November 2024: Q3 2024 Results1
– Net sales: up +23% SEK9442.2 million, +25% on constant FX (drivers: +23% nicotine pouches, +2% vapes and no contribution to growth from snus)
– Highest rate of quarterly sales growth over the last two years, following a slow start in Q1 2024 (+13%)
– 14.3% gross, 5.4% adj. EBITDA, 3.5% adj. EBIT margin (up +1.7pp, +0.9pp and +1.1pp, respectively, versus Q3 2023)
– Gross margin improvement (+1.7pp) driven by a strengthened position in the value chain and further benefits of scale
– Operating profit: SEK 12.4 million (up +61%); EPS: SEK 0.57 (up +171%)
– Number of orders: up +20% to 1.28 million with an average order value of SEK 687 (up +0.6%)
– Active customers: +24.6% to 618k (i.e. ~2.1 orders per active customer)
Operational Highlights:
– Nicotine pouch (NP) volume is up +42% (vs. slowing down from +93% year-on-year growth in Q3 2023) and now represents 63% of the group volume with NP share above 50% in all markets.
– Core markets (46% of the sales growth): sales +16%, NP volume +32%
– Growth markets (44% of the sales growth): sales +44%, NP volume +58%
– Emerging markets (11% of the sales growth): sales up +64% sequentially to SEK 21 million from the vape segment in the UK, Sweden and Germany. 20k active customers. SEK 7.8 million operating loss due to the commercial investments and a high share of fixed costs vis-a-vis the current volumes
– In the key US market, volume of challenger brands (i.e. brands other than ZYN, now 11% of the Group volume) grew rapidly since late-2023. Despite being substantial in size (6% of the Group volume), ZYN made limited contribution to growth in Q3 2024 and negligible supply is expected in Q4 2024. Note: Haypp revises its take on challenger brands in the US from “uncertain consumer retention” to “good retention and more strong brands expected”.
– California regulatory update: Upcoming legislation, that bans the sales of flavored nicotine and tobacco products online, creates an uncertain legal and operating environment. Haypp suspended sales in California until regulatory situation clarified (2% of Group volume)
– Online sales of tobacco products in the US will be terminated in Q4 2024 to simplify the business (weight in US volume is now down to 7% with half of the volume coming from flavored products sold into California)
Legal and regulatory update:
– The appeal against the revocation of license to sell tobacco products online in Sweden will take 1-2 years with no material impact on the revenue or profit outlook
– The process related to the San Francisco City Attorney’s complaint (regarding the sale of flavored nicotine pouches against Haypp and three other entities) is ongoing
Our take: After declining more than 40% from the August 2024 high (SEK 118), Haypp shares trade at a 15x forward EPS (bull-case estimate) despite a run-rate of 20% topline growth. Low profitability (5.4% operating margin) and mounting regulatory & legal troubles seem to be factored into the price.
August 2024: Q2 2024 Results2
– Net sales: up +23% SEK942.8 million (+22% on constant FX). Sales growth is close to the 2023 level (+22%), following a slow start in Q1 2024 (+13%)
– 14.3% gross, 5.5% adj. EBITDA, 3.7% adj. EBIT margin (up +1.4pp, +1.1pp and +1.0pp, respectively, versus Q2 2023)
– Higher gross margin, increased volume and efficiency improvements, partially offset by continued investments into additional capabilities
– Operating profit: SEK 9.6 million (vs. SEK3.9 million loss in Q2 2023); zero profit (EPS)
– Number of orders: up +17.2% to 1.25 million with an average order value of SEK 699 (up +3.4%)
– Active customers: +21.6% to 591k (i.e. ~2.1 orders per active customer)
Operational Highlights:
– Nicotine pouch volume is up +43.4% (vs. slowing down from+96.7% a year ago) and now represents 61% of the group volume.
– In the key US market, volume of the brands other than ZYN grew by +121% as consumers try new products in the presence of ZYN supply shortages; however, retention of these consumers is uncertain. The average order size is lower due to ZYN purchase limitations.
– 2025 targets: SEK5 billion net sales (to be achieved through organic growth alone) and 5%-7% adj. EBIT margin (prioritizing growth over profitability)
– New ambition: Expansion into adjacent categories (vape sales in the UK, Germany and Sweden) and new markets (“virgin” nicotine pouch markets) to bring incremental net sales. 1-2pp of EBIT margin to be invested through 2025. Excess capital to be returned to the shareholders post-2025.
– The growth is expected to come from nicotine pouches (+43%-45% p.a.) while snus sales are remaining mostly flat (- nicotine pouches set to generate 70% of Haypp’s net sales in 2025)
– Haypp expects the global nicotine pouch market to grow with 41% p.a. (2020-2025) to reach SEK49 billion (US$4.65 billion) annual turnover in 2025. With only 10% of the global (nicotine / tobacco) pouch sales taking place online, Haypp expects growth rates better than the category for its own business (i.e. increasing online penetration).
Company Profile
Based in Stockholm, Sweden, Haypp Group is the world’s largest pure-play online retailer for smoke-free nicotine products. Present in seven countries with eleven e-commerce sites, Haypp Group has close to six hundred thousand active consumers at the end of Q2 2024. The Group’s e-commerce sites include haypp.com, nicokick.com, snushjem.no, snusbolaget.se, snus.com, snusmarkt.ch, northerner.com, snuslageret.no, snusnetto.com, nettotobak.com and vapeglobe.de.
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