Focus2030 Execution Begins Amid Online Competition and FX Headwinds
Scandinavian Tobacco Group (STG) has released its financial results for the first quarter of 2026, marking the official operational kickoff of its new five-year strategy, Focus2030. While Q1 is traditionally the group’s weakest seasonal quarter due to inventory build-up, STG demonstrated stable underlying operational progress. The quarter was characterized by organic net sales stabilization, solid volume expansion in handmade cigars, and notable gross profit margin recoveries across Europe, which helped offset persistent foreign exchange headwinds and intensifying promotional pressures in the US e-commerce marketplace.
Key Financial Overview (Q1 2026 vs. Q1 2025)
Net Sales: DKK 1,859 million reported, down 5.8% compared to DKK 1,974 million in Q1 2025. Top-line figures were significantly masked by a heavy -5.2% (or DKK 103 million) negative currency translation impact. Organic net sales growth of -0.6%, showing stabilization but temporarily held back by the specific timing of product deliveries into the trade.
Gross Profit Margin (before special items): Expanded by 40 basis points to 44.3% from 43.9% in the prior-year quarter.
EBITDA (before special items): Rose 1% to DKK 320 million (up from DKK 317 million). This drove an EBITDA Margin expansion of 110 basis points to 17.2%.
EBIT (before special items): Declined by 6% to DKK 193 million from DKK 206 million. The EBIT Margin remained flat year-over-year at 10.4%. Profitability was dampened by a DKK 16 million increase in trademark amortization, dragging the margin down by 0.9%.
Adjusted EPS: Decreased by 27% to DKK 1.1 (down from DKK 1.5).
Free Cash Flow (before acquisitions): Reached DKK 158 million, up slightly from DKK 156 million in Q1 2025.
Product Category Deep-Dive
1. Machine-Rolled Cigars & Smoking Tobacco
– Net Sales: DKK 956 million (down 5.4% on a reported basis). Organic Growth: -3%
– Gross Margin (before special items): Expanded strongly by 290 basis points to 52.8%
– Key Drivers & Initiatives: Preliminary total market volumes across seven key European regions declined by 1.5%. However, STG effectively managed pricing and boosted its regional volume market share to 27.9% (up from 27.0% in Q1 2025). Performance was led by its key power brands (Signature, Mehari’s, and La Paz). To mark the brand’s 50th anniversary and drive consumer engagement under Focus2030, STG rolled out a comprehensive rebranding and upgraded packaging redesign for Mehari’s to emphasize premium historical craftsmanship.
2. Handmade Cigars
– Net Sales: DKK 660 million. Organic Growth: +8%
– Gross Margin (before special items): Compressed by 140 basis points to 41.2%
– Key Drivers & Initiatives: Core growth was propelled by strong consumer demand for proprietary brands and aggressive expansions within retail superstores, alongside lower-rate growth in online distribution channels. Power brands represented 23% of total category sales, with Cohiba and CAO achieving double-digit organic growth. To capitalize on this traction, STG launched a premium product innovation: the limited-edition Cohiba “M Reserva Plata” series.
3. Next Generation Products (Nicotine Pouches)
– Net Sales: DKK 64 million. Organic Growth: -23%
– Gross Margin (before special items): Climbed by 1,220 basis points to 35.2%
– Key Drivers & Initiatives: The top-line decline was a temporary side effect of delivery timing to wholesalers and lower contributions from smaller peripheral brands Ace and Gritt. On the consumer level, momentum remains highly positive; total underlying market volumes in Sweden, Denmark, and the UK increased by 21%, while STG’s brand volumes surged by 38%. The flagship brand XQS saw its volume market share in Sweden scale to 13.6% (up from 10.7% YoY), supported by the successful rollout of new formats for XQS Citrus Cooling Strong and XQS Blueberry Mint. To boost visibility, XQS established a high-profile marketing partnership with Team Parker Racing for the 2026 Porsche Carrera Cup. Nicotine pouches now represent roughly 5% of overall group net sales.
Commercial Divisions Performance
Europe Branded (EUB)
– Net Sales: DKK 630 million (-8.4% reported, -8.7% organic)
– Gross Margin: 51.3% (+1,000 bps YoY). EBITDA Margin: 18.3% (+870 bps YoY)
– Analysis: While the segment’s organic top-line was restricted by delayed nicotine pouch deliveries and machine-rolled cigar shipments to distributors, profitability hit record recovery rates. Margins heavily benefited from comparison against a weak Q1 2025 baseline, which had been severely disrupted by factory-level SAP system implementations across Europe.
North America Branded & Rest of World (NABROW)
– Net Sales: DKK 655 million (-1.9% reported, +4.5% organic)
– Gross Margin: 45.3% (-420 bps YoY). EBITDA Margin: 30.7% (-70 bps YoY)
– Analysis: Healthy organic volume additions were driven across both handmade and machine-rolled cigar portfolios. This structural upside was partially offset by a contraction in organic sales for smoking tobacco. Overall profit margins shifted downward due to changes in the regional product mix.
North America Online & Retail (NAOR)
– Net Sales: DKK 575 million (-7.1% reported, +2.8% organic)
– Gross Margin: 35.6% (-520 bps YoY). EBITDA Margin: 7.8% (-410 bps YoY)
– Analysis: Brick-and-mortar retail posted double-digit net sales growth driven by strategic store openings. However, this expansion was offset by low-single-digit gains in online distribution. Segment profitability was significantly compressed by a highly intense promotional and competitive environment in the e-commerce landscape, limiting pricing opportunities.
Cash Flow, Balance Sheet, and Special Items
STG generated DKK 158 million in free cash flow before acquisitions. While Q1 is seasonally a low cash generation point due to inventory build-up, the company successfully benefited from the anticipated recovery of trade receivables. In comparison, Q1 2025 cash flow was unusually strong due to positive working capital dynamics.
The Group’s leverage ratio (Net Interest-Bearing Debt to EBITDA) stood at 3.0x, flat compared to year-end 2025, but still above the company’s target ceiling of 2.5x. Total special items for the quarter reached DKK 75.6 million. These outflows were primarily tied to operational execution on corporate restructuring, consisting of DKK 31.3 million for the “OneProcess” SAP optimization project and DKK 33.3 million for Focus2030 reorganizational expenses.
2026 Full-Year Financial Guidance Maintained
Management re-iterated its full-year financial expectations for FY 2026:
– Reported Net Sales Growth (at constant currencies): -2% to 2%
– EBIT Margin (before special items): 13.0% to 14.5%
– Free Cash Flow (before acquisitions): DKK 950 million to DKK 1,200 million
– Adjusted EPS: DKK 9 to DKK 11
– EBITDA (before special items): Projected to remain relatively flat/unchanged year-over-year
Key Takeaways
STG’s Q1 2026 performance signals a foundational start for the Focus2030 framework. Operational highlights include market share gains in European machine-rolled cigars, double-digit traction for key handmade power brands like Cohiba, and strong underlying volume velocity for XQS nicotine pouches. However, intense discount matching within the NAOR online division remains a headwind for the gross margin, and negative foreign exchange conversions continue to cloud reported sales growth. Given that the group has effectively cleared its historical SAP supply chain hurdles and maintained its full-year guidance, the long-term cash flow target remains intact.
Download STG Q1 2026 Results – Press Release
Download STG Q1 2026 Presentation
STG: Background Information
Scandinavian Tobacco Group (STG) is among the Top-20 largest publicly traded tobacco company by market cap in the world. STG became a pure-play cigar & pipe tobacco manufacturer, following the acquisition of its cigarette & snus business (“House of Prince”) by BAT in 2008. With operations mainly in Europe & the USA, STG owns well-known brands like Macanudo, La Gloria Cubana, Panter, Signature, La Paz, Café Crème, Cohiba, Partagas and Captain Black. Since 2022, STG is exploring opportunities to enter the Next Generations Products (NGP) category in order to complement its core cigar & pipe tobacco range (portfolio diversification) and to re-ignite revenue growth (“Growth Enablers”).
