Boozt AB

STO:BOOZT

Earnings Call Transcript 2021-Q2

[Operator]

Welcome to the Boozt Audiocast Teleconference Q2 2020. Today, I am pleased to present CEO, Hermann Haraldsson; and CFO, Sandra Gadd. [Operator Instructions] Speakers, please begin.

[Hermann Haraldsson, Co]

Thank you, and good morning, all, and welcome to our Q2 webcast. Let's just dive into it and start with the first slide. You look at the key highlights. As you know from our report, our growth in the quarter was 20.2% and some 23%. If you look at local currency or currency adjusted, with an adjusted EBIT margin of 6.8% versus '19, the growth is 64%, which we think is really strong. And if you look at it year-to-date, we have grown 31%. And if you look at local currency, it's 35%. So we believe it's been a good first half year. And based on that and also due to a promising start to the year -- to third quarter, we upgraded our guidance for the net revenue growth for the full year. Having said that it's been a good start and we're quite satisfied, we still haven't seen the kind of the pent-up demand that we expected to materialize in the market. To be honest, we expect -- or I expected that the corona pandemic would be post corona in Q2, and that has not been the case. We can see it from another markets that fashion demand hasn't really picked up. So we believe that the potential upside of the pent-up demand still is waiting out there. We are still seeing solid growth in the categories, especially home is very promising, and we have signed a lot of brands. And currently, I know that we are saying a lot of brands, but currently just below 12 brands live, slightly restricted by our capacity restraints, but that is being fixed as we speak. And talking about the capacity restraints, we are accelerating our investments in the -- in our fulfillment center. We are slightly delayed on installation in the next phase of our auto store. And this is mainly due to supply chain issues and being delayed. So we are running very close almost above our capacity. And this is why we expect to do some additional investment in our fulfillment and automation over the next 6 to 9 months. And then finally, Rosemunde, basically, everything is in place. It's been executed successfully. They will be a part of our financial statement as of July 1 and contribute to approximately 1% to our net revenue. And so that's all good. If you go to the next page, just a small comment on the market. We have seen during the quarter that the fashion brand in the Nordics has picked up. But still, it looks like we are still not back on 2019 level there. We are displaying the Swedish Stilindex, which is the Swedish fashion industries -- or fashion retailers reported revenue. And we are seeing that even though it has picked up during the quarter, it's still below 2019. And for the full quarter, it was some 15% down versus last year. And we just got yesterday the number for July even, and we are still below '19. It's also why we are extremely satisfied that we saw our growth versus '20, which was an extremely strong quarter for us. Cost was slowly increasing in June, around 4% for growth for the group as a whole and July is growing even more so. So for us to see that on the back of a very strong quarter last year, we are keeping a very strong growth momentum. But of course, as the market -- as total market is down, it's very much affected by high competition. And clicks are not as cheap as to last year. Basically, last year, it was almost still as everybody pulled out of the market in Q2. So marketing costs were very low, and now we're getting kind of back to normal. So -- but in general, we will see that the market is still somewhat depressed and -- but our revenues are quite promising. So -- and again, this demonstrate that during June, July, we've seen a good growth that is continuing to August. If we go to the next slide, looking at the KPI highlights. This is always kind of the most important slide looking at customer satisfaction. And that's still high. In Trustpilot, we're still in a 5-star rating and a 4.6 rating and our net promotor score for Boozt.com is actually an all-time high of 77%. It's very high and would probably come down in Q2 because this is unusually high, but I think this basically demonstrates that we've been very strong in the quarter and living up to the customer expectations. So that's promising for the future. And we also see that the new customers that we've gained during the pandemic that customers have more or less been forced to buy online, they seem to stay on that [indiscernible].If we go to the next slide, look at the order development, we saw in the quarter that we have increased by 20% in number of orders. Average order value is slightly down for the quarter, but the most important thing is that it's unchanged for the first half. So all now is good. We are maintaining industry-leading average order value. Order composition is slightly changed as we are selling more other category items. So we are delivering slightly more orders per basket, but that's okay as long as the categories that we're selling or adding to the basket has a lower return rate, and we are keeping the basket size, which is where the profitability lies. For the full year, also on a number of orders, we are up some 26%, which is very good for Boozt.com. If you go to the next slide on the cohort development in Q2. For the last 12 months, we have had some 2.3 million customers, who bought on average 2.3x same as last year. And if we look at true frequency, it's down for the quarter compared to last year. And that is not surprising as these are customers that bought. And we know that basically people have been buying less fashion. So we -- of course, it's not surprising that our customers that buy less. But as long as we get new customers and they stick, that's okay for us. So we expect that when we get post corona that these numbers will go up again, and we're seeing already now that true frequency numbers for the subsequent quarters are looking quite okay. If we go to the next slide, on the fulfillment, I would just would like to make some comments around our investments into the fulfillment operations. As you know, we took over the fulfillment staff January 1, and that's been -- that particularly went a bit quite successful on people. This means that we are in full control of our fulfillment operations. And with the tight capacity, it's been, yes, almost said from heaven that we have did this because the extra capacity costs that we have had from the swings have been absorbed by much lower cost trouble for employees. So that's all good. So we have benefited from the insourcing client quite well. We just -- and we integrated the new warehouse next to current one and now are in process of building around that, putting investments into automation investments into that. And doing some CapEx to fit the new building. Also because we can see that the strong growth called for an acceleration in our fulfillment operations. When we exited 2019 and entered in Q1 2020, we were guiding some 15% to 20% plus growth. And looking now back and with the guidance that we're doing for 2021, our revenue is up by almost SEK 1 billion compared to what we expected almost 1.5 years ago. And this is why we are running very tight capacity. And you might ask yourself, could you do anything about -- could we've foreseen that? And my claim is that that's -- that would have been very difficult because not we have meant to make some very big investment decisions in February, March, April last year, and I don't think anyone wanted to make a SEK 700 million CapEx commitment in such situation. So I think this is what it is. It's a positive thing that we are growing more small than we expected. And I think that we've been extremely good at that dealing with it. So -- but we are running close to full capacity. We are installing the -- what we call the AutoStore 5 and 6 as we speak, are building it. And it was supposed to be ready by July 1 and we are slightly delayed. So it -- we will be ready to deliver business in mid-September. And at the same time, we're actually looking into advancing into AutoStore 7 already now, and that might mean that we will push some investments forward to make sure that we are well ahead of the -- our kind of fulfillment need because we think that there's still a lot of opportunities out there, and we would like to accommodate that we're able to deal with growth of more than 20% until 2025. So we are preparing for this pent-up demand to materialize and not be taken by surprise if growth will stay above 20%. If we go to the next slide and before I hand over to Sandra, I just would like to talk some about our priorities for the short term for -- our priorities for the immediate future. Our main and the first and foremost priority is net revenue growth. We have seen over the past 2 years that size matters, and we have huge economies of scale. We see that we don't doubt and know if our industry or our business can and will be very profitable, that's basically improved. Now for us, it's a matter of growing as much as we can and gain market shares. So that's why growth is our main priorities. Secondly, we have to be on the forefront on the fulfillment. We have talked about last year that we were behind to curve our fulfillment. We are probably starting more behind than we had expected, also due to the change in category mix, where we need more items to generate the revenue from it. It has positive effect on the churn rate, but basically, it demands more storage and fulfillment capacity. And we want to make a foundation got plus 20% growth over the next 5 years or at least until 2025.And finally, profitability. We are the most profitable player in our industry in North Europe, and we intend to stay like that. But we are in no hurry to surpass our mid-term goals. We have stated that we will deliver EBIT of between 5% and 7%. But the choice is between growing 10% and 7% EBIT or growing 25% or 30% and at a 5% EBIT. I think there's no doubt that we will go for the latter one because growth is just extremely important for us. So it's revenue, it's investing in our infrastructure and then profitability. The main thing is that we will still be able to fund our own growth. This is my last slide. And now I would like to hand over to Sandra for the next slide for the financial update.

[Sandra Gadd, Group Chief Financial Officer]

So if we move on to the group results, it concludes the net revenue growth of 20.2% for the group in the second quarter. Growth in local currencies was 23%. For the first 6 months, net revenue growth was 31.1% and 35% in local currency. Just as in 2020, the return rates remained low during the second quarter. The return rate was around 1 percentage point lower during the second quarter this year compared to last year. For our biggest categories, the women's and men's, the growth rates increased throughout the quarter. We knew that we had hard comps to beat. And since the market sentiment in the Nordics still is relatively weak for fashion and apparel, we're very happy to see that the growth rates in June and also July picked up to a very strong level. The Kids, Sports, Beauty and, of course, also the Home category delivered strong revenue growth throughout the quarter. In the second quarter, Sweden and Norway were the strongest growing countries. Year-to-date, Sweden, Norway and Denmark are the strongest growing countries. The gross margin was 39.8% in the second quarter, 1.7 percentage points lower than last year, impacted negatively by the written down inventory that we sold during the second quarter last year as well as the level of campaign inventory that was relatively lower during '21 compared to 2020. As we have talked about, last year was quite extraordinary, especially during the second quarter. The write-down in the first quarter provided inventory of favorable prices during the second quarter. The share of campaign stock was also higher than normal during 2020 as we were more or less sold out from the upfront buyers of the spring/summer inventory after the very strong sales during April and first half of May.While planning for the spring/summer '21, we wanted to make sure that we had enough inventory to capture growth opportunities. Hence, we made sure to build up a strong and opportunistic inventory positions. We maintained a high level of attractive campaign stock, however, lower than last year. As we did expect this side in the Nordics to be a little more open than what materialized during the second quarter this year, it is actually very satisfying to see that the sell-through of the spring/summer inventory at this point is on par with the super strong sell-through we had last year. Hence, we currently sit on a strong inventory position as well as the gross margin that for the first 6 months was 40% compared to 37.8% last year. If we exclude effects from the write-down, the gross margin for the first half of 2020 was 40.7%. However, a full adjustment in the first half of 2020 is kind of overstating the gross margin as the inventory from this write-down also was sold during Q3. The price investments that we made during the second half of June this year as well as in July was a response to the relatively weak consumer sentiment and elevated promotional activity in the market. Further, we also wanted to mitigate the space constraints that we experienced in our BSP. This allows us to continue to and deliver a strong selection of autumn/winter inventories and will enable us to deliver a strong growth also in the second half of '21. As it has been a calculated risk to do opportunistic investments in inventory, both for the spring/summer, but also for the autumn/winter season, it was calculated for in our budget to do the price investments we've made. And at this point, we do expect the gross margin to be on par with the 39% to 40% for the full year as we have previously communicated.The adjusted EBIT margin was 6.8% in the quarter, a decrease of 4.6 percentage points. For the first 6 months, the adjusted EBIT margin was 6.5%, an improvement of 2.5 percentage points compared to last year. However, if excluding effects from the extraordinary stock write-down and IFRS revaluation of lease contract last year, the adjusted EBIT margin was 0.7 percentage points lower than last year. The decrease compared to last year is related to the extraordinary situation in 2020. In addition to the gross margin impact, we have done additional investments in resources to accommodate the current high and future growth, resulting in an increased cost base, and I will come back to this shortly when we look at the cost ratio. So if we move to the next page, we can see that the revenue growth for Boozt.com was 18.8% in the second quarter. Negative impact from currencies was around 3 percentage points. Both had a positive trajectory towards the end of the quarter, which also has continued into July and beginning of August. Growth in June was close to 40% for the Boozt.com segment. New customer intake continued at a high pace. The Home category had a positive impact and continued to exceed expectations. True frequency was impacted by the lower spending in the market in general, also among our existing customers. The 2020 cohort continues to behave as previous cohorts. So it is the overall lower spending that is impacting frequency of buying. Average order value decreased with 2.1% to SEK 803, change in sales mix towards Kids, Sports and Homes at the expense of occasion-wear categories affected the gross average order value negatively, but was partly compensated by the lower churn rates in these categories as well as a higher number of items per order. For the first 6 months, the average order value was marginally higher than last year. So if we move to the next page, we see that Booztlet grew 32% in the quarter and 35% in local currency. The second quarter of '21 was heavily impacted by tougher comparison numbers, which especially impacted Booztlet that got access to low value of stock after we have performed extraordinary write-down in March of 2020. Growth rates picked up during the quarter and was around 60% in June with a positive trajectory also into the third quarter. Growth in Q2 '21 versus Q2 2019 is 233%. Growth in the Nordics was 24%, mainly driven by Sweden and Denmark while rest of Europe grew 131%. As we have talked about earlier, our ambition is for Booztlet to invest further into markets outside of the Nordics. We have yet to put more efforts in this. Booztlet is run by a small and very efficient team. And with the high growth we've experienced over the last couple of years, we now expanded the team to enable such a focus where we expect the growth rates outside of the Nordics to increase going forward. Average order value was SEK 669, a decrease of 2.6% compared to last year, when consumers put more items in each basket as the offering was very strong. Year-to-date, the average order value is slightly higher than last year, a level that we're very satisfied with as it enables market-leading unit economics and profitability. The adjusted EBIT margin was 7.5%, both in the quarter and for the first 6 months.So if we move on to the next page, we see the development in the cost ratios for the second quarter. The fulfillment cost ratio was 11.4%, which is an increase of 0.1 percentage points in the quarter. That we are currently running our operations on close to full capacity in relation to storage has impacted the cost ratio negatively in the quarter. This was, as Hermann said, however, fully compensated for by the lower realized cost per hour for personnel working in the fulfillment center slightly lower churn rates as well as a slightly lower distribution costs, which impacted the fulfillment cost ratio positively in the quarter. The lower cost per hour for personnel is an effect from the insourcing in January '21. Our personnel in the BFC previously worked for a third-party provider who we pay the markup on the actual hourly wage. So we're not paying the workers' lower wage. It is just the market. For the full year, fulfillment cost decreased with 0.8 percentage points to 11.3%. The improvement is mainly related to the relatively lower distribution costs for fulfillment cost last year. Given the implications from capacity restraints, there still is an improvement potential in the fulfillment cost ratio looking at the longer term. We, however, believe that the focus we have on continued high growth will impact this cost ratio with a few margin points up and down as we scale our operations. Fulfillment costs around 11% is a level that we're happy with at this time, and that's also in line with what we previously communicated. The marketing cost ratio was 9.6% for the second quarter and 10% for the first 6 months. As marketing costs were relatively lower temporarily during the second quarter last year, we made relatively higher investments in marketing during the second quarter of '21. The marketing cost development, both for the quarter and for the first 6 months, is in line with our expectations that we previously communicated, where we want to maintain a marketing investments around 10% to support continued strong growth. The adjusted admin and other cost ratio increased with 1.2 percentage points in the quarter to 9.5%. Of this increase, 0.3 percentage points is related to investments in new employees as we're building our organization to support further growth. In addition, and as mentioned before, we have invested more in business development-related activities to support the customer experience. This has a negative impact on the admin and other cost ratio in the quarter. For the first 6 months, the adjusted admin and other cost ratio was 9.4%, which is a decrease of 0.2 percentage points. The investments in personnel during the first 6 months impacted the cost ratio negatively with 0.7 percentage points. However, this as well as other business development-related investments was fully compensated for by the scale effect on the net revenue growth for the first 6 months. The adjusted depreciation cost ratio increased with 0.2 percentage points to 2.6% in the quarter but decreased from 3.2% to 2.9% for the first 6 months. As we will invest to secure more capacity in our fulfillment center, we do expect this ratio to increase in the second half of '21 and coming into '22. At the current growth rates, we believe that it is desirable for this ratio to be up 3.5 percentage points on a full year basis. So if we move on to the next page. We see that the net working capital increased from the very low 2.3% last year to 7.5% of last 12 months net revenue. In the second quarter of '19, the corresponding ratio was 11.2%. The increase compared to last year is strongly impacted by the situation, where we were almost sold out bring summer inventory in June last year and were inventory constituted a relatively higher share of the revenue to compensate for the low inventory level. We believe that the current level is a healthy one, given our focus to hold a strong and attractive selection of inventory for our customers. Moving on to CapEx, that totaled SEK 65.1 million in the quarter were SEK 17.4 million. It's related to intangible development costs. The level of intangible development CapEx was on par with the first quarter, both in absolute numbers and relative terms. Investments in warehouse automation of SEK 47.7 million is related to the continued expansion of AutoStore. As Hermann mentioned, we are currently installing the build-out of AutoStore that we call Phase 5/6 that is expected to be operational at the end of the third quarter. To accommodate the past 15 months higher-than-expected growth rates as well as the strategic investments to build a foundation for a plus 20% growth for the coming years, we are currently planning to push forward additional investments in AutoStore of approximately SEK 200 million in 2021. From an operational point of view, it is securing capacity for '22 and '23. To secure availability, we need to, from a financial point, commit an upfront payment that is significantly higher than with previous AutoStore build-out phases. So even if this buildup would be operational in 2022, CapEx will be affected already in 2021. As a consequence, CapEx could exceed SEK 500 million this year, but should be reduced in the next year's correspondingly. Looking at the period of 2020 to 2022, the average CapEx is expected around 5%, 6%, which is in line with the average CapEx for the period of 2017 to 2019. As long as we're successful in growing the business with a 20% a year, CapEx will likely be somewhere around 5% of net revenue on average. CapEx is in 2021 and 2022 to some extent impacted by higher prices on raw material. From a P&L perspective, meaning depreciation, this price increase is marginal as the operational efficiency from the warehouse automation is very high. The operational cash flow from the second quarter was SEK 111.2 million, that is to be compared to SEK 493.8 million last year, highly impacted by the changes in net working capital. The outflow is mainly due to intensive stock linked to continue our growth journey and provide customers with the best possible stores. So this concludes the financial update. And I would like to hand back to Hermann.

[Hermann Haraldsson, Co]

Yes. And if we go to the next slide, which is our outlook. I just want to highlight that we have operated our outlook. At the same time, it is also -- now it's including the impact from So now we expect to deliver a net revenue growth of between 27.5% and 32.5%. At the same time, as we stick to our adjusted EBIT margin guidance of 5.5%. And our medium-term financial ambitions are still the same to outgrow the market significantly and stay in the range of implement of 5% to 7%. So focus is growth at the same time, maintaining industry-leading possibilities. So that was my last slide. So I think I can hand over to Mark for the Q&A.

[Operator]

[Operator Instructions] The first is from the line of Johan Brown of ABG.

[Johan Brown, Research Analyst]

So a couple of questions from me, and I'll take them one by one. So firstly, thanks for the June growth numbers, very helpful. But would it be possible to put the comparables in June in the perspective of how they look compared to your Q3 comparables?

[Hermann Haraldsson, Co]

I'm not sure I understand the question, Johan. I've for that maybe, but it's just -- can you rephrase maybe?

[Johan Brown, Research Analyst]

Yes. So how much sort of the growth rates in June 2020 were versus the Q3 growth rates, if that's possible to give any color on.

[Hermann Haraldsson, Co]

I think June and July last year, the exact question, that's probably almost the same like. I think that June and July last year, they grew almost the same something like that, yes.

[Johan Brown, Research Analyst]

All right. And secondly and my last question as well regarding customer acquisition costs, which are, yes, naturally up, as you're mentioning, but how aggressive would you say your competitors are in this regard now as the market is opening up?

[Hermann Haraldsson, Co]

Our competitors are very, very aggressive. So that's a totally different ballgame compared to last year. It's also why we are extremely happy to see that we have a very, very high resilience, even though that we now have 2 German competitors trying to take the market and spending much more than it's done before. And we are maintaining momentum in the Nordics. We are keeping the basket size, keep profitability. Our click ratio is actually increasing during the quarter. So our return on investment is the same as before. So we actually kind of -- we're seeing a very aggressive behavior from the market and -- but standing extremely strong and actually growing momentum in that as well. So yes, it's not a steal in a mall to [indiscernible] but returns on investments are still very high. So we are pleased that our have basic to understand during this aggressive [indiscernible].

[Operator]

And our next question comes from the line of Niklas Ekman of Carnegie.

[Niklas Ekman]

Just a couple of questions from me as well. And I'll start kind of in the same area there with the current trading statement. So you talk about June sales growing 40% for Boozt, 60% for Booztlet. And it looks kind of like July, we're seeing the same kind of pattern. So on a group level, is it right to assume that kind of the start of Q3, you're seeing growth rates in excess of 40%? Or am I missing something? And are we looking at easier or tougher comps kind of in the latter half of Q3?

[Hermann Haraldsson, Co]

No, you're right. Q3 has started very strongly, and we're seeing the growth rates that you are talking about. So this is why we are quite confident in our revenue upgrades. But there's still kind of -- there's still some unknowns so -- but we had a quite a start. And I wouldn't say it's surprising, but it's probably slightly better than we expected the start of the quarter.

[Niklas Ekman]

Very good. And in light of that, you talked about an upgraded target. But of course, Rosemunde added more than 1% to sales. And I think even for this year, we're looking at an earnings impact of close to 5% from Rosemunde, and yes, you only raised your sales guidance by 2.5% and your margin guidance is unchanged. So it's not a significant upgrade or am I missing something?

[Sandra Gadd, Group Chief Financial Officer]

I think you calculated the numbers wrongly actually. But Rosemunde will probably contribute with around 1 percentage point on the sales this year and that is...

[Niklas Ekman]

But I think Rosemunde is a high-margin business if unless I'm mistaken.

[Sandra Gadd, Group Chief Financial Officer]

Yes. That is very small in comparison to us. We only get to half revenue or a half year.

[Hermann Haraldsson, Co]

Niklas, also take into account that when we did our guidance in beginning year, it was assuming constant currencies. We have some headwinds of a little more than 3%. So this assumes unchanged currency. So we think it's actually quite a confident upgrade.

[Niklas Ekman]

Very good, very good. And as you said, the markets during the same period has been a bit more challenging than you had anticipated. So yes, it looks quite solid. I just wanted to get the numbers straight.

[Hermann Haraldsson, Co]

Yes. Thanks. Okay.

[Niklas Ekman]

Yes. Another question is, can you elaborate a little bit more on your private label strategy? I believe you are about to launch new private label brands alongside Rosemunde. Can you confirm this and maybe tell us some more about your thoughts here on private label?

[Hermann Haraldsson, Co]

Yes. We -- basically, we have not much new compared to what we said before. Rosemunde, we think it's is a very good company, and we can get some learnings and start [indiscernible] but there's no way a kind of a strategy shift with introducing a lot of private labels. We can see that there might be some opportunities. It could be within the Booztlet business to add some missing categories and also kind of simple Boozt.com, but the business of Rosemunde was -- or brand was less private label. It still will be below 5%. So it's not a game-changer, but it's just to give us some insight into the supply chain and see if there are opportunities. So there's not a big shift in our Booztlet strategy. And it's just again, we are just dipping our toes and doing some tests.

[Niklas Ekman]

Okay. They're very good. And can you tell us a little bit your thoughts on further M&A? I mean you still have a strong war chest in case you want to make acquisitions. Are you looking at companies similar to Rosemunde? Are you looking at kind of smaller Nordic premium-branded products? Or what is your main focus in terms of potential future M&A?

[Hermann Haraldsson, Co]

Yes, the focus is still the same. If we can strengthen our categories or if we can strengthen our foothold in the Nordics, we would do that. Both now it's been a summertime. So not much has changed during the last 2 months. But we are kind of optimistic. We believe that post corona will provide some opportunities for us. And so we have an open mind. But we are very disciplined. It will not be outside the Nordics, and we will still be very cautious, and we'll not see anything when near also Rosemunde in size from our side. So it's opportunistic. And again, we believe that the next 12 months will be, I wouldn't say, transformative for the industry, but there will be a lot of changes, and I think that is good to have a war chest in a market that has changed in this now.

[Operator]

Our next question comes from the line of Daniel Ovin of Nordea.

[Daniel Ovin, Senior Analyst]

So first question I have on the gross margin. And I noticed that even if last year was a tough comp, the gross margin this year was actually also below 2019 and 2018 levels. And I just wonder if you could elaborate around -- a little bit around this. Is this kind of market gross margin moving down? And do you also expect this in that case to continue going forward? That's the first question.

[Sandra Gadd, Group Chief Financial Officer]

Well, as we talked about, it's been a very competitive market. So it's been quite intense. And this is something that we also expected when the society would fully open up because there are the off-line players sitting on the inventories that they haven't sold. And the online competition is very fierce. So it's high competition that constitutes that. But we stick to our full year estimates of 39% to 40%. And we believe that we have the tools to do that, and we can operate at that margin. So we believe that that's a good move to be in. But of course, you have to follow market.

[Daniel Ovin, Senior Analyst]

Okay. And just going forward, if you think over the next 2 to 3 years, do you think that the overall gross margin would be pressured downwards? Or you think that it's going to stay roughly around these levels?

[Sandra Gadd, Group Chief Financial Officer]

In our estimate, we stick to this level that we -- or we believe that, that level is the one that will be for the next coming years. But of course, no one knows what happens in the future, but that's where we build our cases on and that's what we believe.

[Hermann Haraldsson, Co]

Yes. And if I may add to that, is that let's say that there would be a pressure on gross margin ex competition, that would only accelerate the online penetration because we are probably the only ones that can be highly profitable on gross margins below 40%. So we're not expecting it, but we're extremely well prepared for it.

[Daniel Ovin, Senior Analyst]

Okay. Great. And then a question on the fulfillment cost ratio here. So there seems to be a few different drivers here. You're talking about tight capacity having a negative impact, but then still return rates still lower than normal. And then also now we start to see AOVs going down. So I'm just thinking, can you talk a little bit about Q3 and Q4, second half here? How do you think the drivers developed and perhaps also some comments around the overall fulfillment cost ratio for the second half of the year? That would be great.

[Sandra Gadd, Group Chief Financial Officer]

Yes, sure. So if we start with the average order value. We believe that it is stable. If you compare -- if you do compare it to last year's quarter with all the stock we had at the prices, of course, people put more items in each basket. But that decrease in the quarter is not something that we foresee as a trend. And also if you look at the 6 months ratio, it's actually above last year. So we believe that average order value is stable and looking at Booztlet, that's also relatively high for being in the segments that they are. We are -- we believe that average order value will stay at the level that it is. Looking at the fulfillment cost ratio, there are a few drivers, as you said. We had lower prices since we did the insourcing, so we pay lower cost per hour. But of course, working in the environment we do right now, we were very tight on the capacity. We need to spend more hours to make sure that we have our inventory organized efficiently and you need to put things -- pull them around the warehouse. So that adds short-term costs. But it is a short-term thing. And we believe that, that will go a little up and down as we scale, and that's also why we're investing in to make sure that we have good capacity. And then they're marginally lower. That, of course, affects the return handling costs, but it's not that much -- the impact to the business or this quarter is not that much in absolute terms.

[Daniel Ovin, Senior Analyst]

Okay. Great. And then just the last question, if I can follow up on this Rosemunde acquisition and the impact on your financial metrics. So if I remember correctly, the EBIT margin was a bit -- it was over 20% and perhaps even about 25%. And if I would calculate that still on second half basis versus second half last year, there would be some positive EBIT margin impact, but perhaps also you have here acquisition cost or integration costs? Or is there anything of that has makes this -- that resulted in no positive margin impact? Or do you basically expect Rosemunde going forward also to be no positive impact on the margin? Just a question to clarify that.

[Sandra Gadd, Group Chief Financial Officer]

The acquisition costs are not very significant. So that is not expected to have like a huge impact, and we do expect them to keep their level of profitability, of course, we were part of -- if you look at the sales they had and their financial results, we were -- the sales to us were a part of that. So that you need to eliminate. But otherwise, we expect them to continue on the path they are on.

[Hermann Haraldsson, Co]

But of course, the profitability adds slightly to our own EBIT, but it's not a huge number. And so it's -- yes, it's a very, very significant now.

[Operator]

Our next question comes from the line of Daniel Schmidt of Danske Bank.

[Daniel Ovin, Senior Analyst]

A couple of questions. When you talk about capacity constraints, it sounds like when you read the text and listening to you that it will be an issue in the second half, but it will be a diminishing issue as we go through the sort of you add the capacity in September and also in February next year. At the same time, you're writing that you're now prioritizing top line for the rest of 2021. Should we believe that the sort of capacity issue that you've had during the sort of past quarter will be even a higher issue, a bigger issue, given your focus on driving top line until you get these investments in place?

[Hermann Haraldsson, Co]

I think the short answer is that kind of slightly no. We said that I think that we are -- have been seeing kind of the top of the capacity issues going out of the second quarter. And the way kind of the capacity restraints materialize is that you end up throwing a manhours at the problem instead of using robots. And of course, has some added costs. We are more in delivered as a percentage of our autumn/winter buy than at the same time last year. So kind of that is in place. so -- but I think that we are -- we've tried before, 5 years ago, had the same issues where we were basically stressing it. So we know how to deal with this. But I think that kind of our sales growth, of course, is affected by expected what we have bought. So that's kind of the main driver. And first thing is whether capacity issues materialize most is your ability to getting in delivered at the cost of getting delivered. Sandra talked about that in her part that where you end up pushing stuff around to make room for it. So that now that our in-delivery situation is very good, and we're still selling a lot, so we're making room for new stuff. So we don't expect the kind of the issues to get worse, and they will slightly improve during the quarter and as of mid-September, of course, when we will add start adding bins and ultimately Phase 5 and 6 is, I think, it's some 210,000 to 220,000 bins. So that is adding 4% to the current automation capacity. So that is kind of -- so meaning that we will be well in place before the very important Q4 Black Friday. So I hope it's not the same slide was, but I'm less concerned that it was in June.

[Daniel Schmidt, Research Analyst]

Okay. Okay. It sounds like you took a lot of those costs in delivering being a big part of it in the sort of later part of June then or in second half of Q2, at least, if I got you right. Then sort of just listening on your wording, when it came to sort of the medium-term outlook in '22 and '23, and you have this target of 5% to 7% margin, of course. And at the same time, recognizing what you're seeing in terms of fulfillment staying around 11% and then sort of the gross margin being around 39% to 40%. But depreciation is going up on the back of investments that you're doing, and you said that you would rather take a 5% margin and grow 25% and take a 7% margin and grow at 10%. Are you feeling a little bit that sort of keeping this margin above 5.5% that you guided for this year is going to get a bit more difficult going into '22 and '23, if you want to keep the growth rate?

[Hermann Haraldsson, Co]

Basically, no. It's is not difficult, but we would -- we can just see the advantage of growth. And we just want to grow, and we would rather stay around 5% and then growing most in the market and try to get to 5.5% or 6% because we can see long term, I think, that the company and ultimately the shareholders. So we are -- last year was an extremely good year. And in some ways, I also get that we delivered this strong result because we -- you get tempted to deliver profitability too soon. We are still kind of guiding the high profitability of all players in the market. And we just hate missing out opportunities because of short-term profit needs. So we will stick to the 5% to 7%. And if growth opportunities are less, then you're probably close to the 7%, but if growth is more than we expect, then it's probably close to 5%. And because we are so religious about our acquisition cost strategy of how much do you want to pay for a new customer. And as long as we can get the payback within the period that we've defined, we will continue to do that. And then, of course, as Sandra mentioned, we just shouldn't forget that we are moving physical products. So we need to invest in the infrastructure around that. And I think kind of for -- a part of the reason why we are having more costs in our -- due to the capacity restraints is that the customer shouldn't feel any difference in the customer experience just because we have difficulties in get stuff into the warehouse. So I would rather spend some more hours on fulfillment and making sure that the customer gets the order time than relaxing on the customer promise just to meet some short-term profitability measure. So this is kind of the because Fundamentally, as long as the customer is satisfied, we are growing, and we have the basket size, the rest is just short-term issues to fix.

[Daniel Schmidt, Research Analyst]

Yes. But it sounds reasonable. Just on sort of demand and return rates and markdown activity and so on. One of your larger competitors was out the other day, basically saying that they saw a normalization of demand, they saw a normalization of return rates and they saw higher market down activity than...[ Technical Difficulty ]

[Hermann Haraldsson, Co]

I think we lost him now?

[Operator]

Yes, it seems Daniel disconnected. I will move to the next question then that's from the line of Magnus Jensen of SEB.

[Magnus Thorstholm Jensen, Senior Equities Analyst]

Just a couple of questions from my side. First, you mentioned that there's a different growth in Denmark and Sweden. Sweden doing better than Denmark in Q2. Could you talk a little bit about the different dynamics you see in the 2 geographies?

[Sandra Gadd, Group Chief Financial Officer]

So Denmark is very strong. It's -- I think if you just compare the quarter to quarter, the even it was extremely strong last year, and that was because it was much more closed down than Sweden was. So Denmark is doing very well. And if you look at the year-to-date numbers, Denmark is very strong. But it's more that Sweden actually picked up and became stronger and stronger and basically the old market was good, but Norway as well. So it's more Sweden picking up than Denmark picking down.

[Magnus Thorstholm Jensen, Senior Equities Analyst]

Okay. And then my next question is to use. You have pretty impressive growth outside of the Nordics, of course, on a low base, but still 130% up. Which markets are you being successful with Booztlet? And are you doing something different? Are you gearing up your marketing efforts outside the Nordics?

[Hermann Haraldsson, Co]

Yes, we are -- it's mainly Germany that is providing growth outside the Nordic. For Booztlet, we are -- I think the main marketing strategy is still using search marketing clicks. So meaning Google in German, so we haven't ventured in any off-line media activities. We are doing some off-line in Denmark, which still is growing quite much also Booztlet. But -- and we've just only started outside the Nordics. So we expect the outside Nordics to even increase more in the coming quarters. So we just started our sadness, but it's been a promising start. But for now, it's mainly been driven by Germany, but we've seen other markets also pick up.

[Magnus Thorstholm Jensen, Senior Equities Analyst]

Okay. And then to the Net Promoter Score of 77%, quite impressive. But do you have any sense of where your competitors are in general on this measure?

[Hermann Haraldsson, Co]

No, no, they don't disclose their NPS scores. So we don't know. But it's -- we know that from kind of benchmarks we have this site called Net Promoter scores and this is world class, and it's on the high end. So I think we don't expect that high number going forward because Normally, we are -- if we're in the kind of around 70%, that's still world-class. That's kind of our target, 68% to 72%, but it's -- but we don't know competition. But I think they do good. And we have good competitors. In general, I think that the market leaders in the market are forcing the penetration because we are just providing such a good customer experience to the previous off-liners that are going on and staying on that.

[Magnus Thorstholm Jensen, Senior Equities Analyst]

Okay. And then just a final question. Did you say that CapEx would stay above 5% of revenue as long as you grow with more than 20%?

[Sandra Gadd, Group Chief Financial Officer]

It's around 5%.

[Magnus Thorstholm Jensen, Senior Equities Analyst]

So around 5% CapEx if revenue growth above 20%.

[Sandra Gadd, Group Chief Financial Officer]

Yes. That's what we believe is.

[Operator]

And we have Daniel Schmidt of Danske on the line.

[Daniel Schmidt, Research Analyst]

Sorry, you guys. I hope you hear me now.

[Hermann Haraldsson, Co]

Yes.

[Daniel Schmidt, Research Analyst]

And I think I asked the entire question well, I don't know what you missed last. But basically, was saying a lot of these things that it sounds like you're beating them quite a lot in the Nordics or maybe there's a big difference in geographies here because they are, of course, a pan-European player. Do you have any explanation to sort of their comments versus what you see?

[Hermann Haraldsson, Co]

Yes. We are seeing return rates they are still low as for an large part to do with the category mix. Now that we've gone into our growth is much driven by the new categories. So our online department store strategy is -- looks to be quite well time for us because it's driven by Home, Kids, Sports. Women are still not dying case. So that is kind of also keeping return is down. And -- but we don't expect to go back to previous return rate of above 40% due to the category mix. But the demand is still holding back. Now you see from the Stilindex is still below '19. Denmark, I don't think that the market in Denmark has entirely picked up, even though Denmark is probably is the one the market has picked up the fastest. But overall demand is still lower that '19 I believe so meaning that the penetration that online has gained during the last 5 months seems to stay.

[Daniel Schmidt, Research Analyst]

Yes. And I was just wondering, given that you were quite in June and July, and they were a bit downbeat on the sort of trajectory for their business. Are you doing anything different? Is there any sort of particular segments that you're seeing very good growth in which you are standing out or...

[Hermann Haraldsson, Co]

I think that's -- I think it's more kind of a geographic thing, that the Nordics might differ from DACH. I think maybe we're more kind of advanced out of the epidemic than the DACH region is. I think that it's difficult to speculate us because we know what a year in then, I think that the Nordic countries are coming quite strongly out of the pandemic. And also, it's also a question of comps. Being a smaller company, we probably reacted a bit faster than they did in Q2 last year. So we had a big part of the corona effect in Q2 last year. For them, it was maybe going out of Q2 and the [indiscernible] country. So I think that's kind of the main thing.

[Daniel Schmidt, Research Analyst]

Yes, sure, sure. And the comments on markdowns being a lot more intense. You don't feel that, that relates to the Nordics or to your business or what you're seeing or -- Any comments on that?

[Hermann Haraldsson, Co]

Markdowns are still -- they're actually -- in our case, on a similar level as last year, where we talked about the gross margin was higher largely due to the written down goods in campaign goods. Markdown is more or less at the same level as last year, meaning that the competition is still high. So there's still kind of retailers to inventory at the car. So in that respect, I don't expect gross margins to skyrocket in the coming months because that won't happen.

[Operator]

[Operator Instructions] That seems to be the final question. So I'll hand back to our speakers for the closing comments.

[Hermann Haraldsson, Co]

Okay. Thank you for your time. So this concludes our call and looking forward to you to talking to you guys over the next and again, have a conference call in time. Thank you very much, and have a good day.