Matas A/S

CSE:MATAS

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, welcome to the Matas Q1 Capital Markets Day Call. [Operator Instructions] Today, I'm pleased to present CEO, Gregers Wedell-Wedellsborg; and CFO, Anders Skole-Sørensen. Please begin your meeting.

[Gregers Christian Wedell-Wedellsborg]

Thank you so much, operator, and welcome, everyone, to the call covering our Q1, going straight into our Capital Markets Day at 10:30. For the quarter, it is a beaming quarter. We have grown across the board. We are upgrading our guidance. And today, we will be launching a new 5-year growth-oriented strategy. So a big day for Matas today. We will start out with my comments, then I will hand over to Anders to go through the financial results. I will comment briefly on the guidance for the financial year, and then we will move to questions and questions only about the quarter because we will have ample time to discuss the new strategy afterwards. So this has really been a beaming quarter, and it is, of course, a reflection of the euphoria and the happiness out there because Denmark has been reopening. People have been resuming with their close-to-ordinary lives, but still an exceptional quarter. We saw revenue growth of 7.9%. We saw growth across all categories and across both the stores and our online business. And in particular, the recovery of our stores towards the end of the quarter is really heartwarming and warming on the business side as well. Like-for-like growth was 5.9%. And if you compare to our pre-COVID days, it's a whopping 16.6% like-for-like growth on the business. So EBITDA before special items increased with the same -- just about the same rate as revenue to -- by 7.5%. And that leads us to upgrade our guidance for the year due to a better-than-expected Q1. And we now enter a period of the year where we saw very high growth rates last year, and we do expect a gradual normalization of consumer spending the rest of the year. And then, of course, as I mentioned, we will be talking about the new 5-year growth strategy extensively later. And with that brief introduction, Anders, I'll pass over to you.

[Anders Tormod Skole-Sørensen]

Thank you, Gregers. Well, as you see here, the key financials were pretty good, as Gregers already mentioned. Like-for-like growth of almost 6% and total revenue growth of almost 9%, a gross margin which was rock-stable at 44.4% compared to the same quarter last year. Costs were up by DKK 20 million, but as I'll come back to, as a percentage of sales, they were pretty stable. EBITDA grew, as we said, by 7.5% and that does -- net profit, actually by more. The only sort of thing that looks strange when we look at the numbers straightforward is the free cash flow, which dropped considerably, and I will come back to why that was the case. Two numbers that we look on a key long-term KPIs for us is basically the number of transactions, which reflects sort of the traffic to Matas generally and, of course, the basket size. And we're pleased to see that we had a nice bump in the number of transactions by 5% and also a rising basket size, although somewhat more modestly at 1.2%. On the next page, we're looking at slightly more long-term trends, and I'm not going to bore you a lot. I think these are very good numbers. They speak for themselves. I think, first of all, it's very nice to see now that we have definitely moved away from that trend of being or growing around 0, so now growing substantially. And another thing that I'd like to point out is that I think we've been talking for a number of quarters about the gross margin and the fact that we think it's stabilizing. And I think when you look at these numbers, it really bears out the fact that we are seeing much more of a stabilization in our gross margin. And with regards to EBITDA margin, it's pretty much the same picture. Now just to dive a slight bit more into the cost. As I said, stable cost ratio, 26.2% last -- same quarter last year, 26.1%, so that's basically the same number. But yes, cost did go up by 20%. And when we then look at that and what actually happened in the cost picture, well, there were a number of cost drivers. We added a new activity to the business in Web Sundhed, and that did add about DKK 3 million of costs, which obviously weren't there the same quarter of last year. And then as online keeps growing, there is a variable cost increase, which is basically linked to the turnover, and that added about DKK 10 million. There were or there was an increase in the personnel cost at the headquarters. So that was 2 factors, roughly 50-50. One of them was the fact that we actually put a little more aside for the expected year-end bonuses this year than we did the same quarter last year. Obviously, related to the fact that we were also raising our guidance and things are going quite well. And then there were some costs that we've been adding in order to be able to execute on some of the longer-term cost-reduction products that we are working with, in particular, the Matas Ways of Working, WoW, project that is really gearing up. Finally, there was an increase in personnel costs as the physical stores. As you know, we very, very -- I mean, this is the largest single cost issue for -- cost element for Matas. So we really look at this with a very, very, very tight -- with a tight ring. And the fact is, and we control it basically by looking at the wage percentages, i.e., how are the wages developing relative to turnover. And as turnover was a positive development in the first quarter, the fact that there was a slight increase in personnel costs is not anything that worries us. Actually, the cost ratio went down. Lastly, it's positive, I think, still to see that we are continuously trimming our underlying cost base. We're not -- it's not like it's a huge number here, but the fact that we're still trimming the underlying cost base this quarter, it's about DKK 3 million, is a positive sign. Inventories. As you all know, inventories have been historically a bit of a challenge for us. But if we look at what happened now, I think it's interesting to see on the right-hand side of this, you can see well, there were numbers -- there were areas where we are growing, and that's particularly online, where we did add new inventory. And that has to do with the sharp growth that we are seeing in the online business. So it's basically tied up to our facility in Humlebæk. If you look at the rest of the business, we were actually able to further take out again, compared to the same quarter last year, about DKK 40 million of inventory. So overall, inventory levels were lower by DKK 24 million. Now you should notice one thing because this explains some of the cash flow development. If you look at the relative swing in the inventories between the first quarter of last year and the first quarter of this year, you will notice that last year, the swing was a small increase of about DKK 15 million in inventories while this year, there was an increase of around DKK 90 million. That has to be tied back to the fact, if you look at the percentage, the small white numbers, looking at the percentage of the inventory levels compared to the last 12 month sales, we were really down at 20.8% at the end of the last quarter. Now we're at what we still think is a very comfortable 22.5%. This, of course, has to do with the fact that there's always a tradeoff between making sure that you don't run into too many stock-out situations and trimming your inventories. But it has meant, and seen in isolation in this quarter, we've been adding quite a lot to the inventory. Coming back to the cash flow. How do we explain what happened in the cash flow? Well, the important bit here is that, if you look at the operations before changes to working capital, there really isn't much to say. I mean they were DKK 10 million lower than they were last year. And that's a combination of actually higher direct income after tax, but then also slightly higher depreciation. And then on the other hand, we had a cash settlement of one of our -- of the long-term incentive programs, which distracted from this cash flow. The big change, of course, is changes to the working capital. And there, we have to see there are really 2 big major explanations. First of all, as I just mentioned, inventories grew. They always grew up in the first quarter, but they grew by a lot more this year than they did last year, about DKK 70 million. And secondly, as we are all aware, some of those special measures that have been taken in connection with COVID-19, which gave us some postponement in the payment of VAT, of payroll taxes and other things, well, they added a lot to the cash flow in the first quarter of last year. And they didn't add anything this year. So that was a negative swing relative to last year. So that's really why you are seeing this big, big swing. It explains more than 2/3 of the overall swing. The rest are lesser and not so important points. Just to put it in perspective, if you go back and look at 2019/'20, changes in working capital for the first quarter was around the same level. So it's -- we don't think -- this is not something that keeps us up at night. This was just a normalization. For the rest of the cash flow picture, nothing really surprising, slightly higher CapEx as we are investing heavily into our IT. And then, of course, there was the fact that we acquired the activities in Web Sundhed this year, which means that acquisitions and other investments are up compared to the same quarter of last year. So with that, keep it short and sweet because these are good numbers. I'll hand you back to Gregers, and he'll talk a bit about the guidance.

[Gregers Christian Wedell-Wedellsborg]

Thank you, Anders. And as for the guidance, we raised the guidance on the top line from minus 2% to plus 2% to marketing that we still -- we expect 0 to plus 3% growth compared to last year. And we also raised the bottom line or the lower part of the guidance for the EBITDA from 17.0% to 17.5%. Now what's going on? As I mentioned, we are now entering a period where last year, we saw double-digit growth on the year before. Really, the COVID boost came in with full force, and that's what we're up against as we look into the rest of the year. We do expect that -- we know that we're not going to sell a lot of protective equipment, and that's the one thing we're happy about, not selling any more face masks and hand sanitizer to a large degree. And we do expect that, over the year, we will see more and more of a normalization of consumer spending as people start traveling more as we are up against October, in particular last year, where we had a huge stimulus package, a holiday pay from the government. And we also expect that online competition will increase in the coming time. Now that is a downward trend. What we expect is that a lot of the initiatives that we have been working on for the last year, they will start to punch in. Of course, the acquisition of Web Sundhed will add to our growth. And we will execute the first of our range extensions already very soon, actually, but progressively over the remaining quarters. And that will offset some of the reversal effects. And as we mentioned in the full year guidance, we maintain this perspective of having firepower, both to meet competition, but also to kickstart our new growth strategy and invest in future growth. And that is primarily marketing investments related to the new assortment. I should also mention that our CapEx range is now raised from previously DKK 155 million to now a range of DKK 295 million to DKK 315 million. And that is just a reflection of -- not just, but that is a full reflection of the fact that we are now moving into the realization phase of our big logistics projects, one that I will return to in great detail later. And in that guidance, M&A is not included. And with that, we will conclude our review of the Q1, and we will open for questions for Q1 only. Thank you.

[Operator]

[Operator Instructions] We have a question from the line of Alex Borreskov from Carnegie Investment Bank.

[Alexander Borreskov, Equity Analyst]

Congrats on the amazing results this quarter. And just one question on the quarter. In the last few quarters, you have given some providers some indication about the current trading going into the first half the current quarter. Why are you no longer giving these data? And I guess you are not really seeing a slow momentum based on the guidance upgrade you provided today. So can you first explain the current momentum in the quarter?

[Gregers Christian Wedell-Wedellsborg]

Yes. So this is really a return to our old ways, and then maybe that's a reflection of where society is going in many ways, that we think that giving guidance in the middle of a quarter will open up a lot of questions because there are always these seasonal changes, and we might have a big campaign at the end of one quarter, one year and the start of the quarter, another year or month of the other year. So really, we think it distorts more than it adds. So just softly, I can say that it's been a sunny summer. It's been a summer with more travel activity than last year, but still a lot less than a usual summer. So that's, I think, the only remarks that we're going to give for the quarter that we're in right now.

[Operator]

And we have another question from the line of Magnus Jensen from SEB.

[Magnus Thorstholm Jensen, Senior Equities Analyst]

I just have two. First, departments stores obvious -- sort of has obviously opened again and -- but still, you performed pretty well on high-end beauty. Could you talk a little bit about the dynamics here? And what kind of impact it has had on your business at the department also have reopened?

[Gregers Christian Wedell-Wedellsborg]

Yes, so if you look at the...

[Magnus Thorstholm Jensen, Senior Equities Analyst]

Compared to Q1 last year, of course.

[Gregers Christian Wedell-Wedellsborg]

As you compare with Q1 of last year, remember that Q1 of last year was composed of -- or sorry, Q1 of last year was obviously an era where shops really closed down and you saw the online explosion. You saw a massive change in customer behavior, what people were buying. This year, we have in the first part of the quarter, we still had restrictions on other parts of retail, including department stores.However, the great thing, the great trend driving the quarter is just the euphoria of going back to life. And I think all of retail has benefited from that. Surely, we can tell from the numbers across the board. And in particular, I would say that the comeback of the stores is what you should take note of. And we saw that increase as our competitors and colleagues opened up, we actually saw our stores performing more and more strongly. And this goes to a point that we talked about many times last year that it's no good for Matas if the rest of the retail is closed. It's not like it's a wonderful monopoly. It just means that people are not on the streets, and we're losing a lot of these high street traffic impulse-buying situations. So a good quarter to see the stores come back, even if the competition heated up. High-end beauty, as you remarked, I think that's a reflection of the fact that people have a lot of money. They have a lot of time. They have a big desire to go partying again. And of course, travel retail is still muted at this point.

[Magnus Thorstholm Jensen, Senior Equities Analyst]

Okay. Very clear. And then my second question goes to the -- so the Matas Plus membership that you have introduced a free shipping and a lot of other interesting stuff. Two things, 2 questions to this. You have 36,000 members now. How is that according to expectations? Is that a satisfying level?And the second question is, how much is free shipping really being used? I can see that it is clearly being used from your comments. But how much -- is it something that is visible in the margin? That was my question.

[Gregers Christian Wedell-Wedellsborg]

So for those of you who don't follow us closely, Club Matas Plus is a new concept where if you pay DKK 29 per month, you get free shipping, you basically gear your points earnings in the loyalty club so 3x up. And then you get a lot of other sort of one-off kind of advantages. And we disclosed that we now have 36,000 subscribers. I think that's a pretty compelling number to go from 0 to 36,000 paying members.What does it do for our business? It clearly increases our share of wallet. So customers who do become Club Matas Plus, they shop with us more frequently. And we get a bigger annual basket, if you will, a bigger revenue chunk from those members. And they choose a bit more home delivery. And obviously, they're getting some good discounts. But overall, it has stood the first test, namely, do the consumers want this? Yes, they do. And we will continue to develop the concept as we go.

[Anders Tormod Skole-Sørensen]

If you just look at the report in more detail, you realize that we do comment on the fact that -- the one place that we could see a bit of an effect on the numbers is on the online part of the business where we've had a drop in the average basket and a higher frequency but lower baskets. And that does have -- at least some of that comes from the fact that Club Matas Plus members, because they have free shipping, are likely to order in smaller batches. And that's obviously part of what happened. But to have -- to say that it has had an overall effect on our overall business, it really doesn't have the volume yet to do so.

[Operator]

[Operator Instructions] We have a follow-up question from us Alex Borreskov from Carnegie.

[Alexander Borreskov, Equity Analyst]

Yes. In terms of delays on deliveries, have you seen anything in this quarter due to solid activities? I guess when you ordered in the first quarter from Matas, you shouldn't expect to get your order in the next days. Have you seen any delays on deliveries in the current momentum, current activity?

[Gregers Christian Wedell-Wedellsborg]

No. We have actually seen the reverse. We've seen more and more speedy delivery and more and more percentages of the individual orders getting fulfilled on the same day. So the learning curve that we have in Humlebæk just continues to go in the right direction. So despite a lot higher online activity ramp-up compared to just 2 years ago, we have been able to cope with that. And we also see customer satisfaction on matas.dk running at the record highs.

[Operator]

And as there are no further questions, I'll hand it back to the speakers.

[Gregers Christian Wedell-Wedellsborg]

Thank you, operator. And I just want to remind you that this is not the end of the day. It's rather the beginning of the big reveal. We will talk about our new strategy in just a few minutes. So please stay on the line. We will start at the 10:30 sharp, and look forward to seeing you again there. Thank you.