Tom Thörnblom: Good morning, everyone, and welcome to Lyko Group's Q3 report. My name is Tom Thörnblom. I am heading up Investor Relations and Communications here at Lyko. We will today give you a short presentation of the report. First, it will be Rickard Lyko, our CEO, followed up with some dig into the numbers by Ylva Norlén, our CFO, and after that, we will open up for questions. The call will be recorded and will be found on Quartr platform where you will be able to listen to the entire call. With that said, I leave the floor to Rickard Lyko.
Rickard Lyko: Thank you, Tom, and welcome everyone. Yes, let us jump into the presentation. See if I am able to shift. Can I shift the slides here or? Let us fix the magic here. Now I think we are into the slides. I think it is a quarter where we are meeting easy number from last year. We had some problem with the go live of the automation. That means that the comparative number is not as relevant. But I think if we compare to the last quarter, we see that it is a steady volume of sales because those two quarters are quite similar. But compared to last year, 23% up on the sales and we see the good part is that they are falling through in the result.
Rickard Lyko: I think this is an example of what we hopefully will see continuously now when we are taking down our cost, but keep on selling the product. We see the margin rise. It is still tough competition out there, and we are able to handle that, and hopefully, we will be able to work on that one going forward. But we are also knowing that shifts are shifting from quarter to quarter, dependent on how the campaigns and how the competition looks like. Own brands keep on growing, and then we should remember that we had tough number to reach from last year because we have the go live campaign, which show a lot of sales on the own brands. So also here, if we look into back to the quarters that have been passing, we are seeing it is a steady growth of that.
Rickard Lyko: We are also knowing this quarter is a lot dependent on the calendars. I think the calendar sales have been good compared to last year as well. But this year we have a lot of more calendars, but those will keep on selling in the quarter as we are going into. The cost-saving program is in line what we have talked about and what we should do on that, and we are also knowing that the biggest impact of the cost-saving program will be when we are going into Q4 with higher margin. But with that said, it is the first quarter where we have more effect of that one. Own brands is a lot in this quarter and the coming quarter about calendars. Those ones are selling good, but we have increased the volume a lot to make sure that we can catch the sales from the consumer.
Rickard Lyko: We also want to build our position as a calendar destination. We have a lot of calendars from other brands as well. The automation is working very good now. We have much better faith that we have than last year going into the peak period. A lot of the automation is more efficient, the new one that we built, but most important part is that we have built out the capacity. The capacity is really come to use when we are going into the peak period, like a Q4. That is when we can operating in the full level with our new automation. Up to that point, it has been built for bigger volumes, and that is what we are seeing coming now. So we will see improvement on the fixed cost side on the logistic part. Our community kept on growing, and we have added some more functionality.
Rickard Lyko: We can post in this community, we can make looks, we can make reviews and stories, and now we are also adding reposts. This is a long-term investment that we are doing into the consumer to make sure that we have a unique position in the market and building our own social platform at our app. This seems to work very well, and this, in a combination with retail media, can be an important part going into the future, and we see good growth from that. What we also keep on doing is the event part and doing things differently and also building our position against the young consumer, both in Sweden, Norway and Finland, where we have done these activities for some years now. We see this year, I think we-
Ylva Norlén: Yes. Okay.
Rickard Lyko: -took it one step further and we got so many organic spread from this. So I think this is also something that is building our position for the long term. Talking about position and talking about our physical footprint and other important steps that we have taken is that we are launching Yves Saint Laurent makeup now at Drottninggatan. The brand by itself will probably not make that big of a difference for us in sales wise, but it makes a huge difference in the position wise.
Rickard Lyko: That we are seeing that we can handle the more prestige part of the beauty business, and this is something we believe is important going into the future to make sure that we are the number one position in the markets where we are when you are looking into beauty, and that need to be included with the prestige part of the beauty business.
Rickard Lyko: We have also communicated that we will open our 38th store on Black Friday at Örebro. The good and interesting part with this one is that it will be our second store in Örebro. It will be interesting to see how that affects the sales and how that makes possibility to have a double establishment in cities like Örebro. I think that was everything from me. I will hand over to Ylva to go into the numbers. Thank you.
Ylva Norlén: Hello. Good morning, everyone. My name is Ylva Norlén. I am the CFO here at Lyko Group, and it is my pleasure to take you through some further highlights of our Q3 results. Of course, starting with the net sales growth, we had a really strong quarter and grew once again above the SEK 1 billion mark and delivered SEK 1 billion 24 million in sales. That is a 23.8% growth against last year. We had in local currency a growth of 21.4%, and we had some nice tailwind, especially in the NOK. Of course, the growth in Q3 was quite considerable, but that was due to a more soft Q3 last year. But also standalone, this is a really good quarter and it is the first time the third quarter is bigger than the second quarter.
Ylva Norlén: This growth was enabled through strong campaign execution, good calendar start, and also new stores. Especially Sweden and Norway delivered in the quarter, and growth year to date is at 8.7%. Coming on to the gross margin, here we are almost level to last year, and actually on the product margin, we are on par with last year. The headwind here has been in FX and also some stock scrappings that were taken in the quarter. When it comes to the external costs and also the personnel cost, this is where we now see really big impact from the cost savings program. We come in at 18% share of sales on the opex side, and this is of course due to the bigger sales volume and especially a big cost saving on the freight cost side.
Ylva Norlén: Personnel costs decreased as per plan, and we are now starting to really see the effects from our cost savings program done in the spring. Then coming into the EBIT side. This is the second most profitable quarter for Lyko in history, and of course, super strong. We deliver SEK 58 million. This is a little bit more than in the previous quarter, and we are super proud to present a 5.6% margin. Of course, the main underlying reasons are the strong growth and also the effects from the cost savings program. Coming into our segments, the retail segment grew by 25%, up once again above the SEK 1 billion mark, and this was mainly attributed to Sweden and Norway. On the EBIT side, SEK 111 million was delivered. This is a substantial growth from last year and corresponds to 10.9% margin.
Ylva Norlén: Coming on to the group functions and other, here we have the sales from our external overcapacity in production and 3PL, and we decreased slightly from last year, delivering SEK 12 million. This is due to us scaling down those external services and focusing more on our internal needs. Here, as you can see on the cost side, we continue to decrease the group function cost. It is now at SEK 52.6 million in the quarter, and this is of course as per plan and a consequence of the cost savings program. As we usually share, when it comes to investments and cash flow, we have approximately SEK 70 million planned in CapEx for the year, and during this quarter, we were at SEK 9 million.
Ylva Norlén: We recently announced that we will open the second store in Örebro, and this will happen on Black Friday in Q4. We also communicate that we have an appetite to open around eight or invest in eight more store projects during next year. If we look at the inventory side for the quarter, we finished the quarter with SEK 536 million in stock value, and this is a very steady level we have been on now for four years. With the growth in this quarter, this means it was the first time we were below 13% stock to sales ratio. So now 12.8%, which is really a strong result from having a much faster and more efficient automation in Vansbro. Cash at the end of the quarter was at SEK 220 million. With that, I hand over to you, Tom.
Tom Thörnblom: It is time to open up for questions, and we will be happy for everyone to raise their hands. Just a second.
Tom Thörnblom: We start with a question from Magnus Råman.
Magnus Råman: Thank you very much. First of all, congratulations. I think it is worth it to say this. Surprisingly strong growth, in my opinion, even considering the easier comparables that you just mentioned. Especially since you have been very clearly pointing out your emphasis on profitability. Perhaps this is my first question, if you can elaborate a little bit on how you could end up with this strong and more historic number growth when you have had this profitability focus.
Rickard Lyko: I think lots of the growth is coming from our Sweden and Norway market, which we always have had good profitability from, and that in combination with lower cost, I think that is what sums up the results.
Magnus Råman: Sure. It is also impressive, I think, to see that you make this strong operating margin improvement, especially now in the light that you still have declining gross margin and rising marketing to sales, which we might typically think of as the margin driver. So it is a very impressive leverage on this sales increase from that perspective. Maybe I can try to ask you, Rickard Lyko, since you have the ability to steer a little bit the magnitude of top line in investing in price and investing in marketing. If you would have settled with, say, 5% or 10% top-line growth in this quarter, would you care to give a guess of the gross margin difference and the marketing to sales difference in that case?
Rickard Lyko: I think a big impact also is that we are seeing that all orders are more profitable due to that average order value keeps on steady on a higher level than it was a year ago, and that has also impacted it. But I don't know. It is very hard to say if we will go for a little bit less growth, how would that affect the margins and so on. I think it is a mix. I think we are in a place where we are operating on the balancing, where we are choosing the more profitable orders and saying no to the ones that are least profitable, which a lot of times means that they are really small orders where we are seeing less profitability.
Magnus Råman: This is tied to your strategic refocus on how you give discounts, so to speak, and tie it more to basket size or number of products in basket, correct?
Rickard Lyko: Yeah, it is effective.
Magnus Råman: Right. I just have two very quick, maybe two a bit more detailed questions. You mentioned here FX affecting gross margin negatively and that underlying it should have actually been rising. Would you care to say roughly the FX effect on the gross margin?
Ylva Norlén: There are several factors impacting the gross margin, the 0.7 points down. It is partly stock scrapping, partly lower other sales revenues, such as freight revenues. But the biggest effect came from the FX side and the NOK that we then saw a sort of tailwind on the top line on.
Magnus Råman: Do I understand you correctly that the negative FX effect is still less than 70 bps?
Ylva Norlén: Yes, it is the major part of the 70 bps.
Magnus Råman: Right, great. The final one for me is, you mentioned also that this is the first quarter where you see a material effect on white-collar staff reduction in terms of staff costs, but that it will continue, I think you wrote something into Q4, or I read it as increasing into Q4. Can you elaborate a little bit on this? How much more staff cost reduction potential do we have in Q4 compared to what we saw now, Ola or Sigrid?
Ylva Norlén: I will not give you a financial steady steer on that, but we still had some colleagues working in this quarter that left in this quarter. Now that side of the cost program is executed, so that is what we will communicate.
Magnus Råman: Thank you so much, guys.
Tom Thörnblom: Thank you, SB1 Markets. Then we go over to ABG Sundal Collier, Benjamin Wahlstedt.
Benjamin Wahlstedt: Perfect. Thank you. I am following on the previous speaker's question. Would you care to give an estimate of the run rate savings on the personnel cost line in isolation? I think your initial comments on savings were taking every cost line together, if I am not mistaken. What would be the run rate impact on personnel costs specifically?
Ylva Norlén: We will summarize more on that when we close the full year. It is nothing that we have decided to communicate firmly on in this quarter.
Benjamin Wahlstedt: All right. Rickard, you mentioned a larger focus on the AOV, perhaps, or at least that was my interpretation. Could you give us any indication of what part of growth is volume and what part is AOV?
Rickard Lyko: We do not disclose that, but it is a mix for sure of it. The thing is, when you are driving higher average order value, you are missing some orders, so you need to compensate that with more sales. But it is a balancing act, but I do not have the exact number on which part has effect how much.
Benjamin Wahlstedt: I will give you another impossible question. Maybe grew very well in this quarter, and you are saying you actually left some sort of orders on the table because they were just less profitable. What would you have grown had you not given up these less profitable orders, do you think?
Rickard Lyko: I think on the online side, it is super easy to grow more all the time because we can just lowering the prices and go for all orders and buy a lot of traffic. You can always do that, and it is quite easy. The hard part is to balancing it and make it profitable.
Benjamin Wahlstedt: Yeah. I guess in the last three quarters or on a year-to-date basis, your marketing ratio has been, well, 8.5%-ish, representing quite a big improvement from the year prior. Is it possible to give us any idea or any sort of indication what a good guess for marketing ratio is Q4 2027, something like that? Is this a temporary lower marketing ratio, or have you found ways to just market more efficiently or what is happening here?
Rickard Lyko: I think it is a mix depending on what the volume will be, with some part of it being a fixed investment going into quarters. Then it is affecting depending on how the sales will go. We have also pushed some of the marketing investment in front of us, and part of them we will take, but then seeing what those will fall out in numbers, we do not comment now. We want to keep on investing in the marketing side. It is not a cost that we see should keep on decreasing, then we hopefully can take that in other part of the business instead to keep on investing in the marketing.
Benjamin Wahlstedt: You do not really seem to need these postponed marketing investments, so to speak, considering today's result.
Rickard Lyko: Building a strong brand, you can always decrease it in the short term, but in the long term, you need to keep on investing, and then it is just a matter of which is the level for that. Exactly as you are on to, sometimes you invest in that and you have a higher growth, then the marketing ratio will be lower. As we go, it probably should be lower, and it has been lower in the markets where we are strong, like Sweden and Norway. Now when the bigger part of the sales and we are not as focusing in growing other markets, then we can see we can drive it down and still keep on investing it in cost. We put more into the market.
Benjamin Wahlstedt: Perfect. Final one on marketing, perhaps. Is it possible for you to give us a rough indication on, let's call it top funnel versus bottom funnel marketing? Top funnel being brand marketing, bottom funnel being very variable with revenue. What share of the marketing budget?
Rickard Lyko: We have it exactly in detail, but it is nothing that we disclose. I think also not to make it as clear for all our colleagues in the business as well. It is nothing that we comment on.
Benjamin Wahlstedt: All right. I will hand over to the next analyst. Thank you.
Tom Thörnblom: Next on the phone there, we go over to Johan Fred of SEB.
Johan Fred: Yes. Good morning, guys. Thank you for taking my questions. Starting off with the strong sales growth. Any chance that you could elaborate on the contributors or drivers in terms of campaigns contributing to the growth or stores and also maybe just underlying market demand? How much was a recovery from last year's warehouse disruptions?
Rickard Lyko: I think if we look into Q2 and you look at the sales, it is quite similar. Before, the story has been that Q2 has been higher on activation. We have equalized that, in some sense, where we have bigger campaigns even in Q3. So I think it is more about equalizing out those quarters, and we know that that is the sales in the market. We do not have that much of a seasonality in our product. Then we have, for sure, Q4 is bigger, and there we have some seasonality. But in between Q2 and Q3, it should not be that much of a difference. That, I think, has been a lot through the go live of the automation last year.
Johan Fred: Okay. Got it. Thanks. Going back to the gross margin here. As I remember in Q3 last year, gross margin came in weaker than expected, and I think you mentioned that the margin then bounced back in September to what you call a normalized level of around 44% in September. Now here in Q3 this year, the gross margin declined yet again. So how should we think about this? Is this a new seasonal pattern that we should take into consideration for Q3? Or how should we think about the margin trajectory here in Q3 but also going forward?
Rickard Lyko: Yeah, I think that is the pattern. It is more similar to Q2, though, to having more activation even in this quarter as well. That I think is following to the more the competition in the market that we see that we need to be more active on price, and then this is more steady in margins where we are.
Johan Fred: Okay. So we should think about the lower gross margin, essentially helping to keep the marketing spend roughly or slightly lower. There is a trade-off between price investments and marketing investment. Is that how we should think about the trade-off between gross margin and marketing?
Rickard Lyko: I think it is for sure a mix of those and depending on the activation and so on. Then we also know that we have much difference in between what we are selling in our stores, where we have much more steady margin and higher margin. When our online is growing rapidly, then it affects the margin in total more.
Johan Fred: Got it. The final one here, any chance that you could quantify the cost savings that you have realized year to date?
Ylva Norlén: It is nothing that we will disclose at this present, since we are still assessing the turnout. It is what we communicated in the beginning of the year, in end of January, that we were targeting SEK 100 million savings during the period from 1st of Feb to last of Jan. So we still have a few months to go there. So we will quantify it once we are on the other side of the year.
Johan Fred: Yeah, got it. I knew the answer to that question, but you have to ask. Thank you so much for taking my questions.
Tom Thörnblom: Thank you, SEB. Then we go over to Kristian Smolle, Pareto.
Kristian Smolle: Good morning, guys. Two questions here from my side. First of all, can we get an indication of the like-for-like growth here in stores?
Ylva Norlén: What I can communicate is that in the net sales growth for the quarter, roughly two percentage points were non-comparable store growth.
Kristian Smolle: Perfect. Thank you. How does the competitive and promotional environment look so far into Q4 compared to last year?
Rickard Lyko: It is hard to tell because I do not think it really has started yet. It is 11 November when we will have the answer on that. I do not have any indication yet, but we are prepared that it should probably be harder than it has been in the past.
Kristian Smolle: Do you expect harder or more promotional activity this year compared to last year?
Rickard Lyko: That is what we plan for also when we are looking into the future. We need to be competitive, and we know that with lower cost and higher AOV, we can be that because the profitability of each order becomes better, and that is what we are prepared for. Then we will see. I think also when you look into the numbers, we are preparing for that. If that should not be the case, then we should see that in the margins, but we do not believe that will be the case, not at least this year.
Kristian Smolle: Perfect. Thank you very much. Those were my questions.
Tom Thörnblom: Thank you, Pareto. Then we go over to Victor Hansen, Carnegie.
Victor Hansen: Hi, good morning, Rickard, Ylva, and Tom. A couple of questions from my side. I think you can see me here on video as well. So a strong report, obviously. Sales growth or sales rather similar to Q2 here in Q3. On the competitive side, earlier in the year, you mentioned, especially after the Q4 report, that the Swedish market has too many players, too many competitors. We know that two competitors, at least, have been struggling. They were expected to exit the market, but both have been saved by new owners. For the Swedish market, what should we think ahead in terms of competition?
Rickard Lyko: I think the market by itself or in our industry, the beauty industry, is probably growing a few percent. Everything above that is taking some volume from somewhere, and that should probably get the result of some consolidation in the market. I think we will continue seeing that even with new owners. It is just a question of what can you do different. I think a lot of our competitors have done, be able to be doing, and I think you need to have the consolidation that we see similar in other markets, and that is what we believe in. We also think that will help a lot now with the rolling out of more stores, because we are knowing also the turnover that we are taking through the stores is taking part from the market as well, which also will affect the total market.
Victor Hansen: Perfect. Thank you. I have noticed, so Norway is your second largest market. It seems to me that the competition within beauty is picking up lots of pace here, somewhat from April, but then much more from September, looking at some of your competitors specifically. Anything in particular that you have noticed in Norway from, say, September?
Rickard Lyko: Not as we have seen. The only thing that has been happening is that Blivakker, which is Cocopanda here in Sweden, has withdrawing their company from Sweden. That is the only new news that I have seen through the quarter.
Victor Hansen: Okay. Yeah. You mentioned 8 new stores in 2027. When are you planning on opening them?
Rickard Lyko: Probably quite even through the years. We cannot handle open 8 stores at the same time, so probably through the years.
Victor Hansen: Perfect. I noticed in the report here this morning that you are planning on closing the local office in Poland in October. Previously, I believe you said you wanted to keep Poland. What made you change the decision? Are you still seeing good growth in Poland as well?
Rickard Lyko: What we are going to do now as the company is that we are really looking through everything we do and see how we can optimize and lower the cost. Because even if we have gone through a cost program, it does not stop with looking at our operation and seeing how we can operate in the best way. In this case, we see where we are right now and what we see in the coming years is that it is operated from a central point, and that is why we are closing that office.
Victor Hansen: Yeah. A follow-up on the country sales, some of my analyst colleagues there have already asked about it. You mentioned here that sales was driven by Sweden and Norway. Is there any chance you could quantify the sales growth a bit further in terms of per geography? For instance, are both these countries above, say, 20% sales growth?
Rickard Lyko: We do not comment on that.
Victor Hansen: Understood. Final question. Any update on the hiring process for a new CFO? How is that progressing?
Rickard Lyko: The process is ongoing, but no more news than that. When we have some news, we will communicate that.
Victor Hansen: Okay. Thank you very much. Those are my questions.
Tom Thörnblom: Let's see. Do we have any more questions from the audience? No hands right now. Then we thank you all for the attention this morning and hope to see you all the 12 February when we come with the year-end report. Thank you very much and goodbye.
Rickard Lyko: Bye.
Victor Hansen: Thank you.
