Europris ASA
OSE:EPR
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
63.5
82.05
|
| Price Target |
|
We'll email you a reminder when the closing price reaches NOK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Europris ASA
You don't have any saved screeners yet
Good morning, and welcome to this presentation of the first quarter result 2021 for Europris. Joining me on stage today, I have CFO, Stina Byre, who will present the financial highlights, and IR officer Trine Englokken will manage the questions at the end of the presentation, but please feel free to send in questions as we speak. It's another strong quarter for Europris, and I have to admit, it has truly been a challenging quarter. For the first time during the pandemic, we have been forced to close stores. And for a short period, many of our employees has been temporarily laid off. In Oslo, we have had some stores closed since the 24th of January, and I have great compassion with the difficult situation our employees are in. Dealing with the temporary store closures has been a new challenge for Europris, but I have to admit, I'm really proud of how the organization has responded. The whole organization has pulled together and responded in a very good way. And once again, we are focused on what we can impact ourselves. We have adapted to the best possible way so that we can serve as many customers as possible and keep as many of our employees working as possible. This might not be the best quarter ever, but it's a record-breaking first quarter for Europris and the team effort that lies behind these numbers we will present today makes that for me. This is actually the best quarter we have ever presented. Let's have a look at the highlights. We reported sales growth of 24.3%. Improvement in gross margin of 0.7% points. Operational efficiency continued to improve as we capture the scale benefits and EBITDA increased by 64%. The financial position of Europris is solid and Stina will come back to the details behind these figures later on. On average, 10% of the store base has been closed during the quarter due to infection control measures. Despite this, we have delivered strong sales growth across the country. It's the greater Oslo area with the counties of Oslo and Viken that has been hardly hit by store closers. And in this region, we have delivered a sales growth of 16% in the quarter. In the rest of the country, we have delivered 31% sales growth. During the quarter, we had as much as 94 of our 267 stores closed. And that number has now been reduced to 19, and we certainly hope that the infection situation in Oslo improves over the coming weeks so that we once again can have all our Europris stores open. The closure of stores called for swift actions. In a short time, we established new sales solutions. We have improved the click & collect solutions and e-commercial growth, but for the Europris customers, the most preferred solution has been to call and e-mail the stores. By doing these initiatives, we have managed to save 10% to 15% of the sales in the closed stores. Not really a big and impressive number, but when you consider that actually more than 60% of what we sell is what you find in a grocery store that has been allowed to keep open, I think the number is actually quite good. And this is not something we've done to keep profits very high. It has been covering the cost basically, but we have kept in touch with the customers, the employees have really felt that they'd done something meaningful, and it means that we have been able to reduce the number of temporary layoffs. So for the morale of the company, this has been very, very important. Europris continued to grow in a very strong market. We are outperforming the market by a significant margin, and we are gaining market share. In the first quarter, the market effect has been quite mixed due to COVID 19. The grocery sector is continuing to grow, benefiting from closed borders and also staycation during Easter holiday. While the shopping centers, especially in Oslo and Viken has really been hit by the temporary store closures and only grew by 1 percentage point, variety retail grew by 9.9% in the quarter, and Europris grew by 24%. With that, I'll leave the stage to you, Stina, to tell us the financial highlights.
Thank you, Espen. Europris continued to deliver strong sales growth and all categories contributed to this development. The total chain sales were NOK 1.8 billion, with a like-for-like growth of 23%. The sales growth was highest in the beginning of the quarter, and this was due to a cold winter, leading to higher sales of seasonal items. And due to COVID-19, which has continued to affect domestic demand positively. The timing of Easter, of course, also affected positively. But on the other hand, on average, 10% of the stores were closed during the quarter. The development in gross margin was good. The gross margin was 43.3%, representing an improvement of 0.7 percentage points. The margin growth was positively affected by the timing, by the cold winter and the high sales of seasonal items and effects from category development initiatives. Cost control was good, and operational efficiency continued to improve. Europris has had scale effects and higher volumes have not led to the same increase in costs. Store employees are able to handle volume increase without adding hours. The OpEx level was NOK 452 million, up by 10%, while the OpEx to sales ratio was 26.3%, representing an improvement of 3.4 percentage points. Europris delivered a strong first quarter last year, and we are very pleased to have significantly outperformed this. The EBITDA was NOK 292 million, up by 64% and is the best first quarter in Europris' history. The EBITDA margin increased by 4.1 percentage point to 17%, and the strong results are due to solid performance in the entire value chain. Net changing cash was negative with NOK 399 million. Negative cash is normal for the first quarter due to inventory buildup ahead of the summer season. The higher negative effect from net change in working capital versus last year was due to a reduction in accounts payable due to timing and from higher inventory levels as more volumes have been purchased in order to meet the higher demand.Cash from financing activities was negative by NOK 110 million, which is NOK 149 million lower than last year. And this was due to net loan repayment last year from the financing. Per end of March, Europris has a solid cash and liquidity position of NOK 1.5 billion, which is NOK 560 million higher than last year. And with that, I hand it back to you, Espen.
Thank you. Strong numbers. The strategic agenda for Europris remains the same. We have 3 key focus areas, and that is to strengthen the price and the cost position, to improve customer experience and to continue to drive customer growth. On strengthening the price and cost position, the most important project we have is the new logistics center in Moss. I have to admit, I'm really proud to announce that we have passed the final acceptance test for the automation in the low-bay area that was passed now in the quarter. And this will make picking of goods more efficient. And a controlled ramp-up has now started, and we will gradually speed up operations in the new automated warehouse towards the summer and also in the start of the autumn holiday. We will keep the old center warehouse in Fredrikstad. So we have delayed the exit from that, and that is due to the high volumes we expect now in the spring/summer season. The project in Moss had 3 key milestones, and we are very pleased with the progress we have made over the project period. The first milestone was to build a new warehouse, and that was delivered on time and cost back in May 2019. And the second one was to start operations in the high-bay area and that was started a year ago, very successfully. And the third and final milestone, that is the automation in the low-bay area. And as scheduled, we have started operations now in the first half of this year. With this third milestone ended, we are approaching the final stage of the project. During this period, we have reduced from 5 to 2 warehouses, but we have been forced to keep the old central warehouse in Fredrikstad for a longer period. This is not due to problems we've had in the project, but it's basically due to the fact that we have seen a sharp increase in demand over the last 12 months. And the final decision on when we will exit that warehouse will be discussed after the spring/summer season of this year. And the decision depends on the level of inventory we have left after the season and also the volume expectations we have going forward. With OoB, the sourcing partnership continue to make progress as planned. But on the equity transactions, we have not made any progress since the last quarter. We are still looking for an independent auditor to examine the due diligence disagreement we have on the 2019 financials. And thus, the option period are still delayed. In the first quarter, Europris -- OoB had a negative sales development. But on the positive side, we note that they increased the gross margin and also reduced operating expenses. Despite this, the EBITDA was negative at NOK 37 million. The key driver for like-for-like sales growth is the constant focus we have on improving customer experience and continuous development of the concepts and the categories is really at the heart of Europris and one of the most important jobs we do. Last year, we made a very successful upgrade of the kitchen department. And this year, we have used those good experiences to improve the home category. The home category is among the categories that demonstrated strong sales growth in the first quarter, expanding the margin. It's a category with a high level of own brands. And it's above average margins as well. So this is a very important category to develop, and it's also one of those categories that actually sell quite well online. And in addition to the development we've done in the physical stores, we have made a small acquisition of a well-run company called Lunehjem. The company is a pure online player. And it's highly profitable and has demonstrated strong growth over the last years. In 2020, Lunehjem had sales of NOK 29 million. And this will give us further insights into e-commerce, and also exposure to an attractive customer base. Driving customer growth, that is key to every retailer. And for us, the physical stores are the most important arena. But when the stores closed, were forced to close during the pandemic now, something happened. The store closures has escalated e-commerce growth, but it's still from a very small base. We have seen growth in all product categories, but the best sellers are the high-ticket items like seasonal products, especially garden furniture is one of our best sellers online. E-commerce sales grew by 317% in the quarter, but it still only reached 0.9% of total chain sales. It's fair to say that the e-commerce solutions of Europris has been slightly stress-tested during the quarter, and we have discovered some room for improvement that are being addressed at the moment. On the e-CRM side, we have launched a new search engine in the quarter, and we continue to expand the membership base in our customer club. We have made a few of our regular multi-buy offers into fixed MER customer club benefits. That is done in order to drive recruitment of customers and ultimately, make them more loyal as well. The same offers has been introduced to our business-to-business customers with great success, and we have seen that we are growing the number of business-to-business customers as well during the first quarter. On these multi-buy offers, we have also used those, like you see on the picture, we've done that on a sustainable product to promote sales of those articles that has also been quite successful. Still, the physical stores are key to Europris. And during this quarter, we have opened 1 new store that was Austevoll, Hordaland, very successful store opening, dedicated staff and delivered the sales well beyond our expectations. We also done the store relocation at Vagsbygd in Agder also very successful, and it was a good store before and even better with the new location and also sales beating expectations by a significant margin. Every year, we do an analysis of our latest vintage stores and do a post calculation of the performance. And we can confirm that the latest vintages of new stores, they continue to deliver on their very strict investment criterias. And we see the same pattern as in the past. The stores use 4 to 5 years to mature. And in this period, the growth is higher than the average chain. And after the fifth year, they are more in line with the chain average. Okay. It's time to summarize. First quarter is always difficult to compare when you have the timing of Easter. And this year, it's even more complicated due to the COVID-19 effects. But actually, today, we are more comparable year-to-date. And as expected, sales in April has been negatively impacted by timing of Easter and also the temporary store closures. As of 27th of April, we had sales growth of 5.5% in the chain, and for year-to-date, on average, 13% of our stores has been closed. 19 stores are closed as of today, but what we see is that the open stores, they continue to perform very well. We are well prepared for the spring/summer season. And as you can see, the garden festival has already started in the Europris stores. And I can tell you that Norwegians, they are actually preparing quite well for a vacation summer also this year. I think the market fundamentals are favorable for Europris. We are a very strong national chain when it comes to sourcing, logistics and marketing. But when it comes to execution, we have 267 highly adaptable stores, local shops in their local communities with very dedicated staff. And the strong culture we've seen and the remarkable efforts that has been put in over the last 12 months by our store staff is amazing. And it's something that you can't easy copy. And we are really looking forward to the coming months with strong comparable figures and the long-term financial ambitions, they remain unchanged. With that, we leave it up for questions. And Trine, you will manage that session?
Yes, I'll do. And the first question comes from [indiscernible]. Can you elaborate on new customer activity? Last year, 1/4 of increase in food step was from new customers and customer club members rose significantly. Have the increase in new customers continued? Please elaborate on how sales growth is driven on basket, new customers and existing customers?
What we can say is that the sales increase is mainly driven by a basket increase this year, and this is driven by the sales mix. We've seen higher share of seasonal items due to higher price points. It's been a good winter season and also a good start to the spring/summer. So that is driving the average ticket up. So the main increase in sales is coming from the basket, but we also have an increase in the number of customers. It's very difficult. There are so many things disturbing the picture. So doing exact analysis on the customer base in a quarter where you had major store closures and the timing effects of Easter is really hard. So I think you need a little bit more time. It should be better to do those kind of analysis when we have the first 12 -- 6 months, at least, of the year.
[indiscernible] asks, when do you expect that the OoB transaction will be completed? And is there a risk that you'll move away from the transaction due to 2019 financial disagreement?
Honestly, I think this does give the timeline of the OoB has been through for so many times, so I don't have any expectations left on when it will happen. We disagree on the 2019 financial, and that is fair, and we just have to settle those discussions. We are not in a hurry. So let's wait and see, but obviously, the decision will not be taken until towards the end of this year at the earliest. So -- and as always, it's an option. It's not something we have to do. And of course, there might be that we do not exercise the option. That has always been the case.
For now, there's no more questions. So we just wait, and there was another question. This question comes from Markus Heiberg. Can you please elaborate on how we should think about the gross margin impact of hedges now going forward without adjusting for unrealized hedges?
I think Stina, this one is for you.
Yes. I think it's -- you will get the number as before, but we will not adjust the margin. This is according to IFRS booking. And so I think it's no change in how you should think about the margin. You will have the numbers. So you can easily see the margin both with and without this effect.
Ole Martin Westgaard asks, what is the isolated sales trend for April? Has there been any supplier delivery interruptions? Are all goods on track for summer season?
That was as normal, at least 3 questions in one. Yes, I can confirm that we have all goods on track for delivery for the spring/summer season. And we have plenty full stocks, and we are ready to serve the market. So no delays recorded from our side. When it comes to -- the question, again, was?
The supplier delivery interactions.
No. And the first part? First question?
Sorry, I was on the next question. What is the isolated sales trend for April?
Yes. And that is, of course, very negative. As I said, we had 24% growth at the end of the quarter. And then by 27th of April, you have 5.5%. So obviously, it's very negative. But I think you should look at this, like we've always said, first half year, look at that as one period when you have differences in the timing of Easter. So I think by April 27, that is actually quite a good benchmark. We had 5.5% growth year-to-date with 13% of the store base closed on average.
Eirik Rafdal has a couple of questions, too. Could you please give some color on price hikes over the past months?
Europris, we follow the market. We should be -- is he talking about the sales prices or purchase prices or low?
Price hikes.
Price hikes. Yes. In our market, we follow the market. We continually monitor our competitors, and we should be competitive on the price. And we are, but of course, we have lifted some prices due to the market prices are going up. We've seen over the last couple of months some raw material price increases. And that is lifting some of the purchase prices, but also it's balanced out by the stronger Norwegian currency. So we do not expect any significant changes in the coming months.
And another one. Tokmanni discussed potential Nordic consolidation at its CMD some weeks ago. Could Tokmanni and Europris be a good match in your view? And how should one think about the potential Tokmanni, Europris and OoB combination?
Well, the 3 companies are sourcing together, like we have explained. So the sourcing partnership works very well, and we will continue to do that.
And Petter Nyström has a question. Are you comfortable with your inventory situation to meet the expected demand for 2021?
Yes, we are. We have sufficient stock when it comes to garden and summer season. So we are -- I think we're all set for a good summer.
That was the last question.
Then thank you, and enjoy the rest of the day.