Lyko is a leading beauty products retailer with a vast range of over 65,000 products from more than 1,000 brands. While the company operates 31 owned stores and salons, the majority of its sales, around 80-90%, are generated online through lyko.com. With a strong presence in the Nordic region, Lyko has established itself as a market leader. Additionally, since 2020, the company has expanded its operations to Germany, Austria, Poland, and the Netherlands.
Owned 50.1% by the Lyko family, who have a long history in the industry, the company is currently led by CEO Rickard Lyko, the grandson of the founder Frans Lyko. Over the years, Lyko has demonstrated consistent double-digit growth with a focus on maintaining positive profitability. One of the advantages of selling beauty products online is the low return rate, which has historically been less than 1%, compared to the higher rates seen in the clothing industry.
Despite its success in the Nordic markets, Lyko has experienced challenges in its international expansion, particularly in regions outside of the Nordics. The company’s growth in countries like Germany, Austria, Poland, and the Netherlands has stagnated, with a noticeable decline in sales in the recent quarter. While previous setbacks were attributed to external marketing issues, it seems that the trend of slow growth is persisting, prompting a reevaluation of the company’s strategy in these markets.
Investing in automation and warehouse expansion is a key focus for Lyko to increase capacity and efficiency. However, the decision to finance these projects through debt has resulted in a significant increase in the company’s debt levels. With net debt nearing 1 billion SEK, the company’s leverage has raised concerns among investors. The impact of leasing obligations on financial statements needs to be carefully considered to understand the true financial health of the company.
In terms of valuation, comparing Lyko to other e-commerce companies in the beauty and fashion industry reveals mixed performance. While the company has shown strong growth historically, recent challenges and uncertainties about future profitability have led to a more cautious outlook. The stock, trading at over 20 times earnings, may not be justifiable given the current financial and operational risks.
In conclusion, while Lyko has been a well-managed company with a history of growth, the current challenges in international markets and increasing debt levels raise concerns about its future prospects. The recommendation to sell reflects the uncertainties surrounding the company’s ability to overcome these obstacles and sustain its historical performance.