Marimekko - Strong outlook ahead

Q3 earnings supported by increased sales both in Finland and international

Marimekko’s Q3 result was strong, as expected. Revenue grew by 15% and was EUR 34.5m vs. EUR 34.7m/33.8m Evli/consensus. Sales is Finland grew by 14% while international sales increased by 17%. Marimekko’s sales grew in all the market areas, growth being particularly good in Finland and APAC region. In Finland, growth was driven by retail sales (16% y/y). In APAC region, retail sales increased by 14% and wholesale sales by 9%. Also, increased licensing income boosted sales in APAC. Comparable operating profit was slightly higher than consensus estimates but in line with our estimate at EUR 7.8m resulting in EBIT margin of 22.7% (vs. EUR 7.8m/7.6m Evli/consensus). Earnings development was boosted by the good growth in net sales but at the same time profitability was impacted by increased fixed costs which were partly due to the share-based incentive scheme for management.

Successful launches appeal to a wider target audience

In Jan-Sept, Marimekko’s sales development has been good especially in Finland (9% y/y) and APAC region (14% y/y), which are the two main markets for the company but also in EMEA (25% y/y). Marimekko’s brand continues strong in Finland and the company has been able to reach new customer groups while keeping the existing customers, resulting higher sales. Marimekko’s first (unisex) streetwear collection KIOSKI, which was launched in Q3 is an example of the actions the company has taken in order to appeal to a wider audience. The launch of the collection was successful and we see the collection to appeal well to a younger customer base in particular. In addition to Marimekko KIOSKI, the new leather bag line supports the company’s strategy as bags and accessories (share of net sales ~26%) provide a convenient way to introduce the brand to new customers. In Q3, Marimekko’s prints were also part of an anniversary collection by Target, bringing a lot of visibility in the US. During Jan-Sept, most of the company’s net sales were generated in Finland (54%) while 21% of net sales came from APAC region. Finland and APAC both represent ~37% of brand sales.

Growth strategy to support outlook for 19E-21E

We expect 19E revenue to grow by 10% y/y in Finland and 14% y/y internationally. In our assumptions, Finland represents ~55% of the total revenue in 19E-20E. We expect retail and wholesale sales to develop favorably in the future resulting from increasing global brand awareness and wider customer base. Increasing retail sales should also support gross margin improvement. We have slightly adjusted our 20E-21E outlook by increasing our revenue expectation by some 1% while increasing our 20E-21E EBIT expectation by 0.5% and 5.7%. We foresee revenue growth of ~8% in 20E-21E. Marimekko’s target is to achieve operating profit margin of 15% which we see achievable given the growth outlook. We also expect increasing e-commerce to support growth.

“HOLD” with TP of EUR 39 (30)

We expect Marimekko’s 2019E sales to grow by 12% and to total EUR 125.3m. We have increased our EBIT expectation to EUR 17.0m (prev. EUR 16.8m), resulting in EBIT margin of 13.6% (2018: 10.9%). We see that Marimekko is able to achieve and maintain higher margins than the premium goods peer group, which justifies higher multiples similar to our luxury goods peer group median. On our estimates, Marimekko trades at 19E-20E EV/EBIT multiple of 18.8x and 15.4x which translates into 14-18% discount compared to the luxury goods peer group median. Our target price translates into EV/EBIT multiple of 19.6x and 16.0x on our 19E-20E estimates, which still are below the EV/EBIT multiples of Marimekko’s luxury goods peer group. We keep our rating “HOLD” with TP of EUR 39 (prev. EUR 30).