Omnichannel Expansion And Warehouse Integration Will Strengthen Long-Term Premium Beauty Position

Catalysts

About Douglas

Douglas is a leading omnichannel premium beauty retailer across 22 European countries, combining a broad store network with a fast growing e commerce platform.

What are the underlying business or industry changes driving this perspective?

• Acceleration of the omnichannel strategy through cross channel services such as Click and Collect Express and in store ordering is deepening customer engagement and shifting more demand into higher ticket, lower acquisition cost journeys, supporting medium term revenue growth and operating margin improvement.
• Rollout of the unified OWAC warehouse network in Poland and other regions is replacing fragmented country infrastructures with scaled omnichannel hubs, which should lower logistics costs, improve availability and reduce store inventory, structurally lifting net margins and cash conversion.
• Continued expansion and refurbishment of stores in high traffic locations in CEE, Benelux and flagship destinations like Paris La Défense and Antwerp is capturing above market category growth in premium beauty and hair care, providing a runway for like for like gains and higher absolute EBITDA.
• Growing mix of corporate and exclusive brands alongside fast growing labels such as Sol de Janeiro, Rituals and Kerastase is improving category economics and pricing power in a promotional market, which should gradually support gross margin resilience and earnings growth.
• Scaling of high margin digital adjacencies such as Retail Media and app driven e commerce, combined with data and AI investments, is enhancing marketing efficiency and monetisation of Douglas traffic, offering incremental upside to EBITDA margins and net income beyond top line growth.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Douglas's revenue will grow by 4.0% annually over the next 3 years.
• Analysts are assuming Douglas's profit margins will remain the same at 5.1% over the next 3 years.
• Analysts expect earnings to reach €260.2 million (and earnings per share of €2.41) by about December 2028, up from €233.1 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 8.7x on those 2028 earnings, up from 6.0x today. This future PE is lower than the current PE for the DE Specialty Retail industry at 19.6x.
• Analysts expect the number of shares outstanding to grow by 0.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.98%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A structurally more promotional environment in European premium beauty, particularly from aggressive online pure plays, may keep pricing power muted and force Douglas to fund higher discounts, which would weigh on gross margin and adjusted EBITDA margins over the long term.
• The premium beauty market in key regions such as Germany and France is slowing, with France already in decline and Germany broadly flat year to date. If this lower growth becomes a secular pattern, Douglas could struggle to outgrow the market and materially lift revenue and earnings.
• The OWAC warehouse rollout and concurrent operation of overlapping supply chains in Central and Eastern Europe and other regions create execution and cost overrun risks. Delays or inefficiencies could erode the expected logistics savings and depress net margins and free cash flow.
• Ongoing store expansion and refurbishments, alongside rising lease liabilities, assume robust traffic and basket growth. If macro conditions or a channel shift to e commerce reduce store productivity, these upfront investments could dilute returns and constrain earnings growth.
• Higher and rising IT spending for technology stack upgrades, data strategy and artificial intelligence is intended to drive future efficiency. If benefits are delayed or smaller than planned, the company could be locked into a structurally higher SG&A base that pressures net income and cash conversion.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €15.57 for Douglas based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €22.0, and the most bearish reporting a price target of just €12.5.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €5.1 billion, earnings will come to €260.2 million, and it would be trading on a PE ratio of 8.7x, assuming you use a discount rate of 10.0%.
  
• Given the current share price of €12.94, the analyst price target of €15.57 is 16.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.