Earnings call transcript: Nelly Group Q1 2025 shows strong growth

Nelly Group AB reported significant growth in its first-quarter earnings for 2025, with an 11.5% increase in net revenue and a substantial rise in operating profit. The company’s stock rose by 4.79% following the earnings announcement, reflecting investor confidence in the company’s performance and strategic direction. According to InvestingPro data, the stock has delivered an impressive 160.9% return over the past year, though current technical indicators suggest the stock is in overbought territory.

Key Takeaways

• Nelly Group achieved an 11.5% increase in net revenue.
• Operating profit surged to NOK 19.9 million from NOK 1.4 million last year.
• The company has maintained eight consecutive profitable quarters.
• Stock price increased by 4.79% in pre-market trading.

Company Performance

Nelly Group’s performance in Q1 2025 was marked by robust financial growth, driven by an increase in net revenue and improved operating margins. The company has successfully maintained profitability for eight consecutive quarters, showcasing its resilience in a competitive market. The strategic focus on expanding its brand portfolio and improving operational efficiency has contributed to its strong performance.

Financial Highlights

• Net Revenue: NOK 247.8 million, up 11.5% year-over-year.
• Operating Profit: NOK 19.9 million, significantly higher than NOK 1.4 million last year.
• Operating Margin: 8%, a substantial increase from 0.6%.
• Gross Margin: 51.6%, up from 49.1%.
• Cash and Cash Equivalents: $172.6 million.

Market Reaction

Following the earnings release, Nelly Group’s stock rose by 4.79% to a price of 38.35, indicating positive investor sentiment. The stock’s movement places it closer to its 52-week high of 41, reflecting confidence in the company’s strategic initiatives and financial health. InvestingPro analysis reveals the stock has gained over 40% in the last six months, with 8 additional exclusive ProTips available to subscribers, offering deeper insights into the company’s momentum and valuation metrics.

Outlook & Guidance

Looking forward, Nelly Group aims to enhance customer experience, increase conversion rates, and potentially expand its physical store presence beyond Stockholm. The company plans to complete IT system changes and focus on increasing basket size, which is expected to drive future growth.

Executive Commentary

CEO Helena Karlander Ostland emphasized the importance of customer experience, stating, "The only way really to growth is to offer a great customer experience." She also highlighted the strategic mix of Nelly’s own brands with external brands as a key to success. CFO Nicholas Lindblom noted, "We continue to increase operating profit and operating margin per rolling twelve months," underscoring the company’s consistent financial improvement.

Risks and Challenges

• Supply chain disruptions could impact inventory levels and delivery times.
• Market saturation in key categories may limit growth potential.
• Macroeconomic pressures, such as currency fluctuations, could affect profitability.
• Increased competition from other fashion retailers could challenge market share.
• Dependence on successful brand launches and customer retention strategies to sustain growth.

The positive earnings report and strategic initiatives suggest a promising future for Nelly Group, as it continues to strengthen its market position and enhance its brand offerings. For comprehensive analysis and detailed insights, investors can access the full Pro Research Report, available exclusively on InvestingPro, which provides in-depth analysis of Nelly Group’s financial health, market position, and growth prospects.

Full transcript - Nelly Group AB (NELLY) Q1 2025:

Moderator, Nelly Group: Welcome to Nelly Group First Quarter Report 2025. Today I am pleased to present CEO Helena Karlander Ostland and CFO Nicholas Lindblom. After the presentation, there will be a question and answer session. Participants are able to ask questions in written form on the audiocast page. Now I will hand over to Helena Kalinder Ostland.

Please go ahead.

Helena Karlander Ostland, CEO, Nelly Group: Thank you very much, and welcome to the quarter one presentation for Nelly Group. My name is Heliana Kalindr Ostlund, and I am the CEO of Nelly Group. And as usual, I will be hosting today’s call together with Niklas Lindblum, our CFO for Nelly Group. Today’s presentation will be divided into four parts. We will start with a short video introducing the Nelly business.

I will then provide some commentary on the first quarter. I will then hand over to Niklas, who will provide us with a financial summary. And at the end of the call, we will once again be answering some of your questions. Now let me remind you that you can, of course, send us questions throughout the entire presentation. However, we would like to ask you, if possible, to send them to us as early as possible.

It just gives us the opportunity to answer more of your questions if we receive them during the the the earlier part of the presentation. So if it all possible, please do send them to us as soon as you can. Okay. So let’s go ahead and start with a short video introducing the Nelly business. Okay.

Let’s move on to take a closer look at the first quarter of twenty twenty five. So as we close the first quarter of twenty twenty five, we can conclude that we delivered a strong first quarter this year, and I will be going into a little bit more detail around the underlying KPIs in just a moment. And I will also then provide some comments just on the rest of the year some of the initiatives we will be focusing on, which will of course be designed to to to to continue to drive growth and also continue to improve efficiency. So I will give you a little bit more of an insight into that as well. But first, let’s start by looking at more closely at the first quarter.

So historically, the first quarter has always been the most challenging quarter for Nelly. We, of course, have the natural post Christmas slump that happens. And also, tend to drive more sales through discounts in in the early part of the quarter during January when we have our end of season sale, which typically impacts our margins. And just naturally, during the first quarter, our customers tend to have fewer natural reasons to shop for fashion. So all these things taken together historically have meant that the first quarter typically has been the most challenging for us.

It is pleasing therefore that during the first quarter of twenty twenty five, we delivered net revenue growth of 11.5% and net revenue landed on NOK 247,800,000.0. We achieved an operating margin of 8%, which can be compared to the same quarter last year where the operating margin was 0.6, so a significant improvement on last year. And this resulted in an operating profit of 19,900,000.0. So a strong first quarter and with this now, we actually have generated eight profitable quarters in a row and four with net revenue growth. So a pleasing result.

Now let’s look at some of the underlying KPIs for this performance during the first quarter. Let’s start with gross margin. So we saw a continued gross margin improvement year on year. If we make the comparison, we landed on 51.6% this year as compared to 49.1 last year. So this year on year improvement is driven by several factors.

Firstly, we continue to see a very positive trend in our own brand share, and I will go into a little bit more detail on that in just a moment. And also, we saw during the first quarter this year that actually the stronger assortments that we now have led to both higher sell through and lower returns, and that in turn meant that we had to clear less stock through our outlet than historically was the case. And for the same reason, we also saw that we actually were able to have a better offer during our end of sales, end of season sale. So a stronger assortment even in the end of season sale meant that we could work with more differentiated discounts across the offering and also actually drive our end of season sale alongside releasing a number of very strong new products during the period. So taken together, this meant that we generated a stronger gross margin this year, which is, of course, very positive.

And as I mentioned just now, we have continued to see our own brand share increase. And during the first quarter, our own brand share was 50.1% as compared to 39.9% last year. So really a very strong performance in our own brand assortment. And we saw that we really have established a very strong position in several categories. Some of the ones worth mentioning, I would say jeans, tops, and also blouses, we have seen a very positive response from our customers to our Nelly brand assortment.

Of course, our physical flagship store in Stockholm is also an important forum for us to showcase our Nelly brand assortment. And here, nearly 85% of the sales during the first quarter came from our own brands. One important factor that’s also worth highlighting here is that we achieved the overall results in part because we actually managed to improve availability on top sellers during the first quarter. So this year, we managed to secure stock debts by front loading deliveries early on in the season. We saw during the first quarter twenty twenty four that we actually were out of stock on a number of our best sellers for for periods of time, and we really took that as a learning and and changed the way we we structured our deliveries this year to make sure we could improve availability.

So that’s also a an important contributing factor to to the overall results in the first quarter. Now moving on to our return rates. Here, we also continue to see a very positive development, and the return rate for the first quarter landed on 24.8% as compared to 33.4% last year. And this once again really is testament to our strong assortment. We we have been working, as you know, for for some time on our assortment, and we really now see that customers love the products they buy and want to keep them, which is very positive.

And also, in addition to the strong assortment, it is the result of our continued implementation of a truly cross functional strategy. So this return rate strategy touches everything from our category mix, the design choices we make, the choice of fabric we decide to work with, what information we provide to our customers, as well as a number of other operational processes and also, of course, IT systems enablement. So it truly is a cross functional strategy that has resulted in this very low return rates. Also, we saw during the first quarter that our physical store positively impacted our return rates. There, we we have a return rate below 10%.

So, of course, as the store grows in sales, it has a bigger impact on the overall return rate as well. So once again, several several key levers that have enabled us to to really get rid of a lot of the unnecessary returns as we say and result in this in this strong return rates. So in addition to the very strong assortment that has generated many positive results, we also saw that we really managed to drive very efficient and effective marketing during the first quarter. Marketing costs as a proportion of net revenue rose slightly to 9.9% as compared to 9.6% in the same quarter last year. However, we did make very good use of this additional cost.

So total traffic grew by 13.4%, and we also saw that the number of orders increased versus last year. So we we managed to to make good use of that extra traffic. We also saw a positive development in new customer recruitment. And for the second quarter in a row, we saw that the number of active customers on a rolling twelve months basis grew. So we really see a very healthy development in our customer base.

Now the marketing activity that we drove during the first quarter was, of course, as usual, both organic and paid, and we saw positive signs on on on both both parts. In terms of our organic traffic, we actually saw a higher share of organic search being attributable to Nelly and also very positive results in our social channels, and in particular TikTok, which we have been focusing on very intensively now for some time to really grow our both our customer sorry, following and our reach. And in terms of paid paid marketing, we once again saw that profitability per order grew. So again, making very good use of that extra marketing spend. So going forward, there are two important focus areas that we will really be working on.

That is to both increase conversion and basket size. So during the first quarter, we saw that with this very healthy increase in traffic, we managed to to maintain more or less the same level of conversion. But, of course, we want to continue to improve the customer experience to to increase conversion. It that’s an important goal for us going forward. And also, while we see that the the slightly smaller basket size that we’ve seen now for some time is it is really a sign of of a healthy customer behavior as it means that our customers are very carefully considering every purchase.

But, of course, going forward, we we want to also make sure that we help our customers match, for example, a top to the the pants that they’re buying and thereby increasing the basket size. So going forward, we will be continuing to work on increasing both conversion and basket size. Now the last area that I would like to comment on in a bit more detail for the first quarter of twenty twenty five is our warehousing and distribution cost. So as a proportion of net revenue, our warehousing and distribution cost decreased versus last year to 12.2% for this quarter as compared to 14.6 last year. And this again is the result of various initiatives that we have driven.

In terms of the warehousing cost, we continue to drive various improvement initiatives there to constantly improve efficiency, which has really generated very positive results. And in terms of our distribution cost, we have been working for some time now on optimizing both our distribution network and also on actually optimizing the freight options and how we display those to customers. So again, both of those elements have have resulted in this improvement in warehousing and distribution cost. And of course, last but not least, the lower return volumes that we are seeing are also positively contributing to to the cost base in this area. So of course, the fact that we have managed to maintain or manage our costs very carefully in this space is extra beneficial as we see net revenue growth.

So if we turn our attention a little bit forward now from having looked at the first quarter, for the remainder of the year, we have a number of initiatives that we really want to drive to continue to evolve the business in a positive direction. And we really see that there is much more opportunity for us to elevate the customer experience going forward. So firstly, we will, of course, continue to work with our Nelly brands. We’ve seen as as as we were just looking at a very positive development in our customers’ response to our own Nelly brands, and we see much more potential there also in some some of the categories I didn’t mention before. So lots more more potential we see there.

Also, we launched a number of strong global brands during the first quarter of twenty twenty five. Some noteworthy ones are Puma, Shoal and One Teaspoon. And here we are working very intensively on strengthening and refining the whole external brand portfolio. So going forward for the rest of 2025 and of course beyond, we will continue to look at new brand launches and collaborations with various brands we know that our customers love. So really maintaining that magic mix we have of our own strong Nelly brands together with external brands that we know our customers really love.

Also, one area we will continue to work on for the for for for the coming periods is our physical flagship store in Stockholm. We see that really it has gone from strength to strength, and it performed very well during the first quarter, which really confirms that there is lots of demand in our target audience for engaging with us and our assortments in a physical setting and also enjoying the events that we’ve been been running there. So we see more potential going forward in refining and evolving our physical store concept further as an important complement to our ecommerce business. Now alongside these directly customer facing initiatives, there are also two areas that we will continue to work on intensively during the coming periods this year. The first one is that we are actually going to move the handling of our returns from a third party provider abroad that we’ve been using to our own warehouse in Buros.

And this really is for two main reasons. It will give us improved control over our returns handling, which is also part of our cross functional returns return rate strategy. And also, secondly, it will help us really work on lead times and improving lead times. And this is especially important for highly seasonal products. So for those, we typically have a shorter window to to sell them, and hence, we want to get them back up on our digital shelves as quickly as we possibly can.

So in both of these areas, moving our returns handling to our own warehouse will really help. And the second area that will also be an important focus for us for much of of the rest of 2025 is completing the the the remaining IT systems changes that we have previously communicated as part of a a broader IT systems strategy that we have been implementing really throughout 2024 and and into 2025. So lots more exciting work to do there. So to summarize, we have delivered a strong first quarter with both improved net revenue growth and improved profitability. We are seeing positive developments in both new customer recruitment and the number of active customers, which is really key for us going forward.

And we have further initiatives planned for the remainder of 2025, which will continue to evolve the business in a positive direction, which is, of course, very exciting. Okay. So with that, I will hand over to Nicolas, who will provide us with a financial summary. Thank you, Helena. So let’s have a

Nicholas Lindblom, CFO, Nelly Group: closer look at the financials for the quarter. Net revenue in the quarter amounted to $247,800,000 compared to $222,200,000 last year, showing a strong growth of 11.5% in the quarter. Main driver for net revenue growth were a continued improvement in return rate, which decreased to 24.8% from 33.4%, but also a positive contribution from our flagship store. Currency effects affected the growth rate slightly negative and net revenue in local currencies grew by 12.4%. Looking at seasonality trends, we may also mention that the first quarter is generally a bit weaker than the second and fourth quarter as demonstrated in the graph.

Commenting on total number of orders in The Nordics, they increased by 8.1%, but at the same time, we saw a decrease in average order value of 7.2%. This was driven by both lower average item value and lower average ordered items. Moving on to the next slide. Operating profits in the first quarter amounted to $19,900,000 compared to $1,400,000 last year. Operating margin increased to 8% compared to 0.6% last year.

The stronger operating profit was driven by the improved gross profit, lower warehousing and distribution costs, which were driven by operational improvements, optimization of distribution and improved return rate. Lower administration and other operating expenses also contributed to the improved operating profit. And as such, we see a solid improvement in both operating profit and operating margin in the first quarter and conclude a consistent financial performance over the past eight quarters. And if we move to the next slide, looking at the last twelve months, operating profit amounted to hundred and $11,600,000 with an operating margin of 10%. And as demonstrated, we continue to increase operating profit and operating margin per rolling twelve months, showing a sustained positive trend.

And now let’s take a quick look at the income statement on the next slide. As mentioned earlier, net revenue amounted to CHF247.8 million compared to CHF222.2 million. Gross profit amounted to CHF127.8 million compared to 109,100,000 with a gross margin of 51.6% compared to 49.1% last year. Warehousing and distribution costs amounted to $30,300,000 compared to 32,400,000.0 improving both in absolute terms as well as relative to net revenue, with the ratio improved to 12.2% from 14.6% last year. This was mainly driven by operational improvements, optimization of distribution and improved return rate as mentioned.

Marketing costs amounted to €24,400,000 compared to 21,300,000.0 with costs mainly related to paid advertising. Marketing costs relative to net revenue increased to 9.9% from 9.6% last year. Administration and other operating expenses amounted to $53,100,000 compared to $54,100,000 improvement here mainly explained by lower personnel expenses and consultancy costs. And as a share of net revenue, administration and other operating expenses amounted to 21.4% compared to 24.3% last year. And so we conclude the quarter with an operating profit of 19,900,000.0, up from CHF 1,400,000.0 last year with an operating margin of 8% compared to 0.6%.

Lastly, let’s have a look at some additional financials on the next slide. Overall, a healthy balance sheet where we improved our equity ratio to 29.9% compared to 22.1% last year. Cash and cash equivalents amounted to $172,600,000 for the 03/31/2025. Operating cash flow amounted to negative 13,000,000 compared to negative SEK 4,600,000.0 last year. The lower cash flow from operating activities for the quarter were primarily attributable to a higher buildup of inventory ahead of the second quarter, partly offset by the improved operating profits.

And as shown by the graph, the first quarter is generally weaker quarter in terms of operating cash flow, we might mention. Cash flow from investing activities amounted to negative NOK 3,500,000.0 compared to negative NOK 9,600,000.0 last year. This was primarily attributable to continued IT investments. And looking at net cash flow, amounted to negative SEK 24,200,000.0 compared to negative SEK 25,200,000.0 last year. So even though the first quarter generally is a bit weaker in terms of cash flow due to inventory buildup ahead of Q2, we conclude a very strong first quarter, both with good net revenue growth of 11.5% and a solid operating margin of 8%.

And with those final comments, I’d like to hand it back to you, Helena.

Helena Karlander Ostland, CEO, Nelly Group: Thank you very much, Nicolas. This concludes today’s presentation, and we will shortly move on to answer your questions. But before we do so, I would just like to take this opportunity once again to really express my deepest gratitude to firstly all of our customers, new and loyal, those who’ve been with Nelly for a long time, but also, of course, a big thank you to the entire Nelly team. It is really such a joy to work alongside colleagues who genuinely love and are passionate about our customers. So thank you to the Nelly team as well.

Okay. Then let’s move on to the final part of today’s call and answer your questions.

Q&A Moderator, Nelly Group: Yes. Thank you all for joining our presentation this morning. Let’s start with a question from Alvin. Can you explain what is expected to reverse the negative trend in gross revenue, Helena? Yes, absolutely.

So as I also talked about in the presentation, we have some elements that are really very sort of promising and and and positive for us. So as I mentioned, we have seen a a great development in new customer recruitment and also our our

Helena Karlander Ostland, CEO, Nelly Group: number of active customers on a rolling twelve months basis increased for the second row. Very important prerequisite for growth, of course, that we have a positive trend in our customer base and also are able to to generate higher traffic. So, you know, I think that the pre prerequisites are there. But as we also talked about, you know, of course, we we we want to continue to improve and elevate the customer experience, which will help us improve and increase the the conversion rates to make sure that not only are we sort of getting more traffic, but we’re also converting more of more of that traffic into sales. And also, basket size is is important for us.

So we we know that our customer doesn’t make all her purchases with us at the moment. And and so we want to get a bigger share of of her purchases, thereby increasing basket size. So, yeah, I think some some very positive prerequisites already in place, more work to do. And, yeah, I mean, the only way really to to to to growth is to offer a great customer experience.

Q&A Moderator, Nelly Group: Thank you, Helena. We are moving

Helena Karlander Ostland, CEO, Nelly Group: So, yeah, so so that’s that’s all I can say, really, that

Q&A Moderator, Nelly Group: we will continue to work on it. Thank you. We also received a question from Albin regarding what effects we expect from moving the return handling to Buros.

Helena Karlander Ostland, CEO, Nelly Group: Yep. Again, we we talked about this a little bit in the presentation as well. So there are really two important elements here. One is that, you know, we we do understand our returns well already. But, of course, if you handle your returns yourself, that enables you to have even more insights and more control.

So that’s an important reason why we’re doing this. We really want to understand and manage this this process or flow end to end. And secondly, we do have, you know, a number of categories that are more seasonal, where we have a shorter period of time to to to sell our stock before it becomes less relevant, basically, to the customer because of seasonality. So being able to actively work on lead times and optimize those lead times for for the returns we do get is very important. So, yeah, I think it just overall was it will give us more insight and control, which is always a good thing.

Q&A Moderator, Nelly Group: Thank you, Helena. Alright. We are moving on to the next question, and I turn to you, Nicholas, for this one. Inventory levels as a share of sales increases from 16.6% to 18.1%. Could you comment on current inventory levels and if you see an increased inventory risk?

Nicholas Lindblom, CFO, Nelly Group: Yes. Thank you, Anna. So, yeah, we we naturally see, an inventory buildup in the first quarter ahead of the the second quarter, but, inventory levels by the end of q one, are also explained by strategic decisions to to front load some purchases to avoid out of stocks on on expected bestsellers for the spring and summer season. And compared to the historical average for for the past years, we we also see that we we maintain a healthy inventory level both both in terms of, aging and as as seen as a share of net sales.

Q&A Moderator, Nelly Group: Thank you, Niklas. We have also received a few question about how, the lower dollar will affect Nelly.

Nicholas Lindblom, CFO, Nelly Group: Yes. Of course. So so some of our purchases are made in in US dollar. So so for that reason, we we expect positive effects on our gross margin from that. We we do not have any significant exposure on, to to the US dollar on the sales side, so we mainly expect a positive effect from from the weak dollar going forward.

Q&A Moderator, Nelly Group: Thank you. Alright. We are moving on. The next question is from Axel. Is the level of warehousing and distribution costs percentage of net revenue something we should expect going forward also?

Helena Karlander Ostland, CEO, Nelly Group: Yeah. So so I think similar to to the way we think about the return rates, we also in our warehousing distribution cost, this is work that is continuously ongoing to, all the time, optimize, improve efficiency, see where we can improve our processes and the way we work. So, again, we don’t want to limit ourselves by by, you know, setting setting a a lowest level that we can possibly achieve, but rather just focus on actually working with it and and and making sure that it’s, yeah, it’s just part of how we do things to to constantly improve efficiency.

Q&A Moderator, Nelly Group: Thank you. Okay. It’s time to wrap up this q and a with one last question, or it’s actually two, and those are from Frederic Johan Song. Great q one report. Should we expect share of own brand, to continue share excuse me.

Should we expect share of own brand to continue increasing from, the 50% of sales? And the second question, is the opening of more stores at all an option going forward? Thank you. Yep. So let me start with the own brand share question.

So we’re, of

Helena Karlander Ostland, CEO, Nelly Group: course, very happy and excited and pleased that our customer is really loving our Nelly brand assortment. We we do, however we want to grow, of course, the the the Nelly brands, but or the Nelly brands rather, But it is also very important to us to have that that mix of our own brand assortment and our external brands. We know that our customers expect and and and love coming to us because we have those external brands as well, and we work with them very closely. They they truly are our partners in crime. So I think, yes, we want to grow the the Nelly brands, but but, you know, as as a share of total sales, we want to maintain that that magic mix of of both our own brands and external brands, as I said.

And then the second part of the question was about opening of more stores. So there, no decision has been made on any further stores beyond our Stockholm store. However, of course, we we have been really pleased with the way that the store has performed in Stockholm and the way it’s developed, and it has given us so many benefits in terms of meeting customers, talking to them, asking them questions, understanding more about our products and our customers. Yeah, we’re we’re definitely not saying no, but no decision has been made as of this point in time. Yeah.

So I believe that was the last question. Before we wrap up, we just also want to say thank you to Markus, who didn’t send us a question, but sent us a very lovely comment with lots of kind words. So thank you Markus. We always appreciate people rooting for us out there.

Q&A Moderator, Nelly Group: Okay. Thank you very much. That concludes today’s call. Thank you.

Nicholas Lindblom, CFO, Nelly Group: Thank you.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.