The Norwegian sports and outdoor chain XXL Sport & Vildmark continues to face major profitability challenges. In Q3, ended Sep. 30, group Ebit for XXL ended a negative NOK 191 million (-€16.0m), versus a negative NOK 155 million in the year-ago period. Net income slipped 87 percent year-over-year to negative NOK 262 million (-€21.9m).
XXL intends to carry out a rights issue of NOK 600 million (€60 m). The company says that the issue is fully secured and that it has also agreed with lenders to extend its loan facilities. At the same time, XXL will be taking out a bridge loan of NOK 200 million (€20 m), to be repaid with the capital injection from the rights issue.
The rights issue is expected to be approved at an extraordinary general meeting on Nov. 28. Shares are expected to trade ex-rights as of Jan. 14, 2025. The terms of the rights issue are not yet finalized.
SGI Europe has reached out to CEO Freddy Sobin to find why XXL is doing this now and what he thinks the outcome will be.
SGI Europe: Why do you need to do this?
Sobin: Since the surge in demand in the Nordic sports and outdoor market during the pandemic, the market has been characterized by ten consecutive quarters of negative growth. During this period, XXL has taken significant steps to reduce debt, focus operations and improve its cost position. The market has continued to be challenging, and we have had less access to products. As a result, the implementation of the plan has been delayed by around a year from what we originally expected. However, we now see that important key indicators are turning in a positive direction. XXL believes in a gradual improvement in the Nordic market during 2025. Sweden is already leading the positive trend, after three interest rate cuts. Recently, a double cut was even announced, so it looks promising.
What will the new funding give XXL?
We’re looking forward to filling our shelves even more with more popular brands and products that customers demand, at a low price. This will stimulate top-line growth and strengthen our Nordic leadership position in the sports market.
How will this be done?
We’ve evaluated several options to finance this growth, and have now secured a financing solution with three interdependent elements: a short-term loan, a softening and extension of existing long-term bank loans from DNB and Nordea, and a fully underwritten rights issue to raise up to SEK 600 million.
A lot of struggling retailers speak of 2025 as a turning point. Is 2025 the year things finally will turn around for XXL?
We see a positive trend through 2024, with gradual sales recovery from quarter to quarter. We’re also seeing the beginnings of a recovery in Sweden, influenced by three interest rate cuts so far this year. We’re also seeing positive effects from our cost-reduction program, as well as a strengthened gross margin. However, the earnings improvements are limited by a continued negative market development, where the improvement we expected for 2024 has not materialized. The prospects for market improvement have thus been postponed to 2025.
What are the most important elements in a quick return to profitability for XXL?
We are fully focused on reversing the sales trend in a still-challenging and campaign-driven market, as well as delivering on the Reset & Rethink plan to be prepared for market recovery by strengthening our position as the leading sports chain in the Nordic region. Having said that, we are also dependent on external factors, as the interest rate cuts in Sweden show. We can’t predict what the world will look like in 2025 macroeconomically, but, as I said, we believe in our plan and we will be ready when the tide turns.
