Puuilo Q2'24 preview: Market share gains continue

Translation: Original comment published in Finnish on 9/10/2024 at 7:19 am EEST.

Puuilo will report its Q2 results on Thursday September 12 at 8:30 am EEST. Although the retail trade has seen a slowdown recently, we believe the company was one of the market winners, as in previous quarters. We made small negative forecast revisions as we believe the pricing environment was not the most favorable for the quarter. Despite the forecast revisions, we believe the company will achieve its guidance for growth and improved performance, driven in part by the expanded store network and growth in existing stores.

Brisk revenue growth despite a challenging market environment

We forecast Puuilo's Q2 revenue to have increased by 20% year-on-year to 125 MEUR (consensus 121 MEUR). The main drivers of this strong development are a network that is 7 stores ahead of the comparison period and a 5% growth in existing stores. The Q1 growth did not indicate that the company was affected by the challenges in the durable goods market (delayed spring, price-driven consumption, etc.), so our confidence in the company's growth prospects in Q2 remains quite high. We believe that Puuilo has positioned itself well vis-à-vis the quality players in each submarket, which has enabled the company to attract customer flow from them during a challenging market. The future will show how strong the new customer retention is, but our confidence in the attractiveness of the company's concept is quite strong.

Result remains at an excellent level

We believe that the company's EBITA profitability has improved from the comparison period to 25.4 MEUR. This corresponds to 20.3% of revenue, which is an excellent level for the retail industry. In terms of profitability drivers, we forecast gross profit to remain at the level of the comparison period (37.1%), as we believe the pricing environment in the quarter has been somewhat challenging, fueled by price competition. However, the consumer shift towards products with lower price points is positive for Puuilo, as their margin potential is better than that of higher priced products, which have recently suffered from sluggish demand. We expect fixed costs to have developed in line with revenue growth, with the absolute improvement in EBITA largely driven by top-line growth. Although the company's debt burden has been reduced, we estimate that financing costs will increase due to higher interest rates and increased IFRS16 liabilities or, more precisely, the resulting financing costs. We forecast earnings per share of EUR 0.22, in line with the consensus.

Minor forecast revisions, guidance to be reiterated

We made minor negative revisions to our 2024 forecasts based on news coming out of the market. We believe the company will be able to grow revenue broadly in line with our previous forecasts, but we have lowered our gross margin forecasts due to the challenging pricing environment (more promotions). At the annual level, our earnings forecast for 2024 is lowered by 3%, while the forecasts for the following years are unchanged. Despite the slight forecast downgrade, we expect the company to achieve its guidance of 380-410 MEUR in revenue (Inderes: 400 MEUR) and 60-70 MEUR in adjusted EBITA profitability (Inderes: 64.5 MEUR). In the Q2 report, in addition to the earnings figures, we expect the company to comment on the general market environment, the attractiveness of new stores and e.g., the impact of the VAT increase on the industry.