On Dec.18, XXL announced disappointing fourth quarter results and the departure of its brand-new chief executive, Ulf Bjerknes. The news sparked an immediate fall in the Norwegian sports retailer's stock price as well as a press conference the next day to explain the bad results.
In a trading update, XXL revealed that sales volumes had been lower than expected in all the markets where it operates, both before and after the Black Friday campaigns in November, a month in which the group ended up losing money because of poor execution. Sales were higher on Black Friday than a year earlier, but the gross margin was significantly lower.
The company said it had posted overly aggressive price discounts, especially in Norway, and this continued into December. XXL added that it has improved routines to ensure that this will not occur in the future. Another negative factor was a change of CEO and marketing manager during the quarter, which affected daily operations.
Because of the poor expected fourth-quarter results, XXL predicted that it will report total operating revenues for the full year of around 9.4 billion Norwegian kroner (€1.0bn-$1.1bn), with Ebitda in a range of NOK 530 million (€54.2m-$62.1m) to NOK 560 million (€57.3m-$65.7m). Analysts had estimated Ebitda of NOK 748 million (€76.5m-$87.7m).
Upon the news of the poor results, XXL's share price immediately plunged by 37 percent and ended the day down by 30.1 percent. As shown in the SGI stock market capitalization chart in this issue, the stock market value of XXL plunged by nearly 70 percent in the course of 2018. It declined gradually after reaching a peak in March, falling abruptly in July and more steeply after the latest profit warning.
Simultaneously, XXL also announced that Bjerknes had decided to leave his position after just two months in the role. The former chief executive of Rottefella and Swix Sport Group, who has been with the company for a total of 11 months, took over as CEO in October when Fredrik Steenbuch left the company after a difficult year.
Tolle Grøterud, the company's director of strategy and investor relations, is now acting as interim CEO and XXL has initiated a process to recruit a new CEO. The company's chairman, Øivind Tidemandsen, who founded XXL and still is its largest shareholder, will now take up a more operational and strategic role in daily operations.
At the press conference, Tidemandsen blamed the disappointing developments on internal mistakes and said that the fault lay with the management of the company. He stated that the immediate agenda for the future is to renegotiate all lease agreements, reorganize the marketing department and initiate cost-savings programs.
The fourth-quarter results have been so bad that the company has reached an agreement with its lenders on new credit terms, obtaining a waiver on its debt covenants. As previously reported, XXL also delivered disappointing results for its third quarter, and this was reflected in XXL's stock price. At its height, in October 2016, it traded at over NOK 110 (€11.27-$12.98) per share, but the price fell below NOK 22 (€2.25-$2.60) after the profit warning. It subsequently recovered slightly to a level of around NOK 27 (€2.77-$3.19).
Despite the bad news, the group stated that its strategy will not change. In particular, XXL wants to be more competitive as an omni-channel retailer. The results of the extensive initiatives it has taken in this domain should be seen gradually starting in 2019.