Ceconomy AG (CEC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Ceconomy AG Q3 Presentation. [Operator Instructions] I would now like to turn the conference over to Fabienne Caron, Vice President, Investor Relations. Please go ahead.

Good morning, everyone, and welcome to our Q3 results presentation. On the call today are Karsten Wildberger, our CEO; and Kai-Ulrich Deissner, our CFO. During today's call, we will be making certain forward-looking statements so please refer to the disclaimer for more information. Let me as well remind you that you can find the presentation slides on our website. Please note as well that this call is being recorded and the recording will be made available on our website later today. With that said, I will now turn the call over to Karsten.

Thank you, Fabienne, and good morning, everyone. Thank you for joining today's call also during the holiday period. Together with our CFO, Kai Deissner, I would like to update you on our Q3 results today. Before we go into the details, let me summarize important takeaways of today's call. Firstly, we've kept our increasing momentum from Q2 and built on our strong performance from the first half of the year in the last quarter. We successfully delivered our sixth consecutive quarter of growth and have again strengthened our profitability. Number 2, the overall market grew slightly and we have increased sales strongly and gained market share in 10 out of 11 countries. Number 3, we improved customer experience and consistently executed our strategy. In this quarter, our Service & Solutions business along with our private label gained very strong momentum. Number 4, financially we have successfully extended our debt maturity profile. And finally, as always, our focus remains on cost, profitability and liquidity. So before we dive into the numbers, let's take a look at some tangible examples of how we are elevating the customer experience at MediaMarktSaturn. Let's go to Slide 3, please. Let me spotlight 2 major achievements -- 2 key experience highlights from our most recent quarter and both demonstrates our innovation and the speed of our transformation as well as our dedication to empowering customers to make sustainable shopping choices. Let's first have a look at on our online shop. We've made search easier for customers who look for refurbished products. Customers can now see refurbished products options directly alongside new products and this broadens the range of choices, makes products easier to find and provides sustainable options in a much more convenient manner. And our second spotlight is the opening of our first inverted commerce green pop-up store in Tubingen, Southern Germany and this store focuses on 2 key areas. The first one is we carefully select products from our BetterWay portfolio that excel in key sustainability dimensions and offer them in the store. They all follow the criteria set by independent testing organizations like Blue Angel, EPEAT and TUV Rheinland as well as our own standards. And the second one is we sell refurbished products and our staff is trained to provide expert advice on sustainability questions. And our own trade and service offers customers the opportunity to easily exchange their old electronics for gift vouchers. And due to popular demand, we have also launched the repair Thursday initiative at the pop-up store so every Thursday customers can now bring their devices to the store to get them repaired. And the goal of the pop-up store is to fully understand the link between sustainability and customer demand and I'm personally convinced you can only truly gain those insights in an environment that demands your full focus. These 2 spotlights are just examples of how we are evolving, learning and innovating for our customers. And with this momentum, we were also able to accelerate our financial performance last quarter and this you can see on Slide 4. In the third quarter of this financial year, we sustained the dynamic momentum from the first half. The last 3 months marked the continuation of our consistent growth over the past 6 quarters. We achieved strong sales growth of 6.6% driven by a strong like-for-like sales growth of 5.2%. As a group, we made significant market share gains in an environment that saw only slight growth. We increased our market share in 10 out of 11 countries and this represents a very strong overall performance. Our adjusted EBIT increased by EUR 9 million compared to the previous year and over the 9-month period, this brings our EBIT to EUR 202 million, which is EUR 53 million higher than the same period last financial year. And our Net Promoter Score, NPS, reached a new high of 61 points reflecting a significant increase in customer satisfaction and advocacy. Ladies and gentlemen, we are confident in our ability to keep enhancing our financial performance and hence, we are revising our sales forecast for '23/'24, upgrading our expectations from slight to moderate growth. As for our profitability, we reaffirm our adjusted EBIT guidance expecting it to be within the range of EUR 290 million to EUR 310 million. Let's turn to Slide 5, please. Our strong recent performance is a direct result of our strategic focus on omnichannel growth. We've placed it at the center of our efforts. In our brick-and-mortar business, we achieved robust year-on-year sales growth of 5.8% demonstrating the appeal of our physical stores. Now let me share 3 examples from different countries that contributed to this growth. In the Netherlands, our performance led to impressive growth rates driven both by our existing market strength and the strategic acquisition of 7 BCC stores, a competitor, last November. These successes underscore our ability to thrive in locations where our competitors face challenges. The second example is our expansion in Hungary has supported our overall progress, particularly with the strengthening of our express stores network and these insights we use for the whole group. And number 3, in Austria we delivered a 2.8% increase in brick-and-mortar sales. This is a noteworthy achievement given that the overall market in Austria was shrinking. We experienced particularly strong growth in the telco category and these achievements reflect our commitment to sustained growth and customer engagement and I'm very proud of the dedication our teams have shown in these regions. Now let's shift our focus to online now. Our online sales grew by a strong 9.7% year-on-year bringing our online sales share to 22.2%, an improvement of 130 basis points compared to last year. Our ongoing efforts to expand our online presence are clearly paying off. We've also focused on enhancing the positioning of our app, which saw a 21% increase in its share. And additionally, our loyalty program has flourished with a 32% increase in loyalty customers. And I'm also very pleased to report that our growth businesses continue to gain momentum and achieve remarkable progress. Our operational Services & Solutions business has made very strong progress with a significant increase in its income share and this area remains a key pillar of our overall strategy. We've seen increased demand for our offerings, particularly in warranty extensions and mobile phone contracts, and we are continuing to expand our service offering for our customers. Our new direct delivery option to the home with our partner Uber in the major cities of Berlin, Munich and Hamburg for instance has been very well received by our customers. And on our marketplace, we've successfully attracted more sellers and increased our product offering to customers. Our gross merchandise value more than doubled compared to last year. We now have over 1,500 sellers on our platform offering more than 1.7 million products. And in July, we took a significant step in our growth plan by launching our Marketplace in Italy making our fifth country of Marketplace operation and this within 1.5 years. And now we are gearing up to expand our Marketplace to 2 more countries by 2025. And our Retail Media sector has also continued its impressive growth with revenues more than doubling year-on-year. And if we take a closer look at our performance across countries; we've achieved strong sales in Spain, the Netherlands, Hungary, Austria and Turkiye. Our profitability continued to improve in Q3 with a 20 basis point increase in adjusted EBIT margin. Earnings per share rose by EUR 0.05 year-on-year resulting in an EPS of minus EUR 0.33 in this quarter. Additionally, our free cash flow improved significantly in Q3 increasing by approximately EUR 100 million year-on-year. Let's turn to Slide 6, please. You might recognize this slide as we present it each quarter to maintain transparency about the development of the 9 KPIs we introduced at our Capital Markets Day last year and these 9 KPIs represent the essence of our strategic focus. Now I'm very pleased to report that we've made solid progress across the board in the last quarter. In particular, I want to highlight the positive development in our private label business where we've seen a clear upward trend due to our well-executed strategy. Additionally, I'm delighted with the acceleration of our Services & Solutions business where all services posted an increase in the quarter. And in this call, I'm eager to provide you with deeper insights how we are strengthening our Retail core along with a more detailed explanation of our private label business. Let's turn to Slide 7. Our Retail business is our core business and we are constantly seeking ways to maximize value for our customers. As you know, our goal is to offer the best delivery service for our customers and to achieve this, we are focused on further improving our logistics capabilities and upgrade our technology to a truly omnichannel logistics where customers can access stock regardless of channel and regardless of location. And in Q3, we reached a key milestone by upgrading our technology infrastructure in Germany to the latest standard. Given that Germany is our core market with numerous legacy IT systems, we embrace the necessary transformation and successfully migrated our inventory and data to our new IT platform without any disruption to the business. This transformation is a significant and essential project for the company. It has also led to an accounting driven reallocation of personnel costs, which Kai will explain later; nothing to worry about, just for clarity. And more importantly, this logistics and tech transformation in Germany is expected to yield numerous benefits moving forward like the consolidation of our online stock to serve both the Saturn and MediaMarkt brands or like optimization of our inventory across stores, online platforms and warehouses resulting in increased product availability or like technical capability to roll out urban fulfillment centers, further enhancing our reach and delivering more efficient service to our customers. I'm moving now to our omnichannel strategy. In June, we signed an agreement with Migros to buy 20 Melectronics locations in Switzerland. The transaction is subject to approval of the competition authorities, which we expect in autumn. And this move strengthens our nationwide presence and customer proximity in key areas. It also allows us to integrate our brick-and-mortar business more closely with our growing online business. And the acquisition increases our attractiveness and accessibility for customers whether they choose to shop online or in store. Now the rebranding of these locations will occur in stages alongside reorganization measures and is expected to be completed by November 24 just in time for the Black Friday season. And in Germany, we are currently preparing for the integration of selected Gravis stores locations. Gravis is an Apple specialist retailer and this is accelerating our smart format rollout in Germany. And to further strengthen our omnichannel presence and expansion in Italy, I'm thrilled to announce that we secured an agreement with food retailer Bennet and this strategic partnership will lead to the creation of more than 20 shop-in-shop locations within Bennet stores over the next few years. And that will drive the company's growth forward and will also make it easier for customers to access and engage with us across various retail environments. Let's turn to Slide 8, please, where we explore briefly the progress of our private label business. In the last quarter, we achieved a 22% increase in private label sales driven by volume growth and a targeted product mix strategy. Our in-house share for Q3 has reached approximately 3% reflecting the positive impact of new management and their influence on the organization and the 3% is up 70 basis points from 2.3% before. Now let's take a closer look at the categories where our private label business excels. We follow a clear strategy. We only operate in categories where we can offer customers a compelling alternative to establish brands and provide excellent value for their money and we will continue to follow this focused approach. Our strongest in-house share is in accessories and this area continues to grow. In white goods such as washing machines and particularly microwave ovens, we achieved an in-house share of approximately 6% in Q3. We've also made significant strides in brown goods especially televisions driven by the European Football Championship and the resulting surge in demand. Let's take a look at Slide 9 and review the progress we're making in the area of sustainability. As Europe's leading consumer electronics retailer, we are fully committed to our responsibility for all aspects of sustainability. We firmly believe that integrating sustainability into our strategy is essential for our future competitiveness. And for us, sustainability must be woven into every aspect of the MediaMarktSaturn shopping experience. To raise customer awareness for instance, we continuously optimize our in-store marketing materials for better visibility. And here we also integrate sustainable products and services into our marketing campaigns and we expand our BetterWay product range. In this quarter, we've seen substantial growth in both the sales share and assortment of sustainable products across the group. Another sustainability initiative we are proud of, MediaMarkt Belgium opened their first urban mobility store in Europe located in Antwerp and this store meets the growing demand for mobility products in urban areas offering a wide range of light electric vehicles such as e-scooters, e-bikes and e-steps. Customers can choose from a broad selection of accessories like charging solutions or power stations to solar panels. In terms of customer service, the store features a fully equipped repair and maintenance department and our employees have undergone extensive training in recent months enabling them to carry out repairs on site and of course provide customers with expert advice when purchasing an electric vehicle. On sustainability validation and transparency, our environmental strategies have put us on a strong footing. Our efforts have improved our ESG ratings and placed us well above industry benchmarks. Our CO2 reduction targets have been validated by the renowned science based target initiatives and by 2032-'33, we aim to reduce our direct and indirect CO2 emissions Scope 1 and 2 by almost 59% and our emissions in Scope 3, the upstream and downstream value chain, by 32.5%. Let me make 1 thing clear. Everything we do in sustainable retail reflects our commitment to making a meaningful impact on the environment. Turning to Slide 10, let me summarize our financial performance. The first 9 months of the year clearly demonstrate the ongoing success of our strategy and transformation efforts. We've delivered strong results underscoring our commitment to improving customer experience and consistent execution. Ladies and gentlemen, in the third quarter, we built significant momentum that led to a strong performance in the first 9 months. Our sales growth in the last quarter was 6.6% bringing the overall growth for the first 9 months to 5.2%. We've also strengthened our financial performance. Our adjusted EBIT improved by EUR 9 million in the last quarter bringing it to EUR 53 million above last year's EBIT for the first 9 months and this marks again the sixth consecutive quarter of continuous progress and robust results. These very strong financial results reflect our improved market position and significant growth in key strategic areas such as private label, Services & Solutions, Marketplace and Retail Media. And I will now hand over to Kai to take you through our financial results in more detail. Kai?

Thank you, Karsten. Good morning to you all from my side as well. Now building on what Karsten just said, let me guide you through the figures for Q3 and at the same time through the 9 months view. So starting with Slide 12 and with sales. In Q3, we grew sales once again quite strongly closing the quarter 6.6% higher year-over-year. That is as always adjusted for currency and portfolio changes. So we maintained and even increased the good momentum from Q2. Underneath this, our like-for-like sales grew 5.2% in Q3 and if you take the 9 months view by 4.1%. I'm really pleased to see that this sales growth in the quarter was once again driven by both bricks and mortar on one hand inside and online on the other hand side. By country; sales last quarter was particularly strong in Spain, in the Netherlands, in Hungary, Austria and Turkiye. As Karsten already pointed out, we did gain market share in all of our countries except Italy where we did come in a fraction lower. So it's fair to say that the Italian market does remain difficult. Turning to EBIT. Our adjusted EBIT on a group level reached minus EUR 51 million in the quarter. That's EUR 9 million better than previous year. For the first 9 months of the year, we now look at an uplift of EUR 53 million of adjusted EBIT and is 6 consecutive quarters of delivering such an uplift. If you do not mind me saying, I think this is indeed impressive and quite remarkable in our sector at the moment. Our transformation and our strategy do manifest themselves in hard measurable financial progress. These results continue to come from robust sales growth in our Retail core; secondly, from successful contributions of our new business models; and finally, from relentless discipline on cost. And I will go into all 3 of those areas in the course of my presentation. In all of that, it is important to keep in mind that within our financial year Q3 so April to June is usually the lowest point in terms of profitability, but of course the year-on-year improvement proves our progress and is important for us. Now let me turn to our operational performance on segments on Slide 13. You can see that Western and Southern Europe along with DACH, and that is a very important new development, so along with DACH and along with the segment Others were the main drivers of profitability this quarter. So now let's look at DACH. Sales stabilized in Q3. This is an improvement both versus last year and compared to Q2. In that, Austria and Hungary actually grew their sales year-over-year. In Germany and Switzerland, sales declined albeit with a noticeable improvement compared to Q2. And what's more important, we have improved our position and gained market share in all countries within that region in Q3. And profitability improved this quarter with a EUR 6 million increase in adjusted EBIT. That's equivalent to a 20 basis point increase in EBIT margin. Across the region, this was driven by an improved gross profit and effective cost control that's notably in Germany. Secondly, Western and Southern Europe, we grew sales significantly in all countries except as already discussed in Italy. What really stands out and what makes us proud is the performance in Spain and the Netherlands with like-for-like sales growing in those countries in the high single-digit area and with a substantial increase of market shares. On profitability in that segment, we increased our adjusted EBIT by EUR 7 million and our margin by 50 basis points again driven by all countries with the exception of Italy. Then moving to Eastern Europe. Sales was once again driven in that segment by Turkiye. But as anticipated and discussed with many of you individually, we do see that this market has begun to slow down and let me be very clear on this. We did indeed anticipate this slowdown, we highlighted it already in Q2 and we did assume it in our expectations. In Q3 this slowdown effect resulted in intensified price competition and thus profitability is normalizing as expected and we did record a EUR 4 million adjusted EBIT, which is EUR 16 million down from last year. Finally, as for the Others segment, which primarily represents holding costs in our private label business, we've seen another very positive quarter. That's largely due to strategic cost control. So then turning to the 9 months view. Let me repeat. We now stand at EUR 202 million in adjusted EBIT. That's EUR 53 million higher than last year. With this tailwind and with our recent momentum, we feel confident to deliver our guidance for this financial year and that is a moderate increase of sales. That's indeed an update from the slight increase, which we expected previously. And secondly, with an adjusted EBIT between EUR 290 million and EUR 310 million. On Slide 15, you can see our sales with Services & Solutions. As a reminder, in addition to our operational service business, this also includes in this view Retail Media, Marketplace commissions and deliveries. So overall Services & Solutions sales accelerated by an impressive 18.1% in Q3 following 14.5% in Q2 and so by 11.6% in the first 9 months. As for service categories, as Karsten already mentioned, all services grew in the quarter. The telecommunication contract as well as warranty extensions delivered the strongest performance. In addition, both Retail Media and the Marketplace continued their run, which we emphasized in previous quarters. I'm extremely pleased with this further acceleration of our Services & Solutions business. These figures clearly show that our efforts to enhance our service offerings on the one hand side, but more importantly, to convince our customers that we are more than just a regular retailer. Those assets are indeed generating meaningful financial results. Then next to online. To start with, our first party online sales grew again strongly in Q3 at 9.7%. That's always excluding currency and portfolio impact. And reached a total of EUR 1 billion. We did actually grow across all regions, particularly strong performance in Turkiye, Benelux and Austria. Overall, so including the Marketplace, our online share reached approximately 22% in Q3 and a solid 24.2% for the first 9 months of the year. As Karsten mentioned, but to repeat with our Marketplace, we were operational in 4 countries; that's Germany, Austria, Spain and the Netherlands; in that particular quarter with the fifth country Italy launched just recently in July. Now after those deep dives, coming back to our EBIT development in Q3 on Slide 17. On a reported level, our gross margin decreased by 20 basis points this quarter. However, if you look at underlying performance and take a like-for-like view, margin was still better. And let me try to explain these effects to you that are happening underneath the hood here. As Karsten emphasized earlier, we're enhancing our online back-end infrastructure in Germany to incorporate the native technology within our supply chain and ERP, which then supports our omnichannel logistics. This technical transformation led to a shift in personnel cost from the stores, which was booked as operating expenses so OpEx to logistics, which is booked under cost of goods sold and thus booked as part of the margin. This impact is not entirely new, but it was material in Q3 because Q3 typically has the smallest sales volume. Specifically, there was an 80 basis point shift from OpEx to gross margin in Q3 and a 30 basis point shift for the 9 months period. So in other words comparing apples-to-apples, our gross margin actually underlying increased by 60 basis points in Q3 while our OpEx ratio after that shift was broadly flat as we continued to fight cost control. In this context, let me give you another update on our efficiency programs. In terms of savings, we've now achieved a run rate of approximately EUR 100 million and expect this run rate to reach EUR 130 million by the end of this fiscal year as we have previously forecast. Regarding restructuring costs on the right hand side of the slide, we booked only minimal restructuring cost in this quarter, but still project an additional roughly EUR 30 million to be booked in Q4. This combined with the previous financial year will then bring us to the EUR 100 million figure in restructuring cost that you've heard from me quite consistently over the past few quarters. Turning to the overall financial overview on Slide 19, let me start with reported EBIT. As explained earlier, we recorded hardly any restructuring cost in the quarter so the bulk of the difference between adjusted and reported EBIT is our profit share in Fnac Darty. Let me comment on the timing here. We did indeed already account for our Fnac profit share, that's minus EUR 17 million, in Q3 whereas this was historically done in Q4 and we do anticipate this timing to continue in future years. So if you don't mind me saying for your own financial modeling, this means that we will now recognize our share of Fnac's second half results in Q2 and of their first half results in Q3. That's due to the different dates of the financial years in the 2 companies. As a consequence, our reported EBIT reached minus EUR 79 million, which is a substantial increase of EUR 43 million compared to previous year. Our financial result secondly came in at minus EUR 53 million. That's due to higher interest payment in Turkiye and higher interest on leases. Next on tax, we continue to expect a negative tax rate in the high single-digit area for the full year. In other words, a positive tax income. Taking everything into account in Q3, which is typically a loss-making quarter due to the cyclical nature of our business, we managed to improve our result by EUR 24 million bringing it to minus EUR 162 million. As a result, our reported EPS undiluted increased, as Karsten mentioned, by EUR 0.05 to negative EUR 0.33. And our adjusted EPS undiluted, which mirrors our operating performance more accurately, is actually very close to our reported EPS with minus EUR 0.31 in Q3. The next slide summarizes our financial performance in the same logic for the first 9 months of the year. Also important, overall for the 9 months, we reported EUR 174 million increase in net profit for the group share now coming in at EUR 69 million. Our reported EPS undiluted turned significantly positive with an uplift of EUR 0.36 and landed now at a positive EUR 0.14. Then let me continue with free cash flow, which continues to be our key long-term focus. Looking at Q3, we further increased our free cash flow by a substantial approximately EUR 100 million year-over-year. As a result, our 9-month free cash flow is only EUR 135 million behind last year. And we still do expect to generate positive free cash flow for the full year. Looking at the underlying dynamics for the 9 months. We recorded a negative cash outflow of EUR 155 million from working capital. Now if you take a year-over-year perspective at the bottom of the chart, this is a negative EUR 192 million change; but at the same time, much improved versus the negative more than EUR 300 million, to be precise EUR 329 million, for the first half. So dynamics are improving. As I emphasized throughout this year, we continued to use working capital in Q3 to drive growth especially through better product availability. Then on taxes, you can see the underlying positive development with the EUR 73 million year-over-year improvement. And finally, a pretty big block; our other operating free cash flow decreased by EUR 163 million year-over-year. Of this, roughly half EUR 80 million is due to noncash adjustments among other things from our stake in Fnac as just mentioned; a further EUR 65 million represents cash outflows for restructuring, wage increases in Germany and bonuses paid to employees based on last year's profit. In conclusion of all of that, our free cash flow development aligned with our plan and improved quarter-over-quarter despite better product availability. Looking ahead for the full year, let me reconfirm. We do outlook for a positive free cash flow at the end of the year. And at the bottom of all of this, we closed the 9-month period with a very robust liquidity position of more than EUR 700 million, EUR 732 million to be precise. In this context and finally looking at our financing structure on Slide 22. I'm really happy to say that we've renewed the long-term financing and secured a robust structure for our company going forward. First and foremost, we have successfully refinanced our corporate bond due 2026 with a new sustainability-linked bond with a maturity in July 2029. Besides that, we've extended our revolving credit facilities by another year to 2026. Just as a reminder, this is still undrawn to-date and has never been. It's a pure backup line. But as an overall result, we have no major debt repayment coming due at least until 2029. And this then completes the financial section. Let me hand back to Karsten for his closing remarks. Karsten?

Thank you, Kai. And finally, I would like to conclude with our outlook and a summary of our presentation. Let me turn to Slide 24, please, to give you an overview of our guidance. Remember that in May we upgraded our EBIT outlook and with our positive momentum, we are now increasing our sales outlook. We now expect a moderate increase in currency and portfolio adjusted total sales compared to our previous expectations of slight growth with moderate I mean above 3% sales growth. Furthermore, we anticipate that this growth will be primarily driven by Western and Southern Europe as well as Eastern Europe. And we continue to project an adjusted EBIT in the range of EUR 290 million to EUR 310 million, consistent with the just mentioned guidance update from May 13. And the improvement in adjusted EBIT is largely expected to come from Western and Southern Europe. And the updates to our sales outlook highlights our confidence in our ability to enhance our financial performance. So before closing, I would like to discuss the latest innovations in the market and their future potential impacts on our business. As you know, replacement cycles vary based on the device category and how frequently they are used and typically this replacement span ranges from 2 to 7 years with smartphones being replaced most often, computers falling in the midrange and home appliances and TVs having the longest intervals. And with generative AI emerging in smartphones and computers, we anticipate that this replacement cycle may accelerate because customers are eager to explore new features and are ready to invest on Gen AI-driven applications. For instance the Samsung Galaxy AI offers capabilities like real-time phone call translation, live conversation transcription and the ability to effortlessly remove unwanted elements from photos. And Apple has announced that its phones and iPads will be AI enhanced with the launch of iOS 18. And as the development of new AI capabilities continues to accelerate, industry specialists project that sales of these AI integrated phones could surge by over 70% annually by 2028. And by 2026, AI PCs are expected to actually dominate the market with an estimated penetration rate of over 50%. And in this evolving landscape, it is essential for customers to understand what AI is capable of and how to utilize these technologies effectively. And as an omnichannel retailer, we have the advantage of leveraging our multichannel approach to customer engagement and that's why we are focusing on training our staff to provide expert advice on these matters. We aim to be the trusted partner to our customers guiding them through this new growing world of artificial intelligence. And I think these are thrilling developments taking shape in the market and they are likely to inject momentum into pivotal product categories and I think that's something to take note of I think towards the end of this presentation. Ladies and gentlemen, as you see, we have an exciting future ahead of us with new opportunities emerging. And at the same time, it's been exciting few months, also very busy I can tell you, as we have reached further milestones in our journey to become the experienced champion as we call it and a customer-centric omnichannel service platform. So let me conclude today's call with a summary. We maintained sustained momentum in Q3, delivering strong performance over the past 9 months. In a slightly growing market, we gained market share in 10 out of 11 countries. We have successfully extended our debt maturity profile. We improved customer experience and are building momentum as we continue to execute our strategy. And our focus remains on managing cost, liquidity and profitability. And we have updated our sales outlook for the financial year '23-'24, now expecting a moderate increase in currency and portfolio adjusted total sales primarily driven by Western, Southern as well as Eastern Europe. Before I close the presentation, I'd like to share with you just a few upcoming events which are exciting for us. September will be a month full of highlights. From September 6 to 10, we are celebrating 100 years of IFA in Berlin and we are proud to be 1 of the main partners of the trade fair and welcome all guests to our stage. And next month we will also open finally our Lighthouse in Hamburg, our largest store in Europe. For the first time ever for us, our innovative store formats; the gaming, Xperion and Lighthouse will be united under 1 roof. We are absolutely sure Hamburg will be a highlight. And lastly, I want to add an early save the date. On December 18, we will present our full year results. Thank you very much for your attention and now we look forward to your questions.

[Operator Instructions] And the first question comes from Clement Genelot, Brian Garnier & Co.

Just 3 quick questions from my side. So the first one is on DACH. Can we take a look back at DACH to really understand what is driving their improving like-for-like performance in Q3? Is it rather market driven or is it rather company specific together with some market share gains? And then on gross margin, how much of the gross margin increase in Q3 is actually I mean from core Retail business versus new businesses? And the last one is about stocks. Well, I see on the balance sheet that the stocks are [ disabled ] in Q3 versus Q2. So does that mean that we have reached kind of normalized level going forward?

I will take the first question on DACH and Kai will answer the gross margin question and your question on stocks. Look, to summarize, the performance in the DACH region is driven by our market share gains, our performance. And if you break it down, if you look at the sales trend quarter-on-quarter; we have seen from starting with Q1, which was a bit softer than we expected, but a continuous improvement of our sales and that actually has translated into an acceleration of market share gains. If you look for instance the growth in Austria, which I mentioned, 2.8% sales growth whilst the market was actually declining quite materially. And also in Germany, we've made big progress and also gained market share. And the EBIT improvement is throughout the region notably in Germany and that is again driven by market share momentum, but also cost saving measures, which we of course, as I said, also do. With that, I hand over to Kai for the other 2 questions.

Yes. So on gross margin, Clement, let me anchor that first of all in our strategy. In a way perhaps we've been not very fortunate are my choice of words here. We look at this business as consisting of different business models. Retail is one of them, Service & Solutions, Marketplace and DFS and others; and they all equally deserve our attention. So in the first 6 months of the year, what did we see? We saw contributions to gross margin increase both from the classical product business and from Service & Solutions and Marketplace and so on and so forth. I'm trying to avoid the word new business models because they are no longer really new and they're really, really driving our performance. So in the first 6 months, equal contributions. In Q3 and I'm pointing again to the shift that I pointed out with the logistics transformation. After that shift if you look at underlying performance, again Retail and the other business contributed, but more of the contribution came from the nonretail core businesses. Most relevant amongst those were Services & Solutions clearly after that increase. So both contributed, Service & Solutions biggest contributor. And then on your third question on inventory levels, the clear answer is yes. We have driven towards normalized levels of inventory and we do believe that by and large we have achieved now a good level of inventories. Now mind you, that will still fluctuate throughout the year so you cannot take the Q3 number and extrapolate it to Q4 or to Q1. Obviously there's still seasonality in the business going on. But by and large we believe that inventories are in a good healthy corridor now. And I hope that answers your questions.

And the next question comes from Alessandro Cuglietta, Kepler Cheuvreux.

I have 3. So the first one is regarding the full year guidance. Just to make sure that you said your adjusted EBIT improvement was going to be mainly driven by Western and Southern Europe. But do you also expect DACH region to contribute to EBIT growth. The other one is on your key KPIs. I was just wondering if any of them have actually exceeded your expectations or are they all moving in line with your targets? And the last one is on gross margin, just to make sure I understand the difference between reporting and adjusted. So I understood that there's a technical reallocation of OpEx, but is this a permanent change or will this be reversed in the coming quarters?

Alessandro, thank you for the question. Let me take them in the order that you've asked them. So just to reconfirm, we do expect our EBIT improvement in a corridor between EUR 290 million and EUR 310 million to be largely driven by the Western and Southern segment. There's no change to that. As to the EBIT development or profitability development of DACH that separate that from that. We've seen as we've tried to emphasize an improving trend in that EBIT development and we do for Q4 for that segment expect that improving trend to continue. On a full year basis and with relevance to our guidance, EBIT improvement will still be driven by Western and Southern Europe. Then secondly, on the key strategic KPIs. I'm answering this with reference to the 9 infamous KPIs from the Capital Markets Day. There's a couple that I would highlight. I think the arrow that we're showing upwards is actually very, very strong arrow showing upwards and that is the case for Retail Media. I do not want to preempt our full year view and we will finally disclose numbers then, but we're extremely satisfied with Retail Media and the same is true for Marketplace. Those are certainly well above our expectations as they would have been year-to-date. Then on the logistics transformation shift, yes, this is a permanent change. And just to be very clear on that, it's a wash on an EBIT level, right? It is simply moving cost previously booked under OpEx, generic OpEx now booked into the margin. But it's EBIT neutral and it's permanent and here to stay. And I hope that answers your question.

[Operator Instructions] And we have the next question from Neill Keaney, JPMorgan.

Just a quick one for me on the rump of the '26 notes that you have outstanding. Is the intention to still redeem those at maturity or given your liquidity position, would you consider redeeming them earlier than that?

Neill, thanks for the question. Perhaps just to establish the context. So we've issued, as we said, a bond now with maturity in 2029. At the same time, we have made a tender offer for the existing notes, I'm giving you round figures now, some EUR 350 million round figure of notes were tendered to us and we deemed them early. There's an outstanding stock so to say of EUR 140 million something. And we expect to redeem them at maturity. That's the current position of the company now. Let me remind you that provides us with an interest leverage effect that we have in the next 2 years where we can invest the money higher than we need to redeem it at the end of maturity. But at the moment, the plan is to redeem in 2026.

As there are no further questions at this time, I hand back for closing comments.

Thank you very much. Thank you very much, first of all, of course for joining today's call, for the questions and your interest. As always, our Investor Relations team led by Fabienne is very happy to discuss with you follow-up questions, et cetera, and of course we will continue our exchange. If you happen to be in Hamburg, please visit us. You are always welcome. With that, I wish you a great August and speak to you or see you soon. Thank you very much. All the best.

Thank you. Bye bye.