Puuilo Q1'24 flash comment: A good report in terms of sale

Translation: Original comment published in Finnish on 06/12/2024 at 9:14 am EEST 

Puuilo released a fairly expected Q1 result (February-April). Revenue grew strongly thanks to new store openings and the increase in the number of customers in existing stores. Profitability developed favorably, although relatively it was at the level of the comparison period. The guidance was repeated as expected and the market environment seems to have remained uncertain, albeit slightly improved from the weak Q4. Overall, the report was expected, and according to preliminary estimates, any changes in the forecasts will be limited.

Good sales development in an uncertain market

Puuilo recorded a 16% revenue growth in Q1, and revenue was 75.4 MEUR. This was quite well in line with our expectations and exactly in line with the consensus (Inderes 71.6 MEUR and consensus 75.4 MEUR). The main growth driver was new store openings, including two converted Hurrikaani stores. Comparable sales increased by 5%, which we see as a good performance after a slightly subdued Q4. The company said that the late spring affected sales negatively, but it seems to have been lower than we expected. We highlight the comparable growth in customer numbers as a very positive point, which was almost 7% during the quarter. In the weak market, we consider this a strong performance which signals the attractiveness of the company's concept. We believe the sharpness of Puuilo's concept has been supported in recent years by consumption focusing on products with lower price points, which are abundant in the company’s stores.

A nice report earnings-wise

In terms of earnings, Q1 is clearly weaker seasonally than other quarters. The EBITA profitability we monitor of 8.3 MEUR (11% of revenue) was in line with expectations (Inderes 8.0 MEUR and consensus 8.4 MEUR). The good profitability was based on the 36.6% gross margin that improved from the comparison period as we expected. The relative gross margin was positively affected by lower logistics costs and a better sales mix as demand for profitable lower price-point products was better than for more expensive ones. There was no significant change in fixed costs and they were proportionally in line with our expectations. EPS at the level of the comparison period (actual EUR 0.06 vs. Inderes and consensus EUR 0.07) is explained by increased financing costs, which we estimate mainly result from increased IFRS16 liabilities (interest rate component).

Guidance reiterated as expected

Puuilo reiterated its guidance of 380-410 MEUR for revenue and 60-70 MEUR for EBITA. Our pre-report forecasts are fairly close to the middle of the guidance range. The weak market situation that started in Q4 seems to have stabilized slightly, but the consumption environment is likely to remain uncertain. This is reflected in the drop in high price point products, which means that consumers' price awareness continues to be high.

New stores announced

The company announced that it will open the 49th and 50th Puuilo store based on the current concept in Kirkkonummi (early year) and Lohja (spring) in 2025. These localities did not come as a surprise to us, as the presence of Puuilo in western Uusimaa is small. In addition, the population of the localities is around 40,000-50,000, which makes them quite suitable for the Puuilo store concept of over 30,000 product names. The stores will be opened in key trade areas, where the company will initially benefit from the customer flows brought by other stores. Puuilo has proven it can gain market share by opening its stores next to its closest competitors. We have modeled a total of 5 new store openings for 2025, and as a result, the announced Kirkkonummi and Lohja stores do not put any pressure on our forecasts.