Lindex Q4'24: Strong end to the year and positive outlook

Translation: Original published in Finnish on 2/10/2025 at 7:45 am EET.

Lindex’s Q4 result was stronger than we expected and the outlook for the year is slightly positive. We increased our forecasts for this year, while otherwise our view remains unchanged. The most important issue for the investment thesis is the sale of the department store business, which is still pending. We reiterate our Buy recommendation and EUR 3.5 target price. 

Q4 result was strong, revenue as expected

The Lindex Group's revenue decreased slightly in terms of reported figures but increased by 1% in local currencies, beating our estimates by 1%. The Group's comparable EBIT improved to 36 MEUR (Q4’23: 30 MEUR, Inderes: 31 MEUR) and the full-year result reached the mid-point of the guidance, at 75 MEUR, compared to our forecast of 68 MEUR in January (which we raised to 70 MEUR prior to the results as there was no profit warning). The Lindex division's adjusted EBIT was 27 MEUR, well above our expectations (23 MEUR) and the comparison period (22 MEUR). The Lindex division's gross margin was 66.0%, slightly up year-on-year and above our expectations (65.0%). Fixed costs were also lower than expected. This allowed Lindex to improve its performance after a weaker Q3. The Stockmann division's adjusted EBIT was 10.5 MEUR, also better than the comparison period and our expectations (both 9 MEUR), largely due to slightly higher revenue.

Guidance suggests familiar profit level of around 80 MEUR

Lindex's adjusted EBIT for both 2022 and 2023 was 80 MEUR and 75 MEUR last year. The guidance for this year is 70-90 MEUR, which means that the earnings level is expected to remain very similar to recent years. Lindex expects revenue to grow by 0-4% in local currencies, although the company believes that the market situation to remain challenging, especially in H1. Our revenue forecast for the year had already been for 2% growth earlier, and we have not made any changes in this respect. Our adj. EBIT estimate for this year was increased to 79 MEUR (previously 75 MEUR). 

Restructuring process threatens to drag on 

At the turn of the year, Lindex filed an appeal against the decision of the district court in the only disputed restructuring case with LocalTapiola. In our view, it is unlikely that the parties will reach an agreement on the amount of compensation and it is therefore even more likely that the litigation will continue to the end. This could possibly, or even probably, mean that final decisions will not be made until 2026. However, we believe that Lindex will seek some form of agreement (e.g. an escrow arrangement) to end the restructuring process, even if the litigation over the final restructuring debt continues. The end of the restructuring will, among other things, allow the company to operate more freely, distribute dividends and make financial arrangements. In our view, it would also facilitate the potential sale of the department store business, although we do not think that the restructuring itself would directly prevent a sale. As expected, the Q4 report did not provide any new information on the strategic review of the department store business, i.e. the Stockmann division. The company extended the process to H1'25 before Christmas and has not said anything about the progress of the review. We continue to believe that Lindex is looking to divest the department store business, which we think would be very supportive for the stock. 

The potential of a structural change still offers a good expected return

As the company undertakes a strategic assessment of its department store business, we believe that the sum-of-the-parts model is the best valuation method, which values the company at just over EUR 4 per share. However, this should consider the uncertainties related to the manner and schedule of the possible structural changes in department stores. Overall, however, we think the expected return is good. With the current structure, the company's 2024 EV/EBIT (adjusted for lease liabilities) is around 10x, which we think is quite high, so the upside is mainly in potential restructuring.