Recalibrated strategy and new lean operating model for long term competitiveness
October - December 2023
- Net revenue decreased by 10%, totalling SEK 382 (427) million.
- Operating profit (EBIT) was SEK -45 (-31) million. Adjusted operating profit (EBIT) was SEK -24 (-23) million and the adjusted operating margin was -6.2% (-5.4%).
- Items affecting comparability were SEK 21 million, primarily from SEK 18 million in organisational downsizing costs.
- Impairment of goodwill attributable to segment Other impacted amortisation and impairment by SEK 17 million.
- Cash flow for the period was SEK 61 (16) million.
- Earnings per share before and after dilution was SEK -0.62 (-0.29).
January - December 2023
- Net revenue decreased by 8%, totalling SEK 1,537 (1,670) million.
- Changes to assumptions underlying a provision for slow moving inventory led to a net increase of SEK 39 million, which constitutes 2.6 percent of revenue, affecting cost of goods sold.
- Operating profit (EBIT) was SEK -111 (-68) million. Adjusted operating profit (EBIT) totalled SEK -85 (-53) million and the adjusted operating margin was -5.6% (-3.2%).
- Items affecting comparability were SEK 26 million, primarily from SEK 18 million in organisational downsizing costs.
- Impairment of goodwill attributable to segment Other impacted amortisation and impairment by SEK 17 million.
- Cash flow for the period was SEK 91 (117) million.
- Earnings per share before and after dilution was SEK -1.21 (-0.98).
| Oct-Dec | Jan-Dec | ||||
| SEKm (unless stated otherwise) | 2023 | 2022 | 2023 | 2022 | |
| Net revenue | 382 | 427 | 1,537 | 1,670 | |
| Growth (%) | -10% | 3% | -8% | 5% | |
| Growth in local currencies (%) | -15% | -3% | -13% | 1% | |
| Gross profit | 171 | 161 | 607 | 657 | |
| Profit after variable costs | 80 | 60 | 256 | 252 | |
| Overhead costs | -72 | -71 | -267 | -256 | |
| Operating profit (EBIT) | -45 | -31 | -111 | -68 | |
| Adjusted operating profit (EBIT) | -24 | -23 | -85 | -53 | |
| Profit/loss for the period | -49 | -23 | -96 | -58 | |
| Gross margin (%) | 44.7% | 37.8% | 39.5% | 39.3% | |
| Profit after variable costs (%) | 20.9% | 14.0% | 16.7% | 15.1% | |
| Adjusted operating margin (EBIT) (%) | -6.2% | -5.4% | -5.6% | -3.2% | |
| Cash flow for the period | 61 | 16 | 91 | 117 | |
| Net debt (+) / Net cash (-) | -222 | -136 | -222 | -136 | |
Significant events during the reporting period
Trademarks
To accelerate the development of market-leading private brands, on 1 November 2023 the Board of Directors decided to consolidate the Company's brand portfolio, focusing investments on fewer brands. Some private brands will be removed, and products merged into the remaining brands. This will result in an accelerated amortisation relating to certain trademarks that will be distributed over the period from the fourth quarter of 2023 to the second quarter of 2026 of approximately SEK 15 million in total. No additional impairment of the trademarks was identified. Amortisation cost of discontinued trademarks in the fourth quarter of 2023 was SEK 1 million.
Change of Chief Financial Officer
On 7 November 2023 Fredrik Ideström (previous Chief Strategy Officer) was appointed as Group Chief Financial Officer, replacing Niclas Olsson who resigned from his role. The change was effective as of 15 December 2023.
Rightsizing the Company - Operational efficiency program
In order to improve efficiency and agility, the Company conducted an operational efficiency program to adjust the structure of the organisation. This affected approximately 50 employees, across all functions and countries where Pierce has offices. The goal was to implement a?more team-based operating model with fewer managers and a?greater individual mandate and responsibility. To support this planned organisational simplification, the Company has started to improve its core processes through the implementation of lean methodology across the organisation accompanied with an increase of digitalisation and automation. The ambition for the new operating model is to generate annual cost improvement of approximately SEK 25 million, which will begin to affect earnings already from the first quarter of 2024, while the effect on cash flow will be generated gradually during the first half of 2024. The total direct cost for the reorganisation, including redundancy payments and advisory costs in Sweden, Poland and Spain was approximately SEK 18 million in the fourth quarter 2023.
Physical store closure
To continue moving forward to increased efficiency, the Company has closed the physical store in Sweden effective 31 December 2023. Revenue from store sales was disclosed in segment Other and was only a small part of total sales. Total cost of store closure, excluding redundancies described in the previous paragraph, was SEK 1 million and was included in items affecting comparability.
Goodwill impairment
The Company performed the annual impairment test and the calculated value in use, SEK 36 million, for segment Other indicated a valuation below its carrying amount, SEK 52 million. An impairment of goodwill attributable to segment Other was therefore made with SEK 17 million, affecting amortisation and impairment in the fourth quarter of 2023. The value in use was determined using the same method as described in the 2022 Annual Report with updated assumptions regarding forecast and a new WACC of 14 percent. The annual impairment test for the Offroad and Onroad segments showed no impairment.
CEO comments
Despite facing persistent challenges in consumer demand, we maintained a steady course, adhering to a more conservative approach during the black month period as planned. This strategy aimed to safeguard cash by taking a lower risk regarding purchasing and stock levels. This strategy and the weak market impacted our volumes in the fourth quarter, with sales declining by 10 percent in SEK and 15 percent in local currencies compared to the same period last year.
However, amidst these headwinds, we continued to fortify our margins, primarily through price adjustments increasing the gross margin with 6.9 percentage points versus last year to 44.7 percent. Notably, we observed no reduction in in-freight costs, versus the previous quarter, for the first time in five quarters, attributable to our focus on selling off overstocked inventory with higher associated in-freight costs. Looking ahead, we anticipate a continued decrease of in-freight costs, albeit at a more moderated rate than previous quarters. There is also a risk of potential increases in the coming quarters due to ongoing situations in the Red Sea region.
Despite underlying inflationary pressure, we managed to keep our fixed costs in SEK in line with the same period last year. In the quarter, our adjusted EBIT was SEK -24 million. The adjusted EBIT was impacted with total SEK 13 million from a goodwill impairment within the Other segment, amortisation of discontinued trademarks and the effects of our changed obsolescence assumptions. The adjusted EBIT excluding the effect of these items was SEK -11 million. While we acknowledge that a negative result is never satisfactory, it is an improvement from the SEK -23 million reported as adjusted EBIT in the fourth quarter of the previous year.
Adjusted EBIT for the full year 2023 was SEK -85 million. Adjusted EBIT was affected by a total of SEK 57 million from the same factors as in the fourth quarter (goodwill impairment, brands amortisation, changed assumptions for obsolescence provision). Adjusted EBIT excluding these items amounted to SEK -28 million, which is an improvement compared to SEK -53 million that we reported in adjusted EBIT for the previous year.
Our focus on optimising inventory levels through targeted campaigns and pricing strategies, coupled with enhanced purchasing controls, resulted in a robust cash position of SEK 222 million by year-end, SEK 86 million higher than the same period last year.
Looking forward, we see a prevailing weak consumer demand as we enter the new year. The market outlook remains uncertain, but we anticipate a modest improvement in consumer sentiment over the course of 2024.
Pierce has navigated through a period of formidable market challenges during the past two years. In response, during the third quarter, we embarked on a strategic shift to what we term "Pierce 2.0", with a resolute aim to establish ourselves as the unquestionable leading pure-play online retailer in Europe of gear, accessories, and parts for motorcycle riding. This vision is supported by seven strategic pillars:
- To achieve absolute leadership in the Offroad segment and profitable growth in the Onroad segment
- To have the highest customer loyalty in the industry
- To create a simple and powerful go-to-market approach
- To be the best in the industry in pricing and purchasing
- To have market-leading value-for-money own brands
- A modern and scalable tech stack
- A lean, fast and agile organisation
Throughout the fourth quarter, our primary focus was on creating a leaner and faster organisation, a pivotal initial step in realising the Pierce 2.0 strategy. This involved a reduction in workforce of approximately 50 FTEs (white-collars), constituting some 25 percent of our white-collar workforce (excluding customer services personnel and certain production staff). Concurrently, we transitioned to a more collaborative team-based operational model, fostering increased individual empowerment and accountability, and embraced lean methodologies to refine our operational processes. This transformation represents a significant cultural shift, impacting the daily work of the vast majority of our employees.
With the foundation of our leaner structure in place, we are now poised to advance on the remaining pillars of our strategic roadmap. We are working hard and dedicated with this, but it's imperative to underscore that there are no quick fixes in the task ahead. Significant transformation is required to realise the objectives outlined within the seven pillars. 2024 will be a year of transformation where we lay the foundation for Pierce being a prosperous company many years ahead.
For further information, please contact:
Fredrik Ideström, CFO
Email: fredrik.idestrom@piercegroup.com
Tel +46 76-546 49 80
Göran Dahlin, CEO
Email: Goran.Dahlin@piercegroup.com
Tel: +46 727 303 111
About Pierce Group
Pierce is a leading and fast-growing e-commerce company selling gear, parts and accessories to riders across all of Europe via some forty websites adapted to local markets. Pierce has two major segments, Offroad - sales to motocross and enduro riders, and Onroad - sales to street riders. Pierce also has a smaller segment, Other, which primarily focuses on snowmobile riders. With a large and unique product assortment, including several private brands, an excellent customer experience and attractive prices, Pierce is changing the motorcycle enthusiast market in Europe. Headquarters are located in Stockholm, the central warehouse is in Szczecin, Poland and the majority of our customer support services is located in Barcelona.
This information is information that Pierce Group AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person[s] set out above, at 2024-02-20 08:00 CET.
