I’ve occasionally glanced at this as a peer comparison, but after the earnings season, I thought I’d start digging into the situation of this sports retailer XXL a bit more closely. The stock is down about 95% from its 2014 IPO. However, it is a strong brand that has run into trouble due to weak consumer confidence and large inventories.
Are there any people on the forum who have invested in this company or done their own analysis? It would be interesting to hear your thoughts.
I haven’t done any analysis, but my internal value investor has certainly noticed the exceptional multiples relative to my own “consumer image” of the company. I took a superficial look, but the conclusion was just that they’ve been dabbling in all sorts of things with poor success I didn’t have the time or enthusiasm to investigate the depth of the problems more closely, but on the surface, this didn’t look completely hopeless.
It would be great if you had time to take a look; I’m also interested in whether this is a value trap perpetually plowing below the surface or a truly potential turnaround case
I previously owned shares in the company. My own consumer perception was positive as well. The company’s management started changing at a frequent pace, and reports cited poor winter conditions, large inventories, or similar reasons for the weak performance. After that, COVID hit with a vengeance. As a micro-observation, major changes were made in the local XXL, and employee turnover became high. I haven’t followed the company much for a few years, so I don’t have a more detailed observation of the current situation.
My analysis is based on my own experience as an employee. I was there for about five years, more or less alongside my studies.
General observations through my own eyes:
Many things were done in a terrible rush without any plans. The end results reflected that.
It felt as if things were done only for Norwegians. It felt like decisions didn’t consider how things would look in, for example, a Finnish store.
There were all sorts of rumors and talk about the buyers. This was also evident in the products we got into the stores. From what I heard, the company couldn’t even buy products from certain brands. Or these brands didn’t want to provide them for sale.
Growth was driven far too much by pricing.
The impression I was left with from my years working there means I kind of understand the situation with the share price. And I don’t mean that I didn’t enjoy my time there. It was a good place to work alongside my studies.
Here are some general observations. There would be plenty more of these stories. But maybe it’s better this way.
I’ve followed the operations of the chain in question quite a bit from a competitor’s perspective. It has certainly been in a challenging situation for a long time, trending downwards since around 2017. In recent years, it has faced problems multiple times in various situations, but especially with suppliers. Their aggressive price undercutting has caused so much harm to brands that they have made purchasing more difficult for them.
Unfortunately, I can’t provide a very good analysis from an investment standpoint, but having seen their operations and worked in the industry, I have some understanding of the kinds of challenges they face.
On the other hand, it’s hard to believe that time is passing brick-and-mortar by, as people globally have returned to physical stores after Covid.
I have almost all the chains in the same industry in my local area, practically side-by-side, but XXL is still the one I visit by far the least. The reasons are mainly:
The size availability is very poor. Very often you find sizes like XS, M, and then 4XL, but nothing in between. You almost know in advance that your size won’t be on the shelf. This is even the case for advertised items; either they sell out “instantly,” they were never even coming, or they were advertised so far in advance that the shipment didn’t make it in time for the campaign.
On the rare occasions I do end up there, there isn’t really anything inspiring on offer. So those add-on sales are lost because you don’t find anything interesting besides the one thing you went for—or when you’re just browsing to see if there’s anything nice.
And regarding that one item, it’s often hard to actually find in the store. The layout and product placement are quite, well, haphazardly slapped together.
It’s a bit like a designer-chromed Halpa-Halli Doesn’t inspire me to invest, either.
For me, it’s almost the opposite. If, for example, I need some small spare parts for my bike or chain oils, cleaners, and other odds and ends, it’s easy to just grab them from XXL so I don’t have to go all the way to a specialty store.
The selection of running shoes is superior compared to other sports stores. Training clothes are pretty much 50/50 with Intersport.
XXL’s problem is perhaps that it’s really not very well-organized. Since they sell everything from swimming goggles to rifle cartridges, the stores are inevitably massive halls, and every department really needs a salesperson who is truly knowledgeable. Specialty stores certainly eat into sales; for instance, I primarily get my outdoor gear from Partioaitta, and if I can’t find it there, I might drop by XXL. There are also several equestrian enthusiasts in my family, and Hööks and similar stores win this race 100-0. I believe the same issue affects the hunting side.
I have to say that a while ago at the XXL in Jyväskylä, at least the salespeople in the firearms department were completely clueless. I went there a couple of times to pick up some skeet shells for my shotgun, and the salesperson had no idea what I was looking for. I had to tell the clerk to open the cabinets one by one and that I’d let them know when I saw the cartridges I wanted.
I guess the main thing was that I got the products I wanted, but it didn’t leave me with a very professional impression of the staff’s expertise.
A rookie post; feel free to move this to another thread if it doesn’t belong here.
That kind of activity isn’t very highly regarded these days, as responsibility is a high-priority value. However, those chasing low prices are more likely to get their goods from Tokmanni, while those buying premium products from XXL also emphasize responsibility, eco-friendliness, etc.
“As a customer, I have the right to return this product and ask for a refund.” In principle, that might be fine, but customer returns often end up in a dumpster, as shown in the photo of the news article. Each of us should remember this and think twice before buying something in the heat of the moment and then demanding to return the product to the store slightly scruffy or otherwise. Most retail chains, of course, destroy products by putting them in locked dumpsters so that this kind of scandal doesn’t go public. Unfortunately, it’s likely “business as usual” for many other stores as well.
Looking at XXL’s share price, the first thing that comes to mind is that a massive share issue is coming and current owners’ holdings will be heavily diluted. I haven’t looked into the company at all, but based on the share price, something is majorly wrong. A heavy debt load or something else.
Indeed, XXL’s entire success is based precisely on low prices and big discounts. Of course, the merchandise is in a different league compared to Tokmanni, but it still doesn’t reach the premium level that actual specialty stores offer.
As for that sourcing/production issue, everyone operates the same way—some get caught and others don’t. But the problem is real, and there is no easy way out. Brands that have the opportunity to make higher price point products, like Rab, are also able to develop recycling and repair services. But most do not do this.
Arhi Kivilahti’s blog features reflections on XXL. In Finland, among competitors, for instance, Kesko’s Intersport seems to have managed significantly better through the difficult past year, at least in terms of sales.
Interport saw revenues decline by -4,3%, which is a much better performance than the -18% for XXL. At the same time, the overall market was nearly flat.
At the same time as XXL Finland has been losing market share, it has been one of the best-performing markets for XXL. Or should one say one is the least poorly performing? The declines in Sweden and even in Norway have been more significant.
The struggles have led XXL to announce that the company will exit the Austrian market.
What is the current situation with XXL? The market value has been hammered down so low that bankruptcy is practically being priced in. What could be the root cause of the company’s extensive problems? Consumer products are often cyclical, but as far as I know, sports equipment isn’t that sensitive to economic cycles because the prices aren’t particularly high and it’s how many people choose to spend their leisure time—meaning people don’t cut back on them as immediately as they do with new furniture or electronics.
The problems aren’t exactly simple when it comes to XXL. If you consider, for example, the aggressive expansion into Finland, the building of the store network, and the overhead and personnel costs in stores of that size, you really have to sell quite a bit before costs are covered.
At the same time, XXL has also used pricing gimmicks to put itself in a difficult position and has been forced to renegotiate its market standing with suppliers. Although XXL can still sell big-brand products cheaply, those products tailored for XXL’s pricing tactics aren’t the same thing to the consumer as the so-called real selection. Nor are they always qualitatively at the same level as the “RRP” would suggest. As long as the big discount % are visible.
Of course, the aggressive expansion wasn’t just in Finland; they also sought growth in Central Europe, and that didn’t go very smoothly either. So now we’re waiting to see what happens next. There have already been suggestions that a major player might come and buy up part of the existing store network in Finland as well. Decathlon could, in principle, give it a try, but is this remote corner of the North in any way interesting enough for them?
The Q1 review was already back in April. Apparently, there was some general meeting yesterday that would be nice to get access to, but I couldn’t figure out how.
Q1 23 though: slightly more revenue than a year ago, but they took a heavy hit as the gross margin (?) shrank significantly. Lots of clearance sales were held to reduce inventory levels. On the other hand, the beating was slightly less severe than in Q4 last year.
There’s a lot of commentary (understandably) here about the Finnish stores, but Finland’s share of revenue is only 19%, so it doesn’t tell the whole story. We clearly need some Finns living in Norway here.
The headline still holds true. Today XXL issued a profit warning. At Kesko too, sports trade sales were down 25% in April/May.
XXL further announces that total operating revenue so far in the second quarter 2023 is lower than last year, driven by weak consumer sentiment and reduced demand for sporting goods in general. Total operating revenue, from continued operations, for the Group in Q2 2023 is expected to be around NOK 1.9 billion compared to NOK 2.1 billion last year. The market is characterized by high inventory levels in the whole value chain, resulting in aggressive pricing and excessive campaigns. Higher campaign and clearance activities for XXL will impact the gross margin, which is expected to be around 30-32 per cent (37.9 per cent). EBITDA is estimated to be in the range of negative NOK 25 to 75 million (NOK 205 million). This could change as the last weeks of June are important sales weeks.
XXL expects to be in compliance with its 30 June 2023 financial covenants and is in constructive dialogues with its lending banks.
XXL will present the actual second quarter 2023 figures on 14 July 2023.
I didn’t have the time or enthusiasm to investigate the depth of the problems more closely, but on the surface, this didn’t look completely hopeless.
