In contrast with its usual good performance, XXL ASA posted a loss of 8 million Norwegian kroner (€855,300-$933,500) for the first quarter of this year, compared with a profit of NOK 47 million in the year-ago period. The Norwegian sporting goods retailer blamed challenging winter conditions, with limited snow and cold, for the poor score. These conditions also negatively impacted the company's growth, with revenues inching up by 1.7 per cent across the Nordics to NOK 1713 million (€183.1m-$200.0m) and tumbling by 10.0 percent on a comparable store basis.
The company - which operates physical stores and e-commerce in Norway, Sweden and Finland and e-commerce in Denmark - said most of the growth was driven by new stores in Finland and Norway and the new Danish website. But despite clearance sales activities early in the year, the market proved difficult with low overall demand. However, XXL managed to improve gross margins later in the quarter through better pricing strategies, despite limited sales of spring related products.
Finland stood out in the quarter with sales up by 19.8 percent to NOK 287 million (€30.7m-$33.5m), or by 27.0 percent in the local currency. The growth was driven by sales at stores that opened in 2016 and e-commerce. XXL opened another new store in the quarter, in Lappeenranta. However, on a comparable store basis and in the local currency, Finnish revenues decreased by 2.0 percent. XXL said the market was slow at the start of the year, with difficult winter conditions combined with a continued challenging macroeconomic situation. Nevertheless, the gross margin soared by 2.7 percentage points to 32.6 percent in Finland, boosted by better sales and pricing strategies.
The revenues of XXL's Norwegian operation inched up by 2.6 percent to NOK 905 million (€96.7m-$105.6m), driven by new stores that opened in 2016 and by e-commerce, but they were down by 9.3 percent on a comparable store basis. Overall, the Norwegian market experienced challenging winter conditions in January, some on-and-off cold periods in February and no signs of spring in March. The market was characterized by very low activity and demand. XXL commenced some early clearance sales campaigns but got limited response from the market. XXL said it was still able to lift the gross margin in the country by 0.2 percentage points to 39.0 percent through better pricing and sales strategies.
In Sweden, revenues dropped by 9.1 percent to NOK 511 million (€54.6m-$59.6m). On a comparable store basis, they declined by 7.1 percent in the local currency. The company faced a tough comparison with last year's first quarter, when the Swedish operation had experienced solid winter conditions, with overall high sales of winter related products and thereby a lower share of clearance sales compared to the same period this year. The gross margin dipped in Sweden by 2.5 percentage points to 34.8 percent, as a result of the overall tough market conditions and a higher share of clearance sales.
Overall, XXL opened only one new physical store in Finland during the quarter, ending up with a total of 65 stores.
Across the Nordic countries, e-commerce grew by 32.0 percent, representing 12.3 percent of the total operating revenues of the group in the quarter, compared with 9.5 per cent in the year-ago quarter. In Denmark alone, where it has been trading only online since last May, the latest quarter generated sales of NOK 10 million (€1.1m-$1.2m), accompanied by a negative Ebitda margin of 27.0 percent. XXL has already indicated that it doesn't expect to make a profit there in the first years of operation, due to aggressive pricing and high marketing expenditures. The same goes for Austria, where it has just started opening stores.
The group's gross margin declined by 0.5 percentage points to 36.5 percent. The Ebitda margin of the group tumbled by 4.0 percentage points to 2.0 percent, with rates of 13.8 percent in Norway, 1.1 percent in Sweden and 0.1 percent in Finland.
Looking at the rest of 2017, the management said it has signed 10 new lease agreements for store openings, and expects its growth to be in the mid-single digits for the full year on a comparable store basis. Gross margins are expected 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.
