XXL ASA generated revenues of 1,984 million Norwegian kroner (€168.8m) from continuing operations in the first quarter of 2023, up by 6.4 percent compared to the year earlier, as heavy discounts allowed the company to post sales growth and gain market share but squeezed profit margins. Like-for-like sales growth stood at 3.0 percent, with growth and increased market share in all its main markets. As it looks to boost profitability, the Nordic sports retailer said it is exiting the Austrian market this year. That business is now accounted for under discontinuing operations after XXL’s board decided in December to dispose of operations in the country following a strategic review.
XXL is focusing on clearing out its own inventory to start upcoming seasons with more normalized levels and in-season products. The company also has plans for at least NOK 120 million (€10.2m) in cost savings this year, although it acknowledged this would be partially offset by increased cost inflation and consumer price index (CPI) adjustments of rental contracts. Capex is estimated at NOK 150-200 million (€12.8-€17.0m) per year going forward as XXL focuses on “ambitious” growth in its e-commerce business.
E-commerce sales represented a bright spot in the quarter, increasing by 28.7 percent compared to the year earlier and reaching 27.8 percent of all revenues versus 23.0 percent in the first quarter of 022.
The company’s first-quarter gross margin narrowed by 6.8 percentage points to 31.4 percent as profitability was impacted by heavy discounting and increased sourcing costs. The margin was positively affected by a NOK 217 million (€18.5m) reversal of the total loss accrual from Dec. 31, 2022, of NOK 301 million (€25.6m).
“The current market demands strict focus on inventory levels and liquidity control, which will lead to fluctuations in the gross margin between quarters and seasons,” management indicated in a presentation on its Q1 results, noting that XXL is targeting a long-term gross margin of 40 percent.
Ebitda amounted to a negative NOK 45 million (€3.8m) versus a positive NOK 83 million the year earlier, making for an Ebitda margin of a negative 2.3 percent against a positive 4.4 percent in the first quarter of 2022. XXL’s quarterly net loss widened to NOK 225 million (€19.1m) from NOK 137 million.
Scandinavian home markets grow, withdrawal from Austria continues
In XXL’s domestic Norwegian market, reported revenues grew by 2.4 percent to NOK 1,004 million (€85.4m), reflecting like-for-like growth of 2.6 percent and driven by a clearance campaign that began in February. The gross margin decreased by 7.1 percentage points to 32.9 percent as the company stepped up discounting amid challenging market conditions, while the Ebitda margin narrowed to 3.7 percent from 8.5 percent.
In Sweden, revenues rose by a reported 10.9 percent to NOK 599 million (€51.0m), while on a like-for-like basis and at constant foreign exchange rates, they rose by 6.7 percent despite weaker market conditions in this market as well. The gross margin decreased by 7.3 percentage points to 27.9 percent, while the Ebitda margin came in at a negative 1.1 percent compared to a positive 4.7 percent the year earlier.
XXL’s sales in Finland stood at NOK 381 million (€32.4m), up by a reported 10.7 percent but corresponding to 1.0 percent like-for-like growth at constant exchange rates. While January was a “difficult” month, sales gradually improved during the quarter due to increased clearance campaigns. The gross margin in Finland narrowed by 4.9 percentage points to 32.9 percent and the Ebitda margin by 4.8 percentage points to 3.7 percent.
XXL closed one store in Austria in January 2023, and two more Austrian stores are scheduled to be shuttered in the second quarter, bringing its store count down to five. XXL also plans to close its central warehouse facility in Austria as it mulls different solutions for exiting the market, including selling the Austrian entity. Revenues in Austria slipped to NOK 115 million (€9.8m) in the first quarter from NOK 119 million the year earlier, while the Ebitda loss widened to NOK 26 million (€2.2m) from NOK 8 million.
During the quarter, XXL received NOK 500 million (€42.6m) in funds from a private placement of its shares, which was used to pay down debt. Debt decreased to NOK 889 million (€75.7m) at the end of March from NOK 1,054 million at the end of 2022.
XXL opened one new store in Sweden in the quarter and signed two new lease agreements for store openings in 2023, one in Norway and one in Sweden. XXL intends to open two or three new stores each year but will also downsize several existing stores as it continues to optimize its store portfolio.
The company noted that Freddy Sobin is set to step into the CEO role in May 2023 after being appointed to the position by XXL’s board in November. Sobin comes to XXL from Nordic beauty products retailer Kicks Group, where he had served as CEO since 2018. Previously, he was chairman of the online retailer Outnorth for five years.
