Lindex Q4'24 preview: End of year seems to have gone relatively well

Translation: Original published in Finnish on 2/4/2025 at 8:45 am EET.

Lindex seems to have avoided the profit warning we had expected, which brings our forecast to the lower end of the guidance range. We expect this year's guidance to point to modest earnings growth. However, the most important issue for the investment thesis is the sale of the department store business and the completion of the restructuring, which is still pending. We reiterate our Buy recommendation and EUR 3.5 target price. 

Q4 earnings seem to be slightly up year-on-year

Lindex has guided for an adjusted EBIT of 70-80 MEUR for the full year (vs. 2023: 80 MEUR). For the first nine months, the result was 11 MEUR behind the comparison period level, and after the Q3 result we expected the full-year result to be below the guidance at 68 MEUR. However, there was no profit warning from Lindex, suggesting that the company will meet its guidance. We have raised our earnings estimates in this report and our full-year forecast is now at the lower end of the guidance range. For Q4, we forecast an adjusted EBIT of 31 MEUR, slightly above the comparison period (Q4'23: 30 MEUR). We expect revenue to be flat year-on-year. In Finland, the market remains weak and we expect a slight top-line decline for the Stockmann division. The Swedish apparel market, on the other hand, showed slight growth, which we believe was also achieved by Lindex. Lindex will report its Q4 results on Friday, February 7.

Restructuring dispute and strategic review drag on

As we have already stated in our previous comments (e.g. here), the solutions we expected at the turn of the year regarding the restructuring of Lindex have been delayed. The last restructuring case is still pending before the Court of Appeals and will take at least until the end of the year to be resolved. However, we expect the company to resolve the dispute sooner rather than later so that the restructuring can be completed. Regarding the strategic review of the department store business, the Stockmann division, the company has extended the process to H1'25 and has not provided any update on the progress of the review. We continue to believe that Lindex is looking to divest the department store business in one way or another, which we think would be very supportive for the stock. The timing may be partly related to the above dispute, i.e., Lindex may want to wait until the end of the restructuring process is in sight before announcing the results of the strategic assessment, although the company has not said so directly. In addition to the restructuring timeline, the main question is likely to be whether Lindex can find a buyer/taker for the department stores on terms suitable for Lindex.

We expect a small improvement in earnings this year

After the pandemic years, the Lindex group has achieved an adjusted EBIT of 80 MEUR in 2022 and 2023, and our estimate for last year is 70 MEUR. We expect the 2025 revenue level to be in the same range at 75 MEUR. Lindex is in the process of commissioning a new logistics center in Sweden during H1'25, which is expected to generate savings of 10 MEUR (at EBITDA level) from 2026 onwards and provide the Lindex division with better growth opportunities. This will also significantly improve the company's cash flow once the investment has been made and begins to support earnings. While the restructuring is still ongoing, Lindex cannot pay a dividend.

The potential of a structural change still offers a good expected return

Based on the company's strategic assessment of the department store business, we believe that the sum-of-the-parts model is the best valuation method, which values the company at around EUR 4 per share. However, this should consider the uncertainties related to the manner and schedule of the possible structural changes in department stores. Overall, however, we think the expected return is good. With the current structure, the company's 2024 EV/EBIT (adjusted for lease liabilities) is around 11x, which we think is quite high, so the upside is mainly in potential restructuring.