Fourlis (H1/Q2 2014a review):Key highlights and Conclusion by Beta Sec.

 

Fourlis Holdings (FRLr.AT, U/R, Current EUR5.00)

H1/Q2 2014a review: Q2 group net loss at EUR1.4m (vs BETAe of EUR1.7m loss and EUR3.1m in Q2 2013), hit by heavy financial expenses

Fourlis Holdings (FH) released its Q2 2014 group results (post market close),which came in better than expected at the bottom-line, but spot on at the sales and EBITDA levels, thanks to solid Intersport results, reflecting also a 3% y-o-y sales rebound at IKEA division (vs -4% in Q1 2014) .

FH will host a conference call today at 17:00 Athens Time (15:00 London, 10:00 New York).

Greek participants to dial 00800 4413 1378, US 1866 819 7111, UK 0800 953 0329

Other international participants +44 (0) 1452 542 301

Key highlights

·         FH reported H1 2014 group sales and EBITDA increases of 2% y-o-y to EUR179m (vs BETAe EUR177m) and 14% y-o-y to EUR6.1m (bang in line with BETAe). H1 net losses dropped to EUR5.8m (vs BETAe EUR6.1m) compared with EUR8m loss a year earlier), adversely affected by EUR6.3m net financial expenses

·         In Q2, FH group sales and EBITDA advanced 4% and 16% y-o-y to EUR95m (vs BETAe EUR92m) and EUR5.4m (spot in line with our estimates)

·         In turn, FH reported a net loss of EUR1.4m in Q2 (vs BETAe EUR1.7m loss) against EUR3.1m losses in Q2 2013, again hit by EUR3.1m financial expenses and EUR3.5m depreciation

·         As expected , IKEA division resumed a positive sales growth momentum (key performance catalyst) in Q2, up 3% y-o-y to EUR59m (2% above BETAe) vs down 4% y-o-y in 1Q14, reflecting a consumer spending uptrend in Greece and Cyprus solid performance

·         Despite higher gross margins (+150bps to 36.9%), IKEA Q2 EBITDA fell 4% y-o-y to EUR3m (vs BETAe EUR3.2m), held back by lower other operating income

·         IKEA reported  a pre-tax loss of EUR1.8m (vs BETAe EUR1.1m loss) from losses of EUR1.5m  in Q2 2013, owing also to higher than expected net financial expenses (EUR2.4m vs BETAe of EUR1.9m)

·         Convincingly, Intersport sales and EBITDA were up 10% and 50% y-o-y to EUR29m (in line with our forecasts) and EUR3.2m (15% ahead of BETAe), driven by robust home operations and higher penetration rates in Turkey

·         At the bottom-line Intersport surprised to the upside, recording a pre-tax profit of EUR0.5m (vs BETAe EUR0.2m), compared with a pre-tax loss of EUR0.4m over the same period last year

·         New Look Q2 2014 sales declined 2% y-o-y to EUR0.9m (coming slightly better against BETA forecasts), while pre-tax losses were cut to EUR0.4m from EUR0.8m a year ago (vs BETAe EUR0.8m)

·         On a final note, wholesale business sales and pre-tax losses settled at EUR5.1m, down 12% y-o-y, and EUR0.6m from EUR0.3m loss a year earlier (both in line)

Conclusion: An overall decent Q2 performance amid tough market conditions, driven by robust Intersport results, mirroring also a mild sequential improvement in key IKEA unit (higher sales and gross margins).

We are particularly pleased with IKEA’s sales rebound in Q2 (+3% y-o-y against -4% in Q1 2014a), indicating significant market share gains.

As Greek economy comes out of the recession, we expect consumer spending uptrend to trigger stronger demand for IKEA (as well as Intersport) products in H2 2014 (key catalyst), boosting Fourlis’ earnings outlook (on high operating leverage). 

Key cc themes:

                             

·         trading updates on IKEA (launch of 5 new pick-up points in Greece) and Intersport Q3 top-line running rates, margins, profitability

·         debt refinancing/restructuring plans (group level)

·         New Look announcements/developments (unimpressive results thus far).  

Kind regards,

Spiros Tsangalakis

Senior Equity Analyst

BETA Securities S.A.