Release Date: November 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- XXL ASA (LTS:0R3P, Financial) has seen a sales recovery quarter by quarter since Q1 2024, indicating a positive trend despite challenging market conditions.
- The company has successfully reduced its inventory size by over 30% compared to 2019, achieving more than 90% healthy inventory, which is a strong indicator of effective inventory management.
- XXL ASA's gross margin has improved by more than 5.2% year-to-date, driven by disciplined pricing and increased private label sales.
- The company has achieved a 34% year-over-year growth in revenue from private label soft goods, contributing to a stronger gross margin.
- XXL ASA has over 4 million members in its loyalty program, XXL Rewards, which is expected to enhance customer loyalty and future sales potential.
Negative Points
- The Nordic sporting goods market has experienced at least 10 consecutive quarters of negative growth, impacting XXL ASA's performance.
- XXL ASA's top line revenue is down approximately 7% compared to the same quarter last year, with significant challenges in Norway and Finland.
- The company's EBITDA has decreased from $35 million last year to $5 million this quarter, primarily due to reduced sales and intense campaigning.
- XXL ASA is facing low availability of top products, with only 78% availability, which is below the desired level of high 90s, affecting sales potential.
- The company is contemplating a holistic financing solution, including a rights issue and bridge loan, to address short-term liquidity needs and working capital investments, indicating financial strain.
Q & A Highlights
Q: Can you provide an update on the current market conditions and how they are affecting XXL ASA's performance?
A: Freddy Sobin, CEO, explained that the Nordic sporting goods market has experienced 10 consecutive quarters of negative growth, with a potential 11th on the horizon. Despite this, XXL ASA is seeing a sales recovery since Q1, although they are not satisfied with the Q3 sales numbers. The company is down 15% in top line compared to 2019 but has reduced inventory size by 34%, which affects sales and growth.
Q: What are the key strategic initiatives XXL ASA is focusing on to navigate the current market challenges?
A: Freddy Sobin highlighted the "reset and rethink" plan, which includes leveraging the company's strengths as a market leader in the Nordics, optimizing inventory, and enhancing customer loyalty through the XXL rewards program. The plan also involves strengthening the low-price position and optimizing the store footprint.
Q: How is XXL ASA managing its inventory and cost structure?
A: Lars Syse Christiansen, CFO, stated that the company has achieved over 90% healthy inventory and reduced inventory value by 13%. They have also implemented cost-saving measures, reducing costs by $240 million, with a target of $300 million in savings. The focus is on personnel expenses and optimizing real estate costs.
Q: What are the financial highlights for Q3 2024?
A: Lars Syse Christiansen reported a 7% decline in revenue compared to the previous year, with strong performance in soft goods but challenges in hardware categories. Gross profit improved, but EBITDA decreased to $5 million from $35 million last year due to intense campaigning and reduced top line.
Q: What financing solutions is XXL ASA considering to support its strategic initiatives?
A: Lars Syse Christiansen announced a holistic financing solution, including a fully underwritten rights issue of approximately $600 million, prolongment of long-term credit facilities, and a short-term bridge loan. This will support working capital investments and improve product availability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
