Abysmal year culminating, Stockmann Oulu to be closed?

Historic department store chain Stockmann (OMX: STCAS, STCBV) may have finally gotten sufficiently rude awakening to the new realities of business. Its 2014 operating result plummeted to -42.9 million Euros even not accounting for non-recurring items. Revenues were down 9.5% to 1.844 billion. Losses are expected to continue in 2015, albeit to a lesser extent.

In recent times the company has communicated news on how to monetize its own department stores Helsinki, St Petersburg, Tallinn and Riga. It is now reporting their fair value. The reported value is 908.3 million. This will increase 2015 depreciation. Part of the monetization is to attract new tenants and consequently remove some own product offerings. A deal with home appliances chain Expert ASA was recently announced.

With the fair value assessment of the department stores, and the fact that Stockmann paid almost a similar amount on Lindex in 2007, some investors have been considering the sum of parts value to look attractive considering the current market value hovering around 500 million. There are however balance sheet issues that worry others. With a carrying amount of goodwill of almost 750 million (about the same as current equity) and current liabilities of nearly 500 million and the expected losses on 2015 piling on. Of course the fair value reporting of department stores from 2015 onwards can be seen as somewhat off-setting.

Stockmann also said it is starting co-determination negotiations in Oulu with the entire department store staff. The company has been operating in the northern town since 2001 on a lease with CBRE Global Investors on the other side of it since 2001. The current lease is set to expire in 2017 and negotiations on an extension have supposed to been going on since early last year. Stockmann Oulu has 90 full-time employees and a total of 230 people counting part-timers.

All 16 Lindex stores will be closed in Russia. Stockmann still foresees Lindex as a truly global fashion chain and aims to grow in other markets. Lindex will be operating independently. A murky letter of intent to sell Seppälä to current management has also been communicated. So far no taker has been found for the Hobby Hall distance retail business. The Stockmann Beauty cosmetics stores will be closed down by the end of May. Department store closures will also happen in Russia. With no dividend from 2014 and equally bleak prospects for this year, some of the trust that are long-term investors that have been relying on steady cashflows to fund their operations must be thinking what to do.

Stockmann’s Q2 report and July sales

Stockmann Group (OMX: STCAS, STCBV)second quarter interim report and July sales report were an initial disappointment for the markets and the more traded B-share tanked 6% on the release date of Wednesday. The stock climbed back with the rest of the market on Wednesday to finish the week clearly on the plus.

Second quarter consolidated revenue increased by 13% but operating profit was down by 17% to 25.6 million. Profit for the period tanked even more to 14.7 million from 25.7 million. New department stores in St Petersburg and Ekaterinburg aided revenue growth. Profit was down on lower gross margin, higher depreciation and expansion costs.

Stockmann feels that earnings trend has turned positive and second half of 2011 should outperform 2010 levels. The group still targets operating profit growth for 2011, a tall order since current 2011 operating profit stands at -4.4 million and last year Stockmann reached operating profit of 88.8 million. The company does feel that consumer confidence in its main markets is at a good level.

Department store revenue growth in Russia is expected to be faster than in Nordic countries. Affordable fashion chains Lindex and Seppälä performed worse than expected. Production capacity problems in the Far East are now resolved. Price rice pressured have eased and Stockmann expects the segment to improve towards the end of the year.

July sales numbers also came out on Wednesday. Revenue was up by 8.6 per cent, with majority of the gains coming outside of the home market, particularly from the department store expansion mentioned above. Stockmann says that five Sundays in 2011 compared to 4 in July 2010 affected Nordic market sales comparison. Lindex’s and Seppälä’s revenue was flat.