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

Good day, and thank you for standing by, and welcome to Maisons du Monde First Quarter 2023 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to your speaker today, Carole Alexandre, Head of IR. Please go ahead.

Good morning to all of you, and thank you very much for joining this call to present Maisons du Monde's First Quarter 2023 results. I am with our CEO, Francois-Melchior De Polignac; 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 seen the press release we issued this morning. The conference call slide can be downloaded from and viewed on our website, corporate.maisonsdumonde.com. This call is also being audio webcast, and the replay will be 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 Francois-Melchior De Polignac.

Thank you very much, Carole. Good morning, everyone. I hope you are all doing well. I'm very pleased to be with you today for the first time as CEO of Maisons du Monde. Maisons du Monde definitely has fantastic fundamentals on which to build. Today, I will share with you some first important decisions that have been made to set the company back on the path to sustained and profitable growth. The agenda for today's call is on Slide 4. I will begin with a few introductory remarks to set the scene. I will then quickly hand over to Regis, who will take you through the details of our first quarter performance and share some thoughts on our current trading. I will then give you a strategic update based on my deep dive into the company, and I will then provide you with our 2023 outlook. So let me begin the presentation with a brief overview of the Q1 highlights on Slide 6. Our performance in the first quarter was fully in line with the slow start to the year, we flagged back in March when we presented our full year results. In a challenging context marked by inflation and low consumer confidence, resulting in weak consumption, group sales at EUR 274 million, were down 12.5%, reflecting the tough environment. Group GMV was EUR 307 million. This is down 6.7% year-on-year. But within that is a very bright spot. Our market base realized EUR 42 million in GMV, double the amount in the same period last year. We expect Q2 to be challenging as well, but we also expect improvement throughout the year and notably a sequential improvement in H2 versus H1, supported by our action plans and also thanks to easier comps. This will bring the sales decrease back into single digits, and I will come back to that in the guidance I will present in my concluding remarks. In this context and in order to put the company back on the growth path in H2, I have decided to launch an immediate company-wide plan. We call it the 3C plan. It focuses very simply on the 3 fundamentals that are customers, costs and cash. Those are our 3 key words for the year on which the entire company is focused, and I will detail that in a more granular way shortly. But before that, let me hand over to Regis, who will detail our Q1 sales performance.

Thank you very much, Francois-Melchior, and good morning to everyone. Great to be with you today again to present our Q1 numbers and answer your questions later on. FM has already said the backdrop. And on Slide 7, you see how that translated into numbers. As shown on the bridge, first quarter sales at nearly EUR 274 million, were down 12.5% versus the same period last year. As FM indicated, this is in line with our previously flagged expectations. This drop is partly the result of a tough comparable base as sales had been pretty resilient in Q1 of last year before tailing off sharply in Q2 following the outbreak of the war in Ukraine and a sudden adjustment in consumer confidence. There are also the result of the soft consumption environment that resulted in lower traffic, both in stores and online and in a lower conversion rate, which we partly offset across the quarter through successful targeted promotions and a strong marketplace performance that I will detail shortly. This resulted in a drop of EUR 43 million or 14% in like-for-like sales with a positive impact, as you can see on the bridge of EUR 4 million from stores opened since Q1 of last year. If we move on Slide 8, on the -- we turn to our usual look at sales by category, channel and geography. By category first. Furniture was down 17% versus Q1 of last year and 3% versus Q1 of 2019 despite some improvements in product availability as freight and also supply chain tensions eased, the category suffered from high inflation that led consumers to defer some spending. Decoration, which account for about 57% of sales, was down by a more limited 9% and was up 4.8% versus Q1 2019. Sales were there supported by targeted promotions such as [indiscernible] and some curated commercial initiatives such as free delivery. By channel, store sales were down 6% year-on-year and 2% versus Q1 2019 and in the weak consumption environment that impacted traffic and the conversion rate. Online, which accounted for 28% of total sales were down by 25%, but are still up 9% versus Q1 2019, with traffic also up 1.5x in the period, underscoring the advances we have made since the pandemic in our digital strategy. These numbers actually translate contrasting trends between web activity and the marketplace. On the one hand, sales by our website decreased on lower traffic and soft comps. On the other hand, during the quarter, marketplace sales were [indiscernible] as we will see shortly. Translated into GMV, that presents a genuine view of our online performance. Total online was down a more limited 9%. Finally, by geography. Sales in France, which represented on the quarter, 54% of the total, were down 9% year-on-year and 5% versus Q1 2019. This partly reflected the impact of social unrest in the country with [indiscernible] store sales, which account for nearly 3/4 of our French sales. Versus 2019, I may flag the reduction of stores in France, minus 6, which obviously explained a part of the decrease versus this period. International sales were down 17%, notably due to weak consumption in Northern Europe. Sales in Belgium, Germany, Switzerland, which represents about 30% of international sales were down around 20%, while combined sales in Spain and Italy, which account for more than half of our international sales were down by a more limited 10%. However, when compared, and you can see that on the slide, to 2019, international sales are up nearly 10%, reflecting our success in exporting our model. Over the quarter, international online sales were down 30%, notably on the back of Germany, as we decided to adjust down our marketing expenses in this region. So to reallocate part of those means on actions with faster return on investment. A final word on international markets to say that in line with the stronger focus on resource allocation, we have decided to shut down our online activities in the U.K. If you recall, we had already shut down our shop-in-shop activities a few years ago. Sales in the U.K. accounted for 1% of total group sales last year. This decision definitely reflects our strict focus on investing resources with discipline all across the business. If I move to next slide, Slide 9, where we focus there on clearly green shoots amidst the subdued consumption environment we have described, our marketplace, which is expanding internationally and ramping up in terms of activity. As shown on the chart, Q1 market GMV was EUR 42 million, more than doubling versus the same period last year. of the total EUR 42 million in marketplace GMV, about EUR 39 million came from online and EUR 3 million from customers accessing the marketplace from our stores. This marks the third successive quarter of triple-digit year-on-year growth, demonstrating that it has gained strong traction. Let me remind you that on top of complementing our offer and unique service to our consumers, on top of bringing inside some key data on the market dynamics, the market place growth getting to maturity notably in France, improves our economics as it is margin-accretive activity. The online marketplace now represents 36% of total online GMV. It currently offers more than 240,000 SKUs, up 60% year-on-year, with 1,500 brands available through more than 500 vendors, a figure that is up 27% year-on-year. Marketplace is accessible in France, Spain, Italy. France accounts for 3 quarters, but we are seeing a steady rise in Italy, where it was launched last year. And it is our plan to very likely roll out the marketplace in one other country in H2. That is a good segue to move on Slide 10 on store network. During the quarter, we continued with our active and dynamic management of store network in the quarter with 6 closures, bringing to 352 the total number of stores we operated at the end of Q1. Over the quarter, we closed 3 stores in France and 3 stores in the rest of Europe, 2 in Belgium, 1 in Italy. We definitely continue to see stores as a key strategic asset and a key part of our omnichannel strategy. But in the current context, we continue to be very cautious and disciplined in the pace of developing our store network and remain very attentive to the evolution of our category. Therefore, in the full year, we expect a net 10 closures overall. At the same time, beginning to test in Q2 a commission-based affiliation model. As you know, this is a model that has been very successful, implemented by other retailers, and we think there is a good potential for Maisons du Monde as well. The model will allow us to extend the footprint of Maisons du Monde while notably optimizing CapEx. In 2023, we will be running up to 5 tests in France, starting now in May with some stores transferred from our existing network. On Slide 11, before handing the mic back to FM, let me now give you a bit of insight on our current trading since the start of Q2. The macroeconomic conditions are largely unchanged from those we have described earlier, namely high and persistent inflation and subdued consumption amid constraints, purchasing power and low consumer confidence. That said, and as we have flagged, we are seeing a slight sequential improvement, which should gradually pick up as of this month as the comparable base is. Store and online traffic is recovering, but the conversion rate remained below last year. In that context, while our model clearly is not a promotional one, we are launching very tactical and targeted promotions as well as some other nonpricing related commercial initiatives such as specific selection of low-priced item or free delivery offers in order to drive sales. We have also implemented in April in France, a digital solution called AppShop, offering our customers a full omnichannel experience. And we will, of course, be showcasing our new fall/winter collection as well as continuing our exclusive collaborations, notably for the second year in a row with the France Cannes Festival. Of course, we launched the 3 key plans that FM will now present to you with other actions, all mean to resume conditions of growth. That said, in Q2, we will start to benefit from all those different initiatives and the performance will start improving sequentially, while still remaining in the mid-single-digit negative territory. FM, I hand over to you.

Thank you, Regis. First, I would like to look a bit back and share with you in this section both my initial observations on Maisons du Monde after a few months at the company, first as Deputy CEO and since mid-March as CEO; and also layout in a granular way, the operational priorities I have defined with [indiscernible] to help us navigate through turbulent times and lay the foundations for a redemption of profitable growth. As already shared in March, I have invested a lot of time to meet with the teams of Maisons du Monde at store level in all of our markets. At head office level and at our main logistic platform in the Southern France. I met individually with each of the more than 50 managers who compose our leadership group. I also had round tables with a variety of associates, such as store directors, operators of our customer call center, product managers and also with customers. And my key takeaway from this full immersion in Maisons du Monde, as shown on Slide 13, is that we do have very strong fundamentals on which to build beyond the passion, talent and expertise of our teams and our vision captured in our inspiring [indiscernible]. Let me quickly mention 3 of them. First of all, I was struck in my meetings with customers and associates by the fact that Maisons du Monde is a powerful brand that inspires deep affection. This is also evidenced by the fact that it was recognized for the seventh consecutive year as a second favorite home and living brand in France by EY-Parthenon. Second, Maisons du Monde has a distinctive business model. It's truly omnichannel and its digital presence has been augmented by the curated state-of-the-art marketplace. This marketplace is margin-accretive. It helps with customer acquisition and is complementary to our own offering. Maisons du Monde also has a strong store footprint across Europe. Last but not least, Maisons du Monde man also has a fast-growing and rather unique sustainable product range through our Good is beautiful movement, which helps us lead our industry towards more sustainability. Third, Maisons du Monde has a resilient and balanced financial model with a gross margin level that is best-in-class, our proven ability to show discipline in resource allocation as we showed in the past quarters, while adjusting our way to operate the new externalities and a healthy balance sheet that leaves us with solid capabilities to maintain investments in growth drivers. This deep dive helps me confirm the soundness of our medium-term strategy. Indeed, Maisons du Monde can and will resume growth, capitalizing on its international footprint, it's e-commerce and marketplace and its ability to offer inspiring ranges to create unique, warm and sustainable places to live. Maisons du Monde can and will resume growth by also leveraging promising avenues of development such as franchise or B2B. However, in order to resume growth tomorrow, Maisons du Monde has to strengthen its unique platform today to face the current adverse consumption context. This short-term priority call for an immediate and company-wide mobilization to guarantee the full alignment of all energies behind a common initiative. That's why, together with exec com then with a full leadership group, and finally, with a very transparent and energizing communication to all the organizations, we launched a plan called 3C. Slide 14 shows you what 3C stands for. Customers, costs and cash. What is behind this plan is a simple conviction that while we cannot control the environment, we can act decisively on what is under our control, our approach to customers and our financial discipline. The plan encompasses a series of initiatives mixing some top-down directions and many bottom up commitments. Its strength resides in 2 key factors. First, it focuses on immediate actions, which should deliver positive impacts already in Q2. Second, it relies on the individual commitment of each member of the leadership group. Thus, we can ensure impact, speed, collaboration and alignment. These actions are both quite numerous and also very often quite simple and basic, but speed and simplicity are just what we need for short-term impact. Let me give you some flavor for each of the 3Cs on the next slide. On Slide 15, I will focus on 3 main aspects: customer centricity, customer experience and price accessibility. Customer satisfaction must be the common objective of all the teams of Maisons du Monde. This may seem obvious, but it's even more crucial in a period of weak discretionary consumption when we must ensure that each customer experience is fully rewarding and satisfying. We thus need to be obsessed with the customer with 3 levels of actions. The first level is a set of initiatives to put the customer at the center of all our actions. One thing we did may seem very anecdotal or symbolic, but it is also very effective to identify and act on customer claims or comments. We put my direct e-mail address on our website to allow customers to report the issues directly to me. This has already allowed me and the whole organization to react faster to a couple of incidents on our website or information flow. Dealing with customer complaints or issues is no longer just the job of the customer service team, but very clearly, everyone's job. We also created a customer committee gathering a number of key functions to systematically address the main pain points of the customer journey on and offline. This, for instance, already allowed us to identify a couple of procedures that we are delaying service at checkout and that we decided to eliminate. The second bucket is many operational initiatives to improve customer experience at store level and boost sales. Let me share with you a few basic examples. One was to reinforce the systematic use of [indiscernible] in the store. This allows the staff to react much faster and better to customer needs at store level. Another initiative was to change the merchandising rules to drastically improve the share of furniture exhibited in store that can actually be delivered within a few weeks. Also another one, to increase the number of higher rotation products at [ Gondola heads ]. Of course, we do not want to copy the mass market, but we do have some highly visible spots in stores that can be more productive as we replace slow-moving high-value articles with more accessible and preferably seasonal goods. A third example was to reignite business excitement among staff and stores by launching renewed internal sales performance benchmarks and some commercial challenges. And finally, giving stores greater autonomy on the local adaptation of their merchandising. I do not wish to lose the efficiency of our highly professional merchandising, but the store team is able to catch opportunities that the head office doesn't spot. Again, these are not far-reaching strategic moves, but rather immediate, very specific actions that put the whole organization in a renewed fighting spirit to win customer by customer and sell by sale. And of course, make sure we get the best possible ROI on any investment we make to drive customers to a website or store by ensuring they are fully satisfied and thus likely to return. Last but not least, price accessibility. We have been measuring the elasticity of a number of prices, and we do see a potential nondilutive uplift. We also witnessed growing promotional pressure in the market as consumers are more price constrained and many players also under pressure. As we do not want to enter into a vicious circle of discounting our image and the quality perception of our offer, we have to progress on accessibility, leveraging a variety of targeted approaches. Some price cuts that we communicated in the media rather than through cost marketing campaigns, a reduction to EUR 800 from EUR 1,000 previously of the minimum order value to benefit from free delivery, a fragmented payment offer or a larger but still selective outdoor campaign. For obvious competitive reasons, I will not enter into the details. Let me just share with you that this very rational and database methodology allows us to better refine every month the ROI of our action plans by optimizing the levers we use between selected payment price cuts, targeted promotions or other initiatives such as free delivery or fragmented payments. You understand that we will not become a promotion-driven company, but that we will continue to improve price accessibility in a pragmatic and tactical way. On Slide 16, we turn to cost. I truly believe that we have to recognize the fact that we must structurally adjust our cost base given the lack of visibility on consumer confidence. We are thus making a number of tough decisions to further reduce costs, of course reinforcing all initiatives already in place and initiating new ones. They can be summed up in 3 categories: first, rechallenge all possible agreements with third parties. It is not just about renegotiating some agreements, but it's also about enforcing a systematic, highly demanding approach of challenging all agreements with all partners. Second, further reduce and adapt organization, both at head office and store level beyond our first measures in 2022. And third, put up medium-term projects that do not fully guarantee fast enough ROI. Along those lines, we have reviewed all our projects and simply reclassified them as confirmed, simplified, postponed or canceled. As Regis mentioned, we have also decided to terminate our online operation in the U.K., and we are anticipating a number of store closings. On this slide, we share with you the 2 main objectives of the 3C plan, maintaining gross margin while further adjusting the cost base. On the gross margin front, despite unfavorable foreign exchange terms this year that will start impacting our economics in H2, some extra rated investments in promotion to restore positive traffic dynamics and profiting from freight cost easing, we do plan to defend the 65% gross margin, which is still among the best-in-class. On the cost front and in the context of inflation that remains highly -- high sorry, notably on rent and salaries that for a big part, depend on local indexes, we are aiming for cost savings of EUR 25 million before inflation. Finally, on Slide 17, cash. This year will be lighter on the CapEx front with the impact of the project streamlining I shared a minute ago. Priority will be placed on customer-oriented investments, IT and initiatives that are key to future growth. We will manage inventory dynamically, improving allocation by store and seeking to balance discipline with improved availability, where we can still make further significant improvements. Last but not least, we will further work on our cash [ merchandise ], both by further optimizing with agility our inventory level, focusing on eliminating lower rotation products and under negotiating our payment terms with our suppliers as part of efforts on all components of working cap. Let me underline again that these action plans are deliberately very simple and pragmatic but by no means do they amount to ignoring longer-term ambitions, quite the opposite, in fact. Our 3C plan is a prerequisite to build a new, more agile, frugal and customer-driven company that will go on pursuing its longer-term growth journey, growth that we will see by leveraging our omnichannel assets, our growing marketplace, the clear potential of B2B or the new horizon that affiliation of franchise opens for us. I know I was a bit long on the initiatives of the 3C plan, but I wanted you to get a real feel for what is happening across the organization. I'm sure you understood from what I said that the overarching idea is back to basics. Indeed, to conclude, let me share with you the very simple image I already shared with all the teams internally, that of a ship that embarked on an ambitious profitable growth journey in late 2021 when all conditions were favorable. But that now while staying the same course has to adapt to rough weather and is thus putting the ores in the water to row. This is not a negative vision. On the contrary, it is based upon the certainty that the ship and its targets are healthy and that we can resume the journey after crossing the troubled waters. Now let me conclude on Slide 20 with our outlook. Considering first, a negative first quarter in the low teens; second, a comparable base that will gradually improve over the year; and third, the benefits of our 3C plan. We target top line decrease in the low to mid-single-digit range, with a sequential improvement in H2 versus H1. EBIT in the range of EUR 65 million to EUR 75 million. Free cash flow in the range of EUR 40 million to EUR 50 million, a dividend payout ratio of 30% to 40%. And on the ESG front, 1/3 of Maisons du Monde 2023 collections included in the good beautiful selection. In conclusion, I hope you have gathered that even if the current circumstances are challenging, I am hugely excited by Maisons du Monde's great fundamentals and teams and by its potential to resume profitable growth. I am happy to share with you that the 3C plan when launched met with a very positive and responsible response from all the fields. I do see that the great teams of Maisons du Monde are embracing the necessary steps we are taking, and I'm fully confident such steps will thus deliver. Today, we are focused on our 3C plan and on the execution of our full year 2023 guidance. At a later stage, we will be coming back to you to share our new midterm plan. In the meantime, thank you for your attention. And Regis and I are now happy to take your questions.

[Operator Instructions] The first question from Christophe Chaput from ODDO.

I've got 2 separate. The first one is on the gross margin. So you gave us 65% in 2023. Could you give us more granularity regarding the moving parts between the U.S. dollar impact, the freight and probably the promotion as well? And the second set of question is regarding the cost base, let's say, the adjustment of the savings at EUR 25 million, just to be sure, so that OpEx, which means below the gross margin. This is an amount that you are going to reach for 2023. And the last one is how much net of inflation will this figure will be.

Merci, Christophe. Thank you, Christophe. I will take those 2 questions. On the gross margin front, indeed different moving parts, and we already shared with all of you, all of them. You mentioned U.S. movement versus euro freight. I could add to that pricing inflation on raw material and obviously, promotion, as you said. To give you a bit of flavor, I think there are 2 main elements to bear in mind. So to get to this level, 3, I will summarize in 3 bits. On the positive side, we'll still have a positive pricing effect net of promotion, probably 0 to 50 bps I'm precising net of promotion, which means that the contribution of price will be higher, and we will indeed probably invest a bit more in promotion. If you remember, we were around 8% last year. We consider we will navigate probably in the zone of 9% to 9.5% total promotion rate. So the net of the 2 will be a positive contributor to gross margin evolution. Freight will be an important one in this. Probably more than 100 bps due to the market adjustment and very good negotiations that we have made. I will come back to freight in terms of phasing. Then inflation on the whole [indiscernible] and USD will be on the contrary, headwind indeed, probably USD 100 million, USD 150 million. So all in all, those elements will be there to defend the 65 line percent pie. The second thing I would like to flag is the phasing because while mentioning freight or USD, we know that the effect in our P&L is not what we observe immediately on the market. What we will have or still in H1 this year is freight cost embarked in our cost of goods, which are in reference to last year market, let's say, situation where on the contrary, in H2, we will benefit from the strong adjustments. And it will be the opposite on USD. So my last message on the 65 is about the debalancing in between H1 and H2, meaning that H1 should be rather close to 64, and H2 was a close to 66 in a simple way to present it. To your second question, Christophe, on the EUR 25 million, 3 points, yes, it's about SG&A, so below net margin. Second is growth savings, meaning that they are before inflation which remains high in parallel of those initiatives. And that's why I think that was a key message of Francois-Melchior vis-a-vis the second C on costs. We definitely have initiated a lot of actions to mitigate those inflation, inflation on rent, payroll, evolution, energy. That's the usual stuff, I would say, probably other company has mentioned. And those 25 gross savings are definitely embarked in our full year EBIT margin guidance. So I hope it clarifies on the 2 elements setoff.

And the question from Marie-Line Fort from [ SGB ].

I still have one question on inflation because you give some comments, but could we have some precise figures or even a range of what inflation we can put in our model for your OpEx. The second question is more strategic. I would like to know how Francois-Melchior see the development for MDM on the international because it was a big trigger for MDM at the IPO, and it has not been really well-executed at this stage. Also, I would like to know what is your B2B contribution to your sales today. And in your growth plan, what could be the potential development for this activity?

Good morning, Marie. Sorry. And I know you that you posted as well. I know it is another question of another analyst. So to your question on inflation, I will not get into your very detailed probably model. But just to flag that indeed, inflation are probably in the same zone of EUR 25 million, EUR 30 million in total. If we consider payroll evolution and all of the metrics vis-a-vis [indiscernible] the level of insulation embarked in our guidance is quite heavy. So it reinforces the importance of this free initiative out of which [indiscernible] is a very serious one to mitigate via this 25% gross saving in SG&A, the level of inflation. So just to say that if you start with the declining unfortunately sales perspective, but with the gross margin element. All in all, the level of inflation is fully offset or nearly offset with all those initiatives that we have implemented. And I hand over probably to FM for the second part of your question on international.

Yes. Thank you, Marie, for your question. But I understand about growth with the 2 leverages you identified. So let me give an answer in 2 parts. First, as I said, I'm pretty convinced of the key levers of potential growth that we do have and enjoy. You mentioned international, and I do agree that this is a very key component of our future growth. B2B as well. And also, as I mentioned, I believe very strongly in the development potential for marketplace and affiliation. This being said, really, for the time being, our huge focus, as I said, is to make sure we deliver 2023, and we have the back-to-basics movement to make sure we get the organization back on its feet to then be able to grasp the opportunities of those future potential leverages that you mentioned as I complemented. So I will not enter into the details of the future growth that we really have to be part of our midterm strategic plan update on which we will come back to you at a later stage.

The next question is from Stephen Benhamou from BNP Exane.