Release Date: July 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Europris ASA (FRA:2RG, Financial) reported a significant increase in total sales, reaching NOK3.1 billion, a 34.6% rise from the previous year.
- The acquisition of OoB is expected to create a Nordic champion in discount variety retail, with significant synergies anticipated from joint sourcing and category harmonization.
- Europris ASA (FRA:2RG) has been recognized as one of the climate leaders in Europe by the Financial Times and Statista, highlighting its commitment to sustainability.
- The company has a solid financial position with increased cash and liquidity reserves, rising from NOK1 billion to NOK1.4 billion.
- Europris ASA (FRA:2RG) plans to invest up to NOK300 million in improving customer experience by upgrading stores and modernizing IT infrastructure, which is expected to drive future growth.
Negative Points
- Group EBIT decreased by NOK23 million from the previous year, with a negative EBIT of NOK16 million from OoB.
- The gross margin declined by 2.6 percentage points to 41.9%, partly due to the dilutive effect of including OoB's numbers.
- The economic climate remains challenging, affecting both businesses and consumers, leading to more price-conscious behavior.
- OoB has faced challenges such as weak profitability, liquidity strains, and underinvestment, which need to be addressed.
- The integration and transformation of OoB are expected to take time, with significant investments required before seeing the financial benefits.
Q & A Highlights
Q: What is the rolling 12 months sales and adjusted EBIT, in SEK, for OoB?
A: Around SEK4 billion in turnover and adjusted for one-offs, EBIT of minus SEK90 million. Detailed financials for OoB are available on the web. (Stina Byre, CFO)
Q: Can you provide the split from the like-for-like growth on volume and price?
A: There has been customer growth in the second quarter and year-to-date for the Europris chain. The basket is also up, driven by price and lower volumes. The consumable share in Q2 was 48%, and year-to-date it is 53%, slightly up from last year. (Stina Byre, CFO)
Q: What was the private label share in Q2?
A: The private label share was 48% in the second quarter, and year-to-date it is 45%. (Stina Byre, CFO)
Q: OoB has shown a weak first half. Do you expect the company to be loss-making in the second half?
A: It's a tough question. I would expect them to be profitable in the second half due to the Christmas season and peak sales. However, restoring the gross margin, which has declined more than expected this year, is crucial. (Espen Eldal, CEO)
Q: How should we think about the SEK50 million EBIT target for 2028 for OoB? Will there be a gradual ramp-up? How much of the targeted improvement is coming from gross margin improvement? What is the timing of the expected CapEx?
A: The target will likely be a bit of a hockey stick towards the end of the period. Harmonizing the assortment and customer acknowledgment will take time. Investments will be front-loaded compared to when we will see financial effects. (Espen Eldal, CEO)
Q: Do you anticipate that your sales initiatives for OoB will lead to sales growth already in 2024 compared to 2023?
A: While we are confident in our initiatives, promising results already in 2024 might be premature. The initiatives will take time to show full effect. (Andre Sjasaet, VP Strategic Projects)
Q: Consumables are normally a key traffic driver. Are you concerned that lowering the share of consumables can negatively affect store traffic?
A: We are not planning to reduce the sales of consumables but to increase the sales of non-food items. We will maintain the focus on consumables while enhancing non-food product sales. (Espen Eldal, CEO)
Q: Can you share some insight into your store refurbishment plan for OoB regarding the NOK300 million investment program? Is this for new stores and upgrades?
A: The investment is for upgrading current stores, not for new stores. New stores are outside this plan and will not be started before restoring profitability and demonstrating the turnaround plan's effect. (Espen Eldal, CEO)
Q: Should we expect the NOK300 million to be divided over four years, meaning NOK75 million this year?
A: We will not be able to spend that much money this year. The investment will be more intense next year. (Espen Eldal, CEO)
Q: Within the development of non-food categories relative to local competition, what categories have you identified as most likely for success in OoB?
A: There are high similarities between OoB and Europris. We see potential in growing interior, do-it-yourself, and storage categories. The main categories will be quite similar to Europris. (Andre Sjasaet, VP Strategic Projects)
Q: On private label in OoB, is the problem that OoB does not have enough categories with private label, or is it that consumers opt for branded goods instead of private label due to quality perception?
A: We don't believe it's a quality perception issue. Europris has a head start in building a private-label portfolio, and we will do the same with OoB. It's about creating a mix of assortments and viable options on different quality ranges. (Andre Sjasaet, VP Strategic Projects)
Q: The 5% targeted EBIT margin is significantly lower than your own 10-year average. Is 5% the highest OoB margins can go due to local competition, product mix strategy, etc., or is there scope to take another step up from the 5% in due time?
A: We will revisit this in due time. The competitive landscape in Sweden is tougher, and margins are generally lower. Achieving a 5% EBIT margin is a significant shift from historical levels. (Espen Eldal, CEO)
Q: In terms of margin uplift, do you see it evenly split between gross margin and OpEx sales improvements, or will one be more influential?
A: The biggest contributor will be the increase in gross margin, driven by sourcing synergies and an improved product mix. (Espen Eldal, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
