Translation: Original published in Finnish on 12/11/2024 at 9:19 am EET.

Puuilo released an excellent Q3 result. Revenue growth was primarily driven by new store openings, while like-for-like growth was in line with the prior year. We believe the slightly weaker comparable store performance was due to a decline in the average basket as customer numbers continued to grow. The improved gross margin and cost efficiency increased the result to an excellent level. We believe the company will meet the guidance repeated in the report. The share price should react positively when trading begins. Puuilo's Q3 conference call in English is available here.

Growth is driven by new store openings

Puuilo's Q3 revenue grew by 11% year-on-year to 102 MEUR. The result was in line with our expectations (Inderes 103 and consensus 105 MEUR). Growth was entirely driven by new store openings, as like-for-like growth remained at the same level as last year (-0.4%).
 Compared to the same period last year, the store network grew by a record seven stores. Comparable store sales growth (2.5%) signaled the attractiveness of the concept, with price-sensitive consumption still concentrated in profitable, lower-priced product categories. Therefore, there is no real drama in the weak comparable revenue development as we believe the basket will pick up as the market environment improves. Overall, we see the quarter going well in terms of sales.

Excellent margins and cost efficiency brought profitability to record levels

Q3 EBITA improved by 29% from the comparison period to 19.7 MEUR. This equates to a relative profitability of 19.2%, an excellent level for retail and the highest margin achieved by Puuilo in Q3. Profitability was well above expectations (Inderes 17.3 and consensus ~17.9 MEUR). The improved profitability was mainly driven by a higher-than-expected gross margin, positively impacted by a sales mix weighted towards profitable lower-priced products and an increase in the share of own brands. Fixed costs also grew more slowly than expected, likely due to the company's investments in more efficient shift scheduling. Financing costs were in line with our expectations and excellent profitability explains the EPS of EUR 0.17 (Inderes EUR 0.15 and consensus EUR 0.16), which exceeded our forecast.

Expected reiteration of guidance, market environment not expected to pick up until H2'25

Puuilo reiterated its guidance indicating revenue of 380-400 MEUR and adjusted EBITA of 60-66 MEUR, as expected. Based on the Q3 performance, in order to reach the lower end of the guidance, revenue of at least 82 MEUR (7.3% growth) and EBITA of at least 7.3 MEUR are required. This seems achievable, as the forecasts prior to the Q3 report (consensus/Inderes revenue: 90.4/90.1 MEUR and adjusted EBITA: ~12.3/13.4 MEUR) are well above the minimum threshold for both revenue and earnings. The company believes that the worst of the market turmoil is behind us, but that a clear improvement will have to wait until the second half of next year. As a result, like-for-like revenue growth is expected to remain at historically low levels (<5%), although the record pace of new store openings (6-7/year) should offset this. According to our preliminary estimates, our forecasts are subject to moderate upside following a strong Q3 result.