Strengthened balance sheet to withstand negative development in gross margin
July – September 2022
- Net revenue increased by 3%, totaling SEK 373 (361) million. In local currencies growth was 0%.
- EBITDA totaled SEK -2 (14) million. Adjusted EBITDA was SEK 4 (15) million, equivalent to a margin of 1.1% (4.1%).
- Operating profit (EBIT) was SEK -15 (2) million. Adjusted operating profit (EBIT) was SEK -9 (3) million and the adjusted operating margin was -2.4% (0.7%).
- Cash flow for the period was SEK 96 (-4) million. Positive cash position was a result of received proceeds from a new share issue of SEK 337 million, after deduction of issue costs, which was used to repay a bank loan facility of approximately SEK 180 million. The comparative period’s cash flow was impacted negatively by the repayment of previous financing after the listing.
- Profit/loss for the period amounted to SEK -20 (-1) million.
- Earnings per share before dilution was SEK -0.26 (-0.03) and SEK -0.26 (-0.03) after dilution.
January – September 2022
- Net revenue increased by 5%, totaling SEK 1,243 (1,181) million. In local currencies growth was 2%.
- EBITDA totaled SEK 0 (75) million. Adjusted EBITDA was SEK 7 (87) million, equivalent to a margin of 0.6% (7.4%).
- Operating profit (EBIT) was SEK -37 (41) million. Adjusted operating profit (EBIT) totaled SEK -30 (52) million and the adjusted operating margin was -2.4% (4.4%).
- Cash flow for the period was SEK 100 (-66) million. Positive cash position was a result of received proceeds from new share issue of SEK 337 million, after deduction of issue costs, which was used to repay a bank loan facility of approximately SEK 180 million. Cash flow during the comparative period primarily comprised of proceeds from the new share issue executed in conjunction with the listing, less the repayment of previous financing.
- Profit/loss for the period amounted to SEK -35 (20) million.
- Earnings per share before dilution was SEK -0.66 (0.54) and SEK -0.66 (0.54) after dilution.
Significant events during the reporting period
In July 2022, Pierce Group AB (publ) carried out a preferential rights issue receiving SEK 337 million. Consecutively, the Company repaid bank loans of approximately SEK 180 million and decreased the credit facility to SEK 200 million.
|SEKm (unless stated otherwise)||2022||2021||2022||2021||Sep 2022||2021|
|Growth in local currencies (%)||-0%||11%||2%||10%||2%||7%|
|Profit after variable costs||60||72||192||263||273||343|
|Adjusted operating profit (EBIT)||-9||3||-30||52||-24||58|
|Items affecting comparability||-6||-1||-7||-12||-7||-12|
|Operating profit (EBIT)||-15||2||-37||41||-32||46|
|Profit/loss for the period||-20||-1||-35||20||-29||26|
|Gross margin (%)||39.1%||44.0%||39.9%||46.0%||41.0%||45.7%|
|Profit after variable costs (%)||16.2%||20.0%||15.5%||22.2%||16.5%||21.5%|
|Adjusted EBITDA (%)||1.1%||4.1%||0.6%||7.4%||1.5%||6.5%|
|Adjusted operating margin (EBIT) (%)||-2.4%||0.7%||-2.4%||4.4%||-1.5%||3.6%|
|Cash flow for the period||96||-4||100||-66||95||-71|
|Net debt (+) / Net cash (-)||-115||105||-115||105||-115||160|
Focus on financial resilience, cost efficiency and gradually restoring profitability
The market continued to be weak during the quarter. The focus has been on driving sales in order to reduce inventory and maintain a strong cash position, given the current challenging external environment. Profitability continues to be impacted by high costs for shipping and components. After the new share issue, the Company is debt-free with a net cash position of MSEK 115. During the quarter we continued the execution of our program to improve the financial performance.
Online traffic in the market was on level with the previous year, but the economic uncertainty due to high inflation impacts the customers’ purchasing behaviour, implying that market developments are both challenging and difficult to assess, now, and in the near future. We estimate that the growth of the online market was slightly negative compared with the previous year.
The inventory levels are generally high in the market, which has hindered price increases vis á vis customers. Despite this, consumer prices are moving upwards, albeit slowly. According to our own statistics, consumer prices have increased by approximately 5 percent since the beginning of this year. Still, this is insufficient in terms of compensating for the cost increases we are experiencing.
The preferential rights issue which was concluded at the beginning of July resulted in a clear strengthening of the balance sheet. The Company is now debt-free and has a net cash position of MSEK 115. During the quarter, given the major uncertainties within the market, we continued to prioritize sales in order to decrease the inventory and maintain a strong cash position. In terms of volume, the inventory has decreased by approximately 20 percent since the beginning of the year. The inventory is also better balanced than in previous periods while, during this quarter, we have added new products to have a strong offering prior to the start of the campaign season. Total inventory value, impacted by both cost increases and currency fluctuations, decreased since end of 2021 by 6 percent from MSEK 534 to MSEK 504.
Gross margin squeeze
Net revenue amounted to MSEK 373 during the quarter, which implies a growth of 3 percent, or 0 percent in local currencies. The gross margin continued to be impacted by high costs for shipping and components, a strong USD and by our focus on stimulating sales in a weak market through various campaign activities. Adjusted EBIT amounted to MSEK -9 in the quarter against MSEK 3 in the previous year. The decline was entirely driven by the negative development of the gross margin.
Uncertainty in the near future, but lower container prices is a positive factor facing 2023
The container freight fees from Asia have declined sharply just recently which will result in lower costs, primarily for our own brand products. Prior to the problems in the container market, the total price for a 40-foot container was approximately USD 3,000 but this price had increased to approximately USD 20,000 by the end of 2021. This has resulted in extraordinarily large cost increases, in fact shipping costs alone impacted EBIT negatively by MSEK 75 from January to September 2022 compared with MSEK 51 during the same period in 2021 and MSEK 30 in 2020. The increase is equivalent to a margin reduction of 1.7 percentage points compared with 2021. Compared with 2020, the decrease is 3.3 percentage points. It is good to see that shipping prices are now almost back to pre-crisis levels, but we deem that it will take a few more quarters before this positive factor will begin to be seen in the income statement as we are, still, selling the products which were shipped when freight prices were high.
However, there continues to be a high degree of uncertainty regarding market developments in the near future, in particular, as regards demand which has been hit by inflation in combination with a possible recession. The campaign season which begins in November will, therefore, be an important yardstick. Furthermore, cost levels, where the USD development has an impact, are uncertain and can have a major effect on results going forward.
Our overarching objective is to be well prepared and come out as winners when the market turns for the better again. In the short-term this requires us to be both cautious and quick to respond. During the next few periods we will work according to three major priorities:
- Maintain a strong cash position: The most important factor is to preserve our strong cash situation given the major uncertainties inherent for next year. We will continue to prioritise sales, at the cost of some gross margin points, for as long as it is required and continue to adapt our purchasing volumes to current market conditions.
- Execute the program to improve financial performance: Since the spring we are working on a program where the main objective is to improve the margins after variable costs but also to improve the net working capital. This program involves, amongst other things, measures to improve pricing vis á vis customers, a reduction in purchase prices for components, improving performance marketing ROI and the optimization of the assortment. This work is progressing according to plan and we expect to see its full effects from the second half year 2023, but we are already experiencing certain positive results, primarily in terms of marketing ROI.
- Secure economies of scale: The long-term work with reducing overheads in relation to net revenue continues. The number of employees, excluding warehouse personnel, has now decreased by approximately 10 percent since 2019 in spite of major increases in volume since then. This demonstrates the scalability of the business. We continue to work with these costs through, amongst other things, the development of routines, processes and systems to secure further economies of scale and the strengthening of margins when the conditions for growth return.
Finally, I wish to emphasize and show my appreciation to all of our personnel for a lot of hard work under difficult circumstances. I also want to thank the shareholders for their strong support with the preferential rights issue which provides the Company with a very important level of financial sustainability.
Stockholm, 11 November 2022
CEO, Pierce Group AB
For further information, please contact:
Henrik Zadig, CEO
Tel: +46 73 146 14 60
Niclas Olsson, acting CFO
Tel: +46 70 889 05 75
About Pierce Group
Pierce is a leading online retailer that sells equipment, spare parts and accessories to motorcyclists through the online stores 24MX, XLMOTO and Sledstore all over Europe, through some forty locally adapted websites. The Company has two major segments, Offroad – sales to motocross and enduro riders, and Onroad – sales to customers who drive on trafficked roads. In addition, Pierce has a smaller segment, Other, which mainly focuses on snowmobiles. With a large and unique product range, including several own brands, an excellent customer experience and attractive prices, Pierce is changing the market for motorcycle enthusiasts in Europe. The head office is located in Stockholm, Sweden, the central warehouse is located in Szczecin, Poland, and the majority of the customer support is located in Barcelona, Spain. The company has approximately 420 employees.