Clarifying question. Tokmanni’s own expectations or the analyst’s?
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OP published a short summary of Tokmanni’s Q1 result on X:
https://twitter.com/OPsijoittaminen/status/1791389379451035718?t=mNrmhlfkEeY2-zPKyEsgrQ&s=19
Like OP, I also expected a slightly positive operating profit from Dollarstore, but it seems to be even weaker than the Tokmanni segment in Q1. At the time of acquisition, Dollarstore was marketed as being more defensive than Tokmanni. Well, the positive impact from spring season garden sales will likely remain small for Dollarstore, as they don’t seem to have much of a garden side. Based on this performance, Dollarstore does not bring relief to Tokmanni’s poor operating profit during the Q1 season.
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Arhi Kivilahti has written about Tokmanni and its Q1 results. 
Alongside revenue, the most significant impact of the Dollarstore acquisition is on the gross margin. In Finland, Tokmanni’s gross margin is slightly lower at 33% due to a different emphasis on daily consumer goods. In Sweden, Dollarstore’s gross margin is 37.4%.
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It bugs me quite a bit that when a company is doing poorly, they start rambling about all sorts of “comparable results,” or as Nokia did for over a decade, with non-IFRS results. The actual accounting profit is then hidden somewhere in the depths of the appendices in a tiny font or similar.
For some mysterious reason, it tends to be the case that when these misleading ways of presenting figures are used, it’s usually not about one-off costs that are allegedly being adjusted, but rather recurring problems occurring over several years that are being explained away.
So, at the end of the day, the question is: what is actually wrong with Tokmanni?
(Signed: Yeah, I lost money, luckily not much)
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Would you like to clarify exactly what, in your opinion, is going poorly with Tokmanni?
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Well, I’m just thinking about the results.
Directly quoted from the report:
• Comparable operating profit was -5.1 million euros (-2.2), -1.5% of net sales (-0.9%)
• Cash flow from operating activities was -40.0 million euros (-12.9)
• Diluted earnings per share was -0.20 euros (-0.07)
I can accept the decline in the equity ratio (26.9% → 18.6%) for the sake of the DollarStore deal, but wasn’t that acquisition supposed to bring in more cash for shareholders instead of less?
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Tokmanni isn’t doing any worse than Kesko; of course, they could try to smooth out this seasonality somehow. The years 2020-21 were crazy years in the retail sector—after all, Kesko’s share price reached almost 38 euros. The economic and interest rate environment is just completely different now. Consumer confidence has been weak and purchasing power has been under pressure, but profits were made quite well in 2022 and 2023 as well. I believe this year will be quite good too. The economy is recovering and interest rate cuts are starting at least in Europe; consumers will appreciate it. After all, Tokmanni faced quite a bit of headwind specifically in Q1. The previously mentioned logistics issues independent of the company, political strikes, and then even the weather gods weren’t on their side.
There is plenty of growth ahead in the coming years with Dollarstore; that poor growth outlook in Finland was previously a problem and didn’t allow for very high valuation multiples for Tokmanni. Of course, acquisitions always involve risks, which is why as a shareholder one must monitor the achievement of synergies more closely than usual; they have been found quite well so far. I would argue that things will really get going in H2; the spring season is still being spoiled by a miserable April.
Indebtedness might bother the market a bit, but it’s excellent that Tokmanni started reporting debt figures also without lease liabilities. The interest rate on the debt is, if I recall correctly, very reasonable; after all, the business generates good cash flow (except apparently not in Q1 
). @Thomas_Westerholm can probably better provide his assessment of the interest rate level of Tokmanni’s debts.
This was just a quick write-up, but your litany of complaints didn’t offer much to engage with either @WanhaRadio
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Weak Q1, which wasn’t a surprise in itself. The share price reaction, however, did surprise, -9%. The price is now at the same level as before Covid and the crazy years. Revenue has grown by about +55% in the meantime. Operating profit, of course, much more moderately, but still, the sentiment is quite bleak at the moment. 
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Q1/2020 operating profit was in the black before Covid, and now the comparable figure is ugly in the red; the price level could therefore be even lower. Quite a bit of improvement for the rest of the year is baked into the stock, but Q2 is already more than halfway through, so I suppose regarding Q2 they can already see that the given guidance won’t lead to a profit warning.
However, being loss-making puts the functionality of the entire concept into question to some extent, cf. for example Puuilo, where there are no signs of this.
Tokmanni was able to play in its own sandbox for a long time: Kesko was premium, Prisma was for others, and Tokmanni was the discount store for the poor, Halpahalli for rural towns, and Puuilo served the construction guys without stepping onto Tokmanni’s turf. Now the situation has fundamentally changed; the Rustas, Normals, Julas, and Puuilo’s expansion have backed Tokmanni into a corner. It has tried to come up with various cosmetic and shoe sales concepts, which all have in common that they’ve flopped. There was no other choice but to go abroad and, as an emergency solution, buy Dollarstore, and that’s failing too. Talk about strikes and Suez doesn’t fool the experienced; the problem is deeper and structural. In the Q2 interim report, the targets will be revised significantly downwards and the stock will drop below ten.
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I hope you’re right and that it’s indeed just a one-off and not a trend. I haven’t paid attention to Tokmanni’s cyclicality before, although the report does state that Q1 is typically the weakest quarter. Of course, you wouldn’t be able to accumulate a profit for the full year if you didn’t make a profit in Q2–Q4. But complaining off the cuff, it’s still quite harsh that an increase in loss is an increase in loss.
Kesko might not belong in this thread, but if I can throw it in for comparison’s sake, Kesko has a better return on equity (20.5% vs. 18.7%), but I guess it’s close enough since Tokmanni has relatively more debt. And perhaps Tokmanni’s higher leverage will indeed turn out to be a good thing, or at least bring these companies closer together in terms of quality, if interest rates fall as predicted.
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Financial statements:
At the end of 2023, the Tokmanni Group had interest-bearing debt totaling EUR 864.1 million (392.4), of which non-current loans from financial institutions were 245.0 million euros (100.0) excluding the accrual of issuance costs and current loans from financial institutions and commercial papers 55.0 million euros (10.0).
And Q1:
At the end of March 2024, the Tokmanni Group had interest-bearing debt totaling EUR 826.3 million (441.2), of which non-current loans from financial institutions were 220.0 million euros (100.4) excluding the accrual of issuance costs and current loans from financial institutions and commercial papers 35.0 million euros (51.4)
So 300m in 2023, and now 255m in Q1. It’s certainly interesting to hear which component affects net debt. The amount of cash? Has the dividend (approx. 22 million) and debt repayment also been deducted from that 2023 cash pile?
Cash and cash equivalents were EUR 133.7 million (9.1) at the end of 2023
Q1:
Cash and cash equivalents were EUR 18.8 million (4.2) and the group’s financial position is stable
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Probably more working capital than usual will be tied up in procurement during Q1 to be ready for the spring season. But yeah, I did indeed look carelessly this morning and didn’t take cash reserves into account. Better to leave the whole mess to @Thomas_Westerholm, since he’s filling in for Arttu
@Enovene and @WanhaRadio, those Q1 losses can’t really be seen as a sign of business flexibility; I think something should be done about it too. Q1/2020 was probably the only time so far that we managed to stay in the black at the start of the year. Now it’s like we’re always starting the rest of the year from behind, with a negative quarter already under our belt. Are inventory levels enough of a reason for the Q1 loss? It mainly affects cash flow, I suppose!? How can competitors achieve better results during the quiet quarter!? Had management previously said that Dollarstore’s business wouldn’t be so seasonal, but now that seems to be the case!? I’ll save dissecting the webcast for the weekend; there might have been some mention of it there.
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Did management mention earlier that Dollarstore’s business wouldn’t be as seasonal, but now it seems that’s what happened!?
If I recall correctly, management said so, and if I interpreted it right, there was no seasonal data for Dollarstore. So analysts were just making estimates.
Here are my own comments based on the webcast:
It looks like Tokmanni was hit by a perfect storm.
The result was weakened by: political strikes, resulting alternative logistics routes, the Red Sea situation which also delayed the rollout of private labels, rising wage costs, and a slow winter which increased costs like snow plowing. Management noted it was good that spring arrived slowly because, operationally, they weren’t ready for the spring season. Also, wasn’t the comparison period strong because inventory was being reduced back then?
The increased container costs will be seen in Q2 once the arriving products are sold.
The positive side was that synergies have been achieved. An analyst hinted at whether we might see more synergy benefits faster than expected, to which management did not comment further.
Is the share price reaction justified, then? Those risks could have already been priced into the stock. This makes me wonder a bit about Puuilo.
By the way, it was a fun and upbeat webcast. The least serious webcast I’ve seen.
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The risks were indeed being priced in; the share price dropped to the €14.10 levels after being around €16 at the beginning of the year. For some reason, the price started to pick up steam a few days before the earnings release on rather low volume—perhaps there were some “earnings lottery” players on the move. Today’s decline stopped, at least for now, at some technical level around 13.60. I actually expected hedge funds to have secured a full 10% drop today, but some buying interest appeared at the last minute. Monday is a new day; maybe we’ll still visit the level slightly below 13.50. Personally, I find the price reaction a bit excessive, but then again, there’s uncertainty once more, as management also spooked the market with a weak April. By Monday morning, the analysts’ reactions to the results will also be known, and consensus has its own significance. The above price reflections are completely irresponsible speculation and are not an investment recommendation one way or the other
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It was still snowing even at the end of April. But last year too, there was snow on the ground and cold weather for a long time. I ran out of firewood, so that’s how I remember it.
Regarding this seasonal/weather variation, it might be useful to look at the comments in last year’s interim report 
Does the cold weather increase costs significantly etc., and was it visible in last April’s sales?
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Perhaps it’s not worth drawing too many conclusions one way or the other regarding a single quarter’s earnings per share or cash flow. If you look at Tokmanni’s operating cash flow over the last couple of years and subtract lease payments and investments (excluding acquisitions and logistics center investments), the “free” cash flow comes to about 63 million. Synergy benefits are expected to reach 15 million within a couple of years, and I believe Dollarstore made an operating profit of around 16 million in 2022. Of course, the consequences of political strikes will still be seen in Q2. However, a slight recovery was visible in Tokmanni’s Finnish segment, as organic revenue at least didn’t decline. Interest rates were likely already cut in Sweden, and there is talk of the recession receding in Finland as well, so this will certainly be welcomed by Tokmanni. A slight positive trend is expected, and with the company’s market cap at around 800 million, it feels like you aren’t taking a huge risk with your money at these prices.
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Sometimes it’s been too much snow, sometimes too much sun, a late spring or an early spring, rising freight costs or shipping bottlenecks, high electricity prices or interest rates…
When a business operates on thin margins, even the seasonal variations between quarters sway the bottom line, let alone an actual crisis.
Finnish consumer confidence figures were poor, and this is reflected in the results. If one thing is certain, it’s that the Finnish consumer is stingy. I even know a guy who practically makes a sport out of chasing cheaper oatmeal 
Interest rate cuts in Sweden and here as well are still ahead on some timeline.
An interest rate cut naturally bodes well for Tokmanni.
Edit: reading recommendation ahead of May Day for Marianne’s article Confidence under pressure within four walls.
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Consumer confidence figures were poor…
Well, wasn’t it supposed to be that discount retailers benefit in this kind of environment? I don’t think even this is an explanation for Tokmanni’s struggling. This ”bad downturn” hasn’t been visible at Puuilo, for example.
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Do tell, why are you comparing Puuilo and Tokmanni with each other? Very interesting.