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We expect XXL to report Q4/20 EBIT of NOK 96m, 10% above latest Factset consensus of NOK 87m. The positive deviation is explained by an estimated gross margin of 39.0% vs. cons. 38.1%, as we expect profitability to benefit from limited discounting in the quarter. Despite warm weather and poor snow conditions we estimate like-for-like sales growth of 7.8%, driven by strong demand for sporting goods and outdoor equipment across the company's home markets.
Companies: XXL ASA
Arctic Securities
Q3/20 EBITDA of NOK 413m vs. Factset consensus of NOK 367m Solid Q3/20 gross margin of 40.5%, up from 37.3% in Q3/19 LFL sales growth of 16.1% Y/Y driven by 21.1% LFL growth in Norway We expect share price and estimates to move higher today
We expect XXL to report Q3/20 EBITDA of NOK 325m, 11% below latest Factset consensus of NOK 367m. The negative deviation is explained by a combination of lower sales growth and lower gross margins. We estimate Q3/20 sales of NOK 2.9bn, up 19% Y/Y driven by strong demand for sporting goods in all XXL's home markets. We expect gross margins to be slightly down Y/Y, explained by lower supplier bonuses and NOK weakening.
Strong Q1/20 sales driven by 25% Y/Y growth in e-commerce Massive clearance sales resulting in soft Q1/20 gross margin of 27.9% Negative Q1/20 EBITDA explained by increased overhead costs Norway and Sweden have started Q2/20 on a positive note
We expect Q1/20 results to be a non-event given the clearly communicated soft January with the subsequent clearance sale in February and March. As investor focus has turned from a disappointing winter season to the ongoing Covid-19 uncertainty, we expect an update on April 2020 sales to be key for short-term share price momentum. Following 7 quarters of negative LFL revenue growth (including Q1/20), we expect actual April sales to surprise on the upside.
Pål Wibe’s first day as new CEO of XXL was an eventful one, with the share price soaring 85% on the back of the balance sheet restructuring news. While the Nordic sporting goods market remains challenging, XXL has now secured 18 months to improve profitability without constantly worrying about its debt covenant. While we continue to see downside risk for consensus estimates for 2020, we expect improving results from 2021 onwards to drive the share price higher.
XXL announces new bank financing of NOK 1,450m XXL also announces underwritten rights issue of NOK 400m Rights issue guaranteed by Altor, Ferd and Odin Rights issue structures to Altor avoids mandatory offer obligation
Despite having significantly reduced net interest-bearing debt over the past 12 months, we expect the leverage ratio to breach the debt covenant of 4.0x in Q1/20. The ratio increase is explained by a drop in 12-month rolling EBITDA, which we expect will continue to decline through Q2/20 and Q3/20. While we continue to view XXL’s balance sheet issues as fixable, we reduce our target price from NOK 10 to 6 and downgrade our recommendation from Hold to Sell.
Bjørn Rune Gjelsten to become 50% owner of Gresvig Olav Nils Sunde will own 50% of Gresvig and Sport 1 34 out of 94 owned stores to close as part of restructuring Market consolidation positive for XXL in terms of price pressure
XXL’s main competitor Gresvig declares bankruptcy More equity needed to compete rebranding to Intersport Long-term impact on XXL likely to be positive Challenging 2019/2020 winter season to become worse
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