Gradually strengthening gross margins, rebalancing inventory and maintaining liquidity position
January – March 2023
- Net revenue decreased by 18%, totalling SEK 345 (420) million. In local currencies growth was -22%.
- EBITDA totalled SEK -7 (1) million. Adjusted EBITDA was SEK -7 (1) million, equivalent to a margin of -2.2% (0.1%).
- Operating profit (EBIT) was SEK -21 (-12) million. Adjusted operating profit (EBIT) was SEK -21 (-12) million and the adjusted operating margin was -6.2% (-2.9%).
- Cash flow for the period was SEK -33 (14) million.
- Profit/loss for the period amounted to SEK -11 (-14) million.
- Earnings per share before dilution was SEK -0.14 (-0.36) and SEK -0.14 (-0.36) after dilution.
| Jan-Mar | Apr 2022- | Jan-dec | |||
| SEKm (unless stated otherwise) | 2023 | 2022 | Mar 2023 | 2022 | |
| Net revenue | 345 | 420 | 1,595 | 1,670 | |
| Growth (%) | -18% | 14% | -3% | 5% | |
| Growth in local currencies (%) | -22% | 10% | -7% | 1% | |
| Gross profit | 137 | 172 | 622 | 657 | |
| Profit after variable costs | 54 | 62 | 243 | 252 | |
| Overhead costs | -61 | -62 | -255 | -256 | |
| Operating profit (EBIT) | -21 | -12 | -78 | -68 | |
| Adjusted operating profit (EBIT) | -21 | -12 | -62 | -53 | |
| Profit/loss for the period | -11 | -14 | -55 | -58 | |
| Gross margin (%) | 39.7% | 41.0% | 39.0% | 39.3% | |
| Profit after variable costs (%) | 15.6% | 14.9% | 15.3% | 15.1% | |
| Adjusted operating margin (EBIT) (%) | -6.2% | -2.9% | -3.9% | -3.2% | |
| Cash flow for the period | -33 | 14 | 70 | 117 | |
| Net debt (+) / Net cash (-) | -105 | 138 | -105 | -136 | |
Significant events after the end of the reporting period
No significant events took place after the end of the reporting period.
CEO comments
Difficult market conditions put pressure on revenue, but a strong liquidity position allowed us to focus on strengthening margins.
Challenging market conditions put pressure on the first quarter’s revenue. Due to our strong liquidity position, we were able to prioritize margin-improvement measures over market share and volumes, which resulted in a strengthening of gross margin compared to recent quarters. At the same time, we continued executing our program for improved profitability, which is progressing according to plan. As the market outlook remains challenging, we are taking care to preserve our cash position by cautiously managing costs and rebalancing our inventory, alongside our initiatives to increase profitability.
Net revenue decreased by 18 percent in the quarter, to SEK 345 million, compared to last year. Although it is difficult to accurately assess developments in the online market, we estimate that the market decline in the quarter was approximately 15-20 percent. In the comparison quarter in 2022, we had a strong focus on pushing sales to generate liquidity and reducing net debt. As a result of the rights issue in July 2022 and our ongoing efforts to reduce inventory levels and costs, our financial position has improved significantly.
The gross margin of 39.7 percent was 1.3 percentage points lower than the corresponding period last year, as the implemented consumer price increases did not fully compensate for the high purchase cost increases. Versus the fourth quarter 2022, however, the gross margin increased by 1.9 percentage points, mainly due to higher prices. Shipping costs in relation to revenue remained high at 5.5 percent, but have decreased gradually over recent quarters. We expect a continued positive effect from decreased shipping costs going forward.
Net cash decreased by SEK 31 million during the quarter, to SEK 105 million. This decrease was expected and is related to seasonality. Inventory at the end of the first quarter was SEK 464 million, a decrease of 9 percent in value and 23 percent in units versus last year.
Profitability improvement program progressing according to plan
The profitability improvement program that we have been executing since the second half of 2022 is progressing according to plan. In addition to the increased consumer price impact on the margin, we saw continued improvements from our marketing efficiency efforts, with a reduction of variable costs by 2.0 percentage points during first quarter versus the corresponding quarter last year.
The outlook remains uncertain
The overall market remains uncertain, but we have seen that the market development going into the second quarter has been slightly better versus the first quarter. We will however continue to be cautious in how we plan the business going forward, by taking a conservative approach towards purchasing, by carefully managing our cost base and by staying focused on executing on our profitability improvement program.
Short-term priorities
We believe that the underlying market fundamentals for the industry long term growth are still intact, and we are sharpening our operation and product offering to the current market conditions, which will also strengthen our position for when the market gradually normalizes. Our short-term priorities remain unchanged, and we will continue to execute on our plans to build a stronger company over time:
- Maintain a strong cash position: To be able to implement the new pricing capabilities and to pass on the increased purchasing costs, it is important to have a stable cash balance so that we can continue to prioritize margin development over revenue.
- Execute the financial improvement program: After our concerted effort in the previous quarter to renegotiate supplier contracts, new commercial terms will be applicable to new purchase orders placed earlier this year and in the coming months. This, together with improved consumer pricing and increased performance marketing efficiency, will gradually enhance margins over time.
- Secure economies of scale: We have been managing our cost base very carefully and have fewer staff today compared to a year ago, but we need to continue our work on initiatives to build a more scalable digital operation and to streamline our process and system landscape over time.
Stockholm, 12 May 2023
Willem Vos
Acting CEO, Pierce Group AB