Marimekko - Timeless Finnish design

Stocks
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Hi.

I thought I’d open a shared Marimekko thread for us, as there wasn’t one here yet.

The company’s stock is up today on the stock exchange (+15%) after a strong Q1 report. Our recommendation for the stock has been “Sell” since February, and earlier this week we updated it to “Reduce”. This year, we underestimated Marimekko’s strong earnings performance and were on the wrong side of the Q1 report. Misses happen, and they cannot be avoided in this profession. (Below is a more detailed recommendation history since the start of coverage).

Today I received feedback that I might not be fully competent to analyze Marimekko as an investment, because I am a man :slight_smile: Since I can’t recover from this “condition” anytime soon, I could try to improve by opening a thread here where all women, men, and others interested in fashion and Marimekko could bring up their thoughts on Marimekko’s situation, patterns, collections, prospects for success in Finland and globally, and fashion in general.

All tacit knowledge from the industry, trends, and news related to Marimekko are of interest, so that we can share information here together and become wiser. I appreciate your contributions and will try to utilize them as best as possible when analyzing the company.

Regards
Petri

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Good luck, this analysis is difficult, even as a man.
Something like this, where branding plays a big part, cannot always be explained by logic or a calculator.

But the Marimekko religion exists, just like with the iPhone; people buy at a high price even if the products don’t technically stand out.

Considering its size, Marimekko is seen a lot abroad; is it bigger than its size?

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I personally think fashion is a really challenging long-term investment. Tastes and styles change at a tremendous pace, and what’s trending now will likely be overdone in a few years – until it perhaps resurfaces again in 10-20 years.

Marimekko’s momentum started to become visible in the street scene as a choice for a certain customer segment a year ago. They are willing to pay, and Marimekko’s prints and style hit the mark right now. Back then, I nervously hovered over the buy button multiple times, unfortunately not acting on my gut feeling. Perhaps my further reflections should be read as the grumbling of a frustrated person who missed out :wink:

I believe that for some time, at least, Marimekko will be able to capitalize on this, even outside Finland. As a shorter-term investment, it’s certainly excellent (though the price was also high for the same reason a while ago). However, I have a very strong doubt about whether this wave will last. When Marimekko’s style starts to suffer from inflation and their customer segment moves on to new things, what happens? At these prices, they should be able to keep going for longer than a couple of years, which in these markets is a lifetime. Similar thoughts arose with Levi’s’ (how do you conjugate this?!) IPO at the critical moment when their board had again caught a big wave, and every other person has the white T-shirt with a red print familiar from my youth :smiley: I still don’t believe the surge will last for years; classics are just pulled out of mothballs from time to time before becoming embarrassing again before their next coming.

Marimekko has, of course, done many things cleverly. They haven’t made the Ainot & Reinot mistake and gone into mass sales in Prismo (supermarket chains)/Cittaris (supermarket chains) at discount bin prices, but instead priced themselves as a luxury for a large group and thus maintained their prestige. They have known how to harness tourism and the Finland boom to their advantage. Rare marketing skill from a Finnish company. And there’s always the option that someone will come and buy them out…

I’ll leave this here, and then I’ll come back in ten years to bitterly eat my words when Marimekko has proven to be a tenacious, adaptable trendsetter whose prints adorn the streetscapes of Tokyo and the fancy parties of China’s upper class…

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Yes, an analyst should be able to identify and correctly price the differentiation that a strong brand brings, regardless of their gender. There have simply been too many misses now.

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Last week, I had a 2.5-hour meeting with Marimekko’s Tiina (CEO) and Elina (CFO) to discuss the company’s future. It was an excellent discussion, and I must say that Tiina is one of the most energetic people I know, and I couldn’t imagine a better CEO for Marimekko. Tiina’s knowledge of the industry and her passion shine through, and she had really good ideas on how to boost the brand’s “coolness” in the future, attracting wider and new audiences. Elina also has strong experience in finance and a background in the fashion industry from larger companies like H&M. Both of their track records at Marimekko are indeed impressive, and I believe the company is now in good hands.

One sweet detail that stuck with me from the discussion was the Marimekko Kiosks mentioned in the Financial Times article below, which the company plans to open this year. The idea is to create new types of Marimekko Kiosks, where the most famous vintage Marimekko prints are printed on caps, hoodies, etc., in a unisex style, offering more urban street-style fashion alongside Marimekko’s regular collections. Nowadays, you already see many people in Helsinki, for example, wearing these new collections (a good sign that the new full-price collections are selling well), and many men using Marimekko, even though Marimekko doesn’t officially have collections for men (if you don’t count some striped shirts and socks).

At least for me, the discussion left a very positive impression of where the company is headed, and there are some cool new things in development under the surface to enhance street credibility for this new “millennial-Instagram generation.” The discussion even gave a slight impression that Marimekko might be aiming to acquire more male customers in the future, even if it’s not explicitly stated as the company’s core customer group. However, you already see Marimekko worn by men, such as “fashion influencers” (e.g., JVG, Mikael Gabriel, Stubb’s May Day photos, etc.) in Helsinki, and these new Kiosks also highlight the aim to bring more urban unisex clothing into the collections that men are also okay with wearing.

Oh btw, good thoughts on fashion as an investment in general @Iiiks. Especially sniffing out the “when is something cool and when is it not” questions is really important when investing in these companies, and they can wildly boost earnings/stock in the short term. For example, Michael Kors was really cool a few years back (maybe due to Project Runway publicity?) and the stock about quadrupled in a couple of years. Suddenly, that coolness disappeared, and the stock crashed almost as quickly. The ups and downs in the world of fashion are tough.

Here’s the link to the FT article mentioned above:

https://www.ft.com/content/98682818-6753-11e9-9adc-98bf1d35a056

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Reflecting on it, I had completely missed that kiosk thing in the spring – even though I’m supposedly a Marimekko fanatic.

Now, the urban yet very stylish and youthful collections that Petri mentioned are finally out – although they’re quite limited in terms of different designs. They’ve sold well online, indicating a good performance, especially considering that a hoodie is almost double the price of a GANT hoodie.

Hold on to your papers.
And to the analyst, still the same as I once said on Shareville when I was agonizing over the sell recommendation; Marimekko deserves premium pricing. :wink:

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Yesterday, I visited the Marimekko store in Tapiola with my wife to do some Peter Lynch-style legwork research for a stock.

We have some Marimekko dishes and other home products at home, but at least in my wife’s opinion, their clothes have been pretty much “no-no” stuff for almost our entire time together (12 years). Now I was wondering, as suddenly one piece of clothing after another started appearing on the racks that made us say, “hey, wow, this is nice,” and “this one is cool too,” and “When did Marimekko start making such cool clothes?”…

We chatted with the salesperson for a while, and she had similar feelings, that the collections have started to look really good, and many consumers have given similar feedback to my wife’s.

It’s starting to look good for the story that new audiences are being converted to the brand.

I also bought a pair of Marimekko print socks myself, and next week I intend to visit the Mikonkatu store to see this Kioski collection live, in case something else catches my eye :grinning_face_with_smiling_eyes:

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Next up, I’m sure there will be boxers, or maybe not, because the company has indirectly indicated between the lines that there won’t be direct men’s clothing. This text logo will slowly but surely scale to so-called unisex products. This is extremely sensible from a brand, modernity, and fashion perspective. There’s plenty of macho-man stuff to be found here and there.

Caps, hats, belts, wallets, etc.

I have to hand it to them for proceeding so calmly even though things are moving at a dizzying pace. Right.

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I also warmly recommend everyone to follow marimekko on Instagram. Good visibility for trending brands. A certain duo (JVG) also seemed to bring visibility to our Marimekko in that national (crying) show…

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Now, a bit of a sales pitch :face_with_raised_eyebrow:.
I happened to visit Vesa Keskinen’s village store, and Vesa has a wide selection Marimekko section. While browsing the products, my eyes inevitably landed on the price tags, some of them sky-high…
A denim jacket for 250€, etc. I would understand if the product was domestic, but now Marimekko products come from low-cost countries…
I wish Marimekko all the best, but I still wonder why Marimekko’s personnel offering practically ran aground; their own staff wasn’t really enthusiastic.

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Oh, I was just wondering about the prices, which are double for a hoodie at Gant, for example.

From there to Instagram, for the third time, urging people to see how much they’re now willing to pay for Marimekko clothes. As well as active monitoring in the online store. Jackets are now on sale and the price range is 150-600€.

But it’s a good point and questions things in a healthy way.

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Hey @Petri_Kajaani! And others can answer too.

What kind of valuation methods are good for a consumer product manufacturer like this? I looked at the P/B ratio and it’s quite high. The P/E ratio isn’t that bad, at least.

On the other hand, one shouldn’t look at these key figures too closely. Didn’t Buffett say that you can invest in an excellent company even when it feels a bit expensive?

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In Marimekko’s case, the P/B ratio is a very poor metric. This is due, among other things, to the fact that Marimekko’s most essential asset (i.e., the Marimekko brand) is not reflected in the balance sheet’s assets in any way. If you look at other brand companies that, for example, have made acquisitions over the years, they have recognized significant intangible assets or goodwill on their balance sheets in connection with acquisitions, which is why they may have lower P/B ratios. Marimekko, on the other hand, has developed this brand itself since the 1950s and invested tens or hundreds of millions of euros in it, and this is not reflected in the balance sheet at all. Another reason is that Marimekko is growing well and generates a really strong return on equity (ROE 30-40%), which usually goes hand in hand with a high P/B ratio.

For Marimekko, I would much prefer earnings-based multiples such as the P/E ratio, EV/EBITDA, dividend yield, and a cash flow model, because the company has good pricing power due to its brand, and therefore earnings are more relevant than the balance sheet. Marimekko also has good cash flow due to its small investment needs, which is why cash flow is also more essential than the balance sheet.

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I had to update my knowledge of Inderes’ report on the valuation of comparable companies. At a price of €38, it was already lagging behind with almost a 20% discount on EBITDA, and of course, after CFO Ihamuotila’s “liquidity improvement,” the discount is even greater.

We’re living in hellishly interesting times.
The company is in incredible shape.
I wonder if Mika’s grumbling about acquisitions of Finnish companies will soon turn upside down…

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Do you think the valuation is already attractive?

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Marimekko’s brand is old, and its balance sheet has long been valued with a P/B ratio of 3. The current valuation level is P/B 7.4. I don’t think the questioner is looking for some liquidation value here, but rather the correct valuation for a cyclical company where return on equity fluctuates with fashion trends. In such a case, a one-year P/E ratio more easily gives a picture of a cheap company due to some momentary factor (cf. Outokumpu 10 €), without necessarily a permanent change in the company’s fundamentals towards greater earning potential. Marimekko has, however, been able to grow its revenue over cycles.

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I guess I’ll refuel. I would’ve gladly taken this price a month ago, and nothing has really changed on the business side. The only thing is the dip caused by the chairman’s sales, and even then, the prices were probably agreed upon before the rally at the beginning of November. Into the portfolio, waiting for 40.

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The brand and products have been built determinedly and systematically in recent years. Trakki super. In addition, wood-based fiber materials are also coming to MM products. Could these be possibilities for the next growth spurt? What might be MM’s share in the availability and use of the said raw material when industrial production also starts in Finland in the near future.

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Noticed how well Christmas sales went and the stock is +4%. :wink: In my close circle, at least Marimekko’s Christmas gifts were hugely popular this Christmas.

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I also think this will take off after the turn of the year, and a big boost will come when the Q4 results are out. Now we just hold on, and €40 will soon be a distant memory.