Maisons du Monde S.A. (ZMM.F) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Maisons du Monde Full Year 2020 Results Conference Call. [Operator Instructions] And just to remind you that this conference call is being recorded. We would also like to inform you that this event is also available online with synchronized slide show. During this conference call, statements could be made that constitute forward-looking statements based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the future results expressed, forecasted or implied by such forward-looking statements. All listeners are reminded to read the forward-looking disclaimer on Slide 2. For a more complete list and description of such risks and uncertainties, please refer to Maisons du Monde filings with the French Autorité des marchés financiers. I would now like to hand over the conference over to Mr. Chris Welton, Head of Investor Relations. Please go ahead, sir.

Thank you very much. Good morning to all of you, and thank you very much for joining us on this call to present Maisons du Monde's full year 2020 results. My name is Chris Welton. I'm in Investor Relations. I'm with our CEO, Julie Walbaum; and our CFO, Eric Bosmans, who will be making today's presentation. After that, we'll open up the session to Q&A. You've already seen the press release, I'm sure. You've seen the conference slides, which are available on our site. You can download them if you want. As the operator said, the call is being webcast. A replay will be available after the call on our website today. Just 1 more time, please do read the forward-looking disclaimer on Slide 2. And with that, I will now turn the call over to Julie Walbaum. Julie?

Thank you, Chris, and good morning to everyone. We thank you for being able to reschedule your schedule in such a short notice, to accommodate the change in the timing of this call, which we moved ahead for reasons of good governance, given the strong trading volume in our shares yesterday. Well, to start with, 2020 was an unprecedented year. But I'm pleased to say that Maisons du Monde rose to the challenge, and at the same time, stayed true to its values of customer proximity and societal responsibility. Our teams have done a terrific job throughout the year, demonstrating agility, resilience and an incredible team spirit. Their remarkable commitment made me very proud, and I would like to thank them very much. On Slide 5, we summarize what are, in my view, the 3 key highlights of the period. First of all, returning strong financial performance, and we will present the numbers shortly. But in a nutshell, we managed to post robust sales. There is a resilient EBITDA and generate solid cash flow, resulting in a strong cash position. In the year, there was something of a realized real-time stress test. Our performance demonstrates the strength of our brand and our increasingly omnichannel model. Second, we did reinforce our competitive position. Thanks to the work of a strengthened creative team, we developed on trend and differentiated collections that proved to be very successful. We also showed excellent customer dynamics with our keep our customers close strategy, which ended up in strong customer engagement and loyalty. Another source of pride, we reinforced our CSR commitments, increasing the share of sustainable materials used in our offering. And finally, we accelerated our digital strategy, which was strengthened in the fourth quarter with the successful launch of our curated marketplace in France. This solid performance puts us in a position to announce 2 significant capital allocation decisions. The first one, we are planning on repaying in Q2 the EUR 150 million state granted loan we took out last year to protect our liquidity. And second, we are in a position to resume dividend payments after suspending the payout last year in the exceptional circumstances. And we are proposing to our shareholders a EUR 0.30 per share dividend for 2020. On Slide 6, we take a look at how all of this translated into our headline numbers. Our sales came in at EUR 1.18 billion, down only 3.5% year-on-year, thanks to a very strong second half. We estimate that the full year impact of both lockdowns across Europe was a net reduction of total sales by about EUR 160 million. Excluding the specific impact on commercial activity, not taking into account other [ types ] that [ charge ] supply chain disruption triggered by the pandemic, our sales would have been up a solid 9.5% in the year. Our EBITDA reached EUR 240.6 million, down 7.2% with a very resilient margin of 20.4%, a drop by just 70 basis points thanks to our continued cost discipline. In the second half, our EBITDA margin was 24.8%, which is actually 30 basis points above the same period in 2019. We ended the year in a strong cash position of EUR 297 million, an increase of more than EUR 200 million, and this is a result of our measures to manage cash and improve liquidity including a solid cash flow of EUR 54 million. And finally, our debt ratio improved to a low 0.8x EBITDA from 0.9x 1-year earlier, attesting to the soundness of the balance sheet. Eric will provide more detail shortly. On the next few slides, I'd like to give you a bit more granularity on our performance. If we start on Slide 7 with the usual breakdown of our sales by geography, channel and product category, we can see that international, online and decoration drove our sales during the year. By geography, sales in France were down 6.7% in the year, but they were up 2.9% in H2. International sales were up 0.3% over the year with second half growth of 7.2%. By channel, store sales fell 14.3%, with a much better trend in H2, where sales were down a limited 3.8% despite the lockdown in November. Online sales were up by a very strong 29% over the year, with 33% growth in H2, accelerating over the increase of 25% in H1. Finally, by category, furniture was down 5.3%, while decoration items decreased by 2.1%. Here, too, there was a clear dichotomy between H1 and H2. Furniture sales improved strongly in the second part of the year thanks to the prioritization of our best sellers. It remained in negative territory due to the second lockdown in the fourth quarter. But if you just look at the third quarter, furniture sales were actually up by 1.5%. As regards decoration, decoration sales were up 9.3% in H2, despite, again, the 4-week store lock down in Q4, and we know that decoration sales are mostly driven by stores. So we think this is a very strong performance. Well, you can see that 2020 was a tale of 2 halves with a sharp drop in H1 and a strong rebound in H2. So I think as we focus on Slide 8 on the second half sales, which exceeded our expectations. In total, those sales stood at EUR 693 million, that is up 4.8% year-on-year. The growth, as I said, was driven by online, which grew 33% in H2, getting a boost from the November lockdown. That boost has been estimated at [ EUR 10 million ] positive. As we saw in the previous slide, store sales in the half were down 3.8% in total. If we were to exclude the impact of the November lockdown, which we estimate at an unfavorable EUR 60 million, store sales in the half would have been up 6%. Looking at the full year, the group estimate that the cumulative impact of both lockdowns was a net sales reduction of about EUR 160 million. Excluding this impact, as I said, full year like-for-like sales would have been up 3.7% year-on-year. This strong performance attests to the relevance of our business model and to our nimbleness as it owed a lot to our actions to mitigate the second lockdown effects, such as the deployment of click and collect and the launch of our curated marketplace which we'll turn to shortly. Let's focus on Slide 9 on our trend and customer positioning. Throughout the year, Maisons du Monde demonstrated the relevance of its offering based on stylish and customer tailored product ranges. To sharpen our product leadership, we did strengthen our creative team and we further improved the quality price ratio of our offering by further raising our quality and CSR targets. This approach notably resulted in the success of the autumn/winter collections with decoration sales up by 9% in H2, as I said. We've also been seeing some very encouraging customer dynamics over the past months that demonstrate the strength of our brands. Online customer acquisition in 2020 increased by 38%, and the number of our customers who previously were store-only customers and now also use online -- that is, became omnichannel -- grew by 53%. On social media, the group also saw significant growth, especially in its Instagram community with an increase of 40%, reaching 4.5 million followers. It also increased engagement rates and mentions in social networks. Our customer experience was also enhanced thanks to the authorization of in-store click and collect during the second lockdown, which proved very successful. In November, 2/3 of the French web decoration orders were delivered via store pickup. This is up from 1/3 over the full year. Another aspect of our customer positioning is about developing services in a buoyant decoration market with more people spending time at home. Record -- Rhinov was very successful, recording a doubling of decoration projects with more than 13,000 projects over the year. Rhinov is now in the top 3 of the Pinterest House ranking in France, along with Maisons du Monde. Slide 10 looks at some of our achievements in CSR, which is, as you know, a key aspect of our positioning. In 2020, Maisons du Monde completed its 4-year sustainability plan. And it's a progress in all areas. As part of our commitment to a more sustainable product offering, we increased the amount of wooden furniture sourced from sustainably managed forest or recycled wood from 64% to 68% -- so 4-point improvement over 1 year. And we also launched our first Oeko-Tex certified textile collection which already represents 25% of our total textile offer. In terms of reducing the group's environmental footprint, 97% of our European stores are now supplied with electricity from renewable resources, that is 4 points up in just 1 year. And since 2016, we have reduced by 25% the consumption of energy in our stores, thanks to a vast relamping program across the entire network and the active contribution of our CSR ambassadors in store, improving consumption habits of our staff. Finally, Maisons du Monde also continued its action to act as a responsible corporate citizen. Together with its customers, Maisons du Monde and its Foundation donated about EUR 1.3 million to fuel social and environmental projects. Our CSR performance has gained recognition in benchmark CSR indexes, such as MSCI. Our MSCI rating has improved year after year, going from BBB in 2018 to A in 2019 and now AA in 2020, which now places Maisons du Monde among the top 15% of companies in the index. On Slide 11, we look more specifically at our online sales, which was 29% in the year. We were already strong in omnichannel before the pandemic, but this movement was accelerated in 2020. Growth was balanced across countries, but was particularly strong in Belgium and Switzerland, where the increase in sales went from 60% to 80%. In terms of product groups, costs were driven by popular product families that thrived during the pandemic, like outdoor, home office equipment and all decorative outlets. Traffic was up 40% and mobile traffic, which represents 2/3 of our total traffic, increased by an even stronger 47%. Our online growth was further boosted in the last quarter by the successful launch of our French -- on our French website of our creative marketplace. The marketplace included at year-end over 300 brands carefully selected by our teams for the size, quality, affordability and sustainability. The initial results are very encouraging, actually even better than we expected. We've seen an increase of the overall e-commerce conversion rate and the Net Promoter Score, which monitors customer satisfaction. Net Promoter Score of marketplace orders is fully in line with our own e-commerce order. So strong success in our view. On Slide 12, we look at our store portfolio. As you know, we actively manage this portfolio to optimize our footprint. And obviously, our expansion plans were impacted by the pandemic last year. So in 2020, we had a net reduction of 7 stores with 5 fewer stores in France and 2 fewer stores abroad. This was the combined results of 9 openings, of which 4 in France, 4 in the rest of Europe and 1 in the U.S., 1 Modani. And 16 closures, 9 in France, 3 in the rest of Europe and 4 in the U.S. The 4 in the U.S. were including the 2 pilot Maisons du Monde stores that were closed during the pandemic and that we decided not to reopen. 2 Modani stores were closed in 2020, Chicago and Frisco. We will discuss Modani later on in the presentation. Therefore, [indiscernible] our total store network stood at 369 stores, so broadly stable total sales area. As you know, we tend to open bigger stores than those that we close. Our goal is to build the strongest store network year after year, as stores are essential to our omnichannel approach. They are a place for inspiration, for expert advice. They clearly reinforce proximity with our customers through this unique experience. And they also are a key logistic assets for digital, as proved by the successful implementation of click and collect during the second lockdown, which obviously enhance both customer experience and online economics. With that, let me hand over to Eric, and I will return to make some concluding remarks.

Thank you, Julie, and good morning to everyone. Let me begin on Slide 14 with a quick overview of our main indicators. Our sales, as already mentioned by Julie, at EUR 1.18 billion, were down by a limited 3.5% in total and 6.6% on a like-for-like basis. Our gross margin at 65.8% of sales is up 50 basis points year-on-year due to the combination of a positive foreign exchange effects, lower promotions and a slightly favorable product mix. Trade margin decreased by 5.1% or 85 basis points as a percentage of sales, resulting mainly from 3 factors: first [ we had ] logistics cost in H1 relating to the strike in France at the start of the year; second, higher cost of deliveries as a bigger proportion of goods were delivered to home; and third, a lower absorption of fixed costs. EBITDA was a resilient EUR 241 million, down 7.2% year-on-year, resulting in an EBITDA margin of 20.4%, down by a limited 70 basis points year-on-year. Second half EBITDA rose 6% year-on-year in value, thanks to a very strong third quarter and December was strong as well. EBIT was EUR 86.2 million, down 27.8% with a resilient margin of 7.3%. Net income was a negative EUR 16.1 million, largely as a result of an asset impairment of EUR 51 million related to Modani. This is largely a result of the pandemic that undercut our store expansion plan, and more generally, our U.S. strategy. And Julie will develop this in greater detail shortly. Our net debt, excluding lease liabilities, was reduced in the year by about 1/3 to EUR 96 million, resulting in a reduction in our leverage to 0.8x. Finally, we generated robust free cash flow of EUR 54.1 million. Let's look at all of this in greater detail. On Slide 15, we focus on our full year sales. Thanks to a strong second half and partly the third quarter, we contained that to 3.5%. Looking at the different building blocks on the slide. You see that like-for-like sales decreased by EUR 70.9 million, obviously impacted by the store closures. Development added a net EUR 23.6 million, the result of EUR 27.6 million positive contribution from stores opened in 2019 and '20, and negative contribution of EUR 4 million from the net store closures. Modani and Rhinov has a positive contribution of EUR 4.1 million in the year. Let's turn on Slide 16 to the share of international and online sales in our overall performance. In the full year, international sales represented 46.9% of total sales, up from 45.1% the previous year, while online sales jumped to 33% of the total from 24.7% in 2019. So that was for the full year. This slide focuses specifically on the second half performance over a 3- year period. During the second half of 2021, we gained EUR 21.2 million in international sales, reaching EUR 317.5 million in the second half of 2020. Even with roughly 1 month of closures in November, up 7% versus the same period last year. On a compound growth basis, international sales have grown 11% a year between H2 '18 and H2 '20. Over that period, they have grown to 46% of total sales from 42%. Online sales for their part have grown both in absolute terms and in their share of total sales. In H2 '20, they stood at EUR 204.5 million and represented 30% of total sales versus 23% in the same period last year and 22% in the second half of 2018. Between H2 '18 and H2 '20, we have added EUR 73.5 million in sales. On a compound basis, they have grown by 25% per year in the 3-year period. Slide 17 shows you how we went from sales to EBITDA under the IFRS 16 standards. Gross margin at 774 -- sorry, EUR 778.4 million, dropped slightly less than sales by 2.8%, and this increased as a percentage of sales by 50 basis points to 68 -- 65.8%. This reflects a favorable currency effect of the U.S. dollar and lower promotions as well as a small favorable mix impact. Trade margin decreased by 85 basis points as a percentage of sales as a result of higher logistics costs related to the strike in France at the start of the year, higher delivery costs as more goods were delivered to home amid the COVID-19 pandemic as well as less efficient absorption of fixed costs due to lower sales, as previously mentioned. Our operating costs were down by 3.9%, closely tracking the drop in sales. Advertising costs were down 3.3% as we optimized online marketing and store operating costs. And essential costs were down 3.9% as a result of our strict cost management and net store closures. This resulted in EBITDA of EUR 240.6 million, a year-on-year drop limited to just 7.2%, with associated margin of 20.4%, which remains very robust. On Slide 18, on the following slide, we zoom in on our EBITDA performance by half. This slide illustrates the tale of 2 halves that Julie mentioned in her opening remarks with very contrasting performance. As you can see on the left-hand side, EBITDA dropped in H1 to EUR 69 million from EUR 97 million in the year earlier period with margin dropping 310 basis points to 14.1%. The drop in EBITDA was largely due to lower sales volume and higher logistics costs, partly offset by higher online sales and lower operating expenses. The second half was a different story. EBITDA rose year-on-year by 6% or EUR 10 million to EUR 172 million, and margin was up 30 basis points to a very solid 24.8%. This is the result of a smaller contraction in store sales due to COVID coupled with actions -- online sales and strong sales during the non-lockdown periods of the half year. The following slide, Slide 19, continues to run through our P&L from EBITDA to net income. Our EBIT at EUR 86.2 million was down 27.8% impacted by a combination of lower EBITDA and higher D&A. The higher D&A results mainly from the recent store openings, which totaled 82 gross stores openings since 2018 of which half or exactly 41 in 2019 alone as well as digital, IT and logistics investments. Operating cost below EBIT includes the EUR 54 million P&L impact of the asset impairment related to Modani that we will address shortly. Financial results include higher cost of net debt at EUR 2.5 million compared to EUR 1.3 million in 2018 as a result of a drawing down on our revolving credit facility for EUR 150 million in March to product liquidity. This facility was repaid in full in September. Income tax is about 5% lower at EUR 33.6 million. It was impacted by a one-off charge -- previously disclosed one-off charge related to a tax audit, which was booked in H1 and includes local taxes for EUR 4.4 million. Note that the Modani asset impairment charge was tax neutral. The effective tax rate was 30%, slightly down from 31% in 2019. All this led to net income of negative EUR 16.1 million for the full year. On Slide 20, you see that we improved working capital by more than EUR 17 million in the year. Inventory was reduced by EUR 39.3 million from a combination of supply chain bottleneck between Asia and Europe and higher-than-expected post lockdown activity. We saw an increase of EUR 57 million in receivables, mainly due to advanced payments made to suppliers to secure the H1 2021 deliveries as well as a portion of Q1 2021 rent paid in December 2020 and amounts receivable from governments for temporary unemployment. Net trade payables, combined with other payables were up by about EUR 36 million, mainly due to higher supplier payables and payment received from customers for sales not yet delivered as of the 31st of December 2020. On Slide 21, we focus on cash flow, which, as mentioned previously, was a strong EUR 54.1 million, benefiting from our cash management measures. Year-on-year, it's down by about EUR 30 million explained mainly by lower EBITDA and a smaller improvement in working capital versus previous year. Our free cash flow is a result of the positive change in working capital, which I just described and an improvement in other operating expenses as well as a 22% drop in CapEx to EUR 47.5 million. This reflects our store expansion with store development and maintenance costs down by about half to EUR 19 million. Conversely, we invested EUR 13 million in the construction of our new automated distribution center in Heudebouville in Northern France, which is getting underway. For your attention, we've also included an appendix, a waterfall showing the cash flow evolution year-on-year that I will not comment here. I will conclude my section on Slide 22 with a look at our very strong liquidity position, which allows us to face the ongoing uncertainty with some degree of comfort. In the end of 2020, we had cash and cash equivalents amounting to EUR 297 million. This amount includes EUR 150 million loan that we took out, which is 90% guaranteed by the French state. It also reflects the fact that we suspended dividend payment in 2020 to protect our cash. Our net debt reported under the IFRS 16 standard that is including lease-related liabilities, stood at EUR 712 million, down EUR 93 million compared to December 2019. As mentioned earlier, our net debt, excluding lease-related liabilities, was reduced by EUR 46 million, and our net debt-to-EBITDA ratio decreased to 0.8x from 0.9x 1-year earlier. This is at the low end of our covenant range. But let me remind you that we successfully negotiated a covenant holiday for the [ testing clearance ] of June and December 2020. Therefore, our EUR 200 million senior credit facility is covenant free and it matures at the end of May 2021. Our strong liquidity gives us sufficient flexibility and headroom to be able to address even the worst-case scenarios as regards the evolution of COVID-19 in the coming months and allows for flexibility in capital allocation choices, and Julie will come back on this point. With that, I will now hand back to Julie.

Thank you, Eric. On Slide 24, I'd like to take you through our current trading. We've seen high in-store activity following reopening at the end of last year, but we do continue to feel the impact of the pandemic on our store network. As of today, 17% of our European stores are completely closed. It's about 20% of our store network in France and the rest in the rest of Europe. Those countries most affected are France, Germany and Spain. And we also have 10% of our European stores partially closed. That is mainly in Italy, where they are closed on weekends. Despite the full or partial closure of nearly 1/3 of our store network, our year-to-date store sales are broadly stable. Regarding online sales, gallery sales continued at same pace in Q4, which was by about 40%, and February sales are above the January trend. Furthermore, we can deliver our customers without major disruptions, as it could happen last year. In terms of inventory, we are still seeing some impact from the supply chain bottlenecks that accumulated in the second half of last year as supply couldn't match demand when business [ were in ] lockdown. The freight situation is still complex as we see soaring prices and import and capacity constraints. However, our proactive supplier and freight for order management since Q3 last year is delivering results, and things are now gradually normalizing. Thanks to our team's dedication and despite continued pressure on freight, we still expect the inventory situation to normalize by summer, as previously announced, provided the overall freight situation [ obviously improves. ] On the following slide, Slide 25, we look at our commercial and development prices for the year. Following up on what I've just described, we are actively working towards normalizing the supply level in furniture especially by selectively rebuilding inventory. And we will also work on further strengthening our offering, increasing its differentiation and relevance for our customers. This goes hand-in-hand with continuing to develop our brand by reinforcing its creative, affordable and sustainable positioning. We will also continue to reinforce our omnichannel model by accelerating our digital growth and further integrating our stores and website. We plan to expand the deployment of our marketplace by making it available in-store in France by early 2022 and also roll it out outside of France in 1 online market in the course of 2022. Another strategic priority is to advance on building our second warehouse in the north of France, and this is a key enabler of our strategic ambition in terms of operational cost reduction but also risk management and sustainability. We expect a staged opening with the first section coming by H2 2022. We will also continue to show strict financial discipline to manage our cost and optimize our cash allocation. Finally, we have launched a strategic review for Modani and decided to book a EUR 51 million noncash impairment as of end 2020. As you know, we have planned to develop Modani and use it as a platform to develop the Maisons du Monde banner in the U.S. and with the COVID-19 pandemic and in the current challenging U.S. retail market, this plan has become less relevant to the group's overall strategy. As already announced last year, we decided to close down the 2 pilot Maisons du Monde stores in the U.S. And now in order to focus the company in European operations and improve return on invested capital, we will not resume development plans for Maisons du Monde in the near future in the U.S. Consequently, we are revisiting our U.S. strategy as a whole, and the group is currently considering all strategic options for Modani whilst underlying fundamentals remain sound. Eric mentioned earlier that our strong liquidity and free cash flow allowed for flexibility in capital allocation choices. And we illustrate that on Slide 26. We are working on 2 fronts, as mentioned here. First of all, debt reimbursement. We have decided to reimburse in Q2 the EUR 150 million French state backed loan we took out last year at the height of the pandemic. And second, return capital to shareholders. We plan to resume dividend payments after suspending them last year, and we will propose to our shareholders' assembly on June 4 to approve a dividend of EUR 0.30 per share, which will represent a cash out for Maisons du Monde of about EUR 13.5 million. Let me conclude on Slide 27 with a few forward-looking statements. In 2021, the group should return to profitable growth and generate higher free cash flow compared to last year. Over the full year, visibility remains, of course, limited, but if the health situation remains what it is today, we expect to post a solid performance in the first half, benefiting from a positive comparable base. So as a result, and under current sanitary conditions, the group is targeting for full year high single-digit top line growth with a broadly unchanged number of stores at year end, an improved EBIT margin up to 50 basis points higher than 2020, and free cash flow above its 2020 level. We also plan to hold a Capital Markets Day in the autumn this year with a full update of our 2024 strategy. I will conclude by saying that Maisons du Monde has risen to the challenge poised by an unprecedented and still ongoing situation. This trying period has allowed us to demonstrate our customers' strong attachment to our brands and collections. It has also revealed the resilience of our model based on this unique balance between stores and online, France and international, furniture and decoration. And all this strengthens my confidence that Maisons du Monde is very well positioned to successfully navigate the post COVID-19 consumption environment. Thank you very much for your attention. Eric and I are now happy to take your questions.

[Operator Instructions] We have the first question coming from the line of [ Gilles Crespo. ]

Can you hear me?

Yes, we can.

All right. I had 1 actually. Regarding new openings. From your guidance, I understand that 2021 will be in COVID-mode on this side. And I wondered if this was to be a 1 shot, all of your international expansion, especially -- has it been or have things changed in terms of potential and perspective of new openings or new developments internationally for Maisons du Monde?

Thank you for your question. So 2020 was an exceptional year with a net reduction of stores. 2021 is another story. We will open stores. We will also close stores. So basically, we should still plan for an active opening plan, let's say, in the mid-teens, but this will be compensated by also the same amount of closures. Hence, the guidance around the broadly stable network. And in terms of France versus international, we should see high growth in international openings, while we should see a reduction in the French number of stores. This is basically how it will pan out.

Okay. Sorry, my question was more further to 2021, in the years after, wondering whether we will see an actual new openings, net new openings, or whether this situation of having closures balancing openings is something to -- well, a new policy in a sense for Maisons du Monde.

Yes. We are planning to reaccelerate on store openings. So we will be having net openings in the next few years. Obviously, we will adapt this opening plan and considering the new environment and the development of our omnichannel model, and we will provide a full update of that in the autumn. But as a general message, we will be -- we will go back to net additional stores in the years following 2021. And those will be mostly outside of France.