Rusta AB (publ)

STO:RUSTA

Earnings Call Transcript 2024-Q4

[Goran Westerberg, executive]

Good morning, and welcome to the presentation of the quarter 4 results of Rusta. This is the last and smallest quarter of Rusta in our fiscal year that runs from 1st of May until end of April, and this is therefore February, March and April.

My name is Göran Westerberg, I'm the CEO of Rusta and I will present the results together with Sofie Malmunger, who's the CFO of Rusta. And we will take you through both the quarter and also the full year results.

So the agenda will be, as usual, I'll run through a business update, and then that will be followed by a more in-depth financial update by Sofie. And then I will do a quick summary and open up for questions.

So first, the business update. Just have a look at the store network development since last time. By the end of the quarter, we had 212 stores, we opened 4 new stores during the quarter, and we are now up to 48 stores in Norway, 112 in Sweden, 42 in Finland and 10 in Germany. After the end of the quarter, we have also opened up another store in Norway, actually, yesterday. And we've also added 3 new locations.

So in the list -- a prioritized list of what we're having, we can say that we've had a net increase in the store pipeline going forward. So we're now up to 29 locations that are either signed or approved that will be opened up. And that is in spite a number of stores being opened in the last few months. So I think the pipeline has been strengthened and that looks really good.

Another thing that we can point out here is that most of the store openings now are actually in Sweden. And that's not something that we expected a year or 2 years ago. But that market has actually developed quite good. We have a good pipeline, and we see many opportunities here. And one of the reasons we like that is because that's our oldest and most mature market. We know that it's usually harder to find the last few locations. So I think this is really positive. But we also have the highest profitability in Sweden, which means that the payback time here is actually the strongest. So that's really good, both long term and short term.

Moving over to the quarter. Last quarter is also the smallest quarter for Rusta. It has historically always been a loss-making quarter. And so it is also this quarter. The numbers that you will see now fully reflects the negative impact of the Tietoevry incident. And the only adjustments that we have done is due to the IPO. And also, during Q4, there have been no adjustments. So there are no costs for the IPO.

The total sales development was plus 2.9%, but we had a negative like-for-like development of minus 1.2%. But what I would like to mention here is that we would have been in the positive if you take away the effect of the Tietoevry IT incident.

We managed to strengthen the EBITA by 2.6%, very much on the back of continued margin strengthening, which is in line with what you have seen in previous quarters and also completely in line with our guidance and our strategic priorities.

Looking at the full year, again, fully reflecting the negative effects of the Tietoevry incident, we had plus 9% over the year and a very strong plus 4.6% like-for-like over the year. We are especially proud of a really strong positive development on the adjusted EBITA, plus 45.7% over the year. Again, very much on the back of both sales growth but also a gross margin that is much closer to our normal historical levels.

Some of the key events during the year, of course, includes the improved margin that I've been talking about. This is not at the cost of our price position. I really want to underline that. We have accountable price lead in most of our important categories. This is more over the year, both a combination of better transport price in the beginning of the year, and towards the latter part of the year, more and more purchase price development that we're really using the volume growth that we're having in negotiating better prices and also increasing scalability through our value chain. So this is really Rusta functioning as it should. So really delivering on that.

We've also continued to expand. We opened a total of four stores during the quarter and 11 stores during the full year. We've also had some headwind during the quarter. We had an unusually cold and late spring. And I can say that February and March are usually quite uneventful months at Rusta normally. It's not seasonally driven. They are amongst the smallest months during the full year and nothing really happens during those months.

This quarter is about April. And it's about how early the spring starts. And if we have a couple of warm weeks during -- towards the end of April, that can really push this quarter in a positive direction. However, this year, in all of our biggest markets in Sweden, Norway and Finland, we had snow far into the month of April, and it was unusually cold by any measure. And that negatively impacted the summer season, the products that has to do with summer.

If we look at the business area development, we actually had good development in the other areas in both home furnishing and in consumables, but we would have needed more of the barbecues, the parasols, the outdoor furniture and so on. But when you have snowstorms, that's always say, very difficult to sell. So we really had a negative impact of April.

We also had -- we had to carry the lion's share of the burden of the IT incident. In Q3, we had a negative impact of it, but we also flagged that it would be bigger during this quarter, which it has also become. And the reason we have a bigger headwind in this quarter is that most of the cost for rectifying and building up the systems, consultancy costs, overtime payment, catching up and so on in our delayed deliveries and so on, most of those costs ended up in this quarter. And that's also why we had a significant part of the negative EBITA effect here, SEK 48 million. But Sofie will go through much more of that.

I also want to say that, I want to reiterate what we said that now we've seen the end of it. We don't see any significant cost going forward. We have been back in normal operations since long. And we're, of course, really, really happy to leave this part of the year behind us.

Some key events after the quarter, looking into the future, some things that we have done. One is that we have opened a new sourcing office in Türkiye. And this is completely in line with our main strategy to be as close as possible to the leading and most important suppliers that we have around the globe. We already today have significant purchases in Türkiye and in the surrounding countries. And for this move is both a way for us to see that we have, I should say, bigger focus on markets closer to our sales markets.

We know that we're living in a more unsecured world today where global supply chains are sensitive. This is a way for us to have a B plan, also to build up alternatives to purchases in the Far East. But it's also a way for us to take a stronger grip on both quality development and sustainability development in our entire supply chain. So this is really something that we want to build for the future in our global sourcing organization.

We've also seen on the back of our growth and on the back of our volume-driven growth, that there's been opportunities for us now to further increase efficiency in our supply chain even in the distribution central. Capacity, we have but we've also seen now that there is a possibility for us to work more efficiently with manpower, also reducing the need for trucks and so on. So we have decided to implement a system that's built on goods-to-person logic, basically, that the products are coming to a picking stations where persons are then sorting it and packing it to move out. It's a total investment of under SEK 300 million. The payback would be under 5 years and it will be a positive EBITA effect all in the first year of operation, which will be FY '26, '27. So we think this is a very positive step. And that will also, as an added benefit, increase our capacity even further.

And after the quarter, we had a very cold April, as I said, that had a negative impact on summer sales. But fortunately, May, was really good. It was good weather, warm weather, and that was more than enough to compensate for the bad development in April. So as a whole, considering the spring and the start of the summer, we've had a good start on summer sales.

And why is that important? Well, that usually goes a long way to support our gross margins in our first quarter. Because the more of our summer sales we sell in the beginning of the season, the less the need for sell-outs towards the end of the quarter. So all things considered, we believe that we are in a good place when it comes to the summer season and that this will, overall, be good for continued positive margin development.

Some of the achievements I want to mention, turning to the full year, and some of the achievements. One of the things that we talked about during the last quarters is the change of behavior, the influx of new customers into low price and in particular, Rusta, we see that very much reflected in our loyalty program. We're now at the end of last quarter, up to 5.6 million fully registered Club Rusta members. 150,000 members were added in the last quarter. And again, mind you, we -- this was negatively inflicted by the IT incident, again, because our systems were down for a total of a month where we could not recruit new members. But in total, during the year, in spite of this, 850,000 fully registered new members, which is an increase of 18%. So the largest loyalty program in low price in the Nordics just got a whole lot bigger.

And I think this is important for us long term because these are members that we can now work with. We know that they usually have a much more positive trajectory in ticket value and visitation frequency and so on. So this is positive.

Another important strategic priority for us has been to increase the share of private label and at the time of the IPO, we had 64% of our sales under our own brands, under our own private labels. This has increased by 3%, which is quite a big step. So we're now up to 67% private label share in the company, and we expect this to continue to grow.

I think the last thing that I really want to underline again is that during the year as a whole, we are solidly back into volume growth. And this is so important for our business model. It gives us scalability and it gives us better purchasing power with our suppliers. So I think this also helps to support the positive gross margin development that we've seen so far during the year.

Now I turn over to Sofie that will take us through the financial performance.

[Sofie Malmunger, executive]

Sure. So we will start by taking a closer look at our Q4 numbers. But first, I would like to continue the guiding regarding the seasonality in Rusta's quarters. Rusta's financial year that stretches from May to April, Q1 and Q3 are generally our strongest quarters in terms of sales and profit, mainly driven by the summer and the Christmas season. Q2 and Q4 are generally our smaller quarters, and today, we are presenting Q4.

The negative profitability just as Goran said in Q4 has to do with the seasonality with lower sales after the Christmas season and before the summer season kicks off. It's also a very weather-dependent quarter in that sense that the warm April means that sales kicks off earlier and the cold April that sales are moved to the first quarter of the next financial year.

So for the Q4, we have a total sales growth of 2.9% and a negative like-for-like of 1.2%. These numbers are lower than previous quarters this year, which is explained by the negative effect of the IT incident and also by the cold April. We are meeting 2 years of strong fourth quarters with high increased sales, both in total and like-for-like numbers.

On the positive side, we have a gross margin that has increased with 2 percentage points, which is then an increase of 8%. We have an adjusted EBITA of minus 2.1%, but that is 0.1 percentage points stronger than last year. There are no adjustments, just as Göran said, so the IT incident has not been adjusted for. It's fully reflected in the results.

For the full financial year, we can now summarize strong increased sales, improved profit and improved margins. We have a total sales growth of 9% and a like-for-like growth of 4.6%. In addition to strong sales, we have a gross margin that has increased with 2.4 percentage points, which is then an increase with 15.5%. We also have an adjusted EBITA of 7.1%, that is 1.7 percentage points stronger and an increase of 45.7%. And the same here, adjustments during the year are only for IPO costs and nothing else. The IT incident has not been adjusted for.

So a short summary of the full financial year is that Rusta take clear steps towards the midterm financial targets with increased sales, improved margins and profitability. The financial effect by the IT incident in the fourth quarter amounts to a loss of SEK 61 million in sales with a negative EBITA effect of SEK 48 million, which includes both lost profit and extra costs. This is in line with what we have communicated earlier. The total effect for the full financial year is then a loss of SEK 120 million in sales with a negative EBITA effect of SEK 74 million.

Looking to the right, you can see that our fourth quarter, excluding the IT incident, would have been 2.8 percentage points higher in sales. That means that we would have had a net sales growth of 5.6% instead of 2.9%. We would have had a like-for-like growth of 1.4% instead of a negative like-for-like of 1.2% and an EBITA margin, 0 and actually profitable instead of minus 2.1%. This means that our smallest quarter for the year that always has had a negative profitability would actually have been profitable above 0 without the IT incident.

As for the full financial year, we would have had a double-digit growth of 10.1%, a like-for-like growth of 5.7% and an EBITA margin of 7.5%.

Just as Göran said, we expect no material financial effects due to the IT incident beyond this financial year of '23, '24. We have an ongoing discussion with Tietoevry regarding compensation and might shortly commence arbitration proceedings.

Looking at our markets, we see negative effects of the IT incident, which affects both sales and profit. The numbers you see here for sales are excluding currency effects, and the gray boxes at the top shows the loss in sales and profit for each market due to the IT incident. Sweden and Norway had a sales growth of 2.5% for Sweden and 7.7% for Norway. To the right, you can see the profitability in these markets, which are 10% for Sweden and 3% for Norway.

Our third segment, other markets, consist of Finland, Germany and online. The impact of the IT incident is higher in these segments. Online was unavailable for about a total month, and the replenishment of goods were prioritized to the larger and closer markets during the IT incident, which were then negative for Finland and Germany. Sales growth are 0.1% for other markets in Q4, but it would have been 3.1%, excluding the IT incident.

The profit is negative, but it would have been 1.4 percentage points higher without the IT incident. And if we look at the full year, we can conclude the performance for each segments. We see a strong performance and growth in all our markets, with increased sales, improved gross margins and increased profit. Sweden has a sales growth of 6.2% and an increased profitability to 16.8%. During the year, we have opened three new stores in Sweden. Norway has a sales growth of 7.9% and the profitability of 11.6%. The slightly lower EBITA margin compared to last year is explained by negative currency effects due to weaker NOK and also a 0.5 percentage point negative effect due to the IT incident. During the year, we have opened four new stores in Norway.

Other markets have a total sales increase of 16.5%, really strong, and an improved EBITDA margin of 2.9 percentage points which then means that our most immature segment are the markets now are profitable on the full year, and it would have been even more profitable without the IT incident. We have focused on increasing the gross margin to ensure a positive effect of the profitability. We also see a very positive development in profits for Finland. And during the year, we have opened 4 new stores in other markets.

Our profitability has continued to increase during the year. And if we take a closer look at our adjusted EBITA, we see some clear profit drivers. If we start by looking at our fourth quarter, we see positive effects of improved purchase prices from Asia in our gross margin, which is in line with what we have guided on previous quarters. We also see positive effects due to optimized sales prices, which is mostly a year-on-year effect of a general higher sales price level compared to last year. There are also some positive effects due to a healthy level of our inventory, such as slower obsolescence reserves and similar.

For the full financial year, we have managed to increase our adjusted EBITA from last year's 5.3% to 7.1%, as you can see here on the slide. The profitability drivers for the year are higher sales, where volume is the single largest driver to the overall growth, both in total and in like-for-like numbers. We also have optimized sales prices, reduced shipping costs and positive inventory effects that all 3 have increased our gross margin.

We have slightly higher operating expenses, which is due to extra costs for the IPO during the year, also extra cost due to the IT incident and then, of course, the inflation. The depreciations are slightly higher compared to last year.

So to summarize, despite inflations and closed to 11 new stores compared to last year, Rusta has managed to increase the profitability and the adjusted EBITA has increased with 45.7%, which we're very proud of.

And then some comments on our balance sheet and cash flow. We have worked actively with working capital during the year. Despite higher sales, and 11 new stores, our inventory has decreased with 2% compared to last year. The inventory would have been even lower with a warmer April and an earlier start of the summer sales. The value per item is lower compared to last year, thanks to lower freight cost and lower purchase prices. And this will continue to have positive effects on our gross margin in the coming quarter.

Thanks to the improved profit and positive change in working capital during the year, we have had very limited use of our overdraft facility. We are positive in net cash of SEK 130 million at the end of the quarter compared to a net debt of SEK 255 million last year. And we're using SEK 380 million less of our overdraft facility compared to last year. Cash flow from operating activities has been negatively affected during the quarter due to the IT incident since the deliveries and the payments from Q3 were partly pushed to Q4. But for the full financial year, we have a cash flow from operating activities of SEK 1.4 billion, which is an increase of 39% compared to last year. So all in all, we have a solid balance sheet, we have a positive cash development and a very stable financial position.

And then some words on our financial targets. We are committed and feel confident to deliver on our financial targets. Our accumulated numbers for this financial year shows that we have a total and like-for-like sales growth well above the 8% and the 3%, and we have an EBITDA margin moving towards the 8% in the medium term. Earnings per share grew with 56%, which is higher than both sales and EBITDA growth. And regarding the dividend, the Board proposes to distribute SEK 1.15 per share, which then means 43% of net profit and a total of SEK 175 million. This is in the higher end of our dividend policy of distributing 30% to 50%. Last year's dividend was SEK 0.69 per share.

And with that, I hand over to Göran.

[Goran Westerberg, executive]

Thank you. Yes. So just to summarize, I think with that, we're adding yet another year where we, in spite of, how should I say, not so positive macro and also certain incidents that are external that have somewhat hindered us, we're adding another year of profitable growth. So we reached a total of SEK 11.1 billion, almost SEK 1 billion higher than last year. And I think this really goes to prove the resilience of the organization, the culture and also the strength of the cost concept of Rusta.

I, again, want to reiterate that this is, I would say, at no means the best positive environment for Rusta be in a, should I say, in a slow economy. We usually excel when the economy turns to the better. So from our point of view, we really like what we're seeing with improved consumer confidence and a stronger economy.

Looking at the strategy going forward, this remains very much the same, it's to maintain the low price position. That's the number 1 priority for us. That's the job that we're doing for our customers. And we believe with the strength of our purchasing machine and the increased efficiency that we have in our value chain, we will be in a position to deliver those low prices better than anyone in the segment. We're also going to work with a very differentiated assortment and introducing news to the market will be important for us going forward.

As we've said before, Rusta is very much on an organic case and where like-for-like growth is really important. During the last year, we have prioritized gross margin normalization to our historical average. But as we move along now, when we say that we're closing into the gross margin, more and more of our focus will be to use some of that efficiency to actually propel growth again and especially like-for-like growth.

Further increase efficiency across the value chain. You've seen a couple of initiatives on that both the opening of Türkiye during or after the quarter, but also the investments that we continue to do in -- shopping in our distribution center. This is all in line with making sure that we have scalability and efficiency and that we're really leading in the way that we're building our value chain.

And of course, we will continue to open stores. We've opened 11 new stores during the year that just passed. And looking forward now, we see that the influx of new store locations that are approved or signed has actually increased over the year in spite of the openings. And I see that as a very positive sign going forward.

So with that, just summarizing the year. Plus 9% total growth, a like-for-like of 4.6%. 45.7% improved adjusted EBITDA growth with fully reflected negative effects of the Tietoevry incident and also a proposed dividend at SEK 1.15, which is higher than last year. But where we, both in management and the Board, are comfortable that we can do all of the investments we do and maintain our strong financial position and still deliver this dividend.

So with that, I open up for questions. Thank you for listening so far.

[Operator]

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

[Daniel Schmidt, analyst]

A couple of questions from me. And just want to sort of touch on what you finished off by commenting on when it comes to influx of store location. And I think you started off the presentation by saying that you have 29 locations signed for the future, if I'm not mistaken, that's what I heard. Sort of could you just give us some sort of -- shed some more light on when those locations likely are going to be opened? How many is going to be sort of in place in the coming fiscal year, for instance?

[Goran Westerberg, executive]

I would say that most of the influx is coming because it's usually quite a long lead time. So I would say a minor part of this will be in the near future. Most of them will be further down the line. But you can say that this influx supports the ability for us to continue to be at a double-digit opening rate of stores -- in number of stores. So I think this makes us feel even more comfortable in opening 40 to 60 stores over the coming 3 years. We maintain that.

And I think as we have discussed earlier, we have not relied so much on the Swedish market, more relied on the international market. But now having such a strong influx in Sweden makes, I would say, possibilities even higher going forward. But I wouldn't change guidance so far, more to say that this makes us even more comfortable with the current guidance.

[Daniel Schmidt, analyst]

Basically, you're more comfortable with the upper end maybe?

[Goran Westerberg, executive]

Yes, it's not less likely.

[Daniel Schmidt, analyst]

No. Okay. Good. And just coming back to the gross margin -- and also the gross margin, where you, I think, surprised us at least. And of course, you talk about better purchase prices and then probably lower freight cost as well but you also mentioned positive inventory effects and obsolescence and shrinkage, I guess. Could you give us any idea how much of those 200 basis points related to positive inventory effects?

[Sofie Malmunger, executive]

Yes, I would say that it's quite even between the 3 that we mentioned. But I mean, the inventory effect, obsolescence reserve is, of course, positive. And just as I said, we've worked a lot with the inventory and making sure that we have a healthy inventory. So that's a very positive development.

[Daniel Schmidt, analyst]

Yes. And then just also coming back to sales in the quarter, and April is, of course, a very important month in that quarter. You've been very clear about that. And you had snow on the ground in Helsinki and Stockholm and so on as late as 25th of April. So reasonably, that had a fairly big impact. Would you dare to quantify the sort of the weather effect on sales in April?

[Goran Westerberg, executive]

What we can say is that -- just to give you little bit more flavor to what we're talking about. In the quarter, April corresponds to about 40% of the total sales in the quarter. That's how important. I mean, it's almost half of the sales. And I would also say that it's a much better mix effect in April usually because you have more higher tickets, higher margin items, which tend to be in the summer assortment. If you don't rely on those, and if you take January, February, March, they tend to be skewed towards consumable items, must-have items, which tend to have a lower margin.

So April is both important from a top line perspective, but it's also, I would say, even more important from a gross margin mix effect as a whole. So it is really important. And I would say that even in April, it's even the part of April that's important, and that's usually the 2 last weeks, those are super important.

[Daniel Schmidt, analyst]

Yes. Okay. Good. And just maybe finally on costs again. And you had this tailwind on -- sort of coming off extreme highs on freight cost. But then again, we've seen freight costs moving up again. And actually, as of late, it has been ticking up quite a bit. How do you sort of -- how should we look at that looking sort of modeling the coming quarters? And how does that stack up against the lower purchase prices? Could you give us any idea how we should think?

[Goran Westerberg, executive]

Sure. So yes, I can just start and then you'll add on, is that just to explain the year, that very much of the margin development in the beginning was due -- on the back of basically improved transport prices, that has evened out. And towards the end of the year, it's been taken over by strength in purchase prices.

And you're right, from much lower level than previous they have started to climb now again. And I say, the spot prices right now are quite high. However, the net effect is still positive. The purchase price development we have is much stronger than the purchase -- the transport costs. So -- and that's how we see that it's going to take over, and that's going to continue.

So even though we see higher transport costs going forward, we believe that the purchase price development is stronger and bigger and that the net effect will be positive for our gross margin development. And then I'm sure you can tell even more about that.

[Sofie Malmunger, executive]

Yes, but you were great. The -- to be specific, it's the sea freight cost, and just as you said, Daniel, it has increased during Q4. Since there is a delay compared to when you see the higher cost and when you get the effect in the gross margin, we can see that costs were higher in Q4, but it did not affect the Q4 negative. It was even out or it was plus/minus 0 compared to last year.

But we can see that there will be a negative effect during Q1, but the positive effect, just as Göran said, of the lower purchase prices will even out that -- or will be balanced between the both of them.

So on our guidance when it comes to the gross margin, we very much stick to what we have said before that the normalized gross margin for Rusta is somewhere between 44% and 45%. We ended this year -- or the full year, we came up with 43.5%, and we see possibilities to strengthen the gross margin even more than towards the 44%, 45%.

[Daniel Schmidt, analyst]

Yes. And maybe a very theoretical question on that. If you extrapolate or if you keep these rates steady and what you see in terms of lower purchase prices, is there any stage where you sort of at the end of the new fiscal year that you're entering now where these two effects trade places and that they end up being slightly negative? Or will you sort of be able to sustain the current freight costs with better purchase prices all through the year basically?

[Sofie Malmunger, executive]

It's very hard to say something about -- I mean, when it's in a year. So what we can say, and be quite certain about is what will happen during Q1 in our gross margin and also with some certainty regarding the Q2.

[Goran Westerberg, executive]

I would say -- it's particularly hard to say something intelligent about far away from now. It will probably -- the situation that we have right now is likely to continue for a while at least. But 1 year from now, I will say, is completely impossible. Then I think I would say the same as you, that purchase prices, that development, that seems to continue. And there's a lot of things driving that as well. I mean it's both our volume development, the investments that we're doing in our supply chain and in our sourcing organization. And I would also say the early summer sales now is also supporting gross margin development.

So I think all things considered, I think there's a lot of structural things that benefits us from a gross margin perspective. Now even though there are some headwinds in some areas.

[Sofie Malmunger, executive]

Yes. And as for the purchase prices, we -- I mean, the lowest -- or the highest decrease has come from Asia, and now we see a more shift where Europe is actually following as well. So even though the positive effects we see now comes from the Asian assortment, there will be probably be positive effects from the Europe assortment going forward as well.

[Goran Westerberg, executive]

And I would like to add also, since we're on this topic also that we will also, and we have partly started also to offset gross margin expansion and invest that more in driving growth and especially like-for-like growth. And so we will somewhere during this year, start to shift gears more clearly that we will normalize gross margin, and we expect to have more of a positive effect from our purchasing machine, let's say, but also invest that in stronger campaigns and better prices as we come further down the line in next year.

[Daniel Schmidt, analyst]

And you also have the rights of private label, right, supporting that?

[Goran Westerberg, executive]

Yes, exactly.

[Daniel Schmidt, analyst]

And then just maybe finally, on Türkiye, as you announced a month ago, I think. Have you started to take cost for building up a purchase offers in Türkiye? Or is that yet to come?

[Sofie Malmunger, executive]

We have started, but they are not material, I would say, in the fourth quarter.

[Operator]

The next question comes from Simen Aas for DNB Markets.

[Simen Aas, analyst]

I have a few questions. And I'll start with -- you mentioned that you have seen a strong start to the summer sales there. Could you just give us some more color on that? It's sort of the like-for-like now back above your guidance? Or how should we think about the May in particular?

[Sofie Malmunger, executive]

The strong start to the summer sales in May.

[Goran Westerberg, executive]

Right. How that compares to our financial targets.

[Sofie Malmunger, executive]

Also more flavor.

[Goran Westerberg, executive]

Okay. Some more flavor. Okay, right. So what I can say is that we're meeting some quite strong growth even from last May. But this has been significantly higher than what you have seen, particularly during this quarter.

What I would like to say then is that again, top line growth in May has been strong, but top line growth in May doesn't say much about what top line growth will be in June and July. That kind of stands on its own legs. However, gross margin development and the sales in May is positive for gross margin development in June and July. That's something what I have said.

So we're still in a very important sales period. I mean, mid-summer is a big deal here in Sweden. So the better the weather during mid-summer, the better the sales will be, for sure. And then July is very much dependent on weather as well. How many people are actually staying here, how many people are traveling abroad, and also the size of, I would say, the campaigning. And what we see now is that since we have sold quite a lot in the early part of the season, the need for sell-out is I would say, much lower going forward.

[Simen Aas, analyst]

Okay. So in other words, it's fair to assume that May have been positive then, given that we had negative like-for-like in Q4?

[Goran Westerberg, executive]

Yes, positive, yes.

[Simen Aas, analyst]

Yes. Okay. And then on the similar topic, you also mentioned that the gross margin is improving. Can you just give us some more color on what's driving that improvement? Do you see, for instance, any changes on how the customers behave in terms of higher ticket items this year versus last year? If I'm not mistaken, that was a drag last year, wasn't it?

[Goran Westerberg, executive]

Right. So I think as we've already been into a couple of times during the conversation here is that the main driver is improved purchase prices and scalability through the chain. I would say that's the main thing driving into it. And then you also have some year-on-year effects on earlier price hikes that we did earlier during the year.

Other than that, I would say, looking forward, looking at consumer behavior, we can say that we continue to see the same pattern as we have seen over a number of years. And that is that the average ticket continues to increase. The value of the basket, so to say, continues to increase. And there seems also to be an upward movement, small steps, but all the time in the same direction that the average item cost continues to climb up. And I think that's part of our movement into the middle class and also that we're catching a bigger part of the consumer spending, so to say. Bigger share of wallet, so to say.

So I would say, yes, we are seeing that now, but I see that very much in line with a much larger and longer development over the year. So it's in line with what we have seen before.

[Simen Aas, analyst]

Okay. That's fair. And then my final question is on the new investment that you're doing in this new automation system. Can you just give us some timing on the SEK 300 million there? And also, you said that it will have a positive impact on EBITDA as early as '26, '27. Is that an absolute EBITDA level? Or do you mean margin improvement? And any color on how much drag it will be this year or next year? Or how should we think about that, would be very helpful.

[Sofie Malmunger, executive]

Well, just as we said, the investment is below -- just below SEK 300 million, that the payback is just below 5 years, and it has a positive EBITDA effect the first year that starts to use it, which is then in FY '26, '27.

When it comes to the investment, it will be quite evenly spread between this financial year, the '24, '25 and next financial year. I believe the investment is somewhere around SEK 150 million this year and quite close to that, the year after. Some might end up in '26, '27, but quite fairly between those 2 years.

And the positive effect is -- I mean, it's both in million SEK on the EBITDA line, but also a positive margin effect on EBITDA.

[Simen Aas, analyst]

Okay. But how much drag will it be or how annual cost will it add to turn on another way?

[Sofie Malmunger, executive]

It will not drag a lot of extra costs, and most of this will also be a part of the investment. So we can work quite normal during the time that we implement the new automization. There will be some changes, of course, but this has been taken into the account when we say the full investment of SEK 300 million. So -- and the positive effect on the EBITDA is, of course, due to higher efficiency when it comes to mostly the personnel side, personnel costs.

[Operator]

The next question comes from Øystein Eng from Watch Media Norge.

[Øystein Eng, analyst]

I'm calling here from Norway. Very interesting presentation. What I wanted to ask about firstly is that now, as you've gone through the presentation, I didn't -- and the incident IT thing wasn't -- was mentioned like briefly multiple times. But do you have an estimate of how much that actually cost you in broader terms?

[Goran Westerberg, executive]

In total, you mean for the full year?

[Øystein Eng, analyst]

Yes.

[Sofie Malmunger, executive]

It was a negative effect on sales with SEK 120 million, and it was a negative EBITDA effect with SEK 74 million.

[Øystein Eng, analyst]

Yes. And that's quite a lot.

[Sofie Malmunger, executive]

That's quite a lot, yes. And for the Q4 alone, it was a negative effect of SEK 61 million and a negative EBITDA effect of SEK 43 million -- sorry, SEK 48 million.

[Øystein Eng, analyst]

Yes. And secondly, now you have been 10 years in Norway, if I'm not mistaken...

[Goran Westerberg, executive]

Almost, almost, almost.

[Sofie Malmunger, executive]

In October.

[Goran Westerberg, executive]

In October.

[Øystein Eng, analyst]

Yes, yes, yes. But it's going to be this year, at least.

[Sofie Malmunger, executive]

Yes.

[Goran Westerberg, executive]

Yes.

[Øystein Eng, analyst]

Will we see any sort of major sales campaigns in Norway? Or anything like that do you think, when you -- will there be some kind of celebration down the line here commercially?

[Goran Westerberg, executive]

We always like to celebrate milestones like that. So of course, we're going to celebrate both 10 years in Norway, but we also have store number 50 around the corner. So I think we have plenty of reasons to celebrate the successful journey that we've had in Norway. So you can rest assure that we will celebrate that commercially as well, of course.

[Øystein Eng, analyst]

Yes. Interesting. And you also mentioned that you have been relying more on Swedish market lately. And when you compare like what's the -- when you are establishing a new store in Sweden or in Norway, is there somewhat more difficult one place or the other where, Sweden is a more urbanized country and Norway is more rural where it's kind of more -- perhaps more crucial to be present in that area or that area compared to Sweden who have like more towns, bigger towns?

[Goran Westerberg, executive]

So you're absolutely right that there are certain differences in how commercial centers are developed in Sweden compared to Norway. I think we tend to have more big retail parks in Sweden, whereas you are slightly more decentralized in the way that you have shaped your retail community in Norway.

Having said that, I would say that in terms of expansion, we are interested in opening stores on all of our markets. I would say that we're equally interested in all markets. But usually, what steers this is sometimes coincidences and also, I would say, the general market development. Because for us to open, there has to be a building, it has to be free and it has to be both in an interesting location and also available at the rent where we can see that our financial model works as well as it has done everywhere else.

So I think this differs a little bit from year-to-year. In the last few years, we have opened a large chunk of the new stores in Norway and in Finland. And I think that's why it's also a bit refreshing now to see that we have a strong influx in Sweden because it's been fewer store openings in the past few years in Sweden as compared to what we see now. So I think that's positive for us because it's the fastest payback time we have also in the whole chain.

[Øystein Eng, analyst]

Yes. And if I'm not mistaken, when you open a new store now and they turnout great, it might go breakeven in 1 year. Does that differ from country to country?

[Goran Westerberg, executive]

It's some -- of course, it's somewhat different. I would say that the more mature market, the stronger and faster the development. But we have a fairly -- comparing Sweden and Norway, we are fairly similar.

[Øystein Eng, analyst]

Yes. And lastly for me, do you -- how does the company like Rusta embraces themselves -- yourself against new competitors like worldwide, like Temu and like big businesses worldwide? Are you in any way affected by that kind of competition now?

[Goran Westerberg, executive]

I think this is the thing with our kind of business. We're competing with everyone all the time around the world. I mean there has been so many new entrants and also many strong older big concepts and so on. And I can't particularly say that one concept or the other are more important. There are some that we have, I would say, larger customer overlap and larger range overlap. But so far, I haven't seen a huge negative impact from any of those players.

When Amazon entered, nothing happened. When Costco entered, nothing happened. We've had many different online players over the years that have entered the market also from China, as you know, but I don't see -- I mean, of course, at some level, we compete with each other. But as you can see in our development in the curve, it hasn't made any significant dent anywhere.

[Øystein Eng, analyst]

Yes. Yes. Resilience.

[Goran Westerberg, executive]

Yes, resilient is the word, yes.

[Operator]

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

[Goran Westerberg, executive]

Then I'd like to thank you very much for listening. I wish you all a fantastic summer, and look forward to meeting you again after the summer when we present the results of the first quarter over the year. And until then take care and have a good summer. Thank you. Bye.

[Sofie Malmunger, executive]

Thank you.