Marimekko - Investments into growth continue

Q4 revenue driven by strong sales in Finland

Marimekko’s Q4 net sales amounted to EUR 34.7m (17% y/y) vs. our EUR 34.6m (cons. 34.3m). Sales performance was strong especially in Finland, driven by increased retail and wholesale sales (retail LFL growth 21% y/y). APAC region performed well also, as revenue was boosted by increased wholesale sales and licensing income. Q4 adj. EBIT was EUR 3.0m vs. our EUR 2.9 (cons. 3.0m). Profitability was driven by strong sales but weighed down by increased fixed costs. Proposed ’19 dividend of EUR 0.90 was below expectations (Evli/cons EUR 1.14/1.08).

Expecting a strong year in home market

We expect the good performance in Finland to continue in ‘20E, driven by broader target audience. Domestic wholesale sales are expected to be substantially higher than in ‘19, due to nonrecurring promotional deliveries. We expect ‘20E sales growth of 12% y/y in Finland, representing some 58% of Marimekko’s total sales in ‘20E. We also expect sales to increase in APAC region, though the coronavirus and political uncertainties could have a negative impact on sales. The actions taken to control the grey export cases in APAC region will also have an impact on sales and result. We expect APAC ‘20E sales growth of 2.5% y/y (H2’19 sales included nonrecurring licensing income of EUR 1.6m).

Increased investments into growth

We expect profitability improvement of ~12-18% y/y in ‘20E-‘21E, supported by strong sales growth and improved gross margin. According to the company, investments into growth will be higher in ‘20E, resulting in increase in personnel and marketing expenses. Store network will be expanded by ~10 new stores and shop-in-shops and some existing stores will be renewed. The company will also develop further its digital business and IT systems. We expect total OPEX to increase by ~10% y/y, hampering profitability development.

“HOLD” with TP of EUR 44 (prev. EUR 39.0)

We have slightly increased our ‘20E sales expectation and expect sales growth of 9.2% y/y (136.9m) while we expect adj. EBIT of EUR 20.1m (17.5% y/y). We see that Marimekko is able to achieve and maintain higher margins than the premium goods peer group, which justifies higher multiples similar to our luxury goods peer group median. On our estimates, Marimekko trades at ‘20E-‘21E EV/EBIT multiple of 16.7x and 14.6x which translates into ~20% discount compared to the luxury peer group. We keep our rating “HOLD” with TP of EUR 44 (EUR 39).