Puuilo Q2'24 flash comment: A minor revision to guidance tarnishes an otherwise excellent report

Translation: Original comment published in Finnish on 9/12/2024 at 9:24 am EEST.

Puuilo's Q2 (May-July) figures were broadly in line with our expectations in terms of profitability. The strong but slightly lower than expected revenue growth was driven by a network that grew by several stores year-on-year and by a healthy increase in sales from older stores. Profitability was once again at an excellent level for the business. Although the refined guidance range is still within the range of our pre-report forecasts, there is moderate downward pressure on our forecasts given the uncertainties in the market.

Sales growth from both new and old stores

Puuilo's Q2 revenue increased 15% year-on-year to 119.9 MEUR, slightly below expectations (Inderes 125 and consensus 121 MEUR). The growth was driven by an increase of seven stores in the store network and a 2.1% increase in old stores (LFL). LFL growth was slightly below our expectations, which was the main reason for the forecast miss. However, the company's customer traffic grew faster than revenue (reported 18.7% and LFL 4.7%), which we believe is positive news in the long run. This suggests that the average customer basket in euro terms declined (less purchases of higher value products) during the quarter, which we believe was impacted by weak consumer confidence and spending power. According to the company, sales of the Hurrikaani stores, acquired through an acquisition, have exceeded management's expectations. We think this is positive news, as we estimate that the sales impact of these stores is much greater than that of a completely new Puuilo store.

Excellent profitability in a challenging market environment

Puuilo's adj. EBITA increased to 24.8 MEUR, which was fairly in line with our forecast expecting 25.4 MEUR. The Q2 result corresponds to a relative profitability of 20.7%, which is an excellent level for a retailer. In terms of profitability drivers, the company's gross profit benefited from a more favorable sales mix and a higher share of private label products, reaching 37.6%. We expected the relative margin to be in line with the comparison period (37.1%). Fixed costs were a touch lower than we expected. Thus, despite the lower-than-expected revenue, profitability was more or less in line with expectations.

As expected, financial costs remained in line with the comparison period and our forecasts due to the reduced debt burden, but taxes were slightly lower than expected, with earnings per share of EUR 0.22 fully in line with expectations (Inderes and consensus EUR 0.22).

A small refinement to guidance

The company revised its guidance previously targeting revenue of 380-410 MEUR and an adj. EBITA of 60-70 MEUR. The new guidance indicates a revenue of 380-400 MEUR and an adj. EBITA in the range of 60-66 MEUR. According to the company, the guidance revision was based on the H1 results and the outlook for H2, which is affected by, among other things, changes in the VAT rate, purchasing power and consumer confidence. The midpoint of the new guidance implies growth of more than 15% and profitability of 16%, slightly above our (400 and 64.5 MEUR) and consensus (394.8 and 62.7* MEUR) forecasts for 2024. Thus, our preliminary estimates suggest moderate downward pressure on our forecasts.

While the company did not say much about the current market environment, several other retailers have commented that it remains challenging. Most recently, the figures reported today by Puuilo's peer Rusta (LFL group +0.5%; Finland, Germany and e-commerce -1.2%) show that the market remained challenging in all Nordic countries. Based on the market figures, Puuilo has clearly been on the winning side, and we see no reason why this should not continue to be the case in the future as well.

* EBIT (not EBITA)