Introducing New Categories And Early Stocking Will Boost Sales During Holiday Season

Key Takeaways

• Strategic product expansion and early goods procurement aim to boost customer traffic and support Q4 sales, potentially increasing revenue growth.
  
• Store investments and expansion in key markets, alongside automation in Sweden, are expected to enhance brand presence, streamline operations, and improve financial performance.
  
• Rising operating expenses and investment in new stores without assured returns could pressure profitability despite steady revenue growth and logistical adjustments.

Catalysts

Operates as a home textile retailer in Norway, Sweden, Finland, and Estonia.

• The introduction of new categories since 2022, such as sofas, house cleaning, storage products, and office supplies, is aimed at enhancing sales of existing assortments and driving customer traffic, which may increase revenue growth moving forward.
  
• The strategic decision to bring in goods earlier to ensure product availability for Q4 sales in a challenging freight market is expected to support robust sales activities during the critical shopping season, potentially impacting revenue positively.
  
• Investments in the store portfolio, including the opening of new Extended stores and renovations, aim to fuel future growth by expanding brand presence and customer reach, which can contribute to revenue and earnings growth.
  
• The warehouse project in Sweden, with planned operations beginning mid-2025, involves significant automation and technology investments expected to streamline processes, reduce operating expenses, and potentially enhance net margins.
  
• Expansion activities in important retail areas, including Oslo and Sweden, along with increased lease negotiations and market positioning for Hemtex, indicate potential market share gains, which could drive revenue growth and improve the company's financial performance.

Kid Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kid's revenue will grow by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.4% today to 11.8% in 3 years time.
• Analysts expect earnings to reach NOK 535.0 million (and earnings per share of NOK 12.97) by about February 2028, up from NOK 342.9 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 16.0x on those 2028 earnings, down from 18.0x today. This future PE is lower than the current PE for the GB Specialty Retail industry at 23.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.19%, as per the Simply Wall St company report.

Kid Future Earnings Per Share Growth

Risks

• Hemtex experienced a revenue decline due to the absence of a significant campaign from the previous year, which if not mitigated, could negatively impact overall revenue for Kid ASA.
  
• The decrease in EPS from NOK 2.3 to NOK 1.73 suggests a reduction in earnings, primarily impacted by lower profits despite steady revenue growth.
  
• Higher inventory levels due to early delivery of goods to circumvent supply chain issues could tie up working capital and affect cash flow management.
  
• The reported increase in operating expenses, including rising employee benefit costs and logistics costs, could pressure net margins and profitability if not controlled.
  
• Continued investment in new stores may also increase expenses without guaranteed returns, potentially affecting net earnings if these initiatives do not translate into proportional revenue growth.

Valuation

• The analysts have a consensus price target of NOK173.333 for Kid based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK4.5 billion, earnings will come to NOK535.0 million, and it would be trading on a PE ratio of 16.0x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of NOK151.8, the analyst price target of NOK173.33 is 12.4% 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.