XXL ASA experienced strong growth in the fourth quarter, driven by new store openings and a solid performance in Norway and Finland. October and November experienced normal autumn conditions, while December - the most important month of the year for XXL - proved to be good in many regions in the Nordics with cold and snow.

The Nordic sports retailer's revenues jumped by 17.4 percent from the year-ago quarter to 2,525 million Norwegian kroner (€259.1m-$323.1m), and same-store sales gained 6.5 percent. XXL highlighted the positive impact of new store openings that took place in 2016 and 2017.

Revenues were also boosted by e-commerce, up by 40 percent to NOK 403 million (€41.3m-$51.6m), proving the strength of XXL's omni-channel model. According to the management, this model is not only important for increasing e-commerce sales but also for generating traffic to the stores. One of the latest initiatives is the roll-out of digital price tags in XXL's Swedish stores, showing the same low prices in the stores as on the web.

XXL Consolidated Income Statement

(Million NOK, Year Ended Dec. 31)

 

2017

2016

%
Change

NET REVENUES

8,709

7,813

11.5

Cost of Goods

5,265

4,694

12.2

Personnel Expense

1,414

1,240

14.0

Other Operating Expense

1,201

1,055

13.8

Depreciation

159

127

25.2

Net Financial Expense

42

55

-23.6

Pre-tax

628

642

-2.2

Tax

126

126

0.0

NET

502

516

-2.7

NOK/Share (Diluted)

3.57

3.70

-3.5

The gross margin inched down by 0.4 percentage points to 42.0 percent during the quarter, driven by lower gross margins in Finland and the start-up in Austria with lower gross margins. The Norwegian-based company opened five new physical stores in the Nordics and Austria, ending up with a total of 75 locations.

The Ebitda margin dropped slightly from 13.3 percent to 13.1 percent. However, adjusted for the launch in Austria, the Ebitda margin reached 13.9 percent, thanks to higher margins in both Norway and Finland, while Sweden's profitability remained stable.

The revenues from XXL's Norwegian operations advanced by 7.2 percent to NOK 1,290 million (€132.4m-$165.1m), and were up by 5.2 percent on a comparable store basis. Some snow and cold in December had positive effects on Christmas sales, while the Black Friday promotion activities proved a success. The gross margin in Norway was stable at a high level of 45.8 percent, and the Ebitda margin improved by 1.4 percentage points to 25.3 percent, due to lower operating expenses. In the fourth quarter of 2016, XXL established three new stores in Norway, as compared to only one new store in the latest quarter, opened on Oct. 31 in Jessheim.

In Sweden, revenues rose to NOK 700 million (€71.8m-$89.6m), up by 9.0 percent in the local currency, driven by new store openings and higher comparable sales, which gained 1.4 percent in the local currency. On Dec. 5, XXL opened a new store, in Lanna. The management said that the Swedish sporting goods market continued to be volatile and the volumes in the quarter were affected by an overall slow market. However, Black Friday activities in late November and colder weather conditions during December contributed to a better response from the market. The gross margin rose by 2.4 percentage points to 40.2 percent, with the quarter benefiting from a favorable comparison base as December sales in 2016 had been negatively impacted by the lack of cold weather and snow. The Ebitda margin advanced by 1.6 percentage points to 9.9 percent.

The Finnish operation continued to improve, as sales were positively affected by normal seasonal changes and by better selling conditions in the Christmas sales period. Revenues jumped by 30.2 percent to NOK 447 million (€45.9m-$57.2m) in the local currency. On a comparable store basis, they were up by 5.0 percent in the local currency. The growth was further driven by new stores that opened during the year, with two new stores in the quarter, in Kuopio and Pori.

In 2016, XXL introduced many initiatives to improve the overall profitability in the Finnish operation, which had positive effects. The management said it decided to drive the volume and improve the comparable sales growth trend in the latest quarter. As a result, the gross margin decreased by 3.7 percentage points to 39.9 percent, and the Ebitda margin dropped by 1.0 percentage point to 9.4 percent.

In Denmark, sales were up by 40.6 percent in the local currency, reaching a level of NOK 19 million (€1.2m-$1.3m). The gross margin jumped by 7.8 percentage points to 18.7 percent. However, the Ebitda was a negative NOK 3 million (€307,847-$383,880) due to a more aggressive strategy by XXL to gain a higher share of the market, especially in the major campaigns around Black Friday and into the Christmas sales period. As before, XXL is only selling online in the Danish market.

XXL Revenues & EBITDA margins

(Million NOK, Year Ended Dec. 31)

 

2017

2016

%
Change

Norway

Revenues

4,434

4,151

6.8

EBITDA margin

20.3%

20.6%

-0.3 pp

Sweden

Revenues

2,631

2,474

6.3

EBITDA margin

8.3%

10.4%

-2.1 pp

Finland

Revenues

1,494

1,161

28.7

EBITDA margin

7.3%

3.5%

3.8 pp

Denmark

Revenues

52

27

92.6

EBITDA margin

-16.6%

-46.7%

30.1 pp

Austria

Revenues

98

-

-

EBITDA margin

-33.7 %

-

-

TOTAL

Revenues

8,709

7,813

11.5%

EBITDA margin

9.5%

10.5%

-1.0 pp

Finally, in Austria, where the company started operating last August, XXL opened its second store in October, in the Donau Zentrum shopping center outside Vienna. It succeeded in driving sales through marketing campaigns and Black Friday promotions. Revenues amounted to NOK 69 million (€7.1m-$8.8m) for the quarter. E-commerce continued to be a large part of the turnover in the country, accounting for more than 20 percent of sales. The gross margin was 33.6 per cent, while Ebitda was a negative NOK 9 million (€923,543-$1.2m), due to high marketing spending.

The company's results for the full 2017 financial year show revenues up by 12 percent to NOK 8,700 million (€892.7m-$1.1bn). Unfavorable weather conditions in the first half of the year were followed by more normal conditions in second half. The growth in 2017 was driven by new stores and e-commerce, and XXL gained market shares in all markets. Net income stood at NOK 502 million (€51.5m-$64.2m), down by 2.7 percent.

So far, XXL has signed new lease agreements for six stores that will open in 2018: four in Norway, one in Sweden and one in Austria. The aim for 2018 is to open 7 to 10 new stores in total. The management expects overall growth in the mid-single digits for this year on a comparable store basis. Gross margins are projected 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.