Pierce; interim report January – September 2021

July – September 2021

• Net revenue increased by 10% to SEK 361 (329) million. In local currencies growth was 11%.
• EBITDA totaled SEK 14 (21) million. Adjusted EBITDA was SEK 15 (23) million, equivalent to a margin of 4.1% (7.1%).
• Operating profit (EBIT) was SEK 2 (10) million. Adjusted operating profit (EBIT) was SEK 3 (12) million, equaling a margin of 0.7% (3.8%). The margin was negatively impacted by increased shipping costs of SEK 9 million.
• Cash flow for the period was SEK -4 (0) million.
• Profit/loss for the period amounted to SEK -1 (-9) million. The result improved primarily due to the change in the financing structure in conjunction with the listing.
• Earnings per share before dilution was SEK -0.03 (-0.26) and SEK -0.03 (-0.26) after dilution.

January – September 2021

• Net revenue increased by 6% to SEK 1,181 (1,109) million. In local currencies, growth was 10%. Last year was positively impacted by Covid-19 related effects.
• EBITDA totaled SEK 75 (83) million. Adjusted EBITDA was SEK 87 (87) million, equivalent to a margin of 7.4% (7.9%).
• Operating profit (EBIT) was SEK 41 (54) million. Adjusted operating profit (EBIT) totaled SEK 52 (59) million equaling a margin of 4.4% (5.3%). This margin was negatively impacted by increased shipping costs.
• Cash flow for the period was SEK -66 (86) million, mainly due to the build-up of inventory prior to the campaign season during the fourth quarter and start of 2022.
• Profit/loss for the period amounted to SEK 20 (-6) million.
• Earnings per share before dilution was SEK 0.54 (-0.19) and SEK 0.54 (-0.19) after dilution.

CEO’S COMMENTS

Growth despite clear pandemic challenges

The quarter was characterised by covid related macro challenges, primarily in the form of continued production and delivery disruptions, high prices for shipping and raw materials and, in part, changed shopping behaviour. We deem that these effects are of a transitional nature and remain confident with the long-term growth in the online market.

Net revenue in Q3 grew to SEK 361 million, an increase of 11 percent in local currencies. Q3 is usually weaker than Q2 in terms of net revenue, which is the start of the season for our customers, and also Q4 which comprises a strong campaign period with the Black Week and Christmas trade. If we extend the perspective and compare Q3 with the same quarter 2019, average growth (CAGR) in local currencies was 14 percent, compared with 17 percent in Q2.

We deem that online-traffic in the market continued to decrease somewhat during the quarter compared with last year due to the lifting of pandemic restrictions in Europe. For Pierce, the decrease in traffic was compensated by a higher conversion rate and an increased average order value (AOV).

The Offroad segment grew by around 10 percent in local currencies. Due to the current production issues, several launches of new collections from external suppliers have been delayed, which have resulted in clearly fewer clearance deals. This decreased our possibilities to offer reduced prices on products at a good margin.

The Onroad segment grew by around 15 percent in local currencies. We succeeded particularly in the Nordics where, amongst other things, our private brand development drives growth, while the assortment in Southern Europe still is in the build-up phase. In addition, a couple of private brand releases adapted to the Southern Europe market have been delayed due to bottlenecks with the manufacturers.

Our KPIs continued to develop well. The number of customers was 1,155,000, an increase of 9 percent compared with Q3 2020. Customer satisfaction, which we measure through Trustpilot, reached an all-time high for a single month in September. This was very positive and was a result of our ongoing work to upgrade systems, automate processes and improve the customer offering. During the quarter, we entered into new delivery agreements with, amongst others, Oakley and FXR, two strong brands, and we look forward to adding their products to the assortment.

Pressed margins from increased shipping rates and cost of goods

The major characteristic of the period’s results is the significant increased costs for container traffic from Asia which is well known and documented at this point. During the quarter, these costs increased by SEK 9 million compared with last year. For the second quarter the equivalent figure was SEK 8 million, however, based on higher sales volume. In addition, as expected, increased global raw material prices began to have a certain effect on purchase prices.

For many years, we have booked our container traffic in the spot market to ship our private brand products to the warehouse. These products are primarily produced in Asia. In Q3, prices for container shipping have increased six times over compared with last year and the prices are now at a historically extreme level. Shipping costs affects profit and loss first when the products are sold, hence the cost increases will affect the income statement over time and will impact our margins during forthcoming periods. Currently, it is impossible to state when the shipping situation will be normalised. The increased shipping costs will also impact us indirectly on products from external brands as many of our European suppliers have their production in Asia and are, then, also impacted by higher costs. This, together with increased raw materials prices, implies higher costs for the products we buy.

These cost increases impacted our gross margins in the third quarter, and, as stated, will also impact forthcoming quarters. Adjusted EBIT during the third quarter totaled SEK 3 million, equivalent to an adjusted margin of 0.7 percent. This was SEK 9 million lower than in the previous year. The decrease is explained by, amongst other things, that we have succeeded in transferring cost increases to the customers to only a limited degree and is also due to overhead costs having increased through growth-oriented activities. The increase in costs has partially been compensated for by volume growth.

During the quarter, we noted only small signs of the industry beginning to increase prices vis á vis end customers to compensate for increased costs, which can appear to be surprising. I believe this is explained by the fact that our industry is very fragmented within both the supplier and retail chain. Our assessment is that, over time, the cost increases in the industry will be transferred over to the customers. We work ourselves on several fronts to ward off, to the degree possible, these cost increases, including work in such areas as price increases, logistics optimisation, changes in purchasing routines, changes in campaign activities and demand shaping.

Short-term uncertainty, long-term potential remains

There is limited visibility as we face the next quarters, with major uncertainties regarding both the supply and customer demand. Like other e-tailers, we noted a somewhat decreased traffic compared with last year when eased restrictions resulted in competition from physical stores. However, we know that riding motorcycles is a passion and is a prioritised activity with our customers. In the long-term, I believe that the pandemic will have shown to have a positive effect in driving growth as more customers, especially on the continent, are shopping online. Since the start of the pandemic, many more people have discovered e-commerce and our position in the industry is strong with a broad assortment with low prices and attractive campaigns based on a scalable platform. All in all, there is good opportunity for continuous profitable growth, and we are confident with the long-term course.

The campaign season is now getting started

Just now we are finalising our preparations for what is the most important campaign period of the year which starts with Black Week. Given the uncertainty regarding access to products in the market, we have worked with an extra safety margin and have, during the quarter, built up the inventory with both external, but not the least our private, brand products to ensure a strong customer offering prior to the campaign season during the fourth quarter and beginning of 2022. Now we are looking forward to welcoming the customers!

In closing, I wish to thank all our employees for such excellent and hard work during a very dynamic period.

Stockholm, 11 November 2021

Henrik Zadig
CEO, Pierce Group AB

For further information, please contact:
Henrik Zadig, CEO
Email: henrik.zadig@piercegroup.com
Tel: +46 73 146 14 60

Tomas Ljunglöf, CFO
Email: tomas.ljunglof@piercegroup.com
Tel: +46 73 378 01 54

About Pierce Group
Pierce is a leading and fast-growing e-commerce company selling gear, parts, accessories and streetwear to riders across all of Europe via some forty websites adapted to local markets. Pierce has two major segments, Offroad – sales to motocross and enduro riders, and Onroad – sales to high road riders. Pierce also has a smaller segment, Other, which primarily focuses on sales to snowmobile riders. With a large and unique product assortment, including several private brands, an excellent customer experience and attractive prices, Pierce is changing the motorcycle enthusiast market in Europe. Headquarters are located in Stockholm, the central warehouse is in Szczecin in Poland, and the major portion of our customer support services is located in Barcelona. The Company has approximately 450 employees.

The information was submitted for publication by the above-mentioned contact persons on 11 November 2021 at 08.00 CET.