XXL (Sell, TP: NOK70.00) - Weather talk set to continue
XXL is due to report its Q2 results at 07:00 CET on 20 July. We expect weak results, hit by the warm weather in the Nordics and competitive markets in Sweden and Austria. While we feel the valuation is becoming less demanding, in our view this is unlikely to represent a catalyst as long as the estimate revisions trend remains negative. Hence, we have downgraded XXL to SELL (HOLD) and cut our target price to NOK70 (73), reflecting minor negative estimate revisions and the NOK2 dividend. Expecting soft quarter below consensus. We forecast Q2 EBITDA of NOK241m versus consensus (SME) of NOK268m. Our forecast reflects 2.6% LFL sales growth and 11 new stores YOY. We forecast three new store openings in Q2. In terms of gross margins, we see stable markets in Norway and Finland despite the warm weather, while we find the pricing in Sweden and Austria to be competitive. Our forecast reflects a NOK13m EBITDA loss from Austria. Warm weather. Retail sales statistics for sports in Norway and Sweden are up 1.2% and 14.7%, respectively, for April, while no retail statistics have been announced for May so far. We are concerned that the exceptionally warm weather in the Nordics has had a negative impact on spring sales and made it challenging to drive footfall in stores. However, the jury is still out as June is the most important month in the quarter. Store guidance. We expect XXL to reiterate its 2018 guidance of 7–9 (our forecast: 9) new stores, of which we forecast that five stores had been opened by the end of Q2. Estimate revisions. We have cut our 2018e EBITDA by 1% ahead of the report, primarily reflecting negative estimate revisions for Sweden. Downgraded to SELL (HOLD), target price cut to NOK70 (73). At our target price, XXL would be trading at a c15.0x 2018e P/E, essentially in line with its peer group. We believe success in Austria will be key to sustaining XXL’s growth prospects long-term.XXL ASA, formerly known as Megasport AS, is a Norway-based retailer of sporting goods. The Company offers a portfolio of products including clothing, shoes, bicycles, wilderness products, sports equipment, training supplies and equipment, lifestyle and wellbeing products, fishing and hunting equipment, dog toys and accessories, riding clothing and accessories, as well as clothing, equipment and accessories for winter sports. Additionally, it offers services such as bike repair and maintenance, hunting excursion and courses, fishing trips, riding holidays, and dog training. The Company operates via around 40 stores, primarily in Norway but also in Sweden and Finland, and via an e-commerce platform.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
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