- ProCook shares are down 38% on the release of a trading update
- Business is better than 2019, worse than 2021
- Whither the kitcheware market is the major concern
ProCook (LON: PROC) shares are down 38% this morning on the back of their trading update. Given the price movement we can confidently predict that the results are not good – and they're not. They're not in fact bad, but they're not good – the point here being what happens to a growth stock when that growth doesn't turn up.
ProCook sells “value-for-money, quality kitchenware” as they say and this is something that we can think of in two entirely different ways. One is that everyone needs to be able to cook and so cookware is an essential. In the modern age that's not really wholly true though. Take outs and chilled meals and so on do mean that one can live quite happily without ever cooking anything at all. Thus cookware becomes, instead, something of a lifestyle purchase. Is cooking at home going to be one of those things one does? Therefore one needs cookware.
ProCook alludes to this in their trading update. They say: “ongoing pressures on discretionary consumer spend” That is, they're not selling an essential, they're selling a lifestyle choice.
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Nothing wrong with that of course but any view of ProCook does require that we really understand the business that ProCook is in. This is discretionary spend, not essentials.
As such it's then possible to try and work out what we think economic hard times might do to the brand's sales. The answer there being we'd think the impact would not be good. That being what ProCook is telling us here.
Now this gets a bit more complex. For ProCook is still a growing brand – it's not mature and doesn't dominate the kitchenware market. So, there's still room for growth even if the wider market itself is static or even shrinking. Then there's the impact of lockdown. Or rather, the reopening after lockdown – figures now are looking to be below last year's, but that was itself somewhat boosted by the end of lockdown. When looking over a longer period, sales look to be above 2019's.
So, there's still growth there, even if affected by that hiccup of lockdown and reopening. Obviously, ProCook management is hoping – insisting even – that the underlying trend of folk wanting to cook more and thus requiring the equipment to do so is going to continue. Our own estimations may or may not be different of course.
But even then it's not just the ongoing growth – or not – of the kitchenware market that matters. At least, that's not the only thing that matters. For there's still that growth possible by one brand within even a declining market. And, as it happens, we'd expect “value” offerings to do better in market hard times than the more expensive ones.
The future price of ProCook shares is going to depend upon what the market more generally thinks of these two competing visions. Is that market suffering a transient blip or is it in full retreat?