Europris crack on eve of the year – Christmas items sold out very early – E24

The discount chain has ordered quite a few Christmas items. This impacts sales and margins for the fourth quarter.

Low-priced chain Europris presented its report for the fourth quarter of last year on Thursday morning:

• Turnover amounted to NOK 3.07 billion in the quarter, almost unchanged from NOK 3.03 billion at the same time last year.
• Operating earnings (EBITDA) were NOK 723 million, down from NOK 760 million.
• Profit before tax was 541 million, down from 562 million

According to Bloomberg, it was expected in advance to have a turnover of NOK 3.17 billion, operating profit (EBITDA) of NOK 773 million, and pre-tax profits of NOK 566 million.

Cautious purchases

Christmas trading is important for how Europris performs in the fourth quarter. The company writes that in retrospect, it clearly had overly conservative estimates for some of its best-sellers, and thus those estimates sold out early in the season.

“This had a negative impact on both sales and margins,” Europress wrote in the report.

These are products that typically have higher than average margins among the chain's products.

“Orders for these seasonal items were placed approximately a year in advance, based on 2022 volumes and cautious expectations in what remains a very difficult household economy,” the report said.

In contrast, the company ended 2023 with “healthy” inventory levels, and improvements in net working capital had a positive impact on the development of the cash balance, according to the company.

Europris describes mixed performance in the fourth quarter, in a strong year.

The company points out that competition is fierce on price. Combined with increased campaign sales and a higher proportion of consumer goods in the product mix, this impacted margin negatively.

– The retail market is now very focused on prices, and we are actively promoting products that are relevant to consumers, says Europris CEO Espen Eldal in a statement.

In Oslo Børs, Europris's share price has risen by 23 percent in the past year. 2024 started with prices rising by nearly three percent, according to Infront figures.

High shipping rates

Europress notes that it has not witnessed any delays as a result of the attacks on ships in the Red Sea, but:

With longer shipping routes, increased shipping times and a potential shortage of containers, Europris is now facing increased shipping costs, according to the company.

Furthermore, Europress notes that household finances remain under pressure, with a new interest rate rise in December 2023 adding to the challenge.

“This is the kind of market situation that represents opportunities for a concept like Europris, and the company is prepared to continue working hard to capture its share of wallet,” Europris wrote.

The Board of Directors of Europris has decided to propose a dividend of NOK 3.25 per share for 2023. This means that the total dividend will be approximately NOK 540 million.

According to Bloomberg, the dividend was expected to be NOK 3.31 per share.

Ready to shell out more than 200 million to a Swedish supermarket chain

After Børsen closed on Wednesday, the company announced its decision to purchase the remaining shares in Swedish discount chain ÖoB.

The Oslo Stock Exchange-listed company already owned 20 percent, and had an option to buy the remaining 80 percent.

It has been debated whether the right to buy the rest of the company has expired, but Europress announced in December that it had won an arbitration case over the matter. The company writes in its quarterly report that it has booked compensation of NOK 11 million in legal costs as a result of the case.

The current exercise price of the option is NOK 211 million for an 80 percent stake, but the final purchase price has not been determined. ÖoB has around 90 stores and an annual turnover of around SEK 4 billion. The concept is similar to Europris with a high degree of overlap between products.

However, Europris believes ÖoB needs a turnaround after several years of “limited sales growth and weak profitability,” according to the report.

In the quarterly report, Europris appears to have written down NOK 43 million on the company's 20 percent stake in ÖoB due to weak sales. At the same time, the company indicates that this amount corresponds to a carrying value of NOK 102 million for the valid option to purchase the remaining 80 percent stake.