Verkkokauppa.com - Growing in a soft market

Sales mix and increased costs pressed the margins
Verkkokauppa.com delivered strong growth figures, but decreased gross margin, additional warehousing, and marketing costs pressed the profitability below our estimates. Top line grew by 9.1% y/y to EUR 141m (Evli: 139.7m). Online sales grew at an 18.7% y/y pace, while B2B sales were up 22% y/y. Export business returned to the growth path with a sales increase of 4.5% y/y. Gross profit remained even y/y and amounted to EUR 20.9m (Evli: 23m). Gross margin weakened to 14.8% (Evli: 16.5%) and was affected by stronger sales in lower-margin categories. Increased price competition pressed the margins further down. EBIT fell short of our expectations (EUR 6.8m) and decreased by 17% to EUR 4.7m (margin of 3.3%).

We made minor adjustments
While core categories performed well, growth was also seen in evolving categories. Despite the softened markets, the company also gained some market share in traditional consumer electronic markets. The Q4 has usually been price-driven, meaning that coming campaigns might have an impact on the company’s margins. Considering the increased cost pressures, marketing investments, and changes in warehousing, we made only minor adjustments to our FY’21-22 estimates.

BUY with a target price of EUR 10 (10.8)
Verkkokauppa.com reiterated its FY’21 guidance and expects revenue of EUR 570-620m and adj. EBIT of EUR 20-26m. We expect revenue of EUR 600.1m and an adj. EBIT of EUR 21.4m (3.6% margin). Our view on the company’s growth path remains bright, but increased competition made us tweak the profitability down for 21-22E. On our adjusted target price, the company’s valuation is approximately in line with its peer group. We retain our BUY-rating and adjust TP to EUR 10 (10.8).