Europris ASA
OSE:EPR
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Europris ASA
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Well, good morning, and welcome to the second quarter presentation for Europris. Joining me today is CFO, Stina Byre, who will present the financial details, and we have IR Officer, Trine Englokken, who will manage the Q&A session at the end of the presentation. You can send in your questions over the web. So please do that as I speak, and we will summarize and take all questions at the end of the presentation.
And a big thank you before we start to SpareBank 1 Markets for hosting today's event. I'm really proud to present another strong quarter for Europris. In fact, it's the best ever second quarter for the company. Sales grew by 5.7%. The gross margin continued to be strong and increased 1 percent points. Costs are under control with an OpEx to sales ratio on level with last year. And all that resulted in a net profit increase of 15%. And in the quarter, we have also completed another successful acquisition of a pure play onliner, that was Strikkemekka.
Looking at the first half of 2022, we are still very satisfied with the start we've had to the year. The post-pandemic market has proven to be more challenging than expected, but we have delivered a very good performance, and the Europris concept is very strong and proves to be resilient in more uncertain times.
For the first half year, we have delivered a sales growth of 3.1%. The gross margin has increased by 1 percent points. OpEx to sales ratio is up by 0.8 percent points and EBITDA increased by 4.6% and net profit is up by 6.7%. We have a strong financial position with cash and liquidity reserves of NOK 1 billion at the end of the first half.
As I said, the market is a little bit different. And I think if it's one page from this presentation that you should try to remember, I think it's this one. It's quite important to understand both the market segment we are working in, how the Europris concept works, but also how the consumers are reacting in today's markets.
Recently, several retailers has reported that they see a difficulty selling higher ticket items, and we can confirm that. In the second quarter, sales for Europris chain grew by 1.6 percent points and the growth was driven by low price items, which is the core of our concepts. 60% of Europris sales comes from low-priced consumables costing less than NOK 100. And on these goods, we saw a very good increase in sales of 8.5 percent points in the quarter. These are typical consumables and are the low-priced seasonal and non-food goods. And this shows that Europris concept is well positioned in today's market.
On high ticket items, we saw lower demand, especially for goods with sales price above NOK 1,000. For these items, we saw a sales decline of 25.1%. This is mainly seasonal items like garden furniture, trampolines, spa baths, and these items accounted for 7% of the chain sales in the second quarter. The second quarter is the peak season we have for higher ticket items, while it is around 3% on total for the year.
We were not surprised by the fact that we saw a lower demand for high ticket items this season. We planned for that. We reduced our purchase volumes for this season, but this slow demand has been higher than expected. So we didn't foresee that it should go down as much as it has. But we are very confident that we will manage to balance this with our inventory. We have enough storage capacity to store some goods for the coming season.
And we have worked quite hard to -- on the items that will be discontinued for the next season. We have made sales and actually sold out on most items that will not continue next season. And for the remaining of the seasonal products, we will try to balance, and this is the art of retail where you have to balance your inventory, the sales, the margins and the capacity costs.
I think we have managed very well so far by keeping costs on track for the second quarter, high gross margin. I think we will need to see that the margin will be somewhat lower in the second half of the year. But still, I think we are in a very good position to balance this. And this is the retail craftsmanship that the Europris organization is extremely good at.
In the quarter, as I said, we have completed the strategic acquisition of another e-commerce pure player, this is Strikkemekka. We acquired 67% of the shares for NOK 88 million, and the transaction was closed on the 1st of July. The founder, Eirik Fuglestad, will remain a 33% owner and CEO of the company. Eirik has extensive experience within online retailing, is a founder of the company and a resource that we are really looking forward to work together with.
Strikkemekka is Norway's second largest online store in its category, offering private label and branded yarn and yarn accessories and also in-house developed patterns. And I think this is a key reason why we did this acquisition. Europris is a big retailer of yarn. But the modern and new customers, they want to actually buy the experience of knitting. They want to get inspiration. They want to see new patents. They want to buy the full package, just click on, I want this sweater, I want this size, I want these colors and they get everything they need to make that. And that is impossible to offer in 274 physical stores, but online, we can do that. So I think this will strengthen our product offering. We can see benefits from joint sourcing and our customers will get a better experience with working with Strikkemekka.
In addition to Strikkemekka, Eirik has developed a online store Designhandel, which operates in Sweden and Norway and sell small interior products.
I said this over the last couple of quarters, and once again, I have to say, just comparing quarter-over-quarter, it's quite difficult also in the second quarter because there are different COVID effects in 2022 and 2021. And we have to look at this in a longer perspective. And during the last 3 years, Europris has significantly outperformed the overall retail market and taken a stronger position as the market leader in variety retail in Norway.
When we look at stacked 3 years growth, stacked 3 years growth since 2019, Europris has grown by 27.4%, which is 10 percent points more than the general market. And Europris come out of the pandemic as a stronger company. We have upgraded several important product categories. We have recruited more than 1 million members to our customer club, and we have strengthened our e-commerce position by strategic acquisitions of Lunehjem, Lekekassen, Strikkemekka and Designhandel. So I think we are coming out of this as a much stronger company than we were before.
And Stina, I'll leave some of the financial details to you.
Thank you, Espen. If we look at sales for the second quarter, they were NOK 2.2 billion. This is an increase of 5.7%. If we exclude sales from acquired companies, the growth was 1.3%. The Europris chain had like-for-like sales growth of 0.5%. And the development was positively affected by the timing of Easter and also that an average of 8% of the stores were closed last year.
Most of our categories had sales growth in the quarter, but as Espen explained, higher-value seasonal items had declined. We also see that border trade is picking up. And the 4 stores that we have closest to the Swedish border had a weaker development than the overall chain average.
Total e-commerce sales were NOK 147 million. This constitutes 6.6% of group sales. Lekekassen had a sales decline for the second quarter in Norway, but in June, it was sales growth. And in Sweden, the quarter showed sales growth. E-commerce sales from Europris were NOK 53 million, and the decline from last year was partly explained by higher click-and-collect sales from the closed stores last year and also the mentioned decline for higher-value seasonal items, of course, also affected the online sales negatively.
The gross margin was 48.2%, which is an improvement of 1 percentage point. And the organization has worked actively with price management, campaigns and product mix and on balancing sales versus margins. Europris follows market pricing. And the new agreement for inbound freight has increased cost, but it is a competitive agreement and Europris has had a relative cost advantage.
OpEx was NOK 480 million. This is an increase of 6.1%, and that is explained by the inclusion of subsidiaries as Lekekassen was included from August last year and also from a higher number of directly operated stores. The OpEx to sales ratio was 21.7%, roughly on par with last year.
EBITDA was NOK 589 million, up 9.7%, and the EBITDA margin was 26.6%, up 1 percentage point. And these strong results were from the combination of higher sales, improved margins and good cost control.
Net change in cash year-to-date was negative with NOK 603 million. This was more negative than last year and several factors contributed to this. Accounts payables and other liabilities and a higher inventory from higher purchase prices and also from a higher volume of seasonal items. Tax paid was also higher this year and a higher dividend was also paid this year.
Net debt was NOK 3.4 billion, and the increase is due to less cash and also higher short-term borrowings. Excluding lease liabilities, net debt was NOK 1.5 billion. And the financial position continues to be strong with liquidity reserves of NOK 1 billion.
And then I give it back to you, Espen.
Thank you. It's strong numbers, as you see. I'll continue a little bit on the strategy and what we have done over the past quarter to continue to develop the company. The key strategic initiatives for Europris is all about strengthening the price and cost position, improving customer experience and drive customer growth. And over the years, we have talked quite a lot about the new warehouse in Moss and the expansion of that. And I'm really happy to say that the expansion of the new central warehouse in Moss is progressing as planned, on budget both for time and for costs.
In addition, we see very good progress on the automation for the shuttle system, and we are starting to see a higher efficiency for picking of goods. The software issues we've had has been resolved. And in order to improve the stability of the system, some hardware parts will be replaced in the third quarter.
And category development, that is the most important initiative we do to improve the customer experience. We have done quite a lot of that over the last years, and that is also what is part of driving the gross margin upwards. And as informed earlier, we will roll out a new concept for toys during the second half of the year.
The concept and product range is carefully selected in close cooperation with Lekekassen. And earlier, we tested the new product range in selected stores with very positive results. The stores with the new product range grew more than the chain average.
And this quarter, we have tested a new concept, the layout in the new stores we have opened and in the refurbished stores. Recall the new concept, Lekeplassen, it's not that creative, but it's a good name. And we have created a much more playful part in the store. The results from this is very promising, and we are really looking forward to launch both the new concept and the new product range in all our 274 stores during the second half.
I think this category upgrade is a direct consequence of the acquisition we did of Lekekassen, and it demonstrates how we are able to acquire a pure e-commerce player and use this to improve the product offering, the customer experience and sales in the physical stores.
And this quarter, we have also launched successfully a new app for our customer club members. With the new app, the customers get easy access to campaigns and digital marketing. They get overview of their fixed MER deals and their personal coupons, and they get all the receipts from previous shopping trips.
We have also tested how we can cooperate with Lekekassen and all the pure players to drive traffic to their platforms whereby giving the MER customer club offers unique exclusive offers for shopping with them. And we will continue to explore this possibility on how we can use the customer club to promote our pure players and give the special benefits to the customer club members and just drive traffic across these platforms.
The physical stores are still the very backbone of Europris, and we will continue to develop both the stores and the network. And the second quarter has actually been a quite busy quarter for Europris. We opened 3 new stores, and we have relocated 2 stores. Going forward, we have a pipeline for 2022 and beyond of 7 new stores, with one is subject to planning permissions.
Summarizing and looking a little bit on the outlook. As I start with the presentation, I said that Europris has a very strong concept and is resilient for more uncertain times, which we are in these days. And in the reopened society after COVID, the consumers are facing higher prices and high interest rates. And the Europris concept is well suited for the current market environment with low prices, strong campaigns and a large selection of everyday consumables.
We also saw that the high growth we had in the second quarter was coming from low price items and that gives us confidence going forward that our concept are a concept that the consumers will turn to in more difficult times and we saw that already in the second quarter. The gross margin for the Europris chain has been strong over the past years, and we expect the margin to stabilize at a higher than pre-pandemic level.
Europris is celebrating 30 years in business this year, and we are the market leader in discount variety retail, and we are ready to develop further while balancing the customers' needs, while delivering profitable growth.
With that remark, we will open up for questions.
I'll start with the questions from the web then. The first question comes from [ Kevin Okerson ]. How is everything we heard about [indiscernible]. I see no updates in any quarterly report [ so to Googling ] on how all this has gone and where is it now?
Basically, we give no update because there has been no progress since the last quarter. We gave a quite detailed update in the first quarter presentation of this year, where we clearly stated that we will come with news whenever there is some progress, and there has been no progress in this quarter. So that's why we do not have any update in the second quarter report.
Next question, [ Konrad Danland ]. Do you expect to be able to maintain the EBITDA margin going forward?
I think it will be difficult to maintain the full EBITDA margin going forward. As I said, we expect that the gross margin will be somewhat more under pressure in the second half. It has been still very positively affected by the freight agreement from last year in the beginning of the year. So the gross margin, you should expect to come down a little bit in the second half, but we do not expect that it will go back to the levels it was before the pandemic. So we have stabilized the margin at a higher level, but not on the same level as it has been in the last 2 years.
And the next question is from Ole Martin Westgaard. What was the mix between volume and price in Q2 on like-for-like? And how has the traffic developed?
Traffic was positive. One should also keep in mind the timing of Easter and also that there were closed stores last year. But we also see that more convenience customers are coming in. So that was up. And both price and volume was up in the quarter, but again, timing of Easter affect these numbers.
And he also has a question on the margins. I think you touched up on it, but he also asked, if you can please elaborate on what's driving this and what level we should expect?
I think we will not comment on the exact level. We are saying that we will establish above the pre-pandemic levels, and that was historically for the chain in the range, 43% to 44%. So we will be above that. And what we have done is basically a lot of small things. It's not that easy to point on one single thing, but we have upgraded several categories. And by doing that, we have reduced complexity in the goods we offer to the customers. We have reduced the number of SKU studies, pure campaign product that is just coming in and out. So we do not have that large need to clear in sales anymore. We are using more private labels. So it's a lot of different things that we have done.
And we have also lifted some of the important non-food categories where we have an above-average margin. So a lot of the sales growth we have seen over the last couple of years is in higher-margin items. So we are -- it's a positive change in the product mix. It's more private labels. It's reducing complexities and the SKUs. And we're also working, I would say, more smart when it comes to balancing campaigns and how we work on pricing and promotion. So it's a lot of different things that we are working on constantly to try to achieve a good margin as possible while we are still maintaining the price advantage towards the customers.
And Markus Heiberg, he has also several questions and many others on the margin. I think I'll just jump over these questions just not to repeat. But -- and he also had a question on the traffic development that I think is covered by Stina. And the third question from Markus is in light of the 20% decline in high-ticket items, should we expect impact on the margins for Q3?
I think you should expect that the margin in Q3 should be somewhat lower than what you saw in the second quarter. That is quite natural as we have the seasonal sales that started last week. And -- but I think it's difficult to say exactly how this will play out because the high-ticket items also have an average -- on average, they have a lower margin. We cannot take the percentage high margin on the high ticket items. So selling more low ticket items is actually also supporting a higher gross margin overall. But we expect that we will have some more inventory of seasonal goods after this season than what we planned for and what we had last year, but we also have sufficient storage capacity to handle that. So we are not in a position where we have to discount extremely hard to sell everything out.
Next question is from Joachim Harms. A question to Stina. Congratulations to a strong quarter. However, we continue to remain concerned about the negative cash balance of minus NOK 33 million. You are technically out of cash apparently. Can you please elaborate about the certainty of the liquidity position you frequently mentioned and why do you not turn this into a minimum cash balance at the balance sheet?
We have a strong financial position, and we have the liquidity reserves, which are cash equivalents. So we are not concerned with our cash situation.
And Petter Nystrom, thank you and congratulation on strong Q2 numbers. OpEx was up 6.1% year-on-year. How do you see cost inflation in the second half versus the second -- first of 2020 -- the first half year of 2022?
We're affected as the overall market. Our rent for all the stores, they're KPI adjusted. And also when it comes to salaries for most of our employees are covered by tariff agreements. So this will in line follow the general market. But in -- historically, we have been able to -- the market has absorbed these types of cost increase. And we also work continuously with our cost base and to be efficient.
And a second question from Petter. Given your Q1 report, you were able to calculate April sales and based on today's Q2 sales, it seems like May, June saw a sales decline of over 15% year-on-year. Is this correct understanding? And if you continue to see a 15% sales decline, will you be more aggressive on campaigns activity?
I think that calculation is not correct. We -- I do not recognize those numbers. We did not have a sales decline in that range in those months. We had lower sales to last year. That is correct, but not in that range. And we see no reason why we should campaign harder just to get rid of goods. As I said, and try to explain balancing the inventory, the sales and the margin, it's the essence of retail, and that is where we are really focusing and working hard. And we do not see any reason why we should try to maximize sales because that will just be on the expense of the profits. And I don't think that is beneficial as long as we are comfortable with the inventory levels we have, and we have sufficient storage capacity.
Next question is from [indiscernible]. Congrats with a solid result and the best second quarter ever. Can you elaborate on inventory mix? How much of the inventory is higher volume seasonal items?
Well, we have a higher inventory from acquisitions that we made, if you compare to last year when Lekekassen was not in the numbers. And then for the remaining increase from Europris, a little more than half is from seasonal items. We also chose not to sell out all Christmas goods as we commented on in the first quarter. And as the Christmas will also be ready next year, and then we have a higher volume of the, as I [ said the ] seasonal items this year. But for those items that are going out of -- that we will not sell again next year, those we have made sure that we sell out and then the others we have capacity to store.
And a question from [indiscernible]. How much of the gross profit in 2021 were from high ticket items?
That's...
I have -- we have to be honest that is something we haven't calculated. But I can say that on average, the high-ticket items have a lower gross margin percentage than the lower ticket items.
Then there is no more questions from the web.
Questions from the audience? Then I wish you a great summer. Thank you.
Thank you.