Fnac Darty SA (FNAC) Earnings Call Transcript & Summary

Hello, everyone. I'm delighted to be with you today to comment on the performance of our business over the first 9 months of the year. The performance has enabled us to raise our guidance for operating profit for the 2024 financial year, and I'll come back to this in my conclusion. First and foremost, I'd like to share with you our pride of having contributed to the popular success of the Olympic and Paralympic games through our ticket sales. Absolute record for ticket sales in the history of the games and through our services. We were able to share in some highly emotional moments and as a result, our Fnac and Darty brand were part of the unifying and highly rewarding movement. September, it's in line with the dynamic results we've posted since the beginning of the year. Varied offerings, product innovation and a high value-added services. These services continue to win over our customers and are making a significant contribution to our growth. We are approaching the closing of the offer to acquire Unieuro. We are convinced of the value creation of this unique strategic opportunity will bring to our group and stakeholders. I believe in the success of this translation, which will enable us to confirm our position as European leader in specialized distribution. Over to Jean-Brieuc Le Tinier.

Thank you. As Enrique has already mentioned, we're very satisfied performance this quarter, thanks in particular to the high single-digit growth of our Services business. Over the first 9 months, we posted sales growth of 1% on a reported basis and actually unchanged on a like-for-like basis with market share gains in most of our categories. In the third quarter, the group posted sales of EUR 1.8 billion, up 0.3% on a reported basis and down slightly by 0.8% on a like-for-like basis. The gross margin rate, excluding the dilutive impact of the franchise and changes in the scope of consolidation, rose by 50 basis points over the first 9 months of the year by more than 100 basis points in Q3. Now let's take a closer look at sales performance by channel, region and product category over the period. First, by channel. The proportion of online sales remains high at 21%. The complementary nature of our shops and our digital platforms has once again been demonstrated with Click & Collect accounting for more than half of online sales at the end of September. Now by geography. The France, Switzerland region is virtually stable over the first 9 months on an LFL basis. Once again, the group outperformed the French market, which remained in negative territory at the end of August, minus 2%, while our growth rate was actually stable at the end of September, minus 0.4%. I'd remind you that the scope effect corresponds mainly to the closure of 3 Manor shop-in-shops in non-French-speaking Switzerland, which took place in the first half of 2024. Let's turn now to the Iberian Peninsula. Sales posted an excellent performance of 5.7% in the third quarter, driving -- giving growth of 1.8% in the first 9 months of the year. Better macroeconomic situation in the region has supported consumption. In Portugal, the integration of MediaMarkt consolidated from the 1st of October 2023 is continuing. And today, the 10 shops have generated sales of around EUR 75 million. Lastly, the Belgium Luxembourg region reported virtually stable LFL sales over the first 9 months. Sales are benefiting in particular from sustained growth in services. Let's look at developments by category. Let's start with public products. Books performed very well, buoyed by the case for new reading trends. This performance did not make up for the sharp decline in gaming, still impacted by particularly high basis of comparison to 2023, but with a much lower gross margin. Services continue to grow in all regions with the ongoing rollout of our subscription-based offers and in particular, the rollout of Darty Max and Fnac Vie Digitale. Technical products grew slightly over 9 months. In Q3, Telephony sales slowed due to new product launches that got up to a more gradual start than last year. Computers benefited from the continuation of the renewal cycle and innovations begun in the second quarter. Sales of household appliances are up. The excellent momentum in small electrical appliances continues driven by numerous technical innovations and new product launches in the cooking, beauty and floorcare sectors. Sales of large electrical appliances, on the other hand, remain down. Last but not least, diversification has performed well, with solid growth in the games and stationery sectors since the beginning of the year. Finally, word on gross margin trends. It's important to note that apart from the negative impact of the dilutive technical effect linked to the franchise and changes in the scope of consolidation, the gross margin rate is up by more than 100 basis points in Q3 2024 compared with 2023. This increase is mainly due to growth in services and a favorable product mix confirming the relevance of the Everyday plan. The group benefited in particular from strong momentum in services, small electrical appliances and books. Overall, for the first 9 months of the year, the group posted gross margin growth of plus 50 basis points, excluding the dilutive effect of franchising and changes in the scope of consolidation. Enrique?

On Slide 4, I would like to come back to the strategic project of Unieuro acquisition. The bid is open until October 25, and we are very determined and confident in our ability to make a success of it. Let me remind you that the offer price of around EUR 12 per share represents a 42% premium over Unieuro's spot price on July 15, 2024. The premium is also 20% of the average of analyst targets prior to the announcement. This valuation was deemed fair from a financial point of view by the 2 independent financial experts appointed by Unieuro's Board of Directors. Finally, we've lowered the minimum threshold for acceptance of the bid to 66.67% of Unieuro's capital. This reflects our determination to successfully implement the tender offer. This project is a structuring one for our group for the years to come and will enable us to play a key role in the consolidation of the European market. With Unieuro, we would form a group with sales of over EUR 10 billion, 30,000 employees in more than 1,500 stores. It would also be a value-creating transaction for all stakeholders, and we expect to achieve over EUR 20 million in full year synergies from the massification of purchasing in own brands. Finally, this operation will preserve our financial flexibility to pursue our capital allocation policy. In conclusion, we approached the end of the year with confidence while remaining focused and rigorous financial management. We are seeing the first encouraging signs on the macroeconomic front with inflation falling and interest rates beginning to come down. These factors combined with the remarkable performance of our services business have led us to raise our guidance for full year operating profit. We now expect recurring operating income for 2024 to exceed EUR 180 million compared with at least EUR 171 million previously. We're maintaining our target of a cumulative operating cash flow of around EUR 500 million. And over the '24 period with EUR 180 million in 2024. Finally, we're very focused on the success of the major end-of-year sales events, Fnac's 70th anniversary, the 50th Anniversary of Darty's Contrat de confiance, Black Friday and Christmas. We approach the end of this year with determination, convinced that the group has solid assets to create sustainable value. Thank you for your attention. Jean-Brieuc and I are now available to answer your questions.

[Operator Instructions] First question comes from Clement Genelot from Bryan Garnier.

I have 2 questions on the gross margin to start with. Is increased -- this high increase is also due to ticketing. As we know, that has an accretive effect. And as far as the guidance, did you factor in the fact that consumption will be low in France the next season with all the political talk of higher taxes?

On the gross margin, it's not related to ticketing effects because the Olympic game tickets have been sold well before Q3. So no impact there. ticketings doing better in Q3 than last year, the impact on the gross margin is very marginal. So very, very small insignificant part of the 100 BPs that we were talking about. The origin of these 100 BPs is, first of all, services particularly subscriptions and then the product mix with more small appliances, books, et cetera. With gaming, it's not doing as well, but it's gross margin and impact on company figures is lower. Product cycles and innovation and the test consumption scenario that we've integrated for the next few months. Consumer trust has been low recently and those are long-term trends. So we're not anticipating a short-term significant impact on consumption.

Next question from Christian Devismes from the CIC.

Two questions. First, ticketing. During summertime, I always thought that if competition was not allowed to do the sort of transaction that was probably to not to disrupt ticketing. So my question is, nowadays, 14 months after the official announcement, do you have any news about competition on this transaction? Second question, this relates to government projects to raise taxes on sales between 7% and 10%. Should we take that on board? Or should we take anything else on board to take into account the impact on your profits in the coming couple of years?

Let me take the second point first. Unfortunately, no. We don't have deficit companies in France, so we can use -- we cannot use them. So we'll get the full tax raise -- for the full-blown tax raise. There's no technical components that would allow us to dwindle this down. Of course, we don't know what the final picture is going to be. Yes, obviously. Ticketing, we keep waiting both in Europe and Switzerland, we are about to finalize this transaction. We don't have the components to do anything about this yet.

Next question is from Emmanuelle Vigneron, HSBC.

I'd like to go back to the gross margin. Could you give us any indication on the trends that we could expect in Q4? And my second question would be as follows, could you give us more detail about Nature & Découvertes and how well it performed?

We've seen that Services had a very favorable impact on the gross margin. That's been true since the beginning of the year in Q1 and even more so in Q3 we expect better looking gross margin. The beauty of Services is that it's a very resilient business. It's the whole principle of the strategy that we've put in place and how it's been rolled out over time. So we feel that gross margin in Q4 will look better than last year. We can't give you more details at this stage, but we're in the right territory. Okay. As far as Nature & Découvertes, it's living its life. But the future of Nature & Découvertes will play out in Q4 because that's where there's a strong acceleration of sales. And we've prepared for that season with the team so we'll see at the end of the year. We have to wait for the end of Q4 to give you a real visibility of Nature & Découvertes and its performance.