Growing Regulatory And Competitive Pressures Will Squeeze Margins

Key Takeaways

• Regulatory challenges and shifting consumer behavior are shrinking the online market and increasing compliance and acquisition costs, straining profitability and growth prospects.
  
• Market share and margins face pressure from rising competition, technological disruption, and persistent high operational costs as the company expands offline.
  
• Successful subscription model, strict cost control, and private label focus have driven profitability improvements, while a strong financial base supports future growth and margin expansion.

Catalysts

Provides and markets eyewear products in Germany and internationally.

• The ongoing shift among aging consumers toward in-person healthcare and complex optical services, coupled with growing regulatory scrutiny on online prescription eyewear sales in Europe, could significantly limit Mister Spex's addressable online market and increase compliance costs, which would place persistent pressure on future revenue and net margins.
  
• Intensifying promotional activity and rising competition from both low-cost online rivals and integrated industry leaders may erode Mister Spex's market share, force further discounting, and squeeze gross profit margins over time.
  
• Persistent challenges in achieving sustainable profitability-despite recent cost reductions-highlight the risk that high logistics and return costs, especially as the company expands its brick-and-mortar presence, will continue to delay or prevent a meaningful improvement in net earnings.
  
• Ongoing digital privacy regulations and restrictions on personalized data usage for customer targeting may drive up customer acquisition costs and diminish digital marketing efficiency, ultimately slowing customer growth and compressing operating margins.
  
• Technological disruption in vision correction, such as wider adoption of laser surgery and smart lenses, risks reducing the long-term demand for traditional eyewear, threatening Mister Spex's core revenue streams and impairing future growth opportunities.

Mister Spex Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Mister Spex compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Mister Spex's revenue will decrease by 0.4% annually over the next 3 years.
• The bearish analysts are not forecasting that Mister Spex will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Mister Spex's profit margin will increase from -40.0% to the average DE Specialty Retail industry of 2.5% in 3 years.
• If Mister Spex's profit margin were to converge on the industry average, you could expect earnings to reach €5.1 million (and earnings per share of €0.16) by about September 2028, up from €-79.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, up from -0.8x today. This future PE is lower than the current PE for the DE Specialty Retail industry at 20.0x.
• Analysts expect the number of shares outstanding to decline by 1.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.19%, as per the Simply Wall St company report.

Mister Spex Future Earnings Per Share Growth

Risks

• The successful rollout of the SWITCH subscription model has attracted a high-value customer base with stronger purchasing power, leading to significantly higher average order values and gross margins, which could drive sustained improvement in revenue and earnings over time.
  
• Disciplined cost control and the operational initiatives under SpexFocus, including store optimization and headcount reduction, have already delivered substantial improvements in EBIT and free cash flow, showing that Mister Spex is capable of achieving better profitability and reducing cash burn significantly.
  
• Strategic focus on private label products like SpexPro, which now accounts for 15 percent of net revenue and carries higher margins, positions the company to expand gross profit margins and net margins if adoption continues to scale.
  
• The growing profitability of the store network, with around 90 percent of stores now breakeven or profitable and a threefold increase in stores exceeding a 10 percent EBIT margin, demonstrates an ability to leverage its omnichannel approach for future revenue growth and improved earnings quality.
  
• The company's strong liquidity position, with cash and cash equivalents of 65 million euros and positive operating cash flow, provides a solid financial foundation to invest further in growth initiatives such as new store openings or marketing, supporting long-term revenue and earnings potential.

Valuation

• The assumed bearish price target for Mister Spex is €1.7, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Mister Spex's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €6.0, and the most bearish reporting a price target of just €1.7.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €200.2 million, earnings will come to €5.1 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of €1.84, the bearish analyst price target of €1.7 is 8.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.