Another tough quarter
The quarter started promising, but a delay in winter weather meant it slowed down before improving again towards the latter part of the quarter. We did run into shortage of some winter merchandise due to more conservative purchasing because of the large inventory last year. We then did not anticipate the decrease of winter goods in inventory during Q1 2024, due to the cold weather and the higher-than-expected demand in the Nordics. On global basis we were hit by some credit problems with customers in North and South America, where we had to delay deliveries. Another trend globally was that the digital sales channels in general underperformed compared to brick and mortar. The brick and mortar showed growth on like for like basis. The North American brand retail showed promise on like for like basis, where we, in US, have closed six locations. The better sales were also driven by a digital billboard campaign in Times Square in New York.
This means that we, in Q4, fell slightly short on last year’s sales 174.6 MEUR vs 180.2 MEUR, a decrease of 3.1 %. Excluding the effect of the shop closures the sales on like for like basis was down 2.6%. Most of the drop in sales came from our wholesale business in Brands and Global Sales.
The operating result landed at 2.5 MEUR vs 0.4 MEUR last year.
During the year we have implemented several saving measures. We have seen positive effects of them. We have, however also seen market related increases as salary costs, but in total this means that for instance Brands shows a better result for the quarter compared to last year.
Brands
Our Brands segment had external sales of 45.7 MEUR (47.3) MEUR. A decrease of 3.3%. As this includes our Brands retail consumer sales, including USA where we run six less shops than last year, the sales on like for like was basically flat compared to last year. The South American holdback of deliveries, due to credit risk, also affected sales. The result was 5.0 MEUR up from -1.5 MEUR last year which reflects not only a more efficient operation, but also a positive effect from closure of the six shops. Hanwag made a promising recovery during the quarter after being hit by a large decrease after covid.
Global Sales
Global Sales reached external net sales of 31.9 MEUR (34.4 MEUR). The operating profit ended 1.8 MEUR (5.7 MEUR). The top line as well as the bottom line was negatively affected by both the held back orders due to credit risk in North America and some challenges in the Korean market. Lower sales to own Brand retail also affected the operating result negatively. The JV in China outperformed almost every other market and had a very good quarter.
Frilufts
Frilufts sales was almost flat, other Nordics, except Norway, was down. Interesting is that in all markets brick and mortar sales grew, whereas digital sales was down. Germany is still losing money but is showing an operational improvement due to improved operational efficiency. Norway showed increased sales but is still losing money. The UK operation is still facing a very volatile market.
This means that the Frilufts group came in at 97.0 MEUR of sales, a decrease of 1.5%. EBIT ended at 1.8 MEUR. For the full year Frilufts sales where 347.5 MEUR, a decrease ofl.3%. It should be noted that in terms of channels the brick-and-mortar sales performed better than the digital channels also for the year.
Digital/Direct to Consumer
In Q4 our direct-to-consumer sales was in total 132.5 MEUR (137.5) MEUR. Our digital direct to consumer sales was 41.3 MEUR (45.5), down 9.2% and the brick and mortar 91.3 MEUR (92.0 MEUR), down 0.8%. This means that of our direct-to-consumer sales 45.2% (49.4%) was digital in Q4. On the year our total direct-to-consumer sales were 450.4 (461.9) MEUR -2.5%, of which 135.7 MEUR (146.9 MEUR), -7.6% was digital and 314.7 MEUR (315.1 MEUR), -0.1%, was brick and mortar. The proportion, on annual basis, of direct-to-consumer sale that was digital was 30.1% (31.8%) vs 69.9% (68.2%) for brick and mortar.
2024 and forward
We are still facing a challenging market in 2025. In terms of orderbooks for 2025 we do see an improvement for both fall and winter. There are still signs of retailers being cautious of taking risks in inventory. They are counting more on reorders from the brands. This means there is an increase of risk in our business, especially in purchasing, as we must take a larger risk to enable us to capitalize more in reordering. The supply chain as well as the political environment is also factors playing in. Due to how we see retail performing so far in 2025 and the orderbooks, there seems to be room for improvement for Q1 2025, but a higher than usual dependence on reorders remains.
We have improved our inventory situations overall, even though we have not achieved the optimal level everywhere in the group. We are now focusing more on optimizing the levels which might mean increasing inventory in some parts to optimize sales.
We are still facing a cost challenge going forward, both internally as well as externally. Internally we are facing extra costs from implementing the new ERP system, while keeping old systems running, as well as higher than normal costs running our logistics until we have fully implemented our warehouse operation in Ludwigslust. We are also contemplating increasing our marketing spend for the next 18 months given the positive experience we had last fall with the two larger campaigns we did in Germany and in the US (New York). Externally we are facing a volatile supply chain, both in speed and cost, as well as political challenges from potential trade wars, need to note tough that we have a limited exposure to the US vs China part of it.
So, with the risk of repeating myself; our focus this year again will be on sales and cost control.
I also, once again, want to take this opportunity to thank our management, ALL employees, board, shareholders and not the least customers for their efforts and loyalty in helping us. But I, once again, want to specially thank our workers in the stores, warehouses, and manufacturing. These groups are seldom receiving the praise they should, but they are vital to our business, making sure that we sell and are able to deliver.
All the best
Martin Nordin, Chairman of the Board
