Puuilo Oyj

OMXH:PUUILO

Earnings Call Analysis

Puuilo: Robust Net Sales Growth & Stable Margins

Puuilo experienced strong sales growth in Q3, with net sales up by 15.4% and 5.3% on a comparable basis. They've successfully attracted more customers, which fueled this increase, despite a minor dip in gross margin to 36% (-0.6 percentage points). Over nine months to October, sales increased almost 15%, predominantly driven by customer growth. The gross margin slightly improved, up 0.4 percentage points to 36.6%, aided by reduced logistic costs and a favorable sales mix. Adjusted EBITA for Q3 was EUR 15.3 million, marking a modest EUR 0.4 million improvement from last year. The store count reached 41 with positive expectations for future performance.

Expansion and Solid Performance Amidst Economic Challenges

Puuilo, the Finnish discount retail chain, has maintained a trajectory of solid growth and expansion despite economic challenges on a global scale. In the third quarter of 2022, the company celebrated a net sales increase of 15.4%, or a 5.3% rise in comparable terms, reflecting robust customer growth. Even with strong performance numbers from the previous year making for tough comparables, the company managed to surpass expectations, an accomplishment attributable to both their seasoned and newly inaugurated stores.

Adjustments and Investments in Future Growth

Though a minor inventory adjustment took a slight toll on the gross margin, now standing at 36% and down by 0.6 percentage points year-over-year, the adjusted EBITA rose to EUR 15.3 million, signifying a sturdy EBITA margin of 16.5%. A vigilant approach to operating expenses, alongside strategic acquisitions like the Hurrikaani discount store chain, illustrate Puuilo's commitment to growth that's consistent with their strategy and responsive to current market opportunities.

Leveraging Financial Strength to Optimize Operations

Puuilo's financial decisions demonstrate a shrewd focus on long-term sustainability, with voluntary repayments of bank loans totaling EUR 20 million, made possible by their strong cash reserves and a substantial operating free cash flow which stands at EUR 14 million for Q3 alone. The company is boosting operational efficiencies with investments in an automatic replenishment system and improved logistics operations, setting the stage for an enhanced inventory turnover ratio and healthy cash flow dynamics going forward.

Strategic Direction Aiming High

Puuilo's strategy remains effective in the prevailing economic climate, with plans to significantly expand its store network by the year's end. Encouraging progress toward an upwardly adjusted net sales target of above EUR 400 million by the end of 2025 is on the horizon, accompanied by an unwavering EBITA margin goal of at least 17% annually. Consistently, Puuilo intends to return at least 80% of its net income each year to shareholders, reinforcing its identity as a lucrative investment with a robust dividend yield.

Robust Outlook Despite External Uncertainties

Looking ahead, Puuilo anticipates continued growth in net sales reaching EUR 330 to EUR 350 million and an increased adjusted EBITA of EUR 52 to EUR 58 million for the current financial year. The optimism is tempered by external factors such as the ongoing war in Ukraine, inflation, and fluctuating consumer purchasing power, variables that are acknowledged yet have not deterred Puuilo from its strategic path. The company's success is underpinned by a diverse range of competitively priced everyday products that cater to a price-sensitive clientele with relatively stable demand, providing a secure base from which to operate.

Strategic Store Expansions Fueling Growth

Puuilo's aggressive store expansion includes several new openings across Finland, with the most recent additions being the Vantaa Porttipuisto in March, Vihti's Nummela in June, Kerava in August, and Helsinki Konala in November, all surpassing their operational expectations. A continued focus on increasing the number of private label products and securing a better position in price competition aligns perfectly with the company's growth strategy and its intent to leverage its market position for future profitability.

Earnings Call Transcript 2024-Q3

[Juha Saarela, executive]

Hello and welcome to join Puuilo's Q3 Conference Call. I am Juha Saarela, the CEO of Puuilo; and as usually, our CFO, Ville Ranta, is here with me. In today's presentation we will go through the results of our third quarter as well as the year-to-date results in brief. And as you all probably remember, our financial year starts in February and ends in January, which means that our third quarter ends at the end of October. And after the presentation, you will have the opportunity to ask questions. And then agenda for today's presentation. First, I will go through the key numbers and main events of the reporting period and after that, Ville will go through the third quarter and year-to-date financial development in more detail and I will continue with the strategy and long-term financial targets as well as the outlook for the financial year. And we will conclude the presentation with Q&A.Here are the key figures for the third quarter. In Q3, that we'll say August to October, our net sales continued to grow strongly and total increase was 15.4% and 5.3% in comparable terms. We are very pleased with the performance especially when considering the strong growth also in 2022. We continue to grow clearly faster than the market on average. We gained new customers and, as a result, the net sales increase was driven by increase in the number of customers as it has lately been. The net sales increased in each month of the quarter and it continued to be broad based originating from both old and new stores. The gross margin slightly decreased and it was 36% and this means a decrease of 0.6 percentage points compared to Q3 last year. The reason is an inventory adjustment of approximately EUR 0.5 million made in Q3 in connection with the implementation of new replacement system.We noticed differences in inventory balances of certain products sold in meters and therefore made a one-off adjustment in Q3. Adjusted EBITA was EUR 15.3 million, which correspond to 16.5% EBITA margin. Adjusted EBITA was EUR 0.4 million higher compared to previous year's third quarter and slightly lower in relative terms. The decrease in EBITA margin is mainly due for the small decrease in gross margin. Almost all operating expenses have increased, but we have still been able to operate with relatively low expense ratio. We announced in September we acquired discount store chain Hurrikaani stores in Nokia, Ylojarvi and Forssa. These locations fit well into our plans and accelerate our growth in line with our strategy. As we expected, the deal was approved by the competition authorities in November. The 3 Hurrikaani stores will be converted into Puuilo stores during the first half of the next year.In August, we opened a new store in Kerava, which is our 14th store. The store had a very cool start and broke opening day sales record. Also the first months have met our expectations. To conclude, the third quarter went well and met our expectations. We can also be satisfied because, as I stated earlier, the comparable figures from last year's Q3 was very strong and therefore hard to outperform. And then let's take a look at accumulative figures. In February to October, the net sales grew strongly with a total increase of almost 15% and over 6% in comparable terms. The net sales increase was mainly driven by increase in the number of customers. Net sales increased in each month of the reporting period, which means that the growth continued at a good level also after successful summer season.Net sales have developed well in all product groups and throughout the financial year also in comparable terms. This means our sales growth was broad based and was supported by both old and new stores. Gross margin increased and was 36.6%, which is 0.4 percentage points higher than in comparison period. The gross margin was supported by lower cost of logistics and slight change in sales mix toward cheaper products with higher gross margin. Adjusted EBITA was EUR 43.4 million corresponding to 16.6% of net sales and EBITA was EUR 4.3 million higher compared to previous year. It is worth mentioning that we have implemented a new automatic replenishment system in our stores. The project has progressed as planned both in terms on timetable and budget. The actual project phase has been finished and we are now implementing the system gradually and we are quite positive with the system.During the first 3 quarters, we have opened 3 new stores; Vantaa Porttipuisto, Vihti Nummela and Kerava; which is our 14th stores. The current number of stores have increased to 41 as we opened our Helsinki Konala store in November, which in our case falls in Q4. To sum up: we are pleased with the performance of the financial year and we have no reason to doubt that the solid performance will continue also in the near future. Discount retail in general as well as our concept work well in the current environment.Good. And next, Ville will go through the financial development in more detail. Please, Ville.

[Ville Ranta, executive]

Thank you, Juha. And then more detailed financial figures review. In Q3, Puuilo's net sales was EUR 92.3 million and it grew by 15.4%. At the same time, comparable net sales grew by 5.3%. Sales were increased by both in comparable and new stores. The driver of the increase in net sales was the increase in the number of customers. The number of customers increased by more than 16% at the level of the entire chain and by 6% on a comparable basis. The growth in net sales was strong although it was tested in the last quarter by the recoil from last year, which was related to the price of energy and its sufficiency as well as preparation for it. The development of the basket size compared to the previous year was in a slight decline. This was due to the decrease in demand for products with a higher unit price, which in our view is related to the purchasing power of consumers, but also to the aforementioned energy.Generator is a more expensive product than work gloves and this now affects the basket size. Despite these factors mentioned above, Puuilo's net sales growth was strong and the journey therefore continued at a good pace. Cumulatively, the fiscal year is now 9 months long and the growth in net sales has also been strong. At the end of October, the company's net sales was almost EUR 262 million and it grew by 14.7% compared to the previous year. At the same time, like-for-like net sales grew by 6.3%. The driver of the growth also cumulatively has been the continued strong growth in the number of customers while basket size has not practically changed at all. The above mentioned strong numbers once again tells about the durability of Puuilo's concept in a changing operating environment. We are particularly pleased with the continued growth in customer numbers, which is very important to us as a retail company.And next, let's look at the gross margin. In Q3, Puuilo's gross margin was 36% of net sales and it decreased compared to the previous year. In Q3, the gross margin was affected by the inventory adjustment. The adjustment was due to the differences in inventory balances that emerge in connection with the preparation of the new automatic replenishment order system mainly for goods sold as measured units as well as for some other products sold in bulk units. These have now been corrected and booked for Q3. The correction affected the reported sales margin by 0.6 percentage units and in euros it was about EUR 0.5 million. The adjustment is of an accounting technical in nature and it's not a matter of shrinkage or unsalability of the goods. If I open this little bit more in detail, it's about products sold in bulk of which we have quite few in our assortment.The process have now been updated and fixed and we don't expect something similar to happen in the future. We don't see any long-term challenges in our gross margin development. Our gross margin is currently supported by the decrease in logistic costs, which is due to the centralization and efficiency of Puuilo's own logistics operations. Cumulatively, our gross margin increased by 0.4 percentage points and it was 36.6% of net sales at the end of October. This is already explained by the mentioned decrease in logistics costs and the change in the sales mix. In addition, the increase in inventory turnover rate, which has continued in the right direction for some time, has a positive effect on the gross margin level as well. For the entire financial year, we will probably achieve a better gross margin level than the previous financial year. Fluctuations between individual quarters are diluted to full year's gross margin over time.In our opinion, our margin level is good and already enables us to maintain high profitability. Then we move on EBITA. In Q3, Puuilo's adjusted EBITA was EUR 15.3 million and it grew by EUR 0.4 million in absolute terms compared to the previous year. Relative profitability was 16.5% of net sales and it decreased compared to the previous year. In Q3, the level of adjusted EBITA was affected by the aforementioned inventory adjustment, which decreased our gross margin level slightly. On the cost side, of course we are not immune to the inflation. The increase in personnel costs was mainly influenced by the salaries brought by the new service union agreement, which was implemented at the beginning of the year and which raised the salaries of our employees across the line. In other operating expenses, the price increases of energy and leases have affected the cost level, but their share is quite moderate.In Q3, we spent a little bit more on marketing than at the same time last year. Cumulatively, the company's adjusted EBITA was EUR 43.4 million and 16.6% of net sales. Adjusted EBITA increased by EUR 4.3 million compared to the previous year. When viewed cumulatively, we have managed to maintain a good level of cost control taking into account the above-mentioned union agreement changes and high inflation. However, the main reason for the increase in personnel costs is the opening rate of the new stores, of which we have opened 3 by the end of October. Also the personnel costs of the fourth new store, Helsinki Konala, are already partially included in the figures for Q3 because the store opening preparations were already running at that time and personnel were recruited to work for us. Juha will tell you more about the profit outlook for the whole year later in this presentation.Here you can see the development of Puuilo's inventories. The absolute level of the value of the inventory decreased only slightly from the last year, but the inventory turnover rate improved significantly. Here I would like to especially emphasize that the absolute inventory value includes the initial inventories of 5 new stores whose impact roughly estimated is up to EUR 7 million to EUR 8 million. Regarding the overall level of inventories, we are now in a pretty good situation although our goal is to improve the inventory turnover rate even more than these ratings. Our new logistic arrangement and the implementation of automatic replenishment system helps us in these tasks. And then next, a look at the cash flow. In Q3, Puuilo's operating free cash flow was EUR 14 million. Cash flow was at good level although it decreased by around EUR 2 million compared to the previous year.The change in cash flow compared to the previous year is explained by the change in working capital, which was caused last year by the rapid decrease in the value of the inventory and the term measures, but also the number of new stores and the timing of the new store openings. Cumulative operating free cash flow increased to record high figures. At the end of October, the cash flow was more than EUR 56 million and it was mainly influenced by the improvement of the inventory turnover ratio. Next, a few words about the balance sheet and Puuilo's cash position. The ratio of the company's net debt to adjusted EBITDA decreased meaning improved compared to the comparison period. The current ratio of the net debt to adjusted EBITDA is in line with our long-term goals and is actually quite below it. Our target level is to stay under 2x ratio. The company's debt has been successfully kept under control.In the previous results announcement, we told you about the cash reserves that had increased to a record high. During Q3, the company decided to use cash resources for an additional and voluntary repayment of bank loans by EUR 20 million. After the loan reduction, the company's cash position is still strong. But at the same time, the amount of bank loans decreased to around EUR 50 million in total. It was also decided to use the cash resources for the aforementioned business transaction of Hurrikaani and the effect of this will be realized mainly during next year from cash flow perspective. Paying off the bank loans lowers Puuilo's interest costs and long term improves the company's net income and also our ability to pay dividends in the future. If we look at the company's current net debt without the impact of IFRS 16, we are in the figure of EUR 21 million. That's a pretty good level for a company like this. And here are the figures as a summary, which we already went through. Good net sales growth and adjusted EBITA takes us towards the holiday season.And then Juha will continue from this. Please, Juha.

[Juha Saarela, executive]

Thank you, Ville. Then a few words about our strategy and long-term targets. Our current strategy works well also in the current economic environment. There is enough growth potential, the concept works well and market share is growing. We are expanding our store network and open new stores across Finland every year. There is still plenty of growth potential in Finland. And the number of openings varies from year-to-year for practical reasons such as availability and the price of rental property. Year 2023 stands out with 5 new stores. The last opening of the year will take place next week in Vantaa Varisto, which means that by the end of the year our number of stores will be 42. Next year is looking good as well. We still have unused potential in terms of market share. Our concept works well and the current economic situation is favorable for discount retail. These factors make it favorable for us to continue. We have many good years ahead.Our store network is rather young and about half of the stores are less than 5 years old. The average age of the store network does not increase very fast as we open new stores on a regular basis. We expect the store sales to increase in the coming years in the same way as before and we do not sell -- we don't see any major changes or obstacles for growth at least in the near future. Increasing the number of private label products and their sales -- and share of the sales is an important strategic goal for us. This way we are able to improve the profit margin, ensure the availability of goods and improve our position in the price competition. Puuilo is one of the most profitable retail companies and our goal is to maintain the profitability along with growth. The current inflationary situation with rising cost makes it more difficult to keep the operating cost under control, but we have been able to maintain good profitability also in the current environment.We have also been able to prioritize our resources. With the help of our ongoing process and concept development, we expect to maintain our profitability. Online store is an inseparable part of our service and concept. Even if the development of the e-commerce sales has been weak, it has become a more and more important part of the overall customer experience. According to current strategy, we aim for the net sales above EUR 400 million by the end of financial year 2025 and adjusted EBITA margin at least 17% every year. We aim to distribute at least 80% of the net income for each year in dividends. Puuilo is a profitable company with a good cash conversion rate, which enables a solid dividend yield. And at the moment, it seems that Puuilo will achieve the long-term net sales target of EUR 400 million clearly before the end of the strategy period. And that is why updated strategy and long-term financial targets will be published during the spring for 2024.Good. And then, the last update for our outlook. We forecast that net sales for the current financial year will increase and it will be EUR 330 million to EUR 350 million. Adjusted EBITA will increase and it will be between EUR 52 million to EUR 58 million. We are able to narrow both ranges because it is of course easier to forecast the results for the whole year as we move towards end of the financial year, but also because of strong development in the first 3 quarters. The forecast includes commonly known elements of uncertainty. The war in Ukraine is not over. The war and other international and power politic events may directly or indirectly affect purchase prices or availability of goods. And inflation rate is still higher than before and its impact on consumer prices is broad, which together with high interest rates lower consumers' purchasing power. But we are optimistic about the near future.As the past results show, the current circumstances work well with Puuilo's concept and affordable price level. Our relative competitive advantage is even better. Why is it so? Well, we sell everyday products to handy and price conscious customers. These products have rather constant demand and the price changes have been modest. The major items that will save more than 80% of the products sold in Puuilo cost less than EUR 20. That is why our sales are on a fairly defensive basis. We believe that our growth continues, our strategy works and we are moving towards our targets. And then a few words about our store network. As I said, we opened new stores in Vantaa Porttipuisto in March, Vihti's Nummela in June, Kerava in August and Helsinki Konala in November.And all these openings have been successful and they have also been the company's best openings both in terms of number of customers and sales. We still have 1 more to come for this year and we will open a store in Vantaa Varisto on Wednesday next week. We warmly welcome all of you do visit there. And we have great offers of course there and of course as we used to do, we offer grilled sausages also. To sum up, the store network has expanded well in Helsinki capital region and that's good. Next year looks promising and I believe that we will be able to open at least the same number of stores as this year.Thank you. And now it is time for questions and, moderator, please go ahead.

[Operator]

[Operator Instructions] The next question comes from Svante Krokfors from Nordea.

[Svante Krokfors, analyst]

Svante Krokfors from Nordea. First question regarding monthly sales development. Could you elaborate a bit on how August, September, October developed in relative terms and also how has November, December looked so far?

[Juha Saarela, executive]

All of our Q3 months, every month our sales grew some, not so much. But anyway, every month was very good and sales grew, some more grow and some not so much. But anyway, every month was very good. And when it's coming to the last quarter, we have not commented at the moment, but let's say that we are waiting the good last quarter as well.

[Svante Krokfors, analyst]

And then you mentioned in the report that product sales focused on day-to-day needs. Could you give a bit more color on what products did sell and what didn't sell apart from the energy impact also of course year-on-year?

[Ville Ranta, executive]

As you remember when we go 1 year back from this moment, we had a big discussion about the energy crisis, energy prices and even shortage of the energy. The people's and customers' memory is usually quite short, but that was the situation last year. So we sold a lot of generators, a lot of different kind of accessories which were related to energy efficiency and energy saving things and also the additional heaters like gas heaters for the summer cottages or even homes. And now we see quite steep decline in those products this year because we are not discussing about the energy shortage or the high energy prices or not so high energy prices anymore. So the customers' demand has returned to a more daily maintenance and fixing products such as tapes, you have heard it before, and daily non-eatable accessories.

[Svante Krokfors, analyst]

And then regarding the operating expenses, you mentioned that a bit, but you also mentioned that marketing was a bit elevated in Q3. Could you elaborate a bit on what you focused on in marketing there and what should we expect for Q4 regarding marketing expenses and perhaps other operating expense also?

[Ville Ranta, executive]

Yes. Like we told in the presentation, of course we are not immune in the cost inflation. So if we start first from other than marketing expenses so the personnel expenses increased in Q3 and that's because of the union agreement. That's the main reason. And also the second main reason is the new stores. But when it comes to other operating expenses, yes, we spent more on marketing during the Q3. Well, we spend more and more on marketing in absolute terms every year as we are spending about 2% of net sales to marketing each year. So it's clear that we spent more in euros every year and of course it varies year by year how we like to emphasize the marketing actions for each quarter. This quarter I would say that we haven't done any special things, but speed up all marketing channels and all marketing actions more than last year.

[Svante Krokfors, analyst]

And then a question regarding your debt situation. You paid off EUR 20 million or have paid off now after Q3 EUR 20 million in bank loans. Is there any changes to the margin and could you comment a bit on the cost of debt in general?

[Ville Ranta, executive]

Yes. At the moment, we have EUR 50 million bank loans left after this extra amortization, which was EUR 20 million. And this was due to the high gas position, which we had already when we reported Q2 quarter. And the margin is tied of course with the covenants as they usually are. So there is a base market interest rate and then the margin comes according to the covenant. And in total, approximately we pay about 5% interest margin at the moment, but it varies of course as you understand. And well, I have to say that sometimes the smart financial management is boring and now we decided to amortize our loan and this helps us in the future to improve our net result and also the dividend payment, ability to pay absolute dividend more.

[Svante Krokfors, analyst]

That's helpful. Then perhaps on the replenishment system. Could you elaborate a bit on what kind of efficiency gains you could have and are there any risks related to the implementation?

[Juha Saarela, executive]

That new system helps us to ensure the better availability in our stores because the availability is the most important -- one of the most important thing and factor how you can get or lose a number of customers. That is the main thing. And of course we can improve our inventory turnover also same time because that system helps us to set to better reorders to our suppliers. As I said that the project is finished and now we are in rolling phase and training phase and there is plenty of our supplier, which we reorder. We are setting -- we are running with them with new system. And it takes, let's say, 1 year or 1.5 year when the system is fully operating. But yes, better availability and by that way, we can improve our inventory turnover.

[Svante Krokfors, analyst]

So a positive impact on top line and cash flow is how I read it.

[Juha Saarela, executive]

Yes, sure. Yes.

[Svante Krokfors, analyst]

Perhaps on your store openings, which seem to have been quite successful, have you seen any -- I mean have you experienced any disappointments or anything that you have kind of learned from any mistakes in new store openings or have all gone as planned or even better?

[Juha Saarela, executive]

Let's say that all the openings, all the new locations, the sales has started as we're expecting. Of course we see, let's say, cannibalization in some extent as we have expected also. We opened Vantaa Porttipuisto quite close to our old Vantaa Virkatie store and we are doing same to the Vantaa Varisto next week and we are waiting some effect to the Vantaa Virkamies or Helsinki Konala store also. But those are as planned and we are not faced big share prices with the new stores.

[Operator]

The next question comes from Maria Wikstrom from SEB.

[Maria Wikstrom, analyst]

This is Maria Wikstrom from SEB. I had a few questions, which firstly on the gross margin. So excluding this inventory write-down, your gross margin would have been flat year-over-year. At the same time we hear that sourcing cost especially from Asia as well as some transportation costs are down and at the same time I mean lot of industry players have raised prices, which would have led to an increase in gross margin. So can you bit elaborate why you're looking at a flattish gross margin in this quarter and what is the outlook for the upcoming quarters relating to the gross margin, please?

[Ville Ranta, executive]

Yes, it's true that our gross margin would have been flat if you exclude this inventory adjustment and the reason for the flat development is mainly due to the sales mix, which is related to this last year's energy crisis and high prices anomaly and that's the main reason. So we don't sell -- we sold a lot of different kind of products then. But yes, you're right, the prices are might little bit going down from the suppliers' perspective, we haven't seen any dramatic decrease yet. But next year and what comes to the coming quarters, we are quite confident that we can continue to grow our gross margin in the long run. And the reasons for that is one is the logistics cost decrease, which is going to continue. The second one is of course what happens to the prices let's see. But also at the same time, as you know, we are pushing our private label strategy ahead and as long as the share of the private labels out of the net sales growth, this should lever our gross margin up. So we expect increase in gross margin still in the future. Difficult to say how much, but in the long run it will increase. That's our clear target.

[Maria Wikstrom, analyst]

Perfect. And if I could touch little bit on the fixed cost development side. I mean now fixed cost obviously are up. But then if we think about just like on today's store base and we think about the different fixed cost items like personnel and rents, I mean how do you see the evolution going into next year on these specific line items?

[Ville Ranta, executive]

The personnel costs will continue. If we talk about the salaries so the salaries will increase and that's due to the union agreement. So there is already agreed the certain increased percentages for the coming years. So that's from the salary side. But then of course we are looking very closely our own efficiency at stores. So that's a different story how we can then more improve the efficiency inside the stores and we are working every day for that. That's one thing. But what comes to rents, a big part of our lease agreements are tied to inflation index. So of course now they went a bit up, but let's see what happens to the inflation next year and years after that. Now our understanding is that the inflation will be lower next year and hopefully hereafter coming years. So the increased pace doesn't continue like this, but there is a bit pressure. But I would like to remind or highlight here that the lease costs or maybe more familiar rent costs from our net sales is about 4% in total or even below it. So it doesn't play so crucial role for our profitability.

[Maria Wikstrom, analyst]

Okay. And then finally, if you could elaborate how you see the competition situation currently in Finland and do you see the competition to be stable or do you see competition to pick up or how would you describe the competition situation currently in the Finnish market?

[Juha Saarela, executive]

Competition situation is little bit harder than before. And as you know, in Finland we have 1 player more. But this situation is quite familiar for us. We have been in this situation many, many years. Other competitors has also opened new stores and expanded in our market and so it means that we are quite professional to the weight what happens in near future. But we don't like to be arrogant with our competitors and we wait and follow very interesting what they are doing. And of course we will, let's say, make or do actions if needed. But at the moment, the situation is stable even that competition situation is little bit harder than before.

[Operator]

The next question comes from Arttu Heikura from Inderes.

[Arttu Heikura, analyst]

It's Arttu Heikura from Inderes. How did your private labels have developed during the Q3?

[Juha Saarela, executive]

Please could you repeat?

[Arttu Heikura, analyst]

How did your private label sales developed during the Q3?

[Juha Saarela, executive]

Okay. The development was flat. It is the same level than last year, but that is normal. If we compare our quarters quarter-to-quarter, they are not similar developing path and it varies. And we can see that and check in a longer period and we know that the share of our total sales is increasing. Our aim is to increase that #1 purchases point per year.

[Arttu Heikura, analyst]

Okay. Then regarding the inventory turnover in the future. So what is the level you are basically targeting?

[Ville Ranta, executive]

We haven't set any official target for that. But of course you have now seen that it has decreased quite nicely during the quarter and compared to the last year, the decrease was I would like to say dramatic. It was really good development compared to the last year. It is possible to achieve maybe the level of 25% of the net sales, but let's see. We haven't set any target. It depends on many things and of course we shouldn't push that too tight because we want to ensure the availability of the products at the stores. Puuilo has traditionally operated all the company history with quite high inventory values and that's one of the strengths actually of this concept. But let's say 25% would be a nice figure if we achieve that someday.

[Arttu Heikura, analyst]

What do you mean by someday? Could it be in like '25, '26?

[Ville Ranta, executive]

Well, something like that or maybe next year. Let's see what happens because, as you know, we have now this Relex system implementation going on and that will affect quite heavily not necessarily next year because it is still an implementation phase, but after that. So yes, '25, '26, we might see the level like that.

[Arttu Heikura, analyst]

Okay. And then regarding the new store openings during next year. Correct me if I'm wrong, but I thought that up to 7 stores could be opened and now you are guiding at least 5 new stores. What is your view on that?

[Juha Saarela, executive]

As I mentioned, it seems that we can open at least 5 new stores next year. I'm quite sure that if everything goes as planned. But we have resources to open more if we get or found new suitable locations with good rent level. Let's see what happens. But anyway next year will be a good year when we are talking about the new store openings.

[Operator]

Comes from Calle Loikkanen from Danske Bank.

[Calle Loikkanen, analyst]

This is Calle Loikkanen from Danske Bank. Perhaps just quickly following up on a couple of questions that were already asked. But starting with the new store openings, you mentioned at least 5 in '24. But just to check, does this 5 include the acquired Hurrikaani store locations?

[Juha Saarela, executive]

Yes, 3 Hurrikaani stores and 2 even 3 non-Hurrikaani stores, other stores. You are right.

[Calle Loikkanen, analyst]

Okay. Good. And then on the sales mix, which obviously was a bit weaker now this Q3 compared to last Q3. But how are you looking at Q4? Should we expect this weaker sales mix to continue also in Q4 this year or how do you see that developing?

[Ville Ranta, executive]

Well, it's very hard to forecast. We see that it's going to be, should I say, normal. So if we look out of the window so we see that there is a winter in the whole country and this of course helps us a bit. So we are in the middle of the winter season maybe bit earlier than last year. But very difficult to say and of course it depends what happens in economy. So if everything goes smoothly and there is no surprises, it doesn't effect on the customer behavior, then we might expect, I would say, quite flat basket size meaning which is related to the sales mix during the Q4.

[Juha Saarela, executive]

Yes. And I'd like to add that as Ville said before that last year, we sold huge amounts of products, which helps customers to ensure the energy and the heating problems and this year we don't see that kind of, let's say, anomaly situation. We are in a normal phase, normal mode in customer demand and we are selling more typical products during winter and Q4.

[Calle Loikkanen, analyst]

Okay. So there wasn't last year in Q4 that much of the energy efficiency purchases done by customers? Was it mainly then in Q3, but not anymore in Q4?

[Ville Ranta, executive]

They were also in Q4 because let's try to remember what was the headlines in the news 1 year ago. So we had an energy crisis in December still going on. We were having very exciting times that do our nuclear power plant will start or not and we have this kind of discussions 1 year ago. And that of course affected still the Q4 sales mix and this energy saving and preparation things. So we might see still decrease in some products and product groups during the Q4. But we have been able to cover this by selling other items for example now during the Q3 and we are quite confident that we can cover this way also during the Q4. But let's see what the Q4 brings us. Very hard to say now.

[Calle Loikkanen, analyst]

Okay. Fair enough. Then I was wondering that now in Q3 or at the end of Q3, you had 5 more stores versus the end of Q3 last year. How much has this diluted EBITA margins? So how much of the kind of margin decrease from last year has come from new store openings do you think?

[Ville Ranta, executive]

Yes, of course it has some effect because, as you know, the new stores ramp up and are profitable really fast. Let's say on average 2 months we can report positive EBITA margin for the new stores. But of course you are right that 5 new stores are not still in the mature phase. So they are not bringing the same level of profitability that the old vintage brings. But at the same time when we are looking our store network base, the more we have old stores meaning the like-for-like stores, the more the new stores profitability dilutes to the whole company figures. So I would say that it has had a small effect, but I can't say how much.

[Calle Loikkanen, analyst]

Okay. And then my last question. You mentioned that the long-term sales target you said that you will reach the EUR 400 million of sales clearly before the end of the strategy period. Does this clearly mean already in '24 or is it kind of halfway through '25 or what does the clearly before mean here?

[Juha Saarela, executive]

I waited that question. I can't comment when we reach that target, but let's say that clearly before we are very trustful that we can do that. But I can't set any month or year number, let's say clearly.Good. Thank you for all the questions and joining us today. I want to thank all our customers for trusting us and all coworkers in Puuilo for their hard work. And I wish you all a Merry Christmas.