Marimekko - Investing in growth in 2019E

Name: Evli
Price range: $

Marimekko’s Q1 result hit all-time record and beat our estimates. Growth was mainly boosted by strong retail sales in Finland and wholesale sales in APAC. Even though adj. EBIT in 2019E is expected to remain flat, annual growth is likely to continue with good momentum. We upgrade our rating to “Hold” (“Sell”) and our TP to 25 (22).

Growth on the right track

Q1 revenue growth was 13% y/y and totaled EUR 27.1m. This was driven by wholesale sales growth in APAC and retail sales growth in Finland where LFL-growth was 12% y/y. As APAC wholesale sales was mainly impacted by deliveries that were transferred from Q4’18 to Q1’19, we expect wholesale sales to normalize during 2019E. In Finland, similar sized, non-recurring promotional deliveries as in 2018 (in Q2 and Q4 especially) are not expected to occur in 2019E. The company’s total sales are expected to grow from last year.

Investments in growth will increase 2019E expenses

Marimekko’s plan for 2019E is to invest in growth, which increases expenses. Major part of the investments will be used to revamp store network. Marketing expenses are expected to increase in 2019E as well as investments into IT and digitalization. These will weigh down adj. EBIT in 2019E but are likely to boost growth in the upcoming years. Marimekko has also become aware of grey exports in Asia, which could incur further costs.

Upgraded to “Hold” (“Sell”) with TP of 25 (22)

We have updated our estimates to take into account the IFRS 16 changes but kept the underlying 2019E figures mostly intact. We expect 2019E sales of EUR 118m (6% growth) and EBIT of EUR 13m (’18 EUR 12m). We have increased our growth expectations for ‘20E with sales growth of 7% y/y. On our estimates, Marimekko trades at EV/EBITDA 19E-20E multiple of 9.1x and 8.0x, which translate into 19% and 13% premium compared to the premium goods peer group. Investments in 2019E should support future growth but we are not ready yet to put emphasis on ‘20E-‘21E. We upgrade to “Hold” (“Sell”) with TP of 25 (22).

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