Macroeconomic Headwinds Will Derail Eyewear Recovery

Key Takeaways

• Intensifying competitive and regulatory pressures threaten Mister Spex's profitability, with rising costs, margin compression, and compliance challenges.
  
• Changing consumer preferences and digital marketing saturation risk market share loss and reduced effectiveness of growth initiatives.
  
• Improving store performance, growing subscription revenues, and focus on premium products and efficiency collectively enhance profitability and position the company for sustained financial strength.

Catalysts

Provides and markets eyewear products in Germany and internationally.

• Intensifying macroeconomic headwinds and rising interest rates across Europe are likely to dampen consumer discretionary spending for non-essential eyewear, threatening further declines in Mister Spex's revenues and slowing recovery in both online and offline channels.
  
• Long-term demographic changes risk misalignment with Mister Spex's core offering, as younger, fashion-aware or digitally native consumers increasingly seek competitors' innovative or tech-enabled eyewear, which could drive persistent market share losses and revenue stagnation.
  
• Heightened regulatory scrutiny on digital health offerings-including data privacy, prescription verification, and cross-border online sales-may result in surging compliance costs and increased operational complexity, compressing net margins and eroding profitability over time.
  
• Sustained pricing pressure from direct-to-consumer and vertically integrated pure-play competitors is expected to further compress gross margins, with Mister Spex's cost-cutting and margin improvements likely proving unsustainable in the long run.
  
• The substantial and ongoing investment in omnichannel infrastructure, store refreshes, and bolt-on acquisitions is likely to weigh on earnings and free cash flow, especially if customer acquisition rates and repeat purchases continue to plateau or decline due to saturation in digital marketing channels.

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 2.1% 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 -38.5% 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 €4.9 million (and earnings per share of €0.18) by about August 2028, up from €-82.0 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 10.1x 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 19.8x.
• Analysts expect the number of shares outstanding to decline by 5.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.12%, as per the Simply Wall St company report.

Mister Spex Future Earnings Per Share Growth

Risks

• The successful turnaround of 15 additional stores to EBIT positive brings the total to 34, showing signs of improving offline operations, which could drive higher future earnings and improved net margins.
  
• The launch and early adoption of the Mister Spex Switch subscription model, with recurring revenues and customer lock-in features like annual eye health checks, could create a more predictable and growing revenue stream over the long term.
  
• The premium private label SpexPro lenses saw significant traction, especially in stores-accounting for 35% of sales in some locations-and with an average order value almost double that of generic lenses, this trend could sustainably lift gross margins and boost net profitability.
  
• The company's ongoing automation, process optimization, and implementation of lean management and best practice playbooks are likely to structurally lower costs and enhance operational leverage, increasing prospects for stronger EBIT and cash flow in future periods.
  
• The consolidation of the store network with a focus on profitable geographies and continual improvement of marketing effectiveness demonstrates disciplined cost and capital allocation, setting the company up for improved long-term earnings and a stronger overall financial position.

Valuation

• The assumed bearish price target for Mister Spex is €1.4, 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 €1.4.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €199.5 million, earnings will come to €4.9 million, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of €1.88, the bearish analyst price target of €1.4 is 34.6% 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.