Fast expansion in Finland and Sweden supported a sharp sales increase in the third quarter for XXL ASA, the leading Norwegian sports retail group. Its turnover was up by 23.8 percent to 1,753 million Norwegian kroner (€185.9m-$204.7m) for the three months, with eight more stores and a sales increase on a comparable store basis of 4.6 percent.
The stores enjoyed strong sell-out due to rainy weather in July, while the warm climate unfavorably impacted traffic in August. The situation was comparable in Norway and Sweden, while the market remained under stronger pressure in Finland. The new stores accounted for 31 percent of the sales growth, and another 39 percent came from full-year sales in stores opened last year. Online sales and comparable store sales increases each accounted for 15 percent of the higher group turnover.
The XXL group achieved a gross profit margin of 39.0 percent for the quarter, off by just 0.1 percentage point from the year-ago period despite the unfavorable shift in the geographical mix. The operating profit (Ebitda) increased by 25.9 percent to NOK 201 million (€21.3m-$23.5m), amounting to an operating margin of 11.4 percent. This was a decline of 0.5 percentage points when excluding one-off costs of NOK 10 million in the third quarter last year, related to the group's stock market introduction. XXL ended the quarter with net profit of NOK 145 million (€15.4m-$16.9m), up from NOK 62 million.
Sales reached NOK 956 million (€101.4m-$111.6m) in Norway, an increase of 3.7 percent with an unchanged number of 23 stores. The reopening of the retailer's flagship store in the center of Oslo, after months of refurbishment, led to a 20 percent increase for this particular store in the quarter.
XXL's comparable store sales in Norway, which exclude online sales and refurbished stores, moved up by 1.4 percent. The gross profit margin in the country dipped by 0.2 percentage points to 41.5 percent and the operating margin was down by 0.6 percentage points to 20.2 percent. XXL pointed to heightened online marketing costs in Norway.
The retailer's sales in Sweden shot up by 32.5 percent to NOK 558 million (€59.2m-$65.1m) for the quarter, with three stores added to reach 18 outlets at the end of the period. Sales climbed by 23.9 percent in Swedish kronor and by 4.2 percent in constant currencies and on a comparable store basis.
The Swedish operation lifted its gross margin by 2.9 percentage points to 32.5 percent while its operating margin inflated by 3.5 percentage points to 11.6 percent. This was attributed to fewer clearance sales and improved store operations, along with lower handling and logistics costs.
Swedish costs improved despite new legislation on social security taxes for younger employees. The expansion of the distribution center in Örebro, which will double in surface to 40,000 square meters, is to be finalized in November, boasting innovative robotics and cost-efficient solutions.
XXL boasted seven stores in Finland at the end of the quarter, compared with just two at the same time last year. The latest opening was in August in Turku, meaning that the Norwegian retailer has planted its flag in all three of the largest Finnish cities. Sales thus soared from about NOK 72 million to NOK 238 million (€25.2m-$27.8m), delivering nearly half of the group's expansion for the quarter.
XXL said it was grabbing market share in Finland with low prices and high volumes, affecting its gross margin. But still, the gross margin in the country advanced by 3.1 percentage points to 30.3 percent for the quarter, aided by robust sell-out around the opening of the Turku store. XXL's operating margin in Finland reached 2.7 percent, compared with a negative margin of 9.7 percent a year ago. XXL said there were strong prospects for the Finnish operation to contribute an operating profit for the full year.
Meanwhile, XXL's online sales surged by 67.9 percent in a seasonally weak quarter across the Nordic countries. They amounted to 6.8 percent of the group's turnover compared with 5.0 percent for the same quarter last year. XXL saw strong signs of improvements in conversion after the launch of a new check-out service. The pick-up of the products in the store is now an option for XXL's online customers all over Norway and Sweden, and should be available in all Finnish stores from November. XXL has made it one of its targets that online sales should amount to a low double-digit share of its entire turnover.
XXL has opened four stores so far this year, and it intends to open another four before the end of the year in all three countries. XXL is preparing the opening of an XXL Outlet of 3,500 square meters in Charlottenberg, on the border between Sweden and Norway, to be ready for shopping in the holiday season. The group is targeting eight to ten store openings next year, with eight leases already signed.
