Fourlis Holdings S.A. (FOYRK) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Vassilios, your Chorus Call operator. Welcome, and thank you for joining the Fourlis Group conference call and webcast to present and discuss the first quarter 2024 financial results. We have with us today, Mr. Dimitrios Valachis, CEO; and Ms. Eleni Pappa, Investor Relations and Corporate Affairs Director. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to management. You may now proceed.

Thank you very much. Welcome, everybody. I'm Dimitrios Valachis, the CEO of the group, Fourlis. I will start my presentation today, giving you an update on our progress, progress towards the execution of our strategic plan. In IKEA, we optimized our store network and we are preparing for further expansion of IKEA stores. We consistently follow our strategy for remodeling and optimizing our IKEA store network. And we have opened a new IKEA shop in Bulgaria at Veliko Tarnovo in November of 2023. Additionally, the development of the new IKEA store in Patras is progressing according to our plans and will be operational by November this year. At the same time, in the summer of this year, 2024, the renovation of our [indiscernible] store is going to be completed, and we will have now apart from IKEA, the new Retail Hub, the Fourlis Retail Hub, we will see this retail hub that will be operational and other 3 tenants, in addition to our IKEA store. This gives it more visitors and more shopping experience to our customers. Furthermore, 2 new IKEA stores in Greece, one in Irakleio, one in Ellinikon are under construction, and will start their operation in Irakleio next year, and Ellinikon in 2027. The Intersport store network expanded with the addition of 4 new stores in the first quarter, 2 of them are in Romania, Sibiu and Pitesti; and 2 of them in Greece, one in Mitillini and one in the Athens International Airport in the new Fourlis Retail Group that I mentioned just before. We continue our expansion with Holland & Barrett Retail Health & Wellness, with 4 new Holland & Barrett stores by the end of next month. Two of them is together with [ Alfa-Vita ], one in [indiscernible] Alfa-Vita store and the other in Thessaloniki, and 2 of them are in New Ionia and the other is the new Fourlis Retail Hub in the airport. We continue improving our customer service and experience across all our retail businesses through the implementation of projects that target faster execution and lower complexity in customer care and delivery. As a summary, Fourlis today has 5 operational legs, 3 of them are frontline retail business pillar, IKEA, Intersport and Holland & Barrett. We have also Trade Logistics, our logistics arm, which is started to churn in order to become a profit center for Fourlis Group and the real estate investments arm that is already listed in the Athens Stock Exchange from October last year. Now let's move to the key financial highlights of the group's performance for quarter 1 this year. I start repeating once more that we have already communicated, and we are focused behind the reduction of the group's stake in Trade Estates to below 50% in accordance with our initial strategic plan. In order to facilitate the standing and present -- and present a comprehensive overview for Fourlis group performance from its retail business, we are going -- we are providing the group's financial figures, excluding Trade Estates impact from the consolidated financial statements. In the appendix of the presentation, you were also providing reconciliation tables between the group's consolidated figures and the group's figures from its retail business. So as on a group basis, our sales grew by 5%, although it was not an easy quarter, as you may know, in the retail market in our region. This was mainly driven by volume growth, but also Trade Estates third-party revenue growth following the acquisition of Smart Park in the last quarter of last year. The group continued to place emphasis on prudent control over operating expenses, higher productivity and optimization of operations, while the de-escalation of inflationary presence has further positively influenced operating expenses. As a result, our OPR EBITDA was up by 156%, reaching EUR 6.5 million this year versus EUR 2.6 million in the same quarter last year. And the EBITDA margin moved up from 2.2% last year to 5.4% this year. Accordingly, EBIT reached EUR 2.7 million in quarter 1 this year compared to EUR 1.3 million loss in the same quarter last year, reaching an EBITDA margin positive of 2.2%. In terms of the group retail business, our Q1 2024 performance marks a promising start to the year, demonstrating increased sales and improved profitability despite the traditionally slow first quarter, which is usually characterized by operating losses. Therefore, we are very confident for another year of significant improvement in profitability and solid cash flow generation. Revenue in the group's retail business reached EUR 116.2 million, 4% up compared to last year. The sales growth is driven by volume, and it's coming predominantly from a robust 5% growth in the whole Fourlis retail business, the IKEA stores, as well as, positive growth in Intersport and a significant presence from Holland & Barrett. I would like to add a mind at this point that all the increase is a pure volume increase, there are no price increases compared to the same period of last year. On the contrary, particularly in IKEA, we have a selective price drop in many of our SKUs. Another positive note is the growing participation of the Group's e-commerce that has gained further momentum, representing 17% of our sales quarter 1 2024 compared to 14% the same quarter last year. The gross profit margin from the Group's retail business stood at 44.5%. A 100 percentage unit basis points, up from the 43.5% growth in Q1 in 2023, highlighting the Group's competent advantage in its supply chain. Gross profit margin improvement together with cost optimization and the de-escalation of inflationary pressures resulted in an improvement in profitability, mainly driven by the whole service and retail business. Therefore, the OPR EBITDA and the EBIT, as well as, profit before tax from the group's retail business improved by 100 basis points. In particular, the EBITDA from the Group's retail business in Q1 24 stood at EUR 0.8 million gains compared to EUR 0.3 million losses the same quarter in 2023. In this quarter of this year, in Q1 2024, we continue to improve our operating cash flow generation, driven by the improved business profitability and improved working capital. This is a trend that will continue throughout the year and will enable us to execute our expansionary plans while also enhance its shareholder value through dividend payments. The net debt of the group retail business in quarter 1 reached EUR 102.3 million in Q1 this year, EUR 20 million less from the same period last year, which was in line with our strategic plan. The Q1 2024 CapEx related to retail business amounting to EUR 4 million, reflecting our ongoing investments in strategic growth initiatives. Approximately EUR 4.1 million of CapEx was allocated to Trade Estates investments, mainly the Patra's retail park development. And now I will pass on to Eleni to give you more details and analysis on our business units.

Thank you very much, Mr. Valachis. Starting with the retail Home Furnishings business, IKEA stores. According to the strategy, IKEA management has placed focus on remodeling and optimizing its network while also preparing for further expansion of IKEA stores, as Mr. Valachis has explained in the beginning. Our success is grounded in a well-defined strategy. We are committed to a well-structured and optimized store network as a success with omnichannel present, robust e-commerce initiatives, digitalization and expertise in home furnishings and customer service. In terms of key figures, the strong start of the first quarter of 2024, building on the successes of the previous year point towards a future marked by sustained profitability and robust cash flow generation. Excluding Trade Estates contribution, the Home Furnishings retail business show IKEA stores leading position in our market region. During Q1 of 2024, the Home Furnishings retail business achieved a significant 5% increase in revenues, reaching EUR 78.2 million from EUR 74.7 million of last year's first quarter, driven by volume. 6% sales growth came from Greece, while the international markets have shown a 3% increase in revenue year-on-year. The competitive advantage that the Home Furnishings retail business has in its supply chain led to a significant improvement in gross profit margin, which, together with focus on cost optimization, prudent control over operating expenses and the de-escalation of inflationary pressures resulted in significant improvement in profitability of more than 200 basis points. Therefore, the Home Furnishings retail business EBITDA operational in the first quarter of 2024 increased by 96% at EUR 3.8 million compared to EUR 2 million in the first quarter of 2023, with the EBITDA operational margin reaching 4.9% in the first quarter of 2024 from 2.6% in the previous year's first quarter. The group's Home Furnishings retail business today operates 21 IKEA stores in total of different sizes across our 3 countries of operations, Greece, Bulgaria and Cyprus, plus e-commerce present in all 3 countries. Fourlis Group long-standing franchise of IKEA stores continues to represent one of the best performing regions for the InterIkea Group. Moving to the retail sporting goods segment in alignment with our commitment to always deliver a modernized and customer-centric retail experience within 2024, so far, we have added 4 new stores in our network, 2 in Romania to in Greece, while we continue Intersports renovation program mainly in Bulgaria and Romania. In terms of key figures, during the first quarter of 2024, Sports Retail revenue, excluding revenue from the companies, The Athlete's Foot and Intersport Turkey, activities that were sold last year, increased by 1.1% compared to the previous year, reaching EUR 37.5 million. Sports Retail revenue within the first quarter was mainly influenced by a warm winter, as well as, the seasonality of the Easter period, while so far within the second quarter of the year, Sports Retail revenue is presenting a significant growth. Sports Retail gross profit margin reached 42.9% in the first quarter of 2024 from 42.5% in the first quarter of '23, reflecting our focus on maintaining our competitive positioning. The moderation of inflation had a positive impact on operating expenses, offset though by higher marketing expenses, which was, however, in line with our strategy. Therefore, Sports Retail in Q1 of 2024 [indiscernible] gross profit operating of EUR 3.1 million. This is, however, expected and in line with our plan, while our projections for the end of 2024 indicates a significant [indiscernible] improvement year-on-year. Fourlis Group license with Intersport lasts for 20 years and now operate 112 stores, 61 in Greece, 35 in Romania, 10 in Bulgaria and 6 in Cyprus, and also has e-commerce presence in each country. Intersport has a leading position in the sports performance sector and the high brand awareness across its region. Moving into the Retail Health & Wellness segment Holland & Barrett stores. Holland & Barrett is, as a reminder, is the U.K.'s leader in health and wellness, and one of the largest wellness retailers in Europe with a history of more than 150 years, and the retail presence of more than 1,600 stores across 24 countries worldwide. Our partnership with Holland & Barrett started in '22. And within '23, we have opened our first 6 physical stores in Athens and launched its e-commerce platform. We are motivated by the great potential in the health and wellness market, and a promising performance and we stand strategically positioned to capitalize on this evolution. We have refined our store development strategy, and we plan to continue expanding our store network in Greece, Romania and Bulgaria over the next years. Continuously reviewing our performance, our collaboration with Alfavita Vassilopoulos for the establishment of Holland & Barrett shopping shop concept within Alfavita stores have shown very promising results so far, and we intend to proceed with more shops of this concept. By the end of the first half of 2024, 4 new Holland & Barrett stores will be established under the Group's refurnished store development strategy. In terms of key figures, during Q1 of 2024, like-for-like stores posted a significant sales growth on the back of strong customer conversion and loyalty membership rates. Holland & Barrett e-commerce shows a dynamic presence with its participation in total sales at 17% in only 9 months of presence. The gross profit margin improved to 50.9% in the first quarter of '24, from 50.2% in the first quarter of last year on the back of portfolio mix improvement. And while the development of Holland & Barrett stores network and infrastructure continues, the existing store's EBIT improved year-on-year. Therefore, operating losses from Holland & Barrett stood at EUR 0.5 million, same as last year's first quarter. Finally, regarding the Trade Estates REIC, our subsidiary continues to generate significant value on the back of its high-yielding and high-quality portfolio of real estate assets. Trade Estates posted a 69% increase in total income in the first quarter of '24 and a 56% growth in EBITDA, positively affected by the additions in its portfolio, including the acquisition of Smart Park. Furthermore, as of the end of March of '24, the gross asset value of Trade Estates stands at EUR 477 million, excluding participation of EUR 7 million, while its net asset value reached EUR 303 million. Currently, Trade Estate owns 13 income-generating assets and 2 assets under development. According to its development plan by 2027, Trade Estates will have a strong high-yielding property portfolio of over EUR 700 million. Post de-consolidation, Trade Estates growing portfolio, will provide the Group a sustainable dividend stream and upside in its profitability through the Group's participation. At this point, we are at your disposal for any questions you may have.

[Operator Instructions] Ladies and gentlemen, there are no audio questions at this time. I will now pass the floor over to management for any retail questions from our webcast participants.

The first question is from Mrs. [indiscernible] from Business Daily. Can you provide information concerning the CapEx of the Group for this year? Yes, the CapEx for 2024 is -- for the total group is approximately EUR 28 million to EUR 30 million. This includes maintenance as well as development, Patras development and Irakleio development of EUR 11 million is included in this figure. The next question comes from [indiscernible] Mr. Valachis, given the Fourlis Group's strong financial results and current stability, which suggests there is no immediate need for additional funds. Could you clarify if the discussed placement of approximately 13% of the Trade Estates from the Fourlis Group portfolio? Now that the 6-month look-out period has ended, might involve distributing these assets directly to existing Fourlis Group's shareholders, potentially as a partial spinoff? Without a doubt, such a move would be equitable, especially considering the growth expected for the Trade Estate and advantageous both for Fourlis Holdings and the Trade Estate, rewarding long-term Fourlis Group investors and further increasing the free float of Trade Estates?

Yes, we plan, as we have committed to drop below 50%, and we were going to do that in the second half of this year. We are examining a number of options and could be a combination. Carve-out of part of this could be a part of the solution, but we have not decided yet, what would be the right combination. We are working on that, and as long we will have a decision. We're going to let you know. For sure, we are considering also the option you are presenting here, as you are mentioning. And we're going to consider it carefully.

Next one comes from [indiscernible] from Equinox Partners. The new IKEA stores will take time to reach EBITDA margin. Does it mean the margins will be suppressed when the new stores come online?

It is true that it takes 1 to 1.5 years to maybe 2 to come to the desired level of EBITDA. But at the same time, we have a lot of projects that have been working in the past years. So together with a strong position we have in decreasing our cost of goods, which we will continue having the positive results in IKEA. I would not see a drop in the EBITDA margin. Our plan is to continue improving carefully in a controlled way, our performance quarter after quarter.

It seems we don't have any more online questions. Operator, can you check with the audio?

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments.

Yes, thank you very much for the attention. Thank you for being with us. We're looking forward to continue the positive trend, as I said, for the group improving quarter after quarter and looking forward to have you again in the announcement of the first half results later this year. Thank you very much.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.