What Is Driving Mr Bricolage SA's (EPA:MRB) Margins In The Future?

With analysts expecting Mr Bricolage SA (ENXTPA:MRB) to register a fall in earnings of -12.82% in the coming year, it's necessary to take a moment and reflect on this damaging sentiment. Investors should consider the forces that are sparking this decrease, because the sustainability of returns to shareholders can be impacted on in different ways. To get a preliminary understanding, I will shine a light on the behaviour of Mr. Bricolage’s margins to assist in analysing the revenue and cost anatomy behind the earnings expectations for the future and the impact it has on shareholder returns relative to the wider industry.

Check out our latest analysis for Mr. Bricolage

Breaking Down MRB's Profit Margin

In general, the value that accrues to equity holders is partly reliant on the ability of a company to convert sales revenue in to earnings. MRB's profit margin will help us understand the extent of this ability, as well as identify the forces behind earnings expectations.

The past five years have seen Mr. Bricolage's margin contract, due to net income declining at -42.08% on average, which was quicker than the average fall in revenue of -1.70%, indicating that that the company's decline in the top line has also corresponded with a smaller portion flowing out as earnings. The current 1.61% margin seems to continue this movement, indicating that the earnings decline has likely been driven through an increase in cost alongside the the decline in revenue.

What does Mr. Bricolage's margin expectation tell us about future earnings?

Forward looking projections suggest margins will reverse its previous trend and start to expand, with annual earnings growth tipped at -11.09% and a 17.73% expected annual decline in revenue. This suggests the previous earnings decline is expected to reverse due to an expected reduction in costs. This is causing positive net income growth while revenue is forecasted to decline, which is causing the expectation for margins to expand. However, those interested in the company should remember that a expanding margin can hold various implications on the company's performance depending on how it operates, which makes further research very important.

Generally, it is useful to judge profit margin and its implication on return in comparison to other companies who share similar traits. In Mr. Bricolage’s case, future profit margin is expected to expand simultaneously with Specialty Retail industry margins, and at the same time, MRB's projected ROE of 3.40% is less than the 6.06% expected ROE for the rest of industry. This suggests that analysts expect Mr. Bricolage's return per dollar of equity will lag behind the industry as a result of the earnings attributes identified by our margin analysis. However, margins use items on the income statement that are prone to being manipulated by various accounting measures, which can distort our analysis. Thus, it is essential to run your own analysis on Mr. Bricolage's future expectations whilst maintaining a watchful eye over the long term sustainability of cost cutting measures as a way to drive earnings growth.

Next Steps:

For MRB, there are three pertinent factors you should further examine:

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Valuation: What is MRB worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether MRB is currently mispriced by the market.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of MRB? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.