Retail outlook for the rest of the year bullish but still moderate

Translation: Original published in Finnish on 7/1/2025 at 7:58 am EEST.

The start of the year was mixed for the retailers we are monitoring. Overall, operating environments remained sluggish in each operator's target market, although a clear upturn was seen in the trend for those focused on specialty retailing. We have reasonably moderate top-level growth expectations for the rest of the year, and we do not yet expect the market to be a clear catalyst for companies' revenue growth in 2025. The profitability trend varies by company, but in absolute terms, the group of companies we monitor should see an increase in earnings, supported by a slight rise in revenue.

Tokmanni's performance expected to improve clearly in the first half of the year

While Q1 was relatively lackluster for Tokmanni, the timing of Easter deviating from the comparison period served as a negative driver for the company. Thus, the group should see a substantial improvement in Q2, supported by Easter. Puuilo and Rusta reported strong seasonal sales in April, but sales in May will likely remain weak in the discount retail sector due to weather conditions. Overall, macro factors have been moving in the right direction, but concrete signs of market growth have been elusive thus far. Therefore, we expect 2025 to be reasonably flat from a market perspective, with growth picking up more clearly only in 2026. For Tokmanni, store expansion in the Dollarstore segment is a key growth driver, and introducing the SPAR concept in Finland could further support domestic progress. We expect the group's revenue to grow by 5% in 2025. Regarding earnings, we believe prospects for meaningful growth are limited due to the weak start to the year and the continued clearance sales we see in the Dollarstore segment. We forecast that the company's profitability will deteriorate by around 0.4 pp to 5.7% in 2025.

Kesko has solid prospects for improved earnings

Kesko had a reasonably steady start to the year. In 2025, the group's revenue and result should be bolstered by a reviving construction market, acquisitions in the building and technical trade, and robust momentum in the car trade. The result in the building and technical trade in particular has been depressed to a very low level, which the company should be able to improve based on the growth achieved in the first half of the year. We expect the grocery trade's revenue to increase, but the result to deteriorate, largely due to the company's price investment program. This situation itself is temporary, as the program should bear fruit in the medium term through an increased flow of customers. While both the company and retailers have commented that the price investment program has increased sales of discounted products, the key would be to increase the overall basket size so that the margin sacrifice positively impacts more than just customers' wallets. At the group level, we forecast an adjusted EBIT margin of 5.5% for 2025, which is in line with the comparison period.

Puuilo's strong start to the year bodes well

Puuilo's excellent start to the year set the bar high. Sales growth will continue to be driven by the expansion of the store network (at least 7 new stores in 2025) and an expected pick-up in like-for-like growth compared to the previous year. In addition to revenue growth, we believe that new product launches in private label and a scalable business model are setting the stage for clear earnings improvements in 2025. If there are positive changes in the market environment, the company's sales growth will exceed our estimates, likely leading to a positive profit warning. We forecast revenue growth in line with guidance (16%) and an EBITA result bordering on the upper end of the guidance range, implying an EBITA margin of 17.6% at the revenue level we project (2024: 17.0%).

Verkkokauppa.com returns to growth

Verkkokauppa.com's revenue showed growth in Q1 after several years of stagnation. The earnings level also improved significantly and exceeded expectations. The international business has gained strong momentum with new customer wins, while a clear recovery in the Finnish consumer business will likely take a few more quarters. However, a positive driver in Finland has been the shift to high-definition televisions, resulting in strong sales growth for the product category at the market level. From an operational standpoint, the company appears to have successfully managed its product mix and improved efficiency, allowing for a structural increase in the gross margin from approximately 15-16% toward 17-18%. This is crucial because even a small change in the gross margin trickles down quite effectively to the earnings lines. The company has also improved its fixed cost structure, which we believe will bear fruit within the next two quarters. As a result of these factors, we expect Verkkokauppa.com's revenue to grow 2% and its EBIT margin to improve significantly, rising from approximately 0.4% to 1.7%.

Significant efficiency program and recovering demand for new cars expected to contribute to Wetteri's turnaround

Wetteri's Q1 revenue decreased both organically and due to the divestment of the Wetteri Power business. Used car sales have posed challenges for the company during the first part of the year. As the car stock did not respond well to consumer demand, its restructuring measures weighed on profitability in Q1. Additionally, weak demand for new cars has hurt the performance of both the Passenger Car and Maintenance Services segments. Wetteri has justifiably shifted its strategic focus from growth to profitability, and this year the company launched an efficiency program targeting 8 MEUR in cost savings. The recovery of the Finnish new car market, which is important for the company, has been more subdued than expected this year, weighing on the outlook. In May, Wetteri withdrew its guidance for the current year, and our 2025 comparable EBIT forecast of 3.3 MEUR is still far from our view of the company's normalized performance.  We anticipate that falling Euribor interest rates and pent-up demand will revive new car sales from their historically weak levels, though the exact timing and magnitude of the recovery remain unclear at this point.

Kamux's internal challenges leading to profit warning

Kamux's Q1 result was the company's weakest quarterly result ever, with adjusted EBIT falling to a loss of nearly 2 MEUR. This was due to declining volumes and market shares in all markets, which started already in late 2024. The used car market, relevant to Kamux, has not offered growth this year, and together with the company's internal challenges, this should make achieving results difficult in the coming quarters as well. We expect the weak earnings level to persist throughout the year, though the comparison figures for Q2 and especially Q4 are already low. Although Kamux has guided for an improvement in full-year adjusted EBIT from 11.6 MEUR in 2024, we forecast the result to remain below 10 MEUR. Consequently, we believe the company will have to lower its guidance during the rest of the year.

Lindex's restructuring nearing completion 

Lindex's Q1 results weakened year-on-year, as the Lindex division's result was impacted by a soft market and, in particular, by the relocation/ramp-up of the logistics center. However, the company announced positive news in early June when it settled its last dispute related to the restructuring process, which will therefore end during Q3 once confirmed by the court. This will also improve the chances of completing the "strategic review" of the department store business, which has been ongoing for over 18 months. We believe the company will attempt to sell the department store business, which could realistically occur during the remainder of the year, once the restructuring process is complete. The end of restructuring will also allow the company to restructure its financing and pay dividends. 

In terms of the result, we expect Lindex to reach the lower end of its guidance range of 70-90 MEUR in adjusted EBIT for this year. Introduction of the new logistics center during this year will enable savings of 10 MEUR (before depreciation) and improve the growth potential of the Lindex chain. This should allow the company to improve its results next year, and we believe that exiting the department store business would positively impact the company and its stock.