Europris ASA
OSE:EPR
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Europris ASA
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I think we will start. First of all, welcome everybody. You're more than usual, so it's positive. As usual we will start with a little bit of a lottery. First of all, we have some gifts for you today, too, of course. This is a way to make sure that the Saturday evenings are a positive in your homes, NOK 25 specially made package only at Europris, only at Europris.And then this flower, which I'm not going to try to say the English word for it, it's [indiscernible] in Norwegian, NOK 29.19. If you bring it home, your wives or your better halves will be very, very happy. So please make sure that you take a plastic bag on the way out. Also we will have a lottery, of course, in order to make sure that so many people continue coming to our presentations. This time, you know it's spring now. We have trampolines. Of course, we have many different types of trampolines. We thought we would give out one of them, and I will ask [ Okla ]. You can you draw yourself [indiscernible].
It's fair. Then [indiscernible].
Yes. It's H07.
This is a bit embarrassing, I must admit.
Very good. Okay, okay. This is like the American election, okay, very good. Yes, here you are. Okay, so that sounded suspicious, yes, I know. Okay, so welcome to the quarterly presentation Q1. As all of you know, it's the smallest quarter of the year and as every year, it's Easter versus first half kind of thing. But that being said it was in isolation a very good quarter, driven by good sales but you have to look at Q1 and Q2 in total, of course. So that's one of the key messages. But once again, I think we are proving ourselves to be the champion of the seasons in Norway, and I'm very happy with that. Now we're going to try to make a season all of the year. That's the key challenge going forward.Also keep in mind not to get too distracted into this quarterly jungle, but keep in mind the long-term ambition. I think that there are few places as exciting as Europe is in the long-term. I think we are in a sector that is growing and with digitalization and digital opportunities, I think that the concept like Europris has many exciting opportunities in the long perspective. So don't get too focused only on the quarters. I think long-term it's exciting times.If you look at the quarter, highlights for the first quarter. The timing of the Easter, as I said, the stores comparability, both on sales but also on gross margin percentage, we had a strong increase, 8.1% total growth, 5.3% like-for-like, mainly driven by solid performance during Easter, and once again proving we are the seasonal champion of Norway.Good gross margin performance. As you know, Easter sales is good for sales, and it's sort of put a little bit of pressure on the margin, but despite that margin was slightly up, and we had a very positive OpEx development. We have taken over more franchises and we have built a number of new stores. But that being sort of leveled out, we have a very good and positive OpEx development. Opened 2 new stores in this quarter and took over 4 franchise stores. I'll come back to that. Yes. Champion of the seasons and beating the market, which is maybe the most important solidly in this quarter, both on total growth but also in like-for-like.This is an interesting slide. We didn't give it to you last time I think because we were early in the Q4 presentation but every year we look at our different vintages, and we try to analyze the historic vintages to make sure that when we open new stores there are 3 things: first of all, they have to meet or exceed our business case. Every new store has to meet some very strict criteria and afterwards we go back and we audit it to make sure that they're actually doing it. And you saw that in most recent vintage, the 2016 vintage, they outperformed our business case. So they are actually doing better than what we thought. Maybe as I said yesterday, establishing new stores. And in isolation, you can also see that the average sales on the profit is slightly up. All of that can vary a little bit from year to year depending on the exact location. I think the key message is that our new stores are performing very well. And, of course, this is the reason why we are opening new stores. This is the reasons why [ Eula ] is opening new stores, this is the reason why [indiscernible] is opening new stores, this is the reason why [ Arista ] is opening new stores, this is the reason why [ Action ] is opening hundreds of new stores in Europe, this is the reason why the dollar stores are opening thousands of new stores in the U.S. So they are profitable and they are meeting their or exceeding their business case. And of course, we will continue to open new stores as long as they do.This is another exciting thing. So it's even more fun than talking to you guys obviously. The work we're doing at the moment on enhancing the central control of planograms, spacing, seasonal space. You will not see anything of this in their quarterly figures, but this is the kind of actions we have done over the last 3 to 6 months that we will hopefully see the fruits of in the quarters to come in later in the 2018. It is basically all about making sure that we increase the breadth of assortment that we have a central control on. We make sure that we plan it in detail all the way through to the implementation. And I think that with this kind of planning, we are getting very close to the forefront of our segments in sort of worldwide in Europe in terms of planning and concept development. I think this is very exciting things.And as I said, we have a robust pipeline of new stores, but we are not, I'll say it again, I said it last time, we will not open any new stores just to open it. We will only open new stores if they meet our strict investment criteria and we will every year go back and audit the previous vintages to make sure that we are disciplined. So there's no.in opening new stores if they're not profitable and meeting our very strict investment criteria, but obviously there's no.also in not opening new stores just because all the segments in the retail having trouble with their physical stores. And if you go to the U.S., as I said, dollar stores are in the homeland of Amazon. They are opening thousands of new stores. I think both those segments are doing well. There's not one black-and-white model for retail in the future.With that, I will give the word to Espen who is going to take us through the financials.
Yes. Thank you. Yes, starting with the gross margin, which was 41.2% in the quarter, up from 40.9% last year. And as normal, we've done some franchise takeovers at year-end. This year we took over four franchise stores with a negative impact on gross profit of NOK 3.4 million on 1st of January. Last year we took over 8 stores with a negative impact of NOK 10.1 million. So a little bit less negative impact from franchise takeovers this quarter compared to last year. Longer term these takeovers will have a positive impact on the margin.When we look at the quarter, we also had very high sales of low-margin seasonal products during Easter and that had a negative impact on the margin this quarter, but that will be reversed next quarter. So underlying, we are actually quite positive with the development in the gross margin.When we look at operating expenses in percent of sales levels, 37.3% in the quarter, down from 37.8 % last year, and as Pål said, the franchise takeovers continue to impact our numbers a little bit. That's the key driver of the increase in operating expenses in absolute numbers. We took over since last year 10 –– we opened 10 new stores, took over 5 franchise stores, so increasing the directly operated store base by 15. And keep in mind that 5 of the stores we took over last year was taken over on 1st March. So this year we have full effect in the operating expenses of these stores that were took over last year.Last year we also had the 25-year anniversary. That has the price tag, but it was worth, NOK 4.8 million. So that one-off cost was, of course, not recurring this year. Underlying, a Pål said, we have a very good cost control and focus in the organization and we continue to keep a very strict eye on costs in the organization at the moment. And that also impacts the adjusted EBITDA was NOK 46 million in the quarter. That was up by NOK 12 million from last year's NOK 34 million, and of course driven by the like-for-like sales growth especially during Easter and the improvement in the gross margin.On cash flow, that was negative in the quarter, but less negative than last year because we see now seasonality in the cash flow, especially the timing of Easter is important. While we this year had Easter behind this, when we ended the quarter, it was right in front of us when we ended the first quarter last year. So the Easter inventory was also, of course, down in the stores this year compared to last year. In addition to that, we had an inventory build-up early last year of spring-summer seasonal items. As we had an early Chinese New Year and we shipped goods in early. So that impact is not coming this year.So this is as expected. A more normalized situation when it comes to deliveries from Far-East. Cash used in the investing activities is down from last year. That is mainly due to the fact that we have paid less for the franchise stores we taken over, so less payments in connection with that. And also it's 1 less new store openings and a slight reduction in modernization of the old store base. At the end of the quarter, we have a solid cash position and the liquidity reserves of the group was unused.I think it's the outlook, Pål.
Yes. So as we said before, I think that we are in Norway and we are in discount variety retail. This is positive for the, sort of, long-term outlook. We encourage you to look at the first half as a total, but also just not to get too focused on each quarter, but we'll have the long-term ambition in mind. I think we are in a sector that is very exciting, and I think we're in times that are very exciting where we can have a lot of opportunities to develop the concept even further with digitalization and further growth. Yes, so I think it's a good start to the year, but the fun is coming in the next quarters, of course.I think we'll open up for questions.
Martin Stenshall from Danske. Could you please comment on the revenue growth, if you could on the split between price and volume growth?
We have -- it's a little bit difficult because of the timing of the Easter, which is a key traffic driver. So it's a little bit difficult to give exactly a the split on that, but of course, it's somewhat driven by price, especially on the Easter seasonal products which is linked to the cranberry and sugar tax.
Now in Q1, we had Easter. Would you be able to say anything about the basket size in a quarter with Easter? Is it let's say flat, up or down since the last Q1 with Easter?
Well, it's up from the first quarter where we have the Easter, but that's basically overtime that continues to grow due to price. But the size of the basket varies little bit if you have a late or early Easter, because when you have a late Easter, you also start selling seasonal items for the spring and summer. So it's a little bit difficult to compare.
Yes. And the sugar tax also distorts the picture.
And then it was interesting to see the 2016 vintage. Would you be able to say anything about any let's say common factor of let's say the stores in that vintage that let's say outperformed the average in terms of size or location inside, outside shopping center? Is there any pattern?
I think the key message is that we are succeeding in places you wouldn't believe we could succeed and I think that's the key message. It's the diversity of the portfolio of Europris. Most of them are standalone stores. We have a few in the shopping centers, like [indiscernible], but not a lot. So I think that it's just a diversity of the concept. We are in small places where we get a very loyal customer base and then we are in some of the bigger shopping centers and marketplaces in Norway where some people don't even know we are there yet. But there's a million people in the catchment area, so we can take the time to grow.
You also showed a slide on the initiatives you started 3 to 6 months ago in order to enhance sales in between let's say seasons. And you showed also some products there. Could you be a bit more specific in exactly what you have done in centralizing the decisions and what kind of products to sell?
It's basically, as I said, the results you will not see yet. You will see them in Q3 and Q4. But what we're doing is if you go through a Europris store, basically we are taking even more control of this bestselling spaces in the store, so the end of aisles but also within these shop-in-shop, there is the products that are closest to you in the pathway as a customer. And also that's 1 big area, so all the bestselling products. And there's not very exciting new things happening there. It's the kind of best sellers from previous vintages. But we just make sure that we analyze it in a more coherent way And we make sure that the best products with gross margin increasing sort of features are in those places. So that's 1 thing and we take the control all the way through to implementation with the volumes. That's 1 big area. And I think that puts us at the forefront of the industry in Europe at least in terms of planning. And then we also take more control of the seasonal space when it's not the season. Because, of course, we have 200, 250 square meters of seasonal space in the stores. And when you don't have a distinct season, of course, you have a season in September, October, too, but not as big as spring, summer or Christmas. So then you need to have a smaller seasonal assortment and then you need to have bestseller kind of consumables. And that we have taken more central control of to optimize the assortment and make sure that we get it through all the stores. So that's something also which I think there's only a few players in this segment in Europe that is doing and it's exciting things.
There's a number of new stores planned for '18 and '19. Would there be any new stores in the Greater Oslo area?
Yes, there's actually one, 3rd of May in the basement parking lot of [indiscernible], which is one of the most fashionable place to be [indiscernible] is fashionable, not offending anyone here, but putting a store in the garage actually in the parking space might not be what you ever dream of. But I think it's fantastic. It's going to be a success. And now 3rd of May just come to the opening party. It will be good. Otherwise, it's sort of a all over.
And then lastly, it's important to look at H1 in total versus H1 last year. Would you have any comment on what do you think about H1 compared to H1 last year?
No.
Petter Nyström, ABG. Is it possible to quantify the negative effect on the gross margin due to Easter in Q1?
It's not to do it exactly but it should be affecting the margin in the range 0.54% to 0.5% approximately.
And then finally one question. Previously, wholesale to franchise has moved down due to inventory reduction. Is that now back to a more normalized level?
Yes, we are normalized in that. But still it's a little bit -- I think it's a little bit too low. Yes, question here.
Markus from SEB. Could you reflect a little bit on your SKU base now versus 2014 when you IPO-ed. What's the SKU base looking like today versus 4 years ago, the size, type of products, average price, et cetera?
Good question. We IPO-ed in 2015. But I think that we are sort of -- total we have had a focus on keeping the number of SKUs quite stable and slightly reducing. Yes, slightly going down but not dramatic. I think it's not a big change. I think we have a little bit more in some categories like pet food, pet accessories, we have more assortment, wider assortment.
Somewhat more brands.
Somewhat more brands. I think it's like a 2 percentage point of sales or something increase in share of brands. I think that's sort of the biggest thing. The average price is going to be a bit up, mainly due to if we compare with '14, but that was pre sort of the dollar versus NOK. So I think that's [indiscernible].
Martin Westgaard, DNB Markets. You commented in the Q4 report that you had to open for home delivery. What's the timing on that?
The team that is doing it was dreading that I was going to say it, but it's going to be June. So yes, we'll start it but we'll have a soft start.
And just on the price and volume mix, can you give any sort of flavor of how you see the market in the retail and general between volume and price for 2018, not from Q1 specifically, but how is the market? Do you expect prices to be a driver of growth or is it only volume or how do you see that for 2018?
In '18, so far -- on the market so far, I think you can -- you look at the figures and you can analyze it as well. So I think the market so far has been soft. But it's early in the year and the biggest seasons are ahead of us, so I think it's a little bit early to say.
And on the season that is ahead of us, have you done anything specific differently this year compared to last year that we should take notice of?
Maybe we're trying -- we have this theme internally that is going to be a little bit better every time and we are going to be a little bit better this year. If you picked up that brochure that we showed you, these 2 fantastic brochures, if you look at these 2 and you compare it to the ones last year, you will see that we are little bit more authority, little bit more sort of assortment, wider assortment, more exciting assortment, some new public features. It's not going to dramatically change, but I think if I ask the team, are we little bit better this year than we were last year. We always ask ourselves that question at the start of a season. I think the answer this year is yes, we are. Better planning, better products, better material, better execution, and then we'll see in the next few months whether it pays off or not, but I think we are always getting little bit better and this is retail. It's operations and always getting a little bit better for each season.
And do you see this sort of start of spring as normal compared to last year?
It's a little bit slower because of the snow and the cold temperature in the beginning of April, but if you look outside now, I mean, spring is starting. So I think that you have to actually look at Q2 to get comparable figures. We've been on the list for a few years now and there are some Aprils that we have been fantastic and some Aprils that have been slower and then the quarter can be totally different. So I think that is really important to look at first half.
[indiscernible]. Reducing the number of franchise stores, does that create any noise in your organization and when will this conversion be finalized?
I assume you probably asked me, but no I don't think it creates any noise. Of course, it's a little bit tougher to get margin in 2 parts of the sort of operations. And so I think most of those franchisees we take over is the franchisees coming to us and wanting to sell their stores. We don't have a specific target because we don't really -- we're not driving this ourselves. It's more driven by franchisees coming to us. And I think that there will be a natural sort of reduction in number of franchises, but we also have some franchises who -- most franchises are positive figures and are doing well, and I hope that they will continue to do well and work with us.
But you're not opening any stores under the franchise model?
No, we're not. I think it's a little bit the fact that this business is getting more and more sort of integrated. So that's the key [indiscernible]. Okay. Shall we take any questions from the web?
Several questions from the web starting with Mikko Ervasti from Nordea. How much of the 5.3% like-for-like growth must be tied to Easter and how much overall Q1 growth that will be sustainable this year?
It's very difficult to answer because it's not really comparable to last year because of the timing of the Easter and it's a big difference if you have early or late Easter. Due to that, you also get this at the start of the spring season, but I would say that a significant part of those growth in the Q1 was driven by Easter.
Second question from [indiscernible]. Please, can you indicate whether the sales year-to-date, i.e. until today, are positive like-for-like? Easter obviously had an impact on advertising and marketing costs in Q1. Could you give an indication of this phasing impact?
We are reporting on the Q1 numbers. And as we said quite clearly, it's important to look Q1 and Q2 together because you need to see it combined.
Question from Global Assets. The gross margin was higher than same quarter last year, but you refer to negative one-offs such as Easter and franchise takeover. Is it an underlying trend this year with the gross margin higher than last year or just a really good Q1 considering the one-offs?
Adjusting for those 2, actually this year we had positive compared to last year from the franchise takeovers and the gross margin effect from Easter sales was negative. Adjusting for that, we see a slight positive underlying performance in the gross margin.
Question from Tushar Jain at Goldman Sachs. How should we think of impact of Easter on like-for-like and profitability?
Same answer as before.
Second question from him. On competition, is the pressure still increasing, and if so, specific categories that you are facing?
I think the pressure is not necessarily increasing, but I think that in certain segments, you have some pressure like in personal care, there as I said the entire market is down, but that's sort of one small segment. We have a lot of other categories. In general, I think that we're not really feeling that someone is targeting us in any way. So I mean it's a general kind of the same as previous. Little bit more pressure in the grocery sector, but not because of us, just because between the grocery players.
Question from [indiscernible]. Do you use much bargain prices that EPR loses money on to get people in the stores?
No.
Question from [indiscernible]. Can you isolate the growth in the week before and during Easter relative to last year?
I think technically you could, but it doesn't really make sense. You need to look at this business on the longer base and then week on week.
That's it.
Okay. So thank you for coming and make sure [indiscernible] that you get your trampoline and sit in the front next time and you'll get an opportunity to win. Okay, thank you. Make sure you take your plastic bag, okay? You don't want to carry it home.