SpexFocus Program Will Streamline Operations And Reduce Complexity

Key Takeaways

• SpexFocus program aims to improve net margins by reducing overhead and streamlining operations, enhancing operational efficiency.
  
• Shift towards profitable offline business with new services and pricing strategies to boost revenue and gross margins.
  
• Ongoing restructuring and cost challenges may hinder profitability and liquidity, while international revenue declines pose risks to market presence outside Germany.

Catalysts

Provides and markets eyewear products in Germany and internationally.

• The SpexFocus program aims to enhance operational efficiency through cost restructuring and product rationalization, which is anticipated to significantly improve net margins by reducing overhead and streamlining operations.
  
• Store portfolio rationalization and improved store performance, including the introduction of premium private label lenses like SpexPro, are expected to drive at least €20 million in annualized profitability, positively impacting earnings.
  
• The focus on optical expertise and the introduction of new services, such as eye health checks and subscriptions, will likely boost revenue streams by attracting new customers and increasing sales per customer in the offline business segment.
  
• A shift towards more profitable offline business from the online segment, coupled with pricing strategy adjustments, is expected to enhance gross margins by increasing sales of higher-margin products such as multifocal glasses.
  
• The implementation of an online and offline pricing strategy alongside the reduction in SKUs from 20,000 to 12,000 will decrease complexity, reduce costs, and improve inventory efficiency, which should support an increase in net margins.

Mister Spex Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mister Spex's revenue will decrease by 0.3% annually over the next 3 years.
• 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 -38.6% to the average DE Specialty Retail industry of 2.6% in 3 years.
• If Mister Spex's profit margin were to converge on the industry average, you could expect earnings to reach €5.7 million (and earnings per share of €0.16) by about May 2028, up from €-84.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.9x on those 2028 earnings, up from -0.6x today. This future PE is greater than the current PE for the DE Specialty Retail industry at 19.5x.
• Analysts expect the number of shares outstanding to grow by 1.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.03%, as per the Simply Wall St company report.

Mister Spex Future Earnings Per Share Growth

Risks

• Mister Spex faced a reduction in net revenues of 3% due to price repositioning and discount detox, impacting topline performance and potentially hindering future revenue growth.
  
• The company reported an adjusted EBITDA of minus €5.8 million, reflecting ongoing challenges in cost management and profitability, which could continue to affect net margins.
  
• International operations saw a 13% decline in topline performance due to store closures and price repositioning, raising concerns about revenue generation and market presence outside Germany.
  
• The implementation of the restructuring program SpexFocus, including €13 million in transformation costs and significant headcount reductions, may not yield the projected €20 million improvement in profitability as expected, impacting earnings and financial stability.
  
• Cash flow decreased by €37 million, with cash and cash equivalents falling to €72 million, raising concerns about liquidity and the ability to support ongoing operations and investments.

Valuation

• The analysts have a consensus price target of €4.15 for Mister Spex 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 €6.0, and the most bearish reporting a price target of just €1.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €218.1 million, earnings will come to €5.7 million, and it would be trading on a PE ratio of 33.9x, assuming you use a discount rate of 9.0%.
• Given the current share price of €1.48, the analyst price target of €4.15 is 64.3% 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.