XXL ASA

OSE:XXL

Earnings Call Transcript 2019-Q1

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

Good morning, ladies and gentlemen, and welcome to this results presentation of the first quarter 2019 for XXL ASA. My name is Tolle Grøterud, and I'll have the pleasure of guiding you through today's presentation. With me today is the CFO, Stein Eriksen, who will later on present the financials.We will end the presentation with a Q&A session. Our Chairman, Øivind Tidemandsen, will also participate in the Q&A. For media, there will be an opportunity to perform separate interviews after the presentation as well.Overall, we are delivering satisfying results in the first quarter with a revenue decline of 3% year-over-year, but compensated via growth in EBITDA of 7%. This is before the positive effects on EBITDA from the implementation of IFRS 16. All figures I will present will be excluding the IFRS 16 effects, and Stein will outline the details concerning the IFRS later on.After the disappointing Q4 results, we have worked a lot on improving relevant routines and changed focus from few top line driven mindsets to profitability and gross profit focus. This has already given positive effects and we see a solid gross margin increase this quarter. Broad based in all markets and up 2.8 percentage point for the group year-over-year.This is achieved under more difficult selling conditions than last year, where we had excellent winter conditions in most regions, as you remember. As a consequence, the like-for-like figure for the group was negative in the quarter of 6.9% and 6.4% when adjusting for the cannibalization effects in Norway. This changed focus tilted more towards gross profit has affected the growth in the quarter both for the stores, but also for the e-commerce spot, where the transparency is even higher. But we are doing our utmost to fine-tune and balance the revenue growth against the gross margin going forward. Because this is also important for the inventory situation, this quarter, the inventory per store increased to NOK 38.9 million, partly due to the lower sales than expected in the quarter as well as forecasted at the time of ordering products.XXL has also decided to carry around NOK 250 million in winter-related products to be used in the beginning of the next winter season. The total inventory level is also affected by products in transit and prioritization of deliveries for upcoming season.Improvement in working capital is high and the key priority, and we continue to target NOK 35 million per store during 2019.Negative like-for-like impacted the cost percentage in the quarter due to lower scale and leverage, especially in the store base. We have cost control, but are working on many longer-term initiatives to be more efficient in the years to come. We are especially satisfied with the Finnish results and improvements in the quarter, outgrowing the market and gaining market shares, when at the same time, increasing the gross margin with 3.6 percentage points year-over-year and more than doubling the EBITDA.Well done. Congratulations to the Finnish operation for a great quarter.In Austria, we are seeing promising results. Sales volumes have picked up with a positive like-for-like of 4.2% in local currency, and the gross margin is increased by 6.5 percentage points.EBITDA is improved and keep in mind that we opened a new store on the 1st of April, which carried costs for most of the first quarter, but with no sales. On the 1st of April, we opened the city location in Vienna in Mariahilferstrasse with an excellent reception by the Austrian consumers, which bodes well for the further improvements and scale benefits in the quarters to come. So thank you all to the colleagues in Austria for great contributions in the quarter.As we addressed at the Q4 presentation, we immediately initiated several short-term actions to improve the overall profitability of XXL. We see that some of them are already showing positive results, but others take more time. We are back to basic. Internal mentality is reversed from pure top line focus to a more balance between growth and profitability. But the optimal sweet spot takes time and it's about craftsmanship and retail detail, but we are well on our way. We have changed and centralized the pricing policy and authorizations and we are back to more smartness in the pricing. We have focused on additional sales and up-sales in all channels, traction and hotspots and bestsellers in the stores and online, and we have strengthened the campaign planning.The last year's extensive use of campaigns, we call, partikjøp or group-wise, they are more limited. And we are back at branding what XXL is all about. We have adjusted and reestablished the DNA over the last couple of months and we have redefined and strengthened many routines. But it's not only about back to basic, the other part is into the future. And we need to improve and strengthen the concept over time, focus on enriching the customer experience by innovations, automations and new solutions. There are many opportunities in this and there are many initiatives that we already have identified and that are in progress to yield positive effect in the years to come. And that is why the strategy plan remains firm and our priority in the plan is to turn around the OpEx development.We are in the industry as the game changer. The winning concept with the lowest OpEx yielding the highest profits that we will use to further strengthen the business and to take down the competition and to give solid returns to the shareholders over time.XXL delivered a negative growth of 2.7% in the quarter. We are not satisfied with this and we are working on a better balance between growth and profits. However, focusing on gross margin this quarter proved to be the right strategy, but it influenced the overall growth and sales volumes, both in stores and online. E-commerce is delivering 9% growth in the quarter and continues to be an increasing part of the total operations, now a share of 16.1%. Transparency and increased focus toward gross profit impacts the growth rate, but XXL has solid improvements on gross margins in the e-commerce operation this quarter.The revenue growth of the group is driven by a negative like-for-like of 6.4%, partly offset by contributions from new stores opened in 2018. The winter season of 2019 proved to be more mixed or normal compared to a very good and long winter in 2018 in most of the regions. When comparing to the 2017 winter season, we see that like-for-like trend is better and we see positive growth in several like-for-like resource.Looking at the different segments, the change mindset from top line to more gross margin impacts the overall like-for-like picture in most of the markets, while the EBITDA is mostly improved in all segments. This is driven by significantly higher gross margins, leading to the higher EBITDA for the group. This is also achieved despite severe selling conditions in core markets this year.Norway XXL open 4 new stores in 2018, all with cannibalization effects. Then, like-for-like was negative 9.3% when adjusting for this. Revenues are taking a hit from the changed focus, but that you will see from the market figures on the next slide, the market conditions were more challenging this year.We also believe that we achieved a better balance towards the end of the quarter. We see no big change in the market dynamics in Norway, but still a competitive market with a more abated demand trend.Sweden is still a very volatile market and very discounting and priced focus. In this environment, it is obvious that we lose a bit on the top line when we focus more on the gross profit. We are delivering lower growth than the market, but at the same time, achieving higher overall EBITDA this year compared to last year.Yes, we did overspend on marketing in the first quarter last year, but this year's Q1 results are made through significantly higher gross margins and under more challenging market conditions.We are very pleased with the Finnish performance, gaining market shares at the same time as the gross margins are up 3.6 percentage points, resulting in a more than doubling of the EBITDA. XXL stands out as the key winner in the Finnish markets.Austria, we believe, we are on the right track in Austria. Sales volumes are picking up; positive like-for-like numbers; margins, they are improved significantly; and the local management, they are highly confident and motivated to deliver positive results. Despite carrying costs for 5 stores, but sales in only 4 stores, we are delivering NOK 3 million loss on EBITDA.We opened the city location in Vienna on the 1st of April, and so far, the store is showing very good sales figures and helps improving the brand recognition of XXL every day.Denmark, with limited winter conditions compared to a very good winter last year, it was difficult to achieve positive growth. The gross margin improvement of 5.7 percentage points also paid its fall on the growth for XXL, but more than offset the increased OpEx percentage.The EBITDA loss is lower than a year ago despite the 6.9% revenue decline in local currency.For HQ and Logistics segment, the OpEx increased to NOK 107 million or 5.3% of group sales. This is driven by lower sales volume in the quarter, increased costs related to the recruitment of new employees, such as buyers and technical experts during 2018. However, XXL expects lower cost pace in the coming quarters.Market data. In January and February, it's clear that we lost market shares in Norway and Sweden, while Finland gained all months. We believe, this has a lot to do with the changed focus. Looking at Norway and Sweden versus Finland, it is also so that Finland had a very good winter this year up against the more normal or mixed winter season in Norway and Sweden.Retail is all about finding the right balance between growth and profitability, and we think we had a more optimal approach late in the quarter.Above you can see the March figures as well, so it's easy for you to compare when the official statistics -- the official data will come out in the -- in some days. February turned out as the most difficult for us this year. March ended up being fairly okay with some signs of spring season. We do not believe we lost much market share at the same time as the gross margin is significantly higher in all markets, good craftsmanship.Online traffic. Over the years, XXL has built the market leading position online held by the strong position over stores. This is what is all about, stores and online playing together and strengthening the customer proposition as omnichannel retail.Traffic figures this quarter is influenced a bit by the changed focus towards gross profit as commented many times now. However, XXL is still the market leader in traffic in all core markets, showing the strength of the concept even under more difficult market conditions.The key driver of our results this quarter is the significantly improved gross margin. It is broad based in all markets. Norway, plus 3.2 percentage points; Sweden, plus 1.8; Finland, 3.6; Denmark, 6.5; and Austria, 5.6 percentage points. This is also achieved despite the negative mix effects from lower gross margins online and higher growth in new markets with lower gross margins. The quarter ended with a gross margin of 40.7% for the group, record high. Looking at the amount of all supplier volume bonuses, it is more or less in line with last year. The key driver is more control and the changed focus through up-sale, additional sales and better campaign strategies.Looking at the EBITDA bridge versus the first quarter last year, we are very pleased with the performance in Finland. In Sweden, XXL has significantly more potential. We have changed the local management team and the new MD, Per Sigvardsson, has extensive experience from Nordic retail. As the MD in Elgiganten, Sweden; Granngården; and TOP-TOY.Norway is NOK 6 million lower than last year on EBITDA, but we have a store in Drammen that has been partly shut down due to repairments of the shopping center location and this has a negative effect of around NOK 5 million in EBITDA in the quarter.HQ costs is increasing due to the recruitment of several new positions during 2018 in centralized persons -- positions, but the pace going forward is expected to be lower down in the first quarter.So now I've some really exciting to show you. As the first retailer in the Nordics, we are testing out new self-service pickup towers shown at the picture. It is 5 meters high and could carry around 300 parcels and is packed with state-of-the-art robotics and innovations. We removed the friction and queues for our customers and the handling time and the costs for our stores and employees.So next time you order online, make sure you choose on other as the delivery point and test it out yourself.For smaller stores, we are testing out self-service locker systems as well. On the omnichannel stock solution, we have tested out selling products from the total XXL stock in all stores. This will now be piloted for some categories in the stores in Nordics. This will improve the sold-out situations and broadening the available assortment and over time also optimize the quality.Personalized landing pages after a successful pilot, we have now rolled it out in all countries. So all banners and products and categories, they're now personalized based on the user behavior and the sales transaction history, cookie based. This not only improves the relevancy for the customer, it also enhances their efficiency for our technical department. And we see solid lift in conversion rates and average order values as well as savings in the front-end production.We also have used the customer behavior data input to segment the newsletters, and we have developed a new CRM model that gives a single point of view of the customer in all channels. So now we have started to collect the data in -- and the subscribers in our stores as well that will expand the customer database further.And our new AI and data science platform will automate and improve our product recommendations online over time and driving the relevancy and after-sales as well.Combined all these initiatives will strengthen our segmentation and personalization activities as well as contribute and optimize the marketing activities over time.Our sale side is upgraded on a rolling basis with new features, and this quarter, the focus has been on add-on sales features, checkouts, improved quality on the pictures and the use of video recommendations as well as many new filters in line with the new segmentations that I talked about.So with that, I'll turn the floor to you, Stein, for the financial updates.

[Stein Alexander Eriksen, Group Chief Financial Officer]

So good morning. Thank you, Tolle, and good morning, everyone. Yes, I will now take you through the financial figures for the first quarter. As I noticed, some of you missed out that XXL has together with a lot of the other companies on the Oslo Stock Exchange implemented the IFRS 16 effects, and it has quite significant impact on both our balance sheet and the P&L numbers. So I just thought, I go through with you some more details around the IFRS 16. In our financial report for Q1, we present the P&L and the balance sheets for the group, both including and excluding the IFRS 16 effects in order to make it easier for you to compare with last year. And additional details regarding the IFRS 16 can be found in Note 9 in our quarterly report and Note 22 in our annual report that was released today.Step-by-step, on the P&L, leasing payment for the principal portion of the lease liability is reduced to NOK 138 million, so it gives a positive effect on the EBITDA with NOK 138 million, pretty significant. However, we have a depreciation on right-of-use assets. I mean we have got NOK 3.2 billion in our balance sheet and that has to be depreciated. So -- and the depreciation in the quarter is NOK 124 million. And then also we have interest expense on the lease liability of NOK 24 millions. So this gives a negative net impact on profit before tax with NOK 11 million.However, all the next slides I'm going to present now is excluding the IFRS 16 effects. Starting to look at the gross margins. As Tolle said, of course, we are pleased to see that the short-term actions initiated in mid-December have given strong positive effects on the gross margins, both in the quarters but also like Tolle showed you versus several -- also -- versus previous years. Also as you can see, the improvements are broad based with all countries ahead of last year.Several actions have been executed in order to improve the situation since the Q4. First of all, I just want to mention, of course, for XXL, it's always important to offer the right products at the lowest prices, I mean, that's our core DNA, so we will never lose focus on delivering the right products for the lowest prices. But in Q1, we have been smarter in pricing, both with focus on additional sales and up-sales strategies, and also we have definitely improved our internal processes regarding campaign planning being more considerate in what products to offer and make sure we still have reasonable margins.As Tolle stated earlier, the focus forward, however, into the next quarter is to find the right balance or mix between growth and margins, ensure that we have good balance between giving gas and step on the brake when it's needed.Moving on to the OpEx. The OpEx is up by 2.6 percentage points, and this is mainly explained by the revenue decline helping the OpEx percentage.Also, XXL has invested in more resources in HQ-Logistics. And like earlier stated, these recruitments were commenced in 2018, and we expect a lower cost pace in the coming quarters.Austria still have a high level of OpEx percentage, but we are pleased to see that the increased sales has resulted in lower percentage levels. The OPEX25 plan that we presented in Q3 is still valid and we have initiated a lot of activities to reduce the costs in the long run, including automation of the stores, like self-checkouts and pickup solutions, downsizing of stores, centralizing some function, et cetera. However, these actions takes time to implement and we expect to see the effects of these actions first in 2020.Let's look at the EBITDA development. The group EBITDA excluding for the implementation of IFRS 16 ended up NOK 55 million, which equaled an EBITDA margin of 2.7% compared to 2.5% in the same quarter last year. As you can see, all segments had margin improvement. And the main driver for the margin improvement was, as you probably can understand that significant improvement in gross margins, partly offset by the earlier mentioned OpEx percentage. Austria still has negative numbers. Both high turnover, high margins and lower OpEx percent makes us more confident of showing black numbers in 2020.Moving over to cash flow and net debt. As you can see, XXL net debt increased by NOK 241 million, and the main driver for the increased debt was the negative development in working capital, which, again, was a result of higher inventory levels of NOK 250 million compared to December 2018.The higher inventory is mainly related to carryover of winter-related products that we have plan to sell early next winter. If we continue looking at the liquidity reserves, as you can see on the left-hand side, the operational cash flow ended at minus NOK 241 million, and this was a negative development of NOK 276 million versus Q1 2018. And once again, the higher inventory was the main driver of the negative cash flow, increasing from NOK 3.1 billion at the end of Q1 2018 to NOK 3.5 billion at the end of Q1 2019. And the increase of the inventory was partly due to the negative like-for-like growth, but also explained by 5 new stores in the quarter this year and 2 new stores in the beginning of April 2019.Liquidity reserves ended at NOK 0.4 billion, and net interest-bearing debt ending at NOK 2.1 billion, giving a net debt EBITDA leverage ratio of 3.9.To sum up the financials, we are pleased to see that the very strengthened margins resulting in higher EBITDA versus last year, but we still needs to find the sweet spots between top line growth and margin improvements, including to work harder to reduce our inventory going forward and thereby improving our cash flow.Now, handing over to Tolle for some final remarks.

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

Thank you, Stein. We are glad that the short-term actions, focus and changes we have made are already showing with progressions and results. Long-term objectives and the strategy plan remain firm. Drive like-for-like growth, protect the gross margin, deliver on the OPEX25 project, omni-operational excellence improved the Swedish business opportunities and reduced the inventory over time and thereby improving our working capital situation.We are seeking a better balance between top line and profitability. Focus will be on the customer, the customer, the customer. Back to basic, core XXL concept, as you know it, into the future by innovation and efficiency, and reaching the overall customer experience over time.XXL is in the making of an omnichannel champion. Then, we like Øivind also to participate. And we are ready to answer questions.First, from the audience present here in Oslo. [Operator Instructions] So please, go ahead.Then, there are no questions from the -- yes, there is one question coming up.

[Unknown Analyst]

[indiscernible]. Your market share are going down in -- at least in Norway and Sweden. Can you say anything about the competition? Who's gaining market shares?

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

Yes. First of all, in Norway, we are not that sure that we are losing so much because we think we have to give much, but the numbers are yet to be seen. In Sweden, yes, we think that we are losing a bit, but on the other hand, we are focusing on the profitability and that's good also in this quarter. We see no material change in any of the -- in any of these countries. So it's difficult to see who we are gaining in the market share if the market is growing at all, I will say, in the first quarter. I don't think so.

[Øivind Tidemandsen, Chairman]

But there is not any chance -- changes in the market situation in these countries. So -- But we tried to find a right balance between margin and growth. I think is -- I think that's -- because if you look back on the fourth quarter and we disappointed and we had a very low margin. And in Norway, we had to think differently and -- but then really to find the exact balance is a little bit time killing. I think that's most of the reason.

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

Any more questions? Then, there are no more from the audience and we are ready to take the questions from those of you listening in on the phone. [Operator Instructions] I then call upon the conference host for further introductions.

[Operator]

[Operator Instructions] We have one question already in the queue and it's from Magnus Råman from Handelsbanken.

[Magnus Råman, Research Analyst]

I'd like to come back to the fine-tuning here between savings and gross margin. I guess you will not accept the sales numbers that we saw in Q1 and in the coming quarters and note that you haven't changed your financial target for positive low single digit and like-for-like. So I mean you also expect the long-term decline in the gross margin. How should we think about this for the coming quarters?

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

We are -- Q1 was the hardest in terms of comparables, I will say, due to the very good winter season in 2018. We are fine-tuning the balance, but we will, of course, also focus on the profitability. I think for the coming quarters, do not expect the same as you saw this quarter, a more balance. Then, going into the fourth quarter, we obviously expect better gross margin, so that's sort of the short term. Longer term, we still think that market dynamics and increased share online will have a certain pressure on the gross margin. But then, we have a lot of initiatives that we will compensate with when it comes to being more efficient in the operations and reducing the OpEx accordingly. That is what the strategy plan is all about.

[Magnus Råman, Research Analyst]

Right. And just follow-up on that. Being more efficient, that entail also skinning down staffing in stores from current levels?

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

It could mean a lot of things. It could be downscaling some stores in square meters. It could be more efficient solutions for the store staff, so they could be salesman rather down doing other things. That's the most important because the concept is about having good service and being a specialist in the field that you are responsible of. So it's more about getting more efficient to send the delivery of the goods to the store and so on. It's a lot of things there that will also, in a way, enhance the overall customer proposition of the store as well.

[Magnus Råman, Research Analyst]

Right. And moving to the inventory position. I believe, the inventory is good at 23% year-on-year in Q1 and the leverage ratio is up at 3.9x, clearly above the ordinary ceiling of 3.5 and that I guess might be we can state this soon. How do you plan to reduce inventory in the coming quarters, if selling more is obviously a component? But do you also expect to source less?

[Øivind Tidemandsen, Chairman]

Yes. That's obviously. But we will have -- I mean we have quite a lot of winter goods that's on-stock now and that will follow us through the next 2 quarters sending to the last quarter, where it's -- when the markets are there for the winter goods. So we will have this kind of disadvantage with the stock with us, but we will work with the stock in the months to come to reduce it. Yes, this -- the lots that I did -- we have a lot of initiatives in that matter.

[Magnus Råman, Research Analyst]

And do you expect that a reduction in the other categories will be enough for you to reducing inventory on a scale to also being leverage back down below the ceiling?

[Øivind Tidemandsen, Chairman]

Yes. But we will probably not be down by 2.5.

[Stein Alexander Eriksen, Group Chief Financial Officer]

But to answer to your question, yes, we feel...

[Magnus Råman, Research Analyst]

Was that 2.5 or 3.5?

[Øivind Tidemandsen, Chairman]

It's [indiscernible].

[Stein Alexander Eriksen, Group Chief Financial Officer]

But to answer your question, yes, we feel confident that we will -- I mean, we have a covenant of 4.5 in the second quarter and we feel confident that we will be below that. Unlike Øivind said here, we are working very hard now to look at all different SKUs in the inventory and see how to reduce it in the next quarters to come.

[Magnus Råman, Research Analyst]

Okay. And then just finally, I have a question on current trading path. You just mentioned that you saw better sales trend going out Q1. Now, we -- part of April, can you give any comment on -- if that has continued into April, if?

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

We are in a way continuing in the same note as the first quarter, but there are very important selling days left in April and we have a good campaign going these couple of days, so can you please visit our stores. So -- but I think, in general, we are seeing much of the sale as we saw or the trend that we saw in Q1 -- in the end of Q1.

[Øivind Tidemandsen, Chairman]

It's a little bit different to compare because you have the Easter, so it's kind of not so easy to compare these with April.

[Magnus Råman, Research Analyst]

Yes. That was good because I will come into that with Easter, you said, you have a good progression in March, but I guess that you had -- I mean the comparison might have been a bit easier given that you had Easter falling in March last year as opposed to later this year in April.

[Øivind Tidemandsen, Chairman]

It's not so very big difference. I think it's one day in Norway, less sales day, and Sweden, Finland and the other are the same sellers.

[Operator]

The next question came from Tushar Jain from Goldman Sachs.

[Tushar Jain, Research Analyst]

Just a couple of questions from my side. I'll start with inventory. I just want to get it clear, when we think about your inventory order for the summer products, do you think that is fairly in line what you are expecting and this inventory problem will only be limited to the winter part of order NOK 250 million through the year? Just wanted to confirm that.

[Stein Alexander Eriksen, Group Chief Financial Officer]

Yes. We feel confident that we will deliver on the Q2 inventory.

[Tushar Jain, Research Analyst]

Got it. My second question, in terms of the category, can you give us a little bit more color if there was some categories between clothing, footwear or hardware, which will significantly underperform or you saw some surprises in some categories? Just a little bit of more color on what you really saw between -- on the sale growth in different categories.

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

Skis, obviously, underperformed due to, we think, a lot on the winter conditions.

[Stein Alexander Eriksen, Group Chief Financial Officer]

Especially in Norway and Sweden.

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

Yes. The same goes for a lot of the winter clothing, I think that's fitting in it.

[Stein Alexander Eriksen, Group Chief Financial Officer]

Yes.

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

So it's very seasonal products that have underperformed. That's also why we decided to carry over some products to rather stock it for the next season with huge margins.

[Øivind Tidemandsen, Chairman]

Yes. And our other alternative would be to sell these products with a very low margin in the market and we decide to rather use it in the next season, because the products are good and we don't think we need to sell it to any discount next year.

[Tushar Jain, Research Analyst]

Got it. That makes sense. And my final question. In terms of Sweden, I think you're doing a lot of initiatives in terms of introducing local assortment. Is there a sort of an update now or it's still a bit early to see those effect coming through?

[Øivind Tidemandsen, Chairman]

I think it's a little bit early. We have changed management. So we have a new leader in Sweden, he started 1st of March. But it's hardly getting warm yet. So it's -- it will take sometime and also the initiatives that we are doing will take some time before you can see significant improvement except from the short initiatives that we have, which are kind of for all countries, like you see the margin is better in Sweden in the first quarter as well as in the other countries, for instance.

[Operator]

And the next questions come from Petter Nyström from ABG Sundal Collier.

[Petter Nyström, Lead Analyst]

Three questions from me. Firstly, was on IFRS 16 effects. You showed a slide there on the Q1 effects. I assume that the effects we saw in Q1 is also representative for next coming quarters in 2019?

[Stein Alexander Eriksen, Group Chief Financial Officer]

Yes. I think that's fairly good assumption. Yes.

[Petter Nyström, Lead Analyst]

Okay. Second question is on your like-for-like. Is it possible to get a split between volume and price, rough estimate?

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

First of all, I think, of course, we have the negative like-for-like in the store is higher than with the like-for-like in total, of course, because of e-commerce also being a part of the formula. It is a lot about traffic and volume, I think, than the climate, yes.

[Stein Alexander Eriksen, Group Chief Financial Officer]

Yes. I would say almost everything is related to volume. Yes.

[Petter Nyström, Lead Analyst]

Okay. And then finally, on the inventory levels, you have a target there of mid-30s by the end of the year. Is it possible to say what kind of revenue growth you would need to achieve that target?

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

I think it's difficult to answer that actually because a lot of the -- we are preordering, it's about how much you are using all options on the stock levels and so on also. So many elements into this calculation. But I can give you -- I can just give you an example. From Q1 '18 to Q1 '19, we had an inventory increase of NOK 400 million. So if you break that down, I would say, we had 5 new stores, that's NOK 180 million. You had 2 new stores in April, that's NOK 75 millions and then we had less sales and that was NOK 100 million and then we had other with NOK 50 million. So, of course, I mean, it's quite obvious that we can't continue with minus 6.9% in lower turnover during the next quarter. So we -- then we have to stop purchasing, to be pretty honest with you.

[Operator]

[Operator Instructions] At the moment there's nobody in the queue. [Operator Instructions] There is no questions coming through over the phone, so I'll hand the call back to you. Thank you.

[Tolle O. R. Grøterud, Interim Chief Executive Officer]

Thank you. So that ends our session. So thank you all for your participation, and have a nice day.