Verkkokauppa.com Oyj (VERK) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to Verkkokauppa.com Q1 presentation. [Operator Instructions] As always, today joining with me and available for question, CFO Jesper Blomster. I will start my presentation, first of all, with a few words about the operating environment; then company's performance during the first quarter from financials and also strategy execution perspective; then some words about the market outlook; and then key takeaways; and questions, if there are any, but let me start with the operating environment. It actually stayed pretty much the same it has been throughout last year. If we start with the consumer landscape: The consumer has been really hesitant on making any discretionary shopping. The consumer confidence has remained low for a longer period of time. Consumer's confidence in own economics and employment is on a low level. We also see that estimation towards the Finnish macroeconomic landscape has been quite mild for this upcoming year. We see also some positive drivers especially impacting the consumer business. Interest rates has been -- have been continuously going down, and we expect that this development will have a positive impact on purchasing power as we go further this year. During the first quarter, we did see some increasing in small, mid-size businesses bankruptcies; and this might have an impact on this year as well. Talking about geopolitical uncertainties. We didn't see any impact during the first quarter in our line of business. If we then look a -- specifically in consumer electronic market: According to JFK (sic) [ GfK ], again the market declined by 2%. Despite these market turbulences or the market environment, we were able to record growth figures in revenue. Growth came from our strategic segments, strategic focus areas. It is nice to see that online visitors are growing again, which is stating that consumer is interested in our line of offering again. Our online segment is growing nicely by almost 4%. Consumer business was flat. On the other hand, B2B business grew strongly by 7%, mainly driven by our international B2B clients. If you look at certain segments: really strong performance in entertainment categories such as TVs, for example; IT, computing, doing also really well. Highlight from categories were our own brands growing by almost 40%. Second positive driver for a strong quarter was our margin development. Gross margin stood at 18.8%, which is a really high level for us. It actually states already back to actions taken early on. The fundament for healthy margin comes from inventory, inventory turn, making sure that the obsolete stock stay as minimum as possible. And due to these reasons, we were also able to source and make good deals with good commercial terms, which yielded positively in our margin development. We were also really successful in campaigning and pricing activities, finding the right price points for profitable growth. It's also worthwhile mentioning that the own brand positive development is yielding a positive impact on the general margin development as well. Revenue development really strong, margin development accompanied, with good cost efficiency, leading into significant profit and profitability improvement. Operating expenses and personnel expenses were down from previous year. And these all combined into a comparable result, an operating result, of EUR 3.2 million; and a really solid profitability for the first quarter, 2.9%. Like said, the backbone for solid margin distribution comes from good inventory, healthy inventory and good inventory turn. We were able to make sure that we are in a position to invest in -- for example, in upcoming season categories. We took certain season categories earlier into our stock than we did previous year. And it, this had an impact of increasing the inventory levels from the fourth quarter, but if we compare to the previous year first quarter, they were still down by 5%. From balance sheet financials, first of all, cash flow is typically negative at this point of year; slightly decreasing, the previous year, due to the reason that we were taking in more of the upcoming season categories. Equity ratio, going into the right direction; really strong cash position at the end of the period, almost EUR 20 million; level of invests low as typically, not that we are not able or wanting to do those kind of investment, more underlying and highlighting the investment-light business model that we are running. So all in all from the financials, we can say that the company's situation is strong and solid. It's also important to drive the business in long term, not only short term, execution- and profitability-wise. Therefore, I'm really happy to see that the way we are transforming the market, the way we are accelerating online shift throughout our fast deliveries is really yielding market share gains and positive momentum during the first quarter; again, really strong performance growing by over 20% and stating that we have really find out a way how we can maneuver and operate in low-demand environment and still be able to gain growth through new services and new ways of conducting business. Not only growing faster than the market, also the customers are stating that our fast deliveries is the best possible way of operating and interacting with us, NPS as high as 84 in this line of business. During the first quarter, the internal share of all online orders distributed to fast delivery services were above 20%. So it is become a significant part of our business. Secondly, like stated already earlier, really good performance from our own brand development team finding and creating new products, interesting high-quality products really competitive in price points, gaining growth, growing by almost 40%. So we are nicely on track hitting our targets end of 2028 to have 10%, out of total revenue, from own brands. During the first quarter, the internal share was almost 7%. And lastly, we have said that we are interested and we will be focusing also not only the home territory here in the Finnish market but also gaining growth outside of -- our international current partnerships and also new partnerships; international operations growing by almost 40% during the first quarter, really strong performance also from that side. It's good to mention that in these figures we don't have any impact from the announced cooperation and partnership started -- starting in Sweden with Amazon. Those impacts will be shown in figures from the second quarter then onwards. So how do we see the market? The outlook has not changed from the full year report a few months ago. We do believe that the first part of the year will be year -- will be a tougher one, which was stated during the first quarter, consumer confidence still low. And there are uncertainties around, geopolitical uncertainties, like said, not impacting our line of business during the first quarter, but it's too early days to see what will be the impact going further this year along. We do believe that the second half should be a better one. We do believe that the big underlying drivers for purchasing power increases should really yield a positive impact also on consumption, mainly interest rates, for example, or inflation staying as low it has. What we can say for certainty is that, regardless of the operating environment or the market environment, we will be focusing on our strategic growth areas. And we'll be focusing on our own actions, own performance. And we are certain that we have the right path going forward, therefore no need updating our guidance. We are expecting a growth year. We are expecting revenue to grow from previous year. We are expecting comparable EBIT to be above of previous year. So if I summarize the presentation: during unchanged tough times, solid, strong performance from the company. With own actions, own focus area, executing our strategy, we were able to gain growth, increase margins, being cost efficient and increasing our profitability. Secondly, it's important to have long-term actions long-term profitability pools, revenue streams to support the growth story also long term. That's it from my side. I believe there are no questions at this point. So thank you all for joining in, and have a great day. Thank you.