Clas Ohlson (Stockholm:CLAS B) Q1 2027 Earnings Call

0:00 Good morning and welcome to the Claes Ohlson Q1 report presentation. My name is Kristoffer Johnström and I'm CEO and I'm here together with Pernilla Walfridsson, CFO. Looking at today's agenda, we'll cover the general business update, move into financial development, go through events after the reporting period and then I'll summarize before we will move into a Q&A. So, first of all, highlighting the first quarter of 26-27. We have had a strong start to our new year. We continue to grow. We grow profitably and we also continue to create value. Looking at total sales organically, we were up 11% and our operating profit amounted to 339 million, resulting in an operating margin of 12%.

0:54 and a profit increase of approximately a bit more than 40% versus last year. Operating cash flow came in at 663 and return on capital employed came in at 34.9. So all in all, this is resulting into a earnings per share of 475 versus 327 last year. Today we also reported August which is then the start to our second quarter and here we saw a 8% organic growth. Then moving into the business update and starting with our financial targets that we updated back in June when we had our capital markets day. The ambition is to, over the next three years, every year, to grow at 5% organically every year, deliver around 12% operating margin, and around 30% return on capital employed.

1:52 And these targets, they define the level of performance that we believe Klas Ohlson should be able to sustain over time. They are not a forecast for a year or quarter, and it's certainly not a ceiling. And our ambition is not simply to reach the targets. It's really to prove that strong growth, profitability and efficiency can coexist over several years. Next area is just an overview of our competitive strengths. And I think the results coming out of the first quarter is really driven by those strengths and the combination. of first of all our assortment where we do have our multi niche assortment that we reinvent at a very high degree every year and in the first quarter we saw lots of new products being launched while we of course have really focused also on the core assortment.

2:52 We have our integrated omnichannel with our store network at attractive and accessible locations combined with a strong growing and profitable ecom business. And those two in combination really drives customer convenience and also it drives profitable growth. And then the last area is when it comes to the customer meeting. Of course, the ambition is to always deliver qualified service across the board. And we could see in the quarter that we had an MPS of 56, which is really continued strong levels. And then as a foundation of everything, we have our strong brand where we do have a very broad appeal across multiple target audiences.

3:37 And as one example of recent product launches and big bets that we have gone after now in the first quarter, I think the robotic lawn owners assortment is a good example. Here we have scaled up the business from five to 12 different brands and we have seen really strong sales growth. We also see a range ranging from very affordable private label products on robotic loom owners up to the most premium A brands. And I think that combination really gives customers the opportunity to find the right product according to their need and wallet. Also looking at the online business, the online sales growth organically was 18% in the quarter and our online sales now represents 22% of total sales. And again, I think it's a good example of the robotic loom owners.

4:31 Most of that assortment has only been available online and obviously also then been a driver of the sales growth. Then moving into the some of the key indicators that we constantly track and look at when it comes to customer relevance and satisfaction, starting with product reviews. We do get a lot of reviews from our customers when it comes to their satisfaction with our products, quality, etc. And we can see also this quarter that we continue to deliver on very solid levels. Second, We also deliver when it comes to affordability. We're not pushing growth at the expense of the customer experience.

5:18 However, we are able to deliver a strong affordability versus customer expectations. And then last but not least, when it comes to the service and the customer experience, again, net promoter score coming in at 56. So we're basically growing because customers continue to find relevant products. at great value and with best in class service. So last point from my end outlining also our consumer emissions. We did a few adjustments to these categories as we presented our future plan during the capital markets day in June. And as we can see on the slide, you have the five consumer missions, and they are all growing profitably now during the last quarter.

6:07 So it's the breadth of that growth that is important. And then we have the adjacent product segments and spare parts contributing to both growth and profitability. So with that, I'll hand over to Pernilla to take us through the financial development.

6:22 Thanks, Kristoffer, and good morning, everyone. Just like Kristoffer mentioned, we have closed a strong Q1, and now let's take a closer look at the figures. The sales momentum continues and net sales were up 16% in the quarter, up with 11% related to organic sales increase, 3% related to recently acquired subsidiaries and currency effect 2%. Like-for-like growth accounted for 9% of growth in the quarter and 1% related to expansion of the store network. Online sales grew by 35% in total, of which acquisition stood for 15%. Compared to the end of Q1 last year, we have increased the store network by 9 stores. Looking at the home markets, we saw great performance throughout the quarter, with strong organic growth across the board. Sweden grew by 11%, Norway 10%, and Finland 9% organically.

7:22 The macro environment is still volatile. We said during the Q4 report presentation that we expected freight costs to increase, and as we can see, sport prices for transportation from Asia to Europe has increased sharply in recent months. We see no impact from the increase in the first quarter, but there should be effects starting in Q3-Q4. Regarding currencies, we mentioned the negative effect of currency hedging in the report, and the background is visible here on the slide with the rapid and significant strengthen of the NOC versus the SEC. The flip side is obviously the positive impact on total sales as we have a large share of our sales in Norway.

8:08 Regarding currency hedging, we have decided to discontinue currency hedging as from now. After thorough analysis, we assess that it does not create sufficient long-term value. Hedging has primarily shifted the timing of the impact rather than removing the underlying exposure. With more efficient pricing practice, a higher proportion of ecom sales and a strong financial position, we believe that short-term currency risk can be managed without forward hedging. The last forward hedging will mature in Q4 26-27. With regards to purchasing prices, the maintained relatively low level of US dollar versus SEC continues to help us during the quarter.

8:56 The gross margin increased by 1.8 percentage points in the quarter up to 47.5%. Key explanations are the currency effect that I mentioned earlier, both the strong Enoch and the weaker USD, and also that we have been able to get more favourable purchasing prices from our suppliers. And then over to the income statement. Operating profit increased to 393 million SEK compared to 278 million SEK a year ago. Operating margin landed at 12%. The increase in personal expenses is just as in the last quarters related to higher volume in our logistic chain, wage increases, new stores and acquired businesses.

9:43 Also other external expenses follow the same pattern as in Q4 with higher cost related to increased investment in marketing and due to the addition of the acquired businesses. The APS for the quarter was 4.75 sec. The inventory is slightly up compared with the same period last year. We are content with the stock in trade and the slightly increase should be seen in the light of new stores, increased assortment and adding acquired businesses since last year. Cash flow from operating activities totaled 663 million SEK compared to 468 million SEK last year. mainly thanks to improved profit and improved working capital.

10:31 Free cash flow for the period amounted to 363 million SEK. Return on capital employed was at the end of Q1, 34.9%. And with that, I'm handing back the presentation to you, Kristoffer.

10:46 Thank you, Pernilla. Moving into the events after the reporting period. Today we also reported our sales for August. and saw an 8% organic growth totaling sales at 1.1 billion, a bit more than 1.1 billion. 3% comes from acquisitions, 3% from currency effects. So all in all, the total sales was up 13%. And again, we could see a fairly broad development with both Sweden and Norway growing at 8% organically and Finland at 7%. Also other markets grew at 9% organically. So net-net, fairly solid across the countries. And also as recent months, we saw a broad development across the five consumer missions.

11:32 Look at store network in August this year versus last. We were up by nine stores. So we now have a store network of 250 stores. Then summarizing, looking ahead, we see a continued clear path to continued growth and value creation. We believe that we are well positioned in our large and growing product niches represented via the five consumer missions. The addressable market is 350 billion kronas, which means we're still fairly small in relation to that potential. We are focusing a lot on the niche driven assortment and with a very high degree of assortment renewal, which is a key driver of constant relevance, but also customer satisfaction.

12:21 Then we have the central, our store locations and the store network, which is very available to our customers, combined with our full-scale e-comm and also effective marketing. So NetNet, I think we've seen over the last few years now a solid development and the ambition is of course now to continue to deliver on these levels also over the next few years. So looking at the plan ahead that we also talked a little bit more in detail about during the capital markets day. I think the key point is that we do have multiple levers to pull when it comes to continue driving this profitable sales growth moving forward.

13:07 It's not that we have one silver bullet or one big bet that has to materialize. It's really about the constant hard work to work across our assortment of brand and our customer meeting then supported by a strong foundation of operational efficiency and then also selective M&A that can really help us evolve. So with that we will now open up for questions. If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. The next question comes from Nicholas Ekman from DNB Carnegie.

13:55 Please go ahead.

13:57 Thank you very much and congratulations on another set of very strong results. Can I just start asking about the sales development during the months here? You had exceptionally strong growth in June and also July and a little bit of slowdown in August here. Can you elaborate a little bit on the weather component or anything like that or comparisons or anything else that impacts the sales growth between the different months?

14:28 Good morning Niklas. Looking at the summer months, obviously the summer is always a little bit more volatile than other parts of the year and there are external factors influencing us. Obviously we never like to blame the weather for anything but of course we can explain development by changes in weather conditions etc. So what we could see now during the full quarter, so May, June, July was that May In May, we had a big peak of selling lots of air cooling, fans, air conditioning, etc. So it was a very solid, solid month. Then combined, of course, with the strong base assortment and also driven a lot by what I explained earlier on in terms of garden machinery, etc. Then looking at July, if I look at the comparison last year, July was a very hot month. We had lots of sales related to heating.

15:22 or air conditioners, fans, etc. This year, that part of the business was much lower and we had a bigger effect of that in June. So June was again a strong month on everything weather related and then July was a bit slower there. So there we relied a lot on the base assortment, but also on the big bets across garden machinery, etc. So little bit ups and downs during the summer and I think the key message is that we were able to stay relevant despite things moving a little bit up and down. Looking at August, slightly lower level than the summer months but again a very solid base delivery and again relating a little bit to external conditions.

16:11 Last year was very wet August, we sold lots of products related to flooding and etc. Whereas this year it's been a hot dry August. So again, external factors influence, but I think across the board we've been able to really play from the all-weather portfolio that we have developed.

16:33 Very clear. And then moving to the gross margin. You mentioned here the hedges impacting the gross margin negatively. Is there any way you can quantify that? And I also note that the NOC has continued higher here in in August. Is there a risk of a negative effect also in Q2?

16:51 You can find the hedging. I mean, the hedging effect we report in the quarterly reports is approximately year on year 50 million negative effects from NOC hedges. And going forward for the next quarter, I mean, what has happened is that the NOC has strengthened against the SEC. during the year. We enter hedges six to nine months ahead, so to say. So we expect, I mean, if you look at the development of the NOCSEC, you can see approximately that. So we expect a bit of this effect also to continue into Q2.

17:36 Okay, and the decision now to discontinue hedging. I assume that when you look at historical figures, you see that the volatility in earnings is immaterially impacted by these hedges. Is that the correct assumption?

17:51 It's more that hedging, I mean, it's more shift the timing of the impact. It's not removing the underlying exposure. And nowadays, as we work with pricing practice, a higher portion of e-com sales and our strong financial position, we believe that we can manage a bit more short-term volatility.

18:14 Very clear. Sorry, just to compliment that. I think we always strive to be simple and not creating too many distractions, neither internally nor also externally. Exactly as Pernilla outlined, I think this is just one other example of things that we try to, unless it really creates value, we don't want to continue doing it. So I think that's the conclusion.

18:41 Great. Can I also ask about the competitive environment? Have you noticed any changes in competition? And I'm thinking specifically of like the Asian online discounters that have been met with significant import duties. I know these may be not direct competitors, but has that had any impact in your experience on demand?

19:06 I think the general, before I get to the Chinese platforms, I think the general competitive environment is that, you know, I think it's been a pretty strong consumption summer. That's what most numbers indicate. Also the GDP development in Sweden. There are a lot of indications that things are going in the right direction and we've seen others reporting strong numbers. I think in general, it's been a high consumption summer. I also, I think we've also seen some as always, a lot of price discounting on the seasonal assortment, et cetera. But all in all, a general positive environment, I would say, in general. Looking then at the Chinese platforms, we do not see an immediate impact on the Klaus Ohlson part of the business since the new tariffs were introduced in July.

19:56 We do see some positive effect on our online businesses. And that is more, I would say, related maybe to that the platforms have invested less in marketing and traffic. So we have seen a little bit of positivity on the online businesses, but on Klaus Ohlson, we haven't really seen any impact that we can correlate with that tariff change.

20:26 Super clear. Thanks for taking my questions. Thank you. The next question comes from Erik Sandstedt from Kepler Shoebrew. Please go ahead.

20:39 Hi there, thanks. Just a few questions from my side as well here. In terms of organic growth, you did 11% organic growth in Q1 and you mentioned now in the presentation that online you did 18% organically. Could you give us a corresponding number for the physical store network in terms of organic growth?

21:06 Let's see, I think the like-for-like in Q1 was nine, I think. So the overall like-for-like development was nine, but then of course that includes the online like-for-like, so it's impacted by the 18, and we don't separately report the store network, but based on those numbers, I think we can confirm that the like-for-like on the store side isolated is also positive. And that really links back to our key strategy of constantly driving like-for-like growth in the store network. That's one of the most important priorities. For us, new stores is not the single biggest growth driver. It's an aspect, but the key is driving like-for-like.

21:52 So I think we've seen that in the quarter as well.

21:57 Yeah, perfect. That's helpful. And in terms of the strong online growth here in the quarter, could you maybe Give some more comments on what's driving that. Is it simply more traffic and customer acquisitions or what are you seeing in terms of conversion rates, basket sizes and so forth?

22:18 Yeah, I think we have seen all aspects of the online business are going in the right direction with higher traffic, higher basket and the strong conversion in general. I would say the key driver of the online growth is again assortment related. We've done a lot of work over the last few years to also define and design more of an online, pure online assortment. I had one example of the robotic loom owners, but we have others where we have a big assortment that we do not want to distribute to 250 stores available online. So that has driven both sales and traffic to the online sites. So again assortment. And then second, we continue to work with performance marketing across the different parts of the business, both Klas Ohlson and the others. And here we've also seen that the increase in marketing has really given also a strong return on investment.

23:22 So performance marketing combined with a strong assortment at the right prices has really helped the online development.

23:31 Perfect, thanks. Maybe coming back a little bit to my first question here, because I'm thinking a little bit about the store growth. Obviously, you're still doing positive like for like sales also in the store network, but could you say anything about If you see any sort of risks for cannibalization when the network becomes more dense or are you simply opening up in areas where you don't have a lot of stores and so forth. So a little bit interested in that dynamic.

24:05 Yeah, so when it comes to the store network, obviously every new store decision relates back to, of course, delivering on our return on investment demands, longer term growth, longer term availability to customers. And of course, a key aspect of that are risks of cannibalization. And the good thing is we have 250 stores. We've opened a lot of stores, almost 30 of the last three years. So we have a very strong set of insights and data to make fairly good assumptions and conclusions before we decide on a new store. So I would rather say that for every new store we open, it needs to stand on its own two feet when it comes to store P&L. But the other thing is that it also drives the positive development on the e-commerce business.

24:55 So I'm not worried about cannibalization driven by the new stores. And that's also another reason why we do a lot of store upgrades in the base network to ensure that every store is competitive.

25:11 Perfect, thanks. Maybe finally, if I may, in terms of the gross margin here, if we look beyond FX and hedging, could you say anything about the current purchasing conditions? Are you still seeing improvements to the product margins through better sourcing setups or have that largely sort of come through and annualized now? Where are you in that process?

25:35 Yeah, so we always, of course, work with improving purchasing prices. I think As you say, of course, there are a lot of external factors helping us now with with currencies, etc. There is still a little bit of an effect on the on the purchasing prices. But but it's not the biggest driver as it has been over the last last year. So, of course, our job now moving forward is to continue to be effectively working with our sourcing network to always have competitive prices. At the same time, we have seen the producer price index in China, for example, now going up over the last few quarters. So we cannot rely solely on that aspect. And it's also a smaller driver of the improvement than what we've seen in the last year.

26:27 Perfect. Thank you so much. Thank you. The next question comes from Magnus Rahman from SB1 Markets. Please go ahead.

26:41 Thank you very much, guys. I think I'll just follow on that last question. Firstly, you mentioned the increase in producer price index in China, but is it fair at least to assume that these should be quite neutral in terms of passing through since all Yeah, most of your competitors are sourcing these goods from the same from the same sort of supplier base in one way or another and would be impacted in the same way.

27:12 Yeah, I think in general, I think it's fair to conclude now I used to produce a price index in China as kind of a proxy for what's happened over the last few quarters, and it's obviously driven. by some of the raw material increases that we have seen, driven by oil price increase, driven by the shortages of chips and tech products, etc. So I use that as a proxy, and I think it's fair to conclude, as you say, that this is something impacting most companies that are importing products from other geographies. Then the other thing is, of course, now we are much less dependent on China with our broader sourcing network, but But obviously, these increases are mostly driven by raw material increases, oil price increases, etc.

27:59 Yeah, sure. And thereby should be also impacting other sourcing destination or geography. Right. And then, yeah, sure. Thanks. And I also wanted to ask about the increase in marketing spending that you alluded to when you spoke about the increase in cost. You also mentioned here in one question about your online businesses in particular that they, if anything, might have seen a little bit relief on the performance marketing costs, if I got it correctly. So this overall increase in marketing spending, is it that the core class Ohlson has been increasing its performance marketing spending or is it more traditional marketing costs?

28:45 And how should we view it going forward?

28:50 Yeah, so looking at the increase, it's driven by, first of all, that we have consolidated the acquired companies and they obviously have high gross margins and then higher degree of performance spend. So that is one kind of structural part because it was not part of the base. But then to be clear, also on the Claes Ohlson side, we are increasing absolute amounts when it comes to spending. And this is obviously correlated with the growth that we're seeing. And we're only buying traffic that we judge to be profitable. So we're measuring this on return on ad spend, return on investment, et cetera. But also the Claes Ohlson part has gone up over the last quarter. And we expect that to, it is continued to be a key lever for us also moving forward.

29:39 But of course, the online growth and the spend growth should go hand in hand. And as long as there is profitable traffic to be had, we will continue that. So I think it's fair to assume that this development will continue.

29:52 Great, that's very clear. And then maybe one final to Pernilla, if you could remind us of the timing of initiating depreciation of the InSjön automation investments. Thank you.

30:07 When we finalized

30:08 investment I mean we will start to depreciate when we take it into what have we communicated regarding the end date for yeah no I think we I mean so we first now for the it's the first quarter where we now have significant investment above 130 million so that immediately of course is an investment that has been done during the quarter and then what I think we've said is that the investment will be finalized by the fall of 27.

30:37 And then we will start depreciating that investment.

30:44 In total, so it's not these batches, so to speak, quarterly, but there will be no DNA from this until that finalization.

30:56 Until we start to use it, yeah.

30:59 Okay, great. Thank you very much. Thank you. It seems we have no more questions from the telco. But we do have one question from Anders Montage from the webcast. It's two questions. One about which products that you believe will continue driving growth and if you have any outlook for the coming year as well.

31:39 Yeah, so starting with the first question. Of course, there is a part of the Klass Ohlson sales that is seasonally dependent. And of course, that is one of the drivers of the high assortment renewal. So as we move into the fall and then soon into the Christmas and then winter season, of course, we're shifting focus on the seasonal side, both into Christmas related products, gifts, but also again, back to air quality in terms of, but now we turn from air conditioners to heaters, et cetera. So I think that's one example. And it's of course our job to ensure that we have all the weather portfolio that performs any season. And then I think the second key thing is we have a base assortment that is always on, always relevant, everything related to tech, tech accessories, fixing products, cleaning products, et cetera. So it's that combination that constitutes the relevant assortment.

32:38 And then looking at the coming years I think I don't want to guide on the coming over the coming years more specifically than I think the financial framework does so of course the job for us now is to continue balancing strong organic growth with strong profitability and strong return on capital so those those the financial targets and that framework I think gives a good guidance on what we want to achieve over the next three years every year. And with that we have no further questions from the webcast or the telco.

33:22 Okay, thank you very much for calling in this morning and for all the great questions. We are now shifting focus from summer to fall and then soon we will be entering also the big peak season that is of course important to us at Ohlson. Look forward to seeing you all again in early December when we report our second quarter. So thank you very much.