HORNBACH Holding AG & Co. KGaA (HBH.VI) Q2 FY2026 Earnings Call Transcript & Summary

Welcome to the Half Year Update call for HORNBACH Holding. My name is Antje Kelbert, Head of Investor Relations. Earlier today, at 7:00 a.m., we published our financial results for the first half of fiscal year 2025/'26, covering the period from 1st of March until the end of August 2025. I'm especially pleased to welcome our new Chief Financial Officer, Dr. Joanna Kowalska. With our deep industry expertise, and many years of experience in financial management, at KPMG and within the DIY retail sector at OBI Group. Joanna will be a great addition to the HORNBACH team. Since mid-August, she has taken over responsibility for the finance result and will be presenting today's results, guiding us through the presentation. We are also joined by CEO, Albrecht Hornbach, who has served as interim CFO during the transition period. Albrecht will be available for your questions during the Q&A session. Please note that this conference call, including the Q&A session will be recorded and made available along with the transcript on our company website. Kindly also take note of the disclaimer, which applies to the entire presentation and the Q&A session. [Operator Instructions] With that, I'm delighted to hand over to Joanna to walk us through the key developments and financial highlights of the first half year. Please go ahead.

Good morning, everyone. Thank you, Antje for the kind introduction and a warm welcome. I'm truly delighted to be part of the HORNBACH team and to join you for today's half year update call. Since stepping into the role of the CFO about 6 weeks ago, I have been deeply engaged in learning about the many facets of our business. It's an exciting time, and I'm grateful for the support of my colleagues, especially Albrecht, who has been instrumental in helping me during the transition process. To HORNBACH, I bring over 17 years of experience within the European DIY retail sector alongside dedication to financial management and operational improvement. During my time at KPMG, I advised and audited many listed companies, and I'm truly delighted to contribute to HORNBACH's continued success as well as to long-term value creation for our shareholders. And I also look forward to getting to know all of you meeting with you over the coming months and continuing the open and constructive dialogue that HORNBACH is known for. And now let's dive into the key development and financial highlights. At a glance, we delivered further profitable organic growth in the first 6 months of our current fiscal year. Net sales grew by 4.4%, driven by a very satisfying spring season and solid summer period. In addition, we saw continued higher customer footfall. This growth was further supported by the store openings in Nuremberg and Duisburg, both in Germany around the start of the fiscal year. On a like-for-like basis, HORNBACH Baumarkt sales rose by 3.6%. Gross margin increased by 4.6%, in line with the sales growth. And the gross margin come in at -- sorry, 34.9%, matching the level from prior year's period. This development contributed to the adjusted EBIT growth of 2.5%. CapEx reflects the active execution of our expansion strategy with a focus on acquiring attractive properties and building a state-of-the-art DIY store network. Nevertheless, we achieved a good free cash flow. We are pleased with our performance in the first half of the current financial year. And despite ongoing macroeconomic burdens and soft consumer sentiment, particularly in Germany, we have achieved solid results, which are in line with our expectations. They also reinform our confidence in strength and resilience of our business model and underline our relevance to our customers. Therefore, we're confirming our full year guidance today. Before we dive deeper into financials for the first half of the fiscal year, let me start with a brief operational update. As you know, customer satisfaction is one of the most important KPIs to our business, a clear indicator of meeting our customer requirements and we truly believe that a great shopping experience and assortment, combined with a highly efficient operational setup is what drives our market relevance and long-term profitability. That's why we are especially proud of the results from the latest customer service. In Germany, the independent survey Kundenmonitor, ranked us #1 for overall customer satisfaction in the DIY sector. We also came out on the top in several other categories, including web shop, assortment relevance, selection, quality of the goods and private labels as well as service offered. In the Austrian addition of the Kundenmonitor, customer survey, we secured a leading position as well. We were ranked #1 overall in customer satisfaction, achieving strong results across multiple categories. And also in Netherlands, the survey Retail of the Year, named us The Best DIY Online Shop. That's an important recognition of our team's hard work and a clear sign that we are on the right track. We are also continuing to invest in infrastructure to support our organic growth and improve the shopping experience for our customers. Just recently, we opened 2 new stores, 1 in Bucharest, Colentina in Romania and another one in Eisenstadt in Austria. Both are modern big box DIY stores designed to give our customer everything we need for rare home improvement projects. These openings follow the launch of our new store in Duisburg, Germany, which opened in March, and there is more to come. Another store is set up to open in Timisoara in Romania, just tomorrow. All of these new locations demonstrate our commitment to expanding our store network and growing across all HORNBACH regions. With that in mind, let's take a closer look at the sales figures for the reporting period. As mentioned earlier, group net sales in the first half of the year were up by 4.4%, driven by a strong spring season and solid summer. Compared to the same period last year, we saw increased demand for our gardening products and construction materials. Customer frequency increased by 3.3%, reflecting a positive trend in store traffic. We also recorded a slight uptick in average ticket. After 2 years of stable performance, we are now back on a growth stat. And now let's shortly have a look at HORNBACH Baustoff Union, our subgroup has mainly serves professional customers in the construction industry. Looking at the sales development, we saw a slight sales decline of 0.8%. That said, we believe the construction sector in Germany may have reached its lowest point and could now be starting to recover. The latest official statistical figures show a modest upward trend in both order intake and building impairments. Looking at the geographic split on the right. Slightly more than half of the HORNBACH Baumarkt revenue, 52.7% comes from the 8 European countries outside of Germany representing an increase of approximately 1 percentage point compared to the previous year. Now let's turn our attention to like-for-like sales growth. Generally speaking, underlying demand across most European countries in the first half of the current fiscal year benefited from warm and mostly dry weather. That said, July was quite rainy in Central Europe, which had some impact on -- in Q2. For the group-as-a-whole, like-for-like sales growth reached 3.6% clearly above last year's period. Germany contributed 1.5%, which put us ahead of the German DIY sector that saw a slight overall decrease in sales of 0.7%. In other European countries, delivered a strong 5.6% growth rate. Here, the Netherlands really stood out with growth of over 10%. We successfully strengthened our position as a big box player in Netherlands. Customer particularly value our outstanding product availability in large quantities, which set us apart from competition. Thanks to store openings in recent years, our locations in Netherlands are younger in [indiscernible] and showing their [indiscernible] growth contribution. In Q2, all countries saw positive like-for-like sales development with the exemption of Germany, where performance were impacted by 2.8 fewer business days. Let me now present the most recent market share improvement. We continue to focus on growing our market share and strengthening our position across Europe. In all HORNBACH countries where market share data is available, we managed to expand our footprint in January and July 2025. In Germany, our largest and most competitive market, our share has now reached 15.5%, an increase of 0.6 percentage points compared to the prior year period. In the Netherlands, driven by a very positive footfall development, we gained 1.3 percentage points, bringing our total market share to 28.8%. In Czechia, we continued our positive momentum, increasing our market share to 38.5%. Austria and Switzerland also showed positive development. This truly reflects the dedication and outstanding performance of our teams on the ground who consistently go above and beyond to serve our customers. Let's now continue with a closer look to our E-commerce business. Customer engagement across our interconnected platforms remained strong, which confirms that these are now well established sales channels. E-commerce sales at HORNBACH Baumarkt grew by a strong 10.1% in the first half of the year. That pushed our E-commerce share of total sales up to 13.1%, both Direct Delivery and Click & Collect performed well, with growth rate of around 11% and 7%, respectively. And with that, I would like to take a closer look at costs and expenses in the P&L. Our gross profit increased by 4.6%, which is mostly in line with the growth in the net sales. Gross margin came in at 34.9%, matching the level of the same period last year. This reflects a good product mix and an innovative assortment. Now let's take a look at expenses. We are now seeing the full impact of wage increases across all countries, which led to a rise in absolute personnel costs. Personnel expenses totaled EUR 580 million, representing a 5.7% increase. This development is in line with expectations given the wage adjustments. While selling and store expenses increased in absolute terms, the expense ratio remained stable relative to total sales. And the same applies also to general administrative expenses ratio. Preopening costs rose by EUR 4 million, driven by new store openings. All of this contributes to a positive development of our adjusted EBIT, which I will present to you on the next slide. Overall, we improved our adjusted EBIT by 2.5% compared to the first half of last year, driven by successful spring season and solid summer performance. As a result, the adjusted EBIT margin remained broadly stable at 7.6%. Countries outside Germany contributed 62% to adjusted EBIT, making a 4 percentage point increase year-over-year. Once again, there were no significant nonoperating items or adjustments in the first half of the year. And now let's now move on to the cash flow statement. Our cash flow from operating activities increased significantly compared to previous year. The main driver was a lower cash outflow from changes in working capital. This was predominantly due to reduced use of our [indiscernible] program as well as stronger reduction of inventories than in the prior year period. Funds from operations remain at the same level as last year. Capital expenditure in the first half of the fiscal year totaled EUR 107 million, up from EUR 51 million in the same period last year. As planned, 56% of that was invested in land and real estate, mainly for the new store development. The remaining portion went toward store conversions, equipment and software. Free cash flow after net CapEx and dividend improved to EUR 129.6 million, reflecting the changes in working capital I just mentioned. Now let's take a look at our balance sheet. As of the end of August, HORNBACH once again delivered a robust balance sheet. The total balance sheet stood at EUR 4.6 billion, unchanged compared to February. Decreased inventories reflect the usual seasonal reduction after Spring. Our equity ratio increased slightly to 46.9%, maintaining a strong and healthy position. Our net debt-to-EBITDA ratio improved to 2.4x. All in all, that underlines the strength of our financial foundation and the resilience of our business model. We are confirming the guidance for the fiscal year '25/'26. We continue to expect net sales to be at or slightly above the level of prior year and adjusted EBIT to remain at the same level. However, given the strong earnings performance in Q1 and the solid development in Q2, we currently expect adjusted EBIT growth within the upper half of our guidance range. Before we open the floor to questions, I want to take a moment to highlight our continued focus on strategic priorities, cost management and sustainable growth. Through target investments and operational efficiency, we are building a solid foundation for the future. With our strong private labels, everyday low price strategy and clear commitment to sustainability, we aim to support our customers, maintain market leadership and deliver long-term value to our shareholders. In summary, we're well positioned to navigate the current macroeconomic and geopolitical challenges and to size medium- and long-term growth opportunities in the home improvement sector. That gives us strong confidence in HORNBACH's continued successful development. As I mentioned at the beginning, we are satisfied with our results for the first 6 months which are in line with our expectations. And with that, I will conclude my presentation and hand back to Antje for the Q&A session.

Thank you, Joanna for your views and remarks on our results. I now hand over to Bastian, our operator, to explain the technicalities of our Q&A session. Please go ahead.

[Operator Instructions] So the first question comes from Thomas Maul from DZ Bank.

Thomas Maul, at DZ Bank. I've got 2. The first one, you achieved a nice increase in gross margin. Maybe you can elaborate a bit more on the drivers, especially with regard to the innovative products you just mentioned. And what is actually the share of private labels in your assortment? And second question, can you please shed some light on current trading in September with regard to footfall, leverage basket sizes in Germany and abroad and yes, what are your expectations for gross margins in the months to come?

Thomas. Thank you for your question. And happy to answer. I will take the first one on the margin. We improved our margin at, of course, in connection with the -- with our innovative product. During the year, we always change our assortment, nearly 20% of our assortment is changed during the year. And with the innovative assortment, we, of course, reach a better margin. And this is an effect of our, great [indiscernible] department. The second one -- the second question was how is -- how we expect the margin development in the half of the -- when I get you correctly?

Yes. It's actually on footfall and basket size and also, yes, the development of gross margin.

Okay. Okay. Thank you for the clarification. The footfall, we increased -- the footfall is increased in the first half of the year. We are gaining our market share in all countries. Therefore, of course, we hope that also there's a trend with -- remain also for the next half of the year. Of course, we are -- it's pretty clear that in Germany, the DIY sector faces near macro challenges, particularly in customer sentiment due to layouts in industry, many people are cautious about large projects. But nevertheless, nevertheless, customer traffic remained really strong, showing continued relevance of the DIY and Gardening. And we are pretty sure that our everyday low price strategy and strong private levels position us well, and we gained further market share -- we will again also cover market shares in the next half year. Your question was also about the private label share. So let me comment on this point. So this is about -- about 20%, yes. So in Germany, a little bit more -- sorry, I'd say it was 28% and in Germany, 28% and in average for the HORNBACH something about 2024.

The next question comes from Jeremy Garnier from ODDO BHF.

I have 2 questions. So yes, you begin to have strong market shares in all countries you're present in Europe. Do you plan to open new countries soon or to accelerate in some countries? And also M&A is still not an option for you?

Jeremy, thank you for your question. Let me comment. Yes, we -- it's too early to go into the detail. But yes, we already announced the new country. So -- but I hope you can understand that we cannot comment in very detail at the moment.

Okay. And regarding the working capital, it will improve during H1. Do you still have room to continue to improve the deliver of inventory and [indiscernible], what is your target?

Of course, we always look for the working capital. And retail is about working capital management. And of course, we have a deeply look always at this issue. Of course, we have to consider the current situation also with the assortment changes therefore, sometimes you have a little bit more inventories, sometimes a little bit lower level. But nevertheless, of course, we have closed -- we look very, very focused on this issue. And we plan very good initiatives in respect of AI solutions with this matter. Of course, it will not be effective in this fiscal year. But nevertheless, our strategy is to use the AI solutions in the future to really focus on the working capital management and to really plan even better than in the past, the distributions, the logistic processes. We are on a good track in this matter.

The next question comes from Ralf Marinoni from Quirin.

First question is about your store in Romania. You mentioned that HORNBACH provides more than EUR 2 million for the expansion of public infrastructure to support development in the area and you have also created 120 new shops for the new market. So the question is, did you receive any government subsidies or tax benefits for this? And my second question is about the 4 new openings. Can you quantify the annual sales potential of 4 new markets when they are running at full steam? So I estimate it's clearly above EUR 100 million.

So I think the infrastructure you're mentioning -- sorry, it's Antje. The infrastructure around the normal stores. So we have streets and all those things that help us to connect also the store to our network to make it efficient and to help us around that. I think this is meant with the infrastructure thing. With respect to those subsidies, I'm not sure about that. We can take that afterwards, I think. Sorry on that. And expectations, for sure. But we do not disclose our business for each and every new store that will go on stream. However, we assume that this is a very good location because you know that the key thing to select location for us to have a good area, to have a good a little bit around -- surrounding there and so we expect that this will be a good addition there.

And the second question was, what does a new store brings in terms of revenue, yes?

Exactly, exactly.

It's a -- it really depends on the location, on the square meters in -- on the country. We are happy to open each store, yes. But and it's always based on a detailed business case. So yes, the decision is made very, very cautious. And -- but I would don't like to disclose very detailed information on each contribution of the each market or store. I hope you understand.

I understand. But maybe you can give us an indication with regard to profitability in your market in Romania. On the one hand, we have less purchasing power from the people there, which leads to less revenues compared to the stores like Germany also. But on the other hand, we have much smaller personnel cost. So maybe you can give us an indication for the EBIT margin and profitability in these stores in Romania.

Yes, you know that we do not disclose on a base of the different countries? So what you see is that the contribution from outside of Germany is very good. And as you can assume, we are also on track in Romania because it's a very interesting and attractive market. So this will also help to contribute that.

I can only add. Of course, there are countries which contribute more and would contribute less. But nevertheless, all countries are on a very, very good track. We are really happy with the development and also in Romania. It's really, really good country and therefore, we have attractive location there, and we are happy to expand in this country.

Next question comes from Miro Zuzak from JMS Invest.

I have a couple of questions. I'll take them one by one, if I may. The first one is regarding the situation in Germany. You mentioned during the presentation that you expect the German construction and renovation market to bottom out. Can you please substantiate this and elaborate on this? And what the indicators are that you're looking at?

Okay. So I think you're referring to construction market versus DIY market. I think this is an important thing.

The building sector shows early signs of recovery, like a recent increase in building payments and orders, but we expect that activity will only start to increase next year. However, with HORNBACH Baumarkt, we are mostly active in the renovation and modernization business, which is -- which has different dynamics than the new construction. In this matter, we need to focus on such topics as renovation backlog, need for energy-efficient upgrade and demographic challenges. And this is what what we are looking very positively towards this issue because the need is there. We increased our market share. And therefore, even in Germany, we see really chances for us. Even...

But you don't feel like at this moment already a recovery, it's just an expectation that in the future next year or so, it will recover?

Yes.

Albrecht Hornbach speaking. It's more or less a sentiment, which leads to the meaning that beginning maybe with 2026, the construction market will rise again and that the [indiscernible] is reached now in the moment. But this concerns HORNBACH mainly, and it's not a matter for Baumarkt for the Do-it-yourself business. Do-it-yourself business, it's more contributed to renovation and what Joanna explained just before. And fortunately, we are rather independent from construction markets in 96% of our turnover.

Okay. Super, very clear. Another question regarding costs. If I look at the OpEx, just basically, the cost between gross profit and EBITDA, I see a jump of EUR 30 million in Q2 versus last year Q2. This was a much higher jump compared to the EUR 15 million in Q1. So the OpEx seems to have increased much more in Q2 compared to Q1. Is this going to continue in Q3 and Q4? Was there any like special effect or reason in there, which led to this higher increase compared to Q1?

So the most important point is the increase in the personnel expenses, of course. As you know, last year, we had a lot of increases of the wages nearly in all countries, especially in Germany. And the effect, of course, we see now in the comparison of the half year. So the wages increased, of course. We -- just for your information, the total cost amounts to 5.7%. And we had an increase in full-time employees in connection with the new store openings. Therefore, we have 2 effects. The first one is the amount of the people and employees and another one is the increase of the wages itself. To your question, whether we expect more increases during the next months, I would answer the question like in this way. Of course, we do not expect such big increases as last year. Last year was something special, especially in Germany. We were talking about 7% increases in the wages. This is not planned for Germany now. Of course, there will be some increases to balance somehow the inflation rate, of course. But we expect lower increases than 3%. This is the most point which explains the difference. And there are 2 other points also which unfortunately contributed to our EBIT -- to our result. We had FX effect. As you know, we have derivatives, U.S. dollar derivatives and from the evaluation of the derivatives we have now. Last year, it was plus. And now we have lost from the derivatives. Therefore, we are talking about an effect of EUR 5 million, which is big, of course. And ...

Where are they booked -- sorry, by the way, are they in [indiscernible] or are they booked in the [indiscernible] are they in the financial results?

They are booked in the financial result.

So that's below EBIT.

Yes, yes. Yes. I thought your question was about the EBIT, EBITDA.

Well, I was asking about the OpEx, which would typically be above EBITDA. But anyway, No, that's fine, it's good to know, that would have been your next question.

Okay. Okay. So the most effect is really the wages and the personnel costs.

Okay. I have 2 more questions -- I have one more question and one suggestion. So the first one is the U.S. dollar change, which was like significant, right? How much will it contribute to the gross profit margin in the next quarters to come? Or to put the question the other way around, how much of your [indiscernible] of your purchases are in U.S. dollars?

It's a good question, and I'm really happy to answer this. We are lucky we are lucky in this respect that our -- we do not source a lot of products in U.S. dollar. Therefore, yes, it's even a lower amount than the 5% of our assortment. Therefore, we are not really impacted by the U.S. dollar in the margin. Nevertheless, of course, there are some. And our policy is always to hedge our direct U.S. dollar purchasing volume. 90% of our volumes are hedged. Therefore, for the future, I do not expect really changes in the margin.

Okay. Maybe you can get some points of price decreases from your European suppliers, who buy in China or in the U.S. area, right, which is now 10% or 15% plus expense. One more -- just one suggestion, you have on Page 13 in your free cash flow definition. You don't include leasing, which makes a big difference. I think just -- it would be a more meaningful number from year list to include leasing because you show EUR 130 million free cash flow of the CapEx and dividends, I would include -- it's just my personal opinion. I would include leasing there, which brings the free cash flow to a more accurate EUR 70 million instead of EUR 130 million. That's probably more accurate.

Okay. Yes, it's [indiscernible] you to hear your view on that. So thank you for this.

HORNBACH is always very solid and humble in terms of capital markets presentation, which I like. And therefore, I would show the lower number rather than a higher number in this case.

Okay. Thank you for your [indiscernible].

So as there are no further questions at this time. I will hand back to Antje for any closing remarks on this conference call.

Yes. Thank you very much for your question. And I think we have at least I'll address. I would also like to thank you, Joanna, and Albrecht for your valuable contribution today. And in the coming weeks, you'll find us also at various capital market conferences. We are very much looking forward to engaging with you in personal conversation. So please come to us if there are any further questions arise. And the details of our plans for [ IR traveling ] is also available on our website. And as we now head into Autumn with its rich variety of colors and abundance, perhaps it will inspire you also to start a fresh DIY project around home and garden. Thank you again for your interest and time this morning, and we hope to see you soon and until then, take care. Thank you very much.