Year-end report for Q4 and FY 2022
23 Feb, 2023, 16:14
Comment from the CEO Maria Edsman:
Improved gross margin, robust sales and earnings impacted by investments
2022 was a year with major forward-looking investments. Our intense work to optimise prices led to an improved gross margin for the fourth quarter as well as the full year. Our projects in IT and marketing created excellent conditions for a future competitiveness position. At the same time, the business climate grew more difficult during the second half of the year. We reacted to this by launching a cost-savings programme to offset reduced demand and growing costs.
We ended the year with several difficulties in our operating environment. In many ways, we returned to normal after two years of the pandemic: our customers returned to physical stores and our employees returned to a more normal work situation. In other ways, unfortunately, we were affected by a nearby war, growing inflation, rapidly increasing prices for energy and raw materials, and the highest interest rates we have seen in many years.
Reduced purchasing power among our customers and transitional problems with our new logistics supplier had a negative impact on the Group’s sales in the fourth quarter. Unfortunately, this also impacted our crucial Christmas shopping period and sales declined 3.5% for the fourth quarter. The downturn in online channels during the year was part of a larger pattern in overall retail. The Swedish Trade Federation’s e-commerce indicator showed a decline of 9% for the year for all Swedish e-commerce. Christmas shopping was also somewhat weaker in stores, where sales decreased 2.3% for the quarter. Fortunately, however, in-store sales were strong for the full year, increasing 3.9%. With a strong focus on optimising consumer prices, we were able to offset the drop in sales to a certain extent and to increase the gross margins in all segments for the fourth quarter and for the full year. For the full year, gross profit increased 2.8%.
Increased costs and investments
The year was characterised the forward-looking IT, logistics and marketing investments we had announced previously. We implemented new systems for stores and purchasing, while the second half of the year was dominated by the change of supplier for our joint consumer logistics. In addition, we also made substantial investments in the Bokus brand, including the campaign “För livets alla bokstunder”. These investments have led to a planned increase in costs and are key to the company’s long-term competitiveness. Our initiatives will continue in 2023 to ensure that we are creating the basis for long-term growth and an even stronger position. However, we will adjust the level of investments and costs according to the prevailing conditions in our operating environment.
The growing inflation during the year drove up costs for purchasing goods, in addition to other costs, more than we could have foreseen or affected. The return to in-store shopping also means that personnel expenses are higher than in previous years due to increased in-store staffing. To offset growing costs, we gradually raised consumer prices during the year. Collectively, however, costs increased more than we could fully compensate for. Adjusted for items affecting comparability, the EBITA margin was 4.0% for the full year, somewhat lower than our goal of 6%.
Cost-savings programme introduced
To offset growing costs, we introduced a cost-savings programme. This will lead to reduced staffing at our offices and in stores, fewer consultants, lower marketing costs and an overall cost review of the entire Group. Negotiations have started with trade unions and a restructuring cost of MSEK 8.2 was charged to earnings for the fourth quarter.
With the customer in mind
Despite turbulent times, we made significant progress during the year. A new store data system enabled self-checkouts and mobile tools, which means that our sales personnel can offer customers a simpler purchasing experience in stores. The change in logistics supplier was also carried out with customer in mind. A better, more sustainable shipping offering is a central part of modern e-commerce. While we had some initial problems, this will make our offering more attractive in the future.
I would also like to extend a sincere thank you to our store employees who helped make the Bokus Play recruitment drive during the year a success. Many of our customers combine reading paperbacks with listening to audio books via subscription, and we provide these combined customers with various forms of added value.
A sustainable society for coming generations
Sustainability is integrated into our operations and our ambitious targets are helping us to make noticeable changes. We have worked actively on our sub-targets and activities in all areas. I am especially proud of our work with The Joy of Reading and Product Range. Examples of this work include our first Bokus Scholarship for initiatives that spread the joy of reading and the significant progress we made in the sustainability review of all our suppliers.
During the year, we achieved 60% of our sub-targets, which means that we need to keep up rapid pace if we intend to meet our five-year objective of meeting 90% of our sub-targets by 2026.
We are faced with a challenging situation going into 2023: reduced purchasing power among customers, rising costs including indexation of store rent and, finally, higher energy prices. But we are also facing a year where we can once against demonstrate the strength of our business model and strategy. We will continue to adjust our consumer prices to ensure that we remain relevant for our customers while, as far as possible, covering our increased costs. At the same time, we will reduce the cost base through the cost-savings programme we recently introduced. We also need to be ready for the future. That is why our IT transformation will continue, with upgrades to our e-commerce system and to the systems that we implemented in the past year. This is our plan for 2023. In the near future, I look forward to this year’s national book sale – an annual celebration for all of us booklovers.
Maria Edsman, CEO