Verkkokauppa.com released its Q3 earnings release yesterday, and we'll discuss it with CEO Panu Porkka. Hi, Panu. Hello, hello, and thanks for the invitation. Thank you. Could you start by summarizing how your Q3 went?

Yeah, overall we can say that it was quite in line with our own expectations. If you look at the operating environment, consumer behavior remained subdued. Competition intensified, price competition intensified, and as expected, in line with our own expectations, we performed well overall. It was quite a systematic performance according to the playbook.

Our online business is growing. Our growth drivers, the corporate business, grew by as much as 15%. That market is considerably more stable anyway. International growth was brisk, over 40%. Cost efficiency and cost control are quite typical for us as such. Of course, we stick to that.

Our business model has been developed to be lightweight and scalable, and perhaps the biggest positive component in terms of reporting was that we are seeing the systematic work that has been done for the margin. We are now able to extract it quarter by quarter. That is, the reported sales margin was now even slightly above. Last year's sales margin report. The reported sales margin still fully included consumer financing revenues, and it was indicated to us roughly. We are talking roughly about one percentage point for the impact, and if you take that into account, while simultaneously having weak demand. So you have to kind of awaken that demand a bit. Fierce competition around. Cost pressures and price increase pressures. So that margin was indeed a good performance.

I can agree with that. But let's first touch upon that revenue. You indeed mentioned that there was good development in certain areas, but then I personally latch onto that consumer sales, the sales of which were slightly decreasing. And the trend weakened from the beginning of the year. So were there any specific drivers here? What? Why did those sales decrease?

Generally speaking, the underlying healthy demand still seems to be subdued, which then reflects quite across the board on the totals and all categories. Such a pickup has not been seen now. At the beginning of the year, we, like all other research houses and banks, expected consumption to start picking up. Well, we've been waiting for that for these three quarters, so let's see when it starts to pick up, that's one component, and then the second.

If you look purely category by category, there are a few where there is a bigger drop compared to last year. And it is no surprise that we are then talking about televisions, computer categories, and components. Those are three entities that are not quite in our own hands, meaning the rise in component prices. Naturally, all operators have passed these price increases on to consumer prices. Then that demand fades, and the same level cannot be achieved. And last year there were two exceptional tailwinds in two categories. One was related to this HD transition during the spring, summer, and autumn, which positively reflected on demand in televisions, and the other then Windows 10 End of Life, which then reflected on computer demand during the summer and autumn, so these were such drivers in the background.

And then if one takes these into account. In fact, the earnings were quite reasonably good, and at the same time, competition has intensified. We even expected this to happen. We have outperformed the market for a really long time now, a year and a half. And that is of course exceptional, that something also happens in the pricing environment at that point. And then on the other hand, when this margin level perhaps reflects that we are balancing our actions, we don't have any added value in holding on tooth and nail to the growth of some single segment. If we determine that we get better profitability for the company by doing things in the market prudently after all. So that is perhaps the overall picture.

Yeah, then hey, how have you interpreted those consumer electronics prices lately, because at the beginning of the year there was information that prices would rise within some timeframe, and now indeed this price rise has accelerated during this Q3? So is it so, in what way? If we compare the product price increase of this market and that in turn to the price increase of Verkkokauppa.com, is there some disequilibrium between these? Or at what level have your prices been this quarter, and how has this then shown? On the other hand, in volumes?

Yeah, well of course our page has very transparent history and pricing available when you go to check the product and what has happened to its price, and so it should be, and from there you can evaluate what level that price is at. We do everything we can for that. We are able to offer the best possible price in the market, but we don't do it unprofitably. It makes no sense to sold in unprofitably with a low margin. Sometimes we have to sell in it. Perhaps I would return to the beginning of the year.

And when we also discussed, and the inventory of 80 million in the first quarter was somewhat wondered at, then I said quite directly that this is our investment view of what needs to be and is worth doing at this point in order to be able to mitigate the price increases that are coming. I also may have stated that Q3, but you can crucify me if we have made bad decisions. Now we are at a 60 million inventory, and the inventory is turning and the margin is increasing. Well, or developing, so indeed it is there. This is as a driver that we have succeeded in that goods game really well.

And of course it is our job to sniff out price trends and try to find a balance then from different price points through different brands. And that is the active sourcing that we do. We are nevertheless small, agile, we have a strong cash position, so we are able to seize situations. We have a really broad procurement network. We don't commit a year in advance to some specific operator or volume, but we are nevertheless able to make the necessary decisions during the year, and sometimes you succeed in them and sometimes you don't succeed. And we have now succeeded in it well. But.

This ought to be quite normal operational activity, that this is one component where we have been able to mitigate that price pressure and on the other hand that it hasn't at least taken our profitability. And then at the same time we strive to constantly find good batches with which we are extremely price competitive and offer those best prices and terms, still in such a way that it leaves positive margin for the company.

Clear enough. Then I have picked a few questions from our investment forum. Wolt recently announced that they intend to expand into consumer electronics on their own platform in a few cities. Then when considering on the other hand that Wolt is also your partner in these quick deliveries, how do you see this expansion of Wolt into this field, or can it have an impact? Then on the other hand on your cooperation.

Yeah. Well as you said, we indeed have a major partnership with them regarding this last mile. We have a partnership and an extremely large partnership with Posti in Finland or Matkahuolto. We are a very attractive partner for all logistics companies and all. Last mile operators in Finland. Which is naturally a position that we capitalize on.

And as for this other matter, we strive to find good partners, platforms, through which we are able to expand our distribution outside the borders of Finland. We have done that testing during recent years quite actively. We have cooperated with Wolt in the Baltics precisely through this platform and we have done tests in Finland with them in the Turku region and also internationally in other markets tested other platforms as well, so we have a reasonably good understanding of what can be sold on which platform. And at least our lesson was that all platforms are perhaps not quite suited for that broad assortment, or it remains quite narrow, and for that reason we have not expanded the business or partnership regarding it, nor do we see it as a competitor to us.

That if you look at these different platforms, there are operators and there have been small players for years, that there maybe goes a slightly different productization and very small stuff. And indeed such quick-need-driven stuff we have. There are over 300,000 items. What we deliver from the Jätkäsaari distribution center 24/7, no one in Finland reaches that level.

Then there was a question like this, that this certainly refers to your share valuation or analyst estimates. But what is the delivery?

Always easy.

What is the CEO's opinion on the market's biggest misunderstanding regarding Verkkokauppa.com's earnings development over the next 3 to 5 years.

Well, perhaps you should be answering this rather than me, but since I get to. After all, the research is based on historical data, and forecasting is difficult, so in that sense I do not envy the analysts' task at all. When you have to. You have to look into that crystal ball.

Perhaps it is a kind of misunderstanding that has existed before. Today, I perhaps do not see it in a way that our performance would be solely in the hands of competitors or consumer demand. And we have now, over the past year and a half, been able to demonstrate admirably in my opinion that we succeed regardless of what our competitors do. That is, our margin withstands fierce price competition, historically it has done so. And secondly, we are able to build growth outside of the domestic consumer market. And these are perhaps things that were there previously.

So perhaps the management of the margin. Where it is true that perhaps five years ago we were not as good at dealing with price increases from suppliers, or really severe ones. Pricing in some category was reflected very strongly in our profitability, and recently that has not been the case.

Perhaps I will continue with this question. Given that your goal is nevertheless to achieve that 5 percent margin by the end of the strategy period, and at least my own estimates do not reach that level, I do not remember the exact estimates of others. But. Perhaps the investor also wanted to seek support here for what the key underlying component is that would enable reaching that profitability level.

Well, yes, that is of course a good question. It certainly comes from three components, which are growth, costs, and margin, which then combine into profitability, since our business is nevertheless moderately simple. We want to keep it moderately simple because it brings economies of scale and it brings business excellence. We are able to develop and grow and test things very quickly and agilely.

And of course we must show that we are clearly the market leader in Finland. We have won the market, but the Finnish market is not enough. That means we need international growth, and that is what we have set out to pursue. I think we are. We have succeeded well.

And the second component, we need the margin, meaning we are already a highly cost-efficient company. If you look at our headcount as well, which has been going down year after year all the time. We have been able to improve efficiency, utilize technology and artificial intelligence on a very broad scale, so increasing efficiency is not the only means to achieve it. And in that I agree that growth is needed and above all the margin is needed. And I think we have made good progress in that over the past year and a half to two years.

Then I will touch upon that internationalization. It has indeed gone well in my opinion too, but then some investors have wondered why we are not stepping on the gas more. That is, entering the market purely organically, for example by opening our own warehouse or our own store and through that starting to build the network, the entire brand, for example in Sweden.

Yes, I like that attitude. And so I completely agree that growth must be pursued. And growth must be pursued boldly. But then there is always some balance that is good to maintain. We are a growth company. We are very growth-oriented in everything we do, but we want to stick to our strategy. In that sense, we will not start building complexity or complications or fringe expansions.

We strongly believe that commerce will shift to online through quick deliveries, and it is not a difficult equation to understand that this is probably the path we would like to follow in other markets as well. It takes time in a new market to understand what the product-market fit is. That is, in our retail sector it means that you have the right assortment and the right price level and you bring it to the right channel and know how to communicate it to the right segments. So it may sound simple, but it requires. It requires quite a lot of work, data, and understanding so that you can optimize the assortment and the price level. And we have been doing that work at the same time as we have been seeking growth, and I believe we are quite close to that understanding.

Then at the same time our competitive factor and competitiveness factor, perhaps our competitive advantage factor in the future, will be brought by the efficiency of the goods flow, that speed. And I mentioned yesterday that the first tests and first models are already set up for Sweden so that we can deliver for the next day, and that is already something new in Sweden. It is good to understand that a large part of the market is in brick-and-mortar, and going in as an unknown brand to move a Swedish brick-and-mortar consumer to an unknown online store, that is quite a path, so you have to be realistic. And what is the sensible investment level and what is the sensible way to invest? Well, we are not really wondering about that here, but rather we are constantly verifying it and moving forward.

We certainly have a plan, but. Perhaps it can be said that we are a listed company, and our competitors do follow what we do. So, of course, I do not want to completely reveal our playbook here to our two dear competitors.

Let us wait and see how this develops then. Regarding the final question about the guidance: revenue grows, earnings improve. Now we are ahead of the comparison period on both counts, meaning earnings have grown for that reason and revenue clearly so. Right. What encourages you, or what encourages you to ensure that, given that this market environment has perhaps weakened somewhat during the autumn, with what means will you now manage to keep that earnings level. Let us say at least at the level of the comparison period, when there is nevertheless some headwinds. Naturally also concerning demand.

Yes, a good question. Actually, I would return to the report published yesterday, that the recipe is there, that in an unfavorable operating environment we are able to seek profitable growth that supports the company's profitability, and with those same measures our product assortment is currently well managed. Our own products generate a positive margin contribution for us. Our growth drivers generate growth for us, and the underlying business cost efficiency is in good shape. So with these same measures, with the same recipe, we believe we will continue in Q4 as well.

Thanks, Panu, for the interview. Thank you.