Ceconomy AG (CEC) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the CECONOMY AG Q3 9 Month 2025/'26 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I will now hand the conference over to Kerstin Achterfeldt, Senior Investor Relations Manager. Please go ahead.

Thank you, Crystal, and good morning, everyone. Welcome to our Q3 results call. I'm joined today by our CEO, Remko Rijnders. Before we begin, please take note that today's presentation and discussion may include forward-looking statements. Further information can be found in the disclaimer included in today's presentation. This call is being recorded, and a replay will be available on our website later today. With that, I would now like to hand over to Remko.

Yes. Thank you, Kerstin, and good morning, everyone. Thank you for joining us today. I'm happy to welcome you to our Q3 earnings call and to my first earnings call as CEO. I look forward to taking you through today's presentation. As our new CFO will join us later in the course of the year, I will guide you through both our operational and financial highlights. But before I discuss our business development and financial performance, let me put today's results into a broader perspective. On July 9, we held our Strategy Day, and we shared an overview on where we stand and where we are going. I'm extremely proud of what we have achieved over the last years. We have taken consumer electronics to the next level. We have strengthened our strong customer relationships. We are seamlessly linking our core business with our growth businesses. This makes us an omnichannel service platform. We combine multiple business areas under one roof. This is a strong foundation that we can build on. Our Experience Electronics strategy is working and paying off. This is why our new strategy is deliberately not a reinvention, it's an evolution of our direction. We create Experience Electronics that matter. This experience earned moments of trust. Let me explain. We live in a world where rapid technology development and an almost limitless variety of products are making purchase decisions increasingly complex. There's only one thing that cuts through this noise, trust. Trust is a decisive factor for our customers. This is why our new strategic chapter will focus on creating moments of trust for our customers. We want to build trust in every interaction; online, in-store and through our services. And we set a new ambitious financial target, EUR 800 million in adjusted EBIT by fiscal year '28-'29. That is a 60% increase from where we stand today. You can see we are moving fast, and we are not slowing down. You will see this in our today's Q3 results as well. They are proof that we are on the right track. Let me start with Slide 3 and our operational highlights from last quarter. All of them show customer centricity is not a buzzword for us. It shows up in how we run our operations every single day. The customer is at the heart of everything we do. Let me walk you through some of the concrete examples from the last month as well as things we are currently working on. First, we will enhance our marketing capabilities even further and increase our efficiency in content production. An important lever will be our AI-enhanced content engine momentum. It will make us faster, more data-driven and more scalable. All of this contributes towards one goal: to reach our customers with the right message at the right moment at the right channel. Our offers will feel even more personal, and this is a key for customer relevance and trust. The second area is sustainable services. We have achieved 3 milestones here. First, we introduced extended warranties for refurbished products. All refurbished devices that we sell will now have the same warranty as new devices. Second, we launched a new at-home care subscription model in Turkey. The offering enables customers to maintain their household appliances for the professional maintenance. With this offering, we help to extend product lifetime, improve product performance and strengthen long-term customer loyalty. Third, we launched our trade-in at home offer in Turkey. Customers can now trade-in their products at their own doorstep. After the online pre-evaluation, the team comes by, checks the device and if customer agrees, they take it. This makes it possible to use our trade-in services with even less effort. And last but not least, our logistics network is gaining momentum. We are moving even closer to our customers. 6 out of 8 urban distribution centers in Germany are now live. They cover more than 50% of our 2-man handling deliveries like fridges, washing machines and other bulky items. And the rollout to further countries is ongoing. This means faster delivery, better availability, higher customer satisfaction. These are not stand-alone initiatives. They are all expressions of our customer centricity. Let me now give you an overview of our results on Slide 4. The headline is simple. We are on course. In the first 9 months of the financial year, we generated EUR 18.4 billion in sales. This is a 5% increase, adjusted for currency and portfolio effects. In Q3, we delivered very strong like-for-like growth of 8.2%. Our adjusted EBIT reached EUR 342 million in the 9 months period. This is a plus of EUR 62 million compared to last year. This makes our Q3 the 14th consecutive quarter of profitable growth. This shows clearly our strategy is working consistently. Our focus on customer satisfaction is also paying off. Our NPS stands at 63, up 2 points year-on-year. All of this leaves us with a positive outlook for the rest of the year. We are on the finishing stretch of reaching our targets. Let me give you a bit more color on what drove this performance in the first 9 months on Slide 5. Starting with omnichannel sales, our online sales grew by 10% in the first 9 months of the year. In Q3 alone, they accelerated by 18.3%. Our online share now stands at 28.2%, which translates to an increase of 190 basis points. And at the same time, our brick-and-mortar sales grew 3.3% in the first 9 months. In Q3, it even increased by a strong 4.8%. These developments show our omnichannel approach continues to pay off. Our growth businesses also continued to grow with strong momentum. Our Services & Solutions incomes increased strongly. The Retail Media income nearly doubled, and our marketplace GMV is growing at a high double-digit rate. These businesses carry structurally higher margins. As they continue to scale, they make our overall business more diversified and hence, stronger and more profitable. Let us now have a closer look on our countries. Turkey and Hungary delivered strong sales. Spain and Italy developed positively as well. Germany strongly gained momentum in Q3. Profitability improved in Hungary, Germany, Austria, Turkey and Italy. Overall, our profitability increased. Our EBIT grew by EUR 62 million in 9 months period. We are gaining loyalty customers, too. We now count 57 million members, a plus of 13 million year-on-year. At the same time, we maintain strong liquidity. Our free cash flow is stable. You probably recognize the next slide, #6. We present this table each quarter to give you a detailed transparency about the development of the 9 KPIs that we introduced at our Capital Markets Day in 2023, and we are getting to the finish line now. Across the various business fields, Retail Core, Service & Solutions, Marketplace, Retail Media, we took a big step towards the targets for September 2026. The picture is clear. We are on track, and we will even exceed 5 of our targets. These are loyalty members, stock reach, Service & Solutions, Marketplace and Retail Media. And we will use our momentum to grow even more. This is what you will see on the next slide. On Slide 7, you see the updated sets of our key pledges. We presented this at our Strategy Day. As I already mentioned, creating moments of trust will be our leading ambition. And we are anchoring this ambition in 2 critical KPIs, NPS and returning customers. Why these 2? On the one hand, NPS measures satisfaction. We have added 10 NPS points over the past 3 years and now target an NPS of at least 66 by fiscal year '29. On the other hand, returning customers measure stickiness through loyalty. We aim to increase this rate from 46% to 54% over the same time frame. It reflects the percentage of customers who make at least a second purchase with us. Moments of trust create long-lasting customer relationships. And these relationships translate into concrete business outcomes in all our growth businesses. All of them will gain even more momentum. This growth achieved at moderate top line expansion will drive our profitability. Over the last 3 years, we have more than doubled our adjusted EBIT. Now, we have set ourselves an ambitious target of EUR 800 million adjusted EBIT for fiscal year '28-'29, driven by further profitability gains in our growth businesses as well as expected synergies from the partnership with JD.com. At that level, we are moving firmly in best class in territory on margin. And Slide 8 tells the structural story of how we will do that. Today, in fiscal year '25-'26, 40% originate from our growth businesses. By '28-'29, we want to see a different picture. More than half of our gross profit, 51% will come from our growth businesses. Retail Core will remain at 49%. This isn't just a shift in numbers. It's a proof that we are an omnichannel service platform. We are building a more resilient, more diversified business model. All business areas will significantly contribute to our gross profit, which is precisely the resilience the model is designed to deliver. Now, let me share more details of Q3 results. We will start with Slide 10. Now, let me share more detail of our 9-month results. We will start with Slide 10. We had again another quarter of growth. This is the 14th consecutive quarter, resulting in a positive EBIT momentum for 9 months. And this is a market, which remains volatile and competitive. So, we are extremely proud of our results. Let's look at the headline numbers. Our sales growth accelerated in Q3 by a very strong 8%, resulting in a 5% growth for the first 9 months. This number is adjusted for currency and portfolio changes and pre-IAS 29. Our like-for-like sales grew by 8.2% in Q3 and 4.9% for the 9 months. That is if you count only comparable selling space and stores already opened 1 year ago. Our profitability increased strong for the 9 months with 22% increase in adjusted EBIT, leading to a 30 basis points increase in margin. And with a plus of EUR 19 million in Q3 and EUR 62 million in the first 9 months, we are definitely on track to reach our full-year guidance. Overall, this is a strong set of results that demonstrate the resilience of our business. Now let's look at the segments, starting with DACH and sales on Slide 11. We recorded a slight like-for-like decline of 0.9%. However, I would like to highlight the positive trend improvement in Q3, where we have reported great like-for-like growth of 5.1%. This was primarily driven by Germany, where we performed strong during the heat wave, particularly in air conditioning products despite the overall customer electronic market remaining in decline. Our profitability improved strongly with a EUR 25 million increase in adjusted EBIT. In Western and Southern Europe, our sales were strong with a 3.6% increase in like-for-like for the first 9 months. On profitability, we increased our adjusted EBIT by EUR 9 million and our margin by 10 basis points. There, Italy and Spain were the main drivers. Moving to Eastern Europe. Sales were driven by Turkey, but both countries contributed to increase in profitability. Finally, let me highlight our other segments, which primarily represent holding costs in our private label business. The decline in EBITDA is primarily due to a higher risk provision on mobile phone contracts, reflecting the current macroeconomic headwinds. So, let me come back to our EBIT development on Slide 12. Our gross margin increased by 30 basis points for the first 9 months to 18.2%, a strong performance. This improvement was driven by our growth areas. Now, circa 40% of our gross profit comes from our growth businesses. Our OpEx ratio was stable to 16.9% as we have mitigated the OpEx increase with strict cost management, particularly our location and energy costs. Turning to the full overview on Slide 13 from adjusted EBIT to net profit. Walking down from the adjusted EBIT of EUR 342 million, we recorded EUR 105 million non-recurring items. The EUR 11 million increase year-over-year is mainly due to a lower profit share of Fnac Darty of EUR 33 million. Regarding tax, the improved operational results in combination with a higher tax rate led to higher taxes. All in all, this resulted in a reported EPS of EUR 0.06 in the first 9 months, an improvement of EUR 0.04 compared to last year. Turning to Slide 14. Free cash flow was, as expected, seasonally negative in the first 9 months. Even so, our free cash flow was stable year-on-year in the third quarter, confirming the 6-month trend. Now, let us have a look at how this financial development translates in our outlook. You can see on Slide 16. Let me come straight to the point. We confirm our guidance for 2025-'26. We expect a moderate increase in currency and portfolio adjusted total sales with Western, Southern and Eastern Europe contributing to that sales growth. Secondly, we continue to expect an adjusted EBIT of around EUR 500 million. And here is an important update. Our improvement is now expected to be driven by all segments, not only Western and Southern Europe, as we previously indicated. This means we are on track to achieve our headline ambition of EUR 500 million in adjusted EBIT that we first communicated at our Capital Markets Day in 2023. We keep our promises. And we communicated on our Strategy Day for fiscal year 2029, our ambition in adjusted EBIT of EUR 800 million. Let me give you an update on our proposed partnership with JD.com on Slide 17. We are still en route to closing. On the regulatory front, we have together and under the lead of JD.com made significant process (sic) [ progress ]. Merger control clearance has been granted everywhere as set out in the offer document in Germany, Austria, the Netherlands, Poland, Spain and Turkey. Foreign direct investment or FDI clearances have also been received in Italy, France and Germany. And we are very proud that we have received the FDI clearance in Spain yesterday. This is a very strong sign for the progress and underscores the viability of our transaction. Regarding the FDI clearance in Austria, we continue to engage actively with the Federal Ministry of Economy, Energy and Tourism to meet the clearance conditions. JD.com has also submitted the FSR filing in Brussels. They are in the constructive engagement with the EU authorities. These processes take time, but they are moving into the right direction. Overall, we expect the closing in the second half of the year. We remain fully committed to this partnership, and we are working diligently together with JD.com to bring it to completion. Allow me to repeat, the partnership between CECONOMY and JD.com is a strategic investment in us, but also in the future of retail. We choose this partnership as a strategic next step, not because we had to, but because we could. This partnership will be an acceleration of everything we have already built, and it will enable us to lead European retail in the future. Let me wrap it up with Slide 18. The summary of what this quarter tells you about CECONOMY today and about the foundation for the future. There are 6 points I want you to take home today. One, the customer is at the center of everything we do. Our Experience Electronics strategy is grounded in this ambition, and we also see it in our numbers. Our NPS is up 2 points to 63. Two, we have successfully established a foundation to create moments of trust. Our new strategy is a consistent evolution of our existing way forward, and it will help us to accelerate even more. Three, we posted a strong performance in the first 9 months of the year, driven by our balanced country portfolio and our scaling growth businesses. Our sales were at EUR 18.4 billion. Our adjusted EBIT amounted to EUR 342 million. This makes this Q3 our 14th consecutive quarter of profitable growth. Four, our focus remains on cost, liquidity and profitability. Five, we are ready to accelerate with JD.com. The regulatory process is on track, and we are in constructive talks to receive all approvals. We expect the closing in the second half of 2026. Six, we confirm our outlook for 2025-'26 fiscal year. This means moderate sales growth and adjusted EBIT of around EUR 500 million. To sum it all up, we are on track to deliver on our targets. And with moments of trust, we will enter the next stage of our company growth journey. Thank you for your attention, and we are now ready for your questions.

[Operator Instructions] And I am showing no questions from our phone lines. [Operator Instructions] And our first question will come from Alexander Zienkowicz from mwb research AG.

Can you hear me?

Yes, we can hear you, Alexander.

One question on DACH. How much of the Q3 improvement comes from World Cup and weather versus how much is underlying visible there? And my second question would be on working capital. Beyond your gross profit and cost levers outlined at the Strategy Day, how should we think about working capital development on your path to '28-'29? How does the growth mix you intend to follow affect your working capital? Could you decompose that?

Yes. Thank you, Alexander. And again, so how much of the Q3 improvement come from the World Cup and the weather impact? We had some tailwinds. That's true. So if you look at World Cup, our TV sales rose by 15%. So, that had a positive impact. We were also very much and very well prepared for that. And on the seasonal products, so the aircos, the fans and the mobile aircos, we saw an increase of almost 65%. Then you had a second question when it comes to net working capital, working capital. So, we will keep it -- our estimation is to keep it stable in percentage of sales until 2029. That's the plan that we are working on.

Okay. So, no more granular movements there. So it's basically net zero, okay?