Maisons du Monde: should we (still) invest in stocks? – 09/06/2022 at 10:43

Maisons du Monde: should we still invest in stocks?  Photo credit: Adobe Stock.

Maisons du Monde: should we still invest in stocks? Photo credit: Adobe Stock.

In this article, Café de la Bourse talked about the French furniture and jewelry store 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 stock? What are the company’s growth prospects? We will tell you everything in this article.

Inflation forces Maisons du Monde to revise their targets downward

Maisons du Monde is the first victim of the undesirable effects of high and uncontrolled inflation. Consumers need to spend more of their purchasing power on essentials, their home(s) and energy bills. Therefore, they reduce their spending in the furniture and decoration sector.

The impact of inflation must also be considered from the retailer’s point of view, as it strongly affects the cost of production, in particular by increasing the cost of raw materials used in the manufacture of the company’s products, energy and freight. This increase in production costs has a direct impact on the company’s gross margin.

“Inflation in Europe is expected to remain at a high level until the end of the year, which will affect the level of consumer confidence and demand in the furniture and decoration sector. […]. In this context of high inflation and high volatility, cost projections have been lowered, temporarily impacting the gross margin model,” Maisons du Monde said in a press release.

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

As a result, Maisons du Monde’s 2022 targets have been revised down:

• Sales trend “mid-digit negative” compared to growth in sales,
• an EBIT margin of 5% or more compared to an EBIT margin of around 9%,
• free cash flow of 10 to 30 million euros compared to free cash flow of 65 to 75 million euros.

Shares of Maisons du Monde fall on the stock market after a warning about its results

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

Indeed, the furniture and decorative items distributor confirmed its financial targets for 2022 following the release of quarterly results, despite a decline in first-quarter turnover. A few weeks later, the band reveals that they are in trouble with inflation taking its toll on their sales.

The company now expects a drop in turnover for all of 2022. “Conditions have deteriorated significantly in recent weeks,” the company said.

The market reacted harshly to this unexpected announcement, with Maisons du Monde shares plummeting and experiencing a historic -25% drop.

Maisons du Monde stock price chart

Maisons du Monde: should we still invest in stocks?  Photo Credit: Freepik

Maisons du Monde: should we still invest in stocks? Photo Credit: Freepik

Should we take advantage of the falling prices and invest in Maisons du Monde stock?

In the medium term, despite lowering the group’s financial targets for 2022, Maisons du Monde maintains its growth and profitability projections.

Between 2022 and 2025, Maisons du Monde expects its CAGR to be in the single digits, with sales exceeding 2 billion euros by 2025. In terms of profitability, Maisons du Monde expects to achieve an EBIT margin of 11% in 2025 and a total free cash flow of €350 million between 2022 and 2025. It should be noted that the Group intends to pay out 30% or 40% of its net income in the form of dividends in 2023.

The market reacted harshly because the conflicting reports are causing fear among investors who need visibility into the company’s short- and medium-term prospects. This turn of Maisons du Monde on its results is indicative of a lack of composure among managers regarding current and future market conditions.

Nevertheless, it is difficult to imagine that in three weeks something has changed significantly. How then can we trust mid-term performance announcements? Moreover, it is likely that if inflation persists, the medium-term targets of Maisons du Monde will also be revised downward.

If you want to position yourself in Maisons du Monde stock in the current context and take advantage of a technical rebound, remember that this is a speculative investment. The medium to long term outlook is unclear and Maisons du Monde shares are highly volatile. The results of the second quarter will allow you to see more clearly.

¹An earnings alert is an earnings alert that alerts investors to possible bad returns or returns below previous estimates.

Also find this article originally published on Café de la Bourse.