Maisons du Monde: is it worth (still) investing in stocks? – 06.09.2022 at 10:43

Maisons du Monde: is it worth investing in stocks?  Photo: Adobe Stock

Maisons du Monde: is it worth investing in stocks? Photo: Adobe Stock

In this article, Café de la Bourse looked at the French furniture and decor retailer Maisons du Monde. Shares of Maisons du Monde recently fell on the stock market after a profit warning¹. Is this fall a good opportunity to invest in Maisons du Monde? What are the prospects for the company’s development? We will tell about everything in this article.

Inflation is forcing Maisons du Monde to reconsider its goals

Maisons du Monde is the first victim of the unintended consequences of high and uncontrolled inflation. Consumers need to spend more of their purchasing power on basic necessities, their home (s) and electricity bills. Therefore, they reduce their costs in the furniture and decoration sector.

The impact of inflation must also be considered from the point of view of the retailer, as it has a strong impact on production costs, in particular due to the increase in the cost of raw materials used in the company’s production, energy and freight. This increase in production costs has a direct impact on the gross margin of the enterprise.

“Inflation in Europe is expected to remain high until the end of the year, affecting consumer confidence and demand in the furniture and furnishings sector. […]. In the context of high inflation and high volatility, cost forecasts have been underestimated, which has temporarily affected the gross profit model, ”said the Maisons du Monde in a press release.

In addition, the company considers China among its suppliers (along with Vietnam, India and France), and the evolution of the Covid-related pandemic continues to block supply chains in these countries, creating additional costs for the group.

In this context, the Maisons du Monde’s 2022 targets have been revised downwards:

• “unambiguous negative” trend of sales compared to increased sales,
• EBIT margin of 5% or more against EBIT margin of about 9%
• free cash flow of € 10 million to € 30 million versus free cash flow of € 65 to € 75 million.

Shares of Maisons du Monde fell on the stock market after warning of its results

Although Maisons du Monde reported in early May that the group’s expectations were in line with the group’s expectations in the first quarter, the company was forced to revise its downside targets just three weeks after the announcement, much to the displeasure of investors!

In fact, the furniture and decoration distributor confirmed its financial goals for 2022 when publishing quarterly results, despite declining turnover in the first quarter. A few weeks later, the group reports that it is experiencing difficulties due to inflation, which weighs on its sales.

Now the company expects a drop in turnover for the whole of 2022. According to the company, “conditions have deteriorated significantly in recent weeks.”

The market reacted harshly to this unexpected announcement: shares of Maisons du Monde fell sharply and experienced a historic drop of -25%.

Maisons du Monde stock price chart

Maisons du Monde: is it worth investing in stocks?  Photo: Freepik

Maisons du Monde: is it worth investing in stocks? Photo: Freepik

Is it worth taking advantage of falling prices and investing in Maisons du Monde?

In the medium term, despite this decline in the group’s financial goals for 2022, Maisons du Monde maintains its forecasts of growth and profitability.

Between 2022 and 2025, Maisons du Monde expects unambiguous average annual growth in its turnover to reach sales of more than 2 billion euros in 2025. In terms of profitability, Maisons du Monde expects to achieve an EBIT margin of 11% in 2025 and a cumulative free cash flow of € 350 million between 2022 and 2025. It should be noted that the Group intends to pay in 2023 30% or 40% of its net result in the form of dividends.

The market has reacted harshly as conflicting communications frighten investors who need visibility over the company’s short- and medium-term prospects. This uncertainty of the Maisons du Monde about its effectiveness indicates a lack of peace of mind of managers about current and future market conditions.

Still, it’s hard to imagine that anything has changed in three weeks. How, then, can we trust performance announcements in the medium term? Moreover, it is likely that if inflation persists, Maisons du Monde’s medium-term goals will also be revised downwards.

If you want to position yourself on the shares of Maisons du Monde in the current context and take advantage of the technical rebound, remember that this is a speculative investment. Medium and long-term prospects are unclear, and Maisons du Monde shares are very volatile. The results of the second quarter will be seen more clearly.

¹Profit warning is a earnings warning that warns investors of potentially low returns or earnings lower than previous estimates.

Also find this article, originally published at Café de la Bourse