In Q3, all brands reported lower sales y-o-y. Boråstapeter declined 7% y-o-y, Pappelina by 11%, Wall & Decó by 12%, Artscape by 16% and Cole & Son by 18%. External manufacturing continued its strong run with growth of close to 100% y-o-y, which supported the gross margin (+3pp y-o-y) through capacity utilisation, we believe, and the DTC channel is said to fare well. The issue is thus the retail channel. Supporting the gross margin was favourable product mix, which we take to mean a higher share of premium sales. As Cole & Son sales declined most when comparing brands, it is implied that customers are mixing up within brands as opposed to between brands. SG&A was lower in absolute terms than we had forecast, but the negative sales growth led to opex deleverage for a flat SEK 26m EBITA y-o-y.
Retail weakness leads us to 2-1% lower EBITA in '24e-'26e
On the back of softer momentum in the retail channel, we lower org. forecasts for Q4 as well, only partly offset by higher growth expectations for the external manufacturing segment. A materially easier two-year comp for Q4 could support the quarter's sales growth, however, which means we forecast 3% organic growth in Q4. Combined with the strong gross margin and a lower forecasted opex, our estimate revisions are limited despite 3-2% lower topline estimates. We lower '24e-'26e EBITA by 2-1% on the back of the report.
Embellence is trading at 7x-6x '24e-'26e EV/EBITA
The Embellence share is trading at 7x-6x our updated '24e-'26e EV/EBITA. On the back of small estimate revisions, we leave our fair value range unchanged at SEK 33-40, corresponding to 7x-9x '24e EV/EBITA or 6x-8x '25e EV/EBITA versus its own historical trading range of 6x-9x NTM EBITA. The current share price implies a 39% accumulated FCF (after IFRS payments) yield in '24e-'26e.
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