Douglas AG (DOU) - Europe’s Dominant Beauty Retailer at 6x FCF

Summary

Douglas AG is Europe’s leading omnichannel premium beauty retailer. After IPO’ing in 2024 at €26.00, the stock has fallen to €11.64, giving the company a market cap of €1.25 billion (based on 107.7 million shares outstanding) and an enterprise value of ~€3.15 billion, after including ~€800 million in net financial debt and ~€1.1 billion in lease liabilities.

In FY23/24, Douglas generated €730 million in EBITDA and €524 million in FCFF. Due to the heavy pre-IPO debt burden, little of that flowed through to the equity, but that’s about to change. Since FY22/23, net debt has been cut from €3.4 billion to €1.9 billion (helped by the IPO proceeds of €850 million) and refinanced at more favorable interest rates. I estimate FCFE this year will come in around €150–200 million, implying a current valuation of just 6–8x FCFE.

I expect FCFE to grow at an 18.5% CAGR through 2030, driven by moderate topline growth, some gross margin expansion resulting from ongoing initiatives, and continued deleveraging.

As for how we get paid, management plans to initiate a dividend payout of up to 40% of net income once net leverage hits 2x EBITDA, a milestone originally set for the end of the current FY (later revised), that I expect them to reach by the end of the next FY. Based on my forecast for next year’s earnings, that implies a €1.14 dividend per share for FY26/27, or a 9.8% yield at today’s share price.

Once Douglas demonstrates consistent FCF generation and resilience, I believe the market will rerate the stock toward a more reasonable multiple, say, 8x EBITDA, still a 2-turn discount to ULTA. That would imply a share price of ~€38 today. Alternatively, for the stock to yield 5% on my projected FY26/27 DPS, it would need to trade at €22.78, almost 2x the current price.

CVC and the Kreke family haven’t sold a single share in the IPO. Post-listing, they held 68.6% of the company, and subsequent purchases by the Krekes’ investment vehicle have pushed that above 69%.

Chairman of the Douglas board, Dr. Henning Kreke, personally bought €1.37 million worth of stock in March of this year. Outgoing CFO, Alexander Langer, added €395k. CEO, Alexander van der Laan, bought €250k. Other board members also stepped in around the same time.

I see 100%–300% upside over the medium term.

Affordable Luxury: A Recession-Resistant Indulgence [Mitigant to Negative Operating Leverage Risk and Risk of Debt Service During a Recession]

When times get tough, people still want to feel good. They just trade down from €3,000 handbags to €60 perfume. This phenomenon is known as the lipstick effect.

Beauty is one of the most resilient consumer categories. Whether you’re in a bull market or a cost-of-living crisis, people continue to buy foundation, skincare, and fragrance. An NPD survey during the GFC in 2009 found 3 in 5 women continued buying beauty products despite the economy, “because they helped boost confidence.”

Douglas offers accessible entry points to luxury. Most consumers in Europe aren’t walking into a Dior boutique and buying a bag right now, but they are buying Dior lipstick at Douglas.

The company has demonstrated this resilience in past downturns. During the global financial crisis in 2008 and 2009, Douglas still managed low single-digit sales growth while many retailers faced double-digit declines. Prestige beauty demand softened but didn’t collapse, and the business avoided the kind of fixed-cost deleveraging that crushed others in retail.

Selective Distribution in a High-Gross-Margin Value Chain

Cosmetics is a uniquely attractive category. The four big suppliers (Estee Lauder, L’Oreal, Shiseido, and Coty) have attractive margin structures with gross margins averaging >70%. This enables them to make significant investments in marketing, which benefits premium-focused, omnichannel, multi-brand retailers. The manufacturers cover a larger portion of the marketing spend for the brand and its products, rather than the retailer.

Beauty products also have high purchase frequency, low return rates, and a consumer trained to pay a premium for branding. And unlike fashion, beauty products generally don’t go out of season.

Douglas is also pulling several levers to further increase gross margins.

• Own Brands

  • Douglas has built out a portfolio of corporate brands, which made up 7.5% of sales in FY22/23, up from 6.6% in FY20/21. These products carry higher gross margins than the group average. As penetration increases, overall gross profit margins should follow.

• Retail Media

  • Douglas also monetizes its traffic through retail media — selling ad space on its app, website, and even in-store to brand partners, backed by deep customer data (and the biggest beauty loyalty program in the world). Right now, the business brings in a low double-digit million euro figure annually, but management expects this to scale to the mid-double-digit range by 2026. They're using the DACH region as a blueprint and rolling it out across Europe.

  • This is a high-margin, capital-light revenue stream — no inventory, no working capital, primarily driven by data, consumer reach, and shelf access. As retail media spend continues to grow across Europe, this should become a meaningful contributor to Douglas’s gross profit margin expansion.

• Partner Program

  • Douglas has also launched an online partner program — effectively a marketplace model that allows third-party brands to sell on Douglas’ platform. Again, it’s asset-light and margin-accretive: no inventory risk, negative working capital, and the ability to monetize web traffic at higher incremental margins.

Omnichannel Dominance Across Europe [Mitigant to Competition Risk from E-Com Pure Plays Like Flaconi]

Douglas is one of the few European retailers that has successfully built a true omnichannel model.

Online sales now account for around one-third of total revenue, growing at a 22% CAGR since 2015. Douglas operates the largest omnichannel beauty marketplace in Europe, ahead of Sephora.

• 193,000 SKUs and 2,300 brands, compared to 73,000 and 1,500 for the next closest player

• 62 million loyalty members — more than ULTA (44 million) and Sephora (40 million)

Omnichannel customers spend approximately 2.2 times and 2.8 times more per year on average and have an approximately 2.2 times and 2.8 times higher annual purchase frequency on average, compared with customers who use only the store or online channel.

Douglas’s physical footprint serves both as a customer acquisition tool and as infrastructure for fulfillment and product trials. The online growth has allowed the company to close underperforming stores, with sales migrating largely to online and nearby stores.

If It’s Good Enough for Mr. Arnault...

Bernard Arnault saw the value in beauty retail when he bought Sephora in 1997. With Douglas, you’re getting the European equivalent at a massive discount.

Valuation

At the current price of €11.64, Douglas trades at around 6–8x forward FCFE, based on my estimate of €150–200 million in FCFE for this FY. I expect FCFE to grow at a ~18.5% CAGR through 2030, supported by modest revenue growth, gross margin expansion, and continued deleveraging.

My base case assumes:

• 7% sales growth in FY25/26, in line with management’s mid-term guidance

• ~5.4% growth thereafter, in line with the European premium beauty market (OC&C estimate)

• Moderate gross margin expansion driven by:

  • Increased penetration of higher-margin corporate brands

  • Store productivity improvements through closures and refurbishments

  • Growth in the high-margin retail media business

Douglas intends to initiate a 40% payout ratio once net leverage hits 2x EBITDA. I estimate they will hit that target by the end of FY25/26. I project the dividend per share for FY26/27 to be €1.14, implying a ~9.8% yield at today’s price.

Looking further out:

• A 3% dividend yield in 2030 would imply a €54 share price and a 4.7x multiple of money (36% IRR) from today

• A more conservative 5% target yield would imply a €32 share price and a 2.8x return (23% IRR) over five years

Actual figures until 2024, my projections (largely based on extrapolation of historic figures and company guidance) thereafter

Company History for Added Context

• 1821 – Founding: Scottish soap maker John Sharp Douglas establishes a soap factory in Hamburg’s Speicherstadt, laying the foundation for the Douglas brand.

• 1910 – First Perfumery Store: The first store bearing the name “Parfümerie Douglas” opens on Hamburg’s Neuer Wall (May 1910), launched by Berta Kolbe and sisters Anna & Maria Carstens, leveraging the Douglas name for premium soaps and cosmetics.

• 1969 – Acquisition by Hussel (Kreke Family): With Douglas grown to six perfumery stores in Hamburg by the late 1960s, the chain is acquired by retail group Hussel AG (led by Dr. Jörn Kreke). Hussel restructures into a holding company and aggressively expands Douglas through further store openings and takeovers, setting the stage for Douglas to become a national beauty retailer.

• 1973 – First International Expansion: Douglas acquires the Austrian perfumery chain Parfümerie Ruttner, marking its first step beyond Germany’s borders. In the following years, all acquired stores are unified under the “Parfümerie Douglas” brand (by 1976) to strengthen the Douglas identity.

• 1980s–1989 – European Growth & Holding Formation: Throughout the 1980s Douglas enters multiple new markets – including the Netherlands, France, Italy, and even a foray into the United States – while continuing to acquire competitors. This rapid growth leads to a corporate reorganization: in 1989, Douglas Holding AG is created (replacing Hussel AG as the listed parent company) to better manage its expanding perfumery empire.

• 1990s–2000 – International Expansion & Digital Debut: Following German reunification, Douglas opens stores in Eastern Germany and expands into Switzerland, Spain, Portugal, and other European markets. By the early 2000s, Douglas has established a presence in Poland, Hungary, and across Central/Eastern Europe. In 2000, Douglas launches its first online shop, embracing e-commerce as part of an emerging omnichannel strategy.

• 2001 – Generational Leadership Change: After 32 years at the helm, Dr. Jörn Kreke (who led Douglas’s expansion since the Hussel era) hands over the CEO role to his son, Dr. Henning Kreke, in June 2001. This transition keeps the business in family hands and continues the Kreke family’s influence on Douglas’s strategic direction.

• 2009–2010 – Market Retrenchment: In response to the global financial crisis and underperforming foreign operations, Douglas withdraws from several markets – including Slovakia, Estonia, Denmark, and the United States – in 2009/2010. This consolidation refocuses the company on its stronger European core markets.

• 2012–2014 – Take-Private by Advent & Refocus: The Kreke family partners with private equity firm Advent International in 2012 to initiate a buyout of Douglas Holding AG (which at the time was a diversified retail group owning bookstore Thalia, jeweler Christ, fashion retailer AppelrathCüpper, etc.). The €1.5 billion takeover is completed in 2013, and Douglas is delisted from the Frankfurt Stock Exchange. The new owners then streamline the company: by 2014 Douglas sheds its non-cosmetic businesses and returns to being a pure perfumery and cosmetics retailer.

• 2014 – Nocibé Acquisition (France): Douglas acquires the French perfumery chain Nocibé (455 stores) to bolster its presence in France. The ~170 existing Douglas-branded stores in France are reflagged to the Nocibé banner, making Nocibé one of the leading beauty retailers in the French market. Douglas also enters the Norwegian market in this period, extending its Nordic footprint.

• 2015 – CVC Buyout: A planned re-IPO of Douglas is put on hold. Instead, in June 2015 Douglas is sold to CVC Capital Partners, which acquires an 85% stake from Advent and the Kreke family (the Kreke family reinvests, retaining 15%). By the mid-2010s, Douglas has become Europe’s largest specialty beauty retailer, with roughly 1,700 stores across 19 countries and leading market positions in 11 of them. Dr. Henning Kreke stays on as CEO post-transaction, ensuring continuity.

• 2016 – Headquarters Move & New CEO: In February 2016, Isabelle Parize is appointed CEO of Douglas, succeeding Henning Kreke. The company announces a headquarters relocation in October 2016 from its longtime base in Hagen to Düsseldorf, consolidating its corporate offices and e-commerce operations in one location. Later in 2016, Douglas exits the Turkey market due to a small market share, continuing its portfolio optimization.

• 2017 – Southern Europe Expansion & Leadership: Douglas accelerates growth in Southern Europe through M&A. In mid-2017, it acquires Spanish perfumery chains Bodybell and Perfumerías IF, and later that year closes the purchase of Italian chains Limoni and La Gardenia, significantly increasing its store network in Spain and Italy. In November 2017, former L’Oréal executive Tina Müller is hired as the new Group CEO, tasked with driving a digital transformation and innovation agenda.

• 2018 – E-Commerce Boost (Parfumdreams): Under Tina Müller’s leadership, Douglas deepens its digital capabilities by acquiring a majority stake in Parfümerie Akzente and its online shop Parfumdreams. This deal brings an established beauty e-commerce platform (operating in multiple European markets) into the Douglas fold, expanding the group’s online assortment and customer reach.

• 2019 – Omnichannel Marketplace: Douglas launches one of Europe’s first beauty-focused online marketplaces on its German website, inviting third-party brands to sell via Douglas’s platform. This strategic move vastly increases the product range (eventually ~300,000 SKUs by 2022) and cements Douglas’s omnichannel model – combining its extensive brick-and-mortar network with a broad online assortment for customers.

• 2020–2021 – COVID-19 Impact and Restructuring: The pandemic hits physical retail hard, but Douglas’s prior digital investments pay off with e-commerce sales growing ~40% in 2020. In January 2021, the company announces a major restructuring: about 500 of its 2,400 European stores will close, and resources will shift to online business and profitable core stores. Despite a 6.4% drop in revenue to €3.2 billion in FY2020, Douglas emerges with a stronger online-centric strategy and continues to operate ~1,850 stores across 22 countries (with nearly one-third of sales now online by 2021).

• Nov 2022 – Leadership Change: Sander van der Laan is appointed as the new CEO of Douglas Group, succeeding Tina Müller (who moves to the Supervisory Board). Van der Laan, a retail veteran, is charged with further advancing Douglas’s omnichannel strategy and returning the company to growth and profitability post-pandemic.

• 2023 – Market Entries: Douglas resumes brick-and-mortar expansion by opening its first stores in Belgium and Slovenia – markets where Douglas had launched online shops in 2021. This “digital-first, then physical” expansion approach highlights the company’s strategy of using e-commerce as a beachhead before investing in stores.

• Mar 2024 – IPO and Return to Public Markets: Douglas AG re-lists on the Frankfurt Stock Exchange in March 2024, marking its return to public ownership after 11 years private. The IPO prices at €26 per share and raises approximately €850 million in new capital (with an additional ~€300 million injected by existing owners) to substantially pay down debt. Post-IPO, around 31.8% of shares are in free float, while CVC remains the majority shareholder alongside the Kreke family. Douglas’s market capitalization at IPO was about €2.8 billion.

Conclusion

I’m happy to discuss assumptions, risks, and counterpoints in the comments, on X, or via email.

I’ll just end with this: if it’s good enough for Mr. Arnault...

DISCLOSURE: I’M NOT A LICENSED INVESTMENT PROFESSIONAL. NOTHING IN THIS NEWSLETTER IS INVESTMENT ADVICE. DO YOUR OWN DUE DILIGENCE.