Centralized Nordic Warehouse And Digital Pilots Will Capture Future Demand

Key Takeaways

• Centralized logistics and multi-channel expansion are driving operational efficiencies and positioning Kid for sustained top-line and margin growth as retail shifts online.
  
• Strategic investments in larger formats, new markets, and fresh product categories support revenue growth by capturing increased discretionary consumer spending on family-focused products.
  
• Heavy investment in physical stores and logistics transitions increases operational risks and costs, while shifting consumer behavior and seasonality challenge sustainable revenue and profitability.

Catalysts

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

• The new centralized Nordic warehouse provides a significant boost to logistics capacity (40% increase in storage), which positions Kid to efficiently meet rising demand as more consumers shift to e-commerce and omnichannel retail; as the ramp-up concludes and operational efficiencies unlock, this is likely to drive margin expansion and improve earnings in future periods.
  
• Ongoing investment in larger store formats and digital pilots (such as the Hemtex online entry into Germany and other EU markets) sets the stage for revenue growth by tapping into broader markets and capitalizing on the global trend of increasing discretionary spending on children's and family products.
  
• Strong category development and continued introduction of new product lines (notably bathroom and outdoor furniture) suggest Kid is benefiting from a consumer shift toward higher spending on family wellbeing and experiential products, supporting higher basket sizes, sales resilience, and ultimately top-line revenue growth.
  
• Temporary elevated operating expenses and stock shortages related to the warehouse transition are masking underlying operational improvements; as transition costs subside and inventory levels normalize, net margins and cash flow are likely to improve, potentially revealing undervalued earnings potential.
  
• The company's robust multi-channel strategy, evidenced by growing online sales and click-and-collect share, aligns with secular trends in retail and positions Kid to capture greater lifetime customer value and sustain top-line growth as consumer behavior shifts further online.

Kid Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kid's revenue will grow by 8.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.4% today to 10.5% in 3 years time.
• Analysts expect earnings to reach NOK 511.6 million (and earnings per share of NOK 11.37) by about September 2028, up from NOK 326.5 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 15.7x on those 2028 earnings, down from 18.2x today. This future PE is greater than the current PE for the GB Specialty Retail industry at 15.6x.
• 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 8.34%, as per the Simply Wall St company report.

Kid Future Earnings Per Share Growth

Risks

• Kid's continued emphasis on brick-and-mortar retail (store expansions, refurbishments, and larger store formats) exposes it to structural shifts toward online retail and could result in declining same-store sales, higher fixed costs, and operational leverage risk, negatively impacting long-term revenue growth and net margins.
  
• Low physical store inventory caused by warehouse transition difficulties and the ongoing ramp-up of a new centralized logistics hub may result in lost sales and customer dissatisfaction in future peak periods, risking revenue softness and shortfall in earnings until operational stability is established.
  
• Slower-than-expected ramp-up and persistent OpEx inflation (from logistics, rising wages, and double rental costs during warehouse transition) could create sustained cost pressures, eroding net margins and compressing overall future profitability.
  
• The delay and uncertainty surrounding subleasing of the former Norwegian warehouse could lead to ongoing impairment charges and additional operating expenses, constraining free cash flow and pressuring net income in the medium term.
  
• Heavy reliance on seasonal and promotional assortments for traffic and sales increases revenue cyclicality, while potential declines in discretionary consumer spending or changing consumer preferences could challenge sustained growth, affecting group revenue and earnings predictability.

Valuation

• The analysts have a consensus price target of NOK157.5 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 NOK4.9 billion, earnings will come to NOK511.6 million, and it would be trading on a PE ratio of 15.7x, assuming you use a discount rate of 8.3%.
• Given the current share price of NOK146.0, the analyst price target of NOK157.5 is 7.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.