Matas A/S

CSE:MATAS

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Operator]

Hi, everyone, and welcome to Matas Group's Financial Report for Q1 2024/'25. Today's call is being recorded. [Operator Instructions]. Speakers, please begin.

[Gregers Wedell-Wedellsborg, executive]

Thank you, operator, and welcome, everyone, to the call covering the first quarter of our financial year. I'm presenting with my colleague, Per Madsen, our CFO. And it is a good start to the year, but it is also a good start to the strategy we announced on our Capital Markets Day at the end of May. So a good start to the year. I will give my comments to the underlying developments in the quarter, what we are seeing in the business and in the market. Per will cover the financial results, and we will open up for Q&A near the end.

So overall, a good start to the year, in line with our guidance, with our plans. We saw a 6.2% growth overall for the group. 15% EBITDA margin before special items, up from 14.7% of last year pro forma. The growth was primarily driven by Matas with 8% growth, which comes on top of a also quite a high growth figure, same quarter of last year. KICKS as a business grew less, but you really have to look inside KICKS to see what's going on. We have seen strong growth under the KICKS banner, especially online and especially in the latter half of the quarter. The first half of the quarter in KICKS was affected by the continued ramp-up of the KICKS warehouse. And when you ramp up a warehouse, you don't have perfect stock situations in the stores. You don't really want to push the campaigns too hard. So we are very happy with the growth in that light. Skincity business we acquired as part of the entire transaction, a business that has been in decline and has been loss-making. We have started -- we integrated KICKS even before the transaction, that integration started, and we're seeing a decline in revenues in KICKS but a marked improvement in profitability for that business. So we are taking a bit of short-term pain in Skincity for long-term benefit. Also looking at Matas and at KICKS, very important that we have the warehouse in place in KICKS in Rosersberg, outside of Stockholm. It's not only about logistics efficiencies. It is also the platform we need to realize our ambitions and our dreams and our strategy to be able to offer a wider assortment to Swedish, Norwegian and Finnish customers under the KICKS brand and deliver fast to those customers. So a very important milestone in our strategic journey. The Matas Logistics Center that we are building outside of the Matas headquarters, close to the Matas headquarters is continuing according to plan. We just visited yesterday. The building is there. We are starting to install our automation as well. So that's going according to plan. And again, a prerequisite for the long-term growth ambitions we have for the Matas brand.

All of this, a good start in line with our guidance. We maintain our guidance for the year, revenue growth between 4% and 7%, expected 3.2% to 6.2% exchange rate adjusted. We maintained our guidance for EBITDA margin of 14.5% to 15.5% before special items and also reiterate our CapEx, which is, of course, is the high number for CapEx is driven by the big investment and the majority of the chunk of the investment is this financial year in the Matas Logistics Center. A closer look at the numbers. And what I want to highlight is really closing in on DKK 2 billion of sales in the quarter for the total business. The growth in KICKS at first glance looks muted, but almost 7% underlying growth for the KICKS banner, close to or around 20% growth for KICKS online. That is what we like to see in the KICKS banner. And of course, we are happy to see that EBITDA margin is improving. So overall, when we look at the numbers, we see a confirmation -- we see a confirmation that there is a stable demand for beauty and well-being in all markets despite consumer uncertainties, we see that we're able to perform. We see that our strategy, our recipe for growth is actually continuing to work and deliver, and we're starting to see the first financial benefits of the integration and of becoming a Nordic Group, and Per will get back to that as well in a minute. So looking at the strategy, we actually see progress despite a lot of change on the inside, building a new Nordic organization, opening the warehouse. We see progress across all our 6 strategic tracks. The assortment expansion journey that we have been on, it continues in Matas, and it is first steps in KICKS as well with the launch of Beauty Pharmacy in KICKS, very important for us to be a leader in skincare, in the KICKS banner launched in Sweden with great success. We also see growth in our Vitamins & Supplements own-label business. Those of you who know us well will know that in the Mass Beauty business, we have a very strong position of in-house brands closing in on 40% of sales in the Mass Beauty business is private label. And vitamins and supplements is one area where we think we can do better in the whole well-being space. We also continue to see high growth rates in the e-comm market, lots of changes in the e-comm market. It's definitely maturing, but Matas and KICKS continues to deliver high growth in the online business, driven by the assortment expansion, driven by fast delivery times, driven by membership growth. And that, of course, is the main growth driver for us as we look ahead. So a confirmation that's still working. We also have a very firm belief that stores are a part of the future and the combination of stores and online is really the secret recipe. We are opening a few stores, have opened a few stores and renewed a few stores in the Matas network, in particular. So this is just a small example that we continue to believe in right stores, right location, right size is a good investment with a very short payback time. I think the quarter overall is about what's happened on the inside of Matas. We launched the new organization on 1st of April. We are seeing the synergy ambition that we have for the first 2 years. It's on track. We're getting the benefits that we want. And more importantly, we are seeing our teams collaborate across borders and doing things together that they couldn't do each of their own before the acquisition and the integration. So very happy with the progress on that. But most importantly, this quarter is about the long-term platform for growth. It is about getting the KICKS Logistics Center up and running, the Matas Logistics Center, the progress that we're seeing there. And we just brought the information that despite all these changes, and it is a quite massive change for the company to become Nordic in this sense and for 2 strong cultures to merge. We continue to see high employee engagement, high employee satisfaction numbers. And with that, I conclude my review and hand over to you, Per.

[Per Madsen, executive]

Thank you, Gregers. And I will take you through the financial performance of the first quarter of the year. So when I compare the numbers and to present the numbers right now, I would present in comparing to last year number, which we call pro forma, and that's basically if we would have owned KICKS last year, so that is the combined of the 2 businesses, even though we didn't own KICKS. But that will give you the best indication of how our performance actually is for the quarter. And just looking at our revenues for the quarter, as Gregers alluded to 6.2% growth, 6.1% adjusting for FX or currency. So overall, as already mentioned, a good start, you have Matas growing at 6% -- 8%, sorry. The other point is really the gross margin going from 45.6% to 46.1%. And that is actually a combination of a lot of things. As Gregers said, a mix inside our products, vitamins growing very fast with a very good margin. We have some of our subsidiaries, especially Firtal delivering very strong numbers for the quarter. And then in addition, as Gregers has mentioned, the fact that we're becoming a Nordic business also shows that the suppliers, they support that, and they are also supporting that with further subsidies. So overall, that is what is driving our gross margin.

When we then look at the performance by channel, we really see that, as Gregers was saying, we see growth across all channels and online growing again around the 20% adjusting for the Skincity. If we then move into our cost and the EBITDA, our cost is basically growing 7% for the quarter. That is in line with expectation, although I would say that our cost on the supply chain transformation has been slightly higher than expected for this quarter, taking a little bit more resources to get everything going. As we also mentioned earlier is that in the first part of the quarter, we were struggling a little bit with out-of-stock situations in some of our stores, and that has improved throughout the quarter, which also indicated that the growth in KICKS came in the second half of the quarter. From an EBITDA perspective, we're growing 9% and an EBITDA margin of 15% just in line with our expectations. Moving into our working capital and especially the inventories. As you'll see for the quarter, the numbers we have here is for Matas and an increase in the percentage compared to the revenues. Again, that is just a reflection of our assortment expansion, but also in this quarter, actually some timing and deliveries around the quarter, which actually moves the needle quite a lot, getting supplies just before quarter end compared to just after quarter end. But overall, also in line with our expectations. And then, of course, the KICKS inventories is taking into consideration that we have slightly high inventories at the moment just to make sure that we get the transformation into the new supply chain setup as good as possible and also making sure that our customers, they can actually get our products in all the stores and online as well, which basically moves me into the cash flow for the quarter. That is in line with expectations. Also, as you will see, working capital is taking some cash flow, which is majority linked to our inventories. And then our CapEx, and that is, as we were talking about, the whole investment in our logistics centers in Matas. And that leads to a view on our gearing for the quarter, which ended at 2.9. As you're probably aware that this year, we actually paid out our dividends in Q1 compared to Q2 last year, which has a 0.1 impact on the gearing level as well. But we -- as always, we remain within our long-term guidance or target for the gearing between 2 and 3 and this quarter, close to 2.9. This really brings me back just to reiterate that our guidance for the year will remain unchanged, so revenue growth between 4% to 7%, and EBITDA margin about 14.5% to 15.5% and then the investments, of course, impacted by the logistics center in Matas specifically, which is, of course, leading to a DKK 650 million investment this year. And with that, concluding the presentation and opening for Q&A.

[Operator]

[Operator Instructions] The first question will be from the line of Mads Quistgaard, Carnegie Investment Bank.

[Mads Quistgaard, analyst]

I will take them one by one. So first, coming back to KICKS, where you mentioned that the growth performance in KICKS has picked up throughout the quarter. Is that due to a general market improvement? Or is it mainly due to the product assortment expansion, which mainly impacted in the latter part of this quarter for KICKS, That'll be my first question.

[Gregers Wedell-Wedellsborg, executive]

I think the main explanation is the hold back in the first part of the quarter due to stock-outs. This was not an operationally excellent period. It really is when you change your warehouse around. I think we've been impacted in the lighter end of the scale, but there is some impact. And what we're happy to see is that as soon as we're out of that phase of operational change, we actually see KICKS coming back strongly to growth, especially online.

[Mads Quistgaard, analyst]

Okay. Makes sense. Then the other question is on the launch of new brands. I can see you launch 30 new brands in KICKS, I believe. Is that the run rate we should expect for the coming quarters?

[Gregers Wedell-Wedellsborg, executive]

I don't think you can sort of do a run rate on the number of brands and very often, frankly, Mads, it's the great turnover might come from 1 significant brand launch. So the most important thing from a commercial perspective, short term is to get the right brands and to support the introduction of those brands. Strategically, it's about building categories. So I would say that the main event in KICKS for the quarter is actually the launch of Beauty Pharmacy category that is very much in demand, especially in the Swedish market and which KICKS hasn't historically been able to offer. And it's been in the works for a very long time to get to this point. I think it's been an exemplary launch and the first indications we're getting is that as soon as we have that assortment, as soon as we have that offer to KICKS members, they actually buy into it and like shopping with KICKS for those kinds of products as well.

[Mads Quistgaard, analyst]

Okay. Okay. Then a question on Skincity. Obviously, you've seen negative top line in Skincity in this quarter, at least negative top line growth -- when do you expect Skincity to sort of improve to be back on track in KICKS?

[Gregers Wedell-Wedellsborg, executive]

Yes. So we see a slightly faster decline in Skincity than what we have expected. It was, as you know, a loss-making -- significantly loss maker a couple of years back. We are seeing overall that we run this business more on the basis of getting -- creating a sound business, but also migrating the offering that Skincity has historically had some of the important brands in Skincity, but also the offering of doing online skin consultation. We're migrating that to the KICKS proposition. And we don't want to guide specifically on the timing of Skincity and how fast that goes. So we just -- we focus on do we get the underlying growth in KICKS, which we consider to be the big growth contributor and really the crux of our strategy is to build the assortment around the KICKS brand.

[Mads Quistgaard, analyst]

Clear. And then my final question is on the remaining [ DKK 30 million ] in special items for this year. Can you talk about the phasing? Is it something that will impact you or will it be throughout all the quarters this year?

[Per Madsen, executive]

Specifically on the quarter, it really depends, Mads, but I think it will probably be more like a divided throughout the quarters, all depending on when some of the remaining actions needs to be taken. But from a model perspective, and I guess that's why you're asking is a little bit, I would assume you could take it throughout the quarters.

[Operator]

And the next question will be from the line of Kristian Godiksen, SEB.

[Kristian Godiksen, analyst]

Perfect. So a couple of questions from my side. I'll take them one by one. Maybe firstly, could you comment a bit on what we should expect in terms of store opening/upgrade/relocations this year? Yes, please comment a bit on the magnitude of that and your plans in that regard.

[Gregers Wedell-Wedellsborg, executive]

Yes. So we don't see a significant change in the pace of store openings or upgrades. So you can expect something that looks like what it has been historically. We opened a bit more stores in this quarter compared -- or throughout the last year compared to what we usually do. But it's not a massive priority for this financial year to do an expansion or a remodel of the store network, primarily because we want to spend our CapEx on getting our warehouse up to speed. And frankly, the pace of store network expansion is also very dependent on us being able to get the right location and the right sizes. And we're not always in control of when that happens. So we're a bit more opportunistic. If we have an opportunity to get a good lease and a good location, we might do a bit more. But if we won't, then we'll hold back.

[Kristian Godiksen, analyst]

Okay. Perfect. And then secondly, on the gross margin expansion. Can you maybe comment a bit on the sustainability of that? Is there something special here in the quarter that's not in terms of the subsidies and the vitamins doing very well? Or is that something we should expect to be a new run rate, so to say?

[Gregers Wedell-Wedellsborg, executive]

I would probably consider that not a one-off, but it's good in the quarter, and it's related to the fact that we are seeing some of the benefits come in from having become a Nordic Group, but we really haven't fully started investing. We think there is a need for us to invest in price in some markets and some categories. So there's kind of a timing effect here that you want to take into account. So I would not draw a straight line from here on the gross margin.

[Kristian Godiksen, analyst]

Okay. Understood. And then maybe could you comment a bit on the underlying like-for-like growth if you adjust for both Skincity and also the integration of the warehouse in the beginning of the quarter in KICKS -- sorry, so that's specifically a little bit, you say the underlying like-for-like run rate growth in KICKS compared to the reported 2.7%?

[Gregers Wedell-Wedellsborg, executive]

So we saw quite strong online growth in KICKS. The Swedish online market has been quite mature. If you look at the totality of e-commerce and even Beauty has not been growing for quite a while. What we're seeing in this quarter is not sort of market growth suddenly taken over. This is KICKS starting to step into the gear that we would like. But having said that, it is early days. You also have some calendar effects from just the fact that Easter is in the first calendar quarter of the year rather than the second. So what we're seeing is that the steps that we're taking together with KICKS and the new Nordic organization is taken together does actually deliver good results in the KICKS online business. The migration of Skincity plays into that and sort of the early assortment expansion benefits play into that as well. So it's a mix of different factors. But as you know, this is a core driver for us in the strategy. So getting moving on that number is very important and one we follow closely.

[Kristian Godiksen, analyst]

Okay. So maybe just follow up a bit on that. So the difference you're seeing in the growth -- in the channel, so online versus physical stores, is that you say the magnitude and the difference in level in both Matas and KICKS one should expect as well in the rest of the financial year?

[Gregers Wedell-Wedellsborg, executive]

That would be just guiding too specifically, frankly, Kristian, because a lot has to do with timing of campaigns, wind and weather. We had a very, very sunny first quarter last year, and that changes shopping behavior quite a lot. So guiding specifically on the channels would not be helpful or truthful other than saying strategically, we see online as the big growth driver over the coming years, both in Matas and in KICKS.

[Kristian Godiksen, analyst]

Got it. Okay. Last question then. Just on -- maybe if you could comment a bit on the growth contribution in the quarter from introducing the new brands or maybe specifically the Beauty Pharmacy in the KICKS, what kind of growth contribution are you seeing there?

[Gregers Wedell-Wedellsborg, executive]

It's insignificant because it was launched so late in the quarter. So when I highlighted, it's just because it's an important scalp. It's an important part of the offering going forward to be able to offer that complete assortment. But in terms of numbers, you can hardly see it because it was towards the end of the quarter that we really introduced and started up the marketing component of that.

[Kristian Godiksen, analyst]

Okay. So -- but what you're saying is that we should see a step-up then all is equal or at least we should ask in connection with the Q2 results there, you could see some kind of impact from the positive consumer reception?

[Gregers Wedell-Wedellsborg, executive]

I would say that implicit in the growth guidance for the total group is that we will start to see assortment expansion contributing in KICKS and continuing to contribute in Matas.

[Operator]

[Operator Instructions]

[Unknown Attendee]

Yes. Excellent. I'm calling from Norway. My name is [indiscernible], calling from Watch Media Norway. So just wanted a little heads-up about the market in Norway because KICKS is a well-known brand in Norway already. So I wanted to ask how do you see going further in Norway? And how do you consider the competition in our market?

[Gregers Wedell-Wedellsborg, executive]

So we're seeing growth in Norway. KICKS has a strong position in Norway, but it is a much more hotly contested market. There are more players buying for the #1 position. We have tremendous respect for the colleagues that we're seeing in the Nordic market. So for sure, it's not game over in Norway, I think there is lots of opportunity to grow and expand the offering. And of the different markets where KICKS is playing a role in Norway, we are positioned most high end. We have the smallest store sizes. So you can see that either as a strength or as an impediment to growth. But for sure, we see an opportunity to grow our assortment and our offering to the Nordic or the Norwegian consumer. And we're also seeing very good growth in membership in Norway, and we consider that a sign of health that KICKS has something special to offer in the Norwegian market.

[Unknown Attendee]

Yes. Excellent. So do you consider maybe [indiscernible] your greatest competitor in Norway right now? Or is it -- there are many players?

[Gregers Wedell-Wedellsborg, executive]

There are many players, and I don't want to rate our competitors. We think they are all capable. We also think that they all contribute to creating value in the market. And I think that's the big change that we have seen in competition in actually all markets, we are seeing the more omnichannel-oriented players. The players that actually want to build brands long term and create demand for beauty rather than just being selling at -- doing massive campaigns and all that. So we're seeing all players being really serious about building an offering that is distinct and building brands. And I think that's a sign of a market becoming more mature, becoming more healthy. But having said that, competition is fierce in Norway, and there is no way you can just lean back. It is a lean forward market for sure.

[Unknown Attendee]

Yes. Yes. And how do you consider your market in general compared to like other retail markets Well, we're always telling that they're struggling because of due to interest rates and so on and the inflation in Norway have been quite bad. So -- but when I hear about beauty brands and stuff like that, they're doing quite well. How do you consider your position in the broader market compared to other markets?

[Gregers Wedell-Wedellsborg, executive]

So we think the beauty category is very attractive for a number of reasons, one of which is that it's not so sensitive to structural or shift in the business cycles. It is quite resilient through the business cycle. You do see some change in trading up and trading down and what categories are growing and which are not. But overall, it seems that demand for beauty, demand for health is on a structural growth path, and it's one of those areas where consumers -- they don't really want to save money there first. And as we go into a down cycle, we see that beauty gets hit later than everything else. It gets hit less than most other categories, and it rebounds more quickly. So we think that is an attractive feature of the beauty business.

[Unknown Attendee]

Yes. And last question. As I heard earlier that your main goal this year isn't necessarily to expand in stores and such. But how do you consider your opportunities there in countries like Norway, which isn't your biggest market? And so -- yes.

[Gregers Wedell-Wedellsborg, executive]

So we're always on the lookout for the right location and the right size and that goes for all markets. So I don't want to make any differences. It's really the same strategy across markets that we are looking to expand stores. We're looking to relocate stores if we can find a prime location. And as always, of course, it's a matter of can you get the right kind of terms to be able to run a profitable business because one very important principle for us is that our businesses and our stores, they should be healthy and sound. So we are not on a market share mission at the expense of having a sound business. We think that is a very short-term strategy to pursue. And we think the health of both Matas and KICKS has also been about being disciplined about your store portfolio, where to invest, how much to invest and what terms to accept.

[Operator]

The next question will be from Kristian Godiksen, SEB.

[Kristian Godiksen, analyst]

Just a quick follow-up on -- a quick question on how much of the growth contribution was in the quarter driven by the product assortment part? Is that -- was that different compared to the other quarters? Or maybe comment a bit on that and also in -- for the rest of the financial year, what is baked into the guidance in that regard?

[Gregers Wedell-Wedellsborg, executive]

So the first part of the question, is it different from what we have seen historically in Matas only, which is where we have the assortment. I think that's hard to say. And it's probably not -- there is so much season going on. There is so much that is dependent on when we do the big launches of new categories. So I would say it hasn't changed materially from the historical pattern. And again, looking ahead, we don't guide specifically on the contribution of the assortment expansion. But you can imply a question from our Capital Markets Day. You know that we expect total market growth of between 3% and 4% looking across the cycle and across the markets. And as you know, we aim to grow faster than that. And a big component in that faster than market growth is the assortment expansion.

[Kristian Godiksen, analyst]

Yes. Okay. Cool. And then maybe just a final question. Maybe could you comment a bit on maybe the promotional levels or the price competition between the different markets? Are there anything that are happening in the quarter?

[Gregers Wedell-Wedellsborg, executive]

Is something happening on price and promotion? It's an eternal game. It always goes on and everybody is trying to steal a base and so are we. So I think that's just the nature of the business. I think what's interesting is that this is not just a promotional game. Promo is super important for our business. It is a promo-driven business. But the beauty business and coming back to a previous question, one of the reasons it's attractive is that it's innovation and new brands over the long term, driving growth. So you don't see this race to the bottom on gross margins, on crisis and so on because you constantly see innovation and novelty being brought into the market by our partners and to some extent by ourselves. And that is our business to constantly introduce innovation and newness and exclusivity into the market. And that's part of the reason why if you look back in the long cycle that both KICKS and Matas have been able to sustain gross margins despite a massive change in competition, both in the physical world and in the online space.

[Kristian Godiksen, analyst]

Okay. So just -- I appreciate the market fundamentals, but just whether -- just to understand, you're right, there's nothing worth mentioning in the quarter that stands out that you're seeing any aggressive behavior in the quarter?

[Gregers Wedell-Wedellsborg, executive]

No. I think we haven't seen something that is sort of out of the ordinary. You can probably find gradual movements here and there, but nothing that is out of the ordinary.

[Operator]

[Operator Instructions]. As there are no more further questions, I will hand it back to the speakers for any closing remarks.

[Gregers Wedell-Wedellsborg, executive]

Thank you, everyone, for joining. Again, overall, a good start to the year, a confirmation of our strategy, a confirmation that we're seeing integration benefits starting to trickle in. And also, I think, a confirmation that the organization is capable of performing despite a lot of underlying change. So a good start to where we want to go long term. Thank you for joining, and have a nice day.