Bang & Olufsen A/S (BO) Earnings Call Transcript

At this time, I would like to welcome everyone to this Bang & Olufsen presentation for Q1 2026/'27. Today's call is being recorded. [Operator Instructions] I'd now like to hand it over to Head of Investor Relations, Cristina Ronde Hefting. Cristina, over to you.

Thank you. Hello, everyone, and thank you for joining today's webcast, which is a week earlier than planned. With me today is our CEO, Gianfilippo Testa, who joined in August '26 and our CFO and COO, Nikolaj Wendelboe. They will take you through the Q1 performance. Please pay attention to the disclaimer on Slide 2 and move to Slide 3. I will now hand over to Gianfilippo Testa.

Thank you, Cristina. Hello, everyone. I'm Gianfilippo Testa. It is good to meet you here at this conference call in connection with the Trading Statement for the first quarter of the '26/'27 financial year. I have now been with Bang & Olufsen for almost a couple of months, and I'm thrilled to be here. Bang & Olufsen is a distinctive brand with a century-long heritage, a strong culture of innovation and a unique position at the intersection of technology, design and craftmanship. It is a honor to be now working closely with the Board of Directors, the leadership team, employees, partners and clients around the world to build on this strength and unlock Bang & Olufsen's full potential. We have established our new executive leadership team with Nikolaj and Jesper Hessel, who will join soon as Chief Commercial Officer and Deputy CEO to contribute unfolding Bang & Olufsen full potential. Let's please move to the next slide. The Q1 results show that the strategy is moving the business in the right direction. We are indeed seeing progress in the branded channels and our Win Cities are delivering a double-digit sell-out growth, leading to an overall improved gross margin. However, certain areas of the business still require more attention and consistent execution. The store footprint has been improved significantly over the past couple of years, but there is still more to do to improve our productivity across our channels. We need to look at our client experience across all brand touch points to ensure a consistent approach with the right tone of voice to drive demand and conversion. Since January '26, the business have evolved the commercial operating model, and we have significantly improved the coordination of marketing, planning and investments retail execution and product launches. Our operating model is now better equipped to support our targeted market positioning, and we will improve it even further going forward. We will elaborate on our plans in connection with the H1 report in January '27. Let's please move to the next slide. Let me take you through the business highlights of the quarter before I hand over to Nikolaj to cover the Q1 performance in more detail. During the quarter, we opened stores in key locations and I want to highlight here. In June, we opened our largest store in Asia Pacific at Scotts Square in Singapore. This was a relocation and the first with our culture-store concept in Southeast Asia. The store has been off to a good start. And in August, we opened our third store of 260 square meter in Palo Alto in California. And this completed the three planned California openings alongside our San Francisco and West Hollywood flagship stores. On the product side, we launched our Beosystem 3000c Dune Grey Edition launched under the Recreated Classics programme. Finally, we announced our new brand ambassador in July, John Legend, the American multi-platinum musician, producer and Emmy, Grammy, Oscar and Tony winning artist, was appointed global brand ambassador. We are very excited about this partnership and looking forward to the collaboration in the coming years. With that, I will hand over to Nikolaj.

Thank you, Gianfilippo. I will now go into more detail on our Q1 numbers. So let's move to Slide #7. Starting with sell-out. Like-for-like sell-out grew by 7%, and our branded channels grew by 14%, with double-digit growth across all three channels. The multi-brand channels reported a decline year-on-year. We are pleased to see the progress in our branded channels. The decline in eTail was mainly due to a generally changed purchasing pattern at Amazon Prime Day. In addition, we have deliberately reduced our promotional activity on the platform, lowering both the level of discount and the number of products included. We did this to support our brand positioning. Looking at the regions. In EMEA, the like-for-like sell-out grew by 6%, supported by our branded channels, in particular, company-owned stores and monobrand, multibrand and eTail, both declined by double digits. In the Americas, like-for-like sell-out declined by 2%. The branded channels grew by double digit, while eTail declined by double digits, which more than offset the growth from company-owned stores and e-commerce, in particular. In APAC, like-for-like sell-out grew by 14%. Branded channels grew by double digit, supported by growth across the channels. Multi-brand delivered high double-digit growth, while eTail saw a single-digit decrease. Finally, our Win Cities delivered 19% collective sales growth, with growth in all five cities in the index. That is the ninth consecutive quarter of double-digit growth. Please move to the next page. Turning to group performance. Revenue grew by 2.2% in local currencies and by 2.5% on reported revenue to DKK 530 million. The growth was driven by APAC, which grew by 11.5% in local currencies across all channels while EMEA and the Americas both declined. Within branded channels, revenue grew by 9.9% in local currencies and 10.5% in reported revenue. Company-owned stores and our own e-commerce both delivered double-digit growth, and the monobrand channel reported single-digit growth. Revenue from eTail declined by double digit for the reasons I described a moment ago. In terms of product categories, revenue from the Staged category grew by 9% and revenue from Flexible Living grew by 16%. Revenue from the On-the-go category declined by 19%, reflecting lower sales in the eTail channel. Gross margin continued its positive trajectory, improving to a record high 59.4%, up 0.7 percentage points year-on-year. The development was driven by a shift in product mix towards higher-margin products, further margin expansion in the On-the-go category and a higher share of license income in brand partnering and other activities where the gross margin was 95.4%. EBIT margin before special items was negative 4.3%, compared to negative 5.2% in Q1 last year. The improvement was driven by the higher revenue level and the improved gross margin, which was partly offset by one-off and timing of cost. Special items were immaterial in the quarter at positive DKK 1 million. Now please turn to the next page. Looking at the regions, EMEA reported revenue of DKK 226 million, a decline of 3.6% in local currencies. Revenue from branded channels grew by 1.2% in local currencies, driven by company-owned stores and monobrand. The gap between sell-out and sell-in was mainly due to reduced inventory levels with our partners and the changes we are doing to our retail network. The gross margin in EMEA was 50.6%, down 3.4 percentage points from 53.9% last year. The underlying margin development was positive. This was more than offset by a higher level of indirect production costs absorbed over a lower revenue base for the region. In the Americas, revenue was DKK 62 million, a decline of 1.4% in local currencies. Revenue from branded channels grew by 49.5% in local currencies, driven by double-digit growth across the channels. This was offset by high double-digit declines in the enterprise channel and in eTail. The gross margin in the Americas was 51.7%, up 12.4 percentage points from 39.3% last year. This reflects the nonrecurring of the U.S. tariff cost that affected the margin in Q1 last year, which drove a significantly stronger margin in the On-the-go category, together with a shift in product mix toward higher-margin products. In APAC, revenue was DKK 177 million, an increase of 11.5% in local currencies, with branded channels up 16.3% in local currencies. Revenue from China increased by 10.3% year-on-year, equivalent to a growth of 2.9% in local currencies. Revenue from South Korea increased by single digit and revenue from Hong Kong by double digits. The gross margin in APAC was 60.2%, up 0.4 percentage point from 59.8% last year, with gross margin improvements across all product categories. Finally, Broadband Partnering and other activities revenue was DKK 65 million, an increase of 4.1% in local currencies, driven by license income from the TCL partnership. The gross margin was 95.4%, compared to 93.2% in Q1 last year on a relatively higher share of license income. The partnership with TCL is ramping up as planned. And in September, we announced a new vertical, bringing audio by Bang & Olufsen to selected Motorola flagship mobile devices. Please move to the next slide. On cash flow and working capital. Free cash flow for the quarter was positive at DKK 6 million compared to negative DKK 135 million in Q1 last year. That is an improvement of DKK 141 million, reflecting a higher EBITDA, lower CapEx and a release of net working capital during the quarter. It is also the third consecutive quarter with a positive free cash flow. Net working capital decreased to DKK 313 million from DKK 349 million at year-end. Inventories ended the quarter at DKK 438 million, up DKK 20 million, mainly related to memory chips. CapEx investments were DKK 54 million compared to DKK 58 million in Q1 last year. Cash of DKK 123 million, while net available liquidity was DKK 80 million compared to DKK 94 million at year-end. The development since year-end was driven by financial activities. Capital resources were DKK 330 million compared to DKK 344 million at year-end. Year-end '25/'26 has been adjusted for more accurate reflection of the capital resource available to the company. Please move to the next page. Turning to the outlook for the financial year. We maintained our guidance for '26/27. Revenue growth in local currencies is expected to be in the range of 1% to 5%. EBIT margin before special items is expected to range from 1% to 3%. Free cash flow is expected to be in the range of DKK 25 million to DKK 100 million. Capital expenditure is expected to be around DKK 270 million to DKK 310 million with the year-on-year increase driven by retail investment and product development. Capacity costs excluding special items, are expected to be broadly flat compared to 2025/'26. Q1 is seasonally our smallest quarter. And as we said in July, we assumed three or more product launches during the year with the remaining launches now earlier than the fourth quarter. As such, the year is skewed more towards the end of the year than usually. On memory chips, the supply constraints we described in July persists, and the cost impact remains partly mitigated by the price adjustment implemented on July 1, with an expected net impact on the gross margin of around 5 percentage points and a cash impact of around DKK 45 million, both included in the outlook. And with that, we will open up for questions.

[Operator Instructions] Our first question comes from the line of Poul Jessen from Danske Bank.

My first question is for you. I know you've been there for what is 1.5 months, a little about that. But could you give some -- put some words on what you've seen, what you think should be focused on -- you said that execution has to have more attention. So just a little flavor on what you've learned so far.

Thank you for your warm welcome. I see a full potential to be unlocked in Bang & Olufsen. And this goes with what we showed already in the presentation. As you see, the focus on the right channels where the client can really have the right experience and meet in a way the brand in the right way is paying off. So when we -- when I mentioned in my statement that we need to better execute and there is more potential to be unlocked is actually referring on giving the client the right environment to meet the brand in a consistent and equivalent way. And this goes with everything we are working on as we speak. And then, of course, I'm learning a lot in this month. I've been speaking to my colleagues, partners, clients, and that's what I'm in this moment. Thanks for your question.

Okay. Then we must take more later on question on the U.S. where you say that you grew 50% in the monobrand channel, and then you still only grow 1% or above flat for the region in the quarter. Nikolaj, could you put some flavor on what's the difference? I know about the e-com or what's the difference in this -- difference in performance, apart from the e-com?

Yes. So when you look at -- thanks, Poul. First of all, when you look at the revenue performance in the Americas, we've had solid growth in our COCO stores. We've had solid growth in the monobrand channel, also partly because we have opened up stores that were not in the comparison figures. So that's, of course, also driving revenue up from those stores. And then what goes in the other direction is eTail as we just talked about. eTail, especially on Amazon Prime Day, it goes actually for both Europe and the U.S. But as eTail has traditionally been a bigger share of of the revenue in the U.S., when we've seen a Prime Day that has been very low, lower than expected, actually. Then it has quite a negative impact on the overall growth numbers in Americas. And then on enterprise, last year, we had some significant enterprise deals, especially with Genesis, that we have not been repeating this year. So these two factors together is offsetting the growth in the branded channels.

So on the reported numbers, it's partly -- it's well supported by L.A. and San Francisco?

They, of course, supported of the development in the monobrand channel, which is also the new stores in California.

Yes. But when you say that own and operated is leaving -- does that mean if we just ignore California, then it's the New York business, that is the clear star performer here?

So when we're saying owned and operated, then it's only New York, of course, because this is the only place in the U.S. where we have our own stores. But here, we're also seeing high double-digit growth.

Yes. So they are the ones outperforming versus the other to 20 stores?

They are outperforming the other stores also on sell-out. Yes, they are.

Okay. Then on memory, you have set aside DKK 40 million on the cash. Just wondering how much have you already managed to run the shelves on memory versus what you had there as an ambition.

Yes. So we have -- as I said, our inventory is increasing DKK 20 million. So this is what we have on the shelves, so to speak. It has not had a big P&L impact yet because memory chips have not hit the COGS at this point in time, but will come later. From a cash perspective, it will be less than quarter of the full year cash impact that we have seen in Q1. So I would say, between DKK 5 million and DKK 10 million cash impact.

Is out of the DKK 40 million you have to -- strategically is about 1/4 of that?

There's a time lag between when you receive the product and put it on inventory and when you pay your supplier payment -- that's why there's kind of an imbalance where cash impact comes later than inventory impact.