Interim report May 1, 2008 - July 31, 2008

Operating profit amounted to SEK 11.4 M

First Quarter (May 2008 – July 2008)

• Net sales amounted to SEK 352.7 M (385.5), down 8.5% compared with the preceding year. Sales in the Group’s comparable stores decreased by 13% (increase: 1).
• Profit after tax amounted to SEK 6.5 M (35.8). Earnings per share before dilution amounted to SEK 0.22 (1.25).
• Operating cash flow after investments was positive SEK 41.1 M (neg: 13.1)
• The Group established 1 (5) new store, and equired one store during the first quarter.
• During the period, inventories reached the planned level of SEK 280.4 M (301.2).

CEO’S COMMENTS
In the most recent quarter, we experienced weak market demand for most home textiles and home décor products, which was also evident in the 3% decline in the market during the first six months of the year, as reported by the market research company, GfK. Our assessment is that high interest rates, rising inflation and concerns regarding a decline in the value of houses and apartments will make consumers more cautious in terms of consumption of consumer discretionaries. For our part, we can state that the first quarter of the fiscal year was very weak in all markets, but the final month of July was somewhat better.

The quarter was characterized by a decrease in incoming goods and a smaller amount of specially purchased consignments than in the year-earlier period, which partially limited the sales outcome. As planned, this was a way to reduce inventory levels to ensure space for an increased number of new products to be introduced this autumn. The negative impact on the Group’s gross profit margin, resulting from the high inventory levels, was thus remedied and we expect a return to higher gross profit levels during the autumn. Work to increase the inventory turnover rate is continuing by always offering our customers the latest fashion and inspiration for changes. Our new concept concerning “Simple changes” will enhance interest in Hemtex, our home textiles and home décor range and attract more customers to our stores.

As a result of the weak sales trend, operating profit was lower than in the year-earlier period and amounted to SEK 11.4 M (50.4). Earnings were concentrated to the latter part of the quarter. In relation to sales, costs increased compared with the year-earlier period as a consequence of the low sales. Despite the savings measures we have implemented, we were unsuccessful in maintaining shares in relation to sales, which generated additional programs for reducing costs to the appropriate level.

We estimate that our developed strategies – mainly within communication, pricing and product range – combined with a cost and efficiency program, will be our route to continued success in a world characterized by increasingly tougher competition. Our profitability is in focus and will, in the long term, be re-achieved.

Anders Jansson,
President and Chief Executive Officer

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