Byggmax Group AB

STO:BMAX

Earnings Call Transcript 2021-Q2

[Operator]

Welcome to Byggmax conference call. [Operator Instructions] Please note that today's call is being recorded. Today, I'm pleased to present Mattias Ankarberg, CEO. Please begin the meeting.

[Mattias Ankarberg, President & CEO]

Thank you. Welcome, everybody, to this Q2 conference call. I also have with me Helena Nathhorst, our CFO. And as usual, we will take turns to go through a presentation. And we will also, as usual, speak to a presentation that is available on our website. And I will start, we could kick off on Page 2. Overall, a very strong quarter, the best quarter in history for us despite the very exceptional comparables from Q2 last year. We increased net sales by 13% on the back of a 39% growth last year to just over SEK 2.8 billion in sales. Continued strong markets and continued share gains, which we'll come back to you in a minute. Like-for-like sales up 9%. Continued very strong growth from the e-commerce part, particularly Byggmax branded e-commerce increased 35% also on the back of very strong comparables. And in all, e-commerce is 25% of the group sales. We continue to increase gross margin and continue to give us very good scale effect. So profitability is clearly up and our operating profit measured as EBITDA increased by almost SEK 100 million versus last year's strong number already to SEK 456 million. We have a margin in the quarter, an EBITA margin of just over 16% and the rolling 12 margin of 11.7%. It's also been, on Page 3, an eventful quarter for us, with many things happening during and also just after the quarter. Firstly, of course, we are still in a COVID-19 pandemic, and there's a lot of precautions continuing to be taken to operate in a responsible way. We were impacted as part of that by partial lockdowns in Norway during April, and I'll come back to a bit more detail on that in a second. We've continued our long-term efforts of upgrading and expanding our store portfolio, opened 5 new stores in the quarter. And we also, just after the end of the quarter, now announced an acquisition of Norwegian tiles discount called Right Price Tiles, that I would also come back to. Touching on the COVID-19 situation on Page 4 and I think for many purposes, we probably all hope that this is the last time we will have to touch on the COVID-19 pandemic situation. But briefly, for those of you who follow us, you know that we have been as many very strict and take very careful precautions to operate in a responsible way, both for our colleagues and also for our customers. And those precautions have continued and not changed during the quarter. We did enter the quarter with 23 stores in Norway that were closed for visits, but open for click and collect, and they remain closed about all of them for about all of the month of April. And following that entering May, we have had no negative impact of any store closures or partial lockdowns. So I would say in all it's a fairly small impact on the total Byggmax numbers in the total quarter. We have had, still, a positive financial impact during the pandemic in terms of people staying home more during the pandemic, obviously, and the disruptions that we have faced we have been able to manage in an appropriate way those disruptions, if all manageable. Moving on to the quarter and the developments in the quarter on Page 5. I think this quarter, perhaps almost more than usual, it's important to start from the discount perspective as there are many forces in play. And as you know, who follow us, Byggmax has the low-price position, the leading position in the Nordics, and we are, therefore, of course, benefiting from the retail phenomena around discount taking market share. And we are, perhaps, slightly too proud of being able to say that we have strengthened this position also during Q2 and for the full year 2021. And we have received several awards or recognitions from several independent surveys, being recognized as the lowest price player in the market. And here are some examples from Sweden and Norway, most of them are from Q2, 1 or 2 from Q1, and including surveys done by the biggest new paper, both in Sweden and in Norway. So very positive for us to reinforce that leading discount position. And that also helps us going forward in terms of being a relatively stronger player in the market and taking market share. And on Page 6, we give you an update exactly in line with what we did last quarter about our development versus the market, and we continue to take market share. The market is about unchanged versus last year's very high level during the pandemic. Now when we talk about the market, we talk about the Nordic consumer market for building materials. For those of you who followed us a bit longer, you know that we were very happy last year to see that, finally, almost some external institutes start doing to track the market and publish data around the B2C side of the market, both in in Sweden and in Norway through industry associations. And that has helped us to put the numbers together also this quarter, however, a bit more challenging as they don't report quarterly and have changed some definitions. But in all, we have a good sense of the market using also our previous internal numbers. So the market has been -- going to the details of the market in Q2 '21, played out a little bit different between countries with, for example, Norway being negatively impacted by the lockdowns as mentioned earlier, Sweden slightly more positive. But overall, there is still a very strong stay-home effect that goes on in also Q2. There is a clear positive effect on the market from increased consumer prices. Raw material prices have increased in a lot of categories, which have been passed on to the consumers. And also, there is a longer-term trend for the last, well, 18 to 24 months, with strong housing markets in all Nordic countries, basically, which, of course, supports DIY and renovation projects, so very positive. On the right-hand side, we summarize Byggmax development in the quarter, and we have a 13% growth, both in local currency and reported. The Byggmax segment, the majority of the business is about 90%, increased by 12%. We continue to see very good effects of the initiatives that we are driving. E-commerce is going really good, good effect from the store upgrades and also some new stores. And the business we acquired as of Jan 1 in Denmark at 2% in the quarter for the Byggmax segment. Skånska Byggvaror, the second segment and the smaller segment has an even better performance with plus 21%, and really benefit from both being an online player and also the position relating to Garden, which is developing really strongly. And also a really good growth initiatives, particularly around product development and digital sales. So overall, a good quarter in terms of continued market share gains and market share gains in line with both, well, basically all the last 5, 6 quarters. Before digging into the initiatives and some more details around the events, we thought it would be good to just step back and look at the market as there's a lot of things going on at the moment. And as we sketched out on the Capital Markets Day in March, there are 3 really big macro trends that are impacting Byggmax, and we can see development on all 3 as we close Q2 2021. So the first one, and perhaps the biggest one is the discount trend, where we see that the further acceleration is going on when the market prices increase. We have several examples of customers that are choosing price levels more carefully or selecting between retailers more carefully and choosing Byggmax that used to go, perhaps, to other competitors. And the general market increase seems to be very correlated with a general increase in price comparison, and therefore, accelerating the discount trend. The second big trend is around the home, which, we believe, and I think many believe by now that the home will play a new and bigger role in many people's lives post the pandemic. There is people -- many more people expecting to work from home and also people are more oriented around staycation and having invested in perhaps both or pets or so. So a new level for the home is increasingly in the cards as we end the pandemic, hopefully. And the third big trend is around e-commerce, which, I think, many are aware of the impact and the many new e-commerce consumers that have popped up during the pandemic. And as a comment, I could also mention that we clearly see that e-commerce is also strengthening the discount trend. That's the digital transparency make it easier to compare prices across different players. So 3 favorable market trends with a slight update on the status of all of them here by Q2 and, perhaps, the biggest note is the continuous acceleration of discount. Turning to Page 8 and a bit more detail on our own activities and our initiatives. We -- as we have done for many quarters, quickly go through the impact of our strategic initiatives. There are 3 that we are primarily focusing on. E-commerce continues to be a really good driving force for us, where we increased e-commerce sales under Byggmax brand with 35% in the quarter on top of a very tough comparable figure of plus 65% from last year. We continue to see basically growth across categories and across delivery options with the very fastest growth from collected stores. Store upgrades, where we upgrade store to our newer formats, with broader set of categories and a better experience, continue to generate 6% sales effect per store and above. And we now have almost half 49% of the store portfolio upgraded to this concept. We also, as part of this concept, introduced or roll out, I should say, our Garden offer, which is also performing really strongly. And over 2 years, the Garden range has doubled in sales for Q2 for Byggmax. Store expansion continues. We have 5 new stores opened in the quarter and 2 are in Q1 in addition to the 4 we acquired in Denmark and that also continues to add sales for us. And I'd now like to just go into some more detail on each 1 of these 3 initiatives. So we start with online on Page 9. As mentioned, a really good growth on back of a good growth, and we could see that the fastest growth is really coming from the sort of intersection of stores and online or store-enabled online, I guess, you could say. So collected store is continuing to grow really fast, which is what we call pick and collect. Although we have to state that home delivery is also growing really fast. We continue to see good effects of other multichannel efforts such as, for example, show rooming, people visiting stores to look at products and then ordering online; or we also continue to see that e-commerce is being benefited from opening of new stores. So good -- really good effect on the e-commerce sales and continued very positive effects from the combination of e-commerce and stores. It's also an area where we have invested a lot, and we will continue to invest a lot. And we have introduced in the quarter new private label ranges online, both for Garden furnitures and bathroom products, which have started well. And we're also now in the process of introducing over 200 digital guides and instructions for 200 DIY projects that have come quite far away on our website already. Regarding the store portfolio, on Page 10, we now operate with small, regular and large formats, and we have an upgraded version that we call STORE 3.0 of each and an upgrade to these formats generates about 6% sales per store. We focus our upgrade efforts mainly in the low season, Q4, Q1 as we don't want to disturb the stores too much during high season. But we continue to see positive effects of the upgrades done during low season and now that we are in high season, and, in all, it generated about 6% sales increase per store. On Page 11, there is more details regarding the development of the store portfolio, which is, as you can see, increasingly upgraded. And on the positive side, there is also more to do. So we are now about halfway through to upgrade the store portfolio to our 3.0 concept. And that, of course, means that there is half left to do. We keep a good pace of that now also in Q4 and Q1 planned for the coming season. Five new stores in the quarter, 4 in Sweden and 1 in Norway. We have relocated 1 store in Trollhättan and not performed any upgrades of existing stores beyond that. We have Garden departments in 40% of the portfolio, of which half are of the large size. And we also have 20 stores by now of the format for smaller towns, the small format. So that gives some more detail on the store portfolio. That rounds off the comments for the Byggmax segment as is for the quarter. And then I'd like to mention briefly something on the second payment Byggvaror before moving to 1 of the events in the quarter. So on Page 12, just outlining the performance of Skånska Byggvaror that continued very strong, another strong quarter for Skånska Byggvaror, as mentioned, really benefits from the leading online position and the Garden position. But also very good results for some own initiatives growth, particularly around some new products that the team has developed and also continued good effect from digital sales and marketing efforts, which are increasingly sharper. Sales increased by 21% in the quarter and profitability continued to increase really well. And we also increased order intake in the quarter somewhat despite very strong comparables from last year. And the strategy for Skånska Byggvaror for me. We continue to focus on the growth initiatives that are in place, which are product development, digital sales and marketing and also further geographic expansion into Norway and Finland. So that summarize the comments on the external environment and the initiatives performed during the quarter. I would now like to comment on what happened after the quarter, the acquisition of Right Price Tiles before handing over to Helena for the financials in more detail. So on Page 13, 2 pages and some comments to the acquisition of Right Price Tiles. We can start with the what on Page 13. So we have announced to acquire 100% of a Norwegian founder-led discount concept called Right Price Tiles, founded 16 years ago with the first store in Oslo, which has a customer offer in the tiles category where being mass is not so strong, but consumer proposition very much in line with Byggmax, focused on quality products at the very best prices. Very much focused on the tiles category, but also complemented with some bathroom products and flooring. It's a very sort of entrepreneurial-driven company. Again, started from scratch 16 years ago and has a good and long history of profitable organic growth. And it currently has operated through 14 stores, of which, 2 are franchise, and then a small, but really fast-growing e-commerce business. Right Price Tiles is also a direct importer of private-label tiles and related products. In terms of size, excuse me, SEK 300 million Norwegian in turn over last year and SEK 34 million EBITDA. The transaction is structured into 2 installments. So there is an initial consideration of SEK 175 million and an additional consideration that depends on performance of EBITDA in 2021 and 2022. That's good as a maximum amount to be SEK 110 million. We should also say that the transaction is subject to approval from the Norwegian competition authorities. So that is the what around the transaction. And then on the next page, a bit more on the why and also something on what's next. So the why? Well, we see tiles as clearly attractive category and the nice complement to the business that we already have. It is a much more of an all-year category that is not the seasonal category, which we like to complement the current profile that we have and also a good margin category. This is more of a younger customer base and more of a planned, so we call it family project, that is more of a discussion around the family for what projects to do and what products to use. And there are still quite new consumer-focused players in the Nordics. So there is a good category to be a consumer-focused discounter in. We also like Right Price Tiles because it is a very good fit with Byggmax proposition. I touched on it earlier. But in summary, we could say the discount mentality and the discount proposition is structured almost identically as Byggmax with quality products at the best prices and the same prices for all. And there is a product category, which is well-selected and, carefully selected is perhaps a better wording and very much complementary to Byggmax current offer. And it is also clear that Right Price Tiles is that clear price leader in the Norwegian market and the market share in there. So it's a good category, and it's a good fit with our proposition. And now we are looking forward. And of course, there is a period where the current owners and founders will focusing on developing the business according to set targets, but also we are planning for growth under the Byggmax brand. We aim to integrate this into the Byggmax brand business. So we will do this in 2 steps. First, we will initially offer the products from Right Price Tiles under the Byggmax brand in our e-commerce and some selected stores. And then we plan for Byggmax brand and highly complex stores particularly outside Norway, under the Byggmax brand. So that was some more information about the acquisition, which was announced just after the closing of Q2. And now I will turn to Helena to go through some of the financials before coming back on summarizing.

[Helena Nathhorst, Chief Financial Officer]

Yes. We move to Page 15 and the sales development for the second quarter. Again, a strong market in the quarter, which continued to stay home and a positive effect from increased consumer market prices in combination with our leading market position and market share gains increased the group sales with 13.4%. The like-for-like sales devolvement for the group at 8.6%. And we have a positive currency effect below 1%. We have approximately 25% of our sales outside Sweden, and the movement is related to the Norwegian one in the period. If we look into the segments, where Byggmax represents 89.2% of the sales in the quarter. In Byggmax, we include our acquired Danish company, [indiscernible], and the increase in the sales in the quarter is 12.2%. The acquisition contributes with 2.4%, and the like-for-like is 7.3%. The other segment, Skånska Byggvaror has a solid growth and represent a growth of 21.2% in the quarter. So if we move to the income statement on the next slide, we can see how the strong sales contributes to the improved EBITDA in the quarter. Next Page 16. Net sales increased, as we said, by 13.4% to SEK 2.8 billion. It's a volatile gross margin in the quarter with a difficult supply situation and movements both in supplier and consumer market prices. And the quarter ended with a positive movement and an increased margin to 33.2%. Our cost control remains solid. The increase is mainly related to new and acquired stores. The comparable cost increased, but then comparing to 2020, we have a quarter where we had earlier in pandemic and there was a high uncertainty on the development going forward. So we had lower levels of activity and initiatives and marketing efforts in that quarter. So in all, EBITDA increased to SEK 456 million in the period, almost by SEK 100 million. And we have made a EBITA margin of 16.1%. Both segments contributed to the group's improvement via its improved gross margin and cost control, converting the sales increase to EBITDA growth. Byggmax increased EBITDA from SEK 348 million to SEK 430 million, and Skånska Byggvaror contributed with another [ SEK 21 million ] from SEK 41 million to SEK 62 million on EBITDA. If we continue to Page 17, sorry, we have the cash flow and net debt. We have a strong balance sheet, and we have a cash position of SEK 200 million, SEK 200 million compared to SEK 47 million in the second quarter of 2020. Cash flow from operating activities amounts to SEK 821 million in the quarter. It's a decrease of SEK 433 million compared to the same period last year. And this is mainly attributed to the decrease in accounts payable. As mentioned, we have a strong cash position, and it has contributed to our flexibility to securing a good supply inventory position, and we have used a high degree of our cash discounts during the period.

[Mattias Ankarberg, President & CEO]

Thank you, Helena. We are just about there in terms of presentation, but we would like to round up with 2 more comments in 2 pages. So on Page 18, giving you the status of our current performance versus the financial target. The financial targets were updated and announced at the Capital Markets Day in March this year. We have a sales target to reach SEK 10 billion by 2025. We are currently rolling 12 at SEK 7.4 billion and rolling 12, 1 year ago, we were at SEK 6.1 billion. So clearly moving forward. We have an EBITA margin target of 7.8%, and we have -- we are now trending at 11.7%, above what we were well before, of course, but also 1 year ago at 8.5%. We have a target to have a leverage or net debt EBITDA, excluding IFRS 16 effects of below 2.5x, and we are about 0 or slightly cash positive. And we have a target to distribute 50% of the net income in terms of dividend, of which the Board has decided to distribute 35%, about SEK 2.75 per share now in May. We also have another target on this page, which is not a financial target, but a sustainability target. And we have many targets, but the 1 we are highlighting is the target regarding carbon dioxide emissions from goods transports, which is sort of a scope 2-ish target, you could say, where we have a high ambition to decrease that by 70% by 2030, and we are currently at minus 32% as of last full year. So clearly, moving forward on the financial targets so far. Rounding off on Page 19, summarizing the quarter and a bit of a future outlook. We could say that it's, of course, been a record quarter, which we are really pleased about, but also perhaps more pleased about, but we really see that we have strengthened our market position and set ourselves up for the future in an even better way. We have, again, exceptional comparables, but a really strong result with a strong market and really well-performing initiatives. We continue to get very good scale effects and really good leverage in terms of profitability increase. Our main focus remains. We have a set of proven organic growth initiatives that all have clearly much more to give. And we are super focused on continuing to drive e-commerce, store upgrades and new stores in sort of white spots, new locations for us also going forward, there is much potential in that. And then we are pleased to have found Right Price Tiles and announced the acquisition, which, we think, complements the current business really nicely and adds to the growth potential, something we can really develop for the coming years. And then on the external trend side, we are fortunate. We should be happy to say to now be in a situation where the trends are very favorable for us going forward. The acceleration of the discount trend is perhaps the most pronounced one in the quarter given the consumer market price increases, which really benefits us. I think we are also increasingly clear that the home is going to play a more important part of people's lives after the pandemic than before the pandemic, and we also benefit from a continued strong e-commerce trend. And on the market outlook, we sort of maintain or reiterate or reinforce our view that the market was clearly boosted and in place that is maybe not the right word, but was very strong during the pandemic level. And we maintain the view that the DIY market will be larger after the pandemic than before the pandemic given the role of the home, but not as large as during the pandemic. And with that, we summarize the presentation, conclude the presentation and hand over to operator to handle questions.

[Operator]

[Operator Instructions] And our first question comes from Niklas Ekman from Carnegie.

[Niklas Ekman]

Can I maybe start with your very last statement here. And I'm curious about the current trading, if there's anything you can say here. Because if you look at travel, for instance, here during the summer, we're still far -- I mean, travel -- holiday traveling this summer is still very far from 2019 levels, but it's also much better than what we've seen in any other time during the fanatic. More and more people are traveling. Are you seeing any clear shift in consumer behavior going from kind of Q2 to Q3? Or are you seeing that this strong trend that you've seen now going into the summer that, that has continued also going into July?

[Mattias Ankarberg, President & CEO]

Thank you, Nicolas. We'll try to elaborate, and I am personally also really curious about consumer trends and this one is more interesting things to observe at the moment, and we'll try to contribute with the light we can share. I think it sort of separate 2 or 3 things. We -- on the sort of midterm, I guess, we clearly see that the sort of market will be higher after the pandemic than before the pandemic. But to your point, there is probably a reopening effect that's occurring some time, probably about now. And going into the details, if we look, for example, at our small, but still business in Denmark, taking Denmark as an example, because it was, in our view, the country in the Nordics, which opened up the fastest, we could see that there is a sort of dip in volume and sales in the market. And for us as the country opens up and people almost, and thankfully, are afraid to do other things than just be at home. So April and May was below 2020, although still above 2019. But then in June, when after, I guess, 2 months or so after being freed from your home, sales came back again and then was sort of in line with 2020. So that's, of course -- I think that is a reasonable sort of near-term pattern to expect as the different markets open up. And then the other factor that comes into play is, of course, price increases that support the sales trend, even though that the behavior and the quantities, as you mentioned, Niklas, is probably shifting a little bit away from DIY to other things as the opening occurs.

[Niklas Ekman]

Okay. That's very clear. And then shifting more here towards Q2 and the gross margin, up by more than 200 basis points here year-over-year. Can you just provide some more details here? How much of this is related to price hikes being greater than the rise in input costs? How much is mix scale benefits? I think you mentioned here that you've been getting discounts from suppliers as well when you make early payments. How big a factor has that been? So just what are the key drivers here behind the gross margin?

[Mattias Ankarberg, President & CEO]

Yes. Absolutely right, and you picked the right sort of drivers. And I think you picked the right order also of priority, so to speak. And the most important factor by far, I would say more than half, probably around 3/4 of the improvement in the gross margin is related to price hikes. And it's a bit of a complicated topic to describe, but I'll give it a shot. And it plays out a bit differently by category, and we have a strategy, of course, being the lowest on price. So we are a price follower. In some categories, the consumer prices have increased sort of in anticipation of raw material price increases, whereas in others, it has more followed the raw material increases. So it's been a volatile development during the quarter. For us, in some weeks, we were clearly above last year and some weeks clearly below. But in all, it played out, in, of course, clearly a positive way for us during the quarter. Then there is no guarantee that, that will be the factor for the next quarter, but that will be a factor in Q2. And then the second and third effect, to your point, Niklas, is the continued sort of product mix improvement, and we've had that around -- I can't remember what we have quantified, but around sort of 20, 30 basis points or so year-over-year for 2 years or so since we started with the store upgrades and a broader set of categories being rolled out. And then I would guess around the same effect, maximum is the sort of cash discount program that we have initiated earlier this year.

[Niklas Ekman]

Okay. And it -- I guess it's fairly safe to assume that these price hikes, that impact is not going to last looking into Q3 and then certainly not in the coming quarters, but you could still see some sustained scale effects from higher input costs, right?

[Mattias Ankarberg, President & CEO]

Yes. I think you're completely right. And I -- just to clarify, I think that's what you mentioned, but the price level is probably not going to drop in the next quarter or so, but the margin impact will probably not be positive versus last year from the price hike, which is, I guess, what you meant by that comment.

[Niklas Ekman]

Exactly. Exactly. Another question is on this Norwegian acquisitions. If you can say a little bit more here on the strategy here. Whether you're looking at running this as a complete separate brand or integrate into Byggmax? How quickly can that be done? How quickly can this be fully integrated into a Byggmax's assortment? And is that really the idea? Do you want to put in a very significant part of that assortment in a classical Byggmax store? Or is it mainly to kind of increase the exposure of tiles?

[Mattias Ankarberg, President & CEO]

Happy to elaborate. So the plan is to incorporate this onto the Byggmax brand and sort of integrate it in an integrated customer offer. It's going to take a little bit of time. It's going to be in a couple of steps that I can describe. So there is an earn-out period where we will allow the current operators and soon to be previous owners to maintain the brand position during the earn-out period, at least in Norway, Right Price Tiles. We will start by introducing some of the products -- well, probably all the products into our e-commerce for Byggmax and some of the products in some of our stores. But to be relevant to the extent that Right Price Tiles is in the tiles category, you need to meet the customer and talk about the complete project, for example, a bathroom renovation or a kitchen renovation. And that is best served in for the concept stores. And most likely, we will open Byggmax branded tiles concept stores particularly outside Norway as a second step. And while we will have products on e-commerce and some products in all Byggmax stores, the best way to serve these kind of customers and tiles market is through concept-focused tile stores, then, again, under the Byggmax brand after a period of time.

[Niklas Ekman]

That makes a lot of sense, I guess. And I guess a follow-up here also on acquisitions. I mean now you made this Danish acquisition in December. You made this Norwegian acquisition here 2 weeks ago. What kind of further M&A potential do you see? Or do you see a lot of M&A potential going forward? And what would be kind of the most relevant areas? Is it an acquisition similar to this Norwegian one, where you would expand into a vertical where you have a weak position today? Is that the kind of the preferred further M&A that you would see going forward?

[Mattias Ankarberg, President & CEO]

That's about right. And I could elaborate a bit. And I think it comes as no surprise to say that we are sort of really big fans of our organic plans. We feel that we have a lot more to do and a lot more to invest in our existing business with the initiatives that we already have. So that is clearly the sort of foundation of the growth plan going forward. But then there are -- and also to your point, Niklas, there are some particularly categories, maybe some geographies where we feel that we could complement ourselves by add-on acquisitions. So we -- you should not expect us to do a huge amount, but there could be a few more. We are very much focused on occupied by finding acquisition targets that sort of fit in with Byggmax that really strengthens the Byggmax's business and fits with the Byggmax value proposition and brand. So the target list is probably not that long. But for the relevant areas and opportunities that may occur, yes, that could be an option for us.

[Operator]

[Operator Instructions] And our next question comes from Carl [indiscernible] from Carnegie.

[Unknown Analyst]

So a follow-up question here on the raw material prices. We talked in conjunction with the Q1 report, you estimated that, that had a roughly 5 percentage points positive effect on the sales growth year-on-year in Q1 and all is equal? And also, I mean, given what you said on the gross margin, I think that the effect has been quite large in Q2 also. So could you say anything sort of what you estimate the sales growth impact has been depending on the price increases here in the quarter?

[Mattias Ankarberg, President & CEO]

Yes. You're right, Carl. We estimated it is at 5% in Q1, both for the market and for us. And it plays out a little bit different, again, by categories and countries. But in all, the estimates actually both for the market and for us for Q2 is that it clearly increased to between 10% and 15% price impact on sales, both for sort of market level and for our sales.

[Unknown Analyst]

Perfect. Very well. And my second question is on the acquisition here of Right Price Tiles. Do you have any base case scenario where do you expect the response from regulatory authorities of approval?

[Mattias Ankarberg, President & CEO]

I don't know if we have any timeline we could share at the moment. I don't think so, right?

[Helena Nathhorst, Chief Financial Officer]

No.

[Mattias Ankarberg, President & CEO]

We'll have to get [indiscernible]. No.

[Fredrik Ivarsson, Research Analyst]

Yes. And maybe just a follow-up there also. I guess, the first consideration on the payment is then not paid here. We should not assume a cash flow effect so far in Q3, I guess, given that hasn't been approved yet. Am I correct there?

[Helena Nathhorst, Chief Financial Officer]

I think, most likely, it will be in the next quarter that we will have the approval according to the first sort of analysis given to us.

[Unknown Analyst]

Understood.

[Helena Nathhorst, Chief Financial Officer]

And then the closing will be shortly after to that.

[Unknown Analyst]

Okay. Perfect. And then my third question is on online here. You saw continued strong growth during Q2, and we talked also in conjunction with the CMD regarding several improvements in your e-commerce offering, such as increasing the number of SKUs quite significant. We talked about up to 150,000 SKUs here going forward compared with around 50,000. I think you were at 50,000 when we were at the CMD. So could you share any sort of what you have accomplished on the online side here in the quarter? And maybe also if you could elaborate -- Do you see any sort of -- any price differences in marketing here during the quarter. We've got some signals that maybe marketing prices in DIY for online players have risen quite significantly in Q2. So it would be interesting to hear that as well from you?

[Mattias Ankarberg, President & CEO]

Now very good. And your memory serves you well. We did talk a lot about this at the CMD, and you pick also the drivers about right. We have done quite a lot also in the quarter. And we have sort of 3 main areas, I guess, we could talk to. We've continued to sharpen the delivery sort of offers and options for the customers, which we see -- actually, and we talked a lot about this at the CMDs. We actually see driving growth when we're adding new delivery options, and we've been particularly successful, again, with click and collect, but actually also have well new home delivery options also go really well. And then we have introduced a lot more maybe on the more marketing or qualitative side instruction and guides for the site, which actually helps customers and also sales. But then to the maybe core sort of driver point around this new, yes, we have increased a bit. We have not increased a huge amount in number of SKUs in the quarter. It is sort of mid-high teens. And then we have increased a bit, but we have increased in some really good spots, I would say. So we have started introducing some private label ranges in both, for example, Garden furniture and bathroom products that we announced now in Q2 for the first time and then a good first quarter for those kind of products. But you're right, Carl. The plan is to continue to invest in this area around e-commerce, including ramping up the number of SKUs going forward.

[Unknown Analyst]

Very well. And maybe just finally there, do you see any impact on your sort of marketing strategies or competition here on the online side during Q2 given the momentum in the market is very, very strong? Do you see any competition on, for example, Google AdWords marketing or other marketing channels for your online offering here going forward?

[Mattias Ankarberg, President & CEO]

Yes, we could comment on that because it's sort of very specific in detail, but I think we have been quite fortunate in having a good trend also in organic traffic throughout many quarters, including this one and probably back to the point around being known for a low price position and increasingly becoming sort of a destination of search. So it's not been any material effect negatively for us. I mean, there are -- for those of you who are into those details some changes that is being done by, for example, Google to how to buy and bid for traffic, which will most likely, in our view, increased costs for all, but -- players out there, but it's not material for us yet. So I hear what you say, and I could sense the effect. But for us, we have had other effects that have been positive. So it's no material impact for us in the quarter.

[Operator]

Our next question comes Julien Batteau from Pascal Advisers.

[Unknown Analyst]

Just a few questions from my side. On the like-for-like at Byggmax, 7%. If I calculate back, it seems to me that around half of that comes from e-comm and the rest would come from the stores. And you also say that the price was pretty high. Did you say 10%, 15% impact on top line. So that would suggest that traffic is down mid-single digits. So could you confirm?

[Mattias Ankarberg, President & CEO]

Yes, you are about right. On the like-for-like number and the price impact of around 10% to 15%. So that would mean like-for-like volume being -- and e-commerce is a big driver at about half. That's also about right. So that means that volume would be a bit down in the quarter versus last year. Then you have to remember, Julien, that last year, sales increased by 39%. So we were talking about the peak of the first wave pandemic, but in all, yes, that's -- the logic is correct.

[Unknown Analyst]

Okay. Okay. That's clear. And the other question I had is on the Garden side. You state that you have 40% of stores that are now equipped with the Garden side, and it's proving very, very successful. So do you plan to increase this 40%?

[Mattias Ankarberg, President & CEO]

Yes. Good question. Yes, you're right. And this communication, we could perhaps be a little bit sharper on. But we -- we have -- the updated store concept that we are rolling out the 3.0, does include the Garden department. We put it in there in all the 3.0 upgrades starting about a year or so ago, maybe 1.5 year. And in the regular format, it's a smaller Garden department. And in the large format, it's a larger Garden department. But we are now about half the portfolio at Store 3.0. And as we continue to roll that out, we will have also more Garden departments.

[Unknown Analyst]

So arguably fairly all stores bearing some exceptions could have a Garden?

[Mattias Ankarberg, President & CEO]

Yes, exactly. And now it's detailed, but the small format store that we have, we do have some garden products, but we don't call that Garden department because we feel the offer be too limited. So they will be the exemption.

[Unknown Analyst]

Okay. And then another question on the Right Price Tiles. Can you share a little bit of the performance so far this year? Is it still grow -- I mean, is it growing? Or do they face the same trend as Byggmax as a whole?

[Mattias Ankarberg, President & CEO]

Yes. No, but it's been, I would say, largely in line with Byggmax. I mean, the Right Price Tiles is Norwegian business and Norway was and very much focused on to a greater offshore and southern part, and that was impacted by lockdowns during both March and April, which, of course, significantly impacts the first half of the year. But even so, a good development, a positive development versus last year by not a lot, but at least somewhat positive despite negative lockdown effects versus 2020 so far.

[Unknown Analyst]

okay. And the earn-out is -- I mean, can you share a bit the hurdle rate for the CA growth or top line growth that it required them to really outperform? Or is it more a deferred payment to ensure that the management is still in place?

[Mattias Ankarberg, President & CEO]

No, we -- the earn-out is tied to EBITDA in this year and next year, '21, '22. Solely tied to that. And we have agreed with the founders not to share the exact details, but we could comment and say that to reach the full earnout level requires I would almost say, a dramatic step change in performance than it's a real, real step up. But we hope that of course that would happen that would be amazing. But we hope in any case that the business will continue to improve really well and that there will be a good amount of our amount for the founders, but full potential is very difficult to reach.

[Operator]

0Sure. Good, clear. And then the last -- my last question is on the net debt or should I say, the net cash because even after paying, seems to me, Right Price Tiles, you will be at 0. So the question is, obviously, there's the M&A angle. Would you let cash accumulate on the balance sheet because you still have this target of being below 2.5%, 2.5x, which is the far right from where you are now? So yes, what is the thinking around that?

[Mattias Ankarberg, President & CEO]

No, it's a good question. And you are, I mean, completely right. We do have a really strong balance sheet and, perhaps, too strong balance sheet. And of course, this is partly a board topic, but I guess, I think we can comment and say that there are a few things you can do with the cash. We can maybe invest even more in our organic plan, but it will probably not change the picture that much. We can do M&A, to your point. We could pay more dividends, so we could buy back shares. And as far as management is concerned, we are not excluding any of the options. But we agree with your -- I guess, that is your view, Julian, that the balance sheet sitting with net cash is not the optimal structure for us going forward. So actions will have to be taken for sure.

[Operator]

Our next question comes from Fredrik Ivarsson from ABG.

[Fredrik Ivarsson, Research Analyst]

I came in a bit late. So sorry if you already touched upon this issue. But I'm curious to hear what you see in terms of supply wood materials looking into the coming, say, 6 months or so, I guess, given that the fair share of the global volume is currently going into the U.S., it looks like. So is this a worry for you or are you all set on that side?

[Mattias Ankarberg, President & CEO]

It's a good question, Fredrik, and something we have not touched on, so good catch. But yes, no, it's stretched and challenging situation, but, in all, manageable, I would say, with the outlook that we have. I guess I should add it as a caveat. But I think we've sort of moved from red lights to maybe orange like or something like that. The market is really -- the export market for the Nordic players is really, really hot, to your point. But I think there's more visibility on the way that the domestic markets are playing out. And we also -- both have managed to find even some more new suppliers, but I think the suppliers are also prioritizing quite actively among their customers, and we are fortunate to be a really big buyer of those kind of products and get quite good priority actually. So we are not sort of calling it clear. It's a very -- topic that will follow very actively and very closely. But we, so, far feel that it's been manageable and don't see any sort of change in that outlook. We foresee that we will be okay.

[Fredrik Ivarsson, Research Analyst]

Sounds reassuring. And in relative terms, would you say that you might be in better shape than many of your competitors then?

[Mattias Ankarberg, President & CEO]

I would think so, to be honest. And then I think it probably is very mixed between the competitors. And this, I don't know, but just hear from sort of suppliers in the market that the smaller players tend to have problems and the bigger ones are getting share. And I guess we are most competing with sort of bigger ones, but so maybe it doesn't impact the competitive perspective that much. But I think I would almost have to be the case that some particularly smaller players have a really, really tough time getting enough volume.

[Operator]

We have a follow-up question from Carl [indiscernible] from Carnegie.

[Unknown Analyst]

I just had a follow-up question here. Maybe on the current trading and here going into July. I know we're only 2 weeks in here, but could you say anything on demand here going into July? And maybe share also the -- a bit on sort of how the monthly comparison develops here in Q3 from last year? You're facing very -- or much easier comparisons now in Q3 and Q4 compared with Q2, so where did you see sort of peak demand last year? Was that in June to slow down a bit in July, and how did that sort of develop last year will be interesting to hear?

[Mattias Ankarberg, President & CEO]

Yes. It's a good question, Carl. And 1 that since we're talking about so short periods of time, requires quite new and diligent answer, but comparisons were absolutely toughest in April and May and a bit -- well, still tough in June and sort of gradually paving off, I guess, and finding some kind of new stay-home level at about September or so, give or take a month. So I think we are sort of through the very toughest comparison. I think, to put it like this, the July initial trading has not surprised us. And we see a level where we are clearly above 2019. And then depending on sort of day, weather and sort of comparables, we are about 2020 or thereabouts or sometimes just below, sometimes just a bit above. But it's -- don't read too much into that information because it is early. If we go into details, there are calendar effects that are impacting, for example, the number of weeks between mid-summer and start of the main vacation period this year, and it's also been a couple of days of really nice kind of go-to-the-beach weather. So we are where we thought we would be or thereabouts with the current trading. And it is not too shy away from anything, but it is way too early to sort of have a trend to say where July will end up given both the weather and the calendar effects during the first 2 weeks.

[Operator]

And there appears to be no further questions, I will turn the conference to the speakers for any closing remarks.

[Mattias Ankarberg, President & CEO]

Thank you very much, everybody, for joining the call. Wish you a fantastic summer, and look forward to talking to you again at the Q3 call.