Takko - landing phase

All,

End of Catch-up.

Takko’s exceptional performance in Q2 this year continued through Q3 but has now apparently come to an end, with LfL sales for November and December to date back around the +-0 mark. Clearly, the strong performance over summer was in part owed to the exceptionally weak summer of 2018 and the January quarter was not impacted in the same way. Stock is 10% below prior year, raising the prospect of low inventory write-offs in January.

However, over the summer other. Factors also seem to have been at work:

- Seasonal weather. Very rarely have we heard a retailer raving about the supportive seasonal weather. It’s only in the following year that we hear that the normal weather was not as seasonal as the last. 

- Strong collection. Management mentioned on the last call how in-trend its collection was. The same will have carried Takko through Q3. 

Reason for improved performance: 

- Management were again unable to explain the reason for their outperformance, claiming that a multitude of different little things contributed to a 3% higher conversion rate this year. That leaves us somewhat sceptical that the performance improvement can be continued.

- Stripping out the market, Takko idiosyncratically outperformed by approx 5% LfL. A performance increase of that magnitude should be attributable to some obvious factors,  but management again had none to offer.

Conclusion:

- Easy come - easy go. We assume that a good share of the outperformance over the market may be handed back next year. 

- Market growth this year is unlikely to repeat so soon again. Germany may be reasonably stable economically, but an increasing number of mass lay-offs in the automotive industry and adjacent sectors should feed through to consumer sentiment - irrespective of the advent of negative bank rates.

Wolfgang