Aeffe S.p.A. (AEF) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Aeffe consolidated financial results at December 31, 2019 conference call. [Operator Instructions] At this time, I would like to turn the conference over to Annalisa Aldrovandi, Investor Relator of Aeffe. Please go ahead, madam.

Good afternoon to everybody. Thank you for joining Aeffe full year 2019 conference call. Before starting to comment on the results of the period, I'd like to remind you the new lease accounting standard, IFRS 16, has been applied since the beginning of this year. Please refer to the press release for a detailed description of the effects coming from the first application of the new accounting standard. During the presentation, I also remind you, I comment the results of the period at constant exchange rates and net of the IFRS 16 effect to ensure the consistent comparability with 2018 results, unless stated otherwise. Moving to Page 2 of the presentation, you find a summary of Aeffe full year 2019 key results. Consolidated revenues amounted to EUR 351.4 million compared to EUR 346.6 million in 2018, with a 1.4% increase. In term of profitability, EBITDA was equal to EUR 36.6 million compared to EUR 43.3 million of 2018. Net financial debt was EUR 39.5 -- EUR 39.4 million, sorry, compared with EUR 31.3 million at the end of December 2018. These results were broadly in line with the group's expectations for the year 2019, both in terms of turnover and in term of margin, as already communicated to the market during 2019 on a quarterly basis. In the recent weeks, the group is facing a very difficult scenario with new coronavirus impact moving from China to Europe and now to North America. As of today, it is extremely hard to quantify what coronavirus impact would be for 2020 and to estimate how long it will last. Immediately, with the epidemic outbreak, the new Board concern is to protect its people and following as many employees as possible to work from home. At the same time, the group put in place a contingency plan to face the unpredictable impact arising from the spread of the new coronavirus. The plan includes actions to control costs at all lines, including renegotiating rent reduction, the postponement of advertising and promotional investments and maintaining unchanged only the initiatives the project we deem less at risk for the business. As of today, after a positive start in January, retail sales are now suffering a decline due to lack of Chinese tourists and restrictive measures issued by the authorities in terms of people mobility. The situation is serious, however, for the group, the retail channel accounts for only 25% on total sales. The group is confident that the virus outbreak may be contained in the coming spring/summer season, with the sales recovery starting from next June or July. As far as wholesale channel is concerned, the group is focused on the effective and cautious customer relations management, especially in terms of discounts to our main partners in China and Paris to support them in this moment in which the traffic in the stores is very weak as consumers are avoiding public places and working from home. As a response to this emergency, the Italian government is planning measures to contain the impact of the coronavirus, supporting families and firms, including the postponement of certain tax and suspend social security payments. Let's move now to Page 3, revenue breakdown by division. Revenue of the prêt-à-porter division amounted to EUR 262 million with a 1.2% (sic) [ 1.6% ] increase compared to last year. Revenues of the Footwear & Leather Goods division that amounted to EUR 128 million, increased by 8% in the period before inter-divisional eliminations, mainly driven by Moschino brand collection. Alberta Ferretti brand generating 7% of total sales decreased by 19%, especially due to the weakness of the wholesale channel. Philosophy brand was substantially in line compared with last year, generating 5% of total sales. Also, in this case, the result was mainly driven by the trend of the wholesale business. Moschino brand continued to record a good growth, especially in Europe, Paris and U.S., posting a 4.5% increase and contributing to 75% of total sales. Pollini brand recorded a 0.3% decrease compared with last year. Let's move to Page 5 of the presentation, sales breakdown by region. In 2019, Italian sales decreased by 5 -- 4.5% compared to the last year, mainly due to the weakness of the wholesale channels, with the retail revenues posted the group trends. Sales in the rest of Europe contributing to 25% of consolidated sales, increased by 8%, thanks to the good trend of the wholesale business in U.K., Germany and Eastern Europe. In Asia and in the rest of the world, group sales increased by 7% and represented 25% of total revenue. The growth was especially driven by the good trend in China and Korea, which posted 8% and 35% increase, respectively. Sales in America contributing to 5% of total sales, decreased by 4.5%. On Page 6, we have sales breakdown by distribution channels. In 2019, wholesale channel declined by 1.8%, contributing to 69% of consolidated sales. The reduction was due to the trend of the last autumn/winter 2019 season. Retail sales generating 27 of total sales -- 27% of total sales, recorded a good growth posting a 7.5% increase, confirming the positive acceptance of our collection by the clientele. Royalty income grew by 18% and represented 4% of group sales. Move now to Page 7 of the presentation, network of mono-brand stores. In terms of direct operated stores, Moschino opened a long-term pop-up in Madison Avenue in New York. Alberta Ferretti closed 1 store in Capri in Italy, and Moschino closed its boutique in [indiscernible] in Milan. In Korea, net closures for Moschino were 2. With reference to the franchise stores of the changes, in the period included 21 net closures, mainly in the Far Eastern regions for Moschino brand for repositioning. Let's move to Page 8, commenting on consolidated EBITDA and EBIT. In 2019, profitability was equal to EUR 36.6 million compared to EUR 43.3 million in 2018, with a EUR 6.7 million decline. This change was in line with the group's expectations for the full year 2019 and with the previous quarter in the past. The decrease in marginality was due to the prêt-à-porter division. EBITDA of the prêt-à-porter division decreased by EUR 9.5 million compared to the corresponding period of 2018. The pressure on margin was due to the sales decline deriving from the trend of the autumn/winter 2019 collection and wide costs for services and other costs planned from early 2019. These expenses were related to higher promotional and advertising costs and to experience human resources skills in R&D, production process and sale and marketing activities to optimize the management team in key operational function. EBITDA of footwear and leather goods division increased by EUR 1.4 million, thanks to the sales rise. Consolidated EBIT posted a EUR 6 million decline, driven by the EBITDA decrease. In the period, net financial expenses decreased by EUR 0.1 million compared with last year. The group net profit was equal to EUR 12.3 million compared to the net profit of EUR 16.7 million of last year, with a EUR 4.4 million decline. Summary balance sheet on Page 9, net working capital. At the end of December 2019, net working capital amounted to EUR 75.9 million, with an incident of 22.6% of sales compared with EUR 70.5 million at the end of 2018 and representing 20.3% of revenues. The incidence increase was mainly driven due to the higher inventory level at our direct operated stores due to the sales conversion of the year. Net debt and shareholders equity. At the end of 2019, the group's shareholders' equity was equal to EUR 171.4 million. Financial debt amounted to EUR 49.4 million (sic) [ EUR 39.4 million ] compared to EUR 31.3 million at the end of 2018, reporting a EUR 8.1 million increase due to the higher net working capital and higher CapEx. Summary cash flow on Page 10, CapEx in the period amounted to EUR 10.7 million (sic) [ EUR 9.7 million ] and were related to the maintenance and for refurbishment and the construction of a new warehouse for the shoe and leather goods division. It's all from me now, and I will leave the floor to your questions. Mr. Marcello Tassinari will answer. Thank you. Please, operator, you can now open the Q&A session. Thank you.

[Operator Instructions] The first question is from Chiara Rotelli of Mediobanca.

I have 2 questions. The first one, can you comment on your performance of the online business in the full year 2019? And the second question on current trading, so what is your [ lease ] because to assume your performance for the first quarter. Can you comment by the region what kind of performance you are experiencing?

We are -- I understand the second question, the current trading. Sorry, but the line was disturbed and so I need -- I didn't understand the first question.

Okay. I repeat it. Sorry, I'm from home. Your performance for the online business in 2019.

Okay, okay. The online business is going -- I start from your first question. The online business is going very well. We are increasing the sales in 2019 compared to 2018 of roughly 10%. And in the first month of 2020, the online business is continuing to perform very well, and we booked an improve -- an increase of roughly 16%. So I think that the choice we did to manage by ourselves the e-commerce platform was a very good -- a good decision. Regarding the current trading, if you look at now is we are in a very difficult situation. But we start the January until the last week of January with a good trend, a positive trend. Of course, as of today, the virus outbreak is having a negative impact on tourist flows and people's mobility, resulting in a negative trend of store sales. Overall, the traffic in store is roughly 50% down compared with the same period of last year. In Italy, the store, since yesterday, are closed because we decide in line with the rules of our government. And now we are open in France, in U.K. and in U.S.A. It's difficult, and in Korea, our stores are currently open with limited working hours. And of course, the trend is in line with the [indiscernible] of the site I told you before. It's very difficult to try to forecast a provision on the next month. We hope, like the most of the research that in 2, 3 months, this -- the coronavirus effect could be neutralized, but in this moment, it's really difficult to express any opinion on the next month.

May I add a question?

Please.