Earnings call transcript: Europris ASA faces challenges in Q1 2025

Europris ASA reported a challenging first quarter of 2025, with group sales rising by 45% year-over-year to NOK 2.9 billion, but the company faced a negative EBIT of NOK 37 million and a net loss of SEK 80 million. Despite the sales increase, the market reacted negatively, with shares dropping 3.55% to close at NOK 78.8. According to InvestingPro data, the company maintains a GOOD financial health score of 2.99, though investors remain concerned about strategic uncertainties. Analysts have set a consensus price target range between $43 and $58, suggesting mixed expectations for the stock's future performance.

Key Takeaways

• Group sales increased by 45% compared to the previous year.
• Europris ASA reported a net loss of SEK 80 million, down from a profit of SEK 47 million last year.
• The stock price fell by 3.55% following the earnings release.
• Currency fluctuations and the timing of Easter affected financial results.
• The company is focusing on IT modernization and category upgrades.

Company Performance

Europris ASA experienced significant sales growth in the first quarter, driven by strategic initiatives and operational expansions. While the company struggled with profitability, InvestingPro analysis shows an impressive gross profit margin of 91.41% and a sustainable current ratio of 1.12. The timing of Easter and volatile currency markets were cited as key factors impacting financial performance. The company maintains a notable dividend yield of 7.52%, demonstrating commitment to shareholder returns despite current challenges.

Financial Highlights

• Revenue: NOK 2.9 billion, a 45% increase from the previous year.
• EBIT: Negative NOK 37 million.
• Net profit: Negative SEK 80 million, compared to a positive SEK 47 million last year.
• Cash flow from operations: Negative SEK 544 million.
• Net debt: SEK 5 billion.

Executive Commentary

Espen Eldal, CEO of Europris ASA, emphasized the company's commitment to maintaining a low-price strategy while enhancing customer value. "Selling everyday products that everyone needs at low prices is a good place to be in the current environment," Eldal stated. He also highlighted the importance of offering value beyond low prices to attract consumers.

Risks and Challenges

• Currency Fluctuations: Ongoing volatility in currency markets could continue to impact financial results.
• Geopolitical Uncertainty: International trade conditions and potential U.S. tariffs on Chinese imports pose risks.
• Consumer Traffic: Reduced customer traffic in the Swedish market presents a challenge.
• Inventory Management: While no significant issues were reported, inventory management remains critical.
• Market Competition: The competitive landscape in the grocery sector requires strategic positioning.

Europris ASA remains focused on its turnaround strategy, particularly in the Urbijn market, and is preparing for the upcoming spring and summer seasons with continued category modernization and system integration.

Full transcript - Europris ASA (EPR) Q1 2025:

Espen Eldal, CEO/Presenter, Auerupi: Good morning, and welcome to Auerupi's presentation of the first quarter results. I'm Espen Eldal, and joining me on stage today is Stina Bires, our CFO, who will present the financial details and the IR Officer, Trina Englecken, will manage the Q and A at the end of the presentation. I know it's a busy day in the markets. It's a lot going on, and we will, of course, try to complete this presentation in due time before the market opens, so you have time to fully focus on that as well. The first quarter has always been a challenge to report in the retail sector due to the timing of Easter.

And this year is no exception from that. In 2025, we have a very late Easter. Historically, that is very positive for sales, but it also then means it has a huge impact on comparable figures to last year. In addition to that, we have added some more complexity this year. With the acquisition of ERB from May, we have increased sales and of course also impacts on all key ratios significantly and that is not fully comparable until the third quarter reporting.

On top of that, we have a very volatile market that impacts Aeropeace as well, and we have seen large fluctuations in the currency market recently. All these effects are, of course, well explained in the report and in the presentation. But before we dive into the details and the complexity, I will try to give you like a two minute elevated pitch on the quarter. The overall headline for the group is increased sales and lower EBIT. That is, of course, not the headline you want.

But there are some valid reasons for that. Starting with the market volatility. The currency market has been extremely volatile over the last couple of weeks, and that has impacted the unrealized losses we have on currency hedging. That led to a loss of NOK34 million in the first quarter compared to a profit of NOK19 million last year. And thus, that explains NOK53 million of the change in EBIT compared year over year to last year.

In Norway, we see continued very good performance in the market. We have a sales growth of 1.2%. And when we adjust for the late Easter, the underlying growth is 5% to six percent, which is strong in the retail market. Also adjusting for the unrealized currency effects, we see the continued improved gross margin, just like we saw in the fourth quarter. So the good performance we had at the end of last year has continued into 2025 for Norway, and that is very satisfying to see, increasing sales at better gross margins.

The segment Sweden is impacted by the late Easter and the currency effects just like Norway, but that does not fully explain the deviations in sales and profits compared to last year. ERBEA is in the turnaround process. And this quarter, we have focused on finalizing and completing the clearance sales in order to prepare for the full first full modernizations of categories with new product ranges that will be completed now in the second quarter. We have also taken on some integration costs and also costs in relation to the implementation of a new ERP system in Sweden. Customer traffic is still low, and we need to improve the customer experience in Sweden in order to drive more traffic.

And that will come, and those investments we are making right now will pay off later on. So with that introduction, I will jump into the details. Group sales was NOK 2,900,000,000.0, an increase of 45% from last year, and EBIT ended at minus 30 7 million. Stina will dive more into the details later on and explain both the segments and the group figures. I will pay some attention to the currency fluctuations we have seen in the market over the past weeks.

That has been in historic terms, it has been very significant. And of course, when we have a six month currency hedging strategy, we have a lot of forward contracts where we buy dollars and also euros on on contracts. And when the currency then when the NOK and the SEK appreciates compared to dollar and euros, we get initially a loss on these contracts. But long term, it's positive to have a stronger NOK for the cost of goods sold for our RUPEs. But it will take time to realize as we have the six month hedging strategy, and we also need to do the inventory turn over.

But the volatility in the market explains itself. If you had closed the books today, the results would have been quite different from what we saw when we closed the book at the March. So we would just adapt and follow these markets changes quite intense. Segment Norway, I talked about that. That has a very positive trend.

We see increased footfall and late Easter this year has an impact on the sales. And also, it was a leap year last year, so we have one less calendar day in the first quarter. We have opened three new stores, all at central locations, one in Kristiansand and two in the Greater Oslo area. And this is part of the strategy we have for new stores to establish more stores in the large cities, and we are seeing very good results from these new store openings. And actually, right now, at nine today, we are opening another new store in Larvik.

So we are progressing good with expanding the footprint of Adropis in Norway. We also closed one of the three stores we had in for commercial reasons. This quarter, we have upgraded the Home and Interior category, which is still very important for us. That is a high margin category and also a category that drives more seasonal sales. So it's important for us to be successful in that.

We have had a very good start. And we're also leveraging on social media trends and have sold Dubai chocolate at the lowest price in the market and also at the highest volume. So we are also trending on TikTok these days. IT platforms might sound a little bit boring, but when we presented that to the Capital Market Update back in 2022, we said that we should fully modernize the IT platform of Avelo please. And that journey has now actually been completed.

Over the past couple of years, we have introduced a new data platform with a business intelligence system. We have implemented a new ERP system in Norway, and we have also introduced a new point of sale system for all the stores. And that is tremendous job that has been done. It has been completed on time and on budget and without any disruption to the business. And now in the first quarter, we have also implemented a new ERP system in Sweden.

That is the same system as we have in Norway, but it's cloud based. And that's impressive effort to have completed that on time and budget by the organization in Sweden. Of course, with support from Norway, but it's a great job to complete that shift in just a year. And the next in line is supply chain. And of course, a modern IT platform and harmonized systems across the borders will support giving us more efficient operation of the group and working as one entity in the future.

That has, of course, also enabled us to report early. We are early out with reporting, just a little bit more than a week into the new quarter. And we have been able to do that because we have harmonized the systems across the two countries. Moving to Sweden. Urbe integration is progressing according to plan.

It is a turnaround process, and it will take time as expected. And as I said in my introduction, we have focused on clearance sales now in the first quarter, and that is very important that we are improving the quality of the inventory, clearing out all the old goods, so we are prepared to take on new upgraded product range in the categories we are implementing now in the second quarter. But sales has cannibalized on the normal sales and then also given us a lower gross margin in the period. In the second quarter, we will upgrade the Kitchen category, the Home and interior category, just like we've done in Norway recently and the DIY category. And there, we will introduce the exact same assortment and product range as we have in the Avelo Piri store.

So these are actually the first full tests of category modernizations in Urbijn. More category upgrades will follow in the second quarter and into 2026. And the first full store remodeling will be completed before summer, and we will follow-up with some more test stores during the autumn. And all these changes are expected to gradually improve sales and profits in Urbijn. We maintain our high ambitions for Eaubert.

We should grow the revenues to SEK 5,000,000,000 with a 5% EBIT margin in 2028, and that will be achieved through harmonizing the categories and doing joint sourcing, and that work is well on schedule and really progressing as planned. Improving the customer experience, I think that is actually the most important thing. We need to regain some of the lost customers over time and get new customer traffic into the stores, and that cannot be done before we are actually improving the customer experience. So remodeling the stores will be extremely important to get this effect of new customers coming in. And of course, we will strengthen the execution across the value chain.

And in there, we talk about the IT projects we're doing and harmonizing the work we're doing on campaigns and so on. With that, I will leave the stage to Stina to give you the financial details.

Stina Bires, CFO, Auerupi: Thank you, Espen. I will not spend too much time commenting on the group figures as they do not meaningfully compare to last year since Urbe was not included before May. I would like to emphasize that when we are commenting on organic change, we have adjusted for the acquisition of ERB. And as organic figures matches those of segment Norway, I will come back to this when I cover the development for that segment. Group sales were adversely impacted by a later Easter this year and also for one less calendar day as 2024 was a leap year.

The gross margin was negatively impacted by unrealized currency effects, where the group recorded an unrealized loss of $34,000,000 this year compared to an unrealized gain of $19,000,000 last year. The group reported an EBIT loss of $37,000,000 and the main explanations were the inclusion of Eurobe and the mentioned unrealized currency effects. Net profit to parent was negative with SEK80 million compared to a positive net profit of SEK47 million last year. Due to normal seasonal fluctuations, cash flow from operations is negative in the first quarter. It was, however, more negative this year at SEK544 million in minus.

This was due to higher net working capital following a planned inventory buildup in order to improve the service levels in the stores and also higher seasonal inventories. I would like to underline that the inventory is healthy and that the group will soon have finalized the clearance of obsolete stock in Sweden. Higher net working capital has been financed through increased use of credit facilities and the net change in cash of minus SEK457 million was slightly less negative than last year. Net debt was SEK 5,000,000,000 or SEK 1,500,000,000.0 excluding lease liabilities and cash and liquidity reserves were SEK 1,400,000,000.0. Sales for segment Norway were SEK 2,100,000,000.0, up 1.2%.

The gross margin was 42.9%, down 0.4 percentage points, but up 1.7 percentage points if we adjust for the mentioned unrealized currency effects. The OpEx to sales ratio increased to 30.5%, but adjusted for a later Easter, it would have been more in line with last year and the OpEx is under control. EBIT was $78,000,000 down $29,000,000 but would have shown an increase of $14,000,000 if we exclude the unrealized currency effects. Sales for the Avroplis chain were marginally lower than last year, but it was pleasing to see higher footfall despite the timing of Easter and one less calendar day. Sales for the pure play companies were $145,000,000 on a par with last year, but up 3.2% if we adjust for the divestment

Lejkikasen had sales growth in Norway and Stirkemeka had sales growth in its international markets. Sales in Eurobea were SEK0.9 billion. The gross margin was 29.8%, negatively impacted by a $10,000,000 unrealized currency loss and also clearance sales that cannibalized on other sales. The clearance sale is an important part of preparing for the category upgrades and to improve the health of the inventory, and it will be finalized during the second quarter. URB recorded an EBIT loss of SEK115 million.

The ERP project is expensed as OpEx and not capitalized as this is a cloud based system, and this impacted with SEK8 million in the first quarter. And if we compare the performance in to last year prior to our ownership period, some of the sales decline is explained by a later Easter and one less calendar day, but also footfall was down. It will take some time before new customer segments are expected to find their way back to the stores and the group's main priority is delivering on the integration plan. Higher OpEx was also impacted by wage growth, vacant positions last year and costs related to the integration plan. In summary, this explained the weaker results compared to last year.

And with that, I will hand it back to Espen to go through the outlook.

Espen Eldal, CEO/Presenter, Auerupi: Thank you, Stina. It's time to summarize and also look at our perspective for the future. Of course, the market is extremely volatile these days, and the geopolitical climate for international trade and cooperation is really in uncharted territory, and the group monitors this situation closely. We entered this year with a very positive consumer outlook that we have seen higher real wages in 2024, expected the same for 2025. I think that is still the case.

We have seen lower interest rates in Sweden, but the expected cuts in Norway has been postponed. So it's a little bit more uncertain than it was some months ago, But I think that we are well positioned in this prevailing macroeconomic conditions. And of course, selling everyday products that everyone needs at low prices is a good place to be in in the current environment. We are well positioned for the spring and summer season that is coming up. And of course, we already see that the spring has arrived early this year, which is positive for sales.

The turnaround progress for ERBEA is going as planned, and we remain confident that we will be able to grow sales to 5,000,000,000 and also achieve the 5% EBIT margin by 2028. And with that, I will invite Stina back on stage, and we will open up for questions. So Thine, we will start with questions in the room before we go to the web.

Filipe Hercke, Analyst, Pareto: Filipe Hercke, Pareto here. Just one question on ERB. Could you give some color on the footfall effects from the clearance sales you are now doing in Hoegh Bear? Any positive effects, negative effects? How how is consumers reacting to those?

Espen Eldal, CEO/Presenter, Auerupi: I don't think that the clearance sales had had an impact on the on the footfall actually. So so what we are seeing is that, Urbbe, we are slightly moving the the the product mix towards more nonfood, and and we see that it has been a very strong concept for groceries. And in that shift, we need to balance this performance between groceries and nonfood maybe a little bit more carefully. So we've seen that when we're doing this shift towards nonfood, we are not the destination for nonfood yet. We will be there, but it will take some time.

Filipe Hercke, Analyst, Pareto: Okay. And if it's okay, I'll just take another one as well. You highlighted a bit mild winter here in Norway and negatively affecting sales of winter products and positively affecting sales of spring products. You touched upon it. Are there any negative effects from, call it, from an inventory perspective with softer winter sales during this Q1?

And do we should we see any clearance sales in Norway?

Espen Eldal, CEO/Presenter, Auerupi: No, you should not see that. We actually have a quite good inventory, and the inventory increase we have seen is actually on more basic goods and essentials. So we are actually not worried about the inventory levels.

Filipe Hercke, Analyst, Pareto: Okay. And one last one. Can you just give the private label share in the quarter?

Espen Eldal, CEO/Presenter, Auerupi: This is Tina's domain.

Stina Bires, CFO, Auerupi: Yes. It's not very different from last year. It's 0.4 percentage point difference. So it's where it has been Okay.

Filipe Hercke, Analyst, Pareto: Thank you.

Trina Englecken, IR Officer, Auerupi: Then we start with the questions from the web. The first one is Ole Martin Wesskol, DNB. What was the like for like growth in Sweden?

Stina Bires, CFO, Auerupi: It's in Sweden, if we compare insect to last year, the sales development was negative with 7.3%.

Trina Englecken, IR Officer, Auerupi: And what was the development in prices and volumes in Norway?

Stina Bires, CFO, Auerupi: Well, footfall was up and the basket was slightly down, but all the numbers are also impacted by a later Easter. So I think all of these questions will be even more relevant when we cover the second quarter reporting.

Trina Englecken, IR Officer, Auerupi: And what was the private label? It has been answered. And the grocery share in Norway in the quarter? And do you have the corresponding figures for Sweden?

Stina Bires, CFO, Auerupi: Again, think we'll come back to that in the second quarter presentation because the Easter has a significant impact on the numbers. But we have had higher sales growth for the nonfood and compared to consumables, and this will then change again when we have finalized the Easter.

Trina Englecken, IR Officer, Auerupi: You mentioned in Q4 that you saw increased competition from grocery in December. How did this develop in Q1?

Espen Eldal, CEO/Presenter, Auerupi: Actually, it has not increased. We still see that, especially for Easter products these days, we see that it's more competitive on chocolate and candy products for the seasons. So that is the same as what we saw in the fourth quarter. But besides haven't seen any increase in competition from groceries. The market is basically the same.

Trina Englecken, IR Officer, Auerupi: Status on the freight agreement renewal?

Espen Eldal, CEO/Presenter, Auerupi: We have renewed a contract for this year. We have competitive rates. We are not going to disclose the rates, but we have completed a good negotiation and know that we have rates that are very favorable in the market.

Trina Englecken, IR Officer, Auerupi: And the last one from Ole Martin. How much has the total ERP investment in Sweden been so far?

Stina Bires, CFO, Auerupi: 27,000,000.

Trina Englecken, IR Officer, Auerupi: The next question is from Hakon Nelson, Kepler Cheuvreux. Around 30% of your goods are sourced from China, often priced in U. S. Dollar. In light of the new U.

S. Tariffs on Chinese imports, which could broadly impact Chinese exporters, do you see this potentially increasing everybody's bargain power with Chinese suppliers, particularly in terms of pricing and terms?

Espen Eldal, CEO/Presenter, Auerupi: I think it's too early to really be firm on that. But theoretically, yes, it should open up for new possibilities for other piece. But of course, it's also difficult when you are buying for someone that is making losses. So it is a delicate situation, and I think we need to just monitor this closely and follow the market.

Trina Englecken, IR Officer, Auerupi: And then Hock on Fuglue, SEB. Are you seeing any changes in consumer behavior? And how will this develop in 2025?

Espen Eldal, CEO/Presenter, Auerupi: We have actually not seen any big change in the consumer behavior. I think we saw that at least the retail statistics confirmed that the fourth quarter in Norway was strong. We've seen the same from the figures we have from SSB in January and February this year. And also the shopping center statistics confirms that the retail sales has been good. So I think it's actually consumer spending has been high in Norway and actually increasing from last year.

Trina Englecken, IR Officer, Auerupi: And how do you expect Easter sales to develop in Q2 given the early spring?

Espen Eldal, CEO/Presenter, Auerupi: I think it will be fantastic. It's always blessing to have a late Easter. And when you get the nice weather as well, you get a boost start to the spring season during that period.

Trina Englecken, IR Officer, Auerupi: Next one is Petter Nistrom ABG. Despite clearance sales in URB, sales were down over 7% year on year in Q1. Are you surprised that sales declined 7%? Or is this largely in line with your expectations?

Espen Eldal, CEO/Presenter, Auerupi: I think that's a very good question. We are not that familiar with how the Easter effect applies to Sweden. But overall, as we've said, the Easter effect is not fully explaining the variation we have in sales. So we have seen a lower traffic. And I think that the concept over time has, you know, lost its power in the market to attract customers.

So we we need to improve the customer experience, rebuild remodeling the stores, improving the categories, and build a new platform. You It's not enough just to have low prices these days. Price is not enough. You need to offer the customers some value as well, and that is what we're trying to build into the concept, and we are sure that that will bring the customers back. But the customer loss in traffic has been higher than what we assumed when we started the process, but it's not critical.

Trina Englecken, IR Officer, Auerupi: On the gross margin for Norway, you say the product mix contributed positively to the margin development. Is this something we should expect will continue?

Stina Bires, CFO, Auerupi: That's also a bit impacted by the timing of Easter and a higher share of nonfood. So let's come back to that one as well.

Trina Englecken, IR Officer, Auerupi: Henriette Tronsson from Arctic. Could you give an estimate of the underlying gross margin in ERB if it had not been for the clearance sales? Also, will the clearance sales impact Q2 as well to about the same degree?

Stina Bires, CFO, Auerupi: Well, it's a bit hard because what it seems like is that people have the basket has remained rather stable, so they have kind of just swapped the products. So I won't go into more details than that. But I do think that we will have a lower impact in the second quarter as we have now done this for a couple of quarters and have a lower remaining inventory of obsolete stock.

Trina Englecken, IR Officer, Auerupi: That was the last question from the web. Any more from the audience?

Espen Eldal, CEO/Presenter, Auerupi: Thank you.

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