Byggmax Group AB

STO:BMAX

Earnings Call Analysis

Strong Margin Improvement and Reduced Debt Amidst Weak Market

Byggmax reported a 5.5% drop in net sales for Q2 2024 but managed to grow profitability, increasing EBITDA from SEK 172M to SEK 184M. The EBITDA margin rose from 7.8% to 8%. The company's gross margin improved to 33.6% due to better product mix and efficiency, despite a weak market for large renovations. Cost reductions and inventory optimization improved profitability, resulting in a 29% reduction in net debt from SEK 679M to SEK 480M. Byggmax aims for at least 5% annual growth and an EBITDA margin above 7%, maintaining a net debt to EBITDA ratio below 2.5x.

Navigating a Volatile Market

In the second quarter of 2024, Byggmax Group experienced a net sales decline of 5.5% year-over-year, sharply reduced from the previous periods, reflecting a hesitancy in the market driven by a weak consumer environment. While categories related to smaller home projects such as paint and gardening materials performed better, larger renovation projects continued to lag behind. As consumer confidence begins to recover, particularly with improvements in housing transactions, Byggmax expects to see a gradual uptick in demand across its product portfolio.

Improvement in Profitability Metrics

Despite the decrease in sales, Byggmax successfully improved its EBITDA to SEK 184 million, translating to an EBITDA margin of 8.8%. This is an increase from SEK 172 million in the same quarter last year, buoyed by enhanced operational efficiency and a favorable product mix. Notably, the gross margin rose to 33.6%, attributed to strategic pricing and effective cost management strategies, reflecting a significant operational achievement during these challenging times.

Cost Management and Operational Excellence

A key focus during this quarter was on managing costs across the business. Byggmax reported a 7% reduction in total operating costs compared to the previous year, a strategy largely successful due to improvements in store efficiency and administrative operations. Despite the increased depreciation from new store leases, the commitment to maintain cost discipline is yielding positive results, allowing for continued profitability enhancements.

Strengthening the Balance Sheet

One of the standout achievements this quarter was the significant reduction in net debt, declining from SEK 679 million to SEK 480 million. This 29% decrease provides a strong financial footing, with a net debt to EBITDA ratio of 1.5, remaining comfortably below the company’s target of 2.5. The management’s focus on ensuring liquidity and optimizing inventory has played a crucial role in improving the financial health of Byggmax.

Future Growth Expectations

Looking forward, Byggmax has outlined ambitious targets, aiming for an annual growth rate of at least 5% over the business cycle, with hopes to push EBITDA margins beyond 7%. These projections will hinge on maintaining operational efficiencies, refining the product assortment, and capitalizing on the improved macroeconomic conditions anticipated in the coming months. The long-term strategy also includes plans to expand the store footprint, currently at 230 locations across the Nordic markets.

Digital Transformation and Customer Engagement

The company is also focusing on enhancing its digital presence, with successful online offerings growing significantly, especially in customized products. The strong customer feedback reflects high levels of satisfaction which contributes positively to the brand's reputation. Byggmax is working diligently to integrate their e-commerce platform to complement store sales, thus positioning the company for higher sales volumes once consumer spending recovers fully.

Conclusion and Strategic Outlook

In conclusion, while Byggmax faces challenges presented by a cautious market environment, it has demonstrated a robust ability to adapt through strategic operational improvements and cost reductions. The consistent focus on strengthening the balance sheet, improving customer offerings, and preparing for future growth reflects a pragmatic approach to navigating the complexities of the retail landscape. Investors should monitor how Byggmax leverages its strong position and operational capabilities against a backdrop of returning consumer confidence.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2024 Interim Report of Byggmax Group. [Operator Instructions]. I would now like to hand your conference call over to the host, Karl Sandlund, CEO. Please go ahead.

[Karl Sandlund, executive]

Thank you. Thank you very much. And again, a warm welcome to this conference call where we will present Byggmax Group's report for the second quarter of 2024. And as you heard, I'm Karl Sandlund, the CEO of Byggmax, and with me is Helena Nathhorst, our CFO.

And as usual, the presentation that we will go through is available on our website, and we will guide you to the right page throughout the call. And I will start with a short business update and an overview of our focus areas. Later, Helena will cover the financials. And as you heard after this presentation, we, of course, open up the floor and are ready to address your questions.

But let's begin and start with Page #2 in the presentation. This second quarter of the year is part of our high season, as you know, and it's a quarter where we see substantial effects from our priorities. We have improved our profitability despite operating in a continued weak market and we have further strengthened our balance sheet with a reduced net debt.

Our net sales in the quarter was 5.5% lower than the last year and this is a lower decline than what we have seen in the last quarters. And we also see that there are significant differences in demand between categories in the quarter where products related to smaller projects, garden, paint, et cetera, [indiscernible] as well, while we still experienced weaker demand for larger renovation and this is expected.

The time to decide to ban and initiate larger investments, larger innovation is somewhat longer than for the more everyday consumption. And the variances in demand between categories also affected our product mix in the quarter.

As you have heard us saying before, our focus this year has been on securing strong operational excellence and to reduce net debt. And we saw effects from those areas during the quarter. We improved our profitability and deliver an EBITA of SEK 184 million or 8.8% margin in the quarter. And that is higher than last year, and the margin is also higher than what we had before the pandemic in 2018, '19.

It's driven by cost control and by a strong gross margin. The higher gross margin is a result of a successful purchasing, continuous efforts to improve the assortment, but also from the product mix mentioned. We have a slightly different product mix where we experienced higher demand for products with stronger margin than we usually have in the second quarter.

In addition to improved profitability, we continue to reduce our net debt. Cash flow from operations, optimization of the inventory and the lower CapEx result in 29% and lower net debt than in the last year, and we're now down to SEK 480 million by the end of the quarter.

So strong delivery on our priorities, and Helena will come back to more details when it comes to the financials in a minute.

If we flip to Slide #3, just for those who might not know us that well, we were founded in 1993 as a challenger on business-to-business focused market. Today, we have grown to 230 stores across 4 Nordic markets, establishing ourselves as the leading discount player in the Nordic region. And the Nordic region as such has a strong DIY tradition, and our buildings are also made from timber. A large portion of the population have access to multiple homes and also the fact that the home serves as the social focal point. This makes our market particularly attractive.

Looking at our sector, it differs somewhat from other retail industries since it has a low level of trends in the assortment, leading to very low [indiscernible] and a stable product range and also difference from the fact that no suppliers are in the market where we operate, making the [indiscernible].

Our Byggmax foundation is built on a very strong assortment for home renovation and maintenance where we offer building materials, paint, tiles, and flooring. And in addition, we sell garden houses and [indiscernible] . And we have a very carefully selected in-store assortment, which is complemented by a broader online range, allowing our customers to find the product that they need for their projects.

And we are true discount. We are true discount for retailer and offering the best prices, requires that we always maintain the lowest possible cost in both our in store design, but also our strong engagement and our personnel makes this happen. I also see that both -- we have both -- a very efficient shopping experience, but also very high customer satisfaction due to this.

On Page #4. You see that we size-wise are NOK 5.9 billion company, and we delivered SEK 168 million in EBITDA in last 12 months. And that is, of course, a result negatively impacted by the weak [indiscernible] consumer market that we have here in the last 2 years.

We have an efficient business, not a good high cash generation, which is seen in a strong cash flow, as you see, SEK 744 million in the last 12 months.

We see that the omnichannel presence is really crucial in our sector because along with the groceries, building materials have the lowest expect of online share of retail and this makes access to [indiscernible] key, both now but also in the future. With that said, we truly believe that you need a combination of online and stores, and we have a successful mixture of the [indiscernible]. As you see currently, we have approximately made SEK 200 million between store and online sales in the group.

On Page 5, just to give some context on the current market situation from a macro perspective, and I'm sure you know this and having talked about this and from our resources, of course, but we currently see an improvement of macroeconomic factors with lower inflation and stabilization of interest rates, which gradually improving consumer confidence in the Nordic markets.

And as mentioned, this means significant and larger than before differences in demand between different categories where demand for the product [indiscernible] well. And it seems like the consumers have started to spend more again when it comes to these types of products.

When it comes to the building material for the larger projects and renovation, we still experience somewhat [indiscernible] consumers as mentioned, business natural. It takes longer time to sign up down this kind of projects.

We saw an increase in number of house transactions starting in April, May, and with some lead time, this is mutually -- have been historically a driver for increased demand also when it comes to building experts. So over time, there's no limitation that the market has structurally changed or accelerated as the consumer confidence rebuilds, renovation projects will rebound [indiscernible].

Page 6 illustrates one of our main priorities during the second quarter because we have high seasonality in our business with stronger demand during the summer than during the winter. We are used to ramp up and down the business between seasons. As you see in Q2, our sales is almost 2.5x higher than Q1 and this, of course, requires the entire organization to be fully focused to secure a successful and efficient ramp up.

And our strong operational focus and focused operational excellence will further improve store operations with smaller buildup of stock levels and advanced scheduling of personnel have resulted in a better ramp-up this year than before. We have a higher service level in orders. And at the same time, we have further managed to improve our efficiency compared to previous years.

And this is crucial because to be able to offer the best prices, we need to maintain the lowest possible cost. And our cost position is key for profitability, especially in current market conditions. And as you see, we have reduced our operating costs more than the decline in sales, if you look at the percentage changes. And despite more stores and inflation during the year, our operational costs decreased by 7% in the quarter compared to last year. It's driven both by efficient -- more efficient store operations [indiscernible] also from the reduction of administration that we made during the winter.

The reduction is slightly lower than the last quarters. And as we started the cost reduction is already in the beginning of 2023, our comparability is getting tougher. Another focus area is -- next slide. Another focus area is seen on Page #7. We have focused a lot on optimizing our assortment and inventory both to improve profitability but also to strengthen our balance sheet.

We see the results in higher gross margin and lower inventory value than the previous year. And lately, we have reviewed our entire store assortment, category by category, to set the right inventory levels and to decide which products to push but also which products to discontinue, and new tools and better inventory forecasting and ensure that we don't run out of popular products. And this approach results both in less tied up capital, but also in opportunities for improved sales and increased margin.

And as you saw in the beginning, lower inventory levels, combined with cash flow from operations and less investments allowed us to reduce net debt by [ 29% ] compared to the last year.

In addition to securing operational excellence, improving balance sheet, we are constantly working on improving our customer offering. You see some [indiscernible] on Page #8, where we see, here in the quarter, we have opened 2 new stores, one in Bergen in Norway, and one in Mellbystrand in Sweden. And this means that we, in total, now have 230 stores on 4 Nordic markets.

And if you just take a step back, this is 33 more stores than we had 3 years ago. Something that has substantially increased our revenue potential when the market returns. And in addition to more stores, they are in better shape than before. We're constantly improving our store experience, both when it comes to operations, as mentioned, but also when it comes to the customer experience and product display and so on.

And then one effect from this is seeing in the high customer satisfaction that we experience. Every year, more than 0.5 million customers give us feedback in the stores, and the score continues to be at a very high level even though we are in the busy high or peak season.

Another improvement is related to online. During the quarter, our e-com assortment developed well. As a result both of high demand for the smaller projects and products, but also from our focus on offering customized products online.

Our Byggmax [indiscernible] concept where our customers can configure windows and doors to their specifications showed significant growth in the quarter. And this is something that we continue to develop going forward with more made-to-order products.

Before handing over to Helena and the financials, please turn to Page #9 because as you might see, we updated our financial targets in May. Our strong discount position, coupled with commercial leverage will drive sales growth and our target is to grow beyond the market, which implies at least 5% annual growth over a business cycle.

And our profitability target is to deliver an EBITDA margin above 7% per year. And the path from current level to our target includes improved efficiencies, scale, optimize assortment and leverage our commercial improvements. Strong balance sheet is a key priority and our target is to maintain a net debt to EBITDA ratio below 2.5.

And finally, we have an efficient business model with high cash generation. And this enables us both the [ best ] while also providing dividends to our shareholders and the company shall distribute 50% on net profit considering the financial position. And to deliver on this, we have a clear and actionable road map built on 3 main pillars, where first, we are actually a discount retailer, and we recognize that [indiscernible]. And by refining our assortment, [ cost ] efficiency, we will always continue to [indiscernible] and improve our operations.

Second, our commercial investments that we have made over the past year have significantly amplified and increased our revenue potential. And going forward, we will make sure to fully capitalize on these investments.

And finally, we will continue to enhance our product offerings and optimize our store portfolio to meet and exceed the market demands. So Byggmax is really ready for the future. We have a strong discount position and further improved efficiency, enabling us to have potentially the increased volumes.

With that, over to Helena and this quarter's financials.

[Helena Nathhorst, executive]

Thank you, I think you presented some of the financial achievements in this quarter, starting with our sales performance on Page 10. We see a slight decline in net sales by [ 5.5% ] in the quarter. Despite that, our net sales growth rate has improved versus last year and versus preceding quarter.

As mentioned, we clearly see that product categories related to smaller projects performed well while larger renovation projects continue to lag behind. Sweden has shown a better performance overall, and a market decline for building materials was expected in the quarter, and we consider [ us to grow ] at least at the market.

We also demonstrated a strong gross margin in the quarter at 33.6%, driven by a positive product mix and improved product margin and utilization of supply and cash discounts. We have now a net 4 new stores in 2024 and the new stores contributed to stay at 1.1%.

Moving on to profitability, our EBITDA has increased from SEK 172 million in the second quarter in last year to SEK 184 million this year, resulting in EBITDA margin improvement from 7.8% to [ 8%. ] We have managed to sustain our gross profit versus last year by a margin increase.

In addition to maintaining gross profit, improved profitability is driven by increased efficiency and lower costs, both in store and administration, a 7% decrease in total. The increased profitability is also demonstrated despite the rise in depreciation due to more leased stores and the write-down of the associated company [ Green Venture ].

Our tax position on Page 12. Cash flow from operating activity remains strong, supported by prioritization of investment and optimizing inventory. Our strong cash generation continues to strengthen our financial position and provides profitability for future opportunities.

And finally, on Page 13. We have significantly reduced our net debt from SEK 679 million in the end of the second quarter of '23 to SEK 480 million this year. Our net debt leverage is 1.5x in the quarter. We have high seasonality in sales between high and low season, driving corresponding seasonality in the net debt leverage. Our leverage over the last 12 months is below our target of 2.5x. And this year, we have extended our credit facilities at year-end, ensuring a liquidity position with SEK 1 billion available.

So in conclusion, despite [indiscernible] market financial, we [ have ] achieved significant milestone by showing improved profitability, and the quarter has a strong cash generation and there is reduced net debt position.

And by that, I hand over back to Karl before opening up for the questions.

[Karl Sandlund, executive]

Thank you, Helena. Please move to the final slide, #14, to summarize our presentation. Here are our key messages again. As you heard, we delivered on our prioritized areas during the quarter in a continued hesitant market. We managed to improve our profitability, delivering an EBITDA margin above last year, but also above the margin that we had during the year before the pandemic. And in addition, we continue to strengthen our balance sheet.

Some positive macro signs have spread lately with improved customer confidence and higher activity in the housing market. And this is seen in particular categories. And over time, this will have effect on overall demand. And [indiscernible] really, we have used the time wisely. And when the market rebounds, big markets get to grow. We have a strong discount position and improved efficiency, resulting in both revenue and profit expansion.

Finally, we are currently in the middle of our high feeds, and then we had a strong operational focus at the moment. Our fantastic [ leads ] are working in terms of this to make sure that our customers can fulfill their home improvement rates with high engagement, upgrading stores and efficient logistics, we welcome our customers during this business [indiscernible].

And with that, we thank you for your attention and are now happy to take your questions. So let's open the floor to your questions.

[Operator]

[Operator Instructions] The first question comes from the line of Benjamin Wahlstedt of ABG.

[Benjamin Wahlstedt, analyst]

Congratulations on strong results. I have 3 questions today. First of all, I was wondering if you could share anything around consumer behavior. You know if that transaction volumes are up because you're confident, it's trending even better. Is this seen in stores as well in any way?

[Karl Sandlund, executive]

Thank you, Benjamin. Well, yes, as we mentioned, we see quite larger than before differences in the demand between different categories where products related to the smaller categories developed well, while we see -- still see [indiscernible] consumers when it comes to the larger renovations. We also see consumer behaviors more like the one that we saw before the pandemic, both when it comes to during which our the customer comes to stores, but also when it comes to the split between e-com and online or where we see more of the consumer behavior that we saw pre-pandemic than what we've seen during the last, say, 3, 4 years. So there are some changes in the consumer behaviors when compared to what we have seen before.

[Benjamin Wahlstedt, analyst]

Perfect. I was wondering as well about your inventory is much reduced versus last year. I believe on the lack of ongoing assortment efficiency improvements. In Q2 of '24, your inventory ratio was some 24%. And basically, I was wondering what is the Q2 '27 inventory ratio? Any thoughts on that would be helpful.

[Karl Sandlund, executive]

I'm not quite sure that I understood the question, Ben. Could you -- I didn't hear at the beginning of it. Could you please repeat?

[Benjamin Wahlstedt, analyst]

All right. I can rephrase it as well. What do you think is the sort of mature impact of the ongoing assortment efficiency improvements in terms of inventory ratio, please?

[Karl Sandlund, executive]

So well, we have worked a lot with optimizing the inventory and that is a combination of both to see what kind of assortment should we have, what the products should be pushed, which products should be continuing, but also what is the right inventory level from different products. When it comes to your ratio going forward, if you measure it like in terms of sales or inventory turnover ratio and so on. That has, of course, both on the inventory level, but also on the sales development.

So let's see going forward, but making sure that we have the right inventories to keep product for us. Compared to last year, the inventory in absolute terms is down. But in meantime, we have managed to improve what we call the service level, that is availability of products in stores. So it's something that we're working a lot there to make sure that we both can reduce the overall level, but also make sure that we have the right products in stores.

And one of the reasons to do this is to make sure -- or one way is to make sure that we want to try and work with very efficient logistics and have short lead times when it comes to more popular products.

[Benjamin Wahlstedt, analyst]

Perfect. The reason I'm asking is, before the pandemic, your inventory share of -- sales was about 20%. And during the last 3 years, it's been around the 25% mark. Do you expect sort of going back to the older base in terms of the inventory ratio, 20% margin?

[Karl Sandlund, executive]

Well, I just say that during the drop in demand in the last few years, the inventory turnover rate or order ratio to sales has -- if you look at turnover rate, it has come down, right? Because we've seen lower demand, less sales, and that's also why we have focus on optimizing and adapting the inventory to the sales levels. Without giving any forecast on ICR or something like that going forward, I can say that this is, of course, an important KPI for us, something that we work with to make sure that we have a very capital-efficient inventory and then inventory that turns all the time.

[Benjamin Wahlstedt, analyst]

Perfect. And a final one as well. The gross margin improvement, you hinted it's due to both better product mix and also cash discount. I was wondering if you could give us a sense of the relative importance of these 2 factors, please?

[Karl Sandlund, executive]

Yes. Actually, it's several factors. And then more than the factors you just mentioned there. It's effect from a constant effort to adapt the product range to the customer needs, where we have both added but also removed products. It's a result of a successful purchasing efforts during the winter, where we have managed to improve our purchasing commissions.

It's a factor or a result of a slightly different demand in the quarter where the quarter has weighted more towards products with higher margins and discounts. The cash discount that you mentioned. So it's a combination of several factors, and I don't really have the exact split between those 3 or 4 factors. But it's a mix of all of them. And then it's -- I think -- it's the result also of strong focus and effort to make sure that we improve profitability also in a weaker market.

[Operator]

The next question comes from Julien Batteau of Pascal Advisers.

[Julien Batteau, analyst]

Yes. Congrats also from my side, the very impressive results. Just two questions. The first one is, can you remind what you describe as the cash discount supplier? Is that some rebates that are giving you and that you are able to keep for yourself without passing them through price -- retail pricing. That's the first question.

And the second question is how to -- I mean, now that the market seems to have finally stabilized and even seems to be improving at least on the macro side. How would you look at the slope of the EBITDA margin trajectory towards the 7% from the actual level, which is around 2% to 3%? Is it -- my question is it 12 months, 18 months, 24 months? Yes.

[Unknown Executive]

Okay. Helena will you take the cash retails or...

[Helena Nathhorst, executive]

Yes. It's -- our supplier agreements where we have long-term -- normally long-term payment conditions, and then we can use the discount if we pay earlier. So it's using our costs.

[Julien Batteau, analyst]

Yes. I know that -- my understanding of the discount was the discount used to be in the past based on volume, while I suppose volume are down.

[Helena Nathhorst, executive]

Sorry, it's not those ones. It's not the volume-driven discount that rather [indiscernible]. This is only in title of the payment. So mapping of volume and pricing of the product, it's the same. It's only on the invoice.

[Karl Sandlund, executive]

And when it comes to the profitability, well, we see that our priorities are having effectiveness this quarter. We have said that we are focusing on strengthening balance sheet and improving profitability, and we are seeing evidence of this in the quarter. And we will continue to focus on this. And our goal is naturally to always make Byggmax as good as possible and to reach our target as soon as possible. And definitely we don't provide forecasts, but our ambition is to continuously get better all the time.

[Julien Batteau, analyst]

My question was more in the -- to rebound on your comments about the cost per store, which as you say, we're very, very efficient now. Is that -- and I think you alluded to the fact that it would be hard to improve further. And I was wondering if the market comes back, volume come back, traffic improve. There will be some kind of cost. It really increasing, which would decrease the leverage a little bit.

[Karl Sandlund, executive]

Sorry, [indiscernible] misunderstood you. Well, a lot of the cost reductions that we have made, I would say that my majority is working smaller in even more efficient ways. We have been able to increase our efficiency and are able to increase the volumes in current infrastructure. So of course, with the ramp-up of sales, we will add some personnel in the stores and so on. But our ambition is to be able to have scale effects as the market rebounds or when it rebounds.

[Julien Batteau, analyst]

So it's -- some mix in here? Cost improvement is speaking. Yes?

[Karl Sandlund, executive]

Yes. Exactly. Some of the cost improvement is regardless of the volume, and other are related to the number of deliveries to the stores, number of customers and some. And with the substantial higher volume, we also need to add some personnel in the stores. But we see that we have potential to significantly more volumes in the infrastructure.

[Operator]

The next question comes from the line of Magnus Raman of Kepler Cheuvreux.

[Magnus Råman, analyst]

Magnus Raman here from Kepler Cheuvreux. I just have a follow-up here on previous questions. So if we look at the gross margin improvement, for example, we would assume that the pay early cash discounts represent, say, 1/5 or so of the improvement. And then you have a certain positive effect also from assortment improvement or efficiency that would anyhow need a rather large share of this explanation sort of the gross margin improvement to the mix effect where you have sold more of outcomes carrying higher product margin at higher ticketed projects have been held back. Is that a fair assumption?

[Karl Sandlund, executive]

So the assumption was -- please, Magnus.

[Magnus Råman, analyst]

Yes. Is the assumption that a rather large part of the gross margin improvement you have showed is related to positive mix effect, i.e. selling more of the low ticket of items with a higher gross margin than the high ticket items with a lower gross margin?

[Karl Sandlund, executive]

Yes. Okay. Well, it is really a result of several factors. But it is. It is the successful purchasing. It is the cash discount, it's optimization assortment. But yes, you're right, that is also -- it is -- yes. It's the assumption that this is a significant part of it, or a part of it is due to the fact that we have a different product mix where we see large differences in demand between the different categories.

[Magnus Råman, analyst]

Right. And then, I mean, can we also make an assumption then that when you -- you are anticipating a recovery, of course, in the sales side eventually. And when that recovery comes, it should be rendering sort of more sales of the higher ticketed items, for example, timber-related products.

[Karl Sandlund, executive]

Yes. Yes. Yes. In more -- with a more normal -- yes, you're correct, right? In a more normal end product mix and then in a -- with a stable demand for more categories, that will also have an effect on the gross margin. And you see that also if you compare our gross volume between the quarters, then you see that and the margin difference between the quarters, driven by what kind of products that are the main products in that quarter.

[Magnus Råman, analyst]

Right. And then just finally here, as it relates to an expected recovery and I mean, maybe this relates then to the release of sort of purchasing power from reduced interest rates, because now we have the consumer confidence right on -- from consumers seeing the sort of the peak of interest rate. But the customer has just really begun. And then is it fair to say. I mean you are more and then halfway through, I guess, the high season now. The Q2 and Q3 for your side, so that this potential recovery is on a higher ticketed side of your assortment. Is the effects will be materially seen first in Q2, Q3, if anything, next year?

[Karl Sandlund, executive]

Well, I actually still think it's too early to tell. We are in the beginning of July. The summer vacation has been started. So I think we need to summarize the peak season of the Q3. I think it's really hard to tell which week or month, the overall demand will increase. We see -- I've mentioned right, we see large differences in the quarter. And I honestly think it's harder to tell where we will see different types of demand for all categories.

I wouldn't say that we are far in the peak season. I will say that we are in the 1/3 almost, right. Because we have July, August and September also with peak season. So I think it's too early to tell.

[Magnus Råman, analyst]

Perfect. But then we're halfway into July. I think would you care -- I mean, I know it's very, very early days of the Q3, of course. Would you care to comment anything on what you see in terms of the temperature in the market, if [indiscernible] in the beginning of July?

[Karl Sandlund, executive]

No. I don't just do that. It's too early. Then you'll start speculating in days, right? So I'm sorry, but we need to come back to that later when we see the full amount of third quarter.

[Operator]

We now have a follow-up from Julien Batteau of Pascal Advisers.

[Julien Batteau, analyst]

Yes. A very quick one. Should -- as you say, large renovation projects are still weak at the moment. Should they come back, what would be the impact on the gross margin? Would that be slightly diluted?

[Unknown Executive]

I don't have an exact figure. But it also depends a little bit on season, right? But some of the large renovation projects have slightly lower margin than the smaller ticket items. But I don't have an exact figure on how that will impact.

[Julien Batteau, analyst]

But if you think about the main products that would go into a large renovation product, do we individually -- do they have lower gross margin than the actual one?

[Karl Sandlund, executive]

Some of the product items that goes into that basket, yes, have lower than the average. So that's correct, right? So the more heavy building materials had slightly lower margins than the smaller product. That said, we have, as I mentioned again, we have work successfully with purchasing and many different factors into that.

[Operator]

As there are no additional questions waiting at this time. I'd like to hand the conference call back over to Karl Sandlund for closing remarks.

[Karl Sandlund, executive]

Thank you. Thank you. And thank you a lot for your participation and for many questions today. We really hope that you will have a nice summer, and please come and visit our stores. And it's not before. We are looking forward to meeting you again after our third quarter. Thank you.

[Operator]

Ladies and gentlemen, I'd like to thank you all for joining today's call. Have a great rest of your day. You may now disconnect your lines.