Lulu Retail Holdings PLC ($LULU)

Good afternoon, and welcome to Lulu Retail's Q1 2026 Earnings Call. Joining the call today are the CEO, Mr. Saifee Rupawala, the Executive Director, Global Operations; Mr. [ Ashraf Ali MA ], the CFO, Mr. Prasad KK KK and Mr. Samuel Hart, Head of Investor Relations. Before we begin, I would draw your attention to the disclaimer slide in the presentation, which contains important information regarding forward-looking statements. Over to Mr. Saifee Rupawala to talk about the business in Q1 2026.

Welcome to all. Thank you for joining our Q1 2026 earning call. Before talking about our Q1 financial performance, I would like to briefly touch on the current situation and how Lulu has managed business as usual. Lulu remains operationally resilient with no material disruption to our business. This is underpinned by our diversified sourcing spending multiple geographies, which provides flexibility in supply and stability for customers. In terms of logistics, we transport via air, learn and see -- and we have made adjustments where necessary to ensure uninterrupted availability of goods for our customers. This includes use of some additional flight capacity in recent we have also maintained strategic inventory buffer across essential categories. Wireless, there has been some modest cost increase associated with this. It is being monitored closely and appropriate actions has been taken while remaining mindful of customers' affordability. From our cost perspective, we continue to access our strong discipline across logistics operating expenses and working capital support overall efficiency. We continue to maintain our robust business continuity plan across the store, distribution, sourcing and support function. We ensure remain able to operate should circumstances [indiscernible]. With that, I hand over to Mr. Sam, our Head of Investor Relations for Q1 results update.

Thanks. I will now run through the key operating highlights for the first quarter of 2026. From a network perspective, we expanded our retail footprint to 277 stores. with 11 new store openings during the quarter. This added 20,000 square meters taking the total selling space to 1.4 million square meters. Growth continues to be supported by healthy customer engagement. Our customer base reached 692,000 with 7,000 customers added during the quarter, reflecting continued traction across our markets. Our loyalty program remains a key driver of engagement with membership increasing to $9 million, including 610,000 dishes in Q1 alone. As a result, loyalty linked sales now account for roughly 70% of total sales supporting more targeted and data-driven commercial execution. From a revenue quality perspective, private label penetration increased to 30.2% of retail sales, up 94 basis points reflecting continued focus on margin-accretive categories. At the same time, our e-commerce business continues to scale strongly, now contributing 7.9% of retail sales, an increase of 315 basis points driven by ongoing omnichannel integration and improved customer adoption. Overall, the quarter reflects steady progress across both physical expansion and customer-led growth pillars. I will now hand over to Mr. Prasad to take you through the financial highlights for the quarter.

Thank you, Sam. I will now take you through our financial performance for the quarter of 2026. I Revenue for the quarter stood at $2 billion, representing a decline of 2.9% year-on-year. This reflects the impact of trading in March, which we will come to shortly, but was partially offset by contribution from new stores and growth in e-commerce. Gross profit was $449 million, down 3.3% year-on-year, though margin remained broadly stable. Again, there was an impact in March as a result of higher costs, which were down in the quarter. EBITDA came in at $192 million down 10.3% year-on-year. This was primarily driven by lower revenue though benefited from disciplined cost increase. Net profit for the quarter was $47 million as a result of operating leverage or pesos. Our balance sheet remains strong with net leverage at 9x exporting leases and 3.3x, including these. This gives us stability to both stand a difficult trading period whilst providing profitability for future growth. Overall, despite the temperature on profitability, the business continues to demonstrate [indiscernible] supported by strong fundamentals and a prudent financial position. I'll now cover the key drivers behind our revenue performance in the first quarter of 2026. Group revenue for the quarter stood at $2 billion, reflecting a 2.9 percentage year-on-year decline. After positive performance in January and February, the overall quarter was affected by softer nonfood sales in March. The impact of March led to like-for-like decline of 5.7 percentage largely reflecting pressure on discretionary categories, while the food categories remain relatively to CV. That said, our store expansion strategy continues to support growth with the new store offering contributing $39 million in incremental revenue during the quarter. In addition, wholesale and other segments added a further $16 million or in partial offset like-for-like disclaim. From a channel perspective, e-commerce continues to deliver strong momentum, growing our 60 percentage year-on-year. supported by improved omnichannel execution and customer adoption. From a mix standpoint, private health and pression increased to 30.2 percentage of retail sales, up from 29.3 percentage reflecting continued strength in value led and margin-accretive categories. Overall, while headline revenue was impacted by short-term pressures in nonfood, the underlying growth over which our store expansion, e-commerce and private level remain permit impact. On this slide, I would like to provide more color on business by month and categories. Trading in January and February was firm and in line with our expectations. With healthy momentum across both food and nonfood categories, reflecting stable demand and good execution. However, as we moved into March, you saw a divergence in performance with the onset of regional geopolitical instability. Food categories remain relatively resilient. However, nonfood categories were impacted with the lower footfall and distributionary spending. For geography, and starting with the UAE, revenue grew by 1.7% year-on-year supported by strong performance in the CPG and poison in the early part of the quarter before moderating in March due to lower volumes. On profitability, gross margins saw a modest decline primarily driven by pursuing electrical and fashion categories. EBITDA margin was impacted largely reflecting gross margin compression, while operating expenses remained broadly stable. In Saudi Arabia, revenue declined by 1.3 percentage year-on-year, driven primarily by weakness in the nonfood segment, particularly electrical, where price-led mix changes were on performance. Despite the top line pressure, gross margin improved, supported by better sourcing, produced a stage and tighter promotional discipline. Our EBITDA margin declined due to lower sales reduced supply contributions and weaker other income, though this was partially offset by cost optimization, particularly in staff purchases. Oman reported a 7.5% year-on-year decline in revenue largely driven by weakness in nonfood categories, particularly electricals, while food sales remained broadly stable. From a margin perspective, gross margin improved slightly, supported by gains in electricals. However, EBITDA margin declined due to lower revenue base and higher operating costs. In Qatar, revenue declined by 4% year-on-year, with a strong start to the quarter, offset by a softer mark would deliver solid growth, but this was more than offset by contraction in nonfood. On profitability, both gross margin and EBITDA margin improved driven by better supplier terms, disciplined pricing and promotions and higher other income, partially offset by higher costs. It was the strongest performing market, with revenue growth of 9% year-on-year, supported by robust CPG and fresh food performance, along with the strong volume growth. Our profitability saw some pressure at the gross margin declining due to mix and category level pressures along with lower supply contributions. EBITDA margin also declined reflecting these factors and higher aggregate related costs linked to increased tolling sales. In the other markets, revenue transfer mix -- gross margin was broadly stable, the EBITDA margin declined slightly. This was primarily due to higher greater costs but was partially offset by disciplined control on staff and new data expenses. Turning now to margin performance at a group level. During the quarter, margin performance was primarily impacted by lower revenue resulting from the issues in March. Gross profit was $449 million, with the gross margin remaining broadly stable at 22.4% days. Within the quarter, margin enhancement initiatives delivered as indicate improvement in January and February, which was largely offset by marks due to higher logistics costs and softer mat margins. Margins continue to benefit from the growth of private level business. EBITDA for the period stood at $192 million, representing a margin of 9.5% dates. This was mainly driven by operating leverage from a lower revenue, along with continued investments in store expansion, technology and operating infrastructure. Should be noted that despite our ongoing store expansion, operating expenses, excluding depreciation, increased by only 1.1 percentage year-on-year, reflecting strong cost discipline. Notably, the existing store base benefited from the optimized session centralization and process relator initiatives. At the bottom line, while net income margins improved in January and February, lower sales in March were on our profitability, resulting in net income of $47 million for Q1 2026, translating to 2.3 percentage net margin. Overall, while margins were under pressure in the quarter, this was going to a short-term revenue softness rather than any fundamental change in the business model. We continue to focus on cost discipline, mix optimization and operational efficiencies to support margin recovery going forward. I will now turn to cash flow and balance sheet. Despite the lower EBITDA during the quarter, our cash generate remains strong, reflecting disciplined capital allocation and tight controller CapEx. CapEx was as percentage of sales remained stable at 1.3 percentage on sustained with the same period last year. This reflects our continued focus on a capital light expansion model with a balanced mix of maintenance and CapEx. During the quarter, we generated $166 million in cash flow with a cash conversion at percentage, demonstrating the underlying cash generative nature of the business despite and profitability purchase. From a balance sheet perspective, we continue to maintain a stable and well-managed capital structure, net debt reduced slightly from December levels to under $2.5 billion, supported by strong cash flow generation. Net leverage improved to 0.9x excluding leases compared to 1.1x at the end of the last reporting period, whilst 3.3x excluding basis remains early stable. Our strong cash flow profile and disciplined balance sheet management progress with the flexibility to fund growth, support dividends and navigate the current environment at Pavel. That concludes the financial review. I will now hand over to Mr. Ashraf to share the business update.

Thank you very much. Moving to our e-commerce performance. This continues to be one of the strongest growth drivers within Lulu. During the quarter, e-commerce maintained a strong momentum with contribution reaching 7.9% of retail sales. compared to 4.7% in Q1 last year, reflecting continued customer adoption and improved execution. We see e-commerce as a force multiplier to our physical network, improving reach increasing convenience and driving higher frequency, shopping behavior among our customers. We are strengthening nonfood e-commerce offering across key categories through improving the fulfillment experience. better pricing competitiveness and a stronger product assortment. From a customer engagement standpoint, we are encouraged to see strong traction on our digital platforms. With the Lulu application tracking has the #1 downloaded application in the UAE, reinforcing the strength of our brand and digital reach. Looking ahead, our focus remains on expanding our fulfillment network and increasing coverage across GCC, urban areas, while continuing to enhance speed assortment and overall customer experience. Overall, our e-commerce growth reflects a well-integrated approach across operations, technology and common engagement positioning us strongly to continued scale-up. Private Private label continues to be the key driver of revenue and margin growth for us. During the quarter, we further expand our portfolio across core and high-growth categories with a clear focus on premium and health innovation. We are also seeing continued traction in our categories such as health and beauty, baby and PetCare, supported by range expansion and disciplined execution. In a pile, we are scaling proven SKUs across the region will selectively entering new segments, ensuring relevance across diverse customers' needs. The invest are reflective of our efforts or private sales contribution to total retail sales has increased from 29.3% in -- of 2025 to 30.2 percentage in the first quarter of this year. On the royalty side, we continue to deepen customer engagement. Our member base expanded during a quarter to over 9 billion members -- 9 million numbers supported by consistent onboarding efforts. The happiness program growth reflects improved customer stickiness as more members are regularly supporting repeat purchase behavior and long-term customer retention across 3 markets. Our core customer segments continued to show steady spend growth, highlighting the strength of our proposition and the effectiveness of our target engagement strategies. Now I will hand over to Saifee to deliver the concluding remarks.

Thank you, Mr. Ashraf. In concluding, despite of volume environment, store operation across our network remains stable, reflecting retents on our operating model. We continue to execute on our 2026 expansion pipeline as planned with new store opening progressing in line with our target. At the same time, we remain fully focused on ensuring uninterrupted supply and maintaining operational efficiency, liberating our diversified sourcing and strong execution capability. Given the current environment, we are keeping our 2026 guidance and the review and will provide us visibility improves. As a closing remarks, I remain confident in the strength of our business model and our ability to navigate near-term challenges while continuing to deliver long-term value. That concludes our presentation for today. I will now hand over to Mr. Sam to take or to Q&A.

Thank you Mr. Saifee. And with that, we are happy to open the floor for questions.

[Operator Instructions] We have a voice question from Dana Tamimi from Al Ramz.

Am I audible?

Yes, yes. Please go ahead.

Okay. Congratulations on your set of numbers. I just wanted to ask, if we isolate the month of March, do you know exactly how much revenue declined in not specific months.

Dana, we haven't given a specific month-by-month disclosure of financials, we are just disclosing to be whole quarter, which is our usual practice. But there was a page in the presentation, which is designed to give you a bit more color around the March performance. I think it's too small that might be paid. And you'll see in that that January and February, as we said, revenue performance was aligned to our expectations. And you'll see that food sales in March were up modestly, perhaps slightly below our expectations, but the particularly pronounced the impact was the nonfood sales in March. Hence, that's the largest component of the chart and outweighs the gains from January and February and marked on the food side.

[Operator Instructions] So it looks like at this point in time, we have no further questions from the audience. So we would like to thank you for joining the call for today, and hope to see you on our next one. Thank you very much. This concludes the call today. We are now closing all the lines.