Boozt AB

STO:BOOZT

Earnings Call Transcript 2022-Q4

[Operator]

Welcome to the Boozt Q4 2022 Results Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Hermann Haraldsson; and CFO, Sandra Gadd. Please go ahead.

[Hermann Haraldsson, executive]

Thank you, and welcome to our Q4 2022 webcast. Let's just dive into it and go to the first slide, our key highlights. Yes, the Nordic department store has stood quite out in the fourth quarter with a clear acceleration of market share gains without compromising what we think is best in industry margins. The quarter came to 23.9% growth with a much stronger performance in November and December than we had expected. You might say that we went after it, and with the best offer and selection in the Nordic region, our historical cohorts as well as new customers responded very well.

For the full year, we managed to grow 16%, delivering ahead of the outlook for '22, owing to a strong finish with exceptional execution and diligence through the peak in November and December.

One of the clear highlights is the average order value that has continued to increase, reaching a new height of SEK 956 for an average basket after VAT and returns this quarter. The development of this is mainly supported by more items per basket, and we believe it serves as a strong testament to the strength of our Nordic department store strategy along with some slight tailwinds from FX.

Return rates, they are on par with last year and have stabilized at a low level. And we are successfully diversifying our category mix, especially with strong growth in -- which are the categories carrying the lowest return levels.

And then most importantly, our unique fair use concept to limit fraud and abusive return behavior is successfully being refined, meaning that we get actually more sophisticated in selling down customers who really have no intention of shopping with us.

Our colleagues in the commercial team, along with buying and merchandising, have gone above and beyond to manage our inventory position in a year where market growth did not match our initial expectations. And this, to me, is kind of the key takeaway from our report today. Our inventory position is healthy as we have managed an even stronger sell-through of the SS '22 and the autumn/winter '22 season. And we are well underway with securing enough campaign stock to support growth in the first half of '23.

Boozt, I believe, is leaving 2022 in a stronger position, both commercially and financially, and we are quite confident that the market in '23 provides significant opportunities to continue our accelerated market share gains. The strategy is unchanged and we remain laser-focused on further developing the Nordic department store.

So if we go to the next slide, the customer satisfaction KPIs. During the quarter, we have maintained our rating on Trustpilot, and we managed to deliver an NPS at a stable and best-in-industry level. The Net Promoter Score declined during the fourth quarter compared to the historic high last year, but it's still well above the historical average of around 70 and at a level we consider --.

The progress we've made on the fair use initiative is tremendous for our business in terms of profitability and the reduced environmental impact. However, the reviews for the block people at Trustpilot, you might say they 0re not benefiting already because they're not so happy with us blocking with them, which they expressed locally. All in all, I am very pleased with the service level and selection that we offer our customers and we will work hard to maintain and even improve our customer ratings in the coming year.

If we go to next slide, order development. We can see that the number of orders were up 7.1% from Q4 '21 at Boozt.com, and this was supported by our historical costs in the last months of the year and a step-up in our success of acquiring new customers. For the full year, we are slightly up with 1.2% driven by the strong end to the year.

The more modest growth in number of orders is offset by the increase in average order value and a continued strong development of our additional revenue streams, mainly Boozt media partnership and BooztPay -- of course finally by -- more than 20,000 fair use abuses again this year that, of course, naturally lowers the members of ours.

The average order value is in a really good shape and the strong development we have seen throughout the year continued in the fourth quarter, up to a new record high of SEK 956 per basket. The main drivers are customers adding more items in these baskets due to the continued expansion of the Nordic department store concept along with a very successful migration of customers from the Calgary customers. On top, we also have some positive effect from FX.

We have made strong progress during the year to further build on our position as the leading Nordic department store with the best selection across all our categories. We see a clear acknowledgment from our customers, putting more items in these baskets as they shop in more categories, supporting the positive development of our basket size. And this, we believe, enables us to continue to deliver best industry profitability.

So moving on to the next slide, cohort development. We end the year with an active customer base exactly in line with last year, reflecting a 22 where acquiring new customers was more challenging, impacted by economic uncertainties that characterize the Nordics as a whole. On the more positive side of things, we saw the numbers of orders per active customers increased during the quarter, driven by a higher share of net revenue from existing customers that, on average, share more frequently. [indiscernible] was slightly down, but is more or less in line with previous years and with no material changes in behavior in relations to the cohorts acquired during the pandemic. So all in all, we are quite happy.

So having said that, I will now hand over to Sandra for some perspectives on the financial performance.

[Sandra Gadd, executive]

Thank you. So if we look at the group results, we see a revenue growth of 23.9% in the fourth quarter. Net revenue growth was positively impacted by currency effects of 5.5 percentage points due to the strengthening of DKK in euro compared to the Swedish krona. Growth was strong across all Nordic markets. In total, the Nordics grew 25%. Return rates were stable, a bit lower than last year in the quarter and marginally lower for the full year.

Other revenues increased around 27% in the quarter, driven by the continued growth of Boozt Media partnership and BooztPay. For the full year of '22, net revenue growth was 16% with positive currency impact of 3.9 percentage points. The gross margin was 38.3% in the quarter, 2.7 percentage points lower than last year.

As we actively chose to make sure that our sell-through was good and our inventory risk -- inventory risk low during -- as the year ended, we took active part in the promotional activity we saw across our markets, which enabled us to continue to gain accelerated market share. In November and December, we saw a significant change in the cohort behavior that fueled our growth more than we had anticipated coming into the quarter, and Hermann will come back to this.

For the full year, the gross margin was 39.5%, corresponding to a decrease of 0.9 percentage points compared to last year. This is a result of a highly promotional market where inventory levels across the industry did not reflect the market growth.

Looking at the full year and how it ended, we had again conclude that our department store model is working very well as customers put more items in each basket, and we see a gradual increase in multi-category customers. As the sell-through of our AV '22 season was above expectations. We started '23 with a trimmed inventory position.

Looking at the number of items in our fulfillment center, it was actually lower at the end of the quarter compared to the year before. Looking at the quality of that stock, we assess our inventory risk as low. We are currently fully focused on the in deliveries of the SS '23 goods and campaign stock for the upcoming season.

The adjusted EBIT margin was 7% in the fourth quarter, which was 0.6 percentage points lower than last year. This relatively lower difference compared to the difference in gross margin is in effect of improved cost ratios and scale, and I will come back to that within short. Year-to-date, the adjusted EBIT margin was 4.2%, that is to be compared to 5.9% last year.

So if we move to the next page, we can see that the revenue growth for Boozt.com was 22.4% in the fourth quarter and 13.6% for the full year. The acceleration of sales was driven by a strong performance across both categories and geographies, however, with the highest relative growth numbers in our smaller categories, Beauty and home.

The number of active customers was on par with last year as new customer in '22 due to the general low consumer confidence in our market, but we saw a significant bounce back from our older cohorts in the fourth quarter. The average order value increased 14.2% to a new historic high of SEK 956 to be compared to SEK 837 last year. The increase was driven by the higher number of items per order, but also positively impacted by the favorable currency development. We expect the high promotional landscape that we experienced during the fourth quarter to continue into the first half of '23 due to elevated inventory levels across the industry. The adjusted EBIT margin was 8.2% in the quarter, which is on par with last year when the adjusted EBIT was 8.3%.

Profitability was driven by scale efficiencies from the strong growth as well as favorable structural development of our cost ratio. For the full year, the EBIT margin decreased from 6.2% to 4.8%, a result we are very happy with in the current market environment.

So if we move on to the next page, we see that growth in the Boozlet segment was a solid 33.1% in the quarter and 29.4% for the full year. Growth was driven by strong performance in Sweden, Norway and Finland and high average order value. The AOV increased with 19.1% as the number of items in each basket increase.

We also played a very important risk management role during '22 as the focus was to reduce inventory risk for the group. Booztlet's growth opportunities as a stand-alone business was, however, negatively impacted by the high promotional activity in the in-season stores, both from online and offline players as a consequence of the elevated inventory levels in the industry.

The focus on clearing stock for Boozt.com negatively affected product margins and thereby the overall profitability for the Boozlet segment in the quarter. The adjusted EBIT margin was 0.3% in the quarter and 1.2% for the full year, which is lower than previous years.

We are currently focusing on obtaining relevant campaign stock to further support growth of Boozlet, but do expect profitability to remain on the low side during the coming months as the promotional activities continue while inventory levels are elevated throughout the industry.

So if we move to the next page, we see the development of the cost ratios. The fulfillment cost ratio that consists of fulfillment costs as well as distribution costs was 10.5% in the quarter, 1.6 percentage points lower than last year. The improvement is related to productivity gains in operations as well as the higher average order value.

[indiscernible] capacity that impacted operations negatively in '21 and beginning of '22, improved significantly during the latter part of '22. This was one of the reasons we could improve productivity and the cost structure.

For the full year, the fulfillment cost ratio decreased from 11.8% to 11.3% as expected and due to the gradual improvement of capacity we experienced during the year.

The marketing cost ratio increased 0.5 percentage points to 10.7% in the quarter to support our focus on gaining market share and managing our inventory position. For the full year, the marketing cost ratio also increased 0.5 percentage points to 11%.

The adjusted admin and other cost ratio decreased from 8.8% to 7.7% in the quarter. The improvement in the cost ratio is positively impacted by the rightsizing of the organization -- during the summer. For the full year, the adjusted admin and other cost ratio increased 0.2 percentage points to 9.7% as the full year net revenue growth was lower than expected when entering the year. The depreciation cost ratio of 2.4% was at the same level as last year despite the significant investments in '21 and '22. As for January '23, the latest expansion of our automated warehouse capacity will be taken into operations.

For the full year, the depreciation cost ratio increased to 3.3%, which is to be compared to 2.9% last year. The ratio is expected to decrease over the next few years as we gradually grow into the capacity expansion.

So if we move on to the next page, which is my favorite. We see that the net working capital was negative 1.6% of the net revenue for the last 12 months, which is 6.5 percentage points lower than last year. Our inventory position was 17.6% higher than last year, while the number of items in stock was lower as the sell-through for both the spring/summer and autumn/winter season improved compared to last year.

Free cash flow for the full year improved from a negative SEK 365 million to a positive SEK 90 million, driven by a strong cash flow from operations as well as the positive changes in net working capital. CapEx for the full year was SEK 520 million, where SEK 74 million was related to investments in our own developed platform. This is to compare with SEK 81 million last year. The majority of this year's investment was, as communicated before, related to the order store expansion as well as the acquisition of minority shares in Rosemunde that we did in the beginning of this year.

The year with a strong cash flow, our cash position was almost SEK 1.7 billion at the end of the quarter, which is to be compared to SEK 1.6 billion last year. Given our recent investments in warehouse automation, we expect to have enough fulfillment capacity to grow our business in the coming 2 years. Therefore, we can reconfirm that we expect the lower level of warehouse automation investments in '23 and '24. We do, however, expect a certain level of maintenance CapEx.

And that concludes the financial update, and I will hand back to Hermann.

[Hermann Haraldsson, executive]

Thank you, Sandra, and Ron, if we move to the next slide. Well, before we get to the outlook of '23, I just wanted to share some data insights on the development over the course of 2022.

On the graph that we display would display the behavior of our historical cohorts, meaning 2021 cohort and older on a month-by-month basis. I know it can be a bit complicated. But as you can see, the year kicked off at a high pace. It was almost kind of happy go lucky, but came to a quick halt with the outbreak of the war in Ukraine. So from February until September, we experienced kind of unprecedented volatility in the behavior from the historical cohorts that obviously made it very difficult to navigate. Normally, they are quite stable, but this year, it was kind of roller coaster.

So that meant that our monthly trading plans, they were changed from day-to-day to try to get the customers engaged. And to be honest, it often look more than the difficult. So bearing that in mind, to me, the past year has proven that we have an exceptional team with a unique culture. We have a team that can step up when needed and they can deliver outstanding results, even in the most difficult circumstances. So I guess the graph is just here on the proof point that we have a company full of people with grit.

So having said that, if we go to the next slide, the outlook for 2023. For the coming year 2023, the priority is clear: We will continue our efforts to secure higher market share while maintaining best-in-class margin, best in industry margins.

We expect the market to be difficult with the market growth of Personal lifestyle that could well be in the level of negative 5% to basically a 0% growth. So with the considerable volatility and less predictable markets showcased by the pre-2022 cohort behavior, setting the outlook for '23 was more difficult and with a higher degree of uncertainty than normal.

So to reflect this, and to provide our best guidance in terms of the outcome, we have decided to widen the range for both net revenue growth as well as adjusted EBIT. So I guess it goes without saying that we expect to narrow the range when we get more visibility, hopefully, during the year.

For Boozt, we expect net revenue growth in the level of 5% to 15% as we continue to cement our position as the leading Nordic department store with growth well ahead of the market.

In terms of profitability, we set out to deliver adjusted EBIT in the level of SEK 275 million to SEK 375 million, implying a margin of around 4.4% at the midpoint of the outlook.

It is important to note that the adjusted EBIT outlook for '23 is positively impacted by a reassessment of the useful lives of the group's fixed assets. This mainly relates to the order store installations, and we have done the reassessment to better reflect the actual useful life on a component level, which was based on the experience gained after operating our own store setup for the past 6 years.

Also, we have performed a benchmark for companies operating very similar setups. And the conclusion is clear, the AutoStore components have a longer useful life than what our assessment previously reflected. So for this reason, we have decided to extend the useful lives and we believe that this will provide a higher degree of comparability of EBIT towards our industry peers. So to be fully transparent, the positive impact on depreciation in '23 is in the level of SEK 25 million compared to 2022.

And lastly, as Sandra said, after spending considerable resources in '21 and '22, to expand our automated fulfillment capacity, we are now in a situation where we have sufficient capacity for the foreseeable future. So for 2023, we expect a modest level of investments in fixed and intangible assets with a CapEx between SEK 150 million and SEK 200 million.

So moving on to the next slide, the final slide. Before we conclude the presentation, I would like to shortly remind everyone that we will be hosting our first Capital Markets Day this year. This is the first for us, and we are excited to be able to welcome investors and analysts to get an even better understanding of the Nordic department store strategy and also an opportunity to meet more of the management team, so not only Sandra and myself. Also, we expect to announce new mid- to long-term financial targets, with the former ones -- expiring as well as an update on the capital structure and allocation. We will announce a more detail agenda towards the end of February.

So this concludes our presentation, and I would like to hand over to the operator to get the Q&A session underway.

[Operator]

[Operator Instructions] The next question comes from Benjamin Wahlstedt from ABG Sundal Collier.

[Benjamin Wahlstedt, analyst]

Just a couple of short ones from me today. Fulfillment and distribution costs are down rather significantly year-on-year. Could we get some more color on where these improvements come from? Is this mainly related to automation efforts? Or is there additional improvements from distribution costs being down as well, please?

[Sandra Gadd, executive]

It's mostly related to fulfillment, and it is affected by the capacity restraints we had last year as well as that we made some changes in our setup, so we have higher productivity. It's a mix, a little bit of everything, but it's related to fulfillment.

[Benjamin Wahlstedt, analyst]

Great. So -- but there is some contribution from better distribution costs than I take it despite.

[Sandra Gadd, executive]

Distribution costs are relatively stable. They -- or I shouldn't say always, but they usually are, and they have been also this, yes.

[Hermann Haraldsson, executive]

But obviously, also basket size. The cost ratio because we have high basket size, cost ratio goes down.

[Sandra Gadd, executive]

Yes. And that also goes for the distribution ability.

[Benjamin Wahlstedt, analyst]

Absolutely. And then my second question pertains to the basket size. Is it possible to quantify what portion of the year-on-year higher AOB comes from a higher number of items and what part comes from a higher price per item?

[Sandra Gadd, executive]

Yes, we want to play that. There are some currency effect there as well. It's 4-point-something percentage points out of the growth is currency. But most of it is the number of items. But there is some -- on the value.

[Benjamin Wahlstedt, analyst]

All right. So both are higher. Could we conclude that maybe then?

[Hermann Haraldsson, executive]

Sorry, say again?

[Benjamin Wahlstedt, analyst]

Can we conclude that both the price per item is higher and there -- is a higher number of items?

[Hermann Haraldsson, executive]

It's mainly a higher number of items as people are putting more item basket and of course, reduced -- return rates also has a significant effect as that so -- but of course, basket size, which is basically a result of everything in categories, items and return rates. So kind of all these things play quite nicely together.

[Benjamin Wahlstedt, analyst]

It would be interesting also to hear your view on the market growth for 2023 to sort of get your guidance in relation to something, please?

[Hermann Haraldsson, executive]

It's very tempting to say we don't have a clue. It's -- I think, like we said in the presentation, it can be a zero. It can be a negative. It's quite cloudy out there. This is also why we have this very wide revenue range is that visibility. So we are cautious. We are quite confident that we will gain even quite significant market share. So if the market grows, then it's -- yes, it's happy days. But if it not goes, then it's just hard work.

[Benjamin Wahlstedt, analyst]

Hard work, but potentially still happy days.

[Sandra Gadd, executive]

Well, usually hard work -- happy days.

[Hermann Haraldsson, executive]

Yes. A little bit of both, I guess.

[Operator]

The next question comes from Niklas Ekman from Carnegie.

[Niklas Ekman, analyst]

Yes, a few questions from me as well. Firstly, can you say anything about current trading? You're talking about an uncertain outlook, but can you say anything about this strong growth in November, December, whether it's continued in the start of the year or is consumers are more hesitant?

Then on the same topic, you talked about in the guidance, you talked about expectations of improving consumer confidence. Is that something you've already seen materialize in demand? Or are you mainly talking about expectations for H2?

[Sandra Gadd, executive]

If you know what our answer is going to be, we're not going to talk about current trading. But -- and we have 11 months to go. So I'm tempted to say that it's implied in our guidance, but it's been according to our expectations. But then whatever they are, it's -- we're happy as it is and it's going as were expected, right?

[Hermann Haraldsson, executive]

Right.

[Sandra Gadd, executive]

You know that

[Niklas Ekman, analyst]

Okay. Yes. Fair enough. You can't blame me for trying.

[Sandra Gadd, executive]

No, no. I also would have done that.

[Niklas Ekman, analyst]

Second question then. Noticed you talked about a limited recruitment here new customers. And I also see that site visits are down almost 30% year-over-year. Can you elaborate a little bit on this? And whether this lower recruitment and new customers, is that -- does that imply a lower foundation for future growth? Is that something we should worry about that the recruitment is going to be lower going forward? Or what's your view on this?

[Hermann Haraldsson, executive]

Yes. I think the issue is that the site metrics are getting less and less useful because with the new cookie directive and stuff like that. So kind of we might probably sometime stop reporting those numbers because they are basically not very relevant or precise anymore.

We are still actually recruiting a lot of new customers. And to Ganesh, maybe in the end of the year, got more new customers than we expected. So we don't -- we -- I think kind of structurally, we believe that the kind of online penetration gains that we've seen over the last 10 years of around 10% to 50%, they will continue. So we believe that kind of the inflow of new customers into online or migration from offline, that will continue. So of course, if consumer sentiment is low, then, of course, it would probably be as hard to new customers as it was in Q2. But structurally, we don't think it's much higher than it was before.

[Sandra Gadd, executive]

And also, in addition, that we see that our old cohorts, how they are behaving, that we get more of the multi-category buyers. This is like a really, really strong -- of course, we want as many new customers as possible, but this also helps building our store with the existing customers, and that's just fantastic.

[Niklas Ekman, analyst]

Super. That's very helpful. On the issue of campaign buys, can you update us on where you are roughly? And is there any way to compare the level of or the availability of campaign buys to, for instance, 2020?

[Sandra Gadd, executive]

Well, there's kind of higher availability that has been over the last year. So it's looking good, and we are really, really focusing on this now. So we're on a good way for -- to support the SS '23 with campaign buys. So if you should say one thing, I think the fall, as we didn't know what would come, were a little later in starting that than we would have normally, and that's also what you see with the net working capital is very low and normally would have maybe bought something earlier. But we are in a very good path in campaign buys.

[Niklas Ekman, analyst]

Okay. Also a question on this AutoStore revaluation of lifespan of SEK 25 million. What kind of depreciation are you forecasting for '23? Because I think you also mentioned here that you now started to depreciate the latest expansion, meaning that, that part will go up. But then the depreciation will be longer.

[Sandra Gadd, executive]

Yes. The absolute levels of depreciations will be higher than last year. So it's not like we're doing any creases up. That's also why we put this SEK 25 million of comparabilities, so you know how to put it. But I would love to go into the details with you, but I think that might be too technical for this session, but we can do that at a later date.

[Niklas Ekman, analyst]

Fair enough. And there was no impact from this revaluation in Q4, right?

[Sandra Gadd, executive]

No, no, no.

[Niklas Ekman, analyst]

No. Final question, just on the gross margin, down quite a bit now due to increased campaigns. At the same time, your Boozt Media partnership grew very strongly. Isn't that included in the gross margin? Shouldn't that be accretive to your gross margin?

[Hermann Haraldsson, executive]

Yes. That would be accretive. So, of course, with the market that is -- in '22 that was kind of totally overstocked. We are price takers. So we follow the market. But I think that -- the good thing is that we also have probably the leanest cost structure of all players in our region, if not in non-Europe. So even this, I think this shows that even on a lower gross margin, we are still quite profitable.

So we are -- basically, we follow the market and make sure that we adjust our kind of costs. And again, as long as they put more items in the basket and it's a marketing revenue, it's quite good for us. So we have actually tried in a very, you might say, volatile environment. But Niklas, you've us like since '17, I guess. So you know us quite well.

[Niklas Ekman, analyst]

Absolutely.

[Operator]

The next question comes from Daniel Ovin from Nordea.

[Daniel Ovin, analyst]

I had only follow-up questions actually on the previous ones asked. But it start -- if I start on the guidance for 2023. If you adjust for this also out-of-store depreciation revaluation, it looks very cautious actually. I think it implies sales growth of 10% on the midpoint, that, versus 18% in Q4. And also if you do this adjustment, you are basically guiding for 5% adjusted EBIT growth versus 14% in Q4, and that's despite comps becoming much -- yes, sorry?

[Hermann Haraldsson, executive]

Yes, the line broke up. But I think that -- yes, I can't comment on -- if it's cautious or not cautious because the guidance is what it is. We are in the market that is quite overstocked at the moment. So of course, we expect that there would be a pressure on gross margin and the -- and our kind of EBIT margin expectations reflect that we expect a pressure on gross margin.

If that doesn't materialize, then we'd probably be at the upper end of our margin guidance. So I think that's kind of -- it's a way of saying that even though we probably slightly understocked, all our peers are overstocked and we cannot take a higher price than they do. So we are being cautious on the gross margin in, at least in the beginning of the year.

[Sandra Gadd, executive]

In addition, it's in our DNA to run for the growth that we can take. We will try and grow as much as we can. But obviously, if it's -- if the market is totally dead, then we have some fixed cost and that impacts the margin. So that's kind of reflecting that. But otherwise, we will try and get all the growth in the EBIT portfolio.

[Daniel Ovin, analyst]

Okay. And then one follow-up question also on the campaign buys here because I guess your -- with an inventory position that it's good now. It seems like going into 2023. I guess you could afford to be a bit more aggressive on that side. So maybe can you just highlight on the campaign buy part of revenues. What is the profitability on this part? Maybe you can just give a number, so we can understand how it relates to your normal sales, basically.

[Sandra Gadd, executive]

You're not going to get a number, obviously. It's better than other normal buys.

[Daniel Ovin, analyst]

Okay. But maybe you can give a range? Is it significant double...

[Sandra Gadd, executive]

I don't want to do that. And it's actually quite different. When we buy campaign miles, it's not only like we take everything that we can find. We look at the quality. We look at the ones that the styles and the brands that we know are working for us. So it differs quite a lot. It depends on the brand. It depends on how much it is, the depth of it. So I can't give you a number.

[Daniel Ovin, analyst]

Okay. But it's right that you're going to be more active on this in Q1 versus Q1 last year, yes? Okay. Good. And then just one final question and also. So with this size business down quite significantly, almost 30%. And then instead, you had a really high conversion rate here. So I mean, can you just explain how that -- how you managed to do that to basically convert once you get the visit? Was that because of aggressive pricing? Or maybe you can just talk a little bit around that.

[Hermann Haraldsson, executive]

Yes. I'm afraid that it's mainly because of kind of a lack of pre-polling and cookies that you don't normally see these increases in commercial rates. So I think it's just -- it's a proof that the reporting is getting less accurate and at all the interested players in our industry, it's Google Analytics that is the standard and it's just not as accurate because only -- I think it's only like 75%, 80% of our visitors accept the cookies. So there's a lot of -- it's not as precise as before. So I think that -- you should not put too much into these numbers to be honest.

[Operator]

The next question comes from Michael Benedict from Berenberg.

[Michael Benedict, analyst]

I have three, please. Firstly, just on CapEx. So I guess if things go well over the next few years, you will need a new distribution center. Can you give us a sense of when you expect CapEx to ramp back up? Is that 2024?

[Sandra Gadd, executive]

No, 2025. We probably need a new warehouse or an additional warehouse. So in '25, but we don't know the level of that yet, but that's something that we're working a lot with right now.

[Michael Benedict, analyst]

Okay. Great. Second one, just on the fair use policy. Can you remind us of the margin impact that the fair use policy has had on the broader cost ratio, please?

[Hermann Haraldsson, executive]

Yes. It actually obviously has a very good impact. We are -- actually, we're saving some 1 million shipments back and forth in total, I think. So obviously, that has quite an impact and it also explains probably why we are more profitable than most. So it has a very big impact.

[Michael Benedict, analyst]

Okay. And then the last one, just interested in your comments on gross margin pressure lasting over Q2 as well as Q1. Guess might have expected peers to have addressed their inventory overstocking by the time the spring/summer season kicks off. So just wondering why you're expecting gross margin pressure for the full half and not just Q1?

[Sandra Gadd, executive]

Well, if we look at the other players, we see that inventory -- is quite elevated, and that's what we based that on that if you have higher levels, you need to focus on getting that -- Obviously, I think most players adjusted their assess inventory buys. But also here in the Nordics, we sell a lot of the AB stock in the beginning of the year as well.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any written questions via webcast and closing comments.

[Hermann Haraldsson, executive]

Okay. As there doesn't seem to be more comments, so I'd just like to say thank you. And I hope to see as many of you in real life at our Capital Markets Day in, when was it, March 28, at least? So thank you very much, and have a nice day.