Q1 2022 – Financial highlights
“We attracted more followers and more direct traffic during the quarter and are the go-to party destination for Nordic fashionistas. However, the changes we have made have not yet generated growth and sufficient profitability. We are now intensifying our efforts to boost the efficiency of our customer offer with clear short-term and long-term measures.”
Kristina Lukes, VD Nelly Group AB
Lower net revenue in a challenging market
Nelly has renewed its organisation, automated its warehouse and established a new operating platform. In this transformation, we launched several new commercial initiatives, enhanced our brand, widened our offer and lowered inventory levels considerably.
We attracted more followers and more direct traffic during the quarter and are the go-to party destination for Nordic fashionistas. However, the changes we have made have not yet generated growth and sufficient profitability. We are now intensifying our efforts with clear short-term and long-term measures.
Sales in our core business, DTC in the Nordic region, increased by 2% before returns in the quarter. However, the return rate rose as a consequence of the category mix, low comparative figures during the pandemic and lower B2B sales with no right of return. Omicron and the invasion of Ukraine impaired sales, increased shipping costs and delayed the spring and summer collections in a quarter that is already weak for seasonal reasons.
The gross margin increased from 43.7% to 44.3%, largely due to our assortment management. The lower sales generated a lower gross profit which, with roughly unchanged operating expenses, meant a lower operating profit.
Continued focus on efficiency and cost control
We are building a profitable business by creating a much-loved brand and managing efficient processes behind the scenes.
We have an efficient operational platform with a new automated warehouse. Warehousing costs fell for the quarter and we are optimising the warehouse to achieve our annual savings target of SEK 35 million. We are also continuing to develop the ‘last mile’ and return processes, with the goal of offering our customers the delivery experience they want every time and minimising our environmental impact.
Our focus is on improving efficiency in the organisation, generating sales growth, improving our gross margin and reducing our net distribution expenses. To achieve results, we are focusing operations on gaining new customers, buying frequency, better margins and net distribution expenses.
Investments in Nelly’s offer and frequency
Nelly’s customers look for fashion and lifestyle inspiration for every occasion in all channels. We are gradually adding new channels to reach our customers more frequently with more relevant offers and content.
The number of followers of our channels increased during the quarter, partly because of the development of our presence on TikTok with Nelly House. Our direct traffic mainly increased as a result of sales via our app. Our investments in paid social media and micro-influencers (smaller profiles with fewer followers) also helped boost sales, engagement and the brand, above all in Sweden.
Nelly is unique because of the engagement created in our community every day. We raised awareness of and respect for Nelly in our target group during the quarter. Young fashionistas in the Nordic region see us as the go-to party destination, according to leading market research agency Nepa. Our customer and follower base is the foundation of our future growth.
VD Nelly Group AB
Nelly Group AB (publ)
501 13, Borås
Registered office: Borås
Visiting address: Lundbygatan 1, Borås
Webcast on the interim report
Analysts, investors and the media are invited to a webcast on Q1 on 28 April at 13.00. The presentation will be delivered in English by CEO Kristina Lukes and CFO John Afzelius. The webcast will be made available on the Nelly Group website.
SE: +46 8 505 583 65
UK: +44 333 300 92 64
US: +1 631 913 14 22
The presentation material and the webcast will be available at www.nellygroup.com/en/investors/presentations/