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

Good day, ladies and gentlemen, and welcome to Maisons du Monde First Half 2021 Results Conference Call. [Operator Instructions] And just to remind you all that this conference is being recorded. We would like also to inform you that this event is also available live 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, forecast 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. [Operator Instructions] I would now like to hand the conference over to your speaker today, Christopher Welton, Head of Investor Relations. Please go ahead.

Thank you very much, and good morning to all of you, and thank you for joining us on this call to present Maisons du Monde's first half 2021 results. Hosting today's call is our CEO, Julie Walbaum. She is joined by our CFO, Regis Massuyeau. Julie and Regis will be making today's presentation, and then we will, of course, open up to questions. You have no doubt seen the press release that we issued this morning. The conference call slides can be downloaded from and viewed on our website at maisonsdumonde.com. This call is also being audio webcast, and a replay will be available on our website later today. So without further ado, I'll turn the call over to Julie.

Thank you, Chris, and good morning to everyone. With solid growth in both sales and profitability, Maisons du Monde turned in an excellent performance in the first half, even while continuing to operate in a typical environment with stores in France open on average for 2/3 of the period and stores in all the European countries open an average for 3/4 of the time. This situation compares slightly favorable to last year, with a global average opening ratio in H1 of 70% versus 67% in 2020. Stores have mostly been functioning normally now since mid-May and as of June 30, all were open and operating normal hours, except for 5 stores that are undergoing refurbishment as per our plan to accelerate store investments to enhance brand appeal and customer experience. These challenging circumstances allowed us to demonstrate once again both the strength of our differentiated omnichannel model and the attractiveness of a brand. The strength of a model first as we posted broad-based growth in the half with stores resuming strong growth of 30% and online continuing to gather momentum with 44% growth. This online growth was accelerated by the success of our online marketplace in France of which we're especially proud and I will come back to that later on. And the attractiveness of a brand as we continue to gain new customers in the half with 40% new customers in total, well spread across the channels. This attests to the continued success of strength in collections designed to meet evolving customer needs. Both the furniture and decoration collections have been very well received as they need customer design for a return to a more handcraft spirits and more cozy fabrics as well as for colors and joyful patterns. Our collection this year speak particularly well to people who want to feel good in these turbulent times. The press has also highlighted particularly trendy accessory design this season. More sophisticated magazines have started featuring us in France, but also in Spain, in Italy and Germany. As a matter of fact, we are gaining brand recognition across Europe as measured by our annual brand survey. Furthermore, in France, the EY-Parthenon study revealed that Maisons du Monde is once again France's second favorite home decoration brand for the fifth consecutive year, and the second brand across all sectors when it comes to store experience. Finally, the group saw solid growth in its follower space in social networks. Our Instagram community grew again by 13% to reach 5.9 million followers and our monthly average Facebook reach increased by another 20%. All this translated into excellent first half numbers as we will see on the next slide. So Slide 6, we sum up our first half performance in 4 key numbers. Sales stood at EUR 663 million, a rise of 36% compared to H1 last year. Like-for-like growth was almost exactly the same at 35%. To put things in perspective, total reported sales are also nearly 17% above pre-pandemic levels that is in 2019, as Regis would show shortly. EBIT now, which swung to a positive EUR 52.4 million in H1 from a negative EUR 7.4 million in the same period last year. So our margin grew by a very strong 942 basis points to reach 7.9% from a negative 1.5% in H1 last year. This actually represents a historically high EBIT margin level for the period. As a reminder, for the year of 2019, the EBIT margin stood at 5.4%. The combination of strong sales and profits resulted in diluted earnings per share of EUR 0.42 in H1, a very strong reversal from the minus EUR 0.35 in the corresponding period last year. And our model finally showed its ability to generate cash with free cash flow coming in at EUR 57 million, EUR 15 million more than in the first half of last year. These, as we said, are very solid numbers, attesting to the adaptability of our omnichannel business model to the challenging circumstances in which we're operating. On Slide 7, we present our traditional look at sales by geography, channel and category. And as you can see, high double-digit growth is across the board. This rebound was driven by the strength of the omnichannel model and the sound execution of our strategic priorities. By geography, first, both France and international were up strongly, respectively, by nearly 32% and 40%, demonstrating that activity has picked up across all of our markets. As you can see, our growth is not only above last year, which was, of course, marked by the start of the pandemic, but it's also above H1 2019 with France up 8% and international up almost 29%, whereas we had a lockdown this year and no lockdown in 2019. The complementarity of channels is demonstrated by 30% growth in store activity and an even stronger 44% in online as consumers kept shifting from one channel to another to adapt restrictions in different markets. Compared to the first half of 2019, that is pre-pandemic, store activity is slightly down only by 5% due to the fact that our stores were closed on average for 30% of the time during the first half. In the meantime, online is up by an extremely strong 80%, validating our strategic decision to build a digitally driven omnichannel model and to launch on selective marketplace. And by category, finally, year-on-year growth was also strong with a 40% increase in decoration and not furniture, sorry for the typo. There was a mix up in the names of the categories. So we are talking here about 40% increase in decoration and 31% in furniture. This is true also on the 2-year stack with decoration up 16% and furniture up nearly 19%. Now I suggest we turn on Slide 8 to the key operational milestones of the quarter. To continue to enhance our customers and address their evolving needs, especially in this situation, we launched our new kids and B2B collection. Kids is a growing and promising segment. We now have over 1,000 products with a stronger focus this year on sustainability and product modularity, which is a growing expectation from consumers with new items such as convertible changing tables or modular book shelves, which are proving very successful. In B2B, we are continuing our development with a sizable increase in the number of products and an enhanced focus on office-related products, such as desk and chairs to capture the new working-from-home trend. We also continued to improve our omnichannel proposition with the introduction of 24-hour delivery for decoration items ordered online and the continued ramp up of our selective marketplace, which I'll tell you more about on the next slide. Finally, we continue to strengthen our brand appeal with the successful opening of our third Maisons du Monde Hotel and Suites in the city of La Rochelle, like the ones already offered in Nantes and Marseille. This one showcases our furniture and decoration products in its 63 rooms and is a great way to highlight the brands and bring it live to our customers. This hotel, again, was opened in partnership with the Vicartem group, and feature the same, just like home and better. All this contributed to the attractiveness of our brand and helped explain why we were again ranked by customers the second favorite Home and Living brand by EY-Parthenon. On Slide 9, we focus more specifically on our carefully curated marketplace with extensive offer complements our home product range and with success contributes to our overall online growth. We did see a very good level of activity in the half with GMV reaching EUR 32 million. That represents 1/4 of our total French online GMV already, which is a very significant number so soon after launch. We continue to see an increase in the number of brands onboarded, which grew from 400 during March to 580, and we realized over 200,000 transactions already. Now for several sizable vendors, the Maisons du Monde marketplace is already the leading generator sales after just a few months of activity. The marketplace now features more than 70,000 SKUs and the best-selling categories for the semester include outdoor furniture, indoor sofas and armchairs as well as bedding, a new category for Maisons du Monde and also bed linen. Finally, we have a very high level of customer satisfaction for those marketplace orders, which, as you know, is a key focus for us, with a score above 4 out of 5, which is at par with our own e-commerce operation. We do expect to continue to ramp up the marketplace and are preparing the launch of the marketplace in the French store network and also a second online market, both by 2022. On the following slide, Slide 10, we look at our store network in the house. The current environment and the evolution of consumption habits has led us to slow expansion in terms of number of openings, but it does not, in any way, change our strategy of actively managing our store network to have bigger stores in those locations. This helped improving our customer shopping experience and builds proximity with them, a key feature for our brand appeal, shows how to showcase a brand and are a key enabler of our omnichannel strategies as they allow us to fulfill our online models in a very cost-effective way. At the end of H1, we operated 369 stores, an unchanged number versus December of last year. Over the period, we opened 11 stores, most of them outside of France, and we closed 11 as well; 8 in France and 3 in the rest of Europe. So on a net basis, we have 6 stores in France and 6 additional ones in our international network. In terms of sales area, we added about 5,000 square meters over the period with a stable number of stores as part of the active management of locations as mentioned. On Slide 11 now, we look at the continuing progress we are making on our CSR commitments, a key focus of the brand, as you know. In H1, Maisons du Monde concentrated its CSR efforts on 2 key fronts. First, in that the environment, we strengthened our sustainable offering with a number of spring-summer decoration items meeting sustainability criteria, increasing by 50% year-on-year, and eco-friendly products in kids categories up by 44%. In addition, in line with our commitments to reduce and optimize our energy consumption, we completed ISO 50001 certification of all of our French stores. Second trend, social measures, which are particularly important in the pandemic environment we are facing. So let me go to few actions. First, we supported our team purchase in power through a bonus to all of our employees in Europe, and we did provide extra compensation on temporary unemployment to align all our countries on French social security terms. Second, we signed a 3-year agreement with our labor unions to promote the inclusion of disabled persons in our workforce. Third, we financed the vaccination program for Indian suppliers, allowing 1,300 workers to be vaccinated to date. And fourth, we donated products to 21 hospitals in France, Belgium, Italy and Spain. These efforts are all part of a drive to become an ever more sustainable company. And with this, let me now hand over to Regis.

Thank you, Julie, and hello to everyone. Really happy to be with you this morning to comment on this strong set of results. Let me start on Slide 13, 1-3, just important for me to set the background -- backdrop, sorry, against which we operated in H1. The environment continues to be something of an active threat of our omnichannel model. We proved to be very well adapted to the disruptive context in which we are operating and allowed us to turn in the excellent performance just Julie described. Some of these elements are important because they will prevail some of the tendency for the rest of the year. First, some elements of context about the stores. Getting into the detail. In terms of stores H1 sales up 30% is a bit of 2 momentum: 21% in France; international at 42%. This was achieved despite challenging circumstances. French network was open about 2/3 of the time in H1, with Q2 particularly impacted, if we all remember as half of our stores were closed on average in the period. At the same time, our international network was open 74% of the time on average. But in this case, it was really Q1 that saw more closures with about 1/3 of stores closed during that period. In that context, really happy that we were able to maintain the traction and the growth pace with very similar growth rates in Q1 and Q2. Second element is obviously about the web. Web continued to help pick up the slack as consumers shifted online. Online sales up 44% in the half with France growing faster than international. Online accounted in the semester for 40% of sales up 26% versus 2 years ago. As mentioned by Julie, marketplace is really satisfactory in that set of results and did develop above expectations. Finally, and it's an important element. I think we may talk a lot about this today. The H1 context is a lot about as well the supply. We are not immune to the global disruption on supply chain from Asia. And as in many other sectors, we have been facing new disruptions since the start of the year. In terms of sourcing and supply, we managed to contain the rise in shipping cost so far, but we continue to face capacity constraints in maritime transport and our suppliers also faced bottlenecks that make their factories run below capacity. As a result, our inventory rebuild is taking longer there are issues that we expect to continue to see versus second half. Those 3 operational elements are essential to understand the profile of the performance of Maisons du Monde during the semester. And I propose now that we get into the detail to understand as well all the dynamics. On Slide 14, let's look at the building block of our H1 sales growth. Classic bridge that we comment every time. As you can see from the bridge, we added EUR 173 million in sales between H1 2020, H1 2021, representing growth of 35.5% during the semester. I think it's important to remember that it's close to EUR 100 million more versus H1 2019, i.e., 17% growth on a reported basis roughly. And to make things simple, EUR 125 million extra on web and EUR 25 million less in stores due to COVID versus 2019, but very good development, this is pre-pandemic season. A major part of this growth you can observe was organic as like-for-like growth accounted for more than EUR 150 million of additional sales, showing a strong pickup in activity in stores as I commented, and obviously, online we're being very dynamic. Development added to the period another EUR 9.3 million in sales with roughly 2/3 of that, i.e., EUR 6 million, coming from stores opened in 2020 and the remaining coming from this year's opening. Finally, Modani and Rhinov did another EUR 9 million in sales. Let me just spend a couple of seconds on Modani, which notably increased 43% versus last year, adding EUR 10 million more than last year's sales, benefiting from market conditions with people moving to the south of the U.S. and from its capability to source products in an efficient way. All told, I would like to flag another element, which is about COVID effects. Classically since last year, we are commenting on this development and this impact. We estimate that lockdowns in the first half reduced our total sales in the period by EUR 45 million, down from the EUR 110 million of last year in the same period. This represents a balance between sales decrease of EUR 60 million in stores, partly offset by additional online sales of 15%. Turning to Slide 15. We break down our performance by quarter. So to give you a more precise view of our performance and visually observed by business development over 2 years. As you can see, our sales were almost similar in both quarters, believe me, not at all monitor that way. But Q1 and Q2 are EUR 331 million. That performance is obviously quite sharply above last year, which was marked by strict lockdown as the pandemic setting last year. In both quarters, our sales were roughly 35% above the corresponding quarter of last year. Part of this growth is, of course, due to the fact that we operate 3 more stores on a net basis than we did in H1 of last year. But again, what's particularly noteworthy is that our performance, we can visually observe that, is significantly above pre-pandemic on each of the quarter, with Q1, 18% above Q1 2019; Q2 roughly 17% above the same quarter 2 years ago on a reported basis, which is an equivalent like-for-like growth of 12% over the semester. All of this reflects the steady progress we have made on our strategic priorities, such as digital, notably the marketplace. What is important to observe is Q1 profited from the strong growth of web, 17%, remember; Q2 saw a strong rebound in store activity when reopening as of mid-May. Just to conclude on this slide, note also that we did not start our traditional promotions since really the back end of June 30 this year, so this therefore had virtually no impact on our H1 performance. Finally, looking at the graphic, I think it's important to bear in mind what we can see on 2020. 2020 post lockdown created a H2 high comparable base, notably for stores. And that the second full half year of last year was significantly stronger than the first half, creating a high hurdle for us to jump this year in H2. We will comment later on the H2 business outlook. Let me switch to Slide 16 now, where we focus especially on online. Again, it will not surprise you that the digital sales in the first half accelerated sharply this year versus last year to reach EUR 260 million over the period, nearly double the size of 2 years ago basis. As said, growth was particularly strong in Q1, 76%, as a real ramp up last year began in Q2. But Q2 this year, again, is quite strong at 25%. Overall, online sales in H1 of this year represented 40%, 4-0, of Maisons du Monde total sales, a 2 point increase over the same period last year and 12 point jumped over Q1 2019. In that scope, France was the top performer, ahead of Germany, Italy and Spain. Overall, 2 years CAGR is above 30%. On a more operational classic KPI, mobile continue to be far the biggest driver of our online activity. In H1, our best-in-class mobile platform represented 72% of traffic, 5 points more than in 2020 and 39% of sales, 10 points more than last year, very good development. I would like to flag as well and to highlight that as well that the number of store-only customers who bought online for the first time was up to 38%, while online traffic overall was up 40%, 4-0. On the following slide, we move the spotlight to our store performance. Overall, as I said, stores are up 30% versus last year, but down 5% due to COVID 2 years ago. Year-on-year, growth was, of course, stronger in Q2 due to the way market was impacted by the lockdown measures in the different markets. In H1 of 2021, stores were opened 70% of the time compared to 66% last year. The opening rate of our international stores was higher than that in France, with a key exception in Germany, where I do remind you that stores were closed fully from January to the end of May. That, combined with the expansion of side of France contributed to the weight of international in our mix being 4 points higher in H1 this year than it was in the same period last year, 5 points higher than 2 years ago. Before moving to the profitability part, let's turn out to categories to conclude on sales. Decorations are up 40%. As you can see on the slide, over the past 2 years, we have seen a shift in balance with decoration increasing as part of the overall mix. It now represents 51% of total sales versus 49% 2 years ago. Part of that, we may recognize is due as well to the increasing -- to the fact that we are supporting shipping capacity constraints in H1 making it harder for us to restock furniture in our inventory. But the increase of this ratio is strongly based on the success of our decoration collection. Despite supply issues that prevented us in securing a return to normal of inventory as I just said, I would like just to flag that we have for furniture as well strong 30% growth during the semester, with outdoor keeping performing very well as mentioned already in May; all the best sellers, including armchairs, sofas, frames, dressers and textiles. Closing the section on sales, I would like now to switch and to turn to EBIT on Slide 19. As Julie mentioned earlier, we're trying a positive first half EBIT of EUR 52.4 million in H1, reversing the negative exceptional EUR 7.3 million recorded last year in semester. This came with a historically high margin of 7.9% sort of one of a kind, up by a very strong 942 basis points. I mentioned one of a kind indeed because this level is partly related to what I would call a nonnormative cost baseline and some elements of payroll or rents were not at the right level due to continued subsidies albeit less than last year. However, this rebound shows a profitability fully on the back of the excellent sales performance. This half EBIT growth was largely driven by positive mix, I mentioned, driven by more declaration as well as less promotion. For your information, promotion ratio decreased year-on-year by 2 points. Second, we have obviously on the back of this growth, a positive leverage in the half that is notably visible on logistics. Logistics is, however, moving ahead in the ambition, improving well with strong operating efficiency in transport to store and customers. It's also fair to highlight that this margin expansion was helped by the fact that last year, we had to face COVID-19-related one-off cost, that obviously did not reoccur this year. For example, last year, we had extra logistics costs related to the dockers strike in France that we did not incur again this year and some of other extra costs related to logistics to COVID period and sourcing. But this positive leverage is as well visible on store and transport costs, despite the fact that we benefited last year from a higher amount of government support on wages, and we negotiated store rental reduction. Net of absorption and incremental cost, we can see the favorable development on ratio of 138 basis points. Finally, and I think it's important to have always this element in mind, to support web growth and other initiatives to support activities of Maisons du Monde, marketing investments increased to an absolute amount of EUR 35 million, a rise of EUR 13 million, 1-3, mainly on web in parallel with some savings for catalogs. Those are essential to support Maisons du Monde brand equity and develop web and store traffic. We are really keen on developing this investment, always considering a strong discipline and demanding culture on return on investment. Closing on EBIT and before handing the mic over to Julie, let's now turn to cash flow on Slide 20 and then briefly to EPS. On cash flow, you have seen that we recorded a EUR 50 million increase in free cash this semester, reaching EUR 57 million. This evolution was primarily driven by 2 factors. First, EUR 64 million positive swing in EBITDA for which I just gave you some of the main components explaining the element on EBIT. Second, a change in working capital requirement that was EUR 44 million lower than -- this year than last year. Remember, it was mainly related to inventory movements in the first half of 2020 and 2021. You may remember that at this point of time last year, we stopped all inventories orders following the first COVID lockdown in March. As a result, inventory declined to a rather low level. So this induced a rather sharp improvement in the working cap requirement last year. This year, we have had exactly the opposite effect. We are in the process of rebuilding our inventory, so there is a swing in the other direction. As a consequence, working capital net sales ratio went from a negative to flat due to this higher level of inventory and accounts receivable compared to H1 last year. Having said that, now talking about inventory, we are running behind what we were forecasting, and the increase of inventory remains a key objective for us in H2, but it will take longer. Free cash flow change also includes the EUR 5 million increase in CapEx versus H1 last year, reaching EUR 24.5 million. This increase is mostly for store development. CapEx to net sales stood at 3.7% in the first half, but we do expect this ratio to increase to a level very close to 5% in the full year. Turning now on Slide 21, to earnings per share, which we consider a very important metric to measure our performance and demonstrate the importance we attach to the shareholder value. In H1, our EPS increased EUR 0.77 to EUR 0.42 as a result of our significant top line growth and what I commented on margin expansion. All of this brought EUR 0.90 per share. In addition, you can observe a slightly negative effect on the finance part, mainly due to some ForEx year-on-year effect. Regarding tax, with a quite stable ETR, the negative is driven mechanically by increase of profit, but this one being limited by a 2020 tax accrual that created a one-off available base element. Again, good development, translating and really showing the conversion of profitable growth engine. With that, let me hand back to Julie.

Thank you, Regis. So on Slide 23, we focus on our commercial priorities for the rest of the year, starting with addressing the supply chain challenges in Asia induced by the COVID outbreak. In this, we're working to manage maritime freight capacity constraints and cost hikes, driven by the expanding pressure on freight from Asia, more specifically China, India and Vietnam with container prices reaching new highs. Furthermore, the In-Fa typhoon that hit the East Coast of China over the last couple of days, especially the 2 main ports of Shanghai and Ningbo has been creating further disruption, putting the activity of these ports on hold for to-be-defined period of time. It could be days, it could be weeks. Based on the history of the Suez channel and more recently of the Yantian Port in the Shenzhen region, the third main port in China, which was closed for 2 weeks in June. This momentary interruption is likely to drive further delays and increased pressure on container and freight forwarder capabilities for a certain number of weeks. Manufacturing capabilities are also currently reduced in Vietnam as the pandemic is expanding rapidly in several regions, especially since the last couple of weeks, including in the region of Ho Chi Minh, where several of our suppliers are. Our owned factory is currently closed for an estimated 4 to 5 weeks. Finally, although the situation in India has been slightly improving since our last communication, capabilities will stay significantly reduced over the next quarter after a 4-week lockdown in May and June. As a result of all this, a key priority for the semester will be to keep working towards normalizing the supply level in our different product families. Our teams are fully mobilized to strike the right balance between product availability and cost management, supported by a series of tools and processes that we implemented last year. Besides addressing these short-term challenges, we will not lose sight of our strategic priorities, which stay broadly unchanged. Therefore, we will keep strengthening our offering based on reinforced consumer feedback rules. We will maintain our efforts towards offer sustainability and product waste management, especially by advancing our efforts on product repairing and recommissioning. And finally, as said before, we will continue to reinforce our omnichannel model by accelerating our digital growth and preparing the launch of the marketplace in the French store network and the second online market, both planned by 2022. On Slide 24 now, let me share with you a bit of color on how we see H2 activity so far and how we view the half as a whole. First, commercial activity. As we stand today, our stores are open and functioning under normal hours. July activity has been sustained by summer sales promotion that began as registered on June 30 versus July 20 last year. However, we are not seeing in Q3 a repeat of last year's post lockdown boost. Indeed, after strong traffic in stores and online in the first half traffic is now normalizing as consumers have shifted part of the spending to other categories such as travel and leisure activities following alleviated sanitary measures starting end of May. In addition, we will be facing a substantially higher comparable base in H2 as last year's activity was very much skewed towards the second half, with a 5% sales growth in H2 compared to a minus 13% in H1. And we also remain vigilant concerning the evolution of the health situation in Europe, where, as you know, covered cases are on the rise again. After commercial activity, second item, product availability and gross margin. As we said, and I have just detailed, we are continuing to see challenges on the supply front, and we cannot rebuild our inventories at the pace we anticipated. We also expect our H2 gross margin to be impacted by maritime freight price increases to a higher extent that what we planned for at the end. To face this uncertain environment, our teams are fully focused on providing the best possible experience to our customers and striking the best possible balance between supporting sales and protecting margins. So let me conclude on Slide 25 with our full year guidance. When I presented our 2020 full year numbers back in March, I told you that last year was very much a tale of 2 house with a sharp drop in H1 and a strong rebound in H2, while the same can be said of 2021, but in the reverse order. Our H1 was indeed very strong, and we faced a high comparable base in H2 as well as a number of challenges. One could say we are too cautious based on these excellent results to date, as our full year guidance implies a negative growth of around 10% for the second half. Well, let me be very clear on this point. This is not our main working scenario, and we are currently implementing a detailed action plan to maximize product availability for the remainder of the year in our constrained environment. That said, uncertainty is currently too high on a number of factors, and the product availability/cost equation needs to be managed carefully. This is why we feel it is appropriate at this point in time to leave our full year guidance and change. We will update the market at the Q3 results call. Therefore, based on the excellent H1 performance, we are confident in confirming our full year targets: high single-digit top line growth year-on-year with a broadly stable store count at year-end; an improved EBIT margin increasing by up 50 basis points versus 2020; and free cash flow higher than last year. I'm also pleased to announce today that we plan to hold a Capital Markets Day in Paris on Monday, November 8, to present our updated strategic road map. We will provide more detailed information on the exact location and time in September, and look forward to seeing you there. This ends our presentation. And Regis and I are happy to take your questions.

[Operator Instructions] And your first question comes from the line of Nicolas Langlet from Exane BNPP.

I've got 3 questions, please. So first, it seems that the recovery in France has been a bit softer compared to international in Q2. So you mentioned the impact of the same period timing, and there were also some store closure impact, I guess. But beyond those 2 elements, are there any reason why we should see a divergence of trend between France and the rest of countries? And are you seeing any diverging consumption trend in France compared to other countries? Second question on the gross margin. So you mentioned some headwinds for H2, but you had some positive mix effect in H1. So what should we think about the gross margin in H2 taking the different variables in mind? And finally, you mentioned some product shortage impact in H2. Are you able to quantify what impact on sales you are expecting from that?

Thank you, Nicolas. I will take your questions 1 and 3, and Regis will answer the second question on margins. So to your questions around recovery trend being different in France versus international, well, it is very much due to, indeed, the store opening ratio as we call it, which was very different in France and internationally -- in international. I'll tell you some more specific numbers that could help. So in France, it was basically stable. 67% of the time this year versus 68% last year, so really stable. But international was pretty different. We were in H1 opened for 74% of the time versus 64% last year. So it's a 10-point difference. And this was particularly the case in Q2. International was open for 80% of the time versus only 50% last year. So this is -- this explains completely the difference in recovery trends that we could see. Otherwise, there is no big change in consumption patterns that we can see. On the third question -- so maybe second question Regis will answer, I'll get back to the third.

Yes. Okay. Thank you, Julie, and thanks, Nicolas, for your question. Indeed, we do envisage gross margin to be with an impact, which is higher than the one we mentioned in May, if you remember. Already at that point of time, we were flagging probably up to 200 basis points, a combination of raw material and freight at this moment of time. You may observe that at the moment, there are really soaring increase of spot market on the freight, maritime freight. We are not paying at that level. However, despite having, I would qualify good contracts with our freighters, we are, however, exposed to some volatility and inflation to secure the capacity. So we do envisage now a higher impact of those elements, probably to reach 300 basis points for the company. In parallel, we are not changing our priorities at this point of time. I think the uncertainty we are flagging today do not change our priority for the rest -- for the short and midterm. So we do envisage to keep investing behind growth and support all the priorities we set at the beginning of the year. So these are 2 reasons: one for gross margin; the other one will have an effect on EBIT as at yesterday, put me in the situation to explain about a decreasing H2 margin versus last year. So yes, you mentioned mix. I'm not at all concerned about the development of decoration in general. But indeed, the furniture availability will have an impact on that one. So we are monitoring inventory management there. Obviously, if the trajectory of H2 may be in the negative zone depending on the way those, let's say, turmoil or challenges could translate into, there will be a negative leverage effect on the equation, which is an element that will appear on the equation of the gross margin.

And to answer your third question on product stoppage impact, if we remember the last call syndication, we said that we had manufacturing constraints in India that would impact Q3 in the region of EUR 50 million to EUR 60 million. Well, we do have this impact in Q3. It's a little bit less in the region of EUR 10 million less because the situation has been slightly improving, but it's still materially impacting Q3 at the moment and a bit of Q4. Now the 2 elements that have occurred in the very last few days are China with the recent closure of the Shenzhen harbor in June and now the In-Fa typhoon over the last couple of days to Ningbo and Shanghai. So China plus plus, and then a bit of Vietnam with the pandemic spreading over the last couple of weeks. So these 2 countries and the sourcing constraints linked to that will be affecting more Q4. So we could see more product shortage in Q4 compared to Q3. And in terms of product categories, this would impact more furniture compared to decoration far and above things, both especially in Vietnam and the supply is mainly composed of furniture. And second, in terms of shipping priorities, we are now prioritizing decoration for the end of Q4 to secure the Christmas season and also the implementation of the new collection and the spring/summer next year. So shortage will be observed more in furniture compared to decoration.

Yes. Okay, perfect. And just to come back on Regis' comment on the gross margin. So if you look at the H1 '21 gross margin, what was the impact of raw material and freight costs only for H1?

It was negative already more in the direction of what we mentioned originally at the time we communicated the guidance. So it's more EUR 100 million to EUR 150 million. It does not translate into the gross margin level as you have seen because some of the elements I mentioned vis-à-vis mix, vis-à-vis some one-off costs last year in terms of freight did reverse this element. One element I could flag out proactively because vis-à-vis this development of freight and raw material for the rest of the year, I would like to complement my answer. We have decided to go for a selective pricing to -- when I say selective is really category, subcategory by subcategory to compensate part of this. I think we are in a situation now that we can consider that some of these elements will last for a portion, and it was important for us to mitigate this as well. So pricing will be embarked into the equation. The reason I did not flag it to your question on H2 is that the effect will be limited due to the implementation of it and the phasing of this implementation. Because obviously, we will manage this price increase strategy along the way we implement the new collection, notably. So effect this year will be limited, but H2 2022, sorry, effect will be there to help us, obviously, monitoring the gross margin, which remains a key priority in everything we do so to support the equation.

And your next question comes from the line of Clement Genelot from Bryan Garnier.

I've got 2 questions from my side, if I may. The first one is on [ Q-on-Q ] trading. Are you seeing any sort of sustaining trend in late June and also in July given the, let's say, full view of opening of restaurants and cinemas and so on across Europe and especially in France? And my second question is on the marketplace. So you said that the marketplace already quite contributed to the sales in H1. Is it also the case in -- on EBIT? And do we have to, let's say, expect another contribution to EBIT in H2? And is it a lever to, let's say, quite offset some additional costs on the raw materials and so on?

Okay. Thank you, Clement. I will take both of your questions. So first, on the current trading, indeed, you're right. The evolution should be observed month after month, and if you take traffic, which I think is a good proxy for market demand, I can comment on store traffic, and I can comment on also online traffic, but like really for the category, based on Google searches and different market indices, we have a good view on the category itself, which do translate into our numbers, by the way. So in terms of store traffic, we saw a very strong Q2 in traffic and sales with a material difference as we said between France and international due to a different store opening ratio. But even in France, we had a positive traffic trend in Q2. And indeed, it started to slow down from June onwards and also in July and shifted to negative growth in July, concerning store traffic. And it's really interesting because in the retail world -- in the physical retail world, we did see -- because we follow a number of panels and indices, we did see an uplift in store fashion retail. So it seems like people wanted to shop around again and buy the new dresses for summer and really go back to physical stores, but really for fashion -- for summar items, especially fashion. When it comes to online, we did see a very strong trend in traffic up until April. And then it started to slow down in May and a bit further in June and a bit further in July. And the online dynamic was pretty different because we did see also this decline in other categories, such as fashion, but we saw a major increase in categories such as travel and leisure. So it feels -- I mean, based on all of the numbers we see on market and also based on our own traffic numbers, it feels that really from the second fortnight May, than June, than July in this incremental way, we did see traffic fading a bit away. So is it very much contextual? Part of it, yes, because I think that half the people have gone on holidays and bought their summer dresses, they will go back to spending on other categories. And some of it could be dependent on the consumer confidence index, depending on the evolution of the health situation. But it is true that there is very much of a summer effect here. To your second question around the marketplace. So just to clarify, it is indeed a very big portion of the French online GMV, like this 20%, which, again, as our market indices say, again, is a very strong performance after just a few months of operation. We're actually beating records in terms of marketplaces as our partners say. And we are one of the fastest expanding marketplaces in the sector over the last few years in France. So this is really good news. But this is in France, of course because this is only a country we're operating, so France is half of the online activity. So this 20% contribution on French activity is only 10% on total online activity. It does have a positive contribution on EBIT, but this positive contribution is very limited right now. Why? Because we have decided to proactively invest this year and again next year on marketing to really support the deployment of the marketplace to make sure we have this kick effect because you know that marketplace runs from a network effect system. So we really need to boost traffic in the marketplace. And as category demand is a bit slowing down, we will further invest in marketing in Q2 to support online growth, including marketplace growth in France. So the EBIT contribution of the marketplace structurally is positive to a material extent. But this year, will not be seen for the reasons as said.