XXL ASA announced a major change of leadership after publishing relatively weak results for the third quarter. As of Dec. 1st, Ulf Bjerknes will become the new chief executive of the leading Nordic sporting goods retailer, replacing Hans Fredrik Steenbuch.

Bjerknes was the CEO of the Swix Sport group between 2008 and 2017. He joined XXL last February in the new position of chief operating offer. The Norwegian sporting goods industry veteran did an excellent job at Swix and, before that, as CEO of Rottefella, the leading Norwegian supplier of Nordic ski bindings, between 2003 and 2008. Steenbuch had been running XXL since 2007.

Hampered by a very sunny and hot summer season that reduced traffic and sales at its own retail stores, XXL posted mixed results for the third quarter, but online sales were up by 39.8 percent to 359 million Norwegian kroner (€37.8m-$43.1m), with solid growth in all markets. E-commerce accounted for 14.4 per cent of the group's total revenues, compared with 10.6 percent for the third quarter of 2017.

According to the outgoing management, e-commerce will continue to be the most important driver for comparable sales growth. In the quarter, the company focused on the segmentation of its customer targets, sending out fully automated newsletters for post-purchase campaigns, with relevant offerings and products. It is currently running a pilot on more personalized features, creating automated pages based on users' navigation behavior to improve their relevance and the customer experience.

The management pointed out that the pursuit of its omni-channel strategy is important not only for raising revenues from e-commerce but also for generating traffic to the stores and for sharing costs between its different platforms. The company recently launched a new omni-channel stock solution that makes all the inventories within the group available to all platforms at all times. This solution has been rolled out so far to all XXL stores in Norway and Sweden, contributing to increased sales. The rollout began during the quarter also in the company's new Austrian stores. Special algorithms control the products due to be offered, price limits and gross margins, prioritizing locations for the delivery of goods.

Overall, the leading Nordic sports retailer's revenues rose by 3.6 percent from the year-ago quarter to NOK 2,504 million (€263.6m-$300.8m), but same-store sales declined by 6.2 percent, due to a difficult retail market.

Along with the growth of e-commerce, XXL generated extra revenues by opening eleven stores during 2017 and six stores since the start of 2018, including one during the third quarter in the Austrian city of Graz.

The revenues from XXL's Norwegian operations remained stable at NOK 1,217 million (€128.1m-$146.2m) but were down by 6.7 percent on a comparable store basis. Overall, the Norwegian market experienced a long, dry and particularly warm summer, reducing the demand for summer-related products toward the end of the season. Retail traffic and sales were negatively impacted under such conditions. September proved to be a more normal month, but it made a limited contribution to the overall quarterly results.

XXL Consolidated Income Statement

(Million NOK, Quarter Ended Sept. 30)

 

2018

2017


Change

Norway

1,217

1,216

0.1%

Sweden

724

776

-6.7%

Finland

445

385

15.6%

Denmark

18

11

63.6%

Austria

99

29

241.4%

NET REVENUES

2,504

2,417

3.6%

Cost of Goods

1,579

1,482

6.5%

Personnel Expense

402

376

6.9%

Other Operating Expense

332

307

8.1%

Depreciation

47

39

20.5%

Net Financial Expense (Income)

12

23

-47.8%

Pre-tax

131

190

-31.1%

Tax

26

38

-31.6%

NET

105

152

-30.9%

NOK/Share (Diluted)

0.75

1.08

-30.6%

XXL had decided to scale down marketing and personnel costs in the quarter to adjust to this challenging market. However, the management has since said that this strategy may have lasted too long, impacting sales negatively, especially toward the end of the quarter.

The gross margin declined in Norway by 1.2 percentage points to 38.9 percent, as margins are lower online than offline. The Ebitda margin dropped by 2.9 percentage points to 16.1 percent, because of the lower gross margin and higher operating expenses.

In Sweden, XXL's quarterly revenues of NOK 724 million (€76.2m-$86.9m) were down by 1.4 percent in the local currency, weighed down by a drop in comparable sales of 7.2 percent, partly offset by sales growth from new stores. The management said that the Swedish market continued to be challenging and volatile, with many campaigns and a lot of discounting by many competitors during the whole quarter. As in Norway, XXL decided to adjust costs accordingly, which may have impacted comparable growth. The gross margin declined by 1.9 percent to 36.7 percent and the Ebitda margin dipped by 2.0 percentage point to 10.5 percent.

The company's Finnish operation continued to improve, as sales were positively affected by new stores that were opened during 2017 and by comparable sales growth of 3.0 percent in the local currency. Revenues jumped by 12.8 percent in euros to the equivalent of NOK 445 million (€46.8m-$53.4m). However, the gross margin inched down by 1.4 percentage points to 34.6 percent because of difficult retail conditions caused by the dry and hot summer, while the Ebitda margin lost 1.0 percentage point to 8.4 percent.

In Denmark, where the company is still only trading online, sales jumped by 53.6 percent in the local currency, reaching the equivalent of NOK 18 million (€1.9m-$2.2m), as XXL continued to adopt an aggressive marketing strategy to gain a higher share of the market. This proved successful in terms of volumes but affected gross margin, which dropped by 4.6 percentage points to 16.9 percent, while Ebitda remained negative at NOK 2 million (€210,572-$240,272).

Finally, in Austria, where the company started operating in August 2017 and recently opened its fourth store, XXL said it is constantly working on increasing its presence in the market, attracting customers with aggressive campaigns and heavy marketing expenditures. Revenues in Austria amounted to NOK 99 million (€4.3m-$5.0m) during the quarter. The company booked a gross margin of 28.9 percent in the country and recorded an Ebitda loss of NOK 16 million (€1.7m-$2.2m), because of high marketing expenditures.

Overall, XXL's gross margin was down by 1.8 percentage points to 36.9 percent for the quarter. The Ebitda margin declined by 2.8 percentage points to 7.6 percent, negatively impacted by lower sales in the summer months and lower volume bonuses granted by suppliers because of the company's decision to scale down inventories.

For the full year, XXL has so far signed leases for a total of seven new stores slated to open in 2018 – four in Norway, one in Sweden and two in Austria. Six of them went on stream in the first nine months of the year.

To continue with its growth strategy, both offline and online, XXL will invest more in infrastructure, IT and training facilities. These investments are expected to be in the range of NOK 70 million (€7.3m-$8.5m) to NOK 90 million (€9.4m-$11.0m) for 2018. In addition, XXL will refurbish at least two of its stores.