Lindex Q3'24: Poor result, restructuring brings potential

Translation: Original published in Finnish on 10/28/2024 at 8:15 am EET.

Lindex's Q3 results were weak as logistical challenges and a weak market environment weighed on earnings. The upper end of the guidance was lowered and the company now expects full-year adjusted EBIT to be in the range of 70-80 MEUR. Our forecast is 68 MEUR. Despite weaker-than-expected near-term results, we reiterate our Buy recommendation on Lindex as we believe the company will announce the divestment of its department stores in the coming months, which should support the stock. 

Weak Q3 results with lower revenue and profit in Lindex segment

In the third quarter, Lindex Group and Lindex segment revenues decreased by 2% or slightly more in local currencies, both below our expectations. According to the company, this was due to logistical challenges and warm weather. The Stockmann division's revenue decreased by 3%, in line with our expectations. The Lindex division's adjusted EBIT was 21 MEUR, well below our expectations (27 MEUR) and the comparison period (26 MEUR). This was due to weaker sales, gross margin pressure from larger sales campaigns and slightly higher-than-expected fixed costs. The Stockmann segment's result was broadly in line with our expectations and at the level of the comparison period (-5 MEUR). In addition to weak EBIT, EPS were negatively impacted by significantly higher-than-expected taxes.

Top end of the guidance lowered; our forecast fell below guidance

Lindex revisited its guidance and lowered its upper ends. In 2024, the company now expects revenue to change by -2% to 0% in local currencies (previously +/- 2%) and adjusted EBIT to be 70-80 MEUR. In January-September, net sales decreased by 2.2% in local currencies and adjusted EBIT decreased by 11 MEUR, so the guidance suggests/requires a relatively better performance in Q4 than in the first half of the year. We lowered our forecasts after a weak Q3 result. We now expect adjusted EBIT in 2024 to be below guidance at 68 MEUR and also significantly below the comparison period (80 MEUR). We have also lowered our EBIT forecasts for 2025-26 slightly. Higher taxes significantly reduced net income forecasts.

Restructuring process continues, but results of strategic review still promised this year

Since the spring, the company has only one disputed claim (LähiTapiola) related to the restructuring process, for which a district court decision in favor of Lindex was issued on the day of the Q3 results. However, the actual dispute over the arbitration ruling is still pending in court. As a result, the completion of the restructuring process may be delayed until the middle of next year, although Lindex will of course try to reach an agreement with LähiTapiola as soon as possible. However, the results of the strategic review of the Stockmann division were promised to be announced this year. In our view, this suggests that the timetable is not linked to the completion of the restructuring, which we believe would facilitate its implementation. We believe the company will announce the divestment of the department stores in the coming months, which should have a clear positive impact on the stock.

The potential of the restructuring 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 is around 12x, which we think is relatively high, so the upside is mainly in potential restructuring.