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

Good day, ladies and gentlemen and welcome to Maisons du Monde First Quarter 2022 Sales Conference Call. [Operator Instructions] And just to remind you, all of this conference is being recorded. We would like also to inform you that this event is available live with synchronized slide show. During this conference call, statements could be made that constitute forward-looking statement based on management's current expectation and belief and are subject to a number of risk and uncertainty 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 more. For more complete list and description of such risk and uncertainty, please refer to Maisons du Monde's filing with the French Autorité des marchés financiers. I would like to hand the conference over to Clemence Mignot-Dupeyrot, Head of Investor Relations. Please go ahead, ma’am.

Good morning to all of you and welcome to Maisons du Monde Q1 2022 sales call. I am Clemence Mignot-Dupeyrot, Head of Investor Relations and I am delighted to be with you today. I am with our CEO, Julie Walbaum and our CFO, Regis Massuyeau who will be making today's presentation. It will be followed by a Q&A session. You have no doubt seeing the French release this morning. The conference call slides are available on our website. This call is also being webcast and a replay will be made available on our website later today. All listeners are reminded to read the forward-looking disclaimer on Slide 2. I will now turn the call over to Julie Walbaum.

Thank you, Clemence and good morning to everyone. Thank you for being with us this morning. Before diving into the presentation of our Q1 results, I would like to commence the evolution of our governance that you have probably noticed in our press release this morning. Our Board of Directors have recommended the appointment of Teleios, represented by Adam Epstein and of Gabriel Naouri of Majorelle as new members of the Board of Directors. This proposal has come at a vote close to 20% threshold and as such are viewed as reference shareholders by the company. Since the entry into Maisons du Monde's capital respectively in 2019 and 2020, both Teleios and Majorelle have consistently shown the support to the company's model, its management and its strategy. Again, now they have expressed a long term commitment to the company as proven by the 24-months term [ sale ] by which they both commit not to exceed the 29.9% threshold, nor to launch a tender offer on the shares of Maisons du Monde. We collectively welcome Adam and Gabriel with whom we have always had positive and constructive discussions along the years. Such appointments will be submitted to shareholders voting at the next annual meeting on May 31st, 2022. Now, going back to our operational and financial results, you can see our agenda for today on Slide 3. I will begin with an overview of our key business and strategic highlights of the first quarter. Then Regis will take you through the financial review and I will return to discuss our outlook before opening the floor to your questions. Let's begin on Slide 5 with the quarter's highlights. In short, Q1, '22's sales performance was in line with our expectations. As we had already started to identify when we published our full year '21 results, demand is soft since the beginning of the year. The global context is complex with several elements impacting consumer sentiment and behavior. First, the global inflationary context, second, the war in Ukraine and its consequences and third, a supply chain still under pressure with freight capacity not back to normal yet and more recently slowdowns in China due to COVID rebound. In this context, we are proud to publish our Q1 sale as EUR 330 million down only 1.3% versus a high comparable base of last year and up 15%, if you look at the last sort of normal year we had, that is 2019. Navigating through these accomplishments, we are also maintaining the pace of our strategic agenda with the opening of our Spanish online marketplace at the end of March and also the launch of our sustainability label, Good is Beautiful in February. These strong milestones are part of the foundation of the sustainable growth strategy we have described in our Capital Market Day last November and we pay close attention to maintaining our focus. This quarter also saw the launch of our spring and summer 2022 collections, a few visuals which you can see on Slide 6. 2022 marks the strong comeback of color to convey an optimistic state of mind. Color plays a major role in this new collection with a joyful palette identifying major colors for harmony and warmth, summery and fruity colors for joy and optimism and crush on bright parcels. Our design teams have also done an impressive job at product level, further enhancing the quality and sophistication of our offering. This new collection offers a wide range of natural fabrics and raw materials, which provide [ warmer in styles ] and an authentic feeling longed for by consumers. The purpose of these collections is a return to Maisons du Monde roots of offering traditional and handcrafted products inspired by both nature and world cultures, which is what our consumers are after in a post-COVID world. Here on the slide, you can see 3 of our themes Hyères, Madaba and Anglet which illustrate Maisons du Monde's multi-style positioning, enabling us to satisfy the wide range of demand and needs across Europe. On Slide 7, our [ references ] is embedded into our Good is Beautiful movement, which we've been working on for the last 18 months and we're happy to unveil in February. Let me explain to you how it's built. The starting point of this movement was the idea that we want our homes to be as happy as are responsible, as stylish and trendy as they are sustainable. To do so, we have decided to take part in their turns and setting 5 strong commitments. Commitment number one, offering a collection that is stylish and sustainable. To benefit both our customers and the planet, we are committed to offering products that meet at least one of these criteria. Product made with sustainable materials that is traceable, satisfying our recycles, product made in Europe or products that help preserve local handcrafting knowhow. Thanks to our team's efforts we have already reached 20% of our offering being labeled this year. And the target we have set for ourselves is to reach 40% of this offering under the Good is Beautiful label by 2025. Commitment number two, acting with grassroot associations to protect the environments and help those in need. We firmly believe that companies have a role to play society. And as such, we support grassroot associations in serving environmental and society goals. Together, we work to protect forests and trees across the world and help provide those who need it most, especially with the welcoming and safe places to live. To do so, we aim at creating a hundred Good is Beautiful places by 2025. Commitment number three, promoting equal opportunities. We believe in people and the value to be found in our differences as well as the idea that everyone deserves to have every opportunity to grow and develop. As such, we have adopted more inclusive human resource management policy, which promotes equality, diversity and brings out the best in people. To reflect this pillar, we have reached 50% of women within the top 100 of the company and are committed to mentor 500 youngsters outside of the company, especially from underprivileged backgrounds by 2025 to help them access workforce. Commitment number four, proposing a second life to our product. Our products do deserve to live through the life. As such, we have set up a service for repairing and refurbishing our products and intend to launch next year, a secondhand product range. We'll repair at least 20,000 products every year. We also work with the social and solidarity economy to encourage product reuse. Commitment number five, transforming our business lines to reduce our environmental footprint. Deep and lasting change requires us to transform our internal processes so each and every day, we work to reduce environmental footprint by changing our practices from how we transport our products to our energy consumptions at point of sale and our waste management. All of our business lines work to help build a cleaner, better world every day. By 2025, we plan to have reduced our carbon intensity by 25% on Scopes 1, 2 and 3. Also 100% of our [ source ] will be powered with renewable energy. Slide 8 focuses in greater detail on how we performed this quarter. As you can see, our Q1 '22 metrics are quite strong at all levels, although the context did not play in our favor. Our omni-channel model continues to prove its relevance. Our active customer base continue to grow by 16% year on year and so do our omni-channel customers up 15% versus last year. As we are anticipated due to the exceptional comparable base we had last year, online sales are down 13% year on year, but if you look at it for a longer period, they grew by 46% versus 2019, which represents a CAGR of more than 15% over the 3 years. The boost generated by the COVID pandemic and the stock closures with activities pandemic switching from store to online now in the process of normalization, which is, at the end of the day, good news because it means we can now fully benefit from this trial of our omni-channel model. Store performance was also solid, especially on the international segments, boosted by base effects of store closures last year, but also illustrating the importance and the efficiency of our international development strategy. All in all, this quarter's performance illustrates our ability to navigate in a complex and challenging context. Now, let's zoom in on some of the key pillars of our strategy beginning with our omni-channel model on Slide 9. As you can see on this slide, we continue to develop our marketplace with another quarter of strong double digit growth at 43%, GMV reaching now EUR 20 million. Last quarter, we mentioned we have started to rule out a marketplace in stores where sales teams can access it on that tablet. Well, we are proud to announce that a marketplace is now available in all French stores ahead of the initial schedule by a few months as store teams adopted it fairly immediately. Also as planned, we launched our online marketplace in 1 new country this quarter that is Spain. Our online Spanish marketplace offers around 300 brands and nearly 50,000 products. We have adopted offering to much market demand as precisely as possible. And half of the brands offered in a Spanish marketplace are local brands. In France, we have also continued to grow our catalog. And overall, we added 340 brands over the quarter and more than 40,000 SKUs. As you know, we pay close attention to mentioning the satisfaction rate of our marketplace customers at a level at least comparable to Maisons du Monde that is key for brand image as well as for customer loyalty. And customer satisfaction does remain consistently high with the rate of 4 out of 5. The vendor retention rate, which is a number of vendors who have sold out of the number of live vendors, also stays at extremely high levels, 98%. And our partners clearly see the benefits of being under Maisons du Monde brand. For top 20 vendors, 35% of their sales already from our marketplace. Another brick of our omni-channel strategy is of course, our stores and Slide 10 focuses on our pan-European expansion. We ended the quarter with 350 stores in Europe, that is 7 less but at the end of 2021, which is perfectly in line with our strategic plan. As is the case every year due to the timing of our new collections that get deployed in March, the first quarter has traditionally focused on store closures, following the January clearance sales and before new collections getting dispatched, whereas in the second half of the year is traditionally more geared towards new openings. So the first quarter logically saw 8 closures of which 5 in France and 1 new opening in Spain. Our ambition of reaching 0 to 5 net store openings the year does remain valid. Let me now hand over to Regis who will lead you through our financial with you.

Thanks Julie and good morning, everyone. Let's go to Slide 12. This Slide shows you a summary of our sales performance on a long term view. It's obvious if you look at this graph on the left, that 2020, 2021 were abnormal years and the dynamics of the business need to be looked at taking a different perspective than the usual yearly evolution. Let's remember the high comparable base of last year. In Q1 our sales were up 36% overall with impressive growth rates across the board. 42% in France, 29% in international, 32% on Furniture, 39% on Decorations, 19% in-stores and 73% online. So it is important to look at our Q1 '22 performance versus 2019. Our sales grew by 15%, which equals 5% CAGR over the period. The strong achievement is the illustration of our ability to navigate crisis while maintaining our strategic focus. I may repeat that our Q1 sales performance is resilient and in line with our projections shared in our last call. That said, it's fair to note that commercial performance has been slightly below plans over the end of the quarter as March show the material decline in consumer confidence impacting demand across all retail verticals, including ours. Our efficient supply chain on the other end allowed us to fulfill more customer orders than we initially expected with a positive effect on net sales. It may be obvious to all of us, but we have delivered this level of sales in the context, which as we already mentioned, embed inflation that reached record level recently with more than 7% in Germany, roughly 5% in France, no growth in France in March, a deep decrease of household confidence back to the level of first confinement in 2020, tension on supply chain and geopolitical uncertainty. So it's not walk in the park and it does demonstrate Maisons du Monde's flexibility and pragmatism to navigate in an environment that may remain quite blurry over the coming months. On Slide 13, let's review our classic sales breach for Q1. Like for like sales decreased EUR 11 million while 2021 development, partly offset decrease adding EUR 8 million to the performance. Like-for-like decrease is essentially explained by the normalization of web performance, particularly in France and Germany as regards to comparable stores, sub-demand in France was more than offset by strong dynamics in Italy, Spain, Germany on the back of a normal opening situation. This positive contribution from '21 development illustrates the high comparable base, but also how fruitful our pan-European strategy is with a dynamic consumption trend in the international segment. This is the perfect illustration again of our profitable growth strategy and our capacity to export our model across Europe. Finally, on the 2022 development block, let's remind you that we closed indeed 7 stores net this quarter, which explains this negative contribution. Slide 14. On this Slide, we take a closer look at our sale performance across categories, channels, geographies and you see that we can be very satisfied with our performance as it shows double-digit growth at all levels compared to the normalized 2019. By category first, Furniture availability has improved over the year-over-year period, with replenishment program broadly in line with plan despite the complex environment. However, we are not yet back at our target level and Q1 2022 sales were therefore slightly down versus last year. Here again, the high comparable base of last year, which was up 32% blurs the global picture. Comparing the performance versus 2019, Furniture sales grew by 13%. Looking further into 2022, the group is monitoring product availability and shipping plans very closely in light of the moving situation in Asia to optimize sourcing and progressive inventory replenishment. For Decorations, sales were stable this quarter coming from very high comparable base in 2021, which has grown by more than 30%. If you compare to 2019 again, growth reached 17% demonstrating the continued success made by new collections. By channel, store sales were up 6% versus up 5% as per their pre-pandemic level of 2019. Sales traffic was positive year on year due to the favorable comparable base when half of our stores were closed. Stores that were open during both periods saw traffic decrease, especially in March as observed across the full panel. Regarding online, online sales decreased by 13% this quarter to reach EUR 104 million. As well is the case for all retailers, online traffic and conversion rates were lower than last year and were partly offset by an increase in average basket size by 6% year on year. This evolution is partly explained by the normalization of demands after the exceptional outperformance of first quarter last year, which was up, as I did remind you, 73%. Compared to 2019, Q1 online sales were up a very strong 36% listed by countries, such as Germany, Spain, Italy with growth versus 2019 near 60%. Finally, by geo, you see that sales in France decreased 11% versus last year at EUR 162 million but up 3% versus 2019 despite net reduction of 7 stores. Compared to 2019 in France, online sales are up 33%. At the same time, international sales were up 12% and a strong 32 versus 2019 with a net addition of 23 stores. This one, again, reflects the pan-European extension that you are now familiar with. Before leaving the floor again to Julie for the full year outlook, let me update you on the current trading floor, Q2 in Slide 15. From a global perspective, inflation in Europe is increasing and the sanitary situation is not fully stabilized yet, notably in China. We continue to see disruption in our supply chain with production in Asia and freight remaining complex and tensions made worse by substantial raw material scarcity. As Maisons du Monde does not operate nor source in Ukraine, the geopolitical uncertainty adds to the macroeconomic challenges and is creating extra inflationary pressure with a possible impact on demand with shoppers trading down or favoring some more essential categories. As we said, demand has been soft since the start of the year and particularly so in March. Even those recent developments, we now expect this trend not to improve to the very short term and therefore currently anticipate our Q2 commercial performance to be low to mid single digit negative. Despite this changing environment, however, we remain confident about our ability to deliver top line growth in 2022. Indeed, flexibility from inventory levels and easier comps, which will both lead to sales acceleration. In this context we have a pragmatic view to balance growth and profitability properly, we have already deployed some initiatives to manage our value creation equation. We have launched plans to deliver operating efficiencies and have started to reduce the allocation of our resources to make sure we deliver our short term commitments as well as we maintain our investments and strategic projects to support our midterm growth objectives. With that, let me hand back to Julie.

Thank you, Regis. Let's now look at our priorities and outlook. On Slide 17, as you might remember from our full year 21 results presentation, our business priorities for the year are largely the continuation of what we focused on in 2021 with a couple of additional points. In terms of commercial activity, we will keep strengthening our brand while also continuing to improve customer experience. A few examples of what we have developed over the quarter are a new partnership with Alma in France with the objective of launching a new financial solution on the web and installs over the summer. A new functionality added to our website. Now customers can write reviews and rate products, ratings that other customers can see to help them in their choices. We want to promote these user reviews further as peer to peer advice is a powerful conversation tool. And finally, development of self-care functional on our website so that customers become more autonomous in the management of project returns and refunds, therefore improving the post-purchase experience. We aim at working further on this post-purchase experience as we know, this is a driver of [ rated ] buying. We will also continue to strengthen our pan-European model through the continued expansion of stores in Europe with 0 to 5 net openings all outside France. As we have already mentioned, these openings will take place in H2. In terms of supply, we work hard as Regis said and replenishing inventories gradually in a complex price and raw material sourcing environment. We still work towards the normalized level of inventory by year. This assumes reasonable operating conditions, especially in the harbors across China, India and Vietnam. We'll give you updates on this front as visibility improves, particularly on China. Furthermore, we will open new logistics center in the north of France next summer starting with its first step, manual mode before launching the automation phase by summer 2023. Regarding our ESG agenda, we intend to reach carbon neutrality on Scopes 1 and 2 in 2022 and also to continue improving product flexibility and further enhancing supply governance. This leads me to our full-year '22 guidance, which we confirm assuming no further deterioration of macroeconomic and supply chain conditions in the coming month. Taking into account the items we've just discussed, we continue to expect for 2022 positive revenue growth, the extent of which will be fine-tuned as visibility improves and EBIT margin around 9% for strict management of cost and resource allocation and free cash flow of EUR 75 million to EUR 75 million (sic) [ EUR 65 million to EUR 75 million ] in the light of our inventory replenishment objective and the investments needed for our second warehouse that we start operating by the summer. As for our midterm commitment in returning value to shareholders, we also confirm our dividend payout ratio of 30% to 40% Finally and as we already mentioned, 2022 will be a landmark year for ESG as we will reach carbon neutrality in Scopes 1 and 2. So to conclude, let me reiterate that we stay confident in our ability to meet the medium term guidance that we presented at our CMD last November and which you can see again on Slide 19. Our model has proven its agility and resilience over the recent years. And despite short term turmoil, we are convinced that our differentiated model stays highly performing and particularly relevant in our new consumption party. This concludes our presentation. Thank you very much for attention and Regis and I are now happy to take your questions.

[Operator Instructions] We have the first question from Clement Genelot from Bryan Garnier.

Two questions on my side. The first one is on the Q1. In your view, what explained the other performance of France, others since the west of Europe, one, obviously beyond outcomes? Is it because France is maybe more amount that you are -- on its share or maybe easy to predictions wait and see behavior? And my second question is on the current environment. What is the behavior of your competitors right now on prices and omissions?

Thank you, Clement. I will take both of your questions. So regarding Q1 and France versus international, while you have a combination of the fact. First, if you look at channels, the behaviors is a bit different because if you look at traffic, which is sort of a proxy for demand, traffic was actually stable in France and it was also boosted by the marketplace, which again, confirmed the relevance of the model. And actually we are pretty happy with the first few weeks of the Spanish marketplace. So again and again, we are very happy of this evolution of the strategic model. And this did show in France of a Q1 for online. Now, in-store traffic was also positive on a global basis because of a different store opening ratio. But it was indeed negative, when you look at comparable basis to say, if you look at store that were open during both periods. And these indeed translate sort of a soft consumption environments, which indeed can be attributed to different factors. The war in Ukraine does apply to all countries, but we were also in a free presidential election calendar. And there were a lot of discussions, as you know, around purchasing power and inflation. And we did see a difference than in terms of behavior between France and international. And lastly, the store comparable base in terms of store opening ratio was more favorable to international in the Q1 because last year France was open 85% of the time while international was open 65% of the time. So sort of base effect played in favor of international over Q1 and just with that in mind, it will be the reverse in Q2 because last year, French stores were closed half of the time while international stores were closed only 15% of the time over Q2. So as we say, there is a combination of factors and this needs to be looked at in the light of all of these factors. Now to your questions around behavior on pricing and competition sort of policy, we -- from what we understand and what we saw both from public releases and also on sort of word of mouth, we can really assess that we were all sort of aligned in terms of price increases and the market was around 10%. We were between 5% and 10% on the higher range of that for Furniture and on the lower range of that for Decorations. And we looked at in detail at each category over the last couple of months, because we had -- we could observe sort of actual behavior of consumers and also competition pricing, we could see first that our price competitiveness had not eroded at all. We could not see any lag in price competitiveness and also we've started to see -- started because as you know, our price increases have been applied most of them from the beginning of this year. And to-date, we have applied around 2/3 of our total price adjustments. And based on that, we could analyze price elasticity or demand elasticity to pricing to be more precise. And we could see differences in categories. Obviously, we take that into accounts to apply the last 1/3 of our price increases, which are expected to happen over the summer. So long story short, an as-good price competitiveness as before and a lot of data to make sure that we optimize our pricing for the rest of the year. And when it comes to promotion, which was the last bit of your question, we do see some promotional pressure among the market. Our answer to that is really through our marketplace because we see that especially online. And as you know our marketplace is a place which is a fantastic lab. And we do operate some marketing campaigns with our marketplace vendors to attract traffic to our website based on specific promotional campaigns and we use that to sell our non-promotional Maisons du Monde products and that works pretty well.

The next questions we have are online from Marie-Line Fort. First question is in terms of outlook, when listening to you we understand that Q2, 2022 may show a lower momentum than Q1. Is this the right interpretation?

Thank you, Marie-Line. Yes. I mean, as we said, the conception level and the confidence level did decrease from March onwards fairly logically with the launch of Ukraine war and all potential consequences. So what we expect for Q2, if I sort of put it into the commercial drivers, traffic-wise, we expect still negative traffic online as we end up the category normalization phase. If you might remember, the category was still very booming online until the summer. So we are in this last quarter of category normalization when it comes to online and stores will still positive traffic trends on the basis of store opening ratio, so to say. We expect conversion rate to stay still negative year on year as Furniture inventories only progressively improved. Really the uptake in inventory levels will happen in H2. And average of the value should stay positive across channels, notably through price increases. So if you combine all of that, how does it translate? Online will be down indeed sort of in the trenches. Stores will be up sort of low-teens. And we do expect a Q2, which would be low-to-mid single digit down.

Second question from Marie-Line was after Spain, do you plan to launch the marketplace in another country in 2022? Could you comment on the profitability ramp-up?

Sure. So, indeed as I said, we're pretty happy with the first couple of weeks, so it's still very early days, but we do see a very nice momentum in the Spanish marketplace. And we actually accelerated to do this planning because we were expecting initially to launch the Spanish marketplace more just before the summer. So as we could achieve that earlier launch, we are working towards in this opening a [ third ] country. It is too early days to say whether that will happen by the end of 2022 or very early 2023, but we are working towards this objective because, again, we do see the uplift in growth. And in terms of profitability, well, we do not add a lot of resources to launch the Spanish marketplace. As I said, half of their brands are local. That means a large part of it is also French and that is handled by the current team. So what we do have is marketing to same extent as we did for the French launch. And so the profitability overall of the marketplace across both countries is marginally improving.

Then we had questions from Marie-Line still. Are you already penalized by some port closures in China? How do you get around the problem and how has freight cost evolved over the last few months? And is it in line with your expectations?

Thanks, Clemence. So indeed, the situation in China is not an easy one and we have been observing some congestions in the different harbors in the recent week. So it has an impact in the way we manage our sourcing. Obviously, we're managing that very closely. I think getting the experience from last year, we have been very agile mitigating those new events and the zero-COVID approach in China is obviously not an easy game for all of us in the industry to optimize sourcing, but we are managing that. Obviously, we look forward to attract, I would say, return to normal in China because it'll be an important element for us in the coming weeks again. So yes, we have been agile in managing that, adapting the sourcing as much as we can, but it creates a bit of extra tension on the supply chain. And vis-a-vis your question on freight cost, I mentioned during the call of the full year that pricing vis-a-vis these important elements in our equation have been multiplied somewhere 4x versus 2021. So it means that today we are paying, depending on the sourcing point from EUR 6,000 to EUR 10,000 a container, which is huge increase versus last year. And remember it's one of reason that we decided to go for pricing on the market. Just to say that we have secured contracts now. This level of inflation is embedded in our model. So when we guided vis-a-vis EBIT, we embarked that kind of option of assumption. We do not expect material changes in this pricing elements vis-a-vis by the end of the year, but we have secured our contract with this level of inflation, which is a huge one indeed, but we are managing it.

And the last question from Marie-Line are about the shareholding structure. Could you give us an update and what is the time table for the cancelation of the shares?

S,o, vis-a-vis cancelation of the shares, plus the share buyback program, which indeed is fully completed. We emphasize this cancelation around summer to be organized. And the update on the shareholding structure we will refer to what has been posted on the official website with Teleios now holding slightly more than 21% and Majorelle adding a position, which is above 20% as Julie commented at the beginning of the call.

We will now take the question on the phone from Stephen Benhamou from Exane, if I'm not mistaken.

I have some questions. First, can you please tell us what's the inventory level end of March and what's your objective for the rest of the year? Second question. So Regis partly replied to this question, but as regard to the inflationary environment, can you please elaborate on the extra pressure on the input costs? And do you plan to pass, potential price increase unto customers to offset the extra costs? Third question, given the program tensions for the business, do you still plan a normalization of the product mix or what use would be [ executable in the questioned ] sales in 2022? And last question, just a confirmation, can you please confirm what Regis said about the online sales done in Q2 and stock sales locking in Q2, which would lead to a low-single-digit top line contraction or sorry, low-single-digit trend in Q2 on the consolidative basis?