Flamingo - 2Q09 results

Flamingo International (FLA) announced its 2Q09 results yesterday. The company posted sales at RON 91.0m for 2Q09, down 47.5% y/y and 5.4% q/q. Rental costs declined by 15.5% y/y in 2Q09, although rental costs were up 6% y/y for 1H09 due to new stores being opened in 2H08. EBITDA came in at RON -11.2m in 2Q09 versus a positive RON 3.7m registered in 2Q08. The firm posted a net loss of RON 18.2m for 2Q09, much worse than the RON 2.4m loss posted in 2Q08.

Market evolution and strategy: Flamingo’s market continued to evolve negatively in 2Q09, declining by 50% y/y on average, with Romania being one of the worst performing markets in Europe. Flamingo has closed 29 stores so far in 2009 and the firm’s net selling area has decreased from 59,000 sqm to 46,200 sqm. The company is continuing its restructuring plan with the intention of optimizing its operational activity. The most important strategy guidelines include: optimizing costs (rental and personnel), optimizing the net selling area per store (at roughly 5,000 sqm), and persuading shareholders to support the capital increase.

Our view:
The 2Q09 results suggest the company will continue to face turbulent times going forward. We believe the management will find it difficult to achieve the latest guidance for an improvement in sales and positive EBITDA in 2H09.