Boozt AB

STO:BOOZT

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to Boozt Q1 2024 report presentation. For the first part of the presentation, participants will be in listen only mode. [Operator Instructions] Now I will hand the conference over to CEO, Hermann Haraldsson; and CFO, Sandra Gadd. Please go ahead.

[Hermann Haraldsson, executive]

Thank you, and good morning, all, and welcome to our conference call for the first quarter of 2024. Let's turn to the first slide. Q1 pretty much turned out to be in line with what we saw when we set our guidance in February. It was as challenging as we expected and definitely not an easy ride. We delivered 6% growth in the quarter, driven by both Boozt and Booztlet. We're okay with growth as several headwinds have to be taken into account when assessing our performance in the quarter. First of all, consumer confidence is still low. Our customers still have half empty wallets and remain very price conscious. This means that the competition for revenue is high and that the willingness to pay is rather low. Furthermore, in contrast to last year, our suppliers are not on average overstocked to the same degree as last year. This means that access to campaign buys has been lower. And consequently, we have not been able to give our customers as attractive deals as last year. We sold more than expected in Q4 last year in November and December. And as a result, we did not have enough of the relevant stock for the sales in the beginning of the year. Then finally, the timing of Easter also has to be taken into account. Traditionally, we see less activity on our site during Easter and since it occurred in Q2 last year and basically has done so for the last 3 years, but Q1 this year, we've had a headwind in this quarter of roughly 2 percentage points. And this, of course, will be a tailwind for this quarter, Q2. Also worth highlighting is that the weather has not been supportive of our spring/summer collection. It has been rather cold, it's spring in the Nordics and the spring/summer season starting well in late this year. This has, of course, an impact on both sales and inventory, which Sandra will talk about later. While sales were muted in the quarter, our department store KPIs continued to improve, average basket size has increased on both Boozt.com and Booztlet.com. And on Boozt, 51% of our customers bought for more than one category compared with around just below 50% last year. While not a significant change, it's an important milestone and a move in the right direction. Customer satisfaction, which is the heart of what we do remains high. We even managed to improve the Net Promoter Score to 77% in the quarter from an already very high level of 75%. And trust pile still waits us at 4.5 stars, which is significantly above most of our peers. Adjusted EBIT was SEK 20 million, up 17% from last year, and this corresponds to an adjusted margin of 1.2%, which I believe is quite a good level in the quarter, which traditionally is the weakest in terms of profitability. In the quarter, we also finalized our first share buyback program with now since June last year, we purchased shares for SEK 187 million in total. The Board is currently assessing a new program, but nothing has been decided yet. The overall intention of the share buyback program initiated last year is still to buy back shares for a total amount equivalent to the proceeds from the Copenhagen listing in November 2020. So around SEK 800 million in total over a 3-year period. As you probably know from our release last night, we found ways to expand further at our current fulfillment facilities, which will reduce the amount of capital that we will need to invest in capacity. I will come back to this in a later slide. And finally, based on the results for the first quarter, we remain confident on our outlook for the full year and still expect 5% to 15% growth and a margin of 5.2% to 6%. Turning to the next slide, multi-buyers. As mentioned before, we continue to increase our share of customers who buy from more than one category. In the last 12 months, around 51% of our customers have bought from one category compared with around 50% the year before. Driving our customers towards buying for more than one category in Boozt.com is a cornerstone in our Nordic department store strategy. As mentioned before, we see a significant increase in loyalty when customers buy more categories. And we also see that the amount of money they spent on our sites increases almost exponentially with the amount of categories they buy. Additionally, the average order value increases while we also typically see a decline in returns as the categories outside of our fashion categories have much lower return rates. And now next slide. Average order value in the quarter was up 3% for Boozt.com and 6% for Booztlet.com. The increase was mainly due to more items per basket, which is primarily driven by the increase in customers shopping for more than one category. Looking back over the last couple of years, we have now increased the average order value for both Boozt.com and Booztlet.com every quarter for almost 3 years. In fact, we have increased the average order value on Boozt.com with a compound average growth rate of 7% since Q1 2020. The corresponding figure for Booztlet.com is even better at 13%. And with the increase, we have maintained the plus 8% gap we have compared with our biggest peers in terms of average order value. This gives us very competitive user analysis which allows us to follow the market and the consumers' willingness to spend while delivering healthy profitability. Going to the next slide with our expansion plans. Before handing over to Sandra, let me just spend a minute to go through our capacity expansion plans that we announced yesterday. As we have shared with you on earlier occasions, our assumption has been that we, based on our current fulfillment setup would need additional capacity from 2026. I capacity that most likely would not be available at our current location. We've been exploring different options, including building a new campus in the vicinity of our current campus and eventually migrating our operations to this new campus. During this work, we have identified opportunities to utilize and build out the current fulfillment center infrastructure even more, which means that there is not a need for a big bank or a big investment, if you like, short or even midterm. We have concluded that we can stay in our current fulfillment center for quite some time. We've started to implement an even more efficient utilization of our current automation as well as continue the modular build-out of the warehouse infrastructure in Angelholm in Sweden. We have historically been frontrunners in constantly pushing the boundaries of the order store technology, and we have found ways to push these boundaries even further. This expansion will include further automation at our current facilities in Angelholm, where we will expand storage and throughput capacity. We will establish a buffer storage in a new warehouse to cater for high-quantity items, which will secure additional space in the cubes supported by an efficient refill process. Our estimate on the total investments for the projects will be around SEK 500 million, which will be spent over the next 3 years from 2025 to 2027. The expansion should give us plenty of room to grow by expanding capacity by up to 50%, supporting annual revenue up to SEK 15 billion. This compares to revenues of SEK 7.8 billion for 2023. Finally, we have secured 40,000 square meters of land in proximity to Angelholm to cater for any future expansions if and when this becomes necessary. We believe that by staying at our current fulfillment campus and improving utilization and throughput capacity, we've reduced the risk going forward as well as provide a better return on invested capital. So with this, I will hand it over to you, Sandra.

[Sandra Gadd, executive]

Thank you. So that was probably the most interesting slide of all, but let's look at the financial highlights as well. So as Hermann discussed, the net revenue growth was 6%. Currency tailwind effect was low, 0.2 percentage points. We believe that the lower availability of campaign stock and the very strong end to December last year had a negative effect on January performance. As the quarter developed, we saw significant improvement in growth rates in both February and March, growth rates were within the mid- to high span of our full year guidance despite the headwinds that Hermann mentioned. The 6% growth in the quarter was driven by higher average order values in both stores in line with the trend we have seen over several years. Looking at geographical markets, the Nordics were muted overall. Both the Swedish and the Danish market grew 2% in the quarter. In Finland, we had better momentum. Finland was the best performing country in the region, while Norway remained very challenging. Outside of the Nordics, we saw a growth rate of 44% in the first quarter with strong performance from both Boozt and Booztlet and mainly in Germany. The improvement in the gross margin was 0.4 percentage points. Similar to the last few quarters, we saw a headwind from the change of an agent agreement to a wholesale agreement with one of our large brand partners. In the quarter, this effect was 0.9 percentage points. This, however, was more than offset by, among other things, the higher share of other revenues that amounted to 5% of total sales in the first quarter, and that has a gross margin of close to 100%. Customers remain price-sensitive, which makes pricing very important. Due to our strong and flexible business model and the scale we are able to stay competitive in terms of pricing at the same time as we continue to deliver a sustainable gross margin of 38.9% in the first quarter. This is very important for us. The adjusted EBIT margin of 1.2% was a slight improvement from last year's 1.1%. I will come back to the cost ratios, which explains the margin performance within short. So if we move on to the next page, we can take a look at the performance of our 2 segments, Boozt and Booztlet. So starting off with Boozt.com, Net revenue growth was 4%, with strong performance in the Sports and Beauty category, while the Men's category was more challenging. Growth in the Nordics of 1% was muted due to the aforementioned reasons with the strongest performance in Finland and Iceland. Sweden had a light negative growth and Denmark a slight positive growth. Growth in Europe was 48%. And while the Baltics continued to deliver good traction, the main driver of growth was Germany. Number of active customers for Boozt.com was SEK 2.7 million in the first quarter. This is to be compared to SEK 2.5 million last year, however, driven by the high customer intake in the fourth quarter last year. The number of customers in the quarter itself was largely on par with last year as was the number of orders per active customer. The average order value increased 3% to SEK 964. The adjusted EBIT margin of 0.9% was a decrease compared to last year's 1.7%. While the gross margin was on par with last year, higher OpEx cost impacted the adjusted EBIT margin negatively in the first quarter. So moving on to Booztlet, we saw net revenue growth of 13%. Growth in the Nordics was 9%. And while Denmark grew 7%, Sweden had a growth of 23%. The relatively stronger growth on Booztlet among our Swedish customers comes at the same time as we saw a slight negative growth for our Swedish customers on Boozt.com. We believe that this showcased the price sensitiveness we experienced in Sweden. So while we expect the market to improve as interest rates are adjusted downwards, we still see that customers' disposable incomes are pressured. Our markets outside of the Nordics grew 36% in the quarter. Booztlet continued to benefit from the changes made to the site in the second quarter last year. The updated strategy with an expanded assortment with broader offering in categories such as Sports, Beauty and Home as well as more never out-of-stock product has a positive effect on the number of items our customers put in each basket. Lower availability of campaign stock in the first quarter impacted the segment negatively, as did the fact that the more price-conscious customer that Booztlet targets experienced a more notable relative decline in disposable income, which is showcased by a slightly lower buying frequency in the quarter. The average order value continue to increase. For the first quarter, the AOV was up 6% to SEK 979. The adjusted EBIT margin improved with 4.6 percentage points from a negative 2% to a positive 2.6% driven by scale and higher AOV. So let's take a look at the cost ratios. And as I just mentioned, the gross margin improved with 0.4 percentage points during the first quarter. The fulfillment cost ratio continues to improve. In the first quarter, the improvement corresponds to 0.5 percentage points. Improvements are both related to lower distribution costs as well as fulfillment costs. The improvement in distribution costs is related to a more disciplined setup where we guide customers to the optimal carrier from a cost and a service alternative given their customers' preference and geographical location. Improvement in the fulfillment cost structure relates to the continuous work we're doing relating to productivity and focus on cost control. The marketing cost ratio of 10% was on par with last year, and we continue to gain benefits from the lower than previous cost per click in the Nordic market. In addition, and at the scale we now have, we see and will continue to see scale benefits on off-line marketing in the Nordics where we are relatively dominant within our segment. The adjusted admin and other cost ratio of 13.3% corresponds to an increase of 0.8 percentage points. This increase is related to higher cost for white-collar personnel. The depreciation cost ratio of 4.1% was roughly on par with last year as expected. Now moving on to my final slide. We have an overview of the cash flow-related KPIs. Net working capital share of the last 12 months revenue increased from 9.7% to 12.7%. Net working capital numbers are highly dependent on the inventory level and the accounts payables related to that inventory. The higher level of inventory dedicated to Booztlet increases the level of inventory for the group. In addition, the mentioned conversion of a previous agent agreement to wholesale increased the inventory with approximately SEK 40 million. The absolute inventory level of SEK 2.6 billion compared to SEK 2.3 billion last year is also impacted by the late season start and timing of Easter, while the accounts payables that did not increase correspondingly is negatively affected from a working capital perspective of the earlier timing of in deliveries than last year. Free cash flow was negative SEK 685 million compared to last year's negative SEK 731 million. The improvement from the operational cash flow compared to last year was partly offset by the higher investment in warehouse CapEx this year. For the full year of '24, we still expect CapEx in the level of SEK 150 million to SEK 250 million, where SEK 100 million is related to development CapEx. This is in line what we have communicated earlier. The net cash position of SEK 236 million, which is lower than last year is affected by the repurchase of shares where we have bought shares for SEK 187 million since our Annual General Meeting in '23. The cash position at the end of this first quarter was SEK 687 million. And that ends the financial overview. So back to you.

[Hermann Haraldsson, executive]

Thank you, Sandra. As mentioned initially, the quarter has not given us any reasons to change our full year guidance. Our best estimate is still the midpoint of 10%. And as Q1 pretty much ended as we expected, when we set the guidance back in February, we stick to our revenue guidance of 5% to 15% growth as well as our EBIT margin guidance of 5.2% to 6% adjusted EBIT. Long-term ambitions are, of course, also unchanged. If we flip to the last slide for today, I would like to give you some more flavor on our ambition to reach a 10% margin in 5 years. One of the subjects that we have spent a lot of time on with investors during our recent road shows is our journey towards a 10% margin. As illustrated in this chart, there's not a silver bullish or another single silver bullish to reach the target. On the contrary, we expect all cost lines to contribute as well as gross margin. Starting with the 2 biggest contributors. We expect marketing as a percentage of revenue to be reduced with a couple of percentage points when we reach our target. One driver will be a limited increase in offline marketing where we have already a very strong presence in our key markets. But also, our ability to migrate our customers from one to multi-category buyers will increase loyalty and reduce the need to rebuy our old customers. Therefore, our performance marketing as a percentage of revenue will also decline as we reach a more mature level. The admin cost ratio is also expected to be reduced with around 1.5 percentage points, and this is more or less all related to operational leverage. We have historically grown our admin costs pretty much in line with our growth in revenue. I believe that we are now in a good place in terms of our administrative setup and that we would be able to leverage on this. Furthermore, we expect to see the fulfillment cost ratio to come down 10% as we still expect to benefit from further productivity improvements. Finally, we expect the gross margin to contribute slightly driven by a higher share of other revenue. It's a long and most likely bumper road towards 10%, but we do see a clear road towards this level of profitability during the next 5 years. So this concludes our presentation. So operator, will you please open up for questions, please.

[Operator]

[Operator Instructions] The next question comes from Niklas Ekman from Carnegie.

[Niklas Ekman, analyst]

Can I start just if you can elaborate a little bit on the difference here between Q4 and Q1, why Q4 was so strong and why the growth rate was weaker here in Q1? Because you're talking about the weak consumer environment, but it's essentially the same it should be around the same consumer environment now as before. Is this purely related to these issues you talked about with campaign buys and coming into the quarter with less stock? Or can you-- or has there been any other change in the market? Any change in competitiveness that you've seen at the start of the year?

[Sandra Gadd, executive]

No, we haven't seen any change in the competitiveness, but people tend to buy less in the start of the year, and it is-- has been quite a tough situation for many customers. So, I think many are holding back in a month, such as January. And if we look at our existing customer base and our very loyal customers, they shopped a lot during Q4. So we think that it's more them holding back, like saving up money in January. And then we have those effects in January were like really good campaign buys would if we had that extra and it's not like billions in inventory, it's just having those extra products that we would be able to get the sales up and especially the Men's category. So what we've seen in the quarter is that Beauty did really, really well. Our Sports category also performed very well. So I think it's more focused on the need to have than nice to have. While the Men's category has been really, really struggling. And that's what we've seen previously also when the economic environment is a bit weaker then people-- men hold back and also when the weather is not being spring-like then they tend to have their shopping a little later when this actually get warm. So that's kind of the trend that we've seen.

[Hermann Haraldsson, executive]

I can add that, but in January, we saw that because we sold so much in November, December that we just didn't have enough of the right stuff. In January, is a real sales month and where you kind of sell out the remains. And basically, we sold them already in November, December, which was a bit better than we expected, and we couldn't refill our stock fast enough to be able to care that, which is why January was quite a weak month in our case.

[Niklas Ekman, analyst]

Okay. That makes a lot of sense. And what would you say going into Q2 now, how is your inventory situation now? Obviously, the inventory is up year-over-year. Do you have-- are you pleased with the composition? Or is there again a significant difference in the access to campaign buys going into Q2?

[Sandra Gadd, executive]

The inventory in itself is very fresh, and this is kind of really a hygiene factor for us to make sure we don't have any old stuff, and we don't have that. So it's not like looking at the overall volume, it looks fine. Obviously, we are making sure they start to be a little more ease on the campaign stock. So we're getting that in. Obviously, the season is starting to get a little a bit warmer. So sell-through looks good. We're progressing as we're planning too basically. So we're confident, but still the consumer is not like they're shopping tons, it's happy go lucky, so it's tough. But our inventory is fine, and we're working to make sure that we have the right products, the right never out-of-stock products, the right campaign stock. These small things that actually helps to drive growth to the maximum basically.

[Niklas Ekman, analyst]

Very clear. Another question, if you can elaborate a little bit more on the warehouse expansion. Are we talking about a new building in the same area? Because you're talking about a 50% increase of capacity. Does that mean that you're going to basically increase the number of auto store bins by 50%? Or are you looking at other forms of efficiency? If you could just elaborate on the setup there.

[Hermann Haraldsson, executive]

Yes. It's actually a little bit of everything. We will most likely expand the automation that we have, but not by 50%. The case is that we've found ways to kind of utilize the current set up much better than before. So basically, getting better output from our existing setups. It will be supported by some more storage space around us, where we will add another building close by, which is kind of more of a bulk storage. And we've been experimenting with quite a big success and how to kind of refill and using the oil stores kind of an output center, and that's very promising. This means that we expect that we are quite confident that we'll stay in Angelholm for many years to come, which is very important for us because having to have multiple warehouses to fulfill from and/or moving to a warehouse that's risky and doesn't necessarily give you the right return on capital invested. So it's basically a much better utilization of our current setup than kind of initially anticipated when we set out 5-6 years ago.

[Niklas Ekman, analyst]

Interesting. And just a final one. Can you tell us a little bit about your extraordinary items? It was SEK 23 million here in Q1, a high number. And again, it's following on a very high number last few quarters, over SEK 100 million in 2023. Can you just break down a little bit what this contains. Is it all related to your incentive program? And if so, shouldn't this be considered as staff cost, if it's a recurring cost rather than as a one-off cost? Or are there any other items in there that we should be aware of?

[Sandra Gadd, executive]

No, there's no other items. It is the incentive program. And it is a bit-- the volatility of this is related to the expected outcome and related to the share price. So it is that fluctuation basically. [Audio Gap]

[Operator]

The next question comes from Benjamin Wahlstedt from ABGSC.

[Benjamin Wahlstedt, analyst]

So first of all, I would like to follow up on Nicolas' question on the warehouse expansion. Could you give us like a rough sort of time line for these SEK 500 million investments, please?

[Sandra Gadd, executive]

Should I take it?

[Hermann Haraldsson, executive]

Yes.

[Sandra Gadd, executive]

Well, it will be kind of-- when we do expansion of the automation, that's when the big chunk comes, but I can't tell you if that's '25-- or it's not-- it's probably not-- it will be probably in the mid, I would assume. But no, we don't know exactly yet, but it will be distributed quite fairly, but of course, a chunk when we expand the automation.

[Benjamin Wahlstedt, analyst]

So should we understand that that's a large chunk mid '25 and then...

[Sandra Gadd, executive]

No, not '25, the automation expansion, we can do that modularly as well. So not like a really big chunk, but of course, but a little bump in the middle maybe.

[Benjamin Wahlstedt, analyst]

Yes. And can I also ask your specific question, like are you running more robots per bin or something I know you've been trying out in the past.

[Sandra Gadd, executive]

Well, we try out different things all the time to make sure that we are as efficient as possible. But the big change here now is like using other types of capacity to make sure that the automation capacity we have is run in the most efficient way, both operationally and focusing on output and throughput capacity, but making sure that we don't use this automation that is fairly expensive, more than we needed, but actually using cheaper storage capacity to compensate for that. So I think this is a really big change in how we can use our invested capital.

[Hermann Haraldsson, executive]

If I can add, I think that historically, one of the big advantages of our current setup was that we have had with these cubes, we had a very high storage capacity, and that was kind of a very big motivation. But now we've seen that it's not only storage capacity. But the main driver of it is actually output capacity where we found ways to increase the output dramatically and kind of use kind of a buffer storage to add to the current stores. And I think that for us is a game changer on how to utilize the warehouse technology.

[Sandra Gadd, executive]

But since we are in control of our warehouse management system, we can decide on how to do things, and that's a really strong asset to have that's helping us do this in a very efficient way.

[Benjamin Wahlstedt, analyst]

And could you as well, given that you comment on further efficiency gains and so on. The 10% fulfillment ratio target, is that still in play? Or should we consider that a slightly pessimistic view of the reality?

[Sandra Gadd, executive]

We're on a very good role in the fulfillment. So I'm very excited...

[Benjamin Wahlstedt, analyst]

Yes, I know.

[Sandra Gadd, executive]

So yes, maybe it can go below 10%, but...

[Benjamin Wahlstedt, analyst]

All right. That's just wait and see then. I was also wondering about seasonality in Booztlet. Any flavor on the seemingly slow growth here, especially given the comparable figure would be helpful, please.

[Sandra Gadd, executive]

Well, it's also the availability of campaign stock is obviously very important to Booztlet, and we have the muted new customers. What I think is interesting that we see that we're price-sensitive Swedish customers, they had an increase. They grew like 23% Swedish customers on Booztlet. So we see that it's working when it's price-sensitive. But obviously, the availability of campaign stock is important even though we're building the assortment slowly, but it does take time. But I think it was fairly okay for the quarter, actually.

[Benjamin Wahlstedt, analyst]

Perfect. And perhaps on campaign goods as well. Is it possible to comment on the availability of campaign goods throughout the year, please?

[Hermann Haraldsson, executive]

Yes, it is. It's, of course, depending on how kind of how the season is, how the market is. It also depends on kind of structural developments in the region entry because a lot of campaign goods is available because other retailers don't take the orders. Brands might be a bit optimistic on the outlook and to more stock. So it's a mix of everything. But of course, going into the Q1 and Q3 season often it's nice to have some campaign stock so that we can be price competitive during sales, but still are making good margins. So basically, it's kind of you have the base, which is your season and then you try to price it up with some good campaign offers. And that's a constant work both for Boozt.com and Booztlet.

[Benjamin Wahlstedt, analyst]

Perfect. And then one question. And I guess I'm sort of looking for more speculation from me. Is there a risk you underinvested in price in the quarter?

[Hermann Haraldsson, executive]

No. We think it's really, really important to make money. And we just don't want to-- we're not going to have orders that we're losing money. So we will never get desperate and just clear stock also because even though I said that we didn't have enough stock going to January, but we had the right stock. So our stock composition is good. We just didn't have enough of the cheap stuff that we could sell with the profit in January. And then we'd rather have a lower revenue and then it loses out on potential, then they're kind of trying to sell off our good stuff that we might sell at a higher price. So that's why also when we set our guidance in February, we knew how January was and it was a weak month. So it's kind of as expected during the quarter and even been close to being desperate at any point.

[Sandra Gadd, executive]

No. And the first quarter is a small quarter, and it's-- we need to think longer term than just one first quarter. So I think this is keeping our-- the focus we always have in keeping the KPIs that we always set out. So we do what we think is needed. We don't overinvest in price, we don't want to dump prices, but we need to have the right prices.

[Benjamin Wahlstedt, analyst]

Perfect. And then one question, I don't think you will answer. Can you say anything about current trading, please? April has remained soft as well, like given-- I had the snow on my [indiscernible]

[Hermann Haraldsson, executive]

No, but we're looking at the weather report every day and get happy when sun starts shining.

[Sandra Gadd, executive]

So that the men can start buying. [Audio Gap]

[Operator]

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Hermann Haraldsson, executive]

Thank you. That was an easy ride this quarter, I guess, it's because it's quite uneventful. But thank you very much for the good questions. And I guess that we will see you later. So this concludes our Q1 webcast. Thank you very much.