Ceconomy AG (CEC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the CECONOMY AG investor and analyst conference call. [Operator Instructions] I would now like to turn the conference over to Stephanie Ritschel, Vice President, Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining our Q2/H1 results call today. With me are CEO, Bernhard Duttmann; and our new group CFO, Florian Wieser. They will guide you through today's presentation. Before we start, let me briefly address the usual formalities. Firstly, please be aware that this call is being recorded. A replay will be available on our website later today. Secondly, please keep in mind that today's presentation and potentially also some answers to your questions during the Q&A session may contain forward-looking statements. For additional information in this context, please refer to the disclaimer. But now let me hand over to our CEO starting with an overview of the second quarter. Please go ahead.

Good morning, everyone, and thank you for joining us today. Today's call will be conducted in a new setting. With me here is Florian Wieser, who, in addition to his role as CFO of Media-Saturn, has now been appointed to as CFO of CECONOMY as of May 1. Florian is not a new kid on the block. He has been with us for a long time. He was part of the demerger team when we separated from METRO. He was part -- before he had gained experience -- operational experience as a controller in a country. After the demerger, he worked as a Finance Manager for the Southern European region with Ferran Reverter and the turnaround of Italy. End of 2018, he became CFO of our German business before becoming the CFO of Media-Saturn Retail Group. To make it short, Florian has been already an important part of the current transformation process. He knows all the details very well, our strengths and our weaknesses we have to overcome. I am glad that he joins the Board of CECONOMY because he will make sure that he will continue the transformation we have started when we pressed the reset button early 2019. The roll up of Florian as Group CFO is also a first important step in establishing a uniform management structure of the CECONOMY Group. So we have 1 Board member for CECONOMY now in a new structure that I can present you today. The second one, Karsten Wildberger was appointed by CECONOMY Supervisory Board last night. Mr. Wildberger will take over my position in August. At the same time, he will become also CEO of Media-Saturn Holding. Karsten Wildberger has more than 20 years of experience in marketing and sales roles and led omnichannel, retail and digital transformation processes of large distribution companies. At the Australian telecommunications company, Telstra, he had P&L responsibility for around 400 branded shops and led the entire retail and service organization. Ladies and gentlemen, with the nomination of Karsten Wildberger and Florian Wieser, we finally eliminate the dual structure. We will unite the roles of CEO and CFO at CECONOMY and MediaMarktSaturn. With that, let's move on to the second quarter. Ladies and gentlemen, I am proud of what we have achieved and how robust our business is. I will give you my reasoning for that. Our stationary business was again heavily impacted by ongoing temporary store closures and severe restrictions. Yet, we managed to largely mitigate the COVID-19 impact on our business. Sales as well as adjusted EBIT came in only slightly below the last year's level, which was significantly less impacted by COVID-19. Encouragingly, we continue to see high demand, both brick-and-mortar and online, in countries that were less affected by restrictions. Our online business overall remained highly dynamic. We generated more than EUR 2 billion of online sales in 1 single quarter. The excellent online growth as well as the sales momentum experienced when stores reopened in individual countries demonstrate our strong market position. We also made sound operational progress. Structures are well in place to continue the progress of our transformation. All in all, the fact that we managed the second quarter well, despite all the challenges and uncertainties, proves the resilience of our business model. To underpin this and give you some background, let's take a closer look at the restrictions that we faced in the second quarter. Looking at last year's number, we only had a lockdown for about 2 weeks in the second half of March in 2020. In comparison, this year, the lockdown were significantly longer and more severe. This year, we were basically affected during the entire quarter. The countries that were most severely impacted by temporary closures were our home market Germany and the Netherlands, but also other countries faced temporary lockdowns and restrictions. In Austria, stores were temporarily closed in January, while Switzerland was affected in January and February. And in March, Hungary had to close its stores. At the same time, countries like Italy, Poland and Turkey faced severe restrictions, including temporary closures on weekends or closure of stores in shopping malls. On average, only 37% of our entire store portfolio was opened in January, followed by 46% in February. In March, we were really eagerly awaiting the easing of restrictions when we're looking forward to Germany slowly exiting the lockdown. But the German government decided otherwise. They went for a gradual reopening strategy whereby store openings were based on a number of infections per 100,000 inhabitants of a city. In areas with 7-day incidents below 50, we were allowed to reopen our stores, while in areas with an incidence between 50 and 100, the option click-and-meet with scheduled appointment for store visits was offered to customers on top of compliance with prevailing distance, hygiene and square meter rules. Subject to strict restrictions, the click-and-meet concept was also applied in the Netherlands and Belgium in March. With the rising number of infections during March, the number of fully opened stores sharply declined day by day. Moreover, considering the hassle to make an appointment prior to shopping at our stores, the click-and-meet option was and is not overly popular for our customers. Frequencies of customers compared to 2019 decreased by roughly 60%. You can see over the entire second quarter, our brick-and-mortar business was severely affected by these restrictions. And that on top after already the first quarter was affected. In fact, ladies and gentlemen, before we dive further into Q2, let me take you back to when the pandemic started in order to show you how much COVID-19 disrupted our sales. The pandemic has been with us for more than a year now. You see here our sales development during this time. In '19/'20, we had started off very solidly. The 2019 Black Friday season was another success. In January and February, we seamlessly continued the positive trend of the first quarter and we're fully in line with expectations. Even until mid-March 2020, we saw a pleasing sales momentum. But then this picture changed completely as COVID-19 started to spread across Europe. COVID-19 caused the temporary standstill of most of our stationary business in March and April 2020. Yet with the easing of the restrictions in May, we saw strong catch-up effects. This was followed by continued strong customer demand and high spending on consumer electronic products. The strongly positive sales trend continued until the return of severe restrictions on closures in several countries mid-December. Up to that point, we had a record sales development in that quarter. It is important to note that the sales disruptions you see over the course of the year are only due to the impact of COVID-19 pandemic on our brick-and-mortar business. Whenever our business was and is not interrupted by store closures and strict social distancing guidelines, we show a very positive sales performance supported by strong demand for our offerings. This demonstrates our potential. The past year has also shown that we are well prepared to benefit from catch-up effects once our stores reopen. I'm therefore confident that we are well positioned in both channels once we are behind the pandemic. To wrap up the development for the first 6 months of this financial year, let's take a quick look at the headline figures. In the second quarter, due to all these restrictions, we were unable to match the previous year's level of sales and earnings. However, thanks to increased cost efficiency and our strong COVID-19 contingency measures, we were able to limit the profit decline. Sales adjusted for currency and portfolio effects only declined by 5.7% and adjusted EBIT decreased by merely EUR 15 million year-on-year. Looking at first half results. I'm pleased to say that the development of sales and earnings is proof of the resilience of our business model. Despite the drastic COVID-19 restrictions, we achieved an overall positive development in this period compared to the previous year. Thanks to the excellent start into the first quarter of this financial year and the mitigation measures in the second quarter, coupled with the positive developments in less affected countries, first half sales adjusted for currency and portfolio grew by 4.5% and our EBIT rose by EUR 41 million to EUR 199 million. Ladies and gentlemen, we also remain track in our transformation. Despite the massive restrictions on our stationary business and the short time work that still affects many of our employees, it has been 5 months since we presented our strategy update to you at the Capital Markets Day in December. As we already announced then, we will most certainly inform you about the condition -- continuous progress we are making. Let me begin with the creation of an efficient organization and structure. We made very clear from the beginning that this pillar is fundamental to accelerate the transformation. I'm pleased to say that the ongoing implementation of the new operating model is progressing well. It's even ahead of the schedule and also with slightly higher savings in the financial year. We have implemented homogeneous management structures in all countries. Moreover, in more than 1/3 of our stores, we have already introduced a standardized organization which is a prerequisite for consistently convincing customer experience. In addition, our hub for global business services has started operations in a part near Barcelona with around 150 FTEs. This new administrative center will unify the administrative functions of operational accounting, centralize control of invoices and other services of the MediaMarktSaturn Group. It will serve all our non-German speaking countries. By doing so, our stores and headquarters will be relieved of administrative tasks to focus their capacities even more strongly on value-adding services and most of all on our customers. All in all, our new operating model is an important step for future growth and fast implementation. And the strategic layer built a unique value proposition. I would like to emphasize the steps we have taken so far with a passion for customers training. Despite short labor during the last months, we have trained more than 400 managers and 3,000 employees in passion for customers. Let me remind you that the essence of the strategy is that we want to be the first choice for our customers. We have promised that we will invest even more intensively than before in the comprehensive training of our employees. With this, we have also set ourselves a goal to make a significant contribution to further expanding our advisory and service competence in the stores. The achieved training rate shows that we take our passion to be the first choice seriously. Speaking about service, we've integrated a monthly extended warranty subscription service in our webshop. Although the overall penetration of online services is still quite low, I'm pleased to say that it's starting to grow nicely. To expand our core business, we have successfully engaged in local consolidation and acquired 17 Worten stores in Spain, where we lacked local presence. The acquisition will strengthen MediaMarkt Spain presence in regions such as Catalonia and Andalusia and enable market entries in cities such as Marbella. In addition, the expanded local presence is expected to increase online sales, including the possibility for click-and-collect. Finally, a few words on the acceleration of our growth path. We have continued to expand the MediaMarkt marketplace in Germany. By tapping this new income pool, we will significantly increase our relevance to customers and suppliers and boost organic traffic in our webshop. It will also push our own retail and service sales and allow us to test new categories and products at speed and scale. At our MediaMarkt marketplace in Germany by now, around 230 sellers are onboarded with more than 130,000 SKUs. Besides, we have recently launched the marketplace for Saturn in Germany following the pace in 2022 with our aim to launch the marketplace platform in the Netherlands and Spain. With this, I'm handing over to Florian, who will guide you through the financial performance of this quarter.

Yes. Thank you, Bernhard, also for the very warm welcome. And good morning to everyone on the call. Before we dive into the quarterly figures, I would like to give you some further background about myself. I started my career as a management consultant at [indiscernible] Company. In 2011, I joined CECONOMY's former parent, METRO Group. There, I held various senior finance positions before I joined MediaMarktSaturn in 2017. Initially, I was responsible for operations and finance for the region south, closely collaborating with Ferran Reverter. I gained lots of insights about the business in Spain and was part of the team sustainably restructuring [indiscernible] Italy. Then I moved on to Germany and became the CFO of the German country organization. Amongst others, we improved the steering of the German business and modernized structures and processes, managing the cost base and gaining speed. At the end of 2018, I extended my scope and became CFO of MediaMarktSaturn Retail Group. In my new role as CECONOMY's CFO, I want to further simplify our governance and continue the consistent execution of our new strategy. Also, I look forward to engaging more with the capital markets. Also still virtually, I'm excited to meet many of you in the coming weeks and months. So much about myself. Let me now walk you through the quarterly numbers. In summary, we look back to a quarter that was characterized by a very challenging environment. Yet, we achieved a very solid and resilient business performance. Let's start with a closer look at the sales development. Currency and portfolio adjusted sales came in at around EUR 4.3 billion, declining by around 6% year-on-year. As Bernhard mentioned before, in Q2 of the previous financial year, COVID-19 restrictions did not impact our business until mid-March. This year, the entire second quarter was characterized by store closures in a large number of countries. Our home market, Germany, the Netherlands and Switzerland were most affected. All other countries achieved sales at least on par or sometimes even significantly above previous year's levels. This clearly reveals the continued strong underlying consumer demand for our offerings. Online sales developed very dynamically, but were not able to fully compensate for the losses in the stationary business. Online growth even accelerated further against the backdrop of COVID-19-related store closures and restrictions. As a result, we saw triple-digit growth rates in the online channel in January and February. We are very pleased with the massive growth of our online business. It is the result of our strong increase of online visits, but also lifted conversion rates and higher average bonds. In addition, we registered around 2.2 million new online customers in Q2, 60% more than in the prior year's quarter. It is also good to see a sustainably high and even increasing pickup rate again, which was 38% in Q2 versus 34% in the previous quarter. From my point of view, this is an outstanding result given the strongly increased total online order volume and it demonstrates the customer convenience and resilience of our omnichannel approach. Let's now take a closer look at the development of the online share to see the dynamics over time. In the first quarter of the financial year, our online business more than doubled and accounted for 30% of total sales. In the second quarter, the dynamics in the online business intensified against the backdrop of the increasing number of store closures and restrictions. Our online share almost tripled to around half of our total sales. In light of these dynamics, even after the future reopening of our stores, it is likely that our online sales share remains elevated and will not return to pre-COVID levels. This chart further illustrates the success of our online business. It basically shows 2 things. Firstly, we have consistently outperformed the overall online market in Germany, whereby the pace has even accelerated. Secondly, we did especially well during the lockdown period. We saw the largest market share gains in the online channel in the second quarter. In total, MediaMarktSaturn generated more than 20% of the sales of the entire German online market. This clearly shows that our focus on online sales activities, which was intensified with the beginning of the pandemic last year, has been essential to mitigate the impact of COVID-19 on our business. Services & Solutions sales declined significantly in the second quarter. This is attributable to the decline in customer footfall as well as the temporary closure of our stores. Moreover, we observed that the stationary business has become more transactional during the pandemic due to the social distancing [indiscernible]. As you are aware, the sale of Services & Solutions is still strongly linked to purchases in stationary retail and benefit from the personal advice given to our customers. All service categories declined in Q2. However, extended warranties, financing and our power services showed a trend reversal in March with a pleasing sales and income development. Also, we see a significant increase in Services & Solutions sales in our online channel. The lower base cannot fully compensate for the reductions in the stationary business. In order to expand our service business, despite the increased online share, we are constantly working on improving our online attachment rate. Besides the sales trends, we even more focused on the sustainable income contribution from Services & Solutions. For example, by switching to subscription models, for example, our extended warranties offerings, we achieved a steady income contribution and win customers for our company in the long term. The group's gross margin declined by more than 2 percentage points. This largely results from COVID-related headwinds. The significant shift to the online channel, coupled with product mix effects and higher delivery costs negatively impacted the gross margin. In addition, closure related to write-downs on inventories had an adverse effect. At last, the decline was also due to the lower Services & Solutions income, as I had just described. Yet, these effects are at least in their current magnitude, nonsustainable and should diminish once the restrictions are lifted. This should then lead to a higher impact of the improved gross margin, which already supported the gross margin in the second quarter. Overall, we therefore expect the trend improvement of our gross margin in the third quarter. We largely managed -- we managed to largely compensate the sales decline and lower gross margin by actively managing our costs. The improvements are related to temporary cost mitigation measures like short-time work. At the same time, we sustainably reduced personnel expenses as a result of natural fluctuation and savings from our new operating model. Location costs also improved year-on-year, while marketing expenses are on prior year's level to stabilize sales development. On the other hand, variable cost components such as payment transaction or call center costs increased with a higher online sales level. In total, we effectively reduced costs by more than EUR 130 million in Q2. Our OpEx ratio improved by 160 basis points. All in all, we were not able to match the previous year's earnings due to the extended lockdown. However, thanks to intensified cost measures, we were able to significantly limit the decline. Adjusted EBIT decreased by only EUR 50 million year-on-year. This was largely driven by the decline in the DACH segment. The main driver was Germany and the material impact of the country's COVID-19-related store closures and restrictions. This was paired with a rising share of the online business, higher delivery costs and lower income from the Service & Solutions business. Austria, on the other hand, reported an increase in earnings, amongst others, due to the pleasing sales development in the quarter. Earnings in West and in Southern Europe recorded a slight decline. The result in this segment was negatively affected by the COVID-19-related pressure on sales and margins in the Netherlands. On the contrary, Italy recorded a substantial increase in earnings due to a positive sales and margin development, solid Belgium and Spain with adjusted EBIT slightly above prior year's level. In Eastern Europe, adjusted EBIT improved due to a strong sales development and margin improvement as well as cost savings in Poland. Turkey also developed well in terms of earnings, supported by a positive sales and margin development and declining personnel costs as well as cost-cutting measures. In the Others segment, adjusted EBIT rose because of Sweden and lower holding costs. In sum, I want to stress that this is an extraordinary result given the difficult environment, and I'm very thankful to all employees who made this possible and showed the extraordinary commitment to our company. Let's now move on to Slide 20, which explains the bridge from adjusted to reported EBIT in the current financial year. In the second quarter, there were 2 main effects that explain the difference between adjusted and reported EBIT. Firstly, we had negative earnings effects mostly related to COVID-19-related permanent store closures and the new operating model. These amounted to EUR 34 million. We still expect to book the remainder of the communicated nonrecurring expenses in the third and fourth quarter of this financial year. Secondly, on the positive, we had the partial Fnac Darty impairment reversal and our profit share. As of March 31, 2021, the market value of our investment in Fnac Darty has gradually recovered. We hence conducted an impairment test, which led to a partial reversal of last year's impairment. All in all, reported EBIT improved by EUR 366 million to minus EUR 2 million. Now moving on to bridge from EBIT to EPS. The improvement of our financial results was mainly driven by a dividend payment for METRO Properties, which was around EUR 20 million higher than in the prior year period. The tax rate in the first half year stood at 18.5%, following the integral approach applied during the course of this fiscal year. The nontax effective reversal of the Fnac Darty impairment had a positive impact on this. Please be aware that the tax rate does not yet reflect any benefits related to the acquisition of the MediaMarktSaturn minority stake since it's still conditional upon the closing of the transaction. Due to the Fnac Darty impairment in previous year and the reversal this year, our EPS increased significantly year-on-year. Let us now look at the net working capital development. The net working capital position at March 31, 2021, was significantly below the prior year, which was mainly attributable to a significant reduction in trade liabilities. To a small extent, trade liabilities decreased because of lower purchase volume. The vast extent of the decline, however, is related to prior year's temporary extension of payment terms with certain suppliers. In other words, last year liabilities mostly became due in Q3. This year, we have deliberately decided not to repeat these extraordinary extensions given our solid cash position and the fact that we had much more time to prepare alternative measures against COVID-19 effect compared to last year. You see that both in the previous year as well as in this year, we faced an impact from COVID-19 lockdowns in our net working capital development. Excluding these nonsustainable effects, I am very pleased to see a broadly stable operational net working capital trend. The free cash flow development in the first half of this year was by seasonality and COVID-19-related effects. The absence of payment term extensions beyond March 31, 2020, in particular, led to a normalization of trade liabilities this year. Moreover, in the light of currently tense worldwide supply chain conditions, especially in China, we deliberately increased our inventory to ensure sufficient stock availability. Hence, the picture looks quite distorted and the free cash flow of the first half year cannot be used as an indication for the full year. Given daily news flow on pandemic and political developments, our visibility is low at the moment. It remains very difficult to estimate the further impact of the corona pandemic on our business. There are several factors for this: the continuous extension of the lockdown in Germany in connection with the unclear opening strategy; the high volatility of regulatory measures and temporary store closures in some countries abroad; the unknown extent of possible catch-up effects after reopening of the stationary business especially in Germany; a possible shift in consumer behavior once tourist traveling is allowed again; and the unclear further opening and vaccination strategy, especially in Germany. Against this backdrop, we currently refrain from publishing a new specific guidance. For the moment, we are only able to provide you with possible future scenarios and their underlying assumptions. Regarding portfolio and exchange rate adjusted sales, depending on the length of the lockdown in Germany and the extent of catch-up effects, this could result in either a decline or increase for the full year. For example, if openings are pursued more quickly especially in Germany and the catch-up effects are higher, sales may come in above prior year's level. With respect to adjusted EBIT excluding associates, if the lockdown in Germany continues until the end of May 2021 and only moderate catch-up effects occur, this may result in a year-on-year decline in adjusted EBIT. However, if openings happen sooner, in particular in Germany and the catch-up effect turned out to be higher, adjusted EBIT compared to previous year's level may increase. With this, I think it's evident that the current situation does not permit any precise outlook. Now back to Bernhard for closing remarks.

Ladies and gentlemen, let me briefly wrap up today's presentation. This is what I would like you to take home from this call. Firstly, we are -- we were and we are severely affected by extended lockdowns. The most decisive factor is and remains the restrictions in the stationary business, foremost the lack of a clear opening strategy and a clear perspective in Germany. Despite these restrictions, our business model has proven to be resilient. Secondly, we are prepared for the reopening of our stores to show our strength we have regained during the last 2 years. Thirdly, succession is in place. We finally unified the management structures, which will help us to increase speed and move closer to the customers. And lastly, we will continue the transformation as planned. With Karsten Wildberger and Florian Wieser, the future management team is in place to lead the company strategically and operationally in the phase of transformation and beyond. Thank you for your attention. And I will now turn the call over to the operator for your questions.

[Operator Instructions] First question is by Fabienne Caron of Kepler Cheuvreux.

Welcome, Florian. Three questions from my side, if I may. I appreciate that you don't have any visibility for this year. But could you help us regarding Q3, for example, for DACH and Western Europe? Assuming all the stores will remain closed in Germany, which it seems to be the case, should we expect for DACH the same kind of like-for-like and EBIT loss in Q3? And on the contrary for Western Europe, because the Netherlands started to reopen, should we expect a better like-for-like in EBIT in Q3? It would be my first question. The first (sic) [ second ] question, could you share with us the GMV for the marketplace in the quarter? And the last point is that do you have any update on marketing services and ads. It was one of the point of the Strategy Day, saying that clearly improving your marketing services and selling ads or media online could be a good part of improving your profitability. Have you advanced on this topic?

Yes. Good morning, Fabienne. I will start with the last question. As you pointed out right that we are working on marketing services. We are preparing, we are laying the foundation to work on marketing services. But we have not yet anything specific to report on marketing services at this point in time.

Okay.

Yes. And the second -- 2 questions, first of all, on marketplace, the GMV. So the marketplace is still a pilot. So we are ramping it up in Germany, made a lot of progress with it. I'm very satisfied with the developments, have already more than 100,000 SKUs and more than 200 sellers on the marketplace. Now with the rollout of the new webshop to other countries, recently to Spain, we will extend the marketplace operations to other countries in the next fiscal year, and then we will also give you some more color on the GMV development. Regarding the outlook. I know the current situation with scenarios is not very precise. And also for us, as I said in the call, visibility is very low. So Germany, the picture is still quite unclear. You know that the German government passed a new law basically linking openings of the stores and the way you can open stores to the number of infections in certain counties. So basically, the situation is changing day-to-day, whether we can do click-and-collect, whether we can do click-and-meet or whether we can open stores fully. And even if we have openings, let's say, by click-and-meet, it is very different from county by county how customers accept this offer. We see that frequencies in the cities are still down and not going up. And so like a forecast or a precise estimate on how this will develop in DACH is really difficult. Looking at Western Europe, we are really pleased with the development in Italy. Italy is developing nicely. Consumer demand is fully there. Also in Spain, the lockdown restriction has officially ended. So we see a further easening in Spain. And also there, our business and our offerings are developing nicely. Netherlands was severely affected. So the click-and-meet offering, which the government allowed was -- yes, was very, very restricted. So it wasn't easy for customers to actually accept this offering. And now we have to see how the situation develops in Netherlands. If we see the same catch-up effects as we have seen them in other countries, for example, Austria, Austria has seen a tremendous catch-up, then I'm also very positive for the Netherlands. But as I said, we have to see day by day and hope the best that the restrictions are ending and customer frequency is going up again.

Okay. Let me go back on Germany and -- if I can. I completely understand, but we are assuming that the stores do not open, click-and-meet doesn't work as you said. So just for us to get a feeling, should we take the loss in Germany, if you don't know the loss because it's in DACH as a kind -- in Q2 as a kind of worst case and base for Q3, assuming that we don't open stores anyway before the end of June?

Yes. Maybe giving you some more color on this one. So if you remember last year, we had in April still a full lockdown. So we have seen like a little bit of more turnover and a little bit of easing of restrictions in April. Then in May and June in last year, we saw a tremendous catch-up effect and tremendous recovery. Basically, if you take the period of time from May till end of September to the fiscal year, we had very, very good growth rates, sometimes even double digit, and so the comps will be very tough starting from May. In April, you can be basically more positive. So to answer your question precisely, if the lockdown should continue in this drastic way until the end of the Q3 in Germany, we will have very tough comps.

The next question is by Volker Bosse of Baader Bank.

I'm Volker Bosse of Baader Bank. Congratulations on your great online sales dynamic, and welcome to Mr. Wieser. All the best for the new position. I have 3 questions. First of all, I would like to start with online KPIs. If I'm not mistaken Karin Dohm made a promise to deliver a certain set of KPIs on a rolling basis. At the Q1, we already missed these KPIs. And then you said, yes, we will report it with the H1 figures. But now in the H1 figures, I do not see the KPIs either. So how is your look on that going forward? Will you provide these kind of figures going forward? And the second question would be also coming back on your guidance. I know -- I see the uncertainties, I'm sitting in Germany as well, of course. But at the 15th of December, you were quite concrete in guidance of EUR 320 million to EUR 370 million. Now we are mid of May, and you see the global progress of vaccination or at least in Europe, we have 7 months in the books and no guidance is possible. It's fair to work with scenarios, yes, but then you can be a bit more precise. What means the best-case scenario means sales XYZ leads to EBIT XYZ and perhaps in a different scenario, sales could look like this and then EBIT as follows, yes? But at the 15th of December concrete? Now 7 months, no concrete. I mean at the 15th of December, we also have been in the lockdown, and there was also much more uncertainty, I would say, as of to date. So that I would like to flag it perhaps to get some granularity on that. And the third one would be on rental costs. I heard from others competitors saying that in our city locations, we see a downward trend or the potential to reduce rental costs by 10% to 25%. Would you agree on that? And have you already renegotiated any rental contracts going forward on a sustainable basis, so to say, and -- yes, which potential you might see for your rental contract? Is it just Germany? Or do you see that potential for lower rental costs across Europe given the pandemic and given the digitization trend, which is a driver, I guess. But over to you.

Volker, I take your second question, the guidance. And you're absolutely right. We were confident in December that we have a good guidance, and then we are -- that we will have a good year despite the lockdown we already had in that time. But unfortunately, we had to realize that politicians act a little bit irrational because we know that from the institutions -- health institutions, they had proven that in the trade, the infection rate -- the risk of infection rate is rather low. Still, the politicians did not follow these facts and decided otherwise for further lockdowns. And in Germany, as you know, it's 50% of our sales and more than 50% in our profit. That makes it incredibly difficult to put a guidance on our business when this big country is completely out our -- out of any means for judging when we would -- or when we can open it. And that makes it very, very difficult to really make a guidance. And you know also that in September, a big part of our margin is being generated in that month. And for that reason, right now, it's very difficult based on the current scenario that we do not really have open markets in some countries, most -- the most important one is Germany, which is also our biggest market. And for that reason, I cannot give a guidance. I think you need to understand that. But it is just for us not possible. For the 2 other questions, I would like to have Florian answer them. On rental cost, he's in -- he was always in the center of the universe also negotiating. And so you can hear from him firsthand information on this.

Yes. Let me please start with your first question on online growth. So I think also in the presentation, in the speech, we gave some transparency on online KPIs. So we published the figure on online growth, the development of registered customers. And for me, very, very important is the pickup rate. So the pickup rate increased from 34% last year, going up to 38%, and this with such a tremendous online growth. Actually, the pickup ratio even stronger -- or the pickup orders even have stronger grown than our online orders directly delivered to the customers. So that was also always a critical point whether the omnichannel approach is customer convenient, and we see now that even with such tremendous online order volume, the pickup rate is accepted and even demanded by the customers. So there are several KPIs, which we have disguised. I can also give you some more colors on the underlying KPIs. So the frequency, the conversion rate in the basket, all of these figures have raised against previous year, especially the frequency. So -- and the second question regarding the KPIs, when do we disguise the KPIs, which we announced at the Capital Markets Day. So we will do this at the end of the year. At the moment, many of these KPIs are clearly distorted by COVID-19, so they do not give a fair picture of the transformation and the current status. That's why we decided to give you the full and fair pictures of this KPI development at the end of the year. The third question you raised was rental costs. And they're a clear yes. So we see a downward trend on rental costs, and we actively negotiate this rent. So in the Q2, you see a double-digit million euro improvement in location costs. This is mainly related to the occupancy costs. The stores have been closed. So we have used less energy. Then there is an impact, which you see basically in the income margin coming from corona negotiations we did. So every time stores have been closed, we have found agreements with our landlords to cut the rent temporary for the time the stores have been closed. And we do this really now day by day. Thanks to this very complex regulation in Germany. We do this negotiation really on day by day when the stores are closed. And the last aspect on this rental negotiations, yes, we have used the current situation to renegotiate our rental -- our real estate portfolio with many landlords. We have done a lot of package deals, substantially lowering our location costs and our rental expenses with landlords. Please do not expect to see these positive impacts of this in the next quarter EBIT because we -- according to IFRS guidelines, we have to phase these rental savings across the time or the lease term of every specific contract. So we made a lot of progress. We are very pleased with that, and we made particular use of the current situation.

So do you -- would you agree that you see the rental cost downside potential across Europe? Or is it especially in Germany?

No, it's across all Europe. So we see these deals basically in every country, and there are various tools which we apply. Sometimes we change the location costs and the rent contract to a percent of sales measures. So we pay the location costs in percent of sales. In other cases, we have substantial rental reductions, and we have extended the rent contracts. So various tools we apply when we do this across all Europe.

The next question is by Clement Genelot of Bryan Garnier.

Three questions from my side, if I may. The first one is on the impairment that you booked on inventories in Q2. What is the exact amount of this impairment? Or do you expect another one in Q3, if we locked down in Germany last beyond June? My second question is whether on the click-and-meet in Germany. So obviously, this new structure was implemented very recently. What is its impact on the store sales? And -- or did it really help the business in Germany in Q3? And my last question is regarding the gap in performance between Southern Europe, i.e., Spain and Italy and the rest of Europe. Do you see such a gap in performance maybe because the Southern Europe governments are less helping the consumers and so on? Because that's what the Fnac Darty already highlighted.

Yes, Bryan, thank you for your questions. I take the second question first. Click-and-meet is not helping us, to be very frank here. It's not popular. And the customer, we saw the frequency is really coming down on click-and-meet. The only thing what really helped on that we have seen during the quarter, rising is the pickup rate Florian has just mentioned. Here, we really ended up -- ended or -- are getting better and better with the pickup rate. But click-and-meet is not helping and we -- when you walk into the stores where you have click-and-meet, you see empty stores. This is very critical. For that reason, we need a clear opening strategy in Germany and not just kind this fuzzy click-and-meet. On the other ones, Florian, will you work -- will you comment on the impairment booked on inventories?

Yes, happy to do so. So looking at the inventories, the effect in the Q2 was roughly 1/3 of the goods margin loss, which we have seen. And we are very positive that this is a nonsustainable effect and will revert in the next quarters. Why is that? The first reason is that the stock is still relatively fresh. So it's not in the very old aging bands but in the younger aging bands and clearly related only to the lockdown and the stock sitting in the stores. And second reason is we have some experience from the past year where we have seen a similar situation. But after the lockdown, stock aging has worsened, and this effect was also reversed, and we had -- we made good experience with that.

On your third question, I can comment, we are happy with the performance in Spain and Italy. Both countries, whenever they were open, have shown a very, very good performance. And for the -- when you see a downturn in this region, it's just -- it's coming from the Netherlands because we had a severe lockdown in the Netherlands. On top, we had some temporary switches in Belgium. But in Belgium, whenever it was opened, again, we saw a good performance. As we have stated also, Sweden had a good performance as well. And Turkey, we were happy also with the results of Turkey. So we -- yes, I think that should answer the question.

All right. The last question is by Fabienne Caron of Kepler Cheuvreux, a follow-up.

Two quick ones. The first one, can you remind how are the online orders fulfilled, particularly in Germany? Because I remember you don't have [indiscernible] just starts to work, so you don't have centralized fulfillment. I'm trying to get a feeling of the cost to serve for the online order for a big country like Germany? And the second question is more a broad one. So we're having a new CEO coming. From where we stand, how can we gain confidence that the strategy that you presented last year will remain? Because the CEO, most of the time, want to give as well its input. And we bought into an equity story that has been presented to us. Florian has been there before, but then we'll have a new CEO. So what can you say to let us gain confidence that the strategy will continue as presented?

So I take your first question on the online orders. So there are various options we have. First of all, we have several dedicated online warehouses in Germany from where we fulfill the online orders directly. Second option is this famous ship-from-store options. So any time where we have -- where we are in a lockdown situation and where we have specific high demand, so peak season, Black November Friday. Then -- Black November, Black Friday, I want to say, and the Christmas business. And we also use ship-from-store to fulfill this additional demand from the stores. So this is basically the 2 main options we apply.

But the bulk is for the dedicated online warehouses?

Pardon me, I didn't get you?

The bulk of the volume goes through the warehouse?

I would say it's a quite mixed picture. So you see also pickup. So that's a clear online order. And you have seen that now 38% has been fulfilled in the store with the physical pickup. Then we have ship-from-store, which is -- mainly applies for parcels. So not too many handling but for parcel and then the remainder is done by the online warehouse. So it's a quite balanced portfolio, I would say, a quite balanced approach.

Fabienne, the question of a change of strategy with the new CEO is a real valid one. But I can confirm you that we just yesterday had a discussion on the strategy in the Supervisory Board. And the strategy as a whole was confirmed. The only thing what we will look at, did the pandemic change anything in our assumptions and in the long-term development of the market? And what would it be what we need to react to? But apart from that one, we are confirming the strategy when we will continue to do so. And that, as I said in the very beginning, that's the reason why I'm so glad that Florian takes over the CFO role because he will guarantee that the transformation we have started will continue because there's a lot of things -- a lot of issues still to do with the centralization processes are not yet done all. So there are still lots of things to do, and we want to continue with that because this is a prerequisite to become a real successful player in the market.

Okay. And Mr. Duttmann, in case we don't speak because you're leaving in August, I wish you all the best for the future.

Thank you very much, Fabienne. I will miss our meetings.

There are no further questions at this time. I hand back to Stephanie Ritschel, Vice President, Investor Relations, for closing comments.

Ladies and gentlemen, this concludes today's results call. Thank you for your time and questions. As usual, and in case you have any follow-up questions, please feel free to contact us at Investor Relations. We look forward to talking to you. Take care, stay healthy, and bye-bye.