Musti Group Oyj
OMXH:MUSTI
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Hi, everyone. Welcome to Musti's third quarter report.
With you today, you have David Ronnberg here in Stockholm. And you have Toni in Helsinki. We can start going into some of the summary that we have from the quarter.
So excellent Q3, on track with the long-term targets. We came in at a net sales that increased with 16%, and in this kind of an environment, we are extremely happy with that. Our adjusted EBITDA growth was even stronger, came in at 21%. We also look at it from a 2-year growth perspective, so we saw that the 2-year growth was accelerating to 39%, which is super strong. And we are also very happy with the cash flow that came in at EUR 14 million.
Something that we've been working with a lot is the gross margin, and that continued to increase to 46.4% versus last year, 45.4%. It has to do with our own and exclusive share of sales and, of course, the campaign pressure. We are selling more and more goods with full price. And in this environment, that is of course really, really good.
We added 9 new stores during the period, and the loyalty club was growing with 12%. So overall good numbers in the most important KPIs that we're looking at, but let's move in and look more into the details in the report.
So as I said, there was a strong, [ and that's how we see it ], maybe an excellent Q3: net sales 16% growth, EUR 95.5 million, and driven mostly from new customers as before. We are continuing taking market share in all 3 countries. In Q3, like-for-like sales growth was 8.3%; and 7.4% for the period October to June. And as I said earlier, the adjusted EBITDA increased by 20.8% to EUR 15.6 million. And the adjusted EBITDA margin was 16.3% versus last year, 15.6%. In October to June, adjusted EBITDA was EUR 49.3 million versus last year, EUR 41.7 million, so up by 18.4%.
Loyal customers was growing with 12%. We have now 1.4 million. And if we include all the customers that we have data on, we are at the level now that is 1.7 million customers, which is actually a new record.
And in the Q3 period, the group's adjusted EBITA increased by 14% as well to EUR 8.3 million. And the margin, the adjusted EBITA margin, was 8.7% versus last year, 8.8%, so more or less in the same line. We focus a bit more on the EBITDA because of the J curve that we have with all the new stores that we opened in the last 12 months.
Cash flow came in at EUR 14 million versus last year's EUR 10.1 million. And Toni will go through the details more later. And after the period, as we also have communicated, the [indiscernible] trading has continued to be strong.
So let's look more into the growth of the company, yes. We look at it in different ways, but the top line growth, 15.5% during Q3; and during the period October to June, 16%.
For Q3, Finland had 13.3% growth; strong growth in stores and a bit lower online, meeting still a bit high comps from an online perspective. And Sweden had 11.7% growth, strong growth in stores and online. And Norway has 37.6% growth. So very strong growth both in stores and online.
Online share of sales was 22.6% versus last year, 24.1%, so a bit lower number. And the reason is that we're growing so fast in stores. CAGR sales growth June to October 2019 to same period 2022 has been steady at 17%, so good trend. And net sales rolling 12 months was EUR 381 million, which was then the growth of 17%.
Per segment, as communicated before, Sweden and Norway are taking a bigger share. That is planned. And Finland had 43% versus Sweden and Norway's, [ say ], 57%. And last year, same period, Sweden and Norway had together 53%. So Sweden and Norway are growing faster than Finland.
So if we look at sales on a longer perspective, we can see that it has been extremely strong. You see here the kind of a 1-year growth. You see that we have, yes, a 16% growth in Q3, but we look at it on a 2-year basis as well because, yes, the COVID period came there, as you can see, during Q2, Q3, Q4, Q1 fiscal year 2021 and '22, where the growth on a 2-year basis was very strong. But I think we're now back, as you can see, coming in at 39%, on a very high level, so we see that this is maybe the new normal, facing this strong growth. And in this environment that we are in at the moment, we are extremely happy about this. 2-year basis, we believe that we're going to be at somewhere in these levels, which is good for us.
Let's look at our strong gross margin development. Something that we're focusing a lot on is, of course, our gross margin that's supported by how we work with our own exclusive products. It's supported by how we are campaigning and doing offers with the products. It's also supported by how many stores that is directly operated. And you know that we have been acquiring franchise stores; and opened, yes, new corporate-owned stores. And that is also supporting the margin, but here, again coming in higher than last year, 46.4% versus last year, 45.4%.
We can see also that the O&E, own and exclusive, share of sales is increasing as well. So and of course, impacting the profitability and also supporting the [ strengths ] of the concept. And that is, of course, key for us and maybe one of the most important thing with our business model.
So if we move on and look at our EBITDA development, we can see that we had a bounce back since last quarter that -- when the consumer confidence was a bit lower, especially in February in Finland. Now we are back on more normalized levels. We came in at EUR 15.6 million. And if you look at the over a longer period of time, you can see the 9-month adjusted EBITDA. We had 22% growth since 2019; and if you look at the last year, compared with 18%, coming in at EUR 49.3 million.
So stable trends even here even though you can see that there are some seasonalities between the quarters where Q4 and Q1 are the strongest. We looked more as 2 periods. So we combine Q3, Q4 and Q1 and Q2 because of the seasonality.
So now I will hand over to Toni that will go through the EBITA and the segments.
Thank you, David.
So let's look at the EBITA, which increased 14% to EUR 8.3 million in the quarter 3. So like David mentioned there, improving gross margin, improving EBITDA. And as we've been adding the new stores all along, so the IFRS 16 impact in the depreciation is then taking some of it in the EBITDA level. So therefore, we internally look at more EBITDA as well.
So kind of the drivers here are the gross margin but also the tighter cost control. So we've been talking about that for previous quarters, and in the quarter, we were quite happy with the results there. And also the kind of [ hold price ] part is helping us in the equation. There were no adjustments in the EBITA. And partially also, in the group cost, our central warehouse Eskilstuna is improving week after week and month after month; and progress there is very positive. We have runway still both on the kind of group cost; and our end-to-end process improvements, where kind of we are now eagerly waiting also that our new COO, Ms. Pamela Nelimarkka, will join the company next month. And there will be even more focus on this part, where there is a -- good upsides for Musti.
Really good improvement on EBIT, almost 30% better than last year. And kind of looking then in the longer term, group EBITA improved in the year-to-date 11.7%, and EBIT almost 13%.
Then going into the segments. And it was actually kind of a second best quarter ever, looking at all the quarters, for the segment. So usually the seasonality with Musti is that the quarter 2 and quarter 3 are a bit [ mudder ] than the quarter 4 and quarter 1, but this was an excellent quarter, like David said there earlier.
So Finland growing over 13%, our most mature market. So that's a really good result, if especially remembering the quarter 2 and maybe some uncertainty with the consumers. So we have proven that kind of our customers, our brands and our model is very resilient in all types of cycles of economy. This growth was kind of supported with the new stores opened and acquired. So almost a year ago, we acquired all the rest of the Finland franchisees, 16 stores at the time. And then that is visible there kind of looking at the like-for-like difference and the growth. So we calculate into the like-for-like the -- or remove the new stores added in the last 12 months. And kind of building the omnichannel multi-brand offering in all the markets. So there is some effect on that.
Adjusted EBITA decreased a bit from last year. And the main reason here for Finland is that we had more personnel, more hours in the stores to kind of answer into the -- more consumers coming into the stores after the COVID periods. So the stores grew faster in the quarter than online. So maybe during the COVID period, there was quite thin resourcing on the stores, and now we have added it. So we are looking at the right balance here in the Finland market and as well in the other markets. Adjusted EBITA margin for Finland was 18.2%. And during the quarter, in Finland we didn't add any new stores into the network.
Then in Sweden, growth almost 12% to over EUR 40 million in the quarter. So also second best quarter ever in Sweden and clearly the best quarter 3 ever, like-for-like 10%. And a little bit headwind from the currencies in SEK, so take that into consideration as well.
Really impressive profit improvement in Sweden market. Kind of operating leverage, growing sales, network condition there made that to be true. Adjusted EBITA margin, a big leap from 12.5% to 15.5%. In Sweden, we added 1 greenfield store and acquired 5 franchise stores during the period and closed 1 store, in Sweden.
Norway, again our fastest-growing market on its own numbers and top line growing almost 40% and like-for-like being there almost 16%. And this is the speed what we -- evident in Norway all the time. So that's the market where we are. And most of the stores, we've been using the -- a phrase that once -- "one per month," but Erik and the team have been very busy there, so 5 new greenfield stores opened in Norway. So big kudos for Erik and [indiscernible] and the team there doing all this in such a fast pace.
Great profit improvement as well, a little bit tailwind from the NOK and making a good profit for the period in Norway.
Then one slide about the financial position. The cash flow, David mentioned there the EUR 14 million, 40% improvement from last year. And we, like many other retail operators, have had a bit higher inventories. And we have done this on purpose to have the good availability on the stores. There is still a bit of a turmoil on the global supply chain, how fast we get the goods, so there's a bit of a buffer there. We decreased the inventories a bit but still keep them on a sort of a bit higher level than in the normal world, but that brought a good, positive impact to the cash flow.
Gearing was around 90% in the period. And the net debt of EUR 140 million. And if you split the net debt: Sort of the real interest-bearing debt, it was EUR 60 million. And then the lease liabilities, meaning basically our store network, which is all rented premises, is amounting to a bit over EUR 80 million out of that number. So from the total number calculating the last 12 months adjusted EBITDA, the net debt was 2.1x, which is well below our target of 2.5x.
Cash equivalents, around EUR 2 million at the end of the quarter. And then investments in the quarter, EUR 3 million. Plus, on top of that, the acquisitions of franchise stores in Sweden cumulated to EUR 5.5 million.
Then final slide before handing over back to David is a reminder of our long-term financial targets, which we kept steady. So net sales reaching at least EUR 500 million by the end of our financial year '24, EBITA margin at least 13% and keeping the multiple below 2.5x on EBITDA-to-net debt. Dividend policy, 60% to 80% of net profit. And we paid the dividend twice, in 2 sets during the fiscal year; and the second payment for this year is happening 18th of this month.
So from a CFO perspective, very solid quarter 3. Big thanks for the team.
And back to you, David.
Thank you, Toni.
Yes, so to summarize the quarter. As we said, we have an excellent quarter with strong net sales growth close to 16%, 15.5%. We were actually growing profitability, EBITDA even more, so close to 21%, 20.8%. On a 2-year basis, we were growing 39%, which is extremely strong. The pet sector has been proven once again, the resilience, and it will continue going forward.
We are in a fantastic position with our gross margin that was increasing, again, to 46.4% versus last year, 45.4%, but the kind of inflation is, of course, impacting us as everyone else. But we are in a good position to handle it. We have had a very strong expansion with opening 55 stores the last 12 months. And those stores, we need to have in mind that they have burdened us a bit short term, but they will support us and the profitability going forward, yes.
And it's also very important to reach our long-term targets. We have seen an opportunity to speed up the last 12 months, taking more position in the market, which we've done. We are also well on track with our long-term financial targets. And we are in a very, very strong position, as we communicated earlier, and see very positive about the future.
So I think, with that, we are handing over to Q&A.
[Operator Instructions] And our first question [indiscernible] the line of [ Svante Krokfors ] of Nordea.
A couple of questions. First one, relating to the sales development during the quarter. After the Q2 report, you disclosed then that the April level was returning to normal, but would you like to comment a bit about April, May, June and perhaps something about July also? Some -- there have been some mixed signals from Nordic retailers regarding the July development.
Yes. I think we communicated April last time because we had this kind of offset or onetime impact that we saw there in February, but we can say that it has been very stable since April, May, June and also going forward. I think we are seeing a new normal kind of growth from Musti which is very stable since the impact we saw there in February.
Okay. And have you seen any change in customer behavior when it comes to discretionary products?
No. Even in that area, it has been very, very stable. We can say that maybe we were as long as maybe other COVID winners in the period, where people were spending a lot more time with their pets. We saw that especially on a 2-year growth staples, coming up to [ 40%, 44% ]. That maybe was a bit too good to be true. We have been able to come down to a more normalized level, I will say, now where it's -- which is close to 40% on a 2-year basis. And it's both food and accessories that is [ going ] well.
Okay. And regarding ASP, you saw a slight decline in the quarter with Finland and Sweden being down, Norway up. Do you have any comments on this?
No. So we can see that the consumer confidence is impacting us a bit. We are supporting that deviation with adding a lot more new customers still coming in. And they are coming in at a lower average spend, which means that the total average spend is coming down a bit, but that is the impact. We're seeing that the loyal customers are spending a bit less, but we are -- still are able to add a lot of new customers. And that equation takes the total average spend up.
Okay. And then a question about the central warehouse in Eskilstuna. Is that now approaching the efficiency that you are targeting, or do we still have to wait a bit for that?
We still see, we can see that we are in a situation now when it's going better than last year, yes, and it's stable. And we have it under control and et cetera but that, because of the kind of supply chain turbulence and the inflation and also the reasons why we've been adding a lot more inventory levels, we have not been able to get the full potential out of the supply chain. But we still believe that we can deliver it, but it has been taking a bit longer time.
Okay. And the last one, about the competitive environment. I think you said in conjunction with the last conf call that Kesko and S Group have improved their operations in this segment. Any change there? And what do you see in the online space?
Nothing new in online or Kesko, S Group, I will say. And I think it's more [ visual ] how we are seeing it than it's actually impacting our numbers, but nothing specific new.
Currently we have one further person in the queue. [Operator Instructions] And that next person is Maria Wikstrom of SEB.
Yes. I mean obviously a very good quarter. I still want to touch upon a little bit [ that ] because I think [ one is a theme ] on the assumption markets at the moment, which is consumers, if they start trading down to a cheaper product. So is this something that you see currently at all like within your network? And do you expect it to see consumers trading down now when they return from holidays?
Yes, exactly, when they return back from holidays. I think there are -- people are -- food -- dogs need to eat even though they are on holiday, but with that said, we don't expect that. And we haven't seen it. And we don't believe that, yes -- specifically, our customers that are more pet parents than kind of pet owners, they tend to take care of their pets as family members and kids, so they will probably not [ shift down ].
Okay. And then I will be interested to hear, I mean, comments about what you hear from your breeder network. So I think the latest July number in Sweden was indicating -- was it down 7%? But we are still 20% -- on the [ puppy ] registration 20% on 2019 level. So just a little bit that. I mean, as you have these like preferred breed [indiscernible] talk a lot that would do -- what are they saying about people's willingness to take new family members?
It's still good. It's not as strong as it was 6, 12 months ago, but it's still on a very high level. There are still queues and waiting lists for a specific breed. So yes, good signals from there.
Okay. And then finally maybe: I mean you have a little bit higher inventory levels. I mean I -- so I would guess that, I mean, your availability is pretty good, but have you seen, I mean, any bottlenecks when it comes to like any pet food or any other, like, products that you are selling?
Maybe, Toni, you can take that.
Yes. Thank you. I mean I wouldn't maybe call them as bottlenecks but maybe some slowness in deliveries. So we have seen that occasionally in some categories momentarily, in cat litter, momentarily in some food items, but in general the situation is getting better and better all the time. So we haven't had an -- empty shell syndromes through that.
Okay. And then maybe the final question on my side would be about, I mean, the cost of the inventory because I think that's been the theme in the consumer segment over the Q2, that a lot of the players have been complaining that as -- you have higher inventories and then you outsource quite a bit of the inventory, I -- which then generates higher costs, I mean, to maintain that inventory. But at least it's not visible at all in your numbers, with gross margin up. So this obviously doesn't seem to be a -- any problem for you guys.
That's not an issue for us, no.
Thank you. And as we have no further questions on the line at this time, I will hand the floor back to our speakers.
So no more questions. Do we have anything in the chat?
No.
No, okay. So once again, thanks for listening in. And good questions, so thank you very much. And we'll keep in contact. Thank you. Bye-bye.