Lindex Group PLC (OHEL:LINDEX) Q2 2024 Earnings Call Transcript Highlights: Revenue Decline and Strategic Expansion

Despite a challenging market, Lindex Group PLC (OHEL:LINDEX) focuses on digital growth and sustainability initiatives.

Summary
  • Revenue: Declined by EUR6.5 million for Lindex division due to fewer visitors in June; increased by EUR6.1 million for Stockmann division driven by the crazy days campaign.
  • Gross Margin: Lindex division rose to 67.5%; Stockmann division decreased to 44.4% due to promotions.
  • Adjusted Operating Result: EUR30.8 million for Lindex division; improved month by month for Stockmann division.
  • Net Result: Declined to EUR7 million due to restructuring costs.
  • Earnings Per Share: Declined to EUR0.04.
  • Cash Position: EUR103.1 million at the end of June.
  • Capital Expenditure: EUR16.9 million, mainly for digitalization projects.
  • Operating Free Cash Flow: Dropped due to higher accounts payables and temporary accruals.
  • Equity Ratio: Improved to 60.5% excluding IFRS 16 items.
  • Lease Liabilities: Increased to EUR614 million.
  • Interest Bearing Liabilities: Increased to EUR73.1 million.
  • Digital Sales Growth: 0.8% increase in local currencies for Lindex division.
  • Store Expansion: Lindex added four new markets on Zalando, now selling in seven markets.
  • Cost Savings: Stockmann's operating costs down by EUR1 million; new organizational structure to generate annual savings of EUR2.7 million from 2025.
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Release Date: July 19, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Stockmann division improved its result and interest revenue due to a successful crazy days campaign and cost efficiency measures.
  • Lindex Group's science-based climate targets were approved, aiming to reduce greenhouse gas emissions by 42% by 2030.
  • Lindex division continued its expansion with marketplaces, adding four new markets on Zalando.
  • 84% of Lindex garments are made from recycled or more sustainable resources, with a goal to reach 100% by 2026.
  • Stockmann's cost-saving measures led to improvements in the adjusted operating result across all months of the quarter.

Negative Points

  • The fashion market was challenging, with a clear decline in visitors in June affecting revenue and operating results.
  • Lindex division saw a decline in revenue in June due to fewer visitors to stores.
  • The group's adjusted operating result declined by EUR2.1 million due to challenging market conditions and planned cost increases.
  • Net result declined to EUR7 million due to restructuring costs where disputes have been settled.
  • The group's operating free cash flow dropped during the first six months compared to the previous year.

Q & A Highlights

Q: Could you elaborate on the revenue analyses conducted that led to the conclusion that the revenue decline in June was a result of a drop across the entire fashion market? Also, how much did the fashion market decline in June versus Lindex's performance?
A: Preliminary market data shows a decline in our key markets for June. In Finland, the fashion market declined by approximately 11%, while in Sweden, it was around 5%. Lindex's marketing expenses were elevated due to investments in both current and long-term marketing, including the new brand, Engineering.

Q: How have Lindex's markets performed so far in July after the market weakness in June?
A: It's too early to comment on July figures. We will provide detailed figures for July, August, and September in the Q3 report. We expect increased revenue for the coming six months to offset the first half's decline.

Q: Is there any update on the timing of disclosing the outcomes of the strategic review for Stockmann department stores?
A: The strategic assessment is ongoing, and we expect to finalize it during this year. No further updates can be provided at this time.

Q: Could you give any color on the state of the new logistics center and possible schedule of its sale and leaseback?
A: We are currently testing the new distribution center, and it will be taken into use during Q4 of this year, with full use expected in 2025. No decision has been made on a possible sale and leaseback at this time.

Q: Please elaborate on what is meant by the prolonged lease agreements for some department stores.
A: We have extended the contracts for Tampere and Turku due to their central and strategic locations. This enables us to proactively develop both locations, and rent indexations have impacted the lease liabilities.

Q: Was OpEx in Q2 at an abnormally high level? Can we expect marketing and digitalization expenses to be higher in the future?
A: As our strategy is to expand and grow, we will continue to incur costs for future growth. However, this will not risk our ability to meet our guidance.

Q: Could you please elaborate on the higher costs related to the restructuring program and other disputes during the quarter?
A: The costs related to the restructuring program and other disputes are reported as items affecting comparability. In Q2, these costs were EUR7.7 million. We only have one disputed claim left in our restructuring program, and ongoing discussions are in place.

Q: In Lindex segment, the sales were down yet the gross margin improved to a very high level. Was this a decision to focus on margins rather than supporting sales with campaigns?
A: We are pleased with the gross margin improvement, which was achieved despite increased shipping costs. However, we are not satisfied with the revenue outcome for June and will focus on both increasing revenue and maintaining a strong gross margin in the coming months.

Q: What is the number of active loyal customers for Stockmann, and how is that defined?
A: The 1.4 million loyal customer base includes all loyal customers. Active loyal customers are those who have made a purchase in the last three years, totaling around 0.8 million customers.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.