XXL ASA improved its performance in the fourth quarter of 2020, posting a growth in total revenues of 10.91 percent to 2,572 million Norwegian kroner (€250,203-$301,140). The progress was led by the domestic Norwegian market and helped by an increase of 57 percent in e-commerce, which came to represent 25 percent of total sales during the period. On a comparable store basis, sales went up by 9 percent.
The momentum accelerated in January, thanks to much better snow conditions than a year ago, which more than offset the remaining Covid-19 restrictions imposed in Norway and Austria. The group’s total operating revenues soared by about 50 percent, driven by a growth of over 100 percent in e-commerce.
In the latest quarter, the group’s gross margin jumped to 40.4 percent of sales, compared with 21.4 percent in the year-ago period, when the group launched a massive clearance program, accompanied by an inventory writedown of NOK 349 million (€34.0m-$40.9m) that cleaned up the balance sheet. The gross margin reached levels of 43.7 percent in Norway, 38.8 percent in Finland, 37.7 percent in Austria and 33.6 percent in Denmark, where XXL has been trading exclusively online.
|XXL Consolidated Income Statement|
|(Million NOK, Q4)|
|Cost of Goods||1,532||1,823||-16.0|
|Other Operating Expense||243||249||-2.4|
|Net Financial Expense||76||48||58.3|
A better product assortment, good price management and better campaign execution in the second half of the year helped to achieve this score. This resulted in a positive restated Ebitda margin of 12.7 percent against a negative margin of 9.0 percent in the year-ago period, and in net income of NOK 13 million (€1.3m-$1.5m) against a net loss of NOK 357 million.
Pål Wibe, who became the new CEO of the leading Nordic sports retailer one year ago, attributed its market share gain in Norway to better execution in all the channels, an improved offering for the most important winter sports and a sharp increase in the home training and outdoor categories. We believe that the phase-out of the G-Sport banner as part of Gresvig’s reorganization may have also contributed to XXL’s strong growth in the country.
Across all markets, sales of fitness products rose by 93 percent, outdoor by 39 percent and bikes by 22 percent. Surveys indicate that the company managed to improve the customer experience in the quarter, especially during the so-called Black Week.
XXL claims that it gained market share last year in all the countries where it operates. It estimates that the market was basically flat in Finland and down by 10.1 percent in Norway, by 3.3 percent in Sweden and by 14.0 percent in Austria. In contrast, its own sales rose in 2020 by 20.2 percent in Norway, by 10.0 percent in Sweden and by 1.6 percent in Finland, but they fell by 5.2 percent to NOK 45 million (€4.4m-$5.3m) in Austria, where XXL has seven stores now.
In spite of the retail lockdown in Austria, the company managed to reduce its operating losses sharply thanks to reduced marketing costs and increased efficiency. The opening of a new, highly automated central warehouse of 7,000 square meters for the country, which took place on Feb. 1, should reduce logistic costs. It has a dedicated area for ski maintenance and bike assembly.
XXL indicates that it would have performed better in Finland if customers had not changed their shopping behavior, privileging one-stop shopping in hypermarkets.
The figures for the full financial year show a 15.9 percent increase in operating revenues to NOK 10.4 billion (€1.0bn-$1.2bn), with e-commerce rising by 43 percent to 20 percent of sales. The gross margin went up by 3.0 percentage points to 37.6 percent, and the Ebitda margin rose by 4.7 percentage points to 10.7 percent. XXL booked a group net profit of NOK 126 million (€12.3m-$14.7m) for the year as compared to a loss of NOK 290 million (€28.2m-$33.9m) in 2019.
XXL is almost debt-free now and it expects to generate strong cash flow for investments, especially after the threats from Covid go away, leading to better market dynamics. Wibe said that XXL is working on several strategic initiatives intended to increase operational efficiency, which should lead to further market share gains and a stabilization of the gross margin at current levels.
Besides a further strengthening of the e-commerce channel, in the first half of 2021, XXL will implement a new zone structure in its large physical stores based on activity-based sectors. It will also roll out a new generation of electronic shelf labels in Norway for more responsive price changes. RFID technology will be implemented in all the Norwegian stores, followed soon by those in other markets.
New leases have been signed for one store in Sweden and one in Austria. The company, which is known for its big-box retail format, plans to continue to open between three and five new stores per year, while downsizing several existing units.
Meanwhile, the company has decided to distribute share options worth around NOK 10 million (€972,752-$1.2m) to around 60 employees, in accordance with one of the resolutions passed at last year’s annual meeting. The price will be equal to the weighted average market price between Feb. 5 and Feb. 11. The share options will become vested after three years if the employee is still on board when they are exercised.