2024 started very much as we expected it to, with many challenges but also certain positive indications and opportunities to bring with us in the next quarters.
We entered Q1. with a lower order book compared to last year. This was mainly due to the inventory situation last spring which had caused high insecurity among our retailers, still affecting their liquidity. The lower order book resulted in lower sales for our Global sales and Brands segments. When comparing numbers to Q1. 2023, it is important to remember that Primus is no longer a part of Fenix Outdoor, naturally resulting in a skewed comparison.
Looking at Frilufts Retail, the year started well, especially in the Nordics due to the colder weather in the region. Coming to the end of Q1. Frilufts showed a bit of slowing down.
For Brands and Global sales, we were able to deliver according to plan without any major problems. We did have some smaller cost overruns in the logistics, mostly due to a steep learning curve during the roll-out of a new automated logistic system in our central warehouse in Ludwigslust, Germany.
Looking at cost control, we are gaining control of the cost base, and we expect the effect of the measures we have taken to be more visible as the year passes.
Due to the increased proportion of direct-to-consumer sales, our gross margin increased for the quarter on a group level. Our direct-to-consumer sales grew 4.5% during the quarter. It now makes up 57,4% of the group’s total sales. It was primarily driven by brick and mortar, well supported by the online sales on our brand sites.
In terms of geographical development, most of our wholesale markets had no growth during the quarter, due to the low order books. However, an interesting fact is that we have seen an increase in direct orders in most markets supporting our trust that the inventory situation is improving. We did have a very good Q1. in Asia with record numbers in China. In Retail, we saw growth in the Nordics, but Germany was flat.
Group Total
Total sales for the quarter were 163.8 (180.0) MEUR. Again, it is worth pointing out that last year Primus was included with 4.6 MEUR. The operating profit ended on 12.8 (17.1) MEUR. The decrease is almost exclusively caused by the lower sales. Furthermore, I need to point out that we are seeing the first sign of gaining better control of our inventory situation. Our inventory is down 4.9% to 257.8 from 271.1 MEUR. This means we have now peaked on our inventory level on like for like. The operational cash flow for the period was 27.3 MEUR stronger than last year.
Brands
Overall, we have seen a slowing development in all major markets, due to the inventory situation and the general caution among retailers. Interestingly, the direct-to-consumer sales in Europe for our brands are growing in most markets, particularly on the web. F}illraven is performing best in this area. Compared to last year Brands’ external net sales decreased by 14.9% to 45.2 (53.1) MEUR. The operating profit was 12.9 (17.6) MEUR.
Global sales
Within Global Sales, we saw the same development as for the Brands’ division. There was a decrease in net sales from 58.7 to 47.6 MEUR. The operating profit was 7.8 (12.3) MEUR.
Frilufts
The Nordics grew in Q1, especially supported by the colder weather. On the other hand, Germany saw a rather flat development. In terms of sales Brick and Mortar outperformed digital sales again. Trekit in the UK, which predominately is a digital player, is still struggling, but they were profitable. In total, the Net sales for Frilufts increased by 4.4% to 71.1 (68.2) MEUR. Q1 is by tradition a weak quarter for Retail. The operating profit was -7.3 (-8.6) MEUR. The improvement was mainly driven by higher sales in Sweden.
Sales channels
Overall for the group, Brick and Mortar is still outperforming in sales vs our digital channels, the exception being in brands. This seems to be a market trend. The digital sales were 19.2% of total sales of the quarter, compared to 16.8% in Q1 2023.
Q2 sales
In terms of our expectations for Q2, it is hard to predict. Given the situation in Q2 last year we are cautiously optimistic for Q2 this year. Due to our direct order rate as of now being higher than last year, and how the direct order rate developed late Q2 and early Q3 last year. Our main risk lies more in the financial well-being of the retailers and their ability to pay.
Going forward
Looking forward at 2024, we are fasing several challenges, but also possible opportunities.
As I have mentioned earlier, we are facing a non-satisfactory inventory situation. However, we are now seeing the first signs of improvement both internally as well as at our retailers. On the retail side, there is still a high risk of discounting in the market to activate the large inventories on hand.
The Covid years created a boom for our industry which in turn created a huge inventory when consumers returned to normal behavior. This means that the market is not growing to the same extent that we have been used to. This conclusion is supported when we look at our Frilufts operation, where see few brands showing any growth at all, and considering the inflation the real growth is even lower. When we look at our retailers, we see that a lot of them are hurting financially. The same goes for quite a few competing brands.
If we then also add the general economic and societal issues to the picture, my conclusion is that it is still very unpredictable how long this will keep on. I believe this year will continue to challenge us in certain areas, even though we see some improvements going into H2.
However, I am also convinced that we are well-placed to capitalize on all the opportunities ahead. We have strong brands run by competent and good people in our portfolio, enabling us to gain the necessary momentum going forward. We continue working on our costs as well as rebuilding our operations to become more efficient and utilize our great internal resources to the fullest.
It is also worth noting that this environment creates possible opportunities in terms of acquisitions and given our strong cash position is a definite possibility going forward as it could enable us to capitalize on the challenges in the market. I am positive in terms of the long-term future as I believe that our business model has and will continue to show its robustness.
We can however not relax. We pride ourselves on being ahead of the curve, and we will continue to stay sharp for further challenges and opportunities that will arise.
Martin Nordin
Chairman of the Board
