Trade growth picking up

Translation: Original comment published in Finnish on 4/2/2024 at 1:58 am EEST.

The target market (department store and hypermarket chains) for Kesko’s daily goods trade, Tokmanni, and Lindex (formerly Stockmann) grew by 6.2% in February, a clear recovery from January's moderate figures. Food grew by as much as 6.7% and durable goods also grew strongly by 4.5%, in contrast to the weak previous months. Within durable goods, growth was split between clothing, up 3.2%, and home and leisure, up 4.9%. Trade inflation has slowed to below 1%, signaling clear volume growth. The performance of Kespro's Foodservice target market was down 1.5% for the first time in a while, despite one more delivery day than in the comparison period.

In Q1, trade figures are 'structurally' affected by the additional day in February due to the leap year and the timing of Easter at the end of March, when last year it was in April in Q2. For wholesalers (such as Kesko), however, no major growth is expected in March, as the number of delivery days is down by two in the consumer grocery trade and three in the professional trade in relation to the comparison period.

We would like to point out that the disruption to trade caused by the Finnish port strikes and other supply chain issues (Suez Canal bypass) has so far been limited, according to company comments. The transit time for sea freight from Asia has been extended by a few weeks, and after the initial price reaction, the freight costs have started to stabilize. As a consequence of the strikes, goods arriving by sea have had to be held in European ports or brought to Finland by other modes of transport, which will entail additional costs. If the strike continues, there is of course a risk to product availability, but so far there has been no significant shortage of goods in stores.

Kesko's performance in line with the market

Kesko’s daily goods trade grew by 5% in February, within which wholesale to retailers grew by 6% and Kespro continued to grab market share with a 2% increase. Kesko also reported an increase in its sales of durable goods. We see Kesko's performance relative to the market as neutral, but we also consider the company's return to volume growth to be positive after a weak year. The March figures will be boosted by the timing of Easter in Q1, unlike last year, but the lower number of delivery days will limit the growth potential of wholesale sales. The performance of Kesko's daily goods trade in January-February was slightly above our expectations and the development of Easter sales largely determines the accuracy of our Q1 growth forecast of 1.5%.

Favorable market developments for Tokmanni in the near future

Tokmanni has suffered from the weak Finnish durable goods market in Q4 and January. Consumption has shifted to grocery products with a lower margin structure, where we believe competition has also been very intense. Now the trend is improving as durable goods trade picks up. We forecast the Q1 growth (~1%) in Tokmanni's Finnish operations to be purely driven by new store openings. As the durable goods market continues to improve, there may be some upward pressure on our growth forecasts for old stores.

Lindex's Stockmann stores' quarter weakened by the timing of the Crazy Days campaign

The development of the clothing market, which is important for Lindex, was -1% in January-February. The Q1 development for the Stockmann division is also weakened from the comparison period by the timing of the Crazy Days campaign and the decrease in the floor area of the Itis department stores, which was realized last spring. Our revenue forecast for the Stockmann division is a 5% decrease in Q1. Taking into account the negative effects mentioned above, the January-February performance is broadly in line with our expectations.