@Arttu_Heikura that inventory has now been hoarded like toilet paper before the pandemic.
For example, in 2024, operating cash flow was 89M, inventory was acquired for 88M, and capex + leases were roughly 140M.
Now, another 53M in inventory. (now 481M)
Are we playing a game of “all or nothing” here, hoping for an imminent buying frenzy that will finally make the cash register ring, or what do you think is really happening here?
An interesting piece of news in Helsingin Sanomat regarding Spar stores. It was new information to me that they might be seen in 2027.
At least for now, I consider it positive that current grocery store concepts are changed to Spar, which might help with competition — especially in smaller localities. Specific dry goods will likely be available in every store.
It’s interesting that many municipalities want Tokmanni to bring Spar, but competition in that location can be tough - But if there are many interested parties — could one even negotiate relatively free lease agreements for Spar or try to work out some other agreements at the same time. Of course, Spar stores are still quite far in the future, but it seems they are currently part of Tokmanni’s expansion plan in Finland. However, one must keep one’s feet on the ground and not get too carried away. There are risks, but of course also opportunities.
Still my view on the Spar cooperation, I don’t believe it will work and it seems really poorly prepared.
But did it happen now that in the midst of all the Spar fuss, it was forgotten that Dollarstore should also be properly ramped up?
Currently, this shop is completely messed up.
Employee problems have been visible already before. It says a lot that they are constantly looking for permanent, but part-time employees. The whole thing is completely messed up right from the working hours. From these, one can easily conclude that they only want to extract profit. Full weekly hours are not offered, even if there is work, meaning the financial well-being of employees simply isn’t a concern. At Puuilo, full-time employees accounted for 74% in 2024, and at Tokmanni, 30%. A huge difference.
The recruitment director (or whatever their title was) even complained in the newspaper about how difficult it is to get employees for these garbage contracts. People aren’t stupid, after all, and applications mainly come from those who can’t get in elsewhere or are forced to apply. If even basic things are not cared for, then no one can expect workplace well-being to be taken care of at a good level. As long as they somehow manage, that’s it.
I remember equally blatant problems being reported concerning at least Musti and Lehto. These are not surprises within the company, but rather conscious choices. It doesn’t just happen like that due to bad luck or some single unpleasant store manager. At some point, such systematic exploitation inevitably shows in performance, and these deeply rooted problems will certainly not be fixed in a few months or even a year, if ever.
Management, of course, takes a stand on these issues when the shit hits the fan, i.e., when some scoundrels dare to bring up grievances instead of quietly crying with their hat in hand. Cost-effective and superficial inquiries about well-being and other trivialities simply won’t help with these. If things are genuinely to be put right, doing so retrospectively requires an enormous amount of time and money.
First and foremost, a huge number of current employment contracts and job advertisements should be modified. Surely, even Tokmanni’s management understands the impact on well-being when someone has to work 25 hours a week on retail hourly wages.
It’s difficult to offer full weekly hours when labor is needed according to customer flow, and that isn’t constant at different times of the day. Tokmanni’s smallest stores probably operate with one employee during quiet hours, and several employees during peak hours.
Of course, 30% sounds like a really small number - and 74% a really high number - but the strong proportion of part-time work in the retail sector is understandable.
That also depends entirely on the person. Some people specifically want those kinds of working hours: Huonoimmillaan 1 300 euroa kuussa – Tokmannin myyjä kertoo, miksi hän on silti tyytyväinen palkkaansa | Alue- ja kuntavaalit 2025 | Yle
Undoubtedly, most people still want full work weeks. In that case, one must strive to advance in their career accordingly, or build their work around two parallel jobs. It’s rare for retail cashier jobs to lead to careers lasting until retirement age nowadays.
Relatively free rental agreements can be negotiated for locations where tenants cannot be found under other terms. Often, customers don’t find those locations either. For the customer flow of some small shopping center, it is of course a more pleasant thing to get a Spar-Tokmanni with a long lease agreement into the premises instead of Pena’s Flea Market. And of course, a mere Spar would also be a good addition to many shopping centers, but probably no more special than a small market of large chains.
I don’t consider it a great victory that the company receives many proposals, especially from real estate investors, saying “bring your store here”. That’s normal marketing. And it’s unlikely that the municipalities’ contacts are such that a red carpet is being rolled out. Especially every declining small municipality is probably begging every chain to bring grocery stores to their towns.
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Thanks also from here @Arttu_Heikura for the good live stream, it worked very well as a re-broadcast too. “…let’s open this pdf. now if we quickly look.. operating profit -11 million [2.5 seconds of silence and this 
expression]… uh… uh… that’s clearly below expectations”. When even the always coolly analytical Arttu’s face showed genuine surprise and slight shock for a moment, I understood why young people nowadays watch reaction videos… @Tomi_Valkeajarvi & Co, just add more analyst live-reaction videos to YouTube!
Yesterday’s stock reaction was quite brutal. But justified for 2 reasons.
1. Of the drivers of retail profitability, the most underrated OKR: COMP GROWTH!
Almost without exception, we hear retail chain management talking about great synergy benefits A obtained from growth achieved through acquisitions and new stores (=more volume). And this is true, it can generally be stated that volume provides a relative competitive advantage and profitability through better procurement, marketing, and central administration costs.
BUT, if the focus were on Comp Growth and growth came from there, synergy benefits B would arise in almost all basic retail processes. Logistics central warehouse - store, in-store logistics, store rents, energy, refrigeration, lighting, depreciation of store fixtures, internal logistics, shelving, sales management, cashier functions, property maintenance, cleaning, shrinkage, etc… It matters how synergy benefits are created. Everyone can estimate what kind of relative difference in profitability is achieved if synergy benefits come from category A or B…
Q1’s poor revenue also had explanatory factors. The leap year, in particular, is a clear absolute factor. But Easter itself is not so obvious in general merchandise retail, as the average net volatility of Easter is the highest of all retail holidays. In other words, Easter’s boosting effect in % is very variable in general merchandise retail; an Easter in March on the best spring snows of a long winter, on a sunny frosty day, is net negative. Or similarly, with suitable weather at the end of April, all Finnish cottages and terraces are prepared for spring on Easter Monday. Point: the level “Easter” is generally too lazy an explanation.
But despite these explanatory factors, the most alarming sign in yesterday’s report was Tokmanni’s -4% comparable revenue (LY +2%).
In retail investment stories, this table matters. And unfortunately, this is not currently under Tokmanni’s control.
2. Dollar Store - Finland vs. Sweden - The War of Retail Concepts
Dollar Store is becoming one of the most interesting symbolic discount retail battles.
• Swedes (DS, Jula, Rusta); smaller selection and a lot of emphasis on store layout, store segmentation, presentation techniques, visuals, and commercial accent lighting designed in detail. Commercial atmosphere and highly developed sales management, loss leaders right at the forefront of the shopping experience (at Jula, shopping starts with a €0.20 carpenter’s pencil, etc…). A smaller selection limits, but also brings significant efficiencies.
• Finns (and Tokmanni); more than double, even triple the selection. Of course, also the inefficiency of a large selection. Rational store experience, items on numbered shelves, maximizing the number of products and easy findability. For Finns, sales management means that in addition to the price tag, an A4 is placed in a stand, but no emphasis on product presentation layout, product presentation technique, commercial lighting, coordination of selection, graphics in the background.
Tokmanni acted smartly by combining procurement and selection synergies - and bringing the best of its own private label (PL) selection to Dollar Store. But is Tokmanni acting smartly by “Finnicizing” the DS Concept? Hiring Heimo indicates that the competence focus is on selection, logistics, IT, and systems - not so much commerciality. There is a risk that Tokmanni will crush DS Commerciality with a “logistical edge”. Has Tokmanni really tested whether the DS commercial concept changes work? What if Swedes don’t like the “more rational” large-selection Dollar Store, which also has more expensive products and the inefficiency of a larger selection?
This seems to be shaping up to be an interesting Finland-logistics-selection-maximum vs. Sweden-commerciality-range-presentation discount retail international match!
PS. In the recent history of retail, there are several examples of concept mergers that have gone wrong due to inadequate concept testing. Hopefully, Tokmanni has done its homework, market analyses, customer focus groups, and concept tests better than Dollar Tree/Family Dollar, Target/Zellers, Walmart/Wertkauf, and Tesco/Easy… Synergy benefits are not an automatic path to happiness in the retail sector.
At the Annual General Meeting, the CEO mentioned regarding individual products that the reception has been good. Similarly, when new product categories (BBQ king) were launched, sales development was strong. Of course, no generalizations can be made from these. It primarily serves as an indicator that some kind of testing has been done.
Dumping the old assortment will certainly be done through pricing, and I suspect it has been actively practiced during this Q1. Sales development at the expense of margins. Q2 and Q3 will start to show the direction of how sales and margins will develop with the updated assortments.
I have understood that the most important reason behind Heino’s appointment has been to bring Tokmanni’s management models to Sweden and Denmark. I am not aware of what the commercial strategy will be. I would gladly hear more about this. If the extremes are “nothing is changed” and “everything is changed,” then the solution will be something in between. Here, one must simply trust the management’s expertise that choices are made based on careful research. It is unlikely that they will start haphazardly.
This kind of sign greeted me yesterday at Tokmanni in Ylöjärvi. A minor renovation was underway, and product shelf locations had changed.
I still don’t understand how the placement of products in the store can seem so random. Yesterday I was again looking for a specific product at Tokmanni - this time ant poison. I found poisons on four different shelves, but not exactly what I was looking for. The shelf signs are so general and there seem to be so many “special sections” that I’m slowly starting to completely give up on shopping at Tokmanni. Is this just a legacy from the discount store world, where the price was the most important thing and the customer had to go through all the trouble?
It’s not just in discount stores. The same problem exists in clothing stores. Trousers or shirts are not in one place; Tommy Hilfiger is in its own corner, Polo in its own, and Gant in its own.
Yes, for example, it’s a pleasure to go to Puuilo, because I feel that it’s much easier to find items there. Just like at Motonet, Puuilo’s online store allows you to find the location of even the smallest nut with shelf-level accuracy.
Puuilo, in my opinion, also stands out in an exceptional way through its advertisements. Tokmanni’s “netto netto netto days” somehow don’t stand out from Citymarket’s “mammoth markets” etc. Or at least my own impression for a long time was that when I heard the “netto netto netto” phrase on the radio, I associated the advertisement with the K Group. Puuilo has succeeded, with Heikki Nousiainen’s voice, in creating something that stands out and is memorable.
Well, well. Puuilo has good advertisements, but the latest Mr. Tokmanni advertisements are absolutely excellent.
In my opinion, Tokmanni executes its advertising very well, at least in TV media.
Heikura’s comment and the target price reduction to €11.50. Reduce.
OP also shifted from an ‘add’ to a ‘reduce’ recommendation. The target price decreased from 13.5 euros to 12 euros.
What’s interesting in the Swedish discount retail market right now is that two foreign players are restructuring relatively large domestic retail concepts. Europris’ decision to change the store concept towards the Europris direction is, in my opinion, very justified, as Europris is performing well in Norway (2024-23 comparable revenue growth 2-3%) and ÖoB, on the other hand, has been in a weak position in Sweden. I.e., something in ÖoB’s concept is broken.
From Tokmanni’s perspective, the situation is perhaps slightly different. The concept’s attractiveness in Finland has been somewhat subdued while other players have grown strongly. Dollarstore’s growth has been very strong in recent years, but profitability is low relative to its potential. Strong growth is, in my opinion, a sign that the concept is attractive. Is there a justified need for larger concept changes? In any case, profitability can be improved by streamlining more processes (procurement, financial administration, software, other “best practices”) and by increasing store-specific sales.
Comments that have emerged during 2024-25 about deeper integration of the concepts (vs. at CMD, it was intended to keep it a relatively independent operation, only procurement would be combined) make me at least wonder whether the potential for these changes leans more towards positive or negative. Currently, considering the challenges abroad (inventory still needs to be run down, management team turnover, concept direction?) and Tokmanni’s own investments with SPAR (which will tie up management time and is not an easy problem to solve), Dollarstore’s impressive earnings growth expectations are clearly trending downwards in my own calculations (reason for forecast calculations that affected the outlook and target price).
Looking solely at earnings multiples, the stock could be seen as reasonably priced in the coming years, but when all the aforementioned factors are considered, as well as the fact that, according to forecast calculations, Tokmanni appears to be a rather average or even underperforming business (e.g., return on invested capital is at the level of the cost of capital, which means that business value creation is minimal), these multiples seem rather neutral.
@Arttu_Heikura also brought up those debt covenants in the report, although the CFO seemed quite confident in the earnings call that they are still some way off. However, there is hardly any room for failure this year. As I understand it, inventory levels will continue to be quite high; in the Q&A section, the optimal level was apparently asked about, and after some back and forth, the answer was that 30-50 million lower could be a comfortable level, but since it’s a growing company, they will remain quite high compared to historical levels. By the way, Arttu, where did you get the impression that inventory levels should still be driven down with clearance sales? I rather understood that preparations for the spring season have been made and products ordered well in advance, so a successful spring season would bring the level back to normal!? Of course, due to the mild winter, there are still products reserved for the winter season that will then have to be tried to sell next winter.
In this era of correctness, it was not directly stated that Anders Kind was likely behind the too-cheap Dollarstore inventory clear-out, and that’s the reason why Anders’s name quietly disappeared from the management team. Could it also be a dispute over the dismissal, or why on earth couldn’t this be communicated at all!? Indeed, 80% of Dollarstore’s sales items have been those 10, 20, and 30 SEK products, and selling them at up to a 70% discount has hit the results hard. Now, indeed, some of the cheap products that Swedes are used to are being replaced with slightly more expensive products. It remains to be seen how customers will react to this change.
But yes, this investment has become a bit riskier in my own eyes, but quarters are certainly not alike, and Tokmanni still has a chance to prove itself during the spring and Christmas seasons. And yes, I also share the concern that Tokmanni’s management’s focus may have become too scattered.
Quick news from Kauppalehti: DNB Carnegie Group lowers Tokmanni’s target price to 12.00 euros (previously 13.50 eur.), lowers recommendation to hold (previously buy).
And another: Kepler Cheuvreux lowers Tokmanni’s target price to 13.00 euros (previously 14.00 eur.), reiterates buy recommendation.
And a third: Danske Bank lowers Tokmanni’s target price to 12.20 euros (previously 13.00 eur.), reiterates hold recommendation.
The intention was to refer specifically to the reduction of Dollarstore’s exiting assortment, which was the reason for the weak gross margin percentage in Q1. And this was discussed in the earnings call! They intend to be more cautious about this in the future than in Q1. In other words, the drop in gross margin percentage may not be as large as in Q1, but it should not improve in Q2 either, even if some benefit from their own brands is gained.
You are right. It is possible that the inventory level will approach normal (and this will happen in the Tokmanni segment if sales are OK), but especially Dollarstore’s euro-denominated inventory will be larger than the previous year for two structural reasons. 1) More stores and 2) own brands have been ordered in larger batches to the central warehouse. However, these factors should not dilute or lower the relative gross margin, but the biggest concern here is how much of this exiting, i.e., discounted, assortment the company still has in stock.