Tough market, but stronger cash position and decreased inventory
October – December 2022
- Net revenue increased by 3%, totalling SEK 427 (413) million. In local currencies growth was -3%.
- EBITDA totalled SEK -19 (18) million. Adjusted EBITDA was SEK -11 (18) million, equivalent to a margin of -2.6% (4.2%).
- Operating profit (EBIT) was SEK -31 (6) million. Adjusted operating profit (EBIT) was SEK -23 (6) million and the adjusted operating margin was -5.4% (1.4%).
- Cash flow for the period was SEK 16 (-5) million.
- Profit/loss for the period amounted to SEK -23 (6) million.
- Earnings per share before dilution was SEK -0.29 (0.14) and SEK -0.29 (0.14) after dilution.
January – December 2022
- Net revenue increased by 5%, totalling SEK 1,670 (1,594) million. In local currencies growth was 1%.
- EBITDA totalled SEK -19 (93) million. Adjusted EBITDA was SEK -4 (104) million, equivalent to a margin of -0.2% (6.5%).
- Operating profit (EBIT) was SEK -68 (46) million. Adjusted operating profit (EBIT) totalled SEK -53 (58) million and the adjusted operating margin was -3.2% (3.6%).
- Cash flow for the period was SEK 117 (-71) million. The positive cash position was a result of the new share issue of SEK 337 million, after deduction of issue costs, which was used to repay a bank loan facility of approximately SEK 180 million.
- Profit/loss for the period amounted to SEK -58 (26) million.
- Earnings per share before dilution was SEK -0.98 (0.68) and SEK -0.98 (0.68) after dilution.
Significant events during the reporting period
No significant events took place after the end of the reporting period.
| Oct-Dec | Jan-Dec | ||||
| SEKm (unless stated otherwise) | 2022 | 2021 | 2022 | 2021 | |
| Net revenue | 427 | 413 | 1,670 | 1,594 | |
| Growth (%) | 3% | 0% | 5% | 5% | |
| Growth in local currencies (%) | -3% | 1% | 1% | 7% | |
| Gross profit | 161 | 184 | 657 | 728 | |
| Profit after variable costs | 60 | 81 | 252 | 343 | |
| Overhead costs | -71 | -63 | -256 | -239 | |
| Adjusted EBITDA | -11 | 18 | -4 | 104 | |
| Adjusted operating profit (EBIT) | -23 | 6 | -53 | 58 | |
| Items affecting comparability | -8 | 0 | -15 | -12 | |
| EBITDA | -19 | 18 | -19 | 93 | |
| Operating profit (EBIT) | -31 | 6 | -68 | 46 | |
| Profit/loss for the period | -23 | 6 | -58 | 26 | |
| Gross margin (%) | 37.8% | 44.5% | 39.3% | 45.7% | |
| Profit after variable costs (%) | 14.0% | 19.5% | 15.1% | 21.5% | |
| Adjusted EBITDA (%) | -2.6% | 4.2% | -0.2% | 6.5% | |
| Adjusted operating margin (EBIT) (%) | -5.4% | 1.4% | -3.2% | 3.6% | |
| Cash flow for the period | 16 | -5 | 117 | -71 | |
| Net debt (+) / Net cash (-) | -136 | 160 | -136 | 160 | |
CEO COMMENTS
Continued tough market conditions and the general overstock situation have significantly squeezed profitability. However, we have been able to maintain sales, strengthen the cash position and progressed with our financial improvement plan
During the quarter we were successful in driving sales to reduce inventory and to further improve our solid cash position. This sales focus in a declining market with high inventory levels led to continued margin pressure. Profitability was also squeezed by continued high shipping costs and increased purchase prices. The program to improve our financial performance is progressing according to plan, and we expect to start seeing more significant impact from the second half of 2023. We are also initiating additional structural improvements to the business which will position us stronger when the market rebounds.
Net revenue grew 3 percent, to SEK 427 million during the quarter. The gross margin continued to be negatively impacted by our focus on stimulating sales in a weak market, and by significant campaign activities over an extended Black Month period. High costs for shipping and higher purchase prices also contributed to the margin pressure. Adjusted EBIT amounted to SEK -23 million in the quarter versus SEK 6 million in the corresponding period in 2021, largely driven by the gross margin decline.
The net cash position improved by SEK 21 million to SEK 136 million, driven by net working capital improvements. The inventory has decreased by nearly 30 percent in volume since the end of 2021 and also has a better assortment composition. Total inventory value, impacted by both cost increases and currency fluctuations, decreased by 9 percent since the end of 2021, from SEK 534 million to SEK 488 million.
Shipping costs down to pre-pandemic levels with expected gradual cost improvements going forward
We saw only a limited impact on results from reduced shipping costs, although the container prices from Asia were back to pre-pandemic levels. Most of the products we sold were inbound when container prices were high. Consequently, shipping costs for the goods we sold during the quarter were still at a high level compared to last year. In percent of revenue, shipping cost were 6.2 percent in the quarter, only slightly lower than the peak of 6.6 percent in the second quarter. Assuming a full effect from current container prices, the gross margin should be improved by roughly 3 percentage points. We expect to see gradual improvements from reduced shipping costs over the coming quarters.
During the quarter we progressed with the financial improvement program that we initiated earlier this year according to plan. As a result, performance marketing spend declined and direct costs in relation to revenues were reduced by 1.3 percentage points compared with last year. We also revisited our entire supplier base to further improve commercial terms with the full impact to be seen towards the end of 2023.
Still significant uncertainty regarding the near-term outlook
We estimate that the market declined by more than 10 percent during the quarter, negatively affected by economic uncertainty, high inflation and interest rates, all of which have an impact on consumer demand. Despite the slow demand and high inventory levels in the market, we have been able to increase our prices towards the customer. However, balancing top line sales against improving customer prices has put constraints on our ability to fully offset increased freight and purchasing costs.
The uncertainty regarding the short-term market outlook is still significant, as demand is squeezed by a combination of inflation and deteriorating consumer sentiment. We are taking a more conservative approach towards purchasing, but we are in a strong position to navigate these turbulent conditions given our solid balance sheet and net cash position. We also have a compelling value proposition towards more price sensitive customers, with a broad assortment for every wallet, attractive prices and good value for money deals.
Short-term priorities
In the medium term our overall objective is to come out as a stronger company when the market rebounds. In the short-term, this requires us to be both vigilant and quick to respond to changing market conditions. Over the coming quarters we will continue to focus on three main priorities:
- Maintain a strong cash position: It is still very important to preserve our strong cash situation given the level of uncertainty in the market. Moving forward, we will continue to balance the preservation of our cash position by driving top line sales with our desire to gradually improve margins.
- Execute the financial improvement program: The main objective is to improve margins after variable costs and to reduce net working capital. This work is progressing according to plan and we are already seeing the impact from performance marketing efficiencies. Further effects related to cost savings from supplier negotiations and improved pricing capabilities, are expected to materialize during the second half of the year.
- Secure economies of scale: The organisation is working on certain structural initiatives to drive improved scalability through streamlining processes and routines, in particular as it relates to our commercial operations.
To conclude, I wish to express my appreciation to all colleagues for their continued commitment and hard work. This quarter we are also proud to be recognized by the Polish authorities for our ongoing CSR efforts in the Pierce Distribution Center. This is in response to our active involvement in developing the social economy, to our long-standing relationships with local schools to provide learning and development opportunities and to our efforts to employ functionally disabled individuals in the warehouse.
Stockholm, 17 February 2023
Willem Vos
Acting CEO, Pierce Group AB
For further information, please contact:
Willem Vos, Acting CEO
Email: Willem.Vos@piercegroup.com
Tel: +46 72 164 47 05
Niclas Olsson, CFO
Email: niclas.olsson@piercegroup.com
Tel: +46 70 889 05 75
About Pierce Group
Pierce is a leading e-commerce company which, with its online shops, 24MX, XLMOTO and Sledstore, sells gear, parts, accessories and streetwear to riders across all of Europe through some forty locally adapted websites. The Company has two major segments, Offroad – sales to motocross and enduro riders, and Onroad – sales to high road riders. In addition, Pierce 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, Sweden, the central warehouse in Szczecin in Poland, and the major portion of our customer support services are located in Barcelona. The Company has approximately 420 employees.