A challenging quarter, with Nordic resilience
The second quarter was characterized by a weak and highly price-driven German market, while the Nordic markets performed well. Warm weather in central Europe affected demand in June. Brands supported by promotions and special offers continued to outperform. In short prices are still under pressure. We also faced operational issues, both in our logistics operation due to some integration problems of our new ERP system and also due to our change of business model in Europe, effecting both sales and cost negative. For the Group, total sales amounted to MEUR 139.4 compared to MEUR 144.9 last year, a decrease of 3.8%. EBITDA was MEUR 3.7 compared to MEUR 6.6, and the operating result was MEUR -11.1 compared to MEUR -7.2.
Brands
The Brands segment reported external sales of MEUR 38.0 in Q2 compared to MEUR 40.5 last year, a decrease of 6.2%. Operating profit in Q2 was MEUR -8.7 compared to MEUR -5.1 last year. The decrease in sales was mainly related to lower sales in Germany and earlier Spring/Summer deliveries this year. The Nordic countries performed better than last year. Also Devold went better than planned. EBIT was affected by the lower external sales, but also by lower sales to Frilufts which is mostly explained by the new operational model which was implemented to better serve consumers long term and certain onetime costs as write down of raw materials and logistic costs. In total MEUR 2.4.
Global Sales
Global Sales reported external sales of MEUR 20.3 in Q2 compared to MEUR 20.8 last year, a decrease of 0.5%. Operating result improved to MEUR 0.8 in Q2 compared to MEUR -0.5 last year. Sales increased in Europe, while Asia, outside China, was weaker, affected by lower sales in Korea and some earlier deliveries than last year. Costs remained under control. Our JV in China continued to perform well. Net sales was up 22% both on Q and YTD level versus last year. China is not consolidated. The positive effect is shown in result from associated companies.
Frilufts
Frilufts reported external sales of MEUR 81.2 in Q2 compared to MEUR 83.5 last year, a decrease of 2.7%. The operating result in Q2 was MEUR -4.0 compared to MEUR -1.9 last year. As for Brands sales were lower in Germany hit by warm weather and price competition, while the Nordic markets performed stronger than last year. The German operation also this quarter faced continuing bot attacks that closed down the web shop. The lower Q2 EBIT was mainly explained by the lower sales and index-related cost increases for rents and salaries.
Digital/Direct to Consumer
Direct-to-consumer sales amounted to MEUR 99.2 in Q2 compared to MEUR 102.1 last year. Shops represented 72.3% of the total, with sales of MEUR 71.7 compared to MEUR 73.8 last year. Online sales amounted to MEUR 27.5 compared to MEUR 28.3 last year, representing 27.7% of the total. In Brands DTC globally we saw an increase in digital sales of 4%, while Frilufts showed a decrease of 4%. The Frilufts shops were down 2%.
Going forward
Going forward, the market environment remains volatile. Germany continues to be challenging and price-driven, while the Nordic and Canadian markets provide a more positive development. We must continue to focus on cost control, operational stability and improving the performance of the new IT environment. We are still affected by some challenges related to the new IT environment, which has not started without operational difficulties and delay of some improved functions. We are also since early this year making a major change in our operational processes utilizing the new IT system in how we approach the market and we are already seeing some effects, but the seasonal nature of our business means that final effects will take some time.
In terms of markets, North America in particular USA is improving according to plan and is showing promising/increasing preorders for next spring and Canada continues to grow. The current development in the Nordics are very promising. We also see an above expectation development of Devold, which is integrating well. The improved result in Global Sales and the US development are signs of recovery showing there are areas of resilience and potential for improvements in the Group.
All the best
Martin Nordin,
Chairman of the Board
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