Tokmanni competitor Rusta developed in line with the market

Translation: Original published in Finnish on 12/10/2024 at 9:15 am EET.

Nordic discount retailer Rusta reported Q2'25 (August-October) sales broadly in line with expectations. However, earnings landed below expectations, possibly due to negative currency movements. Tokmanni, which we cover, appears to have outperformed the market in Q3, which we believe is a positive factor in overcoming the company's early year hiccups.

Good growth in the main markets

Rusta's revenue increased by 3% (5% adjusted for currency effects) to 2,723 MSEK. This was slightly below the consensus expectation of 2,760 MSEK. Sales growth was supported by the store network, which increased by five units versus the prior year. The company reported an increase in customer volume during the quarter, but spending was concentrated on lower-priced private label products, resulting in a decline in average basket size. The Group's like-for-like growth remained sluggish at 0.8%, although the main markets of Sweden (2.2%) and Norway (2.8%) showed reasonable growth. Comparable revenue in Other markets (Finland, Germany and Online) declined by up to 5.4%, which we believe reflects weak market conditions and increased competition. The vast majority of Other markets' sales are generated in Finland, so we believe that this reflects the development of the Finnish business quite well.

Rusta's EBITA deteriorated slightly year-on-year and amounted to 135 MSEK (4.9% of revenue). This was well below the consensus expectation of around 180 MSEK. The decrease in profitability was driven by Norway and Other markets, while Sweden’s profitability remained at the level of the comparison period. However, the ultimate factor that weighed on profitability was currency movements, and FX-adjusted profitability would have improved year-on-year, driven by improved sales margin and cost efficiency, according to Rusta.

Overall, we see Rusta losing market share in Finland, while market leader Tokmanni managed to increase its sales (3% reported and 0% like-for-like). In Sweden, however, Rusta's performance was broadly in line with Tokmanni's Dollarstore concept (comparable growth 3%). The revenue of Europris’ Swedish ÖoB remained close to the comparison period, so we can conclude that Dollarstore in particular was among the market share winners.

More stores will be opened than the previous target level

Rusta raised its potential for new store openings to 50-80 (prev. 40-60). At the end of Q2, the company had a total of 218 stores in the Nordic countries and Germany. According to the company, this is made possible by the improved profitability potential of the stores, which is influenced, for example, by the improved rental market from a retail perspective. No specific locations were mentioned in the report, but we expect new openings to be concentrated in all major markets (Sweden, Norway and Finland). The increased ambition to open new stores is also increasing the competitive pressure in the market, as more operators have announced plans to expand their discount store concepts in the Nordic countries, including Tokmanni and Puuilo, which we monitor.

Optimistic about the future

Rusta reported that the holiday season in Sweden got off to a good start with an increase in customer numbers and average basket size. The company said it was more optimistic than before about consumer sentiment. However, investors should note that Sweden appears to be the fastest to recover from the retail recession in the Nordic countries in terms of interest rate cuts and a recovery in consumer confidence. Consumer confidence in Finland is still below its long-term average, and we do not expect it to recover until 2025.