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Edited Transcript of XXL.OL earnings conference call or presentation 7-Feb-20 7:30am GMT

Q4 2019 XXL ASA Earnings Call

Oslo Feb 11, 2020 (Thomson StreetEvents) -- Edited Transcript of XXL ASA earnings conference call or presentation Friday, February 7, 2020 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Hugo Lund Maurstad

XXL ASA - Chairman of the Board

* Stein Alexander Eriksen

XXL ASA - Group CFO

* Tolle O. R. Grøterud

XXL ASA - Strategy & IR Director

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Conference Call Participants

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* Ole Martin Westgaard

DNB Markets, Research Division - Analyst

* Oliver Schüler Pisani

Nordea Markets, Research Division - Analyst of Consumer Goods

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Presentation

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Tolle O. R. Grøterud, XXL ASA - Strategy & IR Director [1]

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Good morning, ladies and gentlemen, and welcome to the presentation of the fourth quarter and the full year 2019 results. My name is Tolle Grøterud, and I am the Interim CEO.

First, our Chairman of the Board, Hugo Maurstad, will take us through some reflections around the current market dynamics and how XXL will maneuver with its short-term strategic initiatives. Then I will go through the operational update; and our CFO, Stein Eriksen, will take us through the financial update followed by a Q&A session. For media, there will be an opportunity to perform separate interviews after the presentation.

So with no further introductions, I leave the word to you, Hugo.

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Hugo Lund Maurstad, XXL ASA - Chairman of the Board [2]

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Thank you, Tolle, and good morning, everyone. As many of you know, I'm a rookie as a Chairman in XXL. I took over in November, and I'm not -- I don't -- not plan to attend the quarterly presentations on a regular basis. But I think given where we are right now, both in XXL and where the market is, I thought it would be a good chance to give an update on how the Board is thinking about the priorities for 2020.

I think first of all, as you can imagine, from a Board point of view, building -- getting a permanent CEO in place has been our first priority. And we announced on January 8 that we had Pål Wibe joining us as CEO. We have now agreed on his start date, and he's going to start in less than 2 months. So as of April 1, Pål Wibe will be taking seat here at Alna and lead the work we're going to do in 2020 and beyond. We are very happy about that. We have -- I've known Pål for 25 years. And I think with his background from several successful retail cases and I think also Pål's combination of analytical skills and his ability and his track record of building strong teams is an asset that we're going to

have a lot of pressure off here in XXL.

In addition to that, for those of you who have met Pål, he has 10x more energy than anyone else I know, and that's going to come in very handy for us going forward.

We are not sitting and waiting for Pål. There's a lot of things going on, and we have already started to address several of the challenges that XXL has. But before I go into that, I think I'll also share how we, as a Board, view the situation and the starting point very briefly. Because I think it is very clear that we have -- through the end of '18 and through '19, we have had a very challenging situation in XXL with declining revenues and declining profits.

And -- but there is also a very challenging market. And you can see around us that for most players in this industry, the sporting goods retail is a very challenging place to be right now.

So when we look forward and when we look at kind of how are we going to address this, we actually are pretty confident that we have a very good starting point. We have a very good starting point in XXL in terms of coming out as a winner in this industry.

Timing will depend a little bit on what's happening around us and how good we are at improving our own business, but our starting point is very strong. And -- but we don't -- we're not going to sit back and wait for the market to improve. We have a lot of things that XXL can do better, and we're going to work very hard throughout this year and the coming years in terms of improving XXL.

And let me give you a little bit of more meat on what we are thinking about and what we are planning to do. I think, first of all, take a look back and look where we started this year. This is the reason I -- looking at the main players in the Nordic, and this is the EBIT margin from an average from 16% to 18%, which is the latest numbers available for all of these parts. But XXL in Nordics had a little bit more than 7% EBIT margin. I don't think that's good enough. I think we can do better than that. And that should be our ambition going forward. But when you look at our performance relative to competition, we are outperforming or we did outperform the market. Our largest Nordics competitor like Stadium was still positive at 2.2%, but Intersport Sweden and Gresvig was at minus 5%.

And as you all can see, what's happening in 2019 with continued tough competition but also with a very, very bad winter in the Nordics, this whole curve has shifted to the left. So it's definitely a challenging position. But our starting point is not that bad.

The other thing is scale. It is -- size is important in this industry. Size is important for our ability and the prices you get when you purchase goods. Size is important for your cost efficiency. And size is efficient for your ability to do national or Nordic marketing and your ability to invest in marketing. We are almost twice the size of Stadium, and we are almost 3x the size of Gresvig, which is our second-largest competitor. And we are going to continue to leverage that scale to compete going forward.

And something will happen with capacity in this industry. You have to -- when you look back, think about that for 20 years ago, XXL didn't exist. So XXL has grown from NOK 0 to NOK 9 billion in sales in the Nordic markets over the last 20 years. And that has added a lot of capacity. We also have more outlet -- sport outlet than we had 5 and 10 years ago. And we have had e-com entering into the market. So there's been added capacity to the market. Yes, there have been some stores taken out, but there has to be a better adjustment of capacity going forward.

So look at our cost position. This is for 2018, XXL operated at a little bit above 30% in cost. And if you take the two, we have the comparable numbers for Stadium and Intersport in Sweden, they're slightly above 40%, which is the kind of where the traditional industry typically will be. So we have a 10 percentage point advantage in OpEx. And for comparison, you will have specialized players like Sportamore, will be in the same range. They will be 30%, 32%. You will find Zalando, large e-com player, will be in the same range. So with our mix of large stores and e-com through our harmonized channel offering or omnichannel offering, we are able to compete also cost-wise towards pure-play e-com players.

And we actually believe that the concept we have, the big box concept is -- combined with e-com, is what is going to be the winning concept going forward. We strongly believe that if you look at our -- the size of our stores, we are roughly on average, 3,500 square meters, while a normal sporting goods store is around 800. And of course, these big boxes -- you have been to our stores. It allows us to present a breadth of product offering. And within each of our specialized stores that you find under our roof, you will find products and product range nobody else can match.

So you also have to remember that if you -- we can combine this with our e-com channel. And we are already the largest e-com player in sporting goods in the Nordics. But we actually believe that sport is one of the areas where the omnichannel concept is going to be very important because sometimes you just want to buy some basics, then you can do it online or you know exactly what you're going to do. But sport, sport is also fun. Sport is your hobby. Sport is where you would like to spend some times. I must admit, I'm in that category that I like to go to a sporting goods store just to look, is there anything new exciting going on in the skiing department? Is there any new biking equipment? Is there anything that I can get inspiration from? And that's why I think that the big box concept is still going to be there. Is it going to be exactly 3,500 meter? Is it going to be exactly 87 stores? That, I think, is going to -- we're going to have to see. We're going to have to have a dynamic development and adoption of our physical footprint, but it's definitely going to be there. And it's definitely going to be combined with a very strong e-com offering.

So I think we have a good starting point. I think if I were to choose one starting point to compete in this industry, this is still where I would like to be. This is definitely my choice. But we have to become better. And as I said that brick-and-mortar stores, the big boxes is going to be an important part of what we do for a long time going forward. But we have to make the store more fun. We'll be honest enough to say that I think the stores of XXL was better 3 years ago than they are today. I think we have not spent enough time focusing on continuing developing the store, continuing to keeping the stores very attractive and very exciting to go to. And this is going to -- this is something we are working on improving. It's a couple of things that goes into that. One is, of course, exactly how you lay out the store, how is each department structured, how is the products presented and all of that. And that's something we are working on right now, and you will start to see gradual improvement throughout the year.

But the other is, of course, very important, what kind of products will you find in our stores. And we are working on changing the structure of each category. So if you go into biking or skiing or running, you will see fewer suppliers than we have today within each category, but you will see a higher price point. You will see better products on average than we have today. And we're going to work much closer with our suppliers, and our large suppliers in a partnership going forward to develop and make sure we have the best product offering in all our stores in all the categories we choose to focus on. This work is -- has already been started, and this is something we are working hard on right now and where we will expect to see improvements throughout the year.

The other thing that we will continue to work hard on is marketing effectiveness. We roughly -- if you take a country like Norway, we represent -- we have a market share of about 30% in Norway. But we represent 70% of the marketing spend. So we're doing a lot of marketing, not only for ourselves but for the whole industry. We are really going to work on how we improve the effectiveness of that marketing spend to make sure we get each kroner spent on marketing to generate traffic and sales in our own stores. We have a lot of new good people in the marketing department who is driving this. And I think you will see quarter-by-quarter, the effectiveness of our marketing will improve.

We are going to continue to work on our operational effectiveness. We have -- as you see from this year's presentation, our revenues declined last year. And when our revenues decline, if it doesn't do anything with cost, our operational efficiency will decline. We are not going to accept that. We are going to make sure that we adapt the cost base to whatever is the revenue base going forward.

And if you come from NOK 7 billion in sales, getting to NOK 8 billion is fantastic, and you're going to be more cost effective than you've ever been before. If you come from NOK 9 billion and you go to NOK 8 billion, I'm not saying that we're going to do that, but if you come from NOK 9 billion and you go to NOK 8 billion, your cost efficiency has a tendency to decline. But there's no reason why it should be that way. So we are going to figure out what is our right level of revenues going forward, and we're going to adapt our cost base to match that. So we are going to be around 30% which is our target going forward.

And finally, we have invested a lot in our HR and compliance and our education. There has been some incidents in the past that you all know about that we completed a very thorough investigation internally based on the information that came out in these incidents, and we confirm that we had 8 incidents where the pricing was not done correctly. There might have been more, but there is still a very few incidents, but we have started a fundamentally new training program around what's the loss, how should you operate according to this.

We have a full new training program which is just about to be launched, which has been developed that every employee, including the Board reps of XXL, is going to have to go through during the spring. We have a new Head of HR helping us on a temporary basis right now, but we are filling that with a permanent position. And we have updated our code of conduct, which is going to be -- has been communicated now out to all employees, but it's also going to be included in the one-on-one training that everyone is going to have to go through.

So we believe that throughout 2020, we're going to see a lot of improvements in XXL. And as I said, we are quite confident that we will come out as winners. How fast that is going to go is going to also depend on the world around us.

We are -- as you can also see from the numbers, there is a risk that the current financial structure is not going to be the correct one for us going forward. And that's the final priority that the Board is working on right now. It is to make sure that we're not going to have any uncertainty around the financing of XXL going forward. So during Q1, we want to make sure that we have a financing in place, which gives us the stable funding and the stable capital base we need to be able to do what's right and to be able to take and drive the initiatives necessary to deliver on this plan. Thank you.

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Tolle O. R. Grøterud, XXL ASA - Strategy & IR Director [3]

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Thank you, Hugo. I will go through the operational update. XXL works every day to improve and perform to the best of our customers. And I would like to take this opportunity to give credit to all of our employees who work every day to serve our customers in the best possible way. So thank you.

Our industry is facing challenging times. We are seeing changes both in consumer behavior and market dynamics. And I am the first to admit that the fourth quarter of 2019 was a rough one. December, and in particular, Christmas sales, was weak. The Black Friday campaign delivered better results than last year with significantly higher gross margins and EBITDA but on lower volumes. And this was especially the case for the e-commerce part. The trend seen in 2019 with weak sales development, partly compensated by strong underlying improvements in the gross margin, continued also into the fourth quarter. And the negative like-for-like development is impacting the scale of the operations, and consequently, also the underlying EBITDA.

During 2019, the sports retail market in the Nordics has been challenging with negative growth, and consequently, a buildup of inventory in the whole industry. And XXL has changed the strategy to focus on reducing the number of SKUs, and thereby, also the number of suppliers. And this, in combination with poor winter conditions, has led to an extraordinary write-down of the inventory of NOK 385 million in the quarter. And combined with NOK 72 million supplier bonuses and the already mentioned like-for-like impact -- is impacting the EBITDA negatively. And EBITDA, excluding the IFRS 16 and the extraordinary write-down, ended at NOK 14 million for the quarter. The leverage ratio ended at 2.9x, and the liquidity reserve at NOK 800 million, up NOK 100 million from last year.

2019, that has been a challenging year for the industry and also for XXL. XXL has focused on gross margin control, and the underlying margin was up 1 percentage points during the year to solid 38.3%. But however, this has had a negative effect on the growth rate as well as the cost leverage. In that discounting and tough market, XXL has lost some market shares in Norway and Sweden, but Finland has delivered a solid year with market share gains and also higher profits.

The EBITDA for the year is significantly impacted by the extraordinary write-down, also lower supplier bonuses of NOK 100 million and a negative like-for-like of 8.6%. Adjusted for the write-down and the IFRS 16, the EBITDA was 3.8%.

2019 marked a new chapter in the sports retail industry in our markets and especially in Norway. On the demand side, we experienced changes in consumer focus towards more sustainability, reuse, outdoor activities, inspirations. Although these impacts the consumer spending, we also see a positive impact for XXL as this implies more responsible consumer behavior and increased demand for high-quality products.

On the high -- on the supply side, heavy discounting activities continued throughout the year. At the same time, the market matured a bit and the growth curve seems to have peaked a bit. And also going into the first month of 2020, we expect a restructuring of the market with store closures, chains are under reconstructions, and we see continued discounting activities. But over time, we believe that capacity in the physical market will continue to decrease. So we see that we are operating in a more sluggish Nordic market with negative market growth, as you can see, in all markets. However, the underlying trend of being healthy and physical active is still very strong.

Looking at the market data after gaining market shares in Norway in the first part of the year. We are disappointed, of course, about the sales trend and by losing market share. Black week turned out positive compared to last year on gross profit and EBITDA but yielded lower volumes than last year. However, December and especially the Christmas sales were challenging for us. And other players have taken volumes through high degree of discounting activities. And also, bear in mind, the store structure of the Norwegian market, we have all our stores in the largest cities of the country, and we are not present in the mountain areas with better winter conditions.

The Swedish market is still very volatile and in decline and also characterized by many campaigns. We continue to gain market shares in the Finnish market, which had a really good winter last year, remember, and that is one of the key reasons for why the Finnish market is down 5% in the quarter.

Then looking at the different segments. The EBITDA decrease in Norway and Sweden is driven by the negative like-for-like affecting the overall scale in the operations.

Austria. XXL still lacks scale in Austria, and the results are still impacted by high HQ costs, which accounts for around 4% of revenues, and marketing costs of around 17%.

The 2 stores that are included in the like-for-like, they are both cannibalized by the city store in Vienna that we opened in the second quarter. And we have higher ambitions on sales volume over time, and we are still in the establishing phase. And we plan for opening of 2 new stores in 2020, and they will also come in the Greater Vienna area to give scale. We will initiate a plan to reach breakeven within the next coming years.

Then for Denmark, we have made adjustments to the operation, including moving the operations under Norwegian e-commerce organization. And the marketing spending and campaign activities, they have been reduced, which, of course, impacted the sales volumes but improved the gross margin and the cost base. And the EBITDA was actually positive in Denmark in December. And we will continue to run Denmark with limited resources and use it only as a tactical sales channel going into 2020.

Three path to make sure XXL stay in the forefront in the sports retail market. The first one is top line improvements. We need to innovate to stay in the forefront. We will improve and launch new front and e-commerce sites. We will increase the assortment to match the pure players online. We are omnichannel, and we will utilize it to deliver faster than the pure players.

And as Hugo said, we have for many years, had a standstill on the store concept. We will make a new store concept and launch a new store concept, and it will be even more fun and inspiring to visiting an XXL store. And of course, we are working every day to make sure we meet the customers' needs and demands by having the right sizes and the right products available.

Number two, inventory control. We have improved the forecasting process, and that is why the inventory is actually stable when you exclude for the write-down and also despite the significantly lower sales volumes in the quarter. This is also, to a large extent, due to the fact that we have reduced the prepurchase degree. And we have now had a full assessment of the assortment, and we will reduce the number of SKUs and the number of suppliers going forward, and the medium-term target of reducing the inventory down to NOK 25 million per store remains firm.

The number three is organization. And Pål Wibe has been appointed the new CEO, as you know, and he will start in his new position 1st of April. I'm happy to announce that André Sjåsæt is the new Strategy and Business Development Director in XXL. He comes from the same position in Bertel O. Steen and has extensive experience from retail and management consulting and also business improvement processes. So we are really looking forward to working with him.

We have already initiated the work of strengthening internal control and routines, and we have ongoing recruitments on the HR and communication positions. And I will take on the responsibility as Chief of Staff and lead the important project of building up a strong HR department.

We are now systematically working on how to improve XXL. It will be hard work, but it is necessary to make sure that XXL stays in the forefront of the sports retail market.

This is a Q4 presentation, but a lot of things are happening these days, and I will give you an update on the nerve-wracking winter season. January sales were down 22% for XXL or to around NOK 600 million. You see the numbers on the slide. We have 50,000 skis and 27,000 winter shoes in stock. So as part of the 3 paths to make XXL fit for a new chapter in the sports retail market, we will immediately start a massive clearance sales campaign, the one you all have been waiting for, benefiting all our customers with high-end quality sports equipment through a really good price.

So with that, I'll turn the floor over to you, Stein, for the financial update.

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Stein Alexander Eriksen, XXL ASA - Group CFO [4]

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Yes. Thank you, Tolle. Well, let's then go through the financial figures for the fourth quarter. I guess you all have noticed that we have written down the inventory, an extraordinary write-down of NOK 385 million, and I think it's worth saying a little bit more about the reason for this write-down.

I mean, as you know, XXL has been growing for 19 consecutive years, but for the first time in 2019, we had a top line or a negative growth. And this is one of the reasons. Another reason is that we have already said that we are going to reduce the number of SKUs and the number of suppliers. So basically, we have changed the strategy and which means that we have to sell out SKUs that we don't longer want in the assortment.

In addition, it has been a rough market in both December and January. Very poor winter conditions has resulted in higher inventories than expected. And as some of you remember, we carried over winter products last year, but we are not going to do this year. So as Tolle mentioned, XXL has done an assessment of the whole assortment and inventory in all countries. And based on this, we have then done an extraordinary write-down of NOK 385 million where NOK 169 million in Norway, NOK 123 million in Sweden, NOK 69 million in Finland and NOK 23 million in Austria.

I mean the implications of high inventories will come to the benefit of all our customers, selling out well-known and respected brands at even lower prices. The positive implications is that this should contribute to top line growth, improve the liquidity and give us a stronger financial position. But of course, in the short run, it can have negative effects on the gross margins.

Also, XXL has, in Q4, performed an impairment test of the goodwill, mainly related to the acquisition of XXL Sport og Villmark in 2010. We have used conservative key parameters for the next 5-year period and a 2% growth rate as the terminal growth rate. Based on these tests, we have concluded that no impairment of goodwill was deemed necessary in 2019.

So here are the key figures. Before I start going through the numbers, please be aware that these are excluding the IFRS 16 effects. And a summary of these effects, you can find in the appendix, and of course, thoroughly disclosed in the report.

So looking at the P&L. You see the extraordinary write-down of NOK 385 million heavily, of course, influencing the EBITDA. The top line development in Q4 and year-on-year is disappointing driven by broad-based decline in all markets. The focus on gross margin was high during the whole period, both Q4 and year-to-date. And this is offset by some -- and the positive gross margin offsets some of the top line developments.

If you're drilling down further down to the P&L, the OpEx percent were high, mainly explained by the lower sales. All segments had negative trend during Q4 and year-to-date.

Moving over to the gross margins. As you can see, overall, XXL had a positive margin growth in every quarter compared to last year, despite the lower supplier bonuses of NOK 72 million in the quarter and NOK 105 million year-to-date. The mentioned bonuses affected Norway in Q4 with around NOK 55 million; Sweden with NOK 10 million; Finland with NOK 3 million and Austria with NOK 4 million.

If you look at the bonuses for the whole year, it affected Norway with NOK 63 million; Sweden with NOK 32 million; Finland with NOK 10 million; Denmark with NOK 3 million; while Austria had a positive with NOK 3 million.

Group OpEx, up by 4.1 percentage points to 35.8% in Q4, and this is mainly driven by the negative like-for-like growth of 12.2%. We have some increased costs in the HQ segments, mainly explained by extraordinary costs related to investigation reports and consultancy related to these topics.

In 2019, the group OpEx was up by 2.9 percentage points, up to 34.5%. And this was once again driven by negative like-for-like growth of 8.6%.

Moving on to adjusted EBITDA. We ended the quarter, as Tolle said, at NOK 14 million, down from NOK 115 million last year. Once again, the decline was related to negative revenue growth, the already mentioned supplier bonuses and the higher OpEx base. For the year, we ended at NOK 343 million with the same negative drivers as the Q4 results.

So looking at the net debt development. Key takeaways, we went from NOK 1.9 billion in Q3 and up to NOK 1.2 billion in Q4 '19. And as you can see, the main drivers for the positive development in net debt or reduction in net debt is change -- a positive change in working capital, mainly related to reduced inventory; then, we have the equity transaction, over NOK 400 million; and somewhat, of course, contracted by higher CapEx of NOK 64 million.

Looking at the same bridge for the whole year. Also from NOK 1.9 billion, and here, you see changes in working capital, positive, of course, with NOK 135 million; EBITDA with NOK 343 million. We have sold own shares and raised the capital of NOK 477 million, which are the main drivers for a net debt ending at NOK 1.2 billion.

Moving over to cash flow and liquidity reserves. Our cash flow, positive with NOK 337 million plus NOK 9 million versus last year. We ended with higher liquidity reserves than last year of -- from NOK 0.7 billion up to NOK 0.8 billion; a net interest-bearing debt from NOK 1.9 billion, down to NOK 1.2 billion. And we ended up with a leverage ratio of 2.9. And the leverage ratio, I can just give you a quick bridge on that one. The leverage ratio is excluding a write-down of inventory of approximately NOK 400 million. Then it's excluded some extraordinary items of around NOK 20 million. And then -- but it's including the subsequent offering of NOK 100 million done in Q1.

So to sum it all up. We are, as already mentioned, disappointed by the sales development in the challenging markets. We have significant EBITDA decline explained by the extraordinary write-down on NOK 385 million, the lower supplier bonuses of NOK 72 million in the quarter and NOK 105 million in 2019, and of course, the negative like-for-like growth of 12.2% in the quarter and 8.6% in 2019. Yes, liquidity reserves, ending at NOK 0.8 billion and a leverage ratio of 2.9.

Priorities going forward. Tolle already mentioned it and Hugo. Top line growth and inventory reduction, that's the high priorities going forward and also optimizing the cost base and company structure going forward.

Outlook. Given the sales development in January, there is a covenant risk. And as Hugo mentioned, the Board and administration investigates long-term, sustainable sources of funding for the company, which will be sold during Q1.

We will, as already said, slow down the pace of store rollout focused on Austria and some in Sweden. We are downsizing smaller stores and renegotiate rental contracts. And we have a midterm ambition of the inventory per store of NOK 25 million, and that is firm. CapEx is estimated to be around NOK 150 million to NOK 180 million in 2020.

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Tolle O. R. Grøterud, XXL ASA - Strategy & IR Director [5]

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Thank you, Stein. Then we open up for questions. First, from the audience present here in Oslo. So please go ahead, and kindly introduce yourself and limit the amount of questions to one at a time. So please go ahead. Ole Martin?

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Questions and Answers

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Ole Martin Westgaard, DNB Markets, Research Division - Analyst [1]

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Ole Martin Westgaard, DNB Markets. Starting first with Q4. You have a very negative like-for-like development, but at the same time, the gross margins are not that bad. Of course, it isn't an easy comparable. But are you happy with how you performed in Q4 with regards to managing campaigns and how we have balanced the mix?

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Tolle O. R. Grøterud, XXL ASA - Strategy & IR Director [2]

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I think we are happy with the Black Friday campaigning, where we had a very low gross margin last year. We reversed that a bit this year with a better both gross margin and EBITDA effect. But of course, that had a negative effect on the volume. And this is one of the key reasons actually for the volume, especially on the e-commerce side in the quarter.

It's always a mix, of course. And looking back, of course, we would have wanted more top line than a gross margin uplift. I think that's fair to say.

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Ole Martin Westgaard, DNB Markets, Research Division - Analyst [3]

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And then on the inventory position, you talked about in Q3 that you aim to sell off inventory packages. Have you been successful in doing so?

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Stein Alexander Eriksen, XXL ASA - Group CFO [4]

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We have sold some out of the country, but it's not in huge quantities yet.

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Ole Martin Westgaard, DNB Markets, Research Division - Analyst [5]

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And can you also comment on the inventory write-down? On which type of products these are related to?

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Stein Alexander Eriksen, XXL ASA - Group CFO [6]

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Yes. Basically, we have done a very thorough assessment of the whole inventory.

Like Tolle said before the write-down, around 3 billion, 3.2 billion. We're going through every single SKU in the whole assortment. And then we have classified them into different baskets. Is it long -- is it estimated to be long time at the inventory? Is it ream sizes? Is it uneven distributed to the stores? And every purchaser has gone through every single SKU and hooked -- and if it's obsolete or not.

So basically, around 900 million of the 3.2 billion is classified as products that has to be priced down, but then it's only because we have some margins on the products. So only some parts will be written down, right? So then that's the -- but around 900 million has been under evaluation.

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Ole Martin Westgaard, DNB Markets, Research Division - Analyst [7]

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And then touching on your geographical footprint. In Q4, you are loss-making in all countries except for 2, which is Norway and Finland, on an adjusted EBITDA level, excluding IFRS. This is the high season of the year. And how do you reflect upon that with regards to your geographical footprint going forward? It looks like you are aiming to open more stores.

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Tolle O. R. Grøterud, XXL ASA - Strategy & IR Director [8]

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Yes. We are aiming to open more stores in Austria, first of all. And the reason for that is that we lack scale in Austria. I gave you the figures of the HQ cost and the marketing costs, and we will open 2 more stores in 2020 in the same geographical area. So they will share the same marketing costs and also, of course, the HQ though. So we will focus the store rollout to be in Austria.

In Sweden, we are actually having now a new MD in place from 1st of March. And it's obvious, we need to make a good plan to how to turn around Sweden again because we have had a setback in the Swedish market, so yes. And then there are no more stores coming in Finland or Norway.

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Ole Martin Westgaard, DNB Markets, Research Division - Analyst [9]

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And a final question for me. On the Gresvig bankruptcy, what kind of opportunities do you consider this to create for you?

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Tolle O. R. Grøterud, XXL ASA - Strategy & IR Director [10]

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I think it's way too early to say anything on opportunities for us?

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Ole Martin Westgaard, DNB Markets, Research Division - Analyst [11]

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But are you interested in potential packages of stores, or is it possible?

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Tolle O. R. Grøterud, XXL ASA - Strategy & IR Director [12]

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I think it's too early to say.

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Oliver Schüler Pisani, Nordea Markets, Research Division - Analyst of Consumer Goods [13]

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Oliver Pisani here, Nordea. So do you expect HQ costs to be rising ahead of your ramping up central functions?

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Tolle O. R. Grøterud, XXL ASA - Strategy & IR Director [14]

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No.

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Oliver Schüler Pisani, Nordea Markets, Research Division - Analyst of Consumer Goods [15]

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And you were speaking about shifting the assortment to more premium oriented assortment. How do you think about the timing of that? And might that be difficult given that you're running massive clearing campaigns to -- I mean, in terms of convincing premium suppliers of selling via your channel?

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Tolle O. R. Grøterud, XXL ASA - Strategy & IR Director [16]

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I think this is, of course, how we work with the suppliers longer term, of course. And I think as Hugo said, we are going to more partnerships. There's also lead times in the way you order products in this industry. So of course, we have to have 2 thoughts, at the same time cleanup to actually be in a better shape to getting all the better products and more higher-end stuff later on. So it's a combination. But this is something that we are working on the whole category strategy. So I think it's a longer-term plan for that and also to partner up with the best suppliers.

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Oliver Schüler Pisani, Nordea Markets, Research Division - Analyst of Consumer Goods [17]

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All right. And with respect to funding ahead, it sounds like you're considering various alternatives and not just equity. Could you perhaps elaborate a bit on that?

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Tolle O. R. Grøterud, XXL ASA - Strategy & IR Director [18]

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Of course, we have -- the first priority is to use the inventory and overall balance sheet, of course. Then, there are other sources of funding that could be -- that we are evaluating. I think it's difficult to give more details on that at this stage. Yes.

Okay. Then there are no more questions from the audience, so I then call upon the conference host for further introductions. So please go ahead.

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Operator [19]

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(Operator Instructions) We do not have anybody come through over the phone, so I will hand the call back to you again. Thank you.

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Tolle O. R. Grøterud, XXL ASA - Strategy & IR Director [20]

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Okay. Thank you. So then, that ends our session. So I thank you all for coming and have a nice day.

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Operator [21]

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Thank you for joining this call. You may now replace your handset to end it. Thank you.