Tokmanni Q1 on Friday: No support from the market

Translation: Original comment published in Finnish on 5/15/2024 at 7:05 am EEST.

Tokmanni will report its Q1 results on Friday at around 8:00 am EEST. We expect the group's organic growth to come almost entirely from outside Finland, as we believe market weakness has left Finnish revenue at around the same level as the comparison period. We believe the company faced cost pressures during the quarter, which we estimate will push profitability below the comparison period level. We assume Tokmanni will reiterate its guidance at this stage of the year. In our view, there have been no material changes in the company's target market. In addition to sales and results, we are interested to see in the report the progress of the Dollarstore integration and the absorption of synergies, the competitive situation, and any further news on the market.

Growth to come mainly from abroad

Tokmanni's target market development has been sluggish during Q1, especially in Finland. We believe this has also impacted Tokmanni's sales, and we forecast the group's revenue to have been in line with the consensus at 335 MEUR, an increase of 41%. This suggests that Q1 growth will be driven by the Dollarstore integration and its modest organic growth of around 3% (no quarterly counterparts are known). We expect sales in the Finnish businesses to be at the level of the comparison period, despite the new store openings. As far as we know, the strikes at the beginning of the year did not affect Tokmanni's performance in terms of revenue, although we believe that the delayed spring and the weak clothing market put pressure on Q1 and to some extent on Q2.

Q1 results seasonally low

Due to the weak market environment and the impact of the strikes, we believe that Tokmanni faced cost pressures in Q1 and as a result we have slightly lowered our Q1 earnings forecasts. At the 2024 level, the impact of the changes was -3% on profitability and -4% on earnings per share. In order to ensure product availability during the Finnish strikes, the company had to resort to alternative logistics arrangements, which we estimate resulted in some additional costs in Q1. For the seasonally weak Q1, we forecast group EBIT to be slightly below consensus (-2.2 MEUR) at -2.7 MEUR. Due to significantly higher financial costs than in the comparison period (Dollarstore's IFRS16 interest component, additional debt, and higher interest rates), we forecast negative earnings per share of EUR 0.18.

No material changes have occurred in the market

We expect Tokmanni to reaffirm its guidance of 1660-1760 MEUR for revenue and 110-130 MEUR for adjusted EBIT at this stage of the year. Our current forecasts are at the lower end of the guidance range, and if the weak market environment continues until the end of the year, we do not believe that achieving the guidance is a given. Meeting the earnings guidance will be supported by the synergies from the Dollarstore acquisition, which will be largely achieved in 2024. Based on market figures, there has been no significant change in the market (except for fresh food). In our view, the competitive situation will remain heightened, partly due to price promotions by hypermarkets and other discount retailers.