Marimekko - Growth strategy expected to succeed

Strong Q2 earnings

Marimekko’s Q2 revenue was in line with expectations at EUR 29.1m vs. EUR 31.1m/29.8m Evli/cons. Revenue growth was good especially in Finland where comparable retail sales increased by 17% y/y and totaled EUR 16.8m vs. 16.7m Evli view. Also, growth in wholesale sales in EMEA region was good. Wholesale sales in Finland decreased by 18% y/y as there were large non-recurring wholesale deliveries in Q2’18. International revenue was EUR 12.4m vs. EUR 14.4m Evli view. Adj. EBIT was EUR 3.7m vs. EUR 3.5m/3.2m Evli/cons. Earnings were supported by increased sales and gross margin improvements, which were impacted by moderate sale campaigns and increased retail sales.

Broader customer segments support growth

Marimekko had a strong H1 as the company’s revenue grew by ~8% and adj. EBIT by ~46 % y/y. We expect the good momentum to continue as the company has been able to target wider customer segments and seeks to improve growth through online store, partner-led retail in Asia as well as by increasing the sales/m2 in its physical stores. Marimekko has approximately 150 stores in 15 countries, of which most of the stores are outside of Finland and the company aims to open 10 new shops or shop-in-shops in 2019. In APAC, Japan is the largest market area but the company sees growth opportunities in other countries as well. Net sales from APAC represented 21% of total sales in H1’19. During the last couple of years, the company’s combined revenue from APAC has been flat but the company has indicated that the revenue from APAC is likely to increase in the future as the strategy is to appeal to broader target audience globally. We expect APAC’s retail revenue in 2019E to increase by ~20% y/y and wholesale sales growth of ~13% y/y. In Q2, Marimekko updated its guidance for 2019, mainly as it expects higher licensing income in APAC during H2’19. The company reiterated its guidance for 2019E revenue and expects the revenue to be higher than in 2018 and expects operating profit to be higher than in 2018, approximately maximum of EUR 15m (previous: operating profit expected to be in the same level as in 2018). The company targets 10% y/y revenue growth and EBIT% of 15% in the long-term. We expect 2019E revenue of EUR 123m (prev. EUR 125m) and EBIT of EUR 15m (prev. EUR 14m), resulting in EBIT% of 11.9%.

We retain ”HOLD” with TP of EUR 30 (prev. EUR 26)

We have kept our underlying estimates largely intact but increased our 20E-21E estimates as we expect broader target audience and improved gross margin levels to support growth. We expect the company’s revenue to grow ~8% y/y in 20E-21E and EBIT growth of ~20% y/y. On our estimates, Marimekko trades at 19E-20E EV/EBITDA multiple of 9.7x and 8.6x which translates into ~50% premium compared to the premium goods peer group. We see Marimekko’s current valuation as stretched, but as we expect the company to transition towards new customer segments and markets, which should accelerate growth and enable the company to reach a new profitability level, we accept the premium. Our EBIT% estimates are already shifting towards the luxury goods peer group which also justifies higher multiples. We keep our rating “HOLD” with new TP of EUR 30 (prev. EUR 26).