Europris (Oslo:EPR) Q3 2026 Earnings Call

0:00 Good morning, everyone, and welcome to Avrupee's presentation of results for the third quarter. My name is Espen Eldahl, I'm CEO of the company, and joining me on stage today, you will see CFO Stina Byhre, who will present the financial details. And after the presentation, we will host a Q&A session, and that will be managed by ER officer Trine Engløken. We will start with questions from the live audience here in Oslo today, and then we will take questions from the web. And those of you who are online, please feel free to type in your questions as we speak. Before we get started, I would like to thank Nordea for hosting today's presentation and also for arranging the investor meetings we have later today. Europis is a discount retailer operating the Europis store concept in Norway and ÖOB in Sweden and in addition we have the online companies Lekekassen and Strikkemekka mainly operating in Norway but also into all the Scandinavian countries Both Europis and ÖB operates seasonal concepts and in this in the third quarter this summer season has been challenging which resulted in the third quarter that was below our own expectations.

1:18 In addition we had some issues with our campaign program which fell short of the expectations we had. When we look at the numbers, total sales in the quarter ended at 3.5 billion, which is a reduction of 1.6% from last year, but up 0.6% in constant currency. And despite an increased gross margin, the EBIT ended at 244 million, which is a reduction of around 5% from last year. When we look at the first nine months, total sales was 10.5 billion. That's an increase of 1.9% and 3.1% in constant currency. The gross margin has increased, and that resulted in an EBIT of 710 million, which is an increase of 10% from last year.

2:13 I started to talk about the season, and of course, timing of summer impacts the seasonal concept like Avidopis. And this year, we had an early start of the summer season compared to a late summer last year, and that impacts sales in the quarter. This year, we had good sales for the summer seasonal goods in the second quarter, while the sales was moved to the third quarter last year. Year to date, the figures are of course comparable and overall we are very satisfied with the summer season we have delivered. We met our sales targets and we have a healthy inventory at the end of the season. The Norwegian consumers and also the Swedish ones, they remain very price conscious and private labels and campaigns are key sales drivers in the quarter.

3:02 But despite our campaign sales, the overall campaign program fell short of the expectations we had, and we have taken some corrective actions. And the outer piece concept is based on low prices, seasons, and campaigns. And all these three elements are important drivers of traffic to our physical stores. and the position we have on low prices is undisputed and with this high sales of private labels that demonstrates that we are very relevant for the consumers and drive traffic but when the season comes short we should have had a stronger campaign program to compensate for the lost traffic due to a bad season and the campaign program was simply not robust enough to drive traffic during the season and we should have had the broader range of traffic driving initiatives to ensure that the customer football was still there despite a slower summer season.

4:00 We were simply too dependent on the summer seasonal goods in our campaign program and should have had the broader program to attract more traffic and be relevant when the summer was difficult. But the good thing is, of course, that out of this is a relevant concept for the price conscious consumers. And we offer value for money and growth is driven by the campaigns and the private labels. And even though we see real wage growth in Norway this year, the consumers have become more price conscious. And you might say that perception beats reality because statistically, the consumers are better off than before. Yet they feel that everything has become more expensive.

4:46 And we see that in the way they shop in our stores. They choose campaigns, they choose the low price points and especially they choose the private label products. A high share of private labels is not only driving sales, but it's also important for increasing the gross margin. If you go some years back and look back to 2020, the share of private label sales in Europe was 40%. Now in 2026, that has increased to 48%, and that is also a very significant key factor for the good increase we have seen in the gross margin for the company over this period. We're not only working with the products, we also work with the store portfolio and we opened one new store in the quarter. We relocated and expanded three stores, but we also closed one store. And the board has approved another eight openings for 2026 and beyond, of which four are subject to planning approvals locally.

5:46 If we move to Sweden, the turnaround program continues at full speed. One of the most important things is to harmonize the assortment and try to position ÖB as a relevant destination for non-food products and also for the seasonal products. And the Swedish consumers, they really welcome the upgraded non-food range we have introduced in the stores. And that delivered 9% sales growth in the quarter and 10% for the first nine months. And the share of non-food is now increased by two percentage points up to 28% so far this year. and a stronger non-food offering in Sweden is crucial to attract new customer groups and increase longer-term profitability.

6:33 So it's a key activity in the turnaround plan we have for Sweden. But despite the positive development we've seen on the non-food goods, we are not satisfied with the development in Sweden in the third quarter. The timing of summer and the campaign program, of course, also had negative effects in Sweden. I think that we actually got a larger hit in Sweden because we are not there in the robust market position as we are in Norway. In Norway, we are market leaders and we can live with a weak campaign. The customers know us and come anyway. But in Sweden, we have to fight harder for the consumers as we are a challenger in the market. And I think that the hit was bigger in Sweden than in Norway on December. the campaign issues we had and also the seasonal issues.

7:24 Another key element in the turnaround plan in Sweden is to remodel the stores and make it a more attractive and nicer shopping experience for the customers and during the third quarter we have remodeled another 10 stores bringing now the total of remodeled stores to 38 by the end of the quarter. We have planned to upgrade another 10 stores in the fourth quarter. Four of them are already done today. And we will then have 48 upgraded stores at the end of the year. The remaining store portfolio will be upgraded next year. With some exceptions, there will be around five to 10 stores that will not be remodeled due to the fact that they are potential relocation candidates or we have issues with negotiations with the landlord. So We're not investing if we're not going to stay.

8:13 So basically there will be a handful that is not remodeled at the end. Now we are approaching the fourth quarter, and honestly that will be a test for ÖLB. This is the first time we have a fully harmonized assortment for important Christmas season across Norway and Sweden. And we will do some extra marketing activities. We will go broader into the market and communicate that Ölby has something new to offer for Christmas this year. And we are expecting that this test must position Ölby as a stronger seasonal destination in the markets. But of course, we have more Christmases to come. You know, we have 26 is the first year we are the full aligned assortment. Then we will test more in 27. And of course, we are up for exams in 28.

9:01 But it's going to be a test for a bear to really position themselves and deliver in the fourth quarter. So we are raising the bar and saying that we have to do better seasonal performance in the fourth quarter and what we saw in the in the third quarter. Regarding the store portfolio, we will do a broader full-scale national marketing by the marketing activities next year when we have upgraded most of the store portfolio. The EOB turnaround plan stays firm. Our ambition is to lift sales to 5 billion and also with an EBIT margin of 5% in 2028. And it's built on these three key drivers we have been talking about all the time. And they come also in a natural sequence. First, it's about harmonizing the categories and do joint sourcing. That is more or less done.

9:53 And then it's about strengthening the execution across the value chain. And then we talk about doing the same campaign structure that is almost done. It's about doing the same seasonal experience. And that we have the full scale test now in the fourth quarter. and lately it's about improving the customer experience that is remodeling the stores and there we are basically halfway into the project. So we're making good progress despite that we see that the results we deliver now in the third quarter did not meet neither yours expectations or our own expectations. With that I will leave it to Stina to present the financial details.

10:36 Thank you Espen. Sales for Segment Norway in the third quarter was 2.5 billion, slightly above last year. Europris is a seasonal concept, meaning that good seasons attract more footfall to stores. And while a seasonal need may trigger a store visit, customers also fill their basket with other items when they come to shop. And this year, as summer came early, the corresponding footfall and sales fell in June. Well, last year, as summer came later, this fell in July. And this was a timing effect. And looking at the first nine months, the summer season and overall sales performance was good. And the Avdopris chain showed growth higher than the broad variety retail index.

11:28 And we still see price-conscious consumers. And private labels and campaigns had sales growth both in the third quarter and for the first nine months. That said, the campaigns drew less footfall than expected in the third quarter and corrective measures have been initiated. The sales development for the PurePlay companies was impacted by lower sales outside of Norway. On the 1st of July the EU introduced a customs duty on imports from non-EU countries which negatively impact profitability on these sales. and our peer players have done a tremendous job with mitigating measures. Strikke Mekka has expanded its already existing warehouse operations in Sweden and expects to be fully stocked in the beginning of next year.

12:17 For Lekakassen, it is more complicated, but measures on what products to offer, pricing, campaigns, freight terms, etc., have been implemented and will be further worked on. and why the P&L impact for the group is more limited. This is a clear competitive disadvantage for our pure players with a negative impact on sales and profit. The gross margin for the segment showed strong improvement in the quarter at 45.8%. This is an uplift of one and a half percentage points excluding unrealized currency. OPEX grew moderately and EBIT was 294 million just above last year. And while EBIT was largely in line with last year, in the third quarter, the segment delivered an EBIT growth of close to 5% for the first nine months, following sales growth combined with improved gross margin.

13:17 Sales increased by 4% to 7.5 billion, with Avdopris demonstrating its relevance through higher footfall and a volume-driven uplift in the basket. The gross margin improved somewhat, while the OPEX was negatively impacted by the combined effect of volume-driven sales growth with high wage growth and increased distribution costs. And all in all, this accumulated into an EBIT of 867 million, an improvement of 4.7%. Asa An important part of the turnaround is succeeding with the harmonized non-food range.

14:16 And it is evident that customers appreciate the upgraded assortment as these sales increased by 9%. And the gross margin improved by 1.2 percentage points, excluding unrealized currency. And in local currency, the OPEX increased by 9.7%, significantly impacted by the story modelings. The EBIT loss grew to NOK 50 million. For the first nine months, sales were 3 billion, down 3% on a reported basis, but up 0.9% in local currency. Remodeling and temporary closure of 34 stores had a negative impact on footfall and sales. But we do see overall better performance on key KPIs for the remodeled stores.

15:04 Non-food sales increased also for the first nine months and the gross margin improved by 2.2 percentage points, excluding unrealized currency. OPEX was impacted by the story modelings this year and the segment had an EBIT loss of 157 million and improvement of 29 million compared to last year's loss. Summing up the third quarter for the group, sales were 3.5 billion, slightly up versus last year in constant currency. And while the sales development was below expectations in the quarter, the gross margin showed significant improvement. But costs related to the remodeling program weighed on the results and EBIT was 12 million below last year.

15:52 For the first nine months, sales reached 10.5 billion, an increase of 3.1% in constant currency. And the gross margin improved. And despite headwind on the OPEX, EBIT increased by 10.6% to 710 million. Earnings per share were 2.31 NOC, up 8.1%. cash flow from operating activities for the first nine months was 900 million a significant improvement from last year and this was from year-on-year improvement in the change from inventory as last year included a planned inventory build-up and from timing of accounts payable between the years higher capex was from the store remodeling program in sweden in addition to category upgrades and investments at the central logistics center in norway all in all net cash increased by 54 million and the group has a solid financial position with cash and liquidity reserves of two and a half billion and then Espen will take you through the outlook

17:05 Thank you, Stina. When we look at the market and especially the macroeconomics affecting our customers, we see that the interest rate hike we had in Norway in September was not expected a year ago. And we also see that the policy rate path has been revised upwards in both Norway and Sweden. And how this will affect the consumers is a little bit difficult to say. We said earlier that perception beats reality. We see that they are acting more price conscious, which should be positive for a concept like Europis. And we also know that it's expected to be real wage growth in both Norway and Sweden in 2026 and also 2027. So up until now I think that the retail market is you know dealing with these issues quite well and it seems like they are still you know growth in the overall retail markets.

17:58 But we believe that the consumers will remain price conscious and that concepts with clear priorities on price will be among the winners and I think that we are well positioned in this market. But more importantly and short term we are well stocked and prepared for the important Christmas season. We have received all the goods and now it's just to do Halloween this weekend and then it will be Christmas in all stores from next week. Then we are having the Black Weeks or Black Month and then of course the important Christmas sales season in December. So you know the biggest sales days are ahead of us and we are looking forward and we are well prepared for the final sales seasons of the year. And with that, I will actually invite Stina back on stage and we will do the Q&A.

18:47 And till then, we will start with questions from the live audience. Brage excuse me Brage from Nordea regarding the campaign issues could you go a bit further into detail what happened and what measures you are taking in order to correct them in the future and also regarding private label developments what particular categories do you see positive developments in

19:18 On the campaign program, we fell short basically of having a broad enough offering. We were too dependent on seasonal goods to drive traffic to stores. And when the season was not there, we should have had a broader campaign offering in the weekly marketing leaflet to ensure that we had other offers that were attractive for the customers so they came to our store. So it was basically that we were too dependent on the summary issues. and we should have had the broader offering and I think that we should work to have that regardless of the season so we are pulling all these strings to drive traffic the low prices we have with the private labels the season will always be there if it comes late or early it doesn't really matter but we should have campaign programs that support sales regardless of how the season develops.

20:07 So that is basically, it was not broad enough to attract customers. And regarding the private labels, that is basically across more or less all categories that we see positive development. We see that the consumers are tending more and more to test the private labels and think that it's value for money and that they shouldn't pay more than they have to for a product. I think it's the smart consumers that are really trying to test our private labels. But I don't think it's only about Europis. I think you see the same development in all the store concepts as well.

20:44 Let me go to questions on the web. Douglas Enokson. How much higher are the gross margins on private label products in Sweden against food and consumables?

20:55 We have never disclosed the exact difference, and I don't think we will do that today either, but it's a significant difference. And, of course, on consumables, you have the lower margins. On non-food, you have, on average, a higher margin. And non-food is, of course, dominated by the private label products. So you have a significant higher percentage of gross margin on the private label products.

21:20 And how are the stores remodeled in 2026 performing compared with the non-remodeled stores? And are they reproducing the sales and gross profit improvements seen in the four pilot stores?

21:33 The remodeled stores are performing better than the stores that are not remodeled. And that is on both sales and on margins. But we see a better performance on the margin than we do on the sales side. So we still see that remodeling the stores drives sales. We see a slight increase both in traffic, but a bigger increase in the basket. But we still need the big marketing push to attract new customers also into these stores. So remodeling itself is not enough to reach our targets. We still need to do marketing and attract new customers into the store. So They are performing better, but overperformance is more significant on the gross margin due to a different basket in the stores than it is on sales itself.

22:20 And the last question from Douglas. How much of the remaining improvement towards your 2028 profitability ambition depends on gross margin gains from assortment and sourcing versus operating leverage and the end of refurbishment related costs?

22:40 The biggest part of the improvement should come from increased gross profit. The operating leverage is not that much. The OPEX costs in Sweden are quite trimmed, so it's not there we should make the savings. This is about changing the sales mix, but also about attracting new customers and driving the sales up. So it should be an uplift in sales at a higher gross margin.

23:04 Håkon Fuglø, thank you for taking my questions. Can you break down the gross margin development by FX, campaign share and product mix, both in Norway and Sweden?

23:15 well the unrealized impact from currency changes that we have disclosed in the report apart from that we don't give a granular split on how the gross margin develops but obviously it helps with a good product mix from private labels and we're also working smart to increase the margin where we see potential for that

23:47 Do you restate Q2 comment on that ÖAB will deliver slightly better EBIT for the second half 2026 year on year?

23:58 I have to admit that I was negatively surprised by the result we saw in ÖAB in the third quarter but of course I will repeat it and I raised the bar for the fourth quarter saying that it's important to make a seasonal position in Sweden and And that we have to demonstrate in the fourth quarter. But of course we are starting off on the wrong foot with the third quarter we delivered in Sweden which was a miss not only compared to what was expected in the market but also compared to the expectations we had ourselves.

24:32 And how did the market perform in October both in Norway and Sweden?

24:36 We're not going to comment on the fourth quarter results. That will come later on. And as I said, the big seasons are still ahead of us and the most important sales days of the fourth quarter are all still ahead of us. So let's wait and see until we have the numbers reported in January.

24:53 Olin Martin Vestgaard Norway first what was the mix on like for like between volume and price we have in the quarter the like for like traffic was slightly negative and there was a compensated by an uplift in the basket And looking at the figures for the first nine months, as this was also timing impact, as we have said, the seasons and the campaigns attract footfall. So looking at the first nine months, then the growth is driven by traffic and also a volume driven lift in the basket.

25:33 What are the private label share and the consumable shares of sales in Norway in Q3 compared with Q3 last year?

25:40 It has increased. It's around 48% both for the third quarter and for the first nine months, up around two percentage points compared to last year. So it's a good development for our private labels.

25:54 How are purchasing prices developing, including currency and freight, and what do you expect for the gross margin going forward?

26:01 I think that's a good question. I've recently been to China, and what I expect there is what we can see is that it's the same thing as our customers are telling us. Everything has become more expensive, and especially oil-related products, which is used as raw material in many products, also affects the distribution costs we have to our stores. So it's It's a mix. I don't think things are going to be less expensive. The currency is, of course, moving in the right direction based on that we are buying in used dollars and selling in locks. So that has been a positive development. But that is not the competitive advantage. That is the same thing for all retailers. And it's basically taken out in the price competition. So we see that there's also a price competition in the market and that currency is not really impacting that.

26:49 And for Sweden, what drove the 2.1% like-for-like growth at ÖAB? Footfall versus basket and non-food versus consumables?

27:00 Well, we have a decline in footfall in Sweden so it's all basket driven and in the basket it is the mix of the products with a higher share of non-food which also has a higher share of private label in it so it's a basket mix game.

27:20 And what was the consumable share at ÖBA in Q3 compared with last year and how much lower is it in the upgraded store than in the legacy stores?

27:30 The consumable share is 72% in Sweden and it has been an increase as we commented in the report of two percentage points. And sorry, the latter part of the question.

27:46 And how much lower is it in the upgraded stores than in the legacy stores?

27:52 It's not significantly changed. It is somewhat changed. We see that the basket growth is better. So they take more of the higher valued items with them. But it's not a significant difference in the share price.

28:14 and also he asks how are the upgraded stores performing against the legacy stores like for life growth gross margin and consumer shares of sales

28:25 I think we have broadly covered it but they are performing better and we would like to see that they perform also even better as Espen has commented on and that is issues we are addressing and working on how we can attract traffic in an even better way than we have demonstrated in the third quarter.

28:49 And the last one from Ole Martin Westgård here. Are the upgrade costs per store in line with your earlier guidance on about SEC 2.1 million EBITDA impact and SEC 2.5 million CapEx per store?

29:03 I think what we guided on in the OpEx was around 1.1 per store. And then the CapEx over 2.5 million.

29:14 and we're roughly in line with those figures there can be some timing differences between the quarters but overall roughly in line Petter Nyström ABGC Norway delivers a strong gross margin at 45.8% in Q3 up 1.2% each point have you been too focused on improving margins at expensive sales growth and how do you balance the two going forward

29:44 We have not been too focused on increasing margin compared to what driving sales. So it was basically the miss on sales was that the campaign program didn't cover the goods that should support when the summer was not there. So I think we have done deliberate and good work on the gross margin during the quarter. We have balanced the campaigns. We have tried to position goods in the stores to upsell on the right products that gives you margin and we have also increased the sales of private labels so it's been a good retail craftsmanship to drive the margin up and not that it has come on the expense of the sales if you ask us every day seven days a week we would always say that we want to have higher sales that's the driver in retail and that's what we live for in the stores

30:37 And there was also a volume driven uplift in the basket. So it shows that customers still picked more items when they came.

30:45 You mentioned increased marketing activity in Sweden during Christmas. Should we expect higher OPEX growth in Q4 compared to the year to date trend?

30:56 I'm not sure if I can really answer that I think we will have higher OPEX we have 10 remodelings also in the fourth quarter and there will be some higher marketing but exactly the figure that we will come back to but higher OPEX than last year that's for sure

31:19 and another question from Douglas Enochson Tokmani is also improving dollar store through assortment changes joint sourcing and store development what will differentiate ÖAB as both programs progress and could stronger competition force you to reinvest purchasing savings into lower prices rather than higher margins

31:41 I think it's a very good and valid question. I think it's the same thing that we see here in Norway. It's a lot of various variety retailers concept in the market and everyone has their own speciality. And Europe is positioning ourselves with the low prices and you know a unique mix of consumables and non-food while all the concepts are focusing more on handyman concepts you know more gardening products or more a treasure hunt philosophy so I think you know all these concepts have found their own pace out of this and there will be this you know unique mixture of campaigns seasons and the mix of consumables and non-foods And regarding purchase power, you know, of course, you know, consolidating volumes between Autopis and Urbe is a key factor of getting better purchase prices. And we are also consolidating volumes into trying to make, you know, big items bigger. I don't mean that, you know, we should make the bottles or something like that bigger, but it's getting more volume on the same SKUs.

32:45 That is also driving efficiency in the stores and also driving leverage when we do negotiations with the buyers. And We want to have good quality on what we sell. It should be value for money. And if that means we have to reinvest some of the purchasing savings we make into an increased product quality, we will do that. But if it's not necessary, we will use that saving to increase the margin. So it's a tactical game. And I think that everyone in the market needs to play it the way they want.

33:18 And another question from Håkon Fugle. Did the 15-store refurbishment in Q2 impact the Q3 results in some way for ÖB?

33:28 Well, I'm not sure if I completely understand the question, but if you're talking about OPEX, that can have some timing differences, but also the upgraded stores do perform a bit better than the non-OPEX. upgraded so overall that also impacts positively into the quarter but then the stores that you do close also have a negative drag so it's a bit difficult question and I'm not sure I got it but feel free to ask us again email Trine and we'll try again and that was the last question so thank you Espen and Stina thank you