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Improving trend in Q2; Remains BUY

Fielmann reported better–than-expected results in Q2 2020 after a lacklustre start, thanks to improving momentum in the latter half of the quarter, while strict cost-reduction measures kept profit in the green. The group will open 80 new stores/relocations/extensions in 2020, the majority of which will be in Poland and Italy. It plans to enter a new market over the next year through acquisition. This, coupled with digitisation efforts, should strengthen its position against online competition and enhance branch efficiency.

Q2 consolidated sales fell 34% y/y to EUR 255.6m (including inventory change: -31% y/y), as considerable restrictions induced by the COVID-19 pandemic severely hurt volume (-33% y/y). However, revenue topped analyst consensus of EUR 217m. Sales plunged 70% y/y in April, but recovered 157% month-on-month in May owing to the introduction of hygiene standards and continued with the positive momentum with a 3% y/y growth in June, which is encouraging.

The closure of almost all branches in March was largely offset by expansion-led sales growth in the beginning of the year, leading to somewhat better showing in 1Q, when sales dropped 4% y/y. Consequently, H1 turnover dipped a slower 19% y/y to EUR 610.8m, impacted by a muted glass volume (-24% y/y). By region, the revenue decline in H1 was broad based with Germany by far the most important single market, registering a 19% y/y fall, while Switzerland (-20% y/y) and Austria (-24% y/y) also clocked uninspiring numbers. The number of branches increased to 779 at end-H1 (Q1: 776; an increase of 36 y/y in H1), of which 212 branches includes hearing aid studios (H1 2019: 202).

However, despite weak revenue, the group’s implementation of stringent cost-saving measures aided in delivering a positive pre-tax profit (PTP) of EUR 19.9m (-67% y/y) in Q2, ahead of market expectation of a pre-tax loss of EUR 23m. Net income fell 69% y/y to EUR 12.6m (H1: -72% y/y to EUR 24.3m), resulting in EPS of EUR 0.15 (vs EUR 0.49 in Q2 2019). H1 investments totalled EUR 31.4m. To strengthen its liquidity, Fielmann had earlier announced it would not distribute dividend until the crisis normalises.

In a strategic move, the company deepened its relationship with enterprise wearable market leader Ubimax by acquiring a 10% equity stake through the latter’s series B financing. The partnership will augment Fielmann’s omni-channel platform and make it the first-of-its-kind firm to offer comprehensive smart glass services for enterprise customers.

Conclusion: Fielmann witnessed an improving trend in Q2 after an unimpressive start to the quarter, impacted by wider restrictions imposed as a result of the COVID-19 outbreak. Based on the recovery, the optimal major expects sales of over EUR 1.3bn (ca -14% y/y) and PTP of over EUR 100m (ca -61% y/y) in 2020. However, the sales target looks conservative, as it implies a sales drop of ca 10% y/y in H2 despite an improvement in like-for-like sales and space expansion. In view of the high cost efficiency and excellent balance sheet ratios, Fielmann should emerge stronger from this crisis. 


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