The sofa battle became a double bed. If, in 2020, companies in the furniture and decoration sector competed for the spotlight to see who would IPO first, today, the subject is the conversation between Tok&Stok e Mobly for a possible business combination. According to Pipeline, Bradesco BBI was hired by the green facade company, while the startup is advised by Itaú BBA. The topic arouses curiosity. Mainly because the possible buyer candidate, in this context, is far from going through a promising moment: it is evaluated at a price very close to what it has in cash, according to the latest available reports.
According to information published in September (Mobly releases the annual report only at the end of this month), the company has R$219.5 million in cash and R$300 million in liquidity, including credit card receivables. Today, it is worth R$306 million at B3. Over the last year, it took a series of initiatives to reduce cash consumption — which worked, causing the company to go from burning R$ 30 million to R$ 2 million. Layoffs, reformulation of the opening plan, renegotiating contracts and returning distribution centers were actions put into practice to ‘put the house in order’. Not to mention changes in contracts with suppliers and payment terms.
Faced with this situation, considering the debts that Tok&Stok has today, the transaction would have to take place at a very attractive valuation to become effective, as stated by a source to the EXAME IN. There are even those who explicitly say that the furniture startup should not enter the business. Even with the clear benefit of synergies to be taken advantage of between both companies: the green façade retailer could benefit from Mobly’s knowledge in digital sales and, this one, from the capillarity of physical stores that the company has, for example.
The view is that this is a high price to pay. To remember, Tok&Stok was the target of an eviction action brought by the real estate fund Vinci Logística recently, after the default of R$ 21 million in rent for the distribution center occupied by it, in Minas Gerais. Add that to the American crisis (and a more restricted market for debt trading) and there is the perfect scenario for chaos. To deal with it, the company expects to close 30 stores this year as well as closely monitoring the operation to reduce intense cash consumption and layoffs within its corporate staff.
On the debt negotiation side, the furniture retailer recently hired Alvarez & Marsal to act as the midfielder with the banks, negotiating even the very short-term debt. “If the company fails to negotiate what it owes very quickly, it will enter into a judicial recovery next month”, says a source close to the company to the EXAME IN. Today, Tok&Stok has BRL 300 million in very short-term debt (next month) and another BRL 350 million in debt with other creditors.
To get rid of RJ, Tok&Stok sees the prospect of a merger. Which, as a gift, is still a way to SPX (partner who entered the business by ‘inheriting’ it from Carlyle) and the French partners, Ghislaine Dubrule e Regis Dubrulemanage to exit the business in the short term.
How Tok&Stok got here
Tok&Stok’s problems are mainly related to the lack of a single (and effective) strategy to keep the company afloat. Over the past six years, the retailer has had five different presidents, each with their own style and direction for the company.
The company’s growth, even in the pandemic, was not the greatest either. In 2020, a moment of heated demand for the sector with the euphoria of social isolation, the company showed that it had grown by about one digit a year since 2017. And that it should debut on the stock exchange in the red, with a loss close to R$ 50 million.
Since then, the company has moved sideways, with revenue of around R$ 1.6 billion in 2022. And negative Ebitda. It consumes cash with debts that go from the bank to the supplier. In detail to understand how the company got here: the company’s gross margin has deteriorated in recent years, with high furniture inflation and unable to pass it on to products, a challenge faced by the entire sector. This is one of the points to understand the lack of profitability. The other has to do with a post-pandemic miscalculation. The company prepared itself for growth that did not come and, as a result, increased from the corporate staff to the number of stores and inventories.
In addition, starting from negative Ebitda, the company has made a series of investments over the last few years (technology, for example), which make the whole situation much more dramatic.
The “curse” of the industry
Tok&Stok’s current situation is very reminiscent of another recent case in the country, that of Etnawhich had its doors closed last year, after frustrated attempts at negotiations including with Tok&Stok itself (whose lack of resources jeopardized the negotiation).
Etna had, against itself, the fact of betting on megastores, while the sector as a whole was betting on smaller establishments and the digital world. An attempt also embraced by both companies target of news and speculation today: the Mobly was born online and, Tok&Stok, reformulated its concept of stores with an eye on renting smaller spaces.
None of this seems enough, however, in the face of high interest rates and purchasing power eroded over the past two years by inflation. More focused on other product categories (and on services and experiences, with the end of the pandemic), the consumer left a possible new exchange of household items in the background.
