Earnings call transcript: TCM Group sees strong Q1 2025 growth amid market challenges

TCM Group reported a solid performance in Q1 2025, with revenue reaching DKK 308 million, a 5% increase year-over-year. The company’s gross margin improved to 21.1%, up from 20.5% in the same period last year. Despite a cautious market outlook due to geopolitical uncertainties, TCM Group maintained its revenue guidance for the full year at DKK 1.25-1.4 billion. The stock experienced a 1.8% decline on the day of the earnings release, closing at DKK 77.8. According to InvestingPro analysis, TCM appears undervalued at current levels, with analysts predicting continued profitability for the year ahead. InvestingPro subscribers can access additional insights through the comprehensive Pro Research Report, which covers what really matters for smart investing decisions.

Key Takeaways

• TCM Group’s Q1 2025 revenue grew by 5% year-over-year, reaching DKK 308 million.
• The company’s gross margin improved to 21.1%.
• Despite strong financial performance, the stock price fell by 1.8% on the earnings release day.
• Full-year revenue guidance remains at DKK 1.25-1.4 billion amid geopolitical uncertainties.

Company Performance

TCM Group demonstrated resilience in Q1 2025, achieving a 5% revenue increase compared to the previous year. The company reported organic growth of 4%, driven by robust performance in its core markets. In Denmark, which accounts for 78% of its revenue, TCM Group achieved a 4% year-over-year growth, while Norway saw an impressive 11.2% revenue increase. Despite strong competition and consumer hesitation in contract signings, the company managed to expand its market presence and launch new product lines. InvestingPro data shows the company maintains a FAIR Financial Health Score of 2.04, with particularly strong metrics in relative value and cash flow management.

Financial Highlights

• Revenue: DKK 308 million, up 5% year-over-year
• Adjusted EBIT: DKK 17 million, compared to DKK 16 million in Q1 2024
• Adjusted EBIT Margin: 5.6%, up from 5.4% in Q1 2024
• Gross Margin: 21.1%, up from 20.5% in Q1 2024
• Cash Conversion: 76.8%

Outlook & Guidance

TCM Group maintained its full-year 2025 revenue guidance at DKK 1.25-1.4 billion, with an adjusted EBIT forecast of DKK 90-120 million. The company remains cautious due to geopolitical uncertainties but anticipates potential growth in B2B projects towards late 2025 and 2026. Investments in production capacity and digitalization are expected to support future growth.

Executive Commentary

CEO Torben Paulin noted, "We still see good traffic to the stores, but people are hesitating to sign the contract." This reflects the current consumer sentiment and market conditions. CFO Thomas Janung added, "We do not have any more visibility on the second half of the year," highlighting the uncertainty facing the company.

Risks and Challenges

• Geopolitical Uncertainty: Ongoing geopolitical issues could impact market stability and consumer confidence.
• Consumer Hesitation: Hesitation in contract signings may affect future revenue.
• Strong Competition: Intense competition across various price points could pressure margins.
• Supply Chain Constraints: Potential disruptions could affect production and delivery timelines.
• Market Volatility: Fluctuations in market conditions may influence investment strategies and growth opportunities.

Q&A

During the earnings call, analysts raised questions about consumer confidence, B2B order intake trends, and the company’s strategy regarding acquired stores. Concerns were also voiced about the pricing environment and the recovery of the Norwegian market, reflecting broader industry challenges and opportunities.

Full transcript - TCM Group (TCM) Q1 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to the TCM Group Interim First Quarter twenty twenty five Reports Webcast and Conference Call. At this time, all participants are in listen only mode. After the speakers’ presentation, there will be the question and answer session. Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to our first speaker today, Torben Paulin. Please go ahead.

Torben Paulin, CEO, TCM Group: Thank you very much. Good morning, ladies and gentlemen, and welcome to the presentation of the first quarter results for TCM Group. Presenters today are our CFO, Thomas Janung and myself, CEO, Torben Paulin. We will comment on the business and financial results, after which we will hand over to the operator for the Q and A session. Let’s start the presentation and turn to page two for the business update.

Sales in the first quarter of twenty twenty five developed in line with our expectations with declining B2B project sales and a robust increase in B2C sales. Due to the increase in B2C sales, revenue increased by 5% in the quarter with an organic growth of 4%. Our order intake developed positively in the quarter with growth in both B2C and B2B. Following a long period of difficult trading conditions in the Norwegian market financially showed signs of recovery leading to 11% revenue growth in the quarter. The gross margin improved slightly in the quarter driven by the inclusion of two SRANE and KUKNET stores in the northern part of Jutland.

The underlying gross margin remained stable year on year as the positive impacts from the improved sales mix was offset by increased production costs due to ramp up of production capacity. To mark the forty years anniversary of Albo, we launched Trussel as an extension to the popular SENSE product line. And in Schrodinger, we launched Notes Rums, which is a new addition to our veneer assortment together with the previously announced ARC1 product line. Please turn to page three. Some financial headlines for the quarter.

Reported revenue was DKK308 million corresponding to a revenue growth of 5%. Adjusted EBIT was DKK17 million compared to DKK16 million in Q1 last year. Adjusted EBIT margin was 5.6% compared to 5.4% in Q1 last year. Thomas will elaborate on the underlying drivers of this development. Net working capital ratio was minus 0.3% compared to minus 0.8% last year.

Cash conversion was 76.8%. I will now hand over to Thomas to go through the financial highlights.

Thomas Janung, CFO, TCM Group: Thank you Torben. Please turn to page four. As mentioned by Torben, revenue in Q1 increased organically by 3.6% but with a year on year increase of 5.3% due to the acquisition of the two Sveinne Kugnet stores in Alborg and Joring. Revenue in Denmark, our main market accounting for 78% of the group’s revenue, increased by 4% year on year with an organic growth of 2% supported by a solid growth in B2C revenue. Revenue in Norway in Q1 increased by 11.2% due to an improvement of the trading conditions after a period with very difficult trading.

The share of third party sales decreased compared to the previous quarter due to lower sales in the B2B segment. Please turn to page five. Gross margin increased from 20.5% in Q1 last year to 21.1% in Q1 twenty twenty five. The improvement was primarily due to the acquisition of the two Sven equipment stores in Denmark as the underlying gross margin was flat year on year. The benefits from the changed sales mix where B2C sales generally attracts higher margins was diluted by higher production and logistics costs.

The higher production costs were driven by decision to increase production capacity ahead of our peak season in Q2 as well as costs related to the ramp up of the new lettering facility. Our operating cost increased by million as a result of the acquisition of the two Espana Krugner stores thus diluting the positive gross margin effect from the acquisition. EBIT for the quarter was DKK17 million compared to DKK16 million in Q1 last year with an EBIT margin of 5.6%. Please turn to page six. Our net working capital end of Q1 was minus 4,000,000 Danish kroner compared to minus 9,000,000 kroner last year equal to a minus 0.3% of revenue versus 0.8% last year.

Our net working capital was negatively impacted by the increase in inventories as a result of the acquisition of the two strain equipment stores and an increase in inventories at the factories of certain externally sourced components. Our net debt was $332,000,000 end of Q1 compared to DKK $347,000,000 end of Q2 Q1 last year. The leverage ratio decreased from 3.7 last year to 2.6 end of Q1. Please turn to page seven. Free cash flow in Q1 was minus DKK4 million compared to positive DKK13 million in Q1 last year.

Our CapEx spending increased with a CapEx ratio of 2.2% compared to 1% in Q1 last year. The increase in investments primarily related to digitalization, the investment in new lacquering facility and the acquisition of two Svein and Krugman stores. Compared to last year free cash flow was also negatively impacted by earlier payment of corporate income taxes of

Analyst: million.

Thomas Janung, CFO, TCM Group: Cash conversion ratio measured over twelve months was 77%. I will now hand back to Torben for an update on the financial guidance. Please turn to page eight.

Torben Paulin, CEO, TCM Group: Thank you, Thomas. While we are encouraged by the positive order intake in the quarter, we continue to closely monitor the potential negative impact of the recent geopolitical turmoil on consumer confidence and kitchen demand. In light of this renewed uncertainty, we maintain our current guidance for 2025 with fairly wide ranges. TCM Group expects full year revenue in the range of DKK1.25 billion to DKK1.4 billion and adjusted EBIT of DKK90 million to DKK120 million. As previously communicated, this assumes full ownership of Celebard in the latter month of the year.

This concludes our presentation and we now hand over to the operator for the Q and A session.

Conference Operator: Thank you, dear participants. Your line is open. Please ask your question.

Analyst: Yes, thank you. A couple of questions from my side. So I understand you are cautioning around macroeconomic uncertainty, but maybe you can help us in understanding whether you have actually seen any adverse impact sort of traffic in stores going down or anything like that or it’s more a general view because I mean a lot is going on out in the world and no one knows exactly what’s going to happen?

Torben Paulin, CEO, TCM Group: Yes, thank you question. The answer is yes and no. We still see good traffic to the stores, but the feedback both from stores and also from some of the housebuilder clients we have is that people are hesitating to to sign the contract. So the interest is there. We do a lot of quotations, etcetera, but they hesitate to to make the final decision.

Analyst: Okay. That that makes sense. And then in terms of this increase in B2B order intake, can you elaborate a bit more on what it is you are seeing? I mean, what kind of projects is it and what’s the probability of this sort of being the start of a growing trend and not just a blip?

Torben Paulin, CEO, TCM Group: What we can see is that there is a significant more activity in the project sales, which mean we have a lot more to work on, other stores have a lot more to work on and do quotations for. Most of it is a project that is going to be started, which means it will be end of twenty twenty five, probably more in 2026. What we are seeing right now is both the house builders that the bare sales of family houses is growing slowly but but steadily and and some smaller or smaller projects. So it it will be something in between a yes or no, whether it’s a blip or it is a trend. But I I think it’s more than a blip.

It’s it’s it start looking like a like a trend. But, again, things are really changing so fast those days. So that it’s probably too soon to be very confident on how strong this trend is.

Analyst: That’s understandable. Then in terms of your guidance, if I remember correctly, last time you reported, you sort of indicated to reach the higher end of guidance, you needed to see an uptake in your B2B orders. It seems like that is actually happening now, but then it’s sort of diluted by additional cautiousness around consumer confidence. Is that the way to understand it?

Thomas Janung, CFO, TCM Group: That is one way to interpret it. I guess we said that it would that we see a significant uptick in the second half of the year and right now we do not have any or have very limited visibility on the second half of year, right? So it is true that we have had an uplift B2B in the first quarter, right? And also maybe going into Q2, but we do not have any more visibility on the second half of the year. That’s why we it is still true that we will have to see that continue into the second half of the year, right?

Torben Paulin, CEO, TCM Group: But at the same time, we will also have to see that the B2C is keeping strong and increasing, which was what we expected for the year. And again, as we’re saying right now, that there is a little hesitation to sign also from the private consumer. So, we need both of them to develop strong.

Analyst: That makes sense. And then just lastly from my side, now that we are seeing an improvement in demand, is there any change into the pricing environment or still fairly tough up there?

Torben Paulin, CEO, TCM Group: The level in total is still far lower than during COVID-nineteen, and it means most or all brands are having spare capacity and thereby the competition is quite strong still out there.

Analyst: Great. That was all for me. Thank you so much.

Conference Operator: Thank you. Thank you. Now we’re going to take our next question. And the next question comes from the line of Sindre Sorby from Arctic Asset Management. Your line is open.

Please ask your question.

Sindre Sorby, Analyst, Arctic Asset Management: Yes. Good morning. Just a couple of questions. First, about the two acquired stores. Can you elaborate on the reason for acquiring those stores?

And is it your intention to keep them fully owned?

Torben Paulin, CEO, TCM Group: Yes, thank you. The reason for acquiring the two Sweater stores in North Jotland was that the previous owner has been struggling for a time and finally his bank was not willingly to support him with sufficient cash for the continued operation. And to protect the brand and the revenue in that area, is All Boys, the fourth biggest store, Allot City in Denmark, we decided to take them over. It is definitely not our intention to keep the stores, and we do have a new potential franchisee in place, but it will take a period for him to be confident and and for us to be confident in in him and and the financial performance of the stores, and then then we expect him to take over.

Sindre Sorby, Analyst, Arctic Asset Management: It’s important to clearly

Torben Paulin, CEO, TCM Group: underline that it’s not our strategy to own and operate stores. It’s only protection of brand.

Sindre Sorby, Analyst, Arctic Asset Management: Okay. Yeah. So makes sense. But but I guess I guess some costs or some debt is included in your CapEx for this quarter, and you don’t expect any more cash outlays on those stores in the next few quarters?

Torben Paulin, CEO, TCM Group: No, that’s correct.

Sindre Sorby, Analyst, Arctic Asset Management: Okay. Excellent. And the impact when are those acquisitions affecting your reported organic growth and your reported top line?

Thomas Janung, CFO, TCM Group: Yes. They are. That’s why we now again have a difference between organic and reported growth. So the difference between the 2% organic growth Denmark and the around 4% reported growth is is the impact of these stores. Right?

Sindre Sorby, Analyst, Arctic Asset Management: Okay. Okay. Excellent. Thank you. That was all for me.

Conference Operator: Thank you. Now we’re going to take our next question. And the question comes from the line of Anders Christian Pritzman from Danske Bank. Your line is open. Please ask your question.

Anders Christian Pritzman, Analyst, Danske Bank: Yes. Morning, Torqman and Thomas, and thank you for taking my questions. I also have a few here. So if we can start with a question on the product mix in B2C. I was wondering if you’re seeing part of the mix here where there is perhaps higher growth than expected.

Are you, for instance, seeing that B2C customers are trading down to some of the more affordable kitchen lines perhaps?

Torben Paulin, CEO, TCM Group: I think we can say both yes and no. We in our higher position brands, people are still still looking for for, you would say, what what what it will take to fulfill their dreams, and then they are also willingly to pay for it. Of course, they afterwards also ask for discounts like like customers do those days. But in the better positioned brands, it’s still high end products. And then in the lower end positioned brands, there is a tendency that they choose from the cheaper part of the assortment.

So a little bit different from brand to brand.

Anders Christian Pritzman, Analyst, Danske Bank: All right. Yes, I guess that’s very understandable. Then perhaps a question on I mean, the higher production costs here in Q1, you say it’s driven by a decision to increase the production capacity ahead of the peak season in Q2. And I was wondering now that we are more than halfway through Q2, are you happy with the decision to increase capacity in Q1?

Torben Paulin, CEO, TCM Group: That’s a good question. It’s both high season in Q2 and it’s also the quarter where we are having all the bank holidays. So there’s both one effect to cope with those bank holidays, and then also the the peak that everybody wants their their new kitchen before the summer holiday and and also leaving some time for the installers to to finalize the installation. So, yes, we we we needed that capacity due to those two reasons, which is also a a normal normal development in this time of the year.

Anders Christian Pritzman, Analyst, Danske Bank: Yes. Okay. That’s loud and clear. Then a question on the gross margin coming in at 21% due to higher mix for B2C and the acquisition of the two stores in Northern Jotlin. Can you maybe comment a bit on your expectation for the gross margin going forward?

Should it come up for the coming quarters? Or will a potential impact from B2B maybe lower it a bit? What’s your thoughts there?

Thomas Janung, CFO, TCM Group: I mean, we would see a slight improvement the next coming quarters, first of all, because we have a higher utilization of our production capacity in Q2 as Tom just indicated. But of course, if we now start to see a high inflow of B2B project sales in the second half, which we don’t know yet, right, That would have the opposite diluting effect in the second half of the year. So in short, I will not see sort of expect to see a dramatic uplift in the overall margin.

Anders Christian Pritzman, Analyst, Danske Bank: Thank for that Thomas. To final question, it’s on the Norwegian market. I mean, you talk about early signs of recovery, the double digit growth on order intake. Can you please add some additional comments on the dynamics of the Norwegian market currently and what you’re seeing there?

Analyst: Yeah.

Torben Paulin, CEO, TCM Group: Most of our business in Norway is made in the Alvo brand and through their cooperation with OPTIMEA. And the activity level in the building industry in Norway is growing. So the stores have a lot more to work with, to calculate and do quotes on. It will still take some time until it materialize significantly. But it’s a clear trend that there’s a lot more to work with and work on.

And we actually see also the same development in the Sveinne brand. They they do primarily b to c, and there, consumers are also also back in back back in the stores, which which is a a significant change, you can see. And then I guess also some of our stores, the stranded stores in Norway, they are doing to a higher extent some small projects, but very exclusive projects the builder or the landlord are looking for a high quality of their kitchen in in the project. So it’s both market in general, but it’s also, strain is also performing better in that segment.

Anders Christian Pritzman, Analyst, Danske Bank: Alright. Thank you very much, Thomas. That was all for me.

Conference Operator: Thank you. Dear participants, as a reminder, if you wish to ask a question, you will need to slowly press star one one on your telephone keypad and wait for your name to be announced. The speakers will just give a moment for our participants if they wish to ask questions. Speakers, there are no further questions at this time. I would now like to hand the conference over to your speaker, Torben Pooleyn, for any closing remarks.

Torben Paulin, CEO, TCM Group: Thank you very much for participating. Thank you for your time, and have a nice day.

Conference Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect. Have a nice

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.