INTERIM REPORT SEPTEMBER–NOVEMBER 2013

RAPIDLY INTEGRATED ACQUISITION – CHALLENGING MARKET

FIRST QUARTER, SEPTEMBER–NOVEMBER 2013

• Group net sales amounted to SEK 216.5 M (206.6). The number of stores totaled 156, compared with 119 in the year-earlier period.
• The gross profit margin was 59.7% (61.7) calculated according to the Group’s new accounting policy. The corresponding figure calculated in accordance with the earlier policy was 56.3% (58.7).
• Profit before depreciation, amortization and impairment amounted to SEK 4.7 M (23.0). Earnings were charged SEK 6 M as a result of integration costs attributable to the acquisition of Deco Bags and negative currency effects caused by the weaker NOK.
• The Group reported a loss after tax of SEK 2.4 M (profit: 16.6).
• Earnings per share before and after dilution amounted to a negative SEK 0.30 (pos: 2.04).

SIGNIFICANT EVENTS DURING THE QUARTER

• In accordance with the agreement signed on August 26, 2013 regarding the acquisition of the accessories chain Deco Bags, which comprised 27 stores, possession was taken on October 1, 2013. Integration proceeded more quickly than anticipated, providing favorable conditions for a positive earnings contribution during the fiscal year.
• The Group introduced a change to its accounting policy for the calculation of gross profit. Refer to page 9 for more information.   
• At the Annual General Meeting on January 16, the Board of Directors proposes a dividend of SEK 0.25 per share (1.50).

 SIGNIFICANT EVENTS AFTER THE QUARTER

• Compared with the year-earlier period, like-for-like sales for December declined 11% for the Group as a whole (of which, 3 percentage points pertained to the weak NOK) and 10% in Sweden. The mild weather conditions resulted in weak demand for lined products, which had an adverse impact on sales and the gross margin.
• The e-commerce project is progressing according to plan, to launch during April

“The earnings we delivered were adversely impacted by a high proportion of new stores, a generally weak consumption trend, negative currency effects and our internal integration process. We are not satisfied with this result, regardless of the clear explanation. On a positive note, our conversion rate is increasing and our largest strategic product group – travel goods – is performing the most favorably. Following the rapid integration of Deco Bags, we can now focus exclusively on quickly generating synergies during the current fiscal year,” says Susanne Börjesson, CEO, Venue Retail Group.
   

CEO’S COMMENTS ON PERFORMANCE

We should never be satisfied with a decline in earnings compared with the preceding year. However, there are explanations for our negative result during the first quarter, namely the lack of winter weather and a general decline in retail traffic. These circumstances are beyond our control. Instead, we are focusing on factors that we can influence. We are working intensely on the integration of Deco Bags – and seeing good results – and responding to changes in purchasing behavior through our planned e-commerce initiative, which will soon be launched for customers. We are well-equipped and prepared to face a challenging market and emerge a winner.

We completed the acquisition of the accessories chain Deco Bags on October 1, 2013, and by the end of the quarter – less than two months later – most of the integration process was complete, including store rebranding, new checkout systems and a shared supply chain. This was even faster than we had anticipated. Subsequently, the Group now has some 20 new Accent stores and significantly better geographic coverage than in the past. I am proud of how quickly this work was completed – concerns and uncertainty can cause an organization to lose focus – and we can now devote our full energy to moving forward. Along with the addition of several new individual stores, the acquisition will also help boost Venue Retail Group’s long-term competitiveness and profitability.

We had an extraordinarily high proportion of new stores during the quarter (35 of a total of 156 stores), which have not yet been fully adjusted and will initially result in higher costs rather than generating sales. However, these new stores are moving in the right direction.

The autumn months of September to November, which in our case represent the first quarter of the new fiscal year, were challenging in terms of sales due to the mild weather conditions and a generally weak consumption trend. The subsequent shift in the product group mix, with a smaller proportion of lined products, impacted both sales and gross profit. Moreover, the Group faced negative currency effects from the NOK during the quarter, which had an adverse impact on sales and the gross margin, as well as the costs incurred for the integration of Deco Bags. With the exception of these factors, our assessment is that the Group’s current expenses are at a stable level. Sales in December were weaker than in the year-earlier period, mainly due to the continued mild weather, the weak NOK and a significant increase in sales in December of the preceding year, particularly in Sweden.

Naturally, we are not satisfied with having delivered a weaker result than in the preceding year. However, there are clear explanations for this performance and we will continue to drive our operations forward. The market is, and will remain, challenging – but we are confident that we are preparing ourselves accordingly. We expected the amount of store traffic to remain low, albeit not to the extent it has, and we have conscientiously worked to improve the customer experience in order to increase our conversion rate and average purchases. It is gratifying to note that these key figures are improving and that our largest strategic product group – travel goods – is performing most favorably. Rizzo recently achieved the best customer service results in an external, nationwide ranking of more than 100 retail chains in Sweden, which shows that the investments we have made in training and leadership are paying off.

During the spring, we plan to launch our e-commerce service and a new website, which we consider a strong and necessary complement to our existing operations and a key component of our efforts to attract store traffic. In summary, our investments are proceeding according to plan: new stores, better stores, improved service. Following the highly successful integration of Deco Bags, we are now focusing on quickly generating synergies during the current fiscal year. During the past year, we implemented a number of initiatives and we will now ensure that these create value for our shareholders.

Stockholm, January 16, 2014

Susanne Börjesson
CEO, Venue Retail Group

 
The information in this report is such that Venue Retail Group is obligated to publish under the Swedish Securities Market Act. The information was submitted for publication on January16, 2014 at 3:00 p.m. (CET).

FOR FURTHER INFORMATION, PLEASE CONTACT:
Susanne Börjesson, VD, Tel: +46 (0)8-508 99 253 or +46 (0)701-90 11 53
Staffan Gustafsson, CFO and Deputy CEO, Tel: +46 (0)8-508 99 244 or +46 (0)70-889 92 44
Mats Persson, Chairman of the Board, Tel: +46 (0)8-545 133 52 or +46 (0)70-511 46 36