At the beginning of May, Swede Freddy Sobin started his job as XXL’s new CEO. Now, just over a month later, comes the earnings announcement from the listed sporting equipment chain: Revenue, gross margins and operating results will be lower than last year.
- XXL expects turnover of around NOK 1.9 billion in the second quarter, compared to NOK 2.1 billion in the same period last year.
- Gross margin is expected to be around 30-32 percent, compared to 37.9 percent in the same period last year.
- Operating profit before depreciation (ebitda) is expected to be negative between NOK 25 and 75 million, compared to NOK 205 million in the same period last year. XXL notes that this may change during the last weeks of June, as these are important sales weeks.
Analyst: – Nothing unexpected
In the exchange’s announcement, XXL notes that the market is characterized by rising inventories across the value chain, which results in aggressive and exaggerated campaigns. It also affects the XXL’s gross margin.
The company expects to comply with the terms of the financial loan on June 30 and says it is in constructive dialogue with the banks.
On Wednesday afternoon, XXL stock fell about ten percent after the results were announced.
We have a sell recommendation on the stock and a target price of 1 kr. There is nothing unexpected here. We’ve said for a long time that we believe the company will breach the terms of the loan and that it will need to bring in fresh capital, says analyst Oyvind Mossig at Sparebank 1 Markets.
In his latest analysis, Mossige argued that XXL needed to collect at least NOK 500 million, possibly as much as NOK 1 billion, in equity.
Tax deferral
In the same letter, the sports equipment chain states that the Swedish subsidiary has received a deferment from the country’s tax authorities for a tax bill from 2021. This means that the company is improving its liquidity reserves by SEK 345 million.
XXL manager Freddy Sobin started work at the beginning of May. (Photo: Tom W. Christiansen)
The tax claim, if it has not been deferred several times, must be paid monthly from January 2024.
The tax scheme was introduced by the Swedish authorities to help businesses affected by the pandemic.
“image improvement”
– This earnings announcement reinforces the picture we’ve seen in recent months: The company is struggling to increase profitability at the same time that liquidity is good at the moment, says analyst Carl-Friedrich Bierke at Arctic Securities.
He believes the tax deferral is positive for liquidity and that it could provide more peace of mind for the rest of the year, but notes that this is not where the shoes are pressing.
– The main concern is the terms of loans in banks, and in particular the condition related to the relationship between gross profit (ebitda) and net debt, says the analyst.
Arctic, they don’t think the XXL will be in the red in the 12-month interest, tax and depreciation period through mid-2024 at the earliest. If that’s the case, the company will have to take action to get the winter through, Bjerke said.
Our main view is that the company will need additional capital by the end of the year, but what remains for us to see, he says.
On Tuesday, DNB Markets published an analysis on XXL in which the brokerage house wrote that it expects XXL to breach the loan clause in the third quarter. According to TDN Direkt, the hold recommendation and price target of NOK 2.2 are maintained on the stock.
XXL’s share is down more than 40 percent this year. The company is valued at around NOK 800 million on the Oslo Stock Exchange.(conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We’d like you to share our statuses using links that lead directly to our pages. Reproduction or other use of all or part of the Content may be made only with written permission or as permitted by law. For more terms see here.
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