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

Good day, and thank you for standing by. Welcome to the Maisons du Monde Conference Call. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Francois-Melchior De Polignac, CEO. Please go ahead.

Thank you. Good morning to all of you, and thank you for joining this call on such short notice. You have no doubt seen the press release we issued yesterday evening. We underperformed in Q3 2023, and we adjusted our full year guidance. I will first share with you a brief diagnosis of what happened, then move on to the implications for our full year guidance. And last, I will walk you through the incremental actions we are taking to adjust to this new environment. Then of course, Gilles Lemaire and I will be delighted to answer any questions you may have. So first of all, let me give you a look back on the past 3 months. July was a positive month. It benefited from extended summer sales until, in fact, early August. However, market conditions swiftly deteriorated after July, notably consumer confidence that had been continuously recovering for 1 year in Europe started to decline again in August and yet again in September. This decline occurred against the backdrop of the resurgence over inflation concerns throughout Europe driven by energy and food. In France, for instance, inflation went up again in August and in September compared to July, bringing inflation back into the forefront for consumers. In this situation, the home and furnishing sector experienced the full effect of reduced discretionary consumer spending, resulting in decreased traffic, both in stores and online. This is clearly reflected in our performance at minus 9.4 in sales for Q3. To give more color on Q3, let me tell you that we experienced both traffic and conversion rate decreases in our stores at the mid- to high single-digit rate. On our website, traffic was also negative, but the conversion increased by a mid- to high single-digit rate. Overall, store sales proved more resilient than online sales. We had anticipated a difficult commercial back-to-school period, expecting consumers to further arbitrate their discretionary spending at this juncture. However, we were anticipating a relative improvement at the very end of September and early October, fueled by our flagship Zur Maisons promotion. But in the first 2 weeks of those Zur Maisons, we ended up seeing a revenue shortfall in the order of several million euros, both as a result of a weaker turnover than expected on the promotion sales and as a result of a lower traffic generated to our stores and websites. This clearly reflects lower elasticity of consumer demand to promotions than what we have seen since the beginning of the year. This is what ultimately led us to adjust our full year guidance given the weight of our Q4 commercial plan. Second, I will now move to the impact of those elements on our guidance. The adjusted guidance for the full year being sales declined by circa 10% versus decline in the low to mid-single-digit range. EBIT EUR 40 million to EUR 50 million versus EUR 65 million to EUR 75 million, and free cash flow, EUR 20 million to EUR 30 million versus EUR 40 million to EUR 50 million. So how did we build the adjusted guidance? If you do the math, you'll find that a full year at minus 10% would imply a minus 10.3% in Q4 versus 2022. This basically amounts to a more prudent assessment of the impact of our various commercial initiatives for Q4. It also translates into a Q4 even slightly more negative than Q3. This trend may look conservative. But of course, given the weight of Q4, we prefer to remain on the cautious side. Now highlighted flows through EBIT and free cash flow. Let us do simple math for both EBIT and free cash flow on the basis of the median of adjusted guidance versus the median of the initial guidance. Let's assume an approximate 50% drop-through of loss sales to EBIT and free cash flow. We lose EUR 75 million of net sales. And instead of losing EUR 35 million to EUR 40 million, both in EBIT and free cash flow, we lose a more limited EUR 25 million in EBIT and EUR 20 million in free cash flow. This emphasizes our ability to stretch our 3C plan to absorb a higher proportion of top line drop impact. Of course, let me underline that all the teams are fully mobilized to do better by improving the execution of our plan and by enriching it. Now indeed, after giving you the context and how it translates into our adjusted guidance, let me tell you what we are doing about it and some of the actions we are undertaking to adjust to this weaker environment. While it will be no surprise for you to hear that we are even more committed to delivering and enhancing our 3C plan, we have been working hard on mobilizing the organization of customer, cost and cash. We are now basically increasing the momentum on raising the bar on all these initiatives. For instance, customer. We are beefing up our commercial action plan, and it will include at least 1 or 2 major initiatives so far never offered by Maisons du Monde. Allow me, of course, not to provide detail on a plan that must remain confidential. On cost, we had been strictly streamlining our project list. Well, we are now going one step further to challenge yet again and further this optimization. We obviously also stick to the optimization of our HQ, both in terms of headcount and in terms of rented spaces. And just for your information, we are in line with the optimization of the store network with a lending of 18 net integrated stores reduction, of which 5 transferred to affiliated partners. Cash further streamlining product list will save an additional few million euros of CapEx for 2023, and we're challenging optimizing inflow of imported merchandise as well as the supplier's payment terms. Now after what I hope are some helpful information and before we open the Q&A session, I would like to share with you my views moving forward. One, of course, the current situation is highly disappointing irrespective of the fact that the deteriorating consumer conditions are impacting our sector across the board. And this calls for an even deeper transformation of our company as we need to be ready for 2024 scenario where these consumer trends are maintained. Of course, we are also aware of the fact that our solid balance sheet will be a key asset for the future. Two, I'm, however, probably even more convinced of our ability to adapt and ultimately to thrive. First, I firmly believe that our 3C plan has initiated a cultural change in Maisons du Monde towards a more customer and profitability driven organization that not only helps us mitigate the adverse impact of falling consumption but also will help us rebound in the future. Reinforcing and systemizing our 3C approach will be a pillar of our plan moving forward. Second, we have now a new commercial team with Christophe and Guillaume, and this commercial team is able to lead the customer retail and merchandise evolution that we need. Some of you may remember how I expressed after my first month in the company that I saw a clear improvement potential by unleashing the commercial drive of store teams, fostering a more commercial merchandising or adapting the offer to store clusters or locations. While obviously, our commercial team is now all aligned with its potential. Third, there is no question our product range remains absolutely differentiating. Our internal know-how, the variety of our styles, all this is truly inspirational and powerful and represents, of course, our best asset for the future. Our first priority for the coming weeks and months is thus to deliver the best Q4 possible. The team is 100% committed to do just that. Our second priority is to prepare a strong and realistic transformation plan that fully takes into account the current difficult business environment. As previously announced, we will share this plan with you in Q1. And now we are happy to take your questions.

[Operator Instructions] We will now take the first question. One moment, please. It's from the line of Marie-Line Fort from Societe Generale.

I've got 3 questions on my side. The first one is how do you explain this morning about result coming so late. As there is other companies in proxy sectors, we are already communicated on divergent trajectory. The second question is where are you in the recruitment of your new CFO? And last question is about your plan that you're going to announce in Q1 2024. I'm just asking if this is not too early given the current economic climate. And without going too much into details, what strategy access will this plan be based on?

Okay. Thank you for your questions. First one, what I tried to underline in my initial thought is the following points. We were observing all this year that whenever there was a promotion -- strong communicated promotion, there will be a very strong impact. And indeed, what we had seen in September is that when we don't have that, there is an even probably very strong impact downside as well. So we were really counting on the Maisons du Monde to show a huge uplift of sales and also in this way, to confirm that the commercial plan for Q4 would also meet with as much success. So this is why until we saw that Zur Maisons were not performing as they should, we were still confident we would be in our guidance. And yes, as you observed that a major promotion is just not delivering what it should, then of course, you reassess all your plan moving forward and you take into account that it's not going to deliver as much uplift as expected. So I hope it answers your question for it was clearly the triggering point. Second, yes, thank you for recruiting the CFO. Before I move on to that, let me say that I'm sitting here with Gilles Lemaire, who is the acting CFO. And we also backed up the financial team to make sure that we were quite strong and able to address the challenges and needs of this current demanding period in terms of financial support and functions. And yes, the CFO recruitment is well underway. And we have, let's say, a very satisfactory shortlist of candidates, and we'll definitely prefer to take our time and pick up the perfect candidate for this tense moment than go too fast. But yes, it's well underway. And three, well, you're saying it might be too early to announce the plan in Q1. At the same time, we are quite aware of the fact that given the tough environment, we have to make sure that everything that we want to announce and do on the operational and cost side should be communicated and acted upon as fast as possible. So yes, we are aware of the fact that we are going to design a plan in a moment, which is not the easiest one to project. But we believe it's really the necessity to do that in the coming months, and we're working hard on it, of course. I'm sorry, in terms of main directions. Let me just emphasize something that you would have probably in mind already. You know that I'm convinced that there is a big need for back to basics, which is another way to speak about 3C plan, and it will remain a big pillar of our company with really the necessity to turn from our culture and all our opening modes into a more customer built to cost and cash centric organization.

We will now take the next question. And the next question comes from the line of Michael [indiscernible] from Rose Capital.

Two questions for me. I was wondering if you could just give us an update on the expected CapEx amount for the full year, for full year 2023, as well as the expected additional financial costs post refinancing of the converts.

So expected CapEx for this year are clearly scrutinized. And so -- and will be strongly reduced compared to last year and should amount approximately around EUR 40 million to EUR 50 million.

EUR 40 million to EUR 50 million?

Yes.

Okay.

And the additional financial cost post refinancing, actually, we don't foresee any significant impact.

And may I ask how this is possible for the financial cost? Because obviously, the convertible had a very low coupon, almost 0, if I remember. How is it that you don't expect a big increase?

No, we're not expecting a very big increase. But frankly speaking, we might want to come back to you on that one if you want. Is that okay for you, Michael?

Yes.