Finnish trade continued to grow in March, driven by food products

Translation: Original comment published in Finnish on 5/2/2024 at 7:17 am EEST.

The target market (department store and hypermarket chains) for Kesko’s daily goods trade, Tokmanni, and Lindex grew by 4.1% in March, continuing the good performance of February. Food products grew by as much as 6.7%, but the durable goods market ended up declining by 3.1%. In our view, demand for food was supported by inflation falling to around zero, i.e. a recovery in consumer purchasing power, and the timing of Easter in March, unlike in the comparison period. Within durable goods, the decline was split between clothing, down 10.2%, and home and leisure, down 0.9%. We estimate that the drop in the durable goods market was partly due to the impact of political strikes in Finland, the late spring, and the timing of Easter and Lindex's Crazy Days campaign, both of which were different from the comparison period. However, it is difficult to estimate the relative size of the individual drivers. As expected, the performance of Kespro's Foodservice target market declined by 8.3% as a result of fewer delivery days (-3 days) than in the comparison period.

Delivery days a nuisance for Kesko in March

Kesko has already reported its sales figures for March, and the market figures do not provide much meaningful information. Kesko's daily goods trade sales decreased by 3%, with each main segment driving the decline. Wholesale food sales to retailers fell by 3% and Kespro contracted by 5%. It appears that the weakness we estimated for Easter has weighed on Kesko's revenue relative to the market, but delivery days have also had a material impact. As we understand it, the market figures reported by the Finnish Grocery Trade Association (PTY) reflect retail sales, while Kesko's figures reflect front-loaded wholesale sales figures, which are more susceptible to delivery day variations. Kespro's sales declined 3% slower than the market, indicating that the company continued to gain market share. In addition, Kesko's durable goods sales decreased by only 1%, which may be explained by higher customer traffic than in department stores (daily goods stores are also frequented during weak market periods) and price campaigns.

Market statistics are not in favor of Tokmanni

The durable goods market is important for Tokmanni, so the 3% decline in March after a steady development in January-March does not bode well for the company's Q1 results, which will be reported on May 17, 2024. Our understanding is that consumption is concentrated in everyday product categories with a lower price point. We estimate that some of the durable goods sales have leaked to hypermarkets as a result of high customer flows (Kesko's visitor numbers and Q1 revenue both grew and S Group's revenue increased significantly) and price campaigns. We predict that Tokmanni's revenue in Finland has grown by 0.2% in Q1, driven purely by new stores, with comparable growth slightly negative.

Lindex Group's Stockmann department stores have already reported Q1 figures

The Lindex Group has already reported its Q1 figures, so the March market figures will not provide any material new information for the group. The clothing market, which is important for the Lindex Group, declined by -4% in Q1, while the Stockmann division's revenue fell by 14%. Stockmann’s Q1 development from the comparison period was weakened by the timing of the Crazy Days campaign and the decrease in the floor area of the Itis department store, which was realized last spring. The timing of the Crazy Days is also reflected in the March market figures.