Orthex Q1 on Wednesday: Demand slump over, but environment remains subdued

Translation: Original comment published in Finnish on 5/13/2024 at 9:59 pm EEST.

Orthex will publish its H2 report on Wednesday at 9:00 am EEST. Despite weak sales at Nordic retailers, we expect a slight increase in revenue, which, together with a higher gross margin, supports the earnings growth in our forecasts. Orthex does not provide short-term guidance. This year, we expect the company to deliver revenue growth of 5% in line with our financial targets, but our EBIT margin forecast of 14% is still far from our longer-term EBITA target of over 17%. We will review the interim report on Wednesday in our earnings live (in Finnish) starting at 8.55 am EEST.

Nordic retailers' sales were weak in Q1

Due to weak sales in the Nordic furniture and hardware trade at the beginning of the year, we have lowered our Q1 revenue forecast for Orthex to 21.2 MEUR (was 21.8 MEUR), which represents a year-on-year increase of 4%. The company is facing a reasonable comparison period as orders in the Nordic countries were postponed from Q4 to Q1. The demand dynamics of the comparison periods also explain the marked slowdown in revenue growth in our forecasts compared to the fourth quarter. Orthex sales suffered for a long time from the efforts of distributors to reduce their stock levels, but these efforts seem to be behind for Orthex products. We expect a cautious 2.5% growth in invoiced sales in the Nordic countries and a healthy 6% growth in the rest of Europe.

We see some room for gross margin improvement

We expect Orthex to deliver a good earnings improvement, supported by increased revenue and a strengthening gross margin. However, we have slightly lowered our Q1 earnings forecast to 2.8 MEUR (was 3.0 MEUR) as a result of the challenging demand environment. Higher sales and marketing investments than in the prior-year period limit the profitability improvement in our forecasts, but given the company's high normalized profitability, we believe the growth investments are justified. A concrete investment in sales and marketing is the Benelux sales organization established in Q4'23.