After many difficult quarters, XXL ASA bounced back in the second quarter, and the leading Nordic sports retailer confirmed this recovery continues in the third quarter. To turn the business around, the Norwegian company has been taking drastic steps such as cutting costs and clearing inventory. It posted double-digit growth for the third quarter of 2020, and its Ebitda soared. This, combined with higher gross margins, led to the best third quarter in XXL’s history, according to the management.

XXL’s strong performance was also driven by good market conditions, with many people opting for “staycations,” as well as improved operations. However, sales gradually decelerated during the quarter, partly explained by a shortage of goods after several months of record high growth and demand following the end of coronavirus-related lockdowns. XXL saw large fluctuations across markets and sales channels, with Norway leading the way.

Some of the turnaround can also be attributed to the new direction given by Pål Wibe, who was appointed in April as the company’s new chief executive. Wibe is a Norwegian manager with a strong background in discount retail. He had been the CEO of a low-priced chain of variety stores, Europris, for six years. Under his command, XXL has been working on initiatives to improve operational efficiencies through store upgrades, further refinements to the category offering, changes in marketing, a modernized brand platform geared toward the consumers and a reduced cost base. The management also established a new organizational structure.

Instead of offering the widest range of products from many brands in its big-box stores and over the internet, XXL has reduced the number SKUs and suppliers to lower inventory costs and cut down on complexities in procurement, production and distribution. It is also aiming to focus on premium brands and products in the medium term to raise margins, while striving to maintain an attractive price/quality ratio through a greater number of partnerships with key suppliers. Going into the fourth quarter, the company said its focus will be on seasonal execution and delivery, while further improving the routines and working processes.

XXL Consolidated Income Statement
(Million NOK, Quarter Ended Sept. 30)
  2020 2019 % Change
Norway 1,347 1,112 21.1
Sweden 827 736 12.4
Finland 506 492 2.8
Denmark 6 10 -40.0
Austria 138 123 12.2
NET REVENUES 2,823 2,473 14.2
Cost of Goods 1,679 1,551 8.3
Personnel Expense 506 418 21.1
Other Operating Expense 225 233 -3.4
Depreciation 199 177 12.4
Net Financial Expense 26 52 -50.0
Pre-tax 188 42 347.6
Tax 29 8 262.5
NET 159 33 381.8
NOK/Share (Diluted) 0.63 0.24 162.5
Source: XXL

Overall, XXL’s revenues grew by 14.2 percent in the quarter to 2,823 million Norwegian kroner (€260.4m-$308.0m), including a gain of 10.1 percent on a comparable basis. E-commerce represented 14.4 percent of total operating revenues, down slightly from 14.6 per cent in the year-ago quarter. Online sales were negatively impacted by low inventories, but this was offset by an increase of 84.3 percent in gross profit.

XXL’s gross margin jumped by 3.2 percentage points to 40.5 percent, while Ebitda went up from NOK 271 million last year to NOK 413 million (€38.1m-$45.0), driven by the strong revenue growth.

The total number of physical stores reached 89 at the end of the quarter, up from 85 a year earlier.

In Norway, XXL’s revenues rose by 21.1 percent to NOK 1,347 million (€124.3m-$147.0m) in the quarter, with same-store sales jumping by 16.1 percent, thanks to a booming market for sporting goods, as people chose to take their holidays in Norway rather than going abroad. The gross margin expanded by 1.8 percentage points to 41.1 percent, while the Ebitda margin increased by 3.5 percentage points to 25.0 percent.

In Sweden, quarterly revenues of NOK 827 million (€76.3m-$90.2m) were up by 2.6 percent in the local currency, driven by a gain in comparable sales of 0.2 percent and growth from new stores. Travel restrictions linked to Covid-19 had a deep impact on three outlet stores that lie close to the Norwegian border and rely heavily on customers from Norway. They recorded a sales decline of about 70 percent. Excluding them, the growth rate in the local currency attained 7.2 percent and same-store sales gained 4.1 percent. Overall, the gross margin rose by 3.5 percentage points in Sweden to 40.0 percent while the Ebitda margin progressed by 6.1 percentage points to 18.2 percent.

In Finland, where market conditions proved challenging, XXL’s revenues declined by 4.4 percent in euros to the equivalent of NOK 506 million (€46.7m-$55.2m). Same-store sales were down by 8.7 percent. XXL had less clearance activity in the country, and this impacted local sales negatively. However, combined with a better campaign mix, this allowed the gross margin to improve significantly, gaining 6.3 percentage points to reach a record level of 41.8 percent, while boosting the Ebitda margin by 5.1 percentage points to 19.0 percent.

In Denmark, where the company is still trading only online, sales dropped by 41.8 percent in the local currency, down to the equivalent of NOK 6 million (€0.55m-$0.65m). XXL has made adjustments in Denmark, among other things by moving the operations under the Norwegian e-commerce organization. A cut in the marketing spend led to lowered sales volumes but improved the cost base. The gross margin improved by 8.7 percentage points to 28.7 percent. The Ebitda margin reached 4.3 percent, a strong improvement from the negative 25.3 percent margin of the year-ago quarter.

In Austria, market dynamics proved more challenging than in the Nordic countries during the Covid-19 pandemic, especially in major cities where tighter restrictions impacted store traffic and overall demand. XXL’s revenues in the country dropped by 11.7 percent to NOK 119 million (€11.0m-$13.0m), with same-store sales dipping by 4.0 in the local currency. The gross margin rose in Austria by 1.8 percentage points to 33.5 percent, and the Ebitda margin went up from a negative 3.1 percent to a positive 4.4 percent,

Going forward, XXL will slow down the pace of new store openings, limiting them to an average of only four per year. Two stores, one in Norway and one in Sweden, opened in the first quarter and XXL opened a new store in Austria in the second quarter. Another new store opening is planned for the fourth quarter in Austria. In line with the existing growth strategy, XXL will continue to invest in its e-commerce platform and IT, in addition to the existing store fleet and infrastructure. It plans to add some new stores in Austria and Sweden. At the same time, it will be downsizing several existing stores.

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