Retailers Q3 results: what to expect before the Golden Quarter?

As the most important season of the trading year is approaching, retailers start reporting their Q3 results. They indicate how the different companies are ready for the festive season. Here are covered some expectations for five different groups of customers. What should we expect as the super week is upon us and tens of important European retailers report their Q3 results?

The grocery duels: ICA vs. Axfood & Kesko vs. S-Group

Grocery has been the most resilient segment overall during the unprecedented pandemic and inflationary times. However, the external shocks have strongly impacted the competitive dynamics within grocery retailing. The rapid growth of price-driven grocers has been the trend throughout the Western world.

This has led Willy’s (by Axfood) and Prisma to outgrow the quality-driven ICA and Kesko in the Nordics. Last week, S-Group was the first to get out of the gates with their financial numbers. According to S-Group, they grew faster than the market during the three months of the quarter. Kesko has likely continued to lose market share in a market with only two big players. It is doubtful that Lidl would be the one to lose.

In Sweden, ICA (contrary to Kesko) has embarked on a price war. Whether that will help ICA grow faster and how much it has impacted its bottom line remains to be seen. On the other hand, inflation is easing, and similarly, the growth of the grocery market is coming down. This will also probably lead Willy’s also towards lower growth figures. Willy’s has reported a stunning streak of five quarters with double-digit growth.

The big question for the quarter is whether, with the price offensive, ICA has narrowed the growth difference between their flagship banner, ICA Maxi, and Willy’s.

DIY malaise: Kesko DIY, Byggmax & BHG

DIY was one of the last non-food categories to decline after the pandemic. Only during this year have the Nordic DIY companies reported declining revenues. For the last 3-4 quarters, Kesko and BHG have reported declining revenues. For BHG, the second quarter declined slightly less than the first quarter. Have they been able to turn the corner towards eventual growth?

On the other hand, Dagens Industri reported that BHG had been forced to sell some of the recently acquired companies to cut down the company's debt load. During the first half of the year, the debt payments more than doubled from almost 40 million SEK to almost 90 million SEK. During the first six months of this year, the company's debt load was reduced from 1,5 billion SEK to 970 million SEK.

K-rauta, on its part, has seen consumer revenues decline rapidly. The bigger problem is that the declines have deepened quarter by quarter. When will they hit the low point? For Kesko, the bright side of the DIY business is the B2B arm of Onninen, which has been able to grow, albeit at a declining rate.

According to the public discussion around the construction industry's problems, it seems unlikely that the DIY sector would be recovering rapidly from the difficult period. Thus, one can expect somewhat difficult growth and profitability figures from these companies for the coming quarters.

Fashion: can the growth continue? Stockmann, Boozt, ASOS

Boozt has continued thriving after the pandemic alongside the post-pandemic fashion revival seen in Finland, Sweden, and the UK. That is contrary to how Zalando has grown as Zalando has been forced to low single-digit growth figures and occasional declines. The more difficult situation is for the UK-based ASOS, which has reported double-digit declines recently.

Many big chains, such as Inditex or H&M, have reported strong growth figures in the bricks-and-mortar space. Therefore, it is surprising that Lindex has struggled to report growth. Similarly to Zalando, Lindex has reported low single-digit growth and decline numbers during the last four quarters.

On the other hand, the more struggling part of Lindex’s parent corporation, Stockmann, has seen a somewhat strong rebound after many difficult years. Besides the last quarter, the department stores reported eight straight quarters of growth. It is interesting to follow whether the department stores have bounced back to growth after one challenging quarter.

Non-food specialists: XXL, Intersport, Verkkokauppa.com & Musti Group

the outdoor specialists XXL and Intersport have been struggling during the last quarters. Especially Intersport Finland has seen revenues decline for six consecutive quarters. XXL Finland saw revenues for the last two quarters, albeit very slightly during the most recent quarter. The outlook for specialty retailing has not materially changed, so the problematic times likely continue for these two companies.

Times have been similarly challenging for the electronics sector and its only publicly listed retailer in Finland: Verkkokauppa.com. The revenues have declined for seven quarters. The decline accelerated to the highest levels so far for the latest quarter: -10,3%. There is some hope of recovery from the improved profitability and inventory levels.

Must Group has been one of the brightest outliers in the non-food specialist category, with continued solid and profitable growth. The group has kept the growth to high single digits or low double digits throughout its time as a publicly listed company, i.e., for almost five years. As the biggest market for Musti Group, Finland surprisingly became the driver of growth as Sweden started to struggle with low single-digit growth. Will the Swedish segment accelerate towards Christmas?

Can Beauty and Discounting continue strong growth: Hjärtat, Lyko, Ulta, Sephora, Tokmanni, Puuilo…

Beauty and Discounting are the two best-performing segments during the last inflation-driven years. Both have seen companies report strong and profitable growth. Despite struggling with the grocery competition, ICA’s pharmacy chain, Hjärtat, has been reporting solid growth between 7% and 14% for the past four quarters. Hjärtat has likely been grabbing market share during that time.

At the same time, beauty chains, such as the somewhat smaller upstart Lyko or international giants, have also been thriving. Lyko just recently reported a whopping 27% increase in revenues.

Besides the Beauty category, discount retailers have been a logical growth segment. With inflation running high and customers becoming more vary of consumption, discounters everywhere have seen fortunes improve. In Finland, Tokmanni has continued robust growth despite a mature revenue level. On the other hand, the smaller challenger, Puuilo, has continued its breathtaking growth. The company was able to accelerate growth while also improving already impressive margins and profitability.