Marimekko Oyj

OMXH:MEKKO

Earnings Call Analysis

Marimekko's Q3 Performance Shows Mixed Results Amid Retail Growth

In Q3, Marimekko's net sales reached EUR 47.2 million, a slight 1% decrease, largely influenced by lower wholesale sales due to promotional deliveries. Retail sales grew by 12% globally, with Finland seeing an 8% increase. The operating profit margin remained strong at 23.5%. Cumulatively, sales for the first nine months rose 4% to EUR 128.6 million, driven by significant retail performances in Finland and the Asia Pacific region, where sales grew by 11%. For 2024, the company forecasts licensing income to match the previous year's records, navigating potential economic uncertainties.

Overall Performance and Sales Dynamics

In the third quarter, Marimekko reported net sales of EUR 47.2 million, a slight decrease of 1% compared to the previous year. This dip is attributed to lower wholesale sales in Finland due to fewer nonrecurring promotional deliveries. However, retail sales exhibited robustness, particularly in Finland, with a growth of 8%. The company's global omnichannel sales grew by 12%, signifying strong brand demand. International sales increased by 9%, and excluding challenges in the EMEA region (where a brand modernization is underway), the increase would have been 13%.

Regional Highlights

Sales in the Asia Pacific region, Marimekko's second largest market, saw a commendable rise of 9%, driven by an 11% increase in wholesale sales and a notable 22% increase in retail sales. In Finland, while wholesale sales decreased by 9%, the retail sector showed significant resilience. Cumulatively, the company’s net sales rose by 4% to EUR 128.6 million, with overall retail performance contributing positively across regions, though the EMEA market presented hurdles.

Profitability Insights

Marimekko achieved a strong comparable operating profit margin of 23.5%, capturing EUR 11.1 million in profits. This margin, despite being excellent, reflected pressures from rising fixed costs and increased logistics expenses, which partially offset profit growth despite higher net sales. Personnel costs also rose due to general pay increases across markets. Notably, discounts remained consistent with prior periods, suggesting effective pricing strategies.

Strategic Developments and Future Outlook

The company introduced a new e-commerce platform aimed at enhancing the online shopping experience and opened a new store in Shanghai alongside six pop-up locations. Looking forward, Marimekko anticipates challenges related to global economic conditions affecting consumer confidence and purchasing power, notably in Finland. For 2024, licensing income is projected to reach levels similar to last year's record achievements, providing a stabilizing outlook amidst potential uncertainties. Management emphasizes closely monitoring economic conditions and their impact on future performance.

Earnings Call Transcript 2024-Q3

[Anna Tuominen, executive]

Good afternoon, and thank you for joining us for Marimekko's Q3 webcast.

My name is Anna Tuominen, and I'll be your host today.

With me

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have a Q&A, with also our CFO, Elina Anckar, joining us. [Operator Instructions]

Without further ado, Tiina, please go ahead.

[Tiina Alahuhta-Kasko, executive]

Thank you so much, Anna. And good afternoon also on my behalf. And it is my pleasure today to walk you through Marimekko's Q3 performance, so let's get started.

Overall in all of the comparison period despite the timing of nonrecurring promotional deliveries and the operating profit margin remains excellent. All in all, in the third quarter, we continued well in our scale growth strategy journey despite the challenging market situation. Our net sales totaled EUR 47.2 million

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period, which reduced the net sales. On the other hand then, retail sales developed well in all market areas, especially in Finland and in total globally by 12% and actually in Finland by 8%, which really speaks not only to the demand and desirability of our brand and products but equally to the good work

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commercial agility. Our comparable operating profit totaled EUR 11.1 million and remained at an excellent level at 23.5% of net sales.

Then in terms of the operating profit

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and that decreased the operating profit in the third quarter of the year. Overall, our financial position remains strong. And that, of course, offers us the great possibility to continue on our journey to scale up our growth and the Marimekko brand phenomenon around the world.

Then let's have a closer look into the different drivers behind the net sales and profitability. In terms of the net sales in the third quarter, our net sales decreased by 1%, so nearly remained at the record level of the comparison period, landing at EUR 47.2 million. The lower wholesale sales in Finland due to the nonrecurring promotional deliveries being as estimated earlier, smaller than in the comparison period, had a negative impact on the net sales, while then on the other hand, our net sales were boosted by the good development of retail sales, particularly in Finland. Our total omnichannel sales globally grew in all market areas, an increase by a total of 12%. Then these wholesale sales, as mentioned, were decreased by the nonrecurring promotional deliveries in Finland being below the comparison period. As mentioned and as previously estimated, the nonrecurring promotional deliveries in wholesale in Finland were weighted clearly to the first half of the year, unlike this year, earlier, that in total the nonrecurring promotional deliveries in Finnish wholesale are significantly lower this year than in the year before. That -- so with this being the main reason, the sales in Finland decreased by 9% this quarter. However, while the general market situation in Finland continued to be challenging and the business environment was highly tactical, our retail sales in Finland increased by the -- 8%, which is really a strong result.

On the international front, very positive progress. Our international sales increased by 9%. And our net sales developed positively in all market areas, except for EMEA where we are at the moment modernizing our brand and distribution. Without the EMEA impact actually, our international net sales would have increased by 13%.

Then when we look at our company's second biggest market area, the Asia Pacific region. In total, the region grew in sales by 9%, with both wholesale and retail sales developing favorably. Our wholesale sales grew in total by 11%, and retail sales by a good 22%.

Then when we look at the cumulative net sales. Our net sales increased by 4% to EUR 128.6 million, being especially boosted by the growth of retail sales in Finland and an increase in wholesale sales in the Asia Pacific region. Our omnichannel retail sales developed very well in all market areas and grew in total by 9%, while then wholesale sales developed well in the Asia Pacific region, Scandinavia and North America. Our net sales in Finland grew cumulatively by 2% as a result of good development in retail sales. Again, the domestic nonrecurring promotional deliveries were below the comparison period, which lowered the wholesale sales. What is also good to note is that the domestic wholesale sales were also weakened by some of the wholesale deliveries in the first quarter of this year being already realized in the fourth quarter of 2023.

Then in terms of the international net sales, nice growth by 7% in total and

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in all other markets, except for EMEA where we are in the middle of this brand and distribution modernization. In the second largest market area of Marimekko, Asia Pacific region, we saw 11% growth during the first 9 months of the year. And it was really the increased wholesale sales especially but also the good development in retail sales and licensing income

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area and by product line. There are no major changes here. We can see a slight uplift in the share of the Asia Pacific region, net sales of total, and a slight decrease in EMEA due to the aforementioned reason. Then in terms of net sales by product line

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category as the fashion product line grew by 9% in the first 9 months of the year.

Overall, the Asia Pacific region has the greatest number of Marimekko stores in the world today. And our online store serves our customers in 38 countries. So in all the markets where there are physical Marimekko

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after the first 9 months of the year, 166 stores that are delighting and serving our customers.

Then when we look at our cumulative brand sales. So brand sales, just as a reminder, really represents the reach of the Marimekko brand through different distribution channels. And it is calculated by estimating the sales of Marimekko products at consumer prices, meaning that it's calculated by adding together our company's own retail net sales and the estimated retail value of our products sold by other retailers.

So in the first 9 months of the year, our cumulative brand sales

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growth of 10% compared to the year before. And 71% of the brand sales in these first 9 months came outside of our home market, Finland.

Then when we move into the profitability part. In the third quarter, Marimekko's comparable operating profit margin was on excellent level. So it landed to

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margin, equaling 23.5% of net sales. What were then the drivers behind? Higher fixed cost, in particular; decreased operating profit. In addition, also the weakened net sales and [indiscernible] sales margin caused a negative impact on the operating profit. In this

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Those were, for example, due to the planned investments into the 60th anniversary of our most iconic print, Unikko; and the kind of brand marketing opportunities that we have wanted to capture throughout the year in celebration of that. And then the personnel expenses were partly due to the general pay increases in different markets but also due to the increased personnel costs in retail stores to support the growth there. The relative sales margin was weakened by an increase in logistics costs, but discounts were on par with the comparison period.

When we then look at the cumulative outlook -- or cumulative view into the profitability.

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that was our comparable operating profit in the first 9 months of the year. The operating profit was weakened especially by the higher fixed costs and on the other hand then an increase in our net sales did boost our operating profit. It was again the same drivers behind, so fixed cost

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period. The relative sales margin, just to say a few words about that, was negatively affected by the higher logistic costs and discounts, but then on the other hand, the relative sales margin was boosted by margins per product remaining at a good level.

Then when we look at some of the key events in the third quarter

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To speak to an even wider global audience. And one example of our continued work to further develop the desirability of our brand and collections is the Marimekko [indiscernible] denim collection, which is our first denim collection that really expands and complements our lifestyle offering. At the same time.

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the [indiscernible] foundation. [indiscernible] guidelines, which are based on the circular economy thinking. And this Marimekko [indiscernible] new collection category launched in the stores in August. And it was launched through very inspiring events around the

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By customers around the world.

Then of course, Unikko, our 60th anniversary celebrating most iconic print of all time, is, of course, very visible throughout the year in our communications and in our collections. And that was also the case in the third quarter, so

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so this was one way for us to cast this limelight to Unikko in our important home market in the third quarter.

Unikko was also celebrated in Taipei through an anniversary show that really brought together friends of the brand in the market, while at the same time, of course, we also have our eye on to the future. And we premiered our spring/summer

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Then when it comes to the development of our omnichannel retail experience. The -- probably the most important and significant highlight in the third quarter had to do with the launch of our new e-commerce platform. This new e-commerce platform enables our online store to provide our customers with even more

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In addition, in the third quarter, 1 new store was opened in Shanghai and 6 pop-up stores and 1 Marimekko around the -- delighted our customers around the world.

Moving on then to the outlook of 2024. So just to get started, a few words in general. So of course, the uncertainties related to the development of global economy

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consumer confidence, purchasing power.

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and especially in in the imported domestic market of Finland. Also the different exceptional situations may cause even significant disruptions in production and logistic chains. And this may have a negative impact on our sales, profitability and cash flow, but naturally, as always, we're closely monitoring the general economic situation and the development of consumer confidence and purchasing power and the impacts of different exceptional

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And when needed.

Then a few words about seasonality. So it's good to remember that, because of the seasonal nature of our business, the major portion of our company's euro-denominated net sales and operating results are traditionally generated during the second half of the year. Also good to remember that the timing between quarters of these nonrecurring promotional deliveries is in Finnish wholesale sales and their size typically vary on an annual basis. So this is definitely something that we have also seen this year. Then licensing income in 2024 is forecasted to be approximately at the previous year's record level.

Then a few words about the net sales development. So starting from Finland.

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But it's also a really important fashion capital on the global perspective. And we believe that, by strengthening our own retail presence in the world's fashion capital, it can have a very positive supporting impact to our sales also in other channels.

[Anna Tuominen, executive]

Thank you. That was all the questions. Thank you, Tiina. And Elina, thank you for taking the time to be with us. And we hope to see you in February when we come up with the full year results.

[Tiina Alahuhta-Kasko, executive]

Thank you.