Significant drop

Shares in the Czech Republic's largest online pharmacy fell to an all-time low, trading at 119 CZK (4.75 EUR) per share on 13 June 2024, a year-on-year drop of more than 70 per cent. By comparison, in the same period last year the shares were worth 450 CZK(EUR 17.95) and during the initial public offering (IPO) on 20 October 2020 the price was at a similar level, namely 424 CZK (EUR 16.91). At the beginning of July 2024, the situation improved slightly and the share price rose to 128 CZK (€5.11), but it is still deep in red numbers compared to the all-time high it reached at the beginning of January 2022, when it traded at 1,800 CZK (€71.79) per share.*

Evolution of Pilulka Lékarny's share price since its listing on 20 October 2020 (source: Prague Stock Exchange) *

Change in strategy and slowdown in e-commerce

The dramatic decline reflects the market's reaction to problems in the e-commerce sector and changes in the company. The company was seriously impacted by the end of its expansion within Central Europe. Last year, Pilulka's management decided to stop activities in Romania, Austria and Hungary. In addition, the company is well established in the Czech domestic market, as well as in Slovakia. According to the 2023 annual report, the aforementioned expansion markets required high investments and the company's current goal is to consolidate its position in the already established markets where it sees the potential for greater growth and stability. Another factor is the slowdown in e-commerce following the coronavirus pandemic, which was later impacted by high inflation, rising costs and the war in Ukraine. The report notes that, among other things, the expansion of Chinese retailers Allegro and Temu has had an indirect impact on the company's current development, increasing competitive pressure in the market and increasing operating costs. The situation has also been aggravated by the termination of a major partnership with Benefit Plus in February last year, which provided Czech customers with the option of paying by the Benefit Plus method.

Continued expectations of loss

Pilulka's problems have not only affected the stock market, but also its own financial results. The company posted a loss of 176 million CZK (EUR 7 million) last year, a significant increase from 64 million CZK (EUR 2.5 million) the previous year. Revenues fell by almost 14 percent year-on-year to 1.9 billion CZK (75.5 million EUR). Thanks to cost-cutting measures and efficiency improvements, the company expects revenues to continue to decline this year, but is forecasting positive gross earnings before interest, taxes, depreciation and amortization (EBITDA). One of the measures taken to improve the financial situation was to proceed with organisational changes and the redundancy of staff from European headquarters and warehouses. According to the aforementioned annual report, this decision has saved the company more than 10 million CZK (397 thousand EUR) with an estimate of higher savings in 2024.

Negotiations on a possible sale

Despite efforts to streamline the flow of funds, Pilulka is struggling to meet the loan conditions set by the banks, which could lead to the need for early repayment of borrowed funds. The company therefore tried to raise additional capital through a secondary share subscription last summer, when it expected to invest between 150 and 225 million CZK (5.91 million and 8.94 million EUR). However, this target was not met and only 67 million CZK (EUR 2.66 million) was raised. The owners were therefore looking for a reliable investor to supplement this 'cash injection' and help the company to kick-start further development, which is essential in the face of increasing competitive pressure. Co-owner Petr Kasa even admitted to Forbes the possibility of selling the company.

Alza as a competitor

There is also bad news about another possible competitor in the online pharmacy market. The largest local electronics retailer Alza is probably preparing to expand its services to include just the pharmacy assortment. No more detailed information is available at the moment, but as reported by CzechCrunch, a public notarial deed states that Alza has succeeded in a partial acquisition of Other Corp., which owns the license to operate pharmacies. Another signal of expansion also the expansion of Alza's statutes to the production of medical devices and the provision of medical services - pharmacies. No one interviewed by the portal responded to questions related to the transaction and possible expansion, but Alza's spokeswoman Eliska Čeřovská said that the company sees the health sector as an interesting business opportunity. Currently, Alza offers customers dietary supplements, electronics, cosmetics, medical and rehabilitation aids and a range of other products.

Better tomorrows

Although discussions with potential investors were ongoing, whether the necessary financial capital could be found was not entirely clear for a while. Without it, however, the company would not have had enough finance to further develop the business, without which its future would not have looked too "rosy" in a growing sea of competition. Eventually, however, an investor was found, in the form of TCF Capital, headed by Tomáš Čupra, founder of the Czech online shop Rohlík.cz. TFC Capital will acquire not only a stake in Pilulka, but also partial control, which, given Čupra's previous successes in business, may be the " breath of fresh air" that Pilulka sorely needs. [1]

Olívia Lacenova, principal analyst at Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results.

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.