Boozt AB

STO:BOOZT

Earnings Call Analysis

Company Reports Solid Q3 Performance

The company continued to strengthen this quarter with a net revenue growth of 7.4% and an all-time high average order value increase of 18.7%. This performance, in part due to a more effective number of items per basket and decreased average markdowns, underlines a strategic push for efficient operations and cost control. Cost ratios in fulfillment and marketing saw reductions due to improved efficiency and lower marketing costs. Additionally, adjusted EBIT margin soared to 6.3% from 0.9% last year and year-to-date showed an increase from 1.7% to 3.7%. With a solid growth strategy, investments in inventory position the company for success in the future quarters. However, free cash flow remains a challenge with significant investments in inventory leading to a Q3 negative cash flow of SEK 94.6 million. Looking forward, the company expects moderate revenue growth between 11% and 15% and an adjusted EBIT range of SEK 350 million to SEK 390 million.

Strengthening the Core: Boozt's Strategic Growth and Profitability

In a somewhat challenging market, Boozt has shown strong performance with a substantial increase in net revenue, growing by 16.7%, and achieving an adjusted EBIT margin of 4.3%. This performance comes from leveraging their Nordic Department Store strategy, which allowed the company to outpace the muted consumer environment. Boozt has benefited from a comeback in growth from Booztlet and an increase in active customers on Boozt.com, who are purchasing across multiple categories. Assisting this robust growth, the company managed to keep gross margins stable due to a well-balanced inventory mix and adept campaign management despite facing high inventory levels and elevated input prices industry-wide.

Maintaining Customer Loyalty and Satisfaction

The company retained high customer satisfaction with only a slight dip in their Net Promoter Score (NPS), which continues to stand at an industry-leading level. This suggests that Boozt remains effective at exceeding customer expectations with its selection, prices, and convenience. Signifying a successful strategic direction, the number of orders on Boozt.com saw an uptick of 3.7% over the previous year, along with a notable increase in average order value (AOV) by 8.6%. Year-to-date, the number of orders increased by 2.5%, with the AOV rising by 8%, further signaling that the company's department store strategy is meeting its profitability goals.

Solid Financial Position Amid Market Pressures

Boozt finds itself in a stable commercial and financial position. Currency effects positively influenced its growth, thanks to the strengthening of the Danish Kroner and Euro. Even while facing a volatile market with low consumer confidence, Boozt seized the opportunity to gain market shares. The customer's pivot to buying more diverse product categories has improved customer lifetime value and loyalty, clearly benefiting the group's overall value. Despite slight decreases, the company maintained a strong gross margin at 39.8% for the quarter. This alignment with their full-year gross margin target highlights their resilient business model, which has provided flexibility in weathering increased input prices and sustaining customer price-sensitivity without significantly impacting profitability. Additionally, the year-to-date adjusted EBIT margin rose to 3.6%, up from 2.7% last year.

Looking Forward: Upgraded Guidance Reflects Confidence

Demonstrating confidence in its operational momentum, Boozt has upgraded its annual guidance. The company now expects a revenue growth of between 11% to 15% with an adjusted EBIT ranging between SEK 350 million to SEK 390 million for the year. This revisited guidance is a testament to the momentum Boozt has been able to maintain throughout the quarter and the clear strategic direction that the company is taking in aiming for superior profitability.

Earnings Call Transcript 2023-Q3

[Operator]

Welcome to Boozt Q3 presentation for 2023.[Operator Instructions] Now I will hand the conference over to CEO, Hermann Haraldsson and CFO, Sandra Gadd. Please go ahead.

[Hermann Haraldsson, executive]

Good morning all, and welcome to our Q3 earnings call. Let's just dive into it straight away into the first slide, the key highlights. I would like to say that our Nordic Department Store strategy continued to demonstrate the strengths as we accelerated our net revenue growth in the quarter at the same time as we made a significant jump in our profitability. So even though the market was quite muted, we've managed to grow our net revenue by 16.7% and deliver an adjusted EBIT margin of 4.3%. The growth was driven by a strong growth come back by Booztlet as well as a growth in the active customer base on Boozt.com combined with more customers buying multiple categories. And even though the market was characterized by very high proportion activity due to weak consumer sentiment, peers still offsetting high inventory levels as well as high input prices from brand partners, we actually managed to keep our gross margins more or less stable. And this is due to a very well-balanced inventory mix with a higher degree of NOOS items supported by very good campaign buyers. So the stable gross margin, combined with a very strong value chain enables us to deliver an adjusted EBIT level of 4.3%. I've said before that we probably have the strongest value chain amongst all our peers, meaning the lowest costs. And this, combined with the highest average order value in our sector, secures and adjust -- adjusted Q3 EBIT level very close to the unusual high EBIT level we saw in the beginning of the pandemic in 2020. And speaking of average order value, we saw a healthy increase in AOV on both shops with Booztlet's average order value surpassing Boozt.com's AOV for the first time ever. This means that the average order value of both shops now is the highest in class in the industry. And as I said before, this is the key to superior profitability. The underlying business drivers continued to trend from last year and all point in the right direction. Notably, the return rate continues to be low and this is due to the fact that our customers are buying into categories that have much lower return rates than fashion. Our stock position is very healthy. We don't have any stock -- old stock issues basically on the contrary. At our Q2 call, I mentioned that we had received stock early, enabling us to take advantage of an early start of the autumn winter season. And this is exactly what happened. And even though September was on the warm side, we maintained our momentum throughout the quarter. Our stock position is still very strong at the same time as our competitive edge is probably sharper than ever before. So on this backdrop, we've upgraded our guidance for the year, so I would now expect a revenue growth of between 11% and 15% and adjusted EBIT in the range of SEK 350 million to SEK 390 million. And going to the next slide. I always -- I used to say the most important one, the customer satisfaction KPIs. And during the quarter, we have maintained our high ratings to filers. And even though the NPS is slightly down, it's more or less stable and still at a best in industry level. This tells us that we're still able to meet and exceed the expectations of our customers in terms of selection, price and convenience. If we go to the next slide, our development, we can see that the number of orders is up 3.7% versus Q3 '22 on Boozt.com and that the average order value was up by 8.6%. For Year-to-date, the number of orders are up by 2.5%, and the average order value is up by 8%. And finally, it's interesting to note that the average order value is up 17% compared to Q3 2021. This is a very good indicator showing that our department store strategy is working and the reason why we are more profitable than most, if not all, of our peers. And moving to the next slide, the cohort development. The active customer base is up 2% compared to last year. And for the Nordics, the number of active customers is up almost 6%. The difference being a result of a deliberate choice for us to cut down the marketing outside the Nordics for Boozt.com. This is actually quite encouraging, taking into account that we have been operating in a quite depressed market. Number of orders per active customer is also up and now at 2.4 orders compared to 2.35 orders last year. True frequency is stable at 7.0% at the same as last year as well as the year before. And this is another strong indicator showing that we have not really seen a kind of post-Covid dip in our customer behavior. Let's go to the next slide. Before I hand over to Sandra, I would like to revisit our ability to get customers to buy into our different departments. There is a very, very promising movement in customer behavior. Last year, 59% of customers who shopped with Boozt.com on the last 12 months only bought within one category. This year, that number is down to 52%, and we see a nice movement from 1 to 2 from 2 to 3, et cetera, et cetera. What is even more encouraging is that we see that our customers survival rate, meaning customers buying again buying next year gets higher as to buy into more categories. So you can see that the loyalty increases the more categories they buy. So already when they buy 4 categories or more, we have a survival rate of around 90%, whereas when they only buy one category, the survival rate or loyalty is close to 50%. So this movement to the right is a proof that our customers buy into our department store strategy. And this is -- this also explains why our average order value continues to increase and why we believe that our long-term EBIT margin ambitions of 10% is well within reach. So with this, I will now hand over to Sandra for some perspectives on the financial performance.

[Sandra Gadd, executive]

Thank you. So let me start off by saying that Boozt is in a very solid state, not least commercially, but also financially. As Hermann noted, net revenue growth was 16.7% in the third quarter. Currency had a positive impact on growth of 6 percentage points, primarily related to the strengthening of the Danish Kroner and Euro compared to last year. Growth was strong throughout the quarter with support from a healthy inventory position. Weather is, as always, a factor that impacts the season. As the first part of the quarter was relatively cold in the Nordics, we get off to an early start of the season, where September was on the warmer side, which normally doesn't work in favor of the autumn/winter season. However, despite the impact from weather, we managed to deliver continuous growth throughout the quarter as we stayed really close to the market and adjusted our offering and communication to the sentiment on a day-to-day basis. Growth in the quarter was achieved despite consumer confidence remaining low in our markets as we see this as an opportunity to push for increased market shares. We saw higher average order values in both stores at the same time as the return rates decreased slightly. This helps us deliver market-leading profitable growth. Our continued focus on the Nordic department store strategy was showcased with 234,000 more customers buying into 2 or more categories on Boozt.com compared to last year. This has a positive effect on the customer lifetime value and loyalty, as Hermann mentioned. We know that loyalty is increasing exponentially as a customer buys into more categories while this strategic focus is highly value creating for the group. Other revenues constituted 4% of revenue just as in the fourth -- as in the second quarter. Growth in other revenues was mainly related to Boozt data intelligence. As our brand partners have been onboarded to the BDI platform over the course of this year, we expect to see the full year effect in 2024. Year-to-date, net revenue growth was 11% with a positive effect from currencies of around 4 percentage points. The gross margin was 39.8% in the quarter, corresponding to a decrease of 0.2 percentage points. Year-to-date, the gross margin was 40.3%, the same as last year. We are happy to maintain a solid gross margin in a strain market where we have pressure from higher input prices at the same time as customers remain price-sensitive. Here, we have a great advantage in our business model, allowing for flexibility from other income that can be used to invest in the customer offering. This, at the same time as we deliver gross margin in level with our full year targets of 39% to 40%. The adjusted EBIT margin increased with 2.4 percentage points in the quarter to 4.3% from 1.9% last year. Year-to-date, the adjusted EBIT margin was 3.6% compared to 2.7% last year. I will come back to the breakdown of the EBIT margin within a couple of minutes. So if we move to the next page, we can see that the revenue growth for Boozt.com was 13.9%, where FX effects constituted 6 percentage points. Year-to-date, growth was 11.3%, where 4.4 percentage points was related to positive impact from currencies. As we expected, the market continued to be highly promotional also in the third quarter, even though inventory levels seem to be coming down among retailers in the industry. The promotional market is, according to our assessment, primarily driven by the price-sensitive customer. Despite the market situation, we continue to see great growth opportunities for our department store. We saw growth in all categories and across all the Nordic markets. Finland was very strong, while growth in Sweden was more muted. Denmark and Norway was somewhere in between. For our categories, we saw the best performance in the beauty, home and sports category. However, Sweden is still the market where the number of new customers were the highest in absolute numbers in the quarter. Active customers for Boozt increased 2% year-on-year, which is an increase compared to the second quarter. However, in our main markets, the Nordics, active customer growth was actually 5.7%, which we believe is very strong. In rest of EU, mainly Germany and the Netherlands, our customers have been less profitable than our other customers. Therefore, we have intentionally reduced investments in these markets right now with the customer base down around 1/3.Finally, in the Baltics, which is a smaller market for us, we do see great traction with growth in the active customer base of around 50%. The average order value in Q3 increased 9% to SEK 947 versus last year, and that was driven by an uplift in the number of items per basket as well as some support from currency. Year-to-date, the average order value is SEK 922 corresponding to a growth of 8%. In the quarter, the adjusted EBIT margin of 3.9% corresponds to an increase of 1.8 percentage points compared to last year. Year-to-date, the adjusted EBIT margin was 3.5% to be compared to 2.9% last year. So if we move on to the Booztlet slide. The good traction from the second quarter where we gained benefits from the initiatives that we implemented earlier this year continued as customers put trust into our strong offering. An offering consisting of both last year's seasonal goods from Boozt as well as inventory but especially for Booztlet, including affordable brands with qualitative basic assortments. Growth was 31.3% in the third quarter, where our 6.4 percentage points was related to positive currency effects. Booztlet's growth opportunities were positively impacted by the increased and improved access to inventories. However, inventory level seems to be coming down among retailers. And with the improved offering on the Booztlet side, there seems to be more room for Booztlet to grow compared to last year. During the quarter, the number of active customer base grew with 5%, and we now have almost 800,000 active customers shopping at Booztlet. Approximately half of these are also active customers on Boozt.com, which is a great sign to the strength of our brand and a proof that the department store strategy is working. As you might remember, our most profitable customers are the ones shopping in many categories and across both stores. Year-to-date, net revenue growth was 7.4%, including a tailwind from currencies of 4.3 percentage points. Year-to-date numbers are negatively impacted by the first quarter where Booztlet was impacted by the higher-than-expected sell-through coming into the year. With the new concept for Booztlet, we aim to mitigate such effects. The average order value increased to the all-time high, SEK 999 during the quarter, which is an increase of 18.7%. Year-to-date, the average order value increased 14% to SEK 923. The increase, both in the quarter as well as year-to-date is mainly driven by an increase in number of items per basket as well as a decrease in the average markdown and finally, some tailwind from currency. The adjusted EBIT margin was 6.3% in the quarter compared to 0.9% last year. Year-to-date, the adjusted EBIT margin increased from 1.7% to 3.7%. So let's move on to the next slide. So here, you can see the development of the cost ratios. The fulfillment cost ratio decreased 0.9 percentage points to 10.7%. Over the course of this year, we have taken measures to strengthen the fulfillment organization and improve efficiency. These efforts have not started to pay off, and we see continuous improvements in our fulfillment operations. At the same time, we saw an improvement in distribution costs as average order value increased along with the dedicated efforts to increase competition across all markets and guiding customers to our preferred carrier. Year-to-date, the fulfillment cost ratio decreased 0.5 percentage points to 11.3%. The marketing cost ratio decreased 0.9 percentage points to 10.5% as we benefited from lower cost per click in the Nordic market. We have maintained our marketing pressure, but due to the cost per click coming down, we are seeing higher returns on marketing investments, and we are using this ratio to aim for even higher growth. Year-to-date, the marketing cost ratio decreased from 11.1% to 10.6%. The adjusted admin and other cost ratio decreased 0.8 percentage points to 10.2% in the quarter. And year-to-date, the cost ratio was on par with last year at 10.8%. Staff costs were on par with last year for the quarter. However, the other admin costs decreased due to revaluation of accounts payables and cash in foreign currency. The depreciation cost ratio was 4.1% and on par with last year, which was also the case for the year-to-date ratio. The level of depreciation costs are in line with expectations and showcase our ability to get scale efficiency on the warehouse automation investment with continued excess capacity available. However, it was also positively impacted by the prolonged depreciation period for certain parts of the order store installation that we implemented in the first quarter. So my final slide on the cash flow. Here, you see that the net working capital was 12.9% of net revenue for the last 12 months. This is an increase of 4.5 percentage points compared to last year. There are a few factors that impact the working capital comparison to last year. The last few years, supply chain issues created delays that now have normalized also with lower cancellations as a result. The timing of in-deliveries as well as the conversion of a contract with a large brand partner going from an agent agreement to a wholesale agreement increased the level of inventory with approximately SEK 280 million compared to last year. The earlier in deliveries allows us to improve sell-through for the season as we have more days to sell the inventory, and this is very positive, obviously. Regarding the conversion of a previous agent agreement, it has been a deliberate action to convert all non-wholesale agreements over the course of '23. This puts us in control, and it enables us to grow at the highest pace possible. Secondly, during the third quarter, the group built up the inventory position to serve as solid growth opportunities in the fourth quarter of '23 as well as for the first quarter of next year. Part of this buildup is related to Booztlet and the changes that we made on the assortment to support strong growth throughout the season. As you probably remember, we had to spend quite a lot of time in the first quarter to acquire new inventories due to the stronger-than-expected sales in the fourth quarter last year. To make sure that we don't miss out on any growth opportunities in the first quarter next year, we will continue to focus on keeping a solid inventory position to support that. The investments we made are related to never out-of-stock inventory campaign stock but at favorable prices as well as in-season goods. We see the development of our inventory position as a key strength in this environment. It is a prerequisite to deliver a strong growth that we are aiming for, both this year and next year. We believe that there are very good opportunities to accelerate market share, and this is what we fight for every day. And just to be very clear, I know Hermann said it as well, but I would like to say that we do not have any issues with old inventories. We clear older seasons stock as we go, and we do not build up any old stock. Sell-through of older season stock is hitting the intended targets. So free cash flow for the quarter was a negative SEK 94.6 million, that is to be compared to a positive SEK 90.1 million last year. The cash flow is driven by the high investments in inventories, but partly offset by the lower investments in CapEx. The cash flow generation in December last year was extremely positive due to the higher-than-expected sales and sell-through of inventory. This impacted our free cash flow year-to-date negatively with approximately SEK 250 million as accounts payables decreased significantly in the first quarter from the higher-than-normal level as per December '22. As for the full year of '23, we now expect free cash flow to be more or less neutral as we are consciously building up the inventory position to serve growth ambitions for next year. Year-to-date, CapEx for fixed assets was SEK 17.5 million with only smaller investments during the third quarter. Investments in the platform was SEK 75.2 million year-to-date compared to SEK 54.3 million last year. We have not changed any principles on how or what we activate to our platform. The increase is driven by higher cost for employees working on the platform of who many are paid in foreign currencies.Inflation in salaries also impacted the activated costs. As communicated earlier, we expect CapEx for the full year in the level of SEK 150 million to SEK 200 million with approximately SEK 100 million on development CapEx. Most likely, the full year will end up on the lower side of our warehouse CapEx, while development CapEx will end up in the level of SEK 100 million as projected. Our cash position at the end of the quarter was SEK 703.9 million to be compared to SEK 1.024 billion last year. During the quarter, we have bought back shares in accordance with the mandate from our Board of Directors that enables us to buy back shares for a maximum of SEK 200 million up until the time of our next AGM. So far, and that means up until today, we have bought shares for SEK 68 million. That concludes the financial update, and I now hand back to Hermann.

[Hermann Haraldsson, executive]

Thank you, Sandra, and going to the outlook for this year. Q3 was, in many ways, a kind of a turning point for us. We received our stock at the right time with a very good stock mix of NOOS in-season items as well as campaign goods. And this, combined with very efficient operations, lower marketing costs and increased return on marketing investment resulted in net revenue growth and adjusted EBIT that was somewhat higher than we expected. The momentum has continued, and the very strong stock composition combined with a very tight and efficient value chain gives us confidence in changing our guidance upwards, so that we now expect a net revenue growth of between 11% and 15% and an adjusted EBIT of SEK 350 million to SEK 390 million. Yes. I know that the guidance is still relatively wide. The midpoints are revenue growth of 13% and adjusted EBIT of SEK 17.7 million. But as the next 6 weeks, they weighed so heavily on the full year numbers and taking the frequent strengths in consumer sentiment into consideration, we narrow the range slightly to reflect the current market situation. Our long-term ambitions are still the same, market share of 10% in the Nordics, first online and then the total market and an adjusted EBIT margin exceeding 10%. Before I hand it over to the operator, I would like to touch on how we see the market opportunity as we speak. So going to the next slide, which is a slide that I made myself. So it's probably not the previous one, but showing that we see actually a quite good opportunity in the current market environment. As you can see, the cost per click or rather marketing costs in general are down. And yes, you can use that fact to either cut down on your marketing spend or to use the kind of implied improved return on marketing investment to grow even more. At the same time, we see that our categories are becoming category destinations on their own in the Nordics. So our old new categories, so to say, kids and sports are minimum on par with the best category verticals in the region. And the new ones, beauty and home are getting there. And the more categories our customers buy, the more loyal they get. So these 2 driving forces, higher return on marketing investment, and higher loyalty through buying into our department store concept means that we're getting more customers who buy into more categories, which results in a higher customer lifetime value. And this, of course, ultimately results in higher revenue and higher margin, which is, I guess, good for all of us. So having said that, this concludes our presentation, and I would like to hand it over to the operator to take some questions.

[Operator]

Thank you. [Operator Instructions]. The next question comes from Daniel Schmidt from Danske Bank.

[Daniel Schmidt, analyst]

Hope you can hear me. A couple of questions from me then. And starting with the top line performance and the inventory, you sound very, very satisfied with the inventory composition, although it's up quite a lot in terms of value compared to last year. And I think if I got it right, there was some revaluation of the inventory related to customers going from wholesale or away from wholesale, I forgot SEK 280 million. Maybe you can clarify that. And in addition to that, given what sort of -- what the indications we've had when it comes to closing data for the start of October, maybe not from the Nordics, but at least from Germany, it seems like the weakness in September that we saw due to one weather has been reversed. Is that also something you can confirm if I start there?

[Sandra Gadd, executive]

Okay. So let's start with the inventory. Yes, we are very confident. We think we need inventory to grow as much as we want to do. And of course, it's up 1%, but that's what we need to grow. And it's new stock, it's nothing old. And looking at the comparison, the SEK 280 million that I talked about, it's both timing effect. So when we got the seasonal goods; last year, we got quite a lot of goods quite late, so into the fourth quarter. And then there has been a pretty large agreement that previously was an agent agreement that now is a wholesale agreement. And I think you should remember that also when you look at the inventory position now, it is there to serve growth also in the next quarter, meaning Q1 of next year. So we're building up to make sure that we can grow at the highest pace as possible. Could you take another question.

[Hermann Haraldsson, executive]

Yes. Regarding the current trading, of course, you know Dan, that we don't really comment on the current trading. But obviously, we're doing a, what do you say, reverse profit warning or kind of upward warning, kind of we're not assuming that the consumers are depressed. And even though the weather was a bit warm in September, we still kind of sold the last stock. So we are we are confident going into Q4 and going out of October.

[Daniel Schmidt, analyst]

Yes, yes. No, but I think the inventory issue, I understand the timing and the difference in accounting there that makes sense. And I can only assume that given that... Yes, go ahead. Go ahead, Hermann.

[Hermann Haraldsson, executive]

No, sorry, as Sandra said it's an opportunity. So is so solid a count that we are seeing business. Basically, enable us to make a better Q1 than we've done before because now we have enough goods as well...

[Daniel Schmidt, analyst]

Yes. And just moving on, given the surprisingly strong performance that you've had throughout the quarter and likely so starting this quarter as well. I think you mentioned before that some of your peers -- some of your Continental competitors, I assume, Zalando about you, for instance, have been more sort of focusing on DACH and maybe a bit less on the Nordics, of course, not leaving the Nordics in any way, but focusing on areas where they have the highest profitability. Is that still the case you think looking into the last part of this year? Or has that changed in any way?

[Hermann Haraldsson, executive]

Yes. Again, we are not really a fashion store anymore. We are a department store. So we are selling much more than fashion, whereas our more continental peers are focusing on fashion and I think we have the benefit of being -- focusing on the Nordics. As we've said before, many times, we want to be world champions in the Nordics with kind of the right product mix and the right brands, focus on all the bands. And having both Boozt and Booztlet, we believe we both cover the kind of the value segment with Booztlet as well as the mid- to premium with Boozt.com. We're pretty solid. And then finally, we are in full control of our shop. We -- everything that we've bought his own bond, meaning that we decide on what is the depth and the width of the assortment as well as the price. So I think that we have, we're in much better shape to kind of meet customer expectations than our, you would say kind of more confidential peers who are doing some kind of a hybrid marketplace or the program model that is probably quite a weak place to be in a market environment like this.

[Sandra Gadd, executive]

In addition, maybe if we're talking about the cost per click, obviously, that has been done during the third quarter. And without being a marketing specialist, that's Hermann. We can, of course, expect that people try to sell quite a lot during the busy weeks, that's ahead. But we -- either way, if they do or not, we are very competitive and know that we can take part of that and with strong results.

[Daniel Schmidt, analyst]

Yes. And maybe just also coming back to one of the cost lines, which surprised quite positively fulfillment costs being down almost 1 percentage point compared to last year, and you talked about productivity improvements that continue to materialize. You talk about lower distribution costs, and you also state that you will have increased utilization of automation and warehouse footprint, yet to come. So I assume that we should expect fulfillment costs all else equal to continue to come down entering 2024 as well; Or are we sort of at the end of the line as we exit '23, you think?

[Sandra Gadd, executive]

Well, it's the running effect coming into fulfillment. I hope so. No, but I think we do continuous improvements. And you can see that not on a day-to-day basis, but you see it continuously. So we've been working very actively with the distributors, making sure that we are cost efficient and guiding the customers towards the right carrier and making sure that we have a balance there. And then on the fulfillment, of course, we get better and better using our automation. We get higher productivity. We have a new management team, also the operational part of it up in in home. So we see continuous improvements, and we don't expect that to stop, but it's not like we expect a huge jump in the cost ratio, but continuous improvement is good enough.

[Daniel Schmidt, analyst]

Yes. Okay. Cool. And maybe just a last one on rest of Europe. It sounds like you're more or less sort of switching out the Dutch and German customer base in favor of the Baltics. Do you see sort of the Baltics as being more profitable in general when it comes to different sort of cost lines, if you look at distribution, marketing, whatever than sort of Northern Europe or Continental Northern Europe?

[Hermann Haraldsson, executive]

Yes. We love the Baltics. And basically, we regard the Baltics as being a part of the Nordics. So they have similar mindset. And like kind of our Nordic assortments. So we leave the derms and the dots to boots, where we have maybe a more kind of relevant kind of a unique assortment and compared [Indiscernible] the trying to compete. So I think this kind of these Baltic as a natural part of our Nordic department stores -- so yes, Yes, we are -- actually, we are Baltics fans, if you might say so.

[Operator]

The next question comes from Benjamin Walstead from ABG.

[Benjamin Walstead, analyst]

Congratulations on a string quarter. I was wondering if you could elaborate further on going from an agent agreement to wholesale agreement with the supplier. You talked about the gross margin impact. You talked about the inventory impact. Could you as well give us an idea of the positive net sales impact? I assume there is one.

[Sandra Gadd, executive]

Yes, I'm not going to give you a number because it depends a little on how you see it. But the reason that we did change the agreement was that we could increase sales by making it into a wholesale agreement. So there is an impact there, but I don't have the number for you.

[Hermann Haraldsson, executive]

But it's not only kind of that you changed the revenue definition because we are doing the buy. So we decide the assortment. So we have bought much more and sold much more than...

[Sandra Gadd, executive]

Comparison is not like the apples-to-apples.

[Hermann Haraldsson, executive]

Again, this is part of being like being saying, we want to be in controller for store. We know exactly what our customers want, which it difficult if you're a brand doing the assortment planning. So this is just a part of the strategy of being in control of our shop.

[Sandra Gadd, executive]

And we think in effect since we did this change.

[Benjamin Walstead, analyst]

Yes. Perfect. And could you give us an idea of -- is there more to come in this regard? Or what's the split between agent agreements or the wholesale agreements currently?

[Sandra Gadd, executive]

We're almost full of wholesale. So we've done conversions. There might be a small one or 2 left. But no, we're 100% wholesale...

[Hermann Haraldsson, executive]

More or less.

[Benjamin Walstead, analyst]

Yes. Perfect. I was wondering, previously, you've updated us on the growth in the newer categories, home. Beauty, and sport. Could you give us a rough idea of these categories growth as well in the quarter, please?

[Hermann Haraldsson, executive]

Do we really disclose...

[Sandra Gadd, executive]

No, not numbers. But I think home and beauty is growing well, and that is usually the case and has been there for quite some time. I think this quarter, we also have sports on having a very good performance, and that is a good sign. It's been a vertical in general on the market that has been quite tough. But for us, it's been working quite okay, but I think we've seen increase and come back for the sports category almost. So that's a good sign. But the other ones, Kids is also performing well, but Beauty and Home is growing very, very strong.

[Benjamin Walstead, analyst]

Yes. I think you haven't given those exact numbers previously, I think you've said somewhere around 30%, 40%. If you still a very good estimate.

[Hermann Haraldsson, executive]

Still a very good estimate.

[Benjamin Walstead, analyst]

You have Anyways, so final question, adjusting for one-offs related to incentive programs. Personnel costs grew, I think, materially year-over-year. Is this an effect of an understaffed Q3 '22? Or is there any additional color you can give us here?

[Sandra Gadd, executive]

Well, the staff cost in ratio-wise, it was on par. So obviously, we have grown last summer, it was when we did the rightsizing. We ended our collaboration with 77 employees. So obviously, Q3 last year where we were on the lower side on that. Obviously, during the year, we have hired a few new people, and we also had a salary increase in May and such. So that is -- yes, it's pretty simple in that.

[Benjamin Walstead, analyst]

All right. So you're pretty much rightsized in terms of personnel, you'd say you would have to employ as many people as you grow sales from your own...

[Sandra Gadd, executive]

We should get -- looking longer term, we should get scale efficiencies on personnel. And I think we're still one too few and have that principle that we had for quite some time. But we have hired some new people over the course of the year, and we need to as we develop and grow customer service. We need more customer service agents and specialists in different types.

[Hermann Haraldsson, executive]

And we have developed kind of both categories as well as the lower income with BDI and the Budget partnership Boozt base. So that's what it means that we need to kind of staff those departments before kind of revenue really fixed office. So that's a...

[Sandra Gadd, executive]

We're not overstaffed We're not under stuffed, maybe just... right-staffed.

[Operator]

Thank you very much. The next question comes from Simen Aas from DNB Markets.

[Simen Aas, analyst]

Congratulations on a very strong quarter. So most of my questions has been already been answered, but I'll start off with one. So discount level this black month Christmas. How compared -- does this compare to last year? Do you have any feel for that? So that's my first question.

[Hermann Haraldsson, executive]

Well, our gross margin is pretty much the same as last year. So it's on path. So I think that -- for the last couple of years, the interest has been hoping that the promotion that would kind of go down, but we don't see kind of insights of that. So we are assuming that the promotional intensity will be as intense as it has been basically in the last 18 months. But it's not kind of -- it's not as far as we can see it intensified, and you can see that from our margin that is kind of pretty much stable.

[Simen Aas, analyst]

Okay. That's very helpful. And then maybe looking a bit further ahead. So on sourcing for next year, and I know that you already have placed some orders for spring, summer. And how should we think about sourcing cost there? I think a lot of the international fashion retailers, at least are flagging lower raw mats and shipping costs? Should we expect gross margin to have support from this? Or will you reinvest in growth?

[Hermann Haraldsson, executive]

We buy from the brand. So we don't produce ourselves anything. So we are -- yes, so it's the brand that sets the price, but I would be very surprised if the brands would increase their prices because kind of also the consumer is not willing to pay a higher price. So I think that kind of -- you will see pretty much unchanged pricing picture over the next 12 months, which is good because the inflation will go down. So I'm not seeing increases in the market because basically the brands, they don't -- they can't afford to increase price and lose the customers.

[Sandra Gadd, executive]

And the customers are very aware of prices...

[Simen Aas, analyst]

So don't expect any price decreases due to that. So you think that the brands will take all the gains from the low raw mats?

[Hermann Haraldsson, executive]

I would be surprised if they decreased prices. That's kind of -- you haven't seen that as... We would push for lower prices so that we can pass it on to the consumers.

[Simen Aas, analyst]

Yes. Okay. And then lastly, I know we don't guide for 24, but do you have any feel for market growth in the Nordics? How should we think about that? Do you think there will be growth next year? Or how should we think about it?

[Sandra Gadd, executive]

It should be growth next year, obviously.

[Hermann Haraldsson, executive]

We will grow, but the market, we don't know. Okay, market... Yes. But we don't guide anything because all the guys look...

[Sandra Gadd, executive]

But the principle we have in this market to get -- to take market share, that's not a strategy that's going to end when the year closes. So continue to take market share is what we will continue to do, and that's our focus.

[Hermann Haraldsson, executive]

But I think it's also important to remember that we are not a fashion store. We are selling more than fashion and it's getting closer to kind of only [Indiscernible] of the shops. So we are benefiting from customers even though the market might not be growing in fashion you have the buying kids and sports and beauty. So we are very well hedged towards any weaknesses in any particular segments of the market.

[Simen Aas, analyst]

Okay. That's very helpful. good luck with the Christmas sales.

[Operator]

The next question comes from Daniel Schmidt from Danske Bank. Please go ahead.

[Daniel Schmidt, analyst]

And just a follow-up from me, Hermann and Sandra. Just on the other revenues, and you've talked about the new launch BDI, I think early this year or maybe it was late last year. And it sounds like it's been sort of a fairly good start to that particular revenue line. But you also mentioned that you will see more of the full effect next year, given that you've been taking on a lot of brands, if I got you right. Could you give any indication when you look at Q3 and the SEK 64 million in revenues that you had on that particular line, how much was related to BDI -- and what is sort of the trend in that particular revenue line going into '24…

[Sandra Gadd, executive]

Well, no, we're not going to specify the number, but I think it's more the model of it. So we've been onboarding France throughout the year and we will have a full year effect next year. But what is BDI and what is E&P and these other small things that -- it's looking very good, [Break] not and use then I think we very happy...

[Daniel Schmidt, analyst]

All right, sounds promising. And then Herman maybe just to finish off, you've mentioned, of course, that those should reach a double-digit margin before. But to me, it sounds like you are sort of pointing to that a bit more in your prepared remarks, is that just me or is that sort of a feeling that you're getting more and more that the way that you've been sort of running the company and the investments that you've done and what you see in terms of external factors is pointing in that direction. And if so, should we expect sort of you to be looking forward to profitability improvement near term rather than sort of long term, if you see what I'm saying.

[Hermann Haraldsson, executive]

[Break]

[Daniel Schmidt, analyst]

I hear you a bit poorly, sorry.

[Hermann Haraldsson, executive]

Sorry, I'm saying that I'm almost surprised by [Indiscernible] get costs out of the system or... And probably slightly more optimistic on a go forward and us reaching this profitability earlier than before, also because basket size is going up. Consumers are buying into more categories. And our model of focus on Nordics kind of being -- having a noncomplex machine, I think that all adds up. And also finally, with our ability to have the other revenue, making sure that even though the market is proposal driven and we could actually sell items at a very attractive price points, we still get, I believe, also the highest gross margins; I'm actually very positive. And also in a market environment like this, that is so negative. And – [Break] that's a long way of saying that you are probably right in some ways.

[Daniel Schmidt, analyst]

Yes, yes, yes. I got that. That's cool. Nobody is sort of -- it's been building your confidence simply given that we are still in a very difficult market that you're able to deliver what you're delivering simply.

[Hermann Haraldsson, executive]

Yes. Yes. I think this kind of -- again, I think that in... We have strong value chain... I keep talking about it. also in all industries, the one is our most efficient value chain, will always, will always have superior margin compared to everyone else. And that's why I kind of -- I think we are being rewarded of being very disciplined, not allocating capital to all kind of sexy adventures and focus on Nordics, I think that's kind of -- we are reaping the rewards of that now.

[Operator]

Thank you. There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Hermann Haraldsson, executive]

Okay. Thank you for the last 50 minutes. And for the good questions, and this concludes the presentation, and I guess I will see a lot of you over the next couple of weeks. Thank you, guys and have a good day.