Following troubles at the end of 2018, XXL ASA started 2019 on a mixed note, with lower sales but higher profit margins. As previously reported, in the fourth quarter, the leading sports retailer in the Nordic countries posted lower-than-expected sales in all the markets where it operates.
XXL's interim management admitted that the group ended up losing money because of poor execution, posting overly aggressive price discounts, especially in the domestic Norwegian market. This led the company to let go of its brand-new chief executive, Ulf Bjerknes. The company's chairman and founder, Øivind Tidemandsen, has taken up an operational role in XXL. Tolle Grøterud, strategy and investor relations director, is acting as interim CEO, pending the recruitment of Bjerknes' successor.
The management said it recently implemented several short-term initiatives to improve the gross profit, but this was at the expense of growth. The company's revenues for the three months ended March 31, 2019, declined by 2.7 percent to 2,014 million Norwegian kroner (€208.1m-$231.7m) from the same period a year earlier. However, the gross margin went up by 0.8 percentage points to 40.7 percent, led by the domestic Norwegian market, and the Ebitda margin inched up by 0.2 percentage points to 2.7 percent. On the other hand, the company posted a net loss of NOK 19 million (€2.0m-$2.2m) for the period against a loss of NOK 9 million in the first quarter of 2018, due to higher interest expenses and a foreign currency loss.
The quarterly sales decline was partly due to the weather. Overall, the winter season in 2019 proved to be mixed for XXL, compared with the good and long winter at the beginning of 2018. This year, January had good winter conditions in Finland and Austria, but the lack of snow and cold in many regions of Norway and Sweden affected sales. The first quarter ended with signs of spring in most markets late in March, which gave an uptick in sales volumes. In the end, on a comparable store basis, sales were down by 6.9 percent for the quarter, weighed down by Norway in particular.The total number of physical stores reached 82 at the end of the quarter, or five more than a year earlier. E-commerce accounted for 16.6 per cent of the group's total revenues in the first quarter, up from 14.4 percent in the first quarter of 2018. The company believes that e-commerce will continue to be the most important driver for comparable sales growth. In the latest quarter, the group rolled out personalized landing pages in all countries, working on several new features on site including add-on sales at the check-out point, new sorting filters and enhanced picture and video quality.
XXL recently launched a new omni-channel stock solution that makes all the inventories within the group available to all platforms at all times. It has also started to collect customer data online and in the stores to further strengthen the use of personalization and segmentation activities.
XXL remained the leading sports retailer in terms of online traffic during the quarter in Norway, Sweden and Finland. It placed third in Denmark after Sportmaster and Sport24, and third in Austria after Hervis and Intersport.
The revenues from XXL's Norwegian operations declined by 5.9 percent to NOK 947 million (€97.8m-$109.0m). They were down by 10.3 percent on a comparable store basis, but the drop was partly offset by the addition of four new stores in 2018 in the country, all of which had some cannibalization effects on existing locations. On an adjusted basis, same-store sales declined by 9.3 percent. Overall, the Norwegian market experienced a challenging winter season, as good winter conditions came late in January to most regions but lasted only for a short period.
Due to change of focus to gross profit rather than just sales volume, XXL was able to improve the gross margin in Norway by 3.2 percentage points to 43.7 percent. The Ebitda margin grew by 0.2 percentage points to 15.4 percent.
In Sweden, XXL's quarterly revenues of NOK 557 million (€57.5m-$64.1m) were down by 3.0 percent in the local currency, weighed down by a drop in comparable sales of 4.4 percent. The management said that the Swedish market continued to be volatile and price-focused with many discounts during the quarter. Again, XXL decided to shift the focus on to margins, raising prices, which affected sales volumes but improved the gross margin by 0.8 percentage points to 36.9 per cent.In Finland, sales were positively affected by good winter conditions. However, sales volumes abated in February with high comparable numbers in the past year. Revenues inched down by 0.2 percent in euros to the equivalent of NOK 390 million (€40.3m-$44.9m). However, the gross margin improved by 3.6 percentage points to 38.7 percent. The Ebitda margin jumped by 8.6 percentage point to 10.9 percent.
In Denmark, where the company is still only trading online, sales dropped by 6.9 percent in the local currency, reaching the equivalent of NOK 15 million (€1.5m-$1.7m). The company said there was a lack of cold weather in the winter and the company reduced aggressive campaigns to gain volume. As a result, the gross margin in Denmark improved by 5.7 percentage points to 21.5 percent, while Ebitda remained negative at 18.5 percent of sales, down from a negative level of 21.8 percent in the year-ago period.
Austria – where the company started operating in August 2017 – was the shining star. Same-store sales improved by 4.2 percent in the country, and overall revenues jumped by 54.4 percent to NOK 105 million (€10.8m-$12.1m). The gross margin improved by 6.5 percentage points to 35.3 percent.
The company opened its first store in the heart of Vienna on April 1, 2019, and the associated costs caused the Ebitda margin to remain negative at 13.0 percent of sales as compared to a negative margin of 26.5 percent for the year-ago quarter.
Since Feb. 1, XXL has had a new managing director for its Austrian operation, Magnus Kreuger, who has a long track record in XXL. The company has also announced that Jakob Olsbø has been appointed as the group's new chief marketing officer, and will start in his new position around June 1, 2019. He is currently the global director of marketing operations at Circle K.
In a conference call, the management highlighted several priorities for the future, including driving comparable-store growth and data collection for personalization.
XXL also plans to open new stores in larger cities, focusing on areas where it is already present to optimize marketing and personnel training resources. So far, XXL has signed five new lease agreements for store openings in 2019: two in Sweden, two in Finland and one in Austria. It aims for 5-6 new stores in total for 2019.