Stockmann Group's Interim Report 1 January - 30 September 2016

Group’s third-quarter operating result back to profit

STOCKMANN plc, Interim report 28.10.2016 at 8:00 EET

July-September 2016:
- Consolidated revenue was EUR 288.9 million (EUR 317.9 million).
- Revenue in continuing product areas and businesses was down by 5.5 per cent.
- Gross margin was up, to 54.8 per cent (51.8 per cent).
- Operating profit was EUR 2.9 million (EUR -10.6 million).

January-September 2016:
- Consolidated revenue was EUR 914.7 million (EUR 1 014.7 million).
- Revenue in continuing product areas and businesses was down by 3.0 per cent.
- Gross margin was up, to 53.3 per cent (50.4 per cent).
- Operating result was EUR -16.3 million (EUR -56.8 million).
- Result for the period was EUR -40.6 million (EUR -69.7 million).
- Earnings per share were EUR -0.62 (EUR -0.97).

- Continuously good performance for Lindex and Real Estate; Stockmann Retail remains a challenge despite improved Q3 operating result.
- Department store operations in Russia have been classified as discontinued operations. The comparison figures in the income statement and related items have been restated accordingly. The comments in the report refer only to continuing operations.

Outlook for 2016 remains unchanged:
Stockmann expects the Group’s revenue for 2016 to be down on 2015 due to ongoing strategic actions in order to improve profitability. The adjusted operating result is expected to be slightly positive in 2016.

CEO Lauri Veijalainen:
Stockmann continues to implement its strategy by focusing on its core businesses, Stockmann Retail, Real Estate and Lindex. In the third quarter, the Group’s operating result of EUR 2.9 million (EUR -10.6 million) improved for the sixth consecutive quarter. Particularly gratifying was the fact that, for the first time in three years, the third-quarter Group result was positive.

The results are gradually starting to follow the right track. The Group’s gross margin improved during the quarter, to 54.8 per cent, with improvements made in both Stockmann Retail and Lindex. Lindex continued its earnings growth, though the September sales were weak in the Swedish fashion market for retailers. Stockmann Retail improved its operating result due to several cost savings measures through the efficiency programme, although sales were below expectations and the turnaround must be sped up. During the quarter we successfully continued the refurbishments in the Helsinki flagship store and the renovation of the Delicatessen in the Turku department store. In addition, we made major reorganisations of our operations during the summer.

Real Estate’s performance was continuously stable, with the situation in the Nevsky Centre in St Petersburg improving as the occupancy rate rose during the quarter through new signed tenant agreements. As a change to the current strategy, the Board of Directors has decided to investigate a possible divestment of the Nevsky Centre.

The Crazy Days campaign took place in October, after the end of the quarter. We are rather satisfied with the results, and this is a good starting point for the last quarter of the year. We will put all of our efforts into the upcoming Christmas season to ensure successful results, as they play a crucial role in Stockmann’s full-year performance.

Key figures

Continuing operations 7-9/
2016
7-9/
2015
1-9/
2016
1-9/
2015
1-12/
2015
Revenue, EUR mill. 288.9 317.9 914.7 1 014.7 1 434.8
Gross margin, per cent 54.8 51.8 53.3 50.4 50.6
Operating result, EUR mill. 2.9 -10.6 -16.3 -56.8 -52.5
Adjustments to operating result*, EUR mill. 0.0 3.2 0.0 9.8 24.0
Adjusted operating result (EBIT), EUR mill. 2.9 -7.4 -16.3 -47.0 -28.5
Adjusted operating result before depreciation (EBITDA), EUR mill. 17.6 10.0 27.6 5.4 43.4
Net financial costs, EUR mill. 5.0 4.9 14.0 14.0 21.2
Result before tax, EUR mill. -2.1 -15.5 -30.2 -70.8 -73.7
Result for the period, EUR mill. -7.3 -10.4 -40.6 -69.7 -88.9
Earnings per share, undiluted, EUR -0.12 -0.14 -0.62 -0.97 -1.24
Personnel, average 9 144 10 750 9 200 10 966 10 763
Continuing and discontinued operations 7-9/
2016
7-9/
2015
1-9/
2016
1-9/
2015
1-12/
2015
Net earnings per share, undiluted, EUR -0.12 -0.23 -0.47 -1.17 -2.43
Cash flow from operating activities, EUR mill. -33.7 -31.8 -54.6 -79.8 17.2
Capital expenditure, EUR mill. 10.1 10.8 29.6 37.0 53.4
Equity per share, EUR 14.05 14.19 14.53
Net gearing, per cent 80.8 89.9 72.1
Equity ratio, per cent 45.4 43.8 46.1
Number of shares, undiluted, weighted average, 1 000 pc 72 049 72 049 72 049
Return on capital employed, rolling 12 months, per cent -3.5 -5.2 -7.6

*Adjustments in 2015 were related to the Academic Bookstore, the Oulu store, Seppälä and the Group’s other restructuring costs.

Stockmann has revised the terminology used in its reporting due to the new guidelines of the European Securities and Market Authority (ESMA). Alternative Performance Measures are used to better reflect the operational business performance and to facilitate comparisons between financial periods. Starting from the second quarter of 2016, the previously used term “excluding non-recurring items” has been replaced with the term “adjusted”, and, as a consequence, “operating profit (EBIT) excluding non-recurring items” has been replaced with the term “adjusted operating profit (EBIT)”. Correspondingly, “adjusted EBITDA” is calculated from adjusted operating profit excluding depreciation.

Stockmann uses the term “continuing product areas and businesses” which refers to operations excluding Russian retail operations (Stockmann and Lindex), Seppälä, Hobby Hall, Stockmann Beauty, the airport store and the product areas the company has withdrawn from in department stores (electronics, books, sports equipment, toys and pet supplies). Gross profit and gross margin are also used as alternative performance measures. Gross profit is calculated by deducting the costs of goods sold from the revenue, and gross margin is calculated by dividing gross profit by the revenue as a percentage.

Strategy
The Stockmann Group is focusing on developing its retail operations and real estate business in its department store properties. Furthermore, development and expansion of the Lindex fashion chain will continue. Stockmann will consider to divest the Nevsky Centre shopping centre in St Petersburg.

Stockmann is investing in the renewal of its department stores in order to offer an improved customer experience. Stockmann will open a completely new department store in Tapiola in March 2017. In the Helsinki flagship store, significant refurbishments were on-going during the third quarter. The new women’s accessories and the home departments were opened in August. Furthermore, many new partners opened their stores within the Helsinki flagship store. The renewals will be finalised in November when, for example, new cafés and cosmetic brands will be introduced.

In the Turku department store, a project to renovate the Delicatessen food department started in the second quarter and will be ready by November. In Tallinn, the department store’s fifth floor underwent major renovation work, and was re-opened in October with several new partner services and shops. In Riga, several new tenant shops were opened on the second floor of the department store.

The new Stockmann online store will be launched during the fourth quarter of 2016. The online store will operate on a new platform and will gradually gain several new features, such as online availability for the goods in the brick-and-mortar stores. A new Crazy Days online store was launched in October when the campaign took place.

Outlook for 2016
In the Stockmann Group’s main operating country, Finland, the general economic situation remains uncertain and only slow GDP growth is estimated. Consumers’ purchasing power is expected to remain low, and the development of the non-food retail market is likely to continue being weak. At the same time, competition is increasing.

The GDP growths for Sweden, Norway and the Baltic countries are estimated to be somewhat higher than in Finland. The affordable fashion market in Sweden is expected to remain relatively stable. In the Baltic countries, more competition is expected in the retail market.

Economic development in Russia is expected to remain weak in 2016. This has had a negative impact on the rental income from tenants in Stockmann’s real estate business.

Stockmann’s strategy aims at improving the Group’s long-term competitiveness and profitability through a comprehensive turnaround of its business. An efficiency programme was launched in February 2015 with an annual cost savings target of EUR 50 million. The programme is progressing according to plan, and its main effects will be reflected in Stockmann’s performance from 2016 onwards. The new organisational model which was taken into use in the third quarter, will reduce costs by approximately EUR 20 million during 2017.

Capital expenditure for 2016 is estimated to be approximately EUR 40-45 million which is less than the estimated depreciation for 2016.

Stockmann expects the Group’s revenue for 2016 to be down on 2015 due to on-going strategic actions in order to improve profitability. The adjusted operating result is expected to be slightly positive in 2016.

Press and analyst briefing
A press and analyst briefing will be held today, on 28 October 2016 at 9:15 a.m. EET in Fazer's À la Carte restaurant on the 8th floor of Stockmann’s Helsinki city centre department store, Aleksanterinkatu 52 B.

Webcast
CEO Lauri Veijalainen will host a webcast in English on 28 October 2016, at 11:15 a.m. EET presenting the Interim Report. To participate in the webcast, please dial one of the numbers below 5–10 minutes before the webcast begins. The presentation can be followed by this link or on the address stockmanngroup.com. The recording and presentation material are available on the company's website after the event.

Finland: +358 9 7479 0404
Sweden: +46 8 5065 3942
United Kingdom: +44 20 3043 2026
United States of America: +1 719 457 1036

Confirmation code: 1217387

Site Visit
Stockmann will arrange a site visit for investors and analysts to its new distribution centre in Jussla, Tuusula on 23 November 2016. A detailed agenda and further information about the event is available from Stockmann’s Media Desk ( info@stockmann.com ).

Further information:
Lauri Veijalainen, CEO, tel. +358 9 121 5062
Nora Malin, Director, Corporate Communications, tel. +358 9 121 3558

www.stockmanngroup.com

STOCKMANN plc

Lauri Veijalainen
CEO

Distribution:
Nasdaq Helsinki
Principal media