Hornbach Holding AG & Co KGaA

XETRA:HBH

Earnings Call Analysis

HORNBACH Reports Steady Growth Amid Economic Headwinds

In the first nine months of fiscal 2024/25, HORNBACH achieved a modest sales increase of 0.5% to EUR 4.95 billion, driven by a 1.1% growth in HORNBACH Baumarkt, primarily due to strong organic growth across Europe. Although average transaction values dipped, customer footfall rose by 1.6%. The gross margin improved by 1.3 percentage points, while adjusted EBIT climbed 11.4% to EUR 300 million. Despite ongoing challenges, including soft consumer sentiment, the company expects its full-year sales to match previous levels, with EBIT projected to be slightly above last year's. Strong cash flow from operations increased by 20.1%, reinforcing the company's robust financial health.

Solid Performance Despite Challenges

In the first nine months of the fiscal year 2024/25, HORNBACH achieved a slight sales increase of 0.5%, totaling EUR 4.95 billion. This growth occurred even amidst a challenging macroeconomic environment, particularly in Germany where consumer sentiment has softened. Despite these conditions, HORNBACH has witnessed an uptick in customer frequency, with footfall increasing by 1.6%. This indicates that their offerings remain relevant to customers, contributing to their overall positive market share growth across Europe.

Improvements in Key Financial Metrics

The gross margin for HORNBACH improved by 1.3 percentage points over the same period from the previous year, marking a strong gross profit increase of 4.3%. Adjusted EBIT rose by 11.4%, reaching EUR 300 million, which reflects a more balanced contribution from different regions, with Germany now accounting for 37% of EBIT compared to 32% last year. This improvement in profitability has led to a significant increase of 20.1% in cash flow from operating activities.

Earnings Guidance and Future Outlook

Despite a solid performance, HORNBACH has adjusted its full-year revenue guidance anticipating net sales will remain around the previous year's level. However, they expect adjusted EBIT to be at or slightly above the previous year. The management is optimistic about maintaining gross margin stability as they continue to focus on efficiency and operational improvements. Looking forward, HORNBACH is set to open four new stores next fiscal year, with an eye on capturing market opportunities in the home improvement space.

Strengthening E-commerce Presence

E-commerce played a vital role for HORNBACH, accounting for 12.4% of total sales in the first nine months. The company has observed steady growth in online sales driven primarily by 'Click & Collect' and direct delivery options. This integration of online and offline channels has proven to be beneficial, enhancing the customer experience and convenience, which the management emphasizes as critical for future growth.

Challenges and Cost Management

The significant increase in salaries, fueled by a 10% raise effective from September, was noted as a contributing factor to the slight decline in EBIT during the third quarter. The management underscored their commitment to being an attractive employer while navigating these rising costs through improving process efficiencies. Though this impact is significant, they remain confident about the organization’s ability to manage costs sustainably moving forward.

Regional Insights

Regionally, HORNBACH has reported positive like-for-like sales growth outside Germany, especially in Sweden and Romania where considerable recoveries are evident. Nonetheless, the Swiss market remains challenging. Management indicated an underlying optimism for recovering customer spending as prices and interest rates show signs of stabilization, likely providing a boost in demand for home improvement projects after a subdued period.

Long-term Strategic Focus

Despite the immediate challenges, HORNBACH remains focused on sustainable growth through operational excellence and a strong balance sheet. With an equity ratio now at 46.8% and reduced net financial debt, they have positioned themselves well to capitalize on future market opportunities post-recovery. This includes investments in new stores, primarily in Romania, which are expected to perform well given the country's growing interest in home improvement.

Earnings Call Transcript 2025-Q3

[Antje Kelbert, executive]

Good morning, and welcome to our update call for the third quarter and the first 9 months of the 2024/'25 fiscal year for HORNBACH. My name is Antje Kelbert, Head of Investor Relations. This morning at 7:00 a.m., we released our reports and presentation on our IR website. Karin Dohm, CFO of HORNBACH Group will take you through financial highlights and development of our first 9 months.

Before I hand over to Karen, I would like to remind you that the entire conference call, including the Q&A session will be recorded and made available with the transcript on the company's website. Following Karin's remarks, we will open the floor to questions. If you are unable to get your question during the call, please reach out to the Investor Relations team afterwards.

Please also take note of this disclaimer, which is valid for the entire presentation and for the Q&A session.

And now, Karin, I hand over to you. Please go ahead.

[Karin Dohm, executive]

Thank you, Antje. Good morning, and a warm welcome from my side. Thank you for joining us so shortly before the holidays.

We achieved solid growth over the first 9 months of our financial year despite a continued challenging macroeconomic environment especially in Germany. Sales were up 0.5% to EUR 4.95 billion. Our market share rose in most countries and our customer frequency picked up. Gross margin continued to improve and was up by 1.3 percentage points in the first 9 months. Adjusted EBIT came in at EUR 300 million, significantly stronger than last year's results.

Let me do a little bit of a deep dive now into our P&L. As highlighted, our net sales in the first 9 months of 2024/'25 were slightly above prior year's levels. HORNBACH Baumarkt contributed with a sales growth of 1.1%, benefiting especially from organic growth across Europe. This is an outstanding development for 2 reasons. Firstly, we achieved this growth against the backdrop of low inflation and softening prices in the DIY sector. And secondly, we are still navigating a market characterized by soft consumer sentiment and reluctant spending behavior, especially regarding larger projects. Thus, our strong sales growth means that our offering remains highly relevant to our customers.

As mentioned, customer frequency picked up over the last 9 months with an increase in footfall of 1.6%. While average tickets were still slightly down year-over-year, Q3 showed signs of good recovery. Once again, our focus on multiple attractive markets across Europe is paying off, as demonstrated by solid growth in the Other Europe segment. This is also reflected in our like-for-like figures.

All regions, apart from Switzerland achieved positive sales growth on a like-for-like basis in Q3, summing up to a noteworthy 3.7% outside of Germany, especially Sweden and Romania, having seen negative like-for-like momentum in the previous year, have performed well over the course of the current fiscal year.

In sum, Like-for-like sales growth for the first 9 months was up 1.1% based on an equal number of business days as the prior year.

Turning now to e-commerce. The share of e-commerce sales of HORNBACH Baumarkt came in at stable 12.4% in the first 9 months of 2024/'25. Looking at quarterly developments, we achieved slight e-commerce growth in Q3 driven by Click & Collect as well as Direct Delivery. In particular, Click & Collect as well as all online sales with in-store contact, performed well and are growing again. This confirms our view that the interconnectedness of online and offline channels is highly relevant for our business. Therefore, we continuously invest into all components of the customer journey providing attractive and state-of-the-art touch points, both online and offline. We are absolutely convinced that the great customer experience across all channels, coupled with unmatched convenience, are incremental for our future growth and profitability. As previously mentioned, our solid performance also shows in our market share development.

I'm extremely proud of my colleagues who once again managed to expand market shares in key regions especially in times of a cited softer consumer settlement. We remain confident that our customer value proposition will continue to pay off and that we are able to gain share against the background of active competition in all our regions.

Let us continue to go through our P&L. Our gross margin increased by 1.3 percentage points compared to last year's 9 months continuing on the higher levels we achieved in the first half of the year. While gross profit increased by 4.3% in the 9-month period, total cost increase was limited to plus 1.5% despite necessary salary raises that affected our Q3 cost base. As pointed out in earlier calls, we will continue to work on our cost and process efficiency.

Let's now take a look at earnings. Overall, we improved our adjusted EBIT by 11.4% compared to the same period last year. In addition, we're pleased with the more balanced EBIT contribution across regions with Germany now representing 37% compared to 32% in the prior year's period. Our solid earnings performance has consequently also resulted in higher cash flows in the 9-month period.

Our cash flow from operating activities increased by 20.1%, primarily driven by better net results along with ongoing enhanced working capital management. Cash flow from investing activities was lower in the first 9 months compared to previous year. Nevertheless, allow me to remind you that we still expect full year '24/'25 total CapEx to come in at a range of EUR 160 million to EUR 100 million with larger investments into new stores coming up in Q4.

Regarding the gross CapEx split, roughly half was spent on land and real estate thus far, mainly for new stores, while the rest was spent on store updates and equipment as well as software.

Moving on to our balance sheet. Our consolidated balance sheet remains strong, almost unchanged at EUR 4.5 billion. The equity ratio was up slightly, coming in at 46.8%, once again, providing reassurance and consistency for all our stakeholders. Reduced net financial debt and strong rolling 12 months EBITDA resulted in an improved debt ratio of 2.3% in compared to 2.5% at the beginning of our fiscal year. November, S&P confirmed our rating at BB+ with a stable outlook.

All in all, our balance sheet underpins our robust financial position and the resilience of our business model, providing the foundation needed to capture future growth opportunities.

Against the background of recent capital market development, let's have a quick look at the development of our share.

As media coverage has focused heavily on share index developments in Germany lately, I would like to quickly point out that HORNBACH Holdings share has outperformed German indices this year. Even against the [ DUCs ], our share has an impressive headroom of 8%.

Independent of or especially because of the current macro environment, our strategic focus remains unchanged, sees long-term opportunities. This includes investing continuously into our sustainable growth, maintaining our strong market position, furthering our operational excellence, sustaining a strong balance sheet and paying an attractive dividend. Perseverance and looking beyond short-term quarterly results continue to pay off for us. We are innovative by tradition and create stable conditions for positive change. Therefore, we are confident in our business model and our ability to grow.

Before we open the floor for questions, let's have a quick look at our full year guidance. Anticipating typical seasonal performance in Q4 and earnings forecast for '24/'25 remains unchanged. We continue to expect an adjusted group EBIT at slightly above the level of '23/'24 financial year, with gross margin stabilization at the current high level. Taking the development of the first 9 months into account and in the light of ongoing challenging consumer environment, we expect net sales at the previous year's level. Indicated, we will reopen our store in Nuremberg shortly before the end of this fiscal year. Next fiscal year, we will open 4 stores, 1 in Germany, 1 in Austria and 2 in Romania, adding 63,000 square meters of new retail space into -- with the corresponding sales potential next year.

Overall, we feel that our organization is well prepared to capitalize on the recovery in the home improvement market going forward.

With that, I conclude my presentation and hand back to Antje for the Q&A session.

[Antje Kelbert, executive]

Thank you, Karin. We will now start the Q&A session. Our operator will share some instructions and then we will take your questions. Caroline, please go ahead.

[Operator]

[Operator Instructions]

[Antje Kelbert, executive]

Operator, we have some questions. Could you please take them into the line?

[Operator]

Yes, we will take the first question from line Thomas Maul from DZ Bank.

[Thomas Maul, analyst]

Thomas from DZ speaking. I've got 2. The first one, could you please elaborate a bit on current trading with regard to footfall and the average shopping cart size?

And the second one, can you please remind us of your expectations for the gross margin? Can we further expect gross margin to remain stable on that elevated level?

[Karin Dohm, executive]

Yes, thank you for your questions. So current trading. Current trading is strong. We saw, as highlighted, good interactions with customers, both frequency as well as basket size in -- already in October and November. And now it is like that on an ongoing basis in December. We also see some components picking up, which give us, so to say, conviction that the slowly, so to say, silver lining also on some larger projects is coming through. I'm thinking here specifically about prefabricated construction elements or things like that, which keep getting more interest from customers than we saw in the earlier parts of this fiscal year. So there is a bit more momentum also on, let's say, midsized projects. We always said we don't see yet the large projects coming through. But we see certain momentum throughout the last 2 months and now also throughout December into that direction. Footfall is fine. Customer frequency higher than in the previous year. So that's all pointing towards the 1 direction.

And then you had a second question with regard to gross margin. Yes, we definitely expect that to stay stable and positive as we are currently. I may remind you though that we're currently running when in comparison to previous year where we had the gross margin picking up in our efforts on the purchase side already coming through in the winter months. So of course, now the difference, so to say, between gross margin previous year and gross margin this year is becoming smaller or shrinking, but not because we're going down just because the like-for-like difference is becoming smaller. So we feel very good about it. And that's in combination with asset active customers and this tendency towards bigger projects gives us really strong convictions that we will have a good start into next year and depend whether you talk calendar or fiscal.

[Operator]

We will take the next question from line Volker Bosse from Baader bank.

[Volker Bosse, analyst]

Volker Bosse, Baader Bank. I would have 2. EBIT declined in the third quarter. You mentioned in the press release that this was based on salary increases. So could you share some more details here, please? And given that trend in the third quarter, is it fair to assume that also EBIT should decline in the fourth quarter which would be possible given your -- you have still some headroom to your full year guidance. So perhaps you take the opportunity to manage expectations in regards to fourth quarter.

And final one, we had in November, we had a Black Week season. So what doesn't -- does it mean Black Week for you? Is it getting more important? Is it important at all? Or how do you look at these kind of important seasons and more important season for the overall retail environment? But not sure how does it play into the DIY sector.

[Karin Dohm, executive]

Yes. Thanks, Volker. So on the EBIT side, you're absolutely right. Year-over-year, Q3 shows obviously an EBIT reduction. And yes, that is driven by the fact that we have, on 1 side, you might remember in Germany, where, obviously, given the way our store network is distributed across countries, the vast majority of people who are subject to trade union agreements is, so to say, based in Germany. And therefore, we had the final agreement between the retail industry and the trading units coming through in September. So that has, of course, had its influence on our Q3 figures as over the course of 12 months, there was an increase of salary from 10%. And of course, this is always an area continuously at any time where we focus on making sure that we -- on the 1 side, we are really, as you know, and we've said that often and keep repeating that, we're convicted that paying good salaries and being an attractive employer is key to having the right guys who then can also provide our customers with advice. So we are fine with that. But of course, we are keen to make sure that we offset that with process efficiency, with continuous improvement and with anything that we can do to make sure we are on top of things. And that has worked nicely, but of course, not in that degree as we are on the same time gearing up for our new store openings. Now we have, as you know, in February, there will be Nuremberg, in March, there will be the next store. And then we have more coming up in '25, and that means we're starting, especially for these 2 I've mentioned earlier, we're starting already now in bringing people onto our platform to make sure we can train them. We can -- we really have them there when things are kicking off. And that, of course, partially is a little bit of a front runner there, which you also will see partially or have seen partially in our Q3 figures.

So we feel comfortable with that and we are absolutely convinced that, that's talking -- addressing your other part of the question, that Q4 will be a good Q4. You know January, February, it is more on the more quiet side in home improvement. People are not doing a lot in the garden or outside. Often, things are a little bit subdued there by nature, by season. It has done a little bit what February will bring on the weather side. You probably recollect well. Last February, we had a very good season because things were picking up temperatures were nice, relatively early. So we need to see what February brings. But we're absolutely convinced that we will keep our guidance that we will be fine on the EBIT side as guided. So no concerns there as said, we feel comfortable in the way we're currently set up.

And then you ask for Black Week. Black Week is definitely not such an important topic for us. We are with home improvement in an area of the business where we are anyhow not so much. In the pre-Christmas part, apart of course from Christmas decoration and some other things, but our main season, as you know is spring, is our Q1. Nevertheless, what also is playing here into it is we have our everyday low price strategy. So we are very actually outspoken also when you look a little bit into our communication to customers that we said to customer, look, we are really doing a hard job and try to make sure that you get the best size offers. We also, as you know, guarantee customers paybacks if they find something the same product somewhere else for a lower price or if we lower the price of something that they bought maybe last week, they get an automatic payback. So these are things how we operate. And so something like Black Week and doing campaigns to that part is not really our game. We want to be a reliable project partner it's not really important for us, the Black Week effect.

[Operator]

We will take the next question from line Miro Zuzak from JMS.

[Miro Zuzak, analyst]

Can you hear me?

[Karin Dohm, executive]

Yes.

[Miro Zuzak, analyst]

I have 3 questions. The first 1 is on pricing. If you could comment on this in general? Are we still -- can you confirm that now we are basically again, in a deflationary environment? Or are you still able to increase prices? First one.

The second 1 would be regarding the like-for-like growth pattern in Baumarkt. Because you -- in Q3, you grew by 1.1% against a minus 4.3% in the previous year. And this, I would like you to comment on this. It was frankly speaking, a bit below my estimate. Is it correct that it was rather a bit softer quarter also in your eyes? Or is it in line with what you were expecting before?

And the next 1 is in the cash flow statement, I see EUR 6.6 million [Foreign Language] in the investing cash flow, is it correct that this was basically not booked through the P&L, that's why it's in the investing cash flow section? Or was there any P&L impact from this payment? Third one.

[Karin Dohm, executive]

So thanks for your questions. Let me start with pricing. I think the important -- we have 2 important things noteworthy, and that's why we're specifically -- very pleased with the way that sales have developed over the -- especially this Q3. That is the fact, as you know, inflation in many parts, I know not in all parts, but in many parts of the economy are coming down. And also, obviously, in our -- in the main currency zones where we operate, which is, as you know, euro and then some neighboring such as Swedish krona and others. So in many of the countries, interest rates also have come down. So yes, macroeconomically, we are more on the side where prices come slowly, gradually, not in big steps. But as a tendency, you're more on the downward development of sales prices and on an upward development. And as said, having the underlying message here is -- and that is super important from my point of view. We have not only increased sales, but we also have increased volume. And that is absolutely a very positive development, and that is a huge difference if you compare that to previous quarters.

So yes, we are very satisfied with that. Specifically, as you could see in the figures like-for-like sales outside of Europe with -- outside of Germany, excuse me, with 3.7%. That's really showing that we have a good momentum and we all know there is the 1 or the other sentiment challenge in Germany, but we're absolutely convinced when we look on to the underlying product mixes, I mentioned these construction elements before and some other things that there is the momentum coming slowly back. So we are confident that we will have a good year coming up with '25/'26.

And then you asked about some...

[Miro Zuzak, analyst]

Yes, in the cash flow statement, you have the EUR 6.6 million.

[Karin Dohm, executive]

Yes, that is a little bit -- probably you're alluding to the KFW elements where that refers to some solar panel investments and other components.

[Miro Zuzak, analyst]

To tell you with this EUR 6.6 million, and how was this booked?

[Karin Dohm, executive]

It's an investment. Investments are always booked through, obviously, balance sheet and you have the equivalent of cash flow. But happy to take that offline if you want to be run by the teams through the specific bookkeeping.

And then you ask for -- no, I think I covered the other thing.

[Operator]

We will take the next question from Johan Van Den Hooven from Value8.

[Johan Van Den Hooven, analyst]

Johan Van Hooven, 2 questions from me, please. One about the cost development. You already said that salary -- the agreement with the trade unions with a plus 10% in salary increase. I just wanted to double check, did that start in September. So there will be ongoing effect on the cost base?

And the second question is about the new store opening. You mentioned 2 in Romania, 1 in Germany and 1 in Austria. And I heard February and March. Can you give a bit more precise timing of them -- of the 4 stores? And the Nuremberg 1, is that calculated as a new 1 because, that's sort of renewed one, if I remember correctly.

[Karin Dohm, executive]

Yes. So absolutely. Thanks for the question. And let me start with the star question first. So First 1 coming up, Nuremberg in February, absolutely correct, that's the reopening. We knocked it down roughly 12 months ago. It's the same location but it's totally newly built, it's larger. It has more square meters, and therefore, it has also more employees.

And then come the new store. So really net new, that is 1 in Germany that will come in March. Then we have 1 in Austria coming up probably in June. Maybe June, July, don't nail me down, so to say on that. And then we have 2 in Romania coming up in October -- September, October. So let's say, after the summer break. I said, with these large building activities, it could always be that it moves a couple of weeks forward or backwards. But that's the rough time line. That means we will definitely have the 2 ones in Germany, Nuremberg in February and then do spoke in March that those will definitely participate fully from the busy season, which is, I think, something that is obviously dear to our heart as usual. And then 1 in Austria will be roughly half of the year and the ones in Romania will be coming in, in our Q3. So nicely spread across the year.

And as said, coming back to your first question on the cost development. Yes, the agreement with [ Audi ], that's the trade union in Germany that was these 10% were split, that was first roughly by half, you could say, 5.3% and 4.7%. And the first 1 was kicking in spring and now the second half was kicking in, in September. So it was a little bit split. And yes, period.

[Johan Van Den Hooven, analyst]

Okay. So there's not a full effect of the 10%, its split over the years.

[Karin Dohm, executive]

It's a split over the year. But on the other end, there is a couple of headcount growth due to the new stores. And except we're really convicted that we convinced excuse me, that we're -- that we will eat that out over time.

[Operator]

We will take the next question from the line Tim Ashton from Frilsham.

[Tim Ashton, analyst]

Just a couple from me, please. Could you talk a little bit more about Switzerland. I think you said, if I remember correctly, it's the 1 place where you haven't seen like-for-like growth, but I see that your share of the market has increased. Is that particularly difficult market in recent months or an exciting market for you?

And secondly, I'm sorry, I think I'm being very thick here. In terms of your guidance for full year EBIT, that looks like if we compare the total for the first 3 quarters where this year is well up on last year and you're guiding for flat for the full year. That suggests quite a lot of costs in the fourth quarter. Are these mainly pre-opening costs for the stores that are coming in the start of next year or quite a lot from the salary increase or something else?

[Karin Dohm, executive]

Yes. I'll take those questions. So first on Switzerland. Yes, we are happy with our market share development, and I think that shows how relevant we are for customers because, right, as you alluded to, there is a general -- yes, market sentiment in the sense of people keep holding back on DIY topic. So the market volume wasn't necessarily growing. And against that, let's say, nongrowing market volume, we increased our market share. For us is that a good positive message. Our underlying performance is fine. We now just need a little bit of macroeconomic development to understand how can we grow beyond just growing market share, taking business away from others as part of our retail game, as you know, so we're fine with that. But actually, of course, it's always more fun when you have a growing general market appetite, customer sentiment. But once again, similar to what we always said about Journey and Austria, we see a certain common pattern in the DACH region. So we think there will be a better mood in some of those countries or in all, 3 of those in the next year. But good indications that, that should turn slowly, gradually, but continuously.

And then you asked for the guidance. On the EBIT side, yes, we always said and we stick to that, at or slightly above. So please don't miss the slightly above. And we always give the ranges. Now what slightly, for example, means in our -- how do you say, in our wording, in our vocabulary, so to say. And please also take into account Q4 is not super active quarter. Customers are spending time with other topics usually in Q4, plus usually, it is cold. It might be wet, it might be freezing. So that's definitely not the time where people start spending activity, time and/or money into home improvement. Nevertheless, that's the cycle we've seen literally since the beginning of this company. Once spring is coming, once days are getting a bit warmer and then obviously also a bit longer. So somewhere in February or March, we will have all these effects, and then we will have the uptick in general activity level. So that depends a little bit, of course, whether that then flows into the end of this fiscal year or the beginning of the next fiscal year, talking about February or March. But on the other side, we're absolutely convinced at or slightly above and slightly above is absolutely also something what we see currently coming towards us.

[Operator]

That's very clear. We will take the next question from line Duarte Murta from Kepler Cheuvreux.

[Duarte Liquito Murta, analyst]

Two questions from my side. As we go into a low interest rate environment in 2025, how do you expect this to affect the next business year, both on operational and cost standpoint. But as well if you could give your outlook for the increase in transactions for the secondary market that could possibly finally trigger those large GI projects that have been missing in the DACH region. So yes, particularly within Germany.

And second, on the 2 stores opening in Romania, could you just highlight how the margin on that market compares to other countries within the International segment.

[Karin Dohm, executive]

Yes, absolutely. So let's start with the question on the -- sorry, that was a little bit unclear. It was lower consumer environment or lower interest rate environment? Sorry, the acoustics were not.

[Duarte Liquito Murta, analyst]

So yes, the outlook for next year given the lower interest rate environment, both from lower interest rates, how the effect -- how do expect them to affect the operations at HORNBACH and then as well, your outlook on increased secondary market transactions, right, that could possibly take some activity in those larger DIY projects.

[Karin Dohm, executive]

Okay. Excellent. Thanks Duarte for making that clear. So lower interest rate, definitely something where we think that has not only the potential but is a good reason actually for people to go more into larger projects. You know in Germany specifically, people love to save money. That is a nature of our macroeconomic environment. And we see that currently a bit more even than anyhow usually. So that is something where you really need to make sure to have that in mind. We are absolutely expecting that lowering of interest rate as we already saw this year will go on in bringing people into more spending, having also the -- how to say, the -- having, so to say, the courage to go into larger projects where people definitely were holding back as interest rate and inflation were high and eating into people's purses. So we have had now interest rate coming down. We have had prices or inflation pressure coming down in many areas, not everywhere, but in many and a lot of people had real wage increases.

So I think if you sum that all up, we definitely think that the spending environment will improve specifically on goods and services. You know this year, we had a lot in experiences. People were going to traveling to the Olympics or maybe to some pop concerts or doing things like that. But they were holding back on services and on goods. And we are quite convinced that, that is slowly but continuously changing. And as I said, we see that specifically in the footfall and the way the baskets develop on our side in the way that the composition of the basket is developing.

And then secondary market, I guess you allude to the aspect of people moving home. Is that correct?

[Duarte Liquito Murta, analyst]

Yes, exactly. That's it.

[Karin Dohm, executive]

Yes. Okay. Yes, that's a very valid point because right spot on that has been subdued over the last, and I would probably say, over the last 2 years. And yes, that is supposed to pick up, although I would like to caution, obviously, not very quickly. We see, as said, we see a bit more sales and turnover in the construction elements. But -- and we also see in those areas where we focus heavily more on the building on the new building side, our main business is obviously home improvement. We have some areas of our business where we focus on new buildings and on helping building corporations and other customers. And we see from the interactions from the way we discuss their activities they give us the clear message that there is the silver lining on the horizon and that everybody is expecting that the building machine, so to say, especially on the residential side, will jump on and will be back into action in '25. But only I would definitely like to caution, only in the second half. That is not coming super quickly. It will come and then we will have more activity level in that region and specifically, of course, in Germany. So we are absolutely convinced that, that will also be something that we will talk about in the second half specifically.

The 2 stores in Romania. Romania is a country we're really happy, for 2 reasons. Number one, we have the good growth momentum in general. There are more locations in the pipeline beyond those 2 that we open next year. We have -- Romanian people are really super interested and active in home improvement. Also building activities are there way more active than in other countries where we operate. We have nice EBIT margins there, so we're really happy there. And therefore, we expect those stores. Obviously, they need first to open and then they need to be up and running, which usually takes to have them at a level where we want them to be, you usually need to calculate 2 to 3 years and Romania is always a bit quicker. So 2 years is realistic. And then obviously, they will be providing good EBITs and they will be providing good EBIT margin. So we are absolutely pleased on that side.

[Operator]

We will take the last question from line [indiscernible] from HC Capital Advisors.

[Unknown Analyst]

Just 1 question regarding the guidance for the revenues that was cut a little bit from slightly above [ notable ]. And on the other hand, in this call, it sounded that you're quite happy with the sales development within Q3 that some things picked up. You have some good indications that trading in December looks quite good. So how does it fit together on the 1 hand, good sales development. On the other hand, the cut in the revenue guidance?

[Karin Dohm, executive]

Yes. Thanks, Lars. I think the underlying pattern, if you dial back the time and think about the beginning of this year, so somewhere into the beginning of the calendar year '24. I think the overall expectation of consumer sentiment coming back in light of -- at that time, indications of interest rate cuts, indication of inflation going down, salary increases in many parts of Europe. So the expectation was, of course, to see a bit more of that. What we see now in the, so to say, in Q3, I spoke about the like-for-like sales growth, specifically outside of Germany. So yes, we see what we expected to see. We see it now a little bit later in the time line than we had hoped for, so to say, at the beginning of the year. And once again, there is always this little bit -- the known unknown, so to say, with regard to when are things picking up, will it be February or March. Nevertheless, is, by nature, by season, not the strongest quarter. So yes, we think there will be a nice sales momentum in general also compared to the previous year. Nevertheless, the lever that we have with Q4 with regard to volume general activity level is, of course, way smaller than we have it in Q1 or Q2. And therefore, that is the reason why.

[Operator]

It appears no further questions at this time. I'll hand it back over to your host for closing remarks.

[Antje Kelbert, executive]

Yes. Thank you, Caroline, and thank you for all your questions we have taken here. Please, if you have further topics and further discussion needs, please contact us at the Investor Relations department. We would like also to invite you to all the capital markets events that are upcoming in the next months and weeks. So we will participate in a lot of conferences and will be on the road. So thank you very much for all your interest this morning. Have a nice day. Hope to see you soon. And for those of you who celebrate Christmas, happy Christmas season and for all happy new year. Thank you.

[Operator]

Thank you for joining today's call. You may now disconnect.