Profit Warnings

Small Cap Earnings Review: 27/05/22

This week was terrible for the retail space. A record number of companies have issued profit warning this week, as the supply chain situation seems to have worsened dramatically.

Some examples:

Puuilo PLC (mcap: 463m€)

The retailer issued a profit warning on the 25th of may that its revenue growth would be lower than expected. Furthermore, it noted that it had excessive inventory that had increased warehousing costs.

This is only one month after having issued a normal guidance during their FY21 earnings call.

Maisons du Monde: (mcap: 584m€)

The company noted a sharp decline in trading conditions during the month of may, and that they had underestimated the impact of inflation on their customer’s wallets.

The guidance revision is material:

• margin: 9%=> 5%

• growth: mid single digits to decline

• FCF: 70 mid-point to 20 mid-point

This is what you get for being a value investor: you buy a company at 10x FCF, then it issues a profit warning, cuts FCF down by 70%, stock goes down 25% and you are now holding a 15x FCF company. Talk about multiple expansion !

Jokes aside, it seems that the decline in economic conditions that the market was expecting has sharply accelerated in the past few weeks. Perhaps managements were overly optimistic too.

Anyways, I would take any upbeat guidance of B2Cs selling physical goods with a grain of salt.