Translation: Original published in Finnish on 11/17/2025 at 8:00 am EET.

Tokmanni's Q3 result weakened due to Dollarstore's poor performance, and the good development in Finland was not enough to compensate for this. The second installment of the dividend was not paid to strengthen the balance sheet, which was a disappointment. We lower the target price to EUR 7.7 (was EUR 10.0) and reiterate our Reduce recommendation as forecasts have decreased and risks regarding Dollarstore's future development have increased.

Finland's performance good and Dollarstore's very weak

The Group's Q3 revenue grew by 4% to 433 MEUR. Despite top-line growth, the Group's adjusted EBIT declined to 26.4 MEUR (Q3'24: 29.5 MEUR), which was also clearly below our forecast of 30.7 MEUR. Finland's result was strong given the circumstances, with adjusted EBIT rising to 26.3 MEUR (Q3'24: 25.2 MEUR), with especially strict cost control supporting the result. In the big picture, the segment's improved EBIT margin (8.4% vs. Q3'24: 8.3%) was good news, and the erosion of competitiveness in Finland is not as acute a concern as before.

However, Dollarstore's performance was very weak, as the segment's adjusted EBIT was only 1.1 MEUR (Q3'24: 5.1 MEUR). Concerns were raised particularly by the comparable decline in Dollarstore's customer numbers (-4.9%) as Tokmanni renewed the chain's assortment, and the increased average purchase value (+3.6%) was not enough to compensate for the development. The company explained the customer churn by the removal of low-price-point products from the selection, which has also led to some customers leaving. In the longer term, however, the company sees the assortment changes as the right strategy, provided that the company's own products increase their recognition and attract new consumers. We believe that the high customer churn still surprised the company, and without the realized acquisition synergies exceeding expectations (21.7 MEUR/year run rate), Dollarstore would have been firmly in the red at the operating profit level. Communication has also clearly changed from two years ago, when the acquisition multiples were justified by the chain's 2022 EBIT (16 MEUR) and additional synergies of over 15 MEUR.

The company’s main focus is on profitability

Tokmanni revised its earnings guidance towards the lower end of the previous range. The company now anticipates 2025 adjusted EBIT to be 85–95 MEUR (2024: 99.7 MEUR). We lowered our forecast to 85 MEUR and still expect slight earnings growth from Q4. A second profit warning looms on the horizon, and avoiding it will require a successful Christmas quarter. The company justified its guidance by stating that it sees preliminary, but still faint, signals that the market might be improving. The company also stressed that it had shifted its strategic focus towards profitability at least for the rest of the year and H1’26 before the new management takes over. It aims to achieve this through comparable growth, by improving gross margin and with strict cost control. The company continues to strive for more efficient working hours and marketing, in which it succeeded well in Finland during Q3.

Dollarstore will also open 5 new stores in Q4, so the pedal remains to the metal for that part of the business. However, the chain's like-for-like growth must turn positive, which requires the current assortment strategy to work. Our expectations for earnings growth in the coming years and in the long term have clearly decreased, but we still expect earnings growth to improve, driven by the target market and Dollarstore's expansion.

Risk/reward slightly tilted to the former

Tokmanni's low valuation compared to its own history and peers (2025e P/E 11x and EV/EBITDA 6x) is already starting to attract us. However, we do not yet see a rush to buy, as Dollarstore's development raised too many questions and the risk of an earnings warning for the rest of the year is evident. The expected return would be supported by a 6% dividend yield, but there is also uncertainty about its sustainability if the earnings level continues to weaken, e.g., if Dollarstore's challenges continue. The value indicated by the DCF model (8.2e) suggests an upside, but this is also very sensitive to the company's long-term profitability level.