Takko

All,

Liquidity remains tight and the revolver is partially drawn - as per thesis, but inventory write-offs send Adjusted GM and EBITDA higher than expected.

But when does it make sense to adjust EBITDA for inventory write-offs? Answer: When they are extraordinary (strategic change, change of positioning or management, etc...). Arguably that is not the case at Takko at present (and hasn’t been in Q4). So we are not inclined to adjust for it. Along the same lines, the %age of old stock has risen yet again.

CapEx is at even lower levels than in Q118 and net store expansion has come to a halt. 

Outlook: Takko are operating on tight liquidity and are not generating net cash at current levels. Management recently guided towards stable buy-in and therefore Gross Margins (before inventory write-offs surely) while the cost base continues to slightly inflate in line with 2018 rampant store expansion, offset by some impressive cost savings (some of which seem to have reversed this quarter). Still, that leaves the company highly exposed to market swings and the easy comp quarters 2 and 3 of 2018 do not seem to have resulted in materially net positive LfLs across May and the first half of June. 

As regards headlines: Takko reported sales a touch lower than we expected, but made up for it with better margin. Ultimately Semi-adjusted EBITDA (ex inventory write-off) was E2m higher than model.

So in our view the situation remains tense. We see Takko as having limited room to manoeuvre and still only one bad quarter away from needing fresh liquidity. 

Wolfgang