmark. So obviously, it's proceeding as planned. Obviously, the situation is not perfect yet. We have a lot to do. And season by season, the cooperation is getting tighter, and the benefits, of course, are all the time bigger when we are doing the joint buying, for example, together. So we are actively working with the joint buying at the group level in the coming months. And I would say that it goes to the year 2025 quite clearly. Achieved synergies at the moment, EUR 12.7 million on an annual basis at the end of September. And of course, during the time of the acquisition, we said that the target is net synergy savings of EUR 15 million by the end of 2025. So we are in a very good position at the moment. And then it's time to go through the key figures in a little bit with a deeper look. And Tapio, come and join me, and let's see how you manage to speak with your flu-ish voice.

Excellent. Thanks, Mika. And apologies for my voice. Let's see how this goes. So good morning on my behalf as well. So without further ado, let's dig into the figures a bit more. So here, we have the revenues in a bit more detail. So as you can see, we achieved record revenues in the third quarter, both on a quarter-over-quarter as well as then year-to-date, and obviously driven to a large extent by the Dollarstore acquisition. The total revenue growth in the third quarter, 14.3%, and total revenue was EUR 416.3 million. And our like-for-like revenue -- thank you -- like-for-like revenue increased by 0.8%, and that's also very good, that we are back to positive territory. And if you remember the, let's say, acquisition, so of course, the like-for-like includes the full quarter, but then the total revenue growth in the third quarter is excluding July from last year as we started to book Dollarstore figures into our statements from the beginning of August last year. And then looking at the segments, so Tokmanni segment also managed to grow a little bit in the third quarter. So the total revenue growth was 1.3% and the total sales was EUR 304 million. And our B2B sales increased by 13.3% and accounted for 3.1% of our total segment's revenue. Our online sales decreased by 11.3% and accounted for 1.4% of Tokmanni segment's revenue. And especially regarding these online sales, even though the actual sales figures are quite low for the segment, our online presence is very important, and we are one of the most visited sites in Finland. So it's very important for us, and people maybe not shop as much, but they very much look for the availability of products on our online as well as the store locations, store opening times, et cetera. Then when you're looking at Dollarstore, Dollarstore returned to, I would say, quite decent growth in the quarter. So the revenue obviously grew on a full quarter comparison by a lot since, again, it's the 2 months compared to 3 months. Total revenue from Dollarstore was EUR 112 million in the third quarter compared to EUR 64 million a year ago. And let's say comparable growth was 6.3% in local currencies. And out of that, 3.1% was the like-for-like revenue growth and then the rest obviously coming from new stores. So moving on to the product mix, so again, we saw the sales of grocery products grow more than the non-grocery, and that resulted in the further shift in the mix more towards groceries. And looking at Tokmanni segment, the groceries are representing now, in the third quarter, 51.4%. And at the Dollarstore, the -- let's say the increase was less, but still a slight increase. So the grocery segment represents 56.9% of total revenues in the third quarter. Looking at our comparable gross profit, that also shows a, let's say, good trend. So our comparable gross profit in the third quarter, EUR 148.3 million, and our comparable gross margin, 35.6%. And that was also a very good growth also in relative terms compared to a year ago. And in the third quarter, our comparable gross margin was 34.9%, again, a 0.8% increase over the previous year. And the Dollarstore actually had a little bit of a negative development there, 37.6% compared to 38.3% a year ago. And that's really due to the clearance sales that Dollarstore was -- or held in the summer, so mainly July and August, and that really impacted the gross margin. And as Mika said, that was -- the reason for that was really to make space in the stores for the new joint purchase offerings that we are doing and also obviously clearing out the old inventory. So our comparable operating expenses, so 21.2% of revenue, the total operating expenses in the third quarter, again, a little bit growth over the quarter a year ago. And of course, again, here, the increase driven by the Dollarstore segment's operating expenses. Our personnel expenses totaled 12.8% of revenue, or EUR 53.4 million. And Tokmanni segment's comparable operating expenses were EUR 61.7 million as compared to a year ago of EUR 58.6 million. And Dollarstore obviously grew a lot more to EUR 25.5 million compared to EUR 16 million. And here, again, it's a comparison of 2 months versus 3 months in the current year. And when you look at the percentage terms, you can see that, in Dollarstore, the percentage actually declined compared to last year. And that also is mainly a function of the 2 months period last year, which is excluding July, which is typically a big selling month in Dollarstore. So when that is missing from the third quarter of '23, it drives up the percentage a little bit. Okay. Let's move on then to our comparable EBIT. So as Mika said, we had a record EBIT for Q3 in Tokmanni Group, which is obviously great news. Our comparable EBIT margin declined ever so slightly to 7.1% from 7.2% a year ago. And then looking at the full year-to-date 3 quarters, so we are just, I would say, on par with last year, a slight decline in terms of absolute numbers. And of course, the relative profitability then is clearly lower since Dollarstore is included for the full year in the 2024 figures and only for the 2 months in the 2023 figures. Then looking at our inventories, so if you remember, last year, we had, let's say, very tight control of our inventory, and we pushed the inventories to, I would say, quite low levels. And this year, we have had a now focus on sales and have taken deliberately a lot more inventory to ensure successful Christmas and year-end sales. And I would say that I know some investors have asked about this too much or not, but I'm not very worried because most of this inventory is actually grocery, so fast-moving inventory. So we don't have the similar kind of challenges that we have after the COVID when we had, let's say, very slow-moving inventory and very expensive items. So now we have mainly stocked these low-value products that turn quite quickly. So we will, of course, come down in the inventories during the fourth quarter. And if you look at the absolute value, so Tokmanni segment's inventory was EUR 319.2 million at the end of the quarter, and the Dollarstore value was EUR 126.8 million compared to EUR 92.5 million last year. And really, especially for the Dollarstore, you see the impact of the, let's say, switch in the business model whereas, previously, Dollarstore was using importing companies that held the inventory, and then Dollarstore only bought them locally in Sweden. And in many cases, the stuff was shipped from the importer directly to the stores. So now Dollarstore is using, I would say, currently almost 100% for the, let's say, Far East imports using the Tokmanni channels, which means that they are using the same business model that Tokmanni has. So they purchase the goods from the suppliers directly and then import them into Sweden. And they go through also their central warehouse the same way that goods go through Tokmanni warehouses in Finland. So that naturally means that the inventory level goes up for those products because, instead of going directly to the stores, where -- the possession now or the ownership of the imports takes hands when the ship leaves the port in Asia, and then it takes 8 weeks nowadays to ship them from Asia and then, of course, delivery to the central warehouse and then from there to the stores. So it's a very natural increase. And of course, it happens only once. So we expect that also to -- let's say the most of the growth is there already, so no similar kind of huge jumps expected going forward. Then if you look at our financing, we have a total interest-bearing debt at the moment that is very similar to last year's levels. So we are right now at EUR 845 million. And out of that, EUR 561 million is this IFRS 16 debt. And then real loans and commercial paper programs from financial institutions, we have, at the moment, about EUR 284 million, and that's EUR 15 million below a year ago level roughly. And if -- I don't know if you maybe remember, but our loans are expiring at Q1 2026. So we have already started renegotiating a new package, loan package, from the financial institutions, and we expect to close latest during Q1 2025. And looking a little bit at our net debt to comparable EBITDA levels, so we see clear improvement there with the lease liabilities, down from a year ago, 4.7, which was really the peak after the acquisition. So we're right now at the multiple of 3.7 there. And then without the lease liabilities, the net debt to comparable EBITDA has also come down a little bit to 2.6 now in the third quarter. And if you remember, our target for that number is now 2.25 so -- for the year-end. So we expect that number to go below that target level during the fourth quarter. And then finally, our cash flow, so obviously our cash flow has been impacted by the inventory fluctuation. So last year, we had a massive decrease in inventory. And this year, we've had not so massive, but still a sizable increase in inventory. So that obviously impacts the cash flow. So we are clearly better than 2 years ago, but of course far from last year's levels. And that is really, really driven -- especially you can see that, in this Q3, you can see the heavy impact on the cash flow that the inventory has. And again, I would say that we are not too high on inventory at the moment. Of course, we are a little bit high, but it's due to our own decisions where we wanted to make sure that there is a lot of stuff in the stores for the Christmas sales. And the additional, let's say, interest rate cost associated with that, we feel it's clearly less than the additional potential sales that we get from having a very good supply situation in the stores. So then our -- finally, our CapEx and our CapEx during the third quarter was, I would say, very modest. And of course, the comparison period, last year, we had the Dollarstore acquisition. Also, we had the Moreeni logistics center that still impacted last year's numbers. So this year, we are, let's say, in a way, back to normal levels. So the capital expenditure required to, let's say, run the business is quite low relative to the net sales. Okay. With that, welcome back, Mika.

I will talk a little bit about the group's outlook. Thank you, Tapio. First of all, I really appreciate your effort and input, and I'm sure that the audience as well highly appreciates this. And if you are able to make the questions and answers --

Yes, of course.

-- that would be just great. Please just stay because, I mean, this won't take that long. Yes, just a couple of words about the outlook for 2024. We've specified the guidance for 2024. So in '24, Tokmanni Group expects its revenue to be EUR 1.650 billion to EUR 1.7 billion. And the comparable EBIT is expected to be from EUR 98 million to EUR 110 million. And in addition to that, the dividend, a couple of words about that. The Tokmanni Group Corporation Board of Directors has decided on the payment of second installment of the dividend for the financial year ended December '23. And the dividend to be paid is EUR 0.38 per share. The second dividend installment will be paid on the 28th of November 2024 to the shareholders listed in the company's shareholder register maintained by Euroclear Finland on the record date of 20th November 2024. So that's it. And then it's time for questions. So operator, are there any questions, or there should be via Teams, I guess. Thank you.

I think that the first one is Maria Wikstrom. So Maria, hi. Please go ahead.

This is Maria Wikstrom from SEB. I wanted still to touch upon the inventory buildup. And you said that this is mainly on this daily goods. Just a little bit to get a clarification, but, I mean, how much of these products are actually sourced from Far Asia? Because I thought, I mean, quite a lot of the food products are sourced locally, and therefore, it little bit strikes me that you are stocking them in your own inventory while you also use local sourcing. So if you could go a little bit more in detail on the inventory buildup, please?

Yes, sure. First of all, it's the Christmas season. Actually, last year, we sold out some very good Christmas products, for example seasonal lights and things like this. This year, that won't happen. So we're very -- on a very good level on that part as well. With food products, yes, you're absolutely right. They are not imported. They're mainly coming from Finland. But it's more towards this kind of Christmas season products which we have and, of course, winter products. Hopefully, there will be a winter one of these days in Finland and Sweden. But anyway, this is -- that's basically the inventory. It's -- I would say that if we look at the age groups in the inventory, it's on a very, very healthy level. So as Tapio mentioned several times, we're actually quite confident on the situation at the moment. I don't know whether you want to comment [ on ] that.

Yes, of course. I mean, add a little bit of flavor. A lot of the stuff is local, but it's still -- if we build these mass displays now to a lot more than we did previously. So these mass displays, even though the stuff might be local and quite inexpensive, when you put 1,000 rolls of plastic bags or sheet wraps or whatever into every store, then it just -- when you add everything up, it just builds inventory. But it is very, let's say, fast-turning inventory. So it's not a worry like we had 2, 3 years ago when we had too much garden furniture and trampolines and things like that. So these things that we have now, let's say, stocked up, they are much easier to sell, and there's much -- or a lot less risk of having to write down some part of that later on. So -- and it is really -- like Mika said, it's about increasing sales and driving sales. Last fall and Christmas, we were -- let's say the stores were not half empty, but let's say a quarter empty. And it doesn't drive sales if the customers come to the store and they see a lot of empty shelves. You sort of get the feeling that, well, there's nothing here. Then they go somewhere else. So it's also about the feeling, not just that, okay, maybe it's 10% of products I'm missing, but to the customer, it looks like the store is empty. So you try to -- let's say the shelf availability we've driven up quite a few percentage points from last year.

And may I just continue from that one, given that I think still, with the Q2 report, you were quite pessimistic on -- especially on the Finnish consumer and you were pointing on the VAT increase in September, very low consumer confidence. So have your feelings about the consumer appetite or consumer healthiness changed since the Q2 so that -- which would also be part of this behind the inventory buildup?

Yes. First of all, the results regarding the consumer confidence, they show, clearly, improvement also in Finland actually, but in Sweden, especially, there, like, clear improvement. That has, of course, a lot to do with, first of all, the inflation in Finland. As you know, it's -- we're on a 0-level inflation. Actually, we are selling at the moment. The selling prices are clearly lower compared with last Christmas season, even though there are the higher VAT, but the buying prices have been lower. So actually it's good news for customers. And at the same time, as you know, the interest rates are going lower. So that's something which is, well, of course, part of the inflation, but it's also easing up the situation for our customers that, yes, we can see a clear improvement with our customers' buying behavior. However, I have to say that still -- I mean, we see a lot more customers at the moment, but the customers are still quite careful with spending their money. So it shows in the average basket. But yes, we -- it's a clear difference compared with the second quarter. Okay. So -- and the next one is Svante Krokfors from Nordea. Please, Svante, go ahead.

Svante Krokfors from Nordea. The first question regarding Dollarstore, I mean we -- given what happened in Q2, it's quite encouraging to see all the metrics improve for Dollarstore. So could you give some color on how much of that is your internal measures and how much is the improving consumer sentiment? And also regarding the clearance sales, have those also supported the reported traffic numbers in Q3 for Dollarstore?

Do you want to?

Yes. So regarding, I would say, Dollarstore, I would say it's the impact of both. So like Mika said, also in Sweden, the sentiment is improving. But at the same time, it's still on a quite low level, the same a little bit also in Finland. So we do see our own actions also helping Dollarstore grow their sales. And especially now they start having all the time more and more of our product range and our private labels that we have in Finland, they are also now more and more on sale in Sweden. So of course, you see the impact of that as well.

Yes. I could add with what Tapio was saying, that Dollarstore is known to be the -- known to give the lowest prices in Sweden for customers. That usually means that the products are kind of entry-level products. Now Dollarstore is introducing quite a lot of Tokmanni private labels, which are clearly higher from the entry level. They are best value for money. And that's something that we need to teach our customers in Sweden, that Dollarstore is offering tested quality products, but they might be a slightly higher price, but they are, especially like this, best value for money kind of products. But that's, of course, something that -- that's something new for the customers. But the first steps, they look very promising, but there is a lot to do with that part because it's kind of changing the offer from Dollarstore.

And perhaps still regarding Dollarstore, could you give some color on how much the clearance sales impacted the gross margin in Q3? It's obviously difficult to compare as Q3 was 2 months 1 year ago and 3 months this year. But can you give some color on that 0.7 percentage point decline in the gross margin?

Yes. I think it was quite massive clearance sales. And that was also the idea. Obviously, it's always quite expensive to clear the old inventory. But in this case, we -- especially with Dollarstore, they were like exactly the right decisions regarding the clearance. But yes, it had quite a huge impact on the numbers. And yes, yes, I don't know whether you --

Yes [indiscernible] yes, the exact impact is always difficult, but I would say that, without the clearance sale, the gross margin percent would have been at last year's level or higher. So you could say all of the decline compared to last year was due to the sales. And that was the first sales that they have ever held in Dollarstore.

Yes, that's true.

So their business model is not to have these sales. And that's why they had accumulated -- in their 25-year history, they have never had a clearance sale. So they had a lot of old stuff that -- very small amounts of each individual SKU, but they had thousands and thousands of SKUs that -- in 1 store, 2 stores, 5 stores. So they were trying to clear all of that. So it was a unique event in Dollarstore history in that way.

Yes, exactly. And also in Dollarstore at the moment, the inventory levels are -- and the groups are -- they are on a very healthy level due to the clearance.

That's very helpful. Then last question, regarding your store openings, you mentioned you will open 7 stores still this year. But could you give the guidance for '25, '26? Could you repeat that?

Yes. I mean, obviously, we have very strong plans. I think that, at this very moment, there will be the signing of the contracts for -- rental contracts for the new locations. We will be -- we will be informing all the new openings for 2025. Yes, I'm actually -- right now, I'm not sure whether --

We have informed…

We have informed.

…many, not all of them yet, but...

Yes.

I think we have something like 11 in total for next year.

At least. And there are some rental contracts which are still under negotiations. So if we are able to get good results out of the negotiations, then we'll inform about even new openings in 2025. But for sure, we will continue opening new stores. In Finland, it's probably not that many. I think that there are still at least some 10 new openings in sight in Finland, but mostly they will be in Sweden and in Denmark. Thank you, Svante. And the next one is Arttu Heikura. Arttu, please go ahead.

It's Arttu Heikura, Inderes. I would like still to follow up on the Dollarstore clearance sales. I didn't quite catch the feeling about its impact on the growth. So could you still elaborate that? How much did it impact to like-for-like sales?

I would say, of course, it impacted some, but it's more the profitability because they were really selling at heavy discounts. So basically, they had -- I think everything was minus 50%. So when you think about the -- if the average gross margin is a little bit less than 40%, then when you're selling at 50%, then on average, you're not making any money. So of course, the sales, you get the sales, but again it's half the sales of a normal product. So I would say that it's not so significant impact. Of course, you never know how many of the customers would have bought similar product if they hadn't bought that on sale product. But I would say that still the impact on the growth is a lot less than the actual impact on the profitability.

Yes, that's true.

Okay. Then about the guidance upper limit downgrade, is this based on the results from Q3 or your expectations of Q4?

Well, of course, it's both. Of course, we forecast now the full year 2024 as well.

Okay. So your expectation of Q4 has also come down.

Well, I would say that we've narrowed the range also in Q4. Of course, when we have now almost 1.5 months of sales for Q4, you have a lot more visibility even though the best weeks are, of course, still ahead. So you can narrow and that's why we -- or that's -- because of that, we were able to specify the range and make it a bit narrower. But it is still -- in this business, you have a quite fixed cost base. And then if you sell, let's say, EUR 10 million more, it's 35%, 37% more gross margin, but then your OpEx doesn't really move much at all. So all that extra sales flows down into your bottom line, or EBIT at least. And it's the same way. If you lose EUR 10 million of sales, almost all of that loss of gross margin goes into the EBIT on the short term. So it is very sales dependent, of course, the profitability and the relative profitability as well.

Okay. That's clear. Then about the pricing actions in Finland, which were talked previously in Q2 result, how much of these actions were visible in Q3 numbers? And are you still continuing on the price campaigns more aggressively in Q4?

Absolutely. Absolutely, we will. We can see that, even if consumer confidence is improving, it's still on a low level and the customers' attention goes on the great offers and different kind of benefits. And if -- and the price -- the low price seems to be really like a decisive element with the customers' choice. So absolutely, we are continuing with aggressive marketing campaigns and so on, especially during the most important season, which is now going on already.

Okay. Then about Dollarstore's EBIT margin, so you said that, compared to previous year, July is a strong month, which boosted this year's EBIT margin. But at the same time, you said that the clearance sales were impacted -- or impacted the EBIT margin. So I try to catch the normalized level of Dollarstore's EBIT margin. So could you elaborate? Is this 4.6% -- are you satisfied with that? Or is this a level that you can improve much more?

First of all, no, we are not satisfied with the Dollarstore EBIT level. And yes, we see a lot of potential over there, if you, for example, compare with Tokmanni EBIT level. So there is still space to improve. I think it's all about the assortment in Dollarstore. And what we've been saying and what we've been doing as well is to increase the assortment in Dollarstore, especially with Tokmanni private labels, but also with A-brand products. So with wider offer for the customers in Sweden, we think, first of all, that we can invite new customer groups to Dollarstore. But at the same time, we can also increase the average basket for the current customers due to wider offer. So that's the idea with the Dollarstore, and we're working with that development all the time and season by season. And now, for example, the Christmas season, there are a lot of products. As mentioned, I saw a report that there are already 700 Kotikulta products available in Dollarstore in Sweden and in Denmark. So yes, we clearly think that there is potential on the EBIT level, especially if we get the average basket a little bit higher.

So you expect that the gross margin would improve with direct imports and private labels. But at the same time, you think that sales per store would also increase the efficiency of Dollarstore?

Yes, yes. Well, the gross margin in Dollarstore is already on a very good level. So actually, what we -- basically, our focus over there in Sweden and in Denmark is the average basket. The average basket we can increase with a wider assortment, wider offer. And that's, of course, bringing the efficiency in our stores, of course.

Okay. Okay. Then last question about the Q4, so could you give us some color on the development of these first 2 months?

Well [indiscernible]

I don't think we can comment on that. I think you see, let's say, our thoughts on that in the guidance that we gave. So of course, like everybody knows, Christmas is the most important season for us. And it's -- Q4 is halfway. Let's say the peak selling weeks are just now starting. So the next, let's say, 4 to 6 weeks, obviously super important for Tokmanni overall, also for Dollarstore, obviously. But especially for Tokmanni segment, it is our most important season.

Good luck for the rest of the year.

Thank you, Arttu. Then I think Maria Wikstrom still has some questions. Please, Maria?

Yes. So this is more relating to the balance sheet, but of course partly also on the store performance, given that there is a quite high share of lease liabilities. So maybe starting with the lease liabilities and then talking a bit more about that, do you currently have loss-making stores where you would still have long lease contracts ahead and you wouldn't be able to get rid of those leases? So can you a little bit discuss about the profitability or store profitability and if you have these nonperforming stores that you would need to do something about?

Well, no, we don't have loss-making stores. Obviously, in some stores, there are lower profitability. I think that, especially in Finland, we have been able to improve the performance of the low-performance stores so that they're actually -- we don't have an issue with closing stores. I mean ,there might be situations where we -- where the rental contract is ending and things like this, but we don't have any issues regarding that. And at the same time, in Sweden and Denmark, Denmark is a new market. So that's also a developing market, and we need to invest a little bit more over there, for example, with marketing. It's still a little bit smaller amount of stores, and we, of course, hope to get -- increase the amount of stores in Denmark so that we can have more impact with the marketing. But in Sweden, also there is no issues that we would need to close or end rental contracts at the moment.

And if you'd just remind me on the rental -- average rental length, was there a difference between Tokmanni and Dollarstore in that respect?

Yes. So on average, the Dollarstores are a bit longer, so on average. So in Finland, typically, we do 5-year leases, even sometimes 3 years. And of course, we have 10-year leases also in Finland, but they're more geared towards the 5-year leases. In Sweden, typically, it's 10 years is the, let's say, market standard. So the average lease age is clearly longer at Dollarstore.

Yes, thank you. And then, finally, given the net debt without the IFRS 16 liabilities, EUR 271 million, and now we have seen the interest rates to come up -- sorry, to come down quite a bit.

Exactly.

So can you just remind us that -- I mean, have you -- do you have any interest rate hedges? Or should we already see lower finance costs for next year?

Hopefully, we see lower finance costs for next year. So we don't hedge the bank debt or the CP, obviously. It's very short term, so no need to hedge that. But the way we view it is the -- let's say if you think about the total debt, the IFRS 16 lease is, in a way, hedged because the interest rate is locked when the lease agreement is signed and then the interest rate is fixed for that lease for that holding period. So when interest rates change, the IFRS 16 interest rate cost moves quite slowly, so it's, in a way, hedged. And then we have decided that the bank debt we don't hedge. So the current bank debt is sort of reset to the interest rate every 6 months. So we expect that same to continue when we sign the new bank debt agreement, whether, as I said, should be latest during Q1 next year. So that's the way we operate. And at the moment at least, we don't have any plans to change that. Of course, if the interest rates fall still dramatically and we start to be in numbers starting with 1, it might make sense to maybe hedge part of the bank debt as well, but let's see.

Thank you, Maria. And at least there probably was a question from Miika, but it doesn't look as there will be any more questions. Am I correct with this? Yes.

Looks that way.

It looks that way. Okay.

Miika's question was maybe answered.

Maybe.

Yes, that's right.

All right. Thank you, Mika. Okay. Thank you very much for joining the third quarter presentations, and welcome to Christmas shopping in all Tokmanni stores, Dollarstores and Big Dollar stores in Denmark. Thank you very much.

Thank you.