Douglas AG (DOU.F) Q3 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Douglas Group Q3 2024-2025 Earnings Results Conference Call. I'm Vassilios the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broad. At this time, it's my pleasure to hand over to Sander van der Laan CEO. Please go ahead.

Thank you, operator, and good morning to all of you. So also on behalf of Marco, our CFO and our Finance and Investor Relations team. Happy to be here. Warm Dusseldorf, but that is the situation in most of Europe. And we're happy to present to you our performance in the third quarter, so basically May, June and July. And as you have seen in our press release, we have, I would say, made a significant step up versus the quarter before and also first of last year. So I will give a brief summary just with a one page overview, then I will hand over to Marco, who will walk you through the Q3 financials. And then I will come back with a brief kind of strategic and business highlights overview before we move to Q&A. And it is our objective to be finished latest, let's say, by 12, so do this in maximum 1 hour. So what you can see on this page is that after a quarter of negative growth in the second quarter, we have now delivered 3.2% overall sales growth. If you would exclude Disapo which by the way, will disappear from our numbers in July -- after July this year. So this is the last full quarter that this Disapo sits in there, excluding Disapo our top line is 4%. And stores being up 2.1%, E-Com being up 5.4%. And on a like-for-like basis, E-Com is up 8.2%. So I would say, a significant improvement. We are getting market data in, if I say correctly, 8 of our 22 countries for the biggest markets, we get with market data for the other markets, there is actually no agency reporting those data. But our estimate is, is that the premium beauty market in those 22 markets is growing around 3%. That's also what we get back from our suppliers. So with this 4% growth I would say we are slightly ahead on a European basis on the market. That is not the situation in every market, sometimes better, sometimes a little bit less, but this is what we currently see. We are reporting a -- reported EBITDA, which is slightly ahead of last year as a result of the adjusted, let's say, basically the result of significantly less adjustments and then the adjusted EBITDA is coming down versus last year a bit, and Marco will open up the P&L to give you an insight in that. What has significantly improved is our net income. Basically, the improvement is close to EUR 90 million, which is clearly the result, yes, you could say, of a stable reported EBITDA but a significant improvement, let's say, in our financial expense as a result of the IPO. And from a free cash flow perspective, we delivered basically a few million more. So net leverage as a result of that, slightly improved versus the same period last year. As you know, we have a very seasonal business. So we're now moving into the second half, basically, we are in the second half. We're moving towards the last quarter of the calendar year. And then we will see a significant acceleration of deleveraging, which will then come back a little bit again in January but we are making kind of progress. With that, I'm handing over to Marco.

Thank you, Sander. Dear analysts and investors, welcome also from my side. Let me now quickly take you through the results of the third quarter of our financial year that runs on [indiscernible]. I will first comment on our overall sales and EBITDA performance before I share some insights on our reporting segments. As Sander mentioned, we delivered solid sales and like-for-like for the group with a growth rate of 3.2% or 4% without Disapo, we achieved net sales of just above EUR 1 billion. And on a like-for-like basis, we achieved a growth rate of 2.5%. By the way, this is the first time that Douglas crosses the EUR 1 billion net sales mark in the April-June quarter. As you may remember from our Q2 commentary, the shift of Easter to Q3 had a negative impact in our January March quarter sales with a corresponding positive effect in April. However, even by adjusting our Q3 sales performance for the estimated impact of the shift of Easter, we will still report a solid growth in Q3, confirming the good result of the last 3 months. The growing sales trend is visible in both channels and across most of our geographies, with 4 or 5 -- of our 5 segments showing sales growth momentum. In this context, I'm pleased to show again an increasing reported EBITDA, growing year-on-year by 1.4% to EUR 155 million, continuing to show a reduction pattern of adjustments. Our adjusted EBITDA for the quarter was EUR 158 million or 2.9% below last year. Our gross margin was 1.4 percentage points below last year, mainly due to an ongoing promotional pressure in a competitive environment. However, we did manage to mitigate a portion of the reduction in gross profit margins through various countermeasures such as reducing personnel expenses and having lower marketing and logistics costs as a percentage of sales. More than compensating a growth in IT costs as part of our ongoing IT investments and rollout process of our technology stack. Overall, our SG&A management allowed us to recover 40 basis points of profitability thus resulting in a 1 percentage point lower adjusted EBITDA margin year-on-year. So in conclusion, a safeguarded reported profitability with again a strong reduction in adjustments, allowing true earnings visibility and delivery. Now let's go to the next slide for sales performance of our 2 fueled channels. Compared to the previous quarter trend, both our stores and E-Com channels reported better sales performance also benefiting from the continued rollout of omnichannel services, and Sander will come back on this strategic initiative later. Our store sales were up 2.1% compared to last year with a 0.7% decline in like-for-like sales terms affected by France and Germany. However, compared to the last quarter, all segments improved their like-for-like trend in the stores channel. Furthermore, our store investments in refurbishments and new openings are clearly paying off with a strong non-like-for-like growth contribution of 2.8 percentage points. Footfall was the main driver of growth in our store sales, while average basket size was in line with previous year. Looking at the E-Com channel, we report a sales growth of 8.4% when we exclude Disapo. We witnessed a growing average order value in our online sales, which is also positive in terms of P&L efficiency as operating expenses such as marketing and especially logistics and delivery benefit from higher value sales. E-Com now accounts for 32.7% of group sales compared to 32% 1 year ago. On the following slide, I will guide you through the highlights of our 5 reporting segments, starting with DACHNL. In the DACHNL segment, we recorded a 3.2% sales growth to EUR 480 million. Like-for-like sales growth was plus 1%. And if we break it down by channel, stores achieved a sales growth of 1.3%, with a negative like-for-like of 2.9%, while the E-Com channel recorded sales growth of 6.1%. Our non-like-for-like growth component is particularly evident here with a strong contribution from the expansion in Belgium, where we're gaining market share very quickly. E-Com sales grew significantly in the quarter at plus 6.1% year-on-year, mainly driven by average order value. Our app share is also growing, resulting in indirect benefits in terms of conversion rate, customer loyalty and improved marketing efficiency. Adjusted EBITDA decreased 4.4% to EUR 95 million. However, the reallocation of sublease income to the corporate headquarter segment had a EUR 3.6 million negative impact. And without this effect, adjusted EBITDA would have been almost flat compared to a year ago. We experienced a lower gross profit margin in the quarter due to an ongoing competitive environment. However, savings in personnel expenses and marketing helped to mitigate this impact. My next slide is on France. Our net sales in France for the quarter totaled EUR 173 million, just slightly below last year at minus 0.9%. In our stores channel, sales decreased 1.6% with a like-for-like at minus 2.2%. We performed better in the E-Com channel with sales growth of plus 2.2%. The market in France, particularly in stores, continues to be challenging as evidence by the fact that effect our negative store sales significantly outpaced the trend in the market last quarter that's resulting in a growing market share. E-Com sales growth in the quarter was mainly driven by a higher average order size and also in the online channel, we're delivering market share gains. Moving to profit. Adjusted EBITDA decreased from EUR 33 million to EUR 29 million, primarily due to a lower gross profit margin, again, in a highly competitive market environment. While we were able to reduce personnel expenses as a percentage of sales compared to last year, we experienced higher IT and marketing costs. Next slide is in Southern Europe. The segment as a whole achieved a 1.4% sales growth to EUR 148 million but this was entirely thanks to a 2.5% higher store sales with a solid 2.1% like-for-like, whereas our E-Com sales actually decreased by 5.6%. Our E-Com sales in Southern Europe were affected by supply chain issues in connection with the change of warehouse and the switch to a new operator in Italy. We're working hard to solve these ramp-up issues, but we do anticipate that also Q4 E-Com sales in Southern Europe might be affected. On the profitability side, however, Southern Europe delivered only a slight reduction in adjusted EBITDA year-on-year at EUR 29 million. My next slide is on Central and Eastern Europe. In the third quarter, we returned to a double-digit sales growth in CEE with an increase of 10.5%. Sales climbed to EUR 159 million. I'm also happy with a like-for-like sales growth of 7.6% in the region with a strong contribution by both channels. Our stores realized 7.7% sales growth, partly thanks to the growth of our store base. In fact, in the course of this quarter alone, we opened 9 new stores, lifting our total in the region to 358 versus 327, 12 months ago. Our stores like-for-like were also more than solid with a growth rate of 3.6%. Additionally, E-Com sales surged by almost 21%, thanks to a combination of more orders and a higher average order size. Despite this sales growth, adjusted EBITDA decreased by EUR 1 million to EUR 35 million with a lower gross profit margin and a slightly higher SG&A cost to revenue ratio than last year, mainly due to growing personnel expenses and increased IT costs overall resulting in a decline in adjusted EBITDA margin. Let's now move to the following slide on Parfumdreams, please. And the Parfumdreams, NICHE BEAUTY segment, sales were up strongly by 19% to EUR 48 million, confirming its own growth path. Our adjusted EBITDA increased from 0 to EUR 1 million and while prior year quarter was affected by temporary supply chain issues during our integration into the logistics side of Hamm in Germany. This quarter showed a remarkable performance of the Parfumdreams, NICHE BEAUTY in both banners. We can go to the next slide, where we comment the P&L for the quarter. Let me briefly summarize our profit and loss, starting, therefore, from a solid sales growth of 3.2% and we achieved a stable gross profit of EUR 457 million. Our personnel cost ratio improved in the quarter, and we also had lower marketing and logistic costs. Our IT costs, however, were higher as we continue to invest in our tech stack rollout. These investments will lead to increased efficiency over time. Coupled with a strong reduction in adjustments, the decrease in net operating expenses led to a 1.4% increase in reported EBITDA to EUR 154.6 million. While as I mentioned earlier, adjusted EBITDA decreased by 2.9% to EUR 158 million. Our D&A were up 19%, mainly as a result of a higher depreciation charges related to the rights of use of our growing store network and new logistics facilities, and investments in store and warehouse fixed assets and IT. Intangible assets impairment were also higher than last year. The financial result improved significantly, thanks to the financing structure that's in place since April last year, which was further improved by the repayment of the bridge facility in March of this year. We now profit in full from better conditions and the reduced interest-bearing debt level. The effective tax rate of a single quarter may not be fully meaningful, but in the first 9 months of the year, we are at 33.8%, which is broadly in line with our expectation for the full year fiscal '25. Bottom line, we report a positive swing from a more than EUR 71 million loss in the third quarter last year to a profit of EUR 17 million this year. Let's now go to the next slide about net working capital and CapEx. Our average net working capital was EUR 228 million or 5% of our average sales over the past 12 months. The average amount of inventory was higher compared to a year ago due to the opening of new stores as well as ramp-up of stock related to the implementation of the new warehouse in Poland. However, days of inventory outstanding actually decreased by 2 days. Since the second quarter of the current fiscal year, we rolled out a new supply chain financing program to support and optimize our working capital position. This program helped to further reduce the level of average net working capital as a percentage of sales. In line with our growth strategy, our CapEx in the third quarter was higher compared to a year ago as we increased the number of store refurbishments and in-store openings. Central and Eastern Europe had the most openings followed by the DACHNL region, which included 3 further successful store openings in our relatively new country, Belgium. Let's go to the next slide about the free cash flow. And I have already spoken about most of the drivers that you can see on this chart, therefore, commenting on the result at EUR 413 million or 65% of our adjusted EBITDA for the first 9 months, our free cash flow was on a solid level. The next slide is about our available liquidity and net debt. We continue to have solid financial flexibility with well over EUR 400 million in available liquidity as of the end of June. Please note that the year-on-year comparison is affected by the utilization of cash on the balance sheet to partially repay the bridge facility completed this March. In the middle chart, you can see the net debt structure, showing a significant reduction of net financial debt from EUR 1.15 billion to EUR 924 million for EUR 226 million reduction as a result of the free cash flow generation and the benefit from the implementation of the supply chain financing. The net financial debt reduction was partially compensated by an increase in lease liabilities by EUR 165 million versus prior year. This increase is mainly due to opening of new warehouses, 66 new stores in the last 12 months, new lease agreements and in general, contract renewals for existing stores. The overall lower net debt resulted in a lower net leverage ratio of 2.7x compared to 2.8x at the end of June last year and at the end of March this year as well. We can now turn to my last page about full year outlook. Today, we confirm our financial year '24, '25 guidance that we gave in March of this year. And in light of recent performance, we're confident to deliver sales slightly above EUR 4.5 billion. Adjusted EBITDA margin is expected at around 17%. Average net working capital as a percentage of sales is expected to decrease to less than 5%, and net income is expected to be around EUR 175 million. As mentioned during our last quarterly call, we are currently working on our new midterm forecast as part of our business planning for the next years, and we will provide an update on this during the full year reporting in December. This concludes my part of today's presentation. Thank you for your attention so far, and I would like to hand the call back over to you, Sander.

Yes. Thank you very much, Marco. So yes, in the next few pages, I wanted to give you a brief update about our strategy and some specific highlights, which we have delivered throughout the quarter. So first of all, given, I would say, the change in circumstances in the world and also the reduction in growth of our premium beauty market in Europe, obviously, we have reflected on our strategy and all the building blocks, which you see on the slide. And we still believe that both those 4 pillars from the left to the right, and these roughly 20 initiatives are the right one to focus on also going forward. However, we do believe that with some of those initiatives, we need to tweak it a little bit to adjust in the current environment. And we also have learned that data strategy, artificial intelligence requires more focus and more attention. So it is -- when it says it's green, it doesn't mean that we have not done that before but we just want to emphasize and accelerate more, and I will come back later on with a little bit more update on that. So let me now focus on a few, let's say, important pillars of our strategy. First of all, in the assortment domain, where we aim to offer the most relevant range of brands. We just want to give you an indication about the development of 4 of our 5 core beauty categories. And these arrows are basically indicating the performance versus the relative to the average growth, which was in the quarter let's say, 3.2% for the total company. So when you look at fragrance, which is by far our largest category, which is doing between 40% and 55% of our sales, depending on the country. That category is growing ahead of our total company growth, which is good because it's our most important category. At the same point in time, fragrance has a lower gross profit, so more fragrance means pressure on the gross profits. When we look to skin care, skin care is performing below, let's say, this 3.2%, which is largely a reflection of the market because we also see that in the market, the skin care category is struggling, let's say, quite a bit in comparison to other categories. Makeup is doing less than the 3% with slightly better than skin care and hair care. That's the newest kid on the block which is still a relatively small category, but showing very, very promising growth. In every store, which we open, we are now allocating a certain portion of the meters, let say, to hair care in every store where we refurbish, we are adding hair care and also in stores which we're not refurbishing, we are extending the haircare category. So that gives you a feel for the development of the individual categories. Also, in this period, we continue to see that brands like Sol de Janeiro, Rituals, Erborian, Kerastase and Color Wow are all brands which are significantly driving our top line of the company and the top line of the category. But we also see that within corporate brands, we have seen a strong development of Jardin Boheme that is one of our, let's say, company-owned brands and as you know, corporate brands -- more corporate brands means more increase in the average gross margin. So that has clearly translated into a better bottom line. Moving to the next, let's say, initiative that is store network development, an important portion of our growth strategy. So just to refresh your memory, we are currently operating in 22 countries. And in those 22 countries, we have opened a growth in this quarter, 22 stores. We have -- it's not on the slide, but we've closed one store. I think that is in the press release. We've refurbished 39, let's say, of our own store and we finished, let's say, the quarter with a total store network of 1,924. We are still on track to end around 200 net new store openings by the end of calendar year 2026. Also to finish ahead of -- or around 400 refurbish by the end of calendar 2026. Last quarter, we told you that we were slowing down, let's say, a little bit also in light of the, I'd say, the recent development, but the slowdown is still not materially impacting our strategic objectives for the end of 2026. In this year, year-to-date, we have done 40 net openings. So that is net of the closings which we've done. And in the last quarter, for the current quarter, we are still planning to open a significant number of, let's say, of new stores. And we have basically 6 more weeks to do that, and we will report on that in December. In the quarter, we had a few highlights. So we have opened a fantastic new NOCIBÉ flagship store in Paris La Défense, La Défense is an Unibail-Rodamco owned shopping center. That's the largest shopping center of Europe. And in that location, we have opened a brand-new store which is supposed to become in terms of sales, also our bigger store, let's say, across France. But also in Antwerp, Belgium, we have opened a flagship store 500 square meters on the map in Antwerp, which is basically the prime shopping street, not only for the local people in Belgium, but also for many, many tourists. And another highlight is important, we have opened store #160, both in Belgium and in Poland, we have a significant number of store openings in the pipeline for the remaining part of this year, but also for the year and years ahead of us. Moving on to the next topic, and let me be a little more elaborative on that. Because, as you know, our Let it Bloom strategy is all about driving the omnichannel proposition of Douglas. And omnichannel does not only mean we are selling through stores and we're selling through online, but we also are trying to connect those 2 channels. And one of the important building blocks is what we call cross-channel services. Cross-channel services has basically 3 components. The first component is that you can order online at our website and then you can either, let's say, get that product home delivered. But you can also choose, let's say, to click and collect the product and then you can click and collect the product from our stores. And in many countries, you can also click and collect it from pickup points. So that is an important first driver of omnichannel services. Secondly, we have added now a second click and collect option which is Click & Collect Express. What is the difference? Click & Collect is being order picked in our warehouses, and from the warehouse being sent to the, let's say, either the customer's home or the Click & Collect the pickup points. Click & Collect is order picked in our stores, which -- the negative part is that means we have less articles available because online, depending on the country, we have been between 30,000 and 100,000 plus items available in an average store, we have between 5,000 and [ 12, 000 ] items available. So you can only order pick -- the store can only order pick from, let's say, the store. But the benefit, it's Express. So within 2 hours after you've done the order, the customer can go to the store and pick up the products. And then the third component is in-store ordering. So a customer goes to the store and maybe the articles should have been in the store, but it's out of stock. We still have it online or the customer who would like to buy an article, which we don't carry in that store assortment, but what we do carry in the online assortment. And then the store employee can order that product on behalf of the customer and either it will be sent to the customer's home or to the store or to another basically pickup point. The combination of these 3 we are calling cross-channel services. We are, by the way, reporting the sales of the combination of these 3 as our -- as part of our E-Com sales, that is just a choice. Click & Collect Express, which has been order picked in the store is being picked up there, and it's been paid there. We could also have chosen to, let's say, to allocate it to the store channel, but we've chosen not to do so. The combination of these 3 services is developing very, very well, as you can see, 24% sales growth. And especially in the DACH region, let's say, we see a significant acceleration of Click & Collect Express, especially, which is contributing by the way, to the E-Com, let's say, top line, but ultimately, we're providing an omnichannel service to our customers. We believe that omnichannel is the winning model for premium beauty. Therefore, we are also planning a further rollout in Click & Collect Express. We've recently introduced it in Austria, Czech, Slovakia and Italy, and the plan is that all our countries will offer this service, as you can see at the bottom right. Moving to the next topic, an update on the supply chain. As we have already shared with you before, we used to have historically a very fragmented local supply chain, 22 countries had basically 18 versions of a supply chain. And we are now moving to a model where we are opening 7 omnichannel warehouses. That means that we are carrying stock both for the stores and for E-Com. We already have 4 of those OWACs omnichannel warehouses fully operational, but I'm very proud to share with you that we have now opened the fifth one. The fifth one is sitting in Poland. And as of last week, is now supplying our Polish E-Com customers from that warehouse. And in a few weeks from now, we also are going to deliver all the Polish stores from that warehouse. That means that the lead time between the order and, let's say, for the stores over the customer is going to be significantly improved so we can replenish the store and the customer a lot quicker, and that is clearly contributing to our service proposition. We have -- as a result of this, we have basically to agree with all our suppliers, basically new logistical conditions because in the past, the supplier was doing the order picking for our stores on our behalf, we are now going to do that. And until now, we've reached an agreement with 99% of our suppliers. So still a handful of suppliers, let's say, to conclude with. And the plan is to do that basically in the next few weeks. Once the OWAC is fully operational for Poland, and that's planned to be the case, let's say, as of the beginning of September, we are then starting to prepare to, let's say, install this OWAC also for the Baltic countries. So these are 3 countries for Czech, Slovakia and Hungary. And the plan is that in 2026, the OWAC will be fully operational. That also means that the E-Com warehouses in Lithuania, in Latvia in Poland, in Slovakia -- sorry, in Czech not in Slovakia and Hungary, are all going to be closed. And that also means that our cross-dock facilities in most of these countries are going to be closed. So multiple facilities will be replaced by one facility, one stock. So this is a very big initiative for those 7 markets. This is OWAC #5. And we are planning to open OWAC #6 in the Benelux region, so Belgium, the Netherlands, in the course of 2026 and we're planning to open the OWAC #7 in the Balkans, of Romania, Bulgaria in principle in the year after. So in 2 years from now, this network should be fully, let's say, up and running. Moving then to basically the last slide of, let's say, our presentation. that is a summary of what we just said. So to conclude, our execution and implementation of the Let it Bloom strategy continues steadily. We are fundamentally believing that we have the right pillars and the right initiatives, but we are tweaking some of those initiatives in light of the current circumstances. Since we feel more pressure on the top line and clearly in this, let's say, environment, there is more price competition, so that also creates pressure on the gross profit line. We need to mitigate as much as possible by tight SG&A. And as you can see in this quarter, we basically have spent less money on the cost line. So we continue to focus on that going forward. The premium beauty market has shown a significant slowdown in this year. It's a slowdown, but our market in Continental Europe in the 22 countries where we operate is still growing, so let's say, around 3%. Marco already said, France, that's our #2 market is the only market which actually really showed a decline. And in the German markets and we basically see year-to-date a flattish development. So in our financial year, in our Q1, the German market has grown. In our Q2, the German market showed a significant decline. And in our Q2, Q3, sorry, the German market has shown a little growth again. But year-to-date, you could say, the German market is plus 0 in terms of developments. So that also means that the other 20 countries are, on average, showing a higher growth from a market perspective versus in order to end up with this around 3%. The omnichannel model proved to be highly effective and efficient. We have safeguarded our profitability and significantly improved our net results. And obviously, we are proud that we moved from a negative EUR 70 million to a positive almost EUR 20 million net profit result in '24, '25. And as you have heard, we are reconfirming the guidance where we do expect from a sales perspective that we will finish slightly ahead of EUR 4.5 billion. You can do the math yourself. If we -- in order to hit the EUR 4.5 billion, I think we should implicitly do minus 5% sales growth in Q4. That is not going to happen. Obviously, we are already deep into Q4, so we are very comfortable to state that we expect to be slightly ahead of EUR 4.5 billion by the end of the year. And since the EBITDA margin guidance is still around 17% and if you do it in absolute terms, that should also lead to, let's say, a little better number. So that is what I would like to share with you and in light of our commitment that we want to do this in a maximum one hour, I would now, let's say move on to a Q&A. So operator, maybe you can take the lead from here.

[Operator Instructions] The first question comes from the line of Mia Strauss with BNB Paribas.

Maybe I just wanted to ask, obviously, we can see that the market is pretty promotional. What are your expectations for that going into Q4? And then maybe more into calendar Q4 to Q1? And then secondly, on your loyalty program rollout, can you give us some color on how that's performing, what you're seeing in those markets? And then just thirdly, on the cost savings, can you just say what more can be done for the rest of this year outside of the OWAC strategy?

Thank you, Mia. I propose that I will take the first 2 questions, and Marco takes the third question. So when you look at the market, so we've been talking about our numbers quite extensively. Clearly, we are also following the releases of the listed companies in the beauty and the premium beauty segment. And we basically see that many of the listed companies are, yes, reporting a slowdown in their top line. And if companies in consumer goods have a slowdown in the top line and customers are trying to save money, that is typically an environment where promotions are being increased. So I would, let's say, at best, Mia, expect a continuation of the current promotional environment, but the likelihood that the promotional environment will be more promotional in the second half, the remaining half of the year is higher that the promotional environment will be less than it's now. And clearly, that has also a -- let's say, an element in connection with kind of gross profit development. From a loyalty program perspective, I think we've shared before that we are redesigned our loyalty program, and we are currently rolling it out. They are basically 2 dimensions I could talk about. First of all, we do see that the number of beauty cardholders and also the number of active beauty cardholders is growing significantly ahead, let's say, of our top line. So that basically means that we have more and more people in our database and more and more of those people are active, and that is one dimension. So that continues to develop well. And secondly, we have launched a new tier based, let's say, program recently. We are rolling it out country by country. We've started with the Netherlands, where it was -- the rollout started a few months ago. And the initial results look pretty good, but it's too early to give kind of a quantitative outlook and the rollout in the countries where we have done it now is also not big enough yet to move the dint on the group level. It is significant to move the dint on a country level but we're not reporting on all of those countries kind of publicly. So I would say we owe you probably a further update once we are a little bit deeper into the rollout of the new Beauty Card program. With that, Marco, could you take the cost question.

Of course, Mia, thanks for joining today. So on the cost question, again, in the quarter, I think we proved again to be able to improve our P&L structure by gaining 40 basis points of, let's say, efficiency from the SG&A. And this comes from various levers as we were commenting. So firstly, on net marketing expenses, which is one of the biggest, of course, cost components within the SG&A that comes both via our, let's say, continued investments over time into the brand building that pay off on a longer time but as well as on the growing average order values, whether it's in stores or in E-Com that carry better efficiency and ultimately less acquisition costs for our customers or our visits inside the web shop. So maybe a higher investing to the gross profit margin, mainly to a better efficiency down the rest of the P&L. On personnel expenses, which is largest SG&A cost line. We do retain, of course, still some flexibility, meaning that whilst in the stores, you could think of this cost line as a fairly fixed cost line. However, we, #one, have always flexibility in terms of temporary contracts or with a widespread network optimizations on the allocation of the full-time equivalents as well as a component of variable, let's say, remuneration that might partially follow, of course, the sales trend. And in this sense, we constantly monitor and work on the productivity of FTEs store by store. It is one of the key elements when we assess any investment proposal for store refurbishments or openings that allows us to, let's say, keep this important cost item under control. You already alluded to the logistics and delivery, let's say, cost area, which is obviously gaining efficiencies, not only from an indirect level because, again, higher order values carrying more, let's say, efficiency on the fulfillment side, but also through constant negotiation of our providers. And in fact, this brings me to my last point. We have a set up last year, a group indirect procurement function that covers basically everything outside the trading goods. And this, let's say, approach allows us to tackle at present time, around 90 projects covering a significant amount of spend of our, let's say, P&L. Basically, you can look at all the costs that are below gross profit, apart from the personnel expenses that is going to bring, let's say, further optimizations across our P&L. I hope this addresses your question, Mia.

The next question comes from the line of Vandita Sood with Citi.

So the first one was just on current trading. I don't know how much you're able to comment, but you did say that June was very hot, and maybe that had an impact on footfall. I guess just in your view, how has July trended? Is that more typical? And is that sort of forming the basis of your guidance, where you're expecting slightly higher sales? Or is that mostly you just saying the banking beat in the third quarter? So any comments on current trading? Secondly, I just -- I'm not sure I fully understood the Poland OWAC, the changing of the terms with the suppliers and who does the fulfillment and pickings. I don't know if you can expand on that. A bit more and related to that, is it fair to say that some of the margin decline in CEE was because you're effectively right now running 2 supply chains concurrently, and we should see some tailwinds as you close some of the existing older warehouses. And lastly, a quick one. I just wondered if Retail Media is still sort of contributing meaningfully to profits?

Okay. Thank you, Vandita. I would propose, Marco, that you take the current trading question and the Retail Media question. Let me then start with the Polish question. So let me explain it in simplified words. So in Poland, we have today, let's say, 160-plus brick-and-mortar stores and one online store. We have an online warehouse for the online store where we're carrying basically, let's say, 45,000, 50,000 articles. So an online order is being fulfilled from our warehouse to the customer. If a store needs products, then basically, we are ordering from each supplier, so let's say, from L'Oreal, from Dior, from Chanel. And L'Oreal is making 160 orders for every store, they make one order. So they are doing the order picking, let's say, for our stores. And then every week, they supply in a truck dose, let's say, 160 orders and to a, what we call cross-dock facility, and we then are cross-docking these packages and we ship them to our stores. So that means that we do -- they do the order picking. And as a result of this process, it takes between 3 to 4 weeks between the order for the store and the arrival of the store. What are we now going to do? We have closed our online warehouse and operate an OWAC. And in that OWAC, we are carrying all the articles which we have in the online store and the offline store and we will do the order picking not only for the customers for E-Com, but also for the stores. So once the store orders something or we order on behalf of the store, we order from the whole assortment and then the store gets between 2 to 7 days later, a delivery. So the lead time is significantly shorter which will allow us to reduce the stock levels in the store, and it will also allow us to prevent out of stocks in the store. So stock goes down in the store and sales is going up. But since we are now order picking on behalf of the supplier and we keep inventories, we also believe it is fair to expect from the supplier a compensation for the incremental logistical costs, which we incur. So we basically are making agreements with the supplier where we say we want to get a logistical fee, which will basically reduce our cost of goods sold. It will increase our gross margin but it will offset the additional supply chain cost, basically the warehousing cost and let's say, which we are now doing ourselves. That's the model which we have implemented already in 4, let's say, geographies, and this is not the kind of the fifth geography. So this in itself should not lead to a gross margin decline. It should actually lead to a small gross margin increase, which is offsetting kind of the supply chain and incremental supply chain costs. And then it is correct that we have a period of overlapping supply chains. Actually, that is what we have right now. And I'm looking to Marco, but we are adjusting, let's say, some of those overlapping costs. Although when you look to the adjustment in this quarter, it is not a big number, but you can also expect some adjustments in the fourth quarter. And in principle, post the fourth quarter let's say, most of this should, let's say, be behind us, at least for Poland. And then next year, we have overlapping costs operations for the other 6 markets, which we're now preparing. So hopefully, that clarifies kind of the situation. And with that, let's address the current trading question, Marco.

Yes. So thanks, Vandita. On current trading, you'll appreciate normally, we don't, of course, comment specifically on the months beyond the, let's say, closing date of the quarter. We did it last time for an exceptional reason of the shift of Easter into the third quarter instead of the second from prior year. But regarding expectations for the full year, our guidance of around EUR 4.5 billion, as Sander was referring to, if we were thinking about EUR 4.50 it would imply a negative 5 and more percent of growth in the last quarter, which, of course, if you do the math, which we don't see at all, we foresee to do significantly better than that. And hence, our, let's say, revised guidance of a slight overperformance. And normally, for us, slightly is, of course, between the 0% and 2% range. So thereby, you can understand kind of the expectations. But -- and in terms of specifically the performance within the quarter because you were alluding also to, for example, the heat wave, et cetera. It is fair to say that the quarter was of different performance but also a little affected by these calendar effects because the shift traffic in April pointed to a stronger April. Whereas stores, in particular, city center stores in June were weaker, whereas our shopping mall stores were better performing in June. But hopefully, these swings, let's say, due to either festivities or bank holidays or, let's say, other components are essentially over. On the Retail Media side, if I switch to the other question. Retail Media continues to be a significantly growing business line for us. You'll appreciate we normally -- we don't disclose specific numbers of this business line, but we can confirm that growth rates of the sales of Retail Media continue to be in well into the double-digit range. And EBITDA of the business is also significantly accretive compared to the overall blended EBITDA of around 17% of our business. That said, of course, as a contribution of total sales, Retail Media is still small, let's say, as a contribution of total sales on, let's say, on our business. But something interesting. I think we're starting to test is also to apply in our omnichannel, let's say, strategy and model, apply Retail Media also to the stores channel because so far, Retail Media has been predominantly, let's say, linked to online, whether it was on-site or off-site let's call it, services rendered. But we're now bringing essentially on-site activity with screens where we have an initial tests, particularly in Germany and to follow in the Netherlands are showing very, very promising results. And we think it's an opportunity, let's say, for the future.

The next question comes from the line of Yashraj Rajani with UBS.

Really glad to see the comforting update today. My first question is on your store openings and renovations. So maybe the stores that you opened last year and this year and including the ones that are renovated, can you give us an idea on are they trading significantly better than the rest of the group? And maybe related to that, you've previously stated that you were reviewing the rate of refurbishment. So can we sort of feel very confident in the 400 refurbishments by end of calendar '26, the ones that you put in the update today? So that's the first question. And then the second question is on leverage. So I appreciate that there's a lot of moving parts here with respect to the OWAC and the leases and the working capital. But can you maybe give us a worst case and a best case scenario of where we would land at the end of this financial year.

Maybe, Marco, you should take the second one, and I'll take the first one. So first of all, we still expect that we will have done 400 refurbs by the end of calendar year 2026. And we still expect that we will end up with around or close to 200 new openings by the end of 2026. I've already said that before. And if the total market growth is coming down and if we have also had to adjust our guidance for this year, you can imagine that when we approved a new store, let's say, a year ago, and we thought it was going to do EUR 1.5 million. It is not so strange if this store is doing, let's say, a few percent less than the EUR 1.5 million because the general impact of what happens is also impacting new store openings. So in that sense, you could say that our new store openings are on average, slightly, let's say, below when we approved it, but that is not worrying when I looked kind of to the general environment. And by the way, there -- the spread is pretty big. So we have stores which are 50% better than we thought, and we have stores which are 20% below. But ultimately, you need to look at the mix in the baskets and when you look to the refurbishments, when we refurbish a store, it's not only about renewing the store and putting new tiles and new ceilings into the store. That's actually the less important part. The more important part is that we also are injecting our latest category structure, new brands. So that means that we see a significant growth, let's say, in refurbished stores. But also there, the bandwidth is quite wide. And the overall result gives us enough confidence that also -- yes, the store opening program, refurbishment program for that kind of the rest of this year and also the near future will remain intact. That is my feedback there. Maybe you can take the leverage question.

Yes, of course, of course. So on leverage, we are -- as you could see in the last couple of quarters, we are, let's call it, surfing substantially in line versus last year, meaning in the March quarter, we were 0.1% above in this June quarter, 0.1% below actually. So it's a good, let's say, improving trend. For expectations until September year-end, in September 2025. We expect to continue, let's say, this path of a reduction year-on-year on net financial debt, as we have just commented across the slides to be partially compensated by growing lease liabilities. And by the way, we could also highlight that this growth in lease liabilities includes also a bit of a front-loading effect because the moment you open a store or at the moment you open an OWAC, you're essentially adding say, the full liability on the balance sheet, whereas the impact on EBITDA has not yet taken place. By the way, as a third component in the ratio, adjusted EBITDA, as we just commented, is slightly down year-on-year and thereby, the result of deleverage calculation. But therefore, we expect to be still around the level of September 24.

The next question comes from the line of Jurgen Kolb with Kepler Cheuvreux.

Some questions really from me. Sander, you mentioned that the promotional environment continues as it is. So would that also imply that we're seeing the same candidates playing very, very aggressively in the marketplace, i.e. the pure plays online? Or has anything changed here? Is there a new trend that you were seeing. In this wake as well, do you feel that you have done or how much potential is it for you to squeeze a little bit more from the vendor, so that the price increases, which apparently you were not able to push through to the final consumer that this can maybe sharpened or improved a bit? And also in this wake, when it comes to gross margin, when you say you expect this promotional environment very likely to stay, does that also mean that we have to assume a structurally, generally lower gross margin also going forward, which is then probably also part of your thinking for the next mid- and long-term strategy? That's it so far from my side.

Okay. Let me -- I will take all the questions, Marco. So first of all, on the promotional part, what I basically said, at best, we expect a continuation in the likelihood that it will be more promotional is higher than it will be less promotional. We do see, clearly, the E-Com market is developing ahead of the store markets. And we do see within the E-Com markets that some of the few players are pretty aggressive. Although in the recent months, I don't -- I cannot say that they have been more aggressive versus the quarters kind of the quarters before. So well, let me keep it there. When we talk about the vendors, obviously, we are trying to negotiate hard and to get, let's say, funding for what we try to do. Be aware, we have vendors which are or brands which are growing 50%, 60%, 80% or 200%, and we also have brands which are declining 10%, 20% or 30%. So the brand landscape and the vendor landscape is quite fragmented. But on average, the vendors also have sales pressure. So we try to push back and they try to kind of push forward. What we do see is that, let's say, the desire to do structural price increases has significantly normalized in the past 3 years, 6%, 7%, 8%, 9% price increase for big brands was kind of normal between quarters. That has now normalized. So that basically the desired price increase from the vendors, from the brands is much more in line with the general inflation, let's say, what we see in the market. And then if we have to accept, let's say, 2% on a certain brand, obviously, we need to make an effort to translate this 2% increase on the cost of goods sold also in 2% increase on average in the retail price. But if this market is more promotional, then that is not always easy. Hence, that does create pressure on our gross margin. I don't want to be too specific because we have committed to all of you that we will come back in December, let's say, with guidance beyond the current financial year. But a few building blocks of the margin are E-Com will grow faster as a market channel versus stores and the gross profit in the E-Com market is a bit lower than the gross profit on the store market, but the costs are also a bit different on the E-Com market. So that has a dilutive effect. Retail Media and the partner program is growing significantly ahead of our top line that is helping. Our corporate brands portfolio and our exclusive brand portfolio is an important building block that is also helping. So there are multiple, let's say, elements and which are basically in place. And we have already translated this, by the way, in an updated financial plan, which we are going to share with our Supervisory Board in September. And on the back of that, we will translate that into guidance, and which we will come back in December. So I would like to keep it there. And since I committed Jurgen, to be done at 12:00 and it is 12:00. I hope that this is for now, let's say, a sufficient response to your questions.

Absolutely. Thank you very much. Indeed helpful.

Okay. Then before I hand back to the operator, I want to thank all of you for your attendance. As you can see, after the tough second quarter, we obviously also happy ourselves that we can, let's say, present to you. And I would say, a significant step up versus the prior quarter and versus last year. In a difficult world, I would say the premium beauty market will continue to be a growing market, although at a lower pace. And we being the market leader in Continental Europe want to contribute to this growth and want to benefit from this growth. So we will work hard to finish the current quarter and to start well in the key quarter, October, November, December, and then we will get back to you in the week before Christmas with an update on our full year results. Have a good day. And with that, I'm giving back to -- handing back to the operator.

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