Einhell released weak Q1 results, showing a slowdown versus previous quarters. Sales decreased by 15% yoy to € 250m against a tough comparable base. While traffic at DIY stores remained relatively robust, high inventories led to a hesitant order behaviour among retailers, explaining why sales in DACH declined by -25% yoy in Q1. While Eastern Europe recovered slightly (3% yoy vs -1% yoy in Q4), sales in Western Europe were also down by -6% yoy; overseas markets experienced a slowdown to 2% yoy (vs 13% yoy in Q4). While EBT fell by 17% yoy to € 20.3m, the margin decreased by only 0.3pp yoy to 8.2% despite the sales decline. In fact, the gross margin improved by 3.6pp yoy to 36.7% supported by price increases and easing supply-chain constraints, almost offsetting general cost inflation and negative operating leverage. With that, Einhell was able to exceed pre-CoV margin levels and a decent inventory management (-14% yoy to € 415m in Q1) should indicate few promotional activity going forward. Thanks to strongly improved inventory levels, operating cash flow improved to € 3.8m compared to € -102m in Q1 '22. Hence, FCF came in at around break-even in a seasonally weaker Q1.

Einhell confirmed its FY 23 guidance of 3% sales growth yoy to around € 1,060m (eNuW: € 1,061m, eCons: € 1,055m). Considering the double-digit sales decline in Q1, this looks challenging but not out of reach as comps should ease significantly from Q2 onwards. The EBT margin range was reiterated at 8.0-8.5% (eNuW: 8.2%, eCons: 7.7%), implying an EBT of € 85-90m (eNuW: € 87m, eCons: € 79m). The solid profitability in Q1 despite the weaker top-line development should provides confidence into the FY 23 bottom-line target. The key margin drivers should be improving supply-chains, easing freight costs and raw materials prices.

Additionally, Einhell announced the market entry in Thailand through the takeover of a sales partner in H2 (eNuW: low double-digit €m, not included in estimates/guidance). Given that Einhell has a sound track record of expanding internationally via M&A, rolling-out its leading Power X-Change platform in this market should drive further market share gains. Moreover, Einhell announced to diversify its supply-chain by acquiring a sourcing company in Vietnam, which is specialized on screws, fastening materials and various handheld tools. In sum, while short-term macro challenges look set to weigh on operating performance in FY 23e, the mid-term case remains intact as Einhell should be a key beneficiary of the structural transition towards cordless power tools. BUY, PT € 240.00, based on DCF.