* Net sales -6% y-o-y, EBITA -13% y-o-y
* Strategic staffing-up now in comps, DTC progressing well
* We trim our fair value range to SEK 35-42 (36-43)
A perfect storm hit in Q2, but subsiding in H2
Embellence's Q2 contained several, but separate, issues operationally. Cole & Son was still weighed down by the same changes to its sales operations as were discussed in Q1, for net sales growth of -12% in this segment. The group CEO said he expected the previous changes to Cole & Son's setup to have a positive impact in H2. Wall & Decò underperformed through net sales growth of -14%, as far as we understand it due to issues with the sales operations. The group is now reallocating sales and marketing efforts to turn this trend. Lastly, Artscaped faced a very tough comparable quarter, and grew -20%. Driven by these factors, group net sales declined 6% y-o-y despite strong performances by Pappelina and Borås Tapetfabrik. Gross margins improved 80bp y-o-y driven by DTC making up a larger share of the mix, which partly offset the negative scale on opex for a Q2 EBITA margin of 12.6%, -1pp y-o-y. The EBITA comps become easier from Q3'26, as recruiting to drive DTC will mostly be in the comps.
All brands grew DTC sales by double-digits
During the report presentation, the group CEO said all group brands grew their DTC sales by (at least) "double-digits". Pappelina, which we argue has the best product-channel fit, grew DTC sales by 130% y-o-y. Boråstapeter, the largest brand, updated its website in April, and in the next few quarters this is a key area to focus on for us.
We trim our fair value range to SEK 35-42
As we cut '26e/'27e EBITA by 2%/2%, we trim our fair value range to SEK 35-42 (36-43). The share is currently trading at 7x/6x/5x EV/EBITA '26e/'27e/'28e, compared to a historical trading range of 7x-8x NTM and a Swedish peer group of home improvement companies at a median 12x/10x on '26e/'27e. We estimate an 11-13% FCF yield for '26e/'27e, and a dividend yield of 6%.