XXL ASA experienced strong growth in the third quarter, after a difficult first half of the year, driven by a solid performance in Sweden and Finland. The Nordic sports retailer's total revenues were up by 16.2 percent from the year-ago quarter to 2,417 million Norwegian kroner (€254.3m-$295.8m), and same-store sales gained 5.6 percent. July and August were characterized by normal summer conditions and September represented a good start to the autumn season.

The Norwegian-based retail company noted that the revenue growth was further boosted by new store openings that took place in 2016 and during the first half of 2017. In the third quarter, the single new store opening took place in Austria (see the related article in this issue).

XXL's gross margin inched up by 0.2 percentage points to 38.7 percent during the quarter. Despite the costs of establishing operations in Austria, the company's total operating expenses were stable at 28.3 percent of sales.

The Ebitda margin grew slightly from 10.3 to 10.4 percent of sales, with rates of 19.0 percent in Norway, 12.5 percent in Sweden and 9.4 percent in Finland. Ebitda stood at NOK 252 million (€26.5m-$30.8m) for the quarter, up from NOK 214 million in the same period a year ago. Excluding the costs related to its entry into Austria, XXL reached an adjusted Ebitda margin of 11.1 percent.

The revenues from XXL's Norwegian operations advanced by 10.2 percent to NOK 1,216 million (€127.9m-$148.8m), boosted by new stores that opened in 2016 and e-commerce. They were up by 6.3 percent on a comparable store basis and by 7.2 percent when adjusting for the cannibalization effect from a new store opened in Drammen earlier this year.

XXL Consolidated Income Statement

(Million NOK, Quarter Ended Sept. 30)

 

2017

2016

Change

Norway

1,216

1,103

10.2%

Sweden

776

663

17.0%

Finland

385

304

26.6%

Denmark

11

9

22.2%

Austria

29

-

-

NET REVENUES

2,417

2,080

16.2%

Cost of Goods

1,482

1,279

15.9%

Personnel Expense

376

331

13.6%

Other Operating Expense

307

255

20.4%

Depreciation

39

33

18.2%

Net Financial Expense (Income)

23

23

0.0%

Pre-tax

190

158

20.3%

Tax

38

34

11.8%

NET

152

124

22.6%

NOK/Share (Diluted)

1.08

0.88

22.7%

Overall, the Norwegian market was characterized by good selling conditions throughout the quarter, according to XXL, which benefited from normal seasonal patterns and more aggressive campaigns. This affected the gross margin negatively, but led to positive same-store growth. The gross margin in Norway decreased by 1.5 percentage points to 40.1 percent.

In Sweden, revenues rose by 17.0 percent to NOK 776 million (€81.6m-$95.0m), or by 17.6 percent in the local currency, driven by the effect from the new stores opened in 2016 and earlier this year. However, on a comparable store basis, sales declined by 0.8 percent in the local currency.  The gross margin rose by 0.6 percentage points to 38.6 percent.

XXL's revenues in Finland were up by 26.5 percent to NOK 385 million (€40.5m-$47.1m), or by 26.0 percent in the local currency. However, on a comparable store basis, they declined by 0.8 percent in the local currency, due to difficult retail conditions in the country, where retailers such as Seppälä, Erätukku and Anttila recently closed down or came under restructuring. XXL's growth in the country was led by sales at stores that opened in 2016 and new stores that opened this year. The gross margin jumped by 6.9 percentage points to 36.0 percent, due to a favorable comparison base with the year-ago quarter, along with better store operations, pricing and sales strategies.

In Denmark, sales were up by 26.6 percent in local currency, reaching a level of NOK 11 million (€1.2m-$1.3m) during the period. XXL saw a positive development in traffic to its Danish transactional website during the quarter, while new initiatives in freight rates and order value lifted the gross margin by 7.9 percentage points to 21.5 percent. However, the Ebitda was negative at NOK 2 million (€210,389-$244,778), partly due to investments in marketing.

Overall, XXL has opened six new physical stores in the Nordics and Austria since the start of the year, ending up with a total of 70 locations. The company's e-commerce business represented 10.6 percent of the total operating revenues of the group in the quarter, compared with 9.7 percent in the year-ago quarter.

The management expects overall growth in the mid-single digits for its full year on a comparable store basis. Gross margins are projected to be in low 40's in Norway, in the high 30's in Sweden and between the mid- and high 30's in Finland.