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

Hello, everyone. I hope you are all doing well. Today with Denis and Gilles, we will be sharing our results for the first half of 2024. You will see the agenda on the screen. So after the session on highlights and business review of the past half year, I will hand over to Denis and Gilles for the financial review, and I will then conclude with the key priorities for the second half of the year. And of course, we will then open the Q&A session. Now as you remember, we have committed to 2 main priorities. First, the execution of our 2024, 2026 strategic plan inspired every day and second, the management of our free cash flow. So first of all, on Inspire Everyday. What I want to tell you is that the plan is on track, and we do see all the teams of Maisons du Monde fully involved in the plant and the plant is starting to show some results. First of all, the transformation of our retail network is accelerating. We have been rolling out our renewed concept to 17 stores since the second quarter after a successful test phase in the first quarter. The first 5 applicated stores transferred last year have been registering positive results and the Le confirm the value of the model, both for us and for the local entrepreneurs with whom we corporate. And our network benefited from 5 openings, including 2 transfer to our affiliate partners. Second, the transformation of the operation model is also underway. We did reduce by 20% the number of references for the spring/summer 2024 collection compared to the spring/summer 2022 collection. On cost management, we have achieved gross savings of EUR 20 million compared to June 2023, and we have been optimizing our inventory by nearly 16%. On the financial side, our free cash flow remains nearly stable compared to H1 2023 and is consistent with our forecast of a positive free cash flow for the full year of 2024. However, macroeconomic uncertainties in June, notably affected both our sales and EBIT. So to summarize, our transformation plan is well underway and is progressing on all streams, thanks to the strategic investments although they are not yet reflected in our P&L. Now Maisons du Monde is not only about the cost cutting and all the initiatives to transform the operational model or even only other stores, it is and remains a long brand, and we are committed to continuing to strengthen its identity and to uphold our promise to customers to be an inspiring, accessible and sustainable brand. Our creativity has taken new forms to genuine collaborations with renowned personalities, the return of our inspiring catalog to stores, a successful test with selected customers for our loyalty program, which will launch in France this all and our commitment to sustainability exemplified by Maisons du Monde Foundation initiative in support of trees and forest. Indeed, according to the latest parameter from the BV Institute, we have gained 3 points in brand awareness in France for the '22, '24 period. In our presentation in March, we had committed to sharing with you some updates on the progress of the 3-year strategic milestones. Here is the list of KPIs, the list that we shared with you and the status according to the color code Legend target met progress compared to H1 last year, but still GAAP to target or action plan underway but no progress compared to H1 last year and GAAP to target. To explain to you the way worth, let me take 2 examples. Take the line 6 on cost savings, for instance. Our 3-year commitment is EUR 85 million. And you can see the distribution of this commitment between 24 in this kind of brown color, which shows a EUR 45 million commitment of this year, thus more or less half -- a bigger half of the total and the rest to be delivered in '25 -'26. Second example, to show it works, is the KPI #9, which is about the share of retail network under partnership. Here you can see on the opposite, that the bigger part of the results will come in '25, '26 with only a first tiny bit happening in 2024. So what you can see with the color code is that basically, as we mentioned, all key action plans have been launched -- some of them are completely in line with the target already. Some of them are showing progress compared to last year, but still need to be adjusting to fully taking the targets of 2024. Now in terms of network, as of June 3, '24, Maisons du Monde has 340 stores, including 7 affilete stores and 3 franchises, which together represent 3% of our network. As a reminder, by 2026, we aim to have approximately 400 stores with approximately 30% of them under affiliation or franchise. And as I mentioned at the beginning of the presentation, we have been expanding our renewed concept to 7 stores following the successful launch in 3 pilot stores. This now accounts for 6% of our network. By the end of '24, circa 20% of the network will be revamped, representing around 25% of 2023 sales. Now to come back to the test that we have been -- or the pilot store that we have been launching. I have to tell you that we have been quite satisfied and we are quite satisfied with those results will basically turnover that represents strong double-digit higher performance compared to the rest of the network and it also matches a qualitative interest on the part of our customers, reflected, for instance, here in the Google but also a positive feedback from our team because the new layout allows them to be more easily in contact with their customers. So this is why we have been happily starting to roll out this concept to more stores as I just mentioned. Last but not least, and before handing over to Denis and Gilles, we are a list of actions that we have been implementing in the first half of the year and that we will initiate or continue in the second half of the year to achieve our full year target of EUR 45 million in gross savings. This, as you understand, is an important step towards our '24, '26 commitment of EUR 85 million in gross savings. I will not go through the detail of other lines, but I think they do give you a vision of our systematic approach of all cost drivers. This concludes the business review section, and I will hand over to Denis.

Thank you very much, FM. So now let's jump on the figures. So on this slide, you can see the evolution of our sales as well as the evolution of our network. As you can see, we have lost $52 million of sales, meaning 9.6% of 2023 sales for first semester. It is an 8.5% decline in like-for-like, meaning on the -- when we took outside all the effects the closing of boutiques, and we will come back after on the closing also of the U.K. website. Nowadays, we operate 330 stores directly, while we have 10 stores operated by partners. In June 2023, we had 345 stores fully managed by ourselves. As you can see, so the main closing and the main point is this element of the strategy. On the next slide, we can see what sees the evolution of the product. So we can see that the furnitures are declining on 6.7% on year-on-year, so less than the total, meaning that the decoration is suffering more than furniture. On the channel side, we can see that the web is -- the online sales are declining less than the store network even including the U.K. part. And on the geography side, we can see that we are like-for-like on the same between France and international. We have to take into account that we start earlier the move on the network in international, namely Italy and Germany. But now nowadays, the like-for-like is the same for both pillars, meaning again, France and international. If we look on the EBIT results, what we can see, we have a gross margin loss of EUR 25.8 million. That is composed of positive rate effects and negative effect on volume. If I come back on positive effect on the rates, we have a freight evolution that is on a good way for 2024, as well as savings that we have implemented, savings that part of them are in SG&A, part of them are in gross margin. We also invest this better gross margin into price reduction as well as promotion to ensure that we remain accessible, which is a big pillar of Maisons du Monde. On the logistics costs, we have 3 main effect. The first one for sure is volume. We are being sales. So we believe it from a volume effect, but we also benefited from savings again on all the transportation to stores or to a direct consumer. We suffer of 2 effects. The first one is the defavored mix effect on deliveries with more delivery at home and secondly, for sure, the increase of the rents of our warehouses. So there is a benefit -- there is less logistics cost of EUR 6.5 million. On the store and central network cost, we have a EUR 2 million variation compared to last year, mainly coming from, of course, inflation, the rent of the inflation, also of the rent of the stores. As you see, the show in France, it was more than 5% for the first semester, but we also benefited from savings as, again, mentioned by Francois-Melchoir, and also internal optimization of our organization. And of course, we continue to invest on transformation. If we look on D&A, so there is a small variation and the small variation is mainly coming from the start of [indiscernible] or new warehouse in the north of France. At the end, we suffer a loss of EUR 5.8 million on EBIT. If we look now on the cash flow, and let me remind you that the guidance is based on the cash flow, and we are -- our guidance is to generate more than EUR 100 million over the next 3 years. If we look on the cash flow, we are very stable compared to last year because we are showing 0.9 negative cash flow, so I would say almost 0 compared to EUR 2.7 million last year. This comes from the decline of the EBITDA, of course, as mentioned on the slide before, but a big improvement on working capital, and this is mainly coming from the decrease of the inventory because we came from 7 months of inventory to 6 months, showing all the good efforts to secure the working capital and the cash of Maisons du Monde. On the CapEx side, there is EUR 8.3 million of variation, but this come mainly from [ Leo, ] I mean the warehouse in the north of France, where there is still a lot of investment in 2023. And you can see on the right side, the fact that on the -- we are comparable 1.9% versus 2.3% on all the CapEx outside of [ Leo, ] meaning that we are continuing to invest on our network and annual IT to develop Inspire every day. And that's all for me. Thank you very much.

Now thank you, Denis. Moving to the key priorities forward. I can switch the slide. Okay. So of course, our objective is to go on with the transformation of our model. As you understood, it's very key for us to roll out our renewed store concept, not only because it does improve the experience for customers in the sales, but also because it's a store concept that allows us also to showcase with more value given to products and brands, a much optimized offer range. And as you remember, we are optimizing the offer by reducing the number of SKUs and better covering the needs. This will allow us to increase clarity and visibility of our offer. We, of course, will go on with the streamlining of our operations of all the value chain. And more specifically, we will go on accelerating cost savings with the EUR 25 million cost savings to be delivered in H2 on top of the EUR 22 million delivered on H1. And basically, this will allow us to have a positive free cash flow contribution to this overall target that Denis mentioned again, of more than EUR 100 million over a period of 3 years, cumulative '24, '26. At the same time, you will see in H2, an increased number of initiatives to better value the brand and to increase yet again the brand awareness of Maisons du Monde in our European markets. So this is the conclusion of our short presentation. I thank you very much for your attention. And of course, Denis, Gil and I are happy to answer any questions you have. I believe we're starting with the phone call questions.

[Operator Instructions] And the first question comes from the line of Marie Line Fort from Bernstein.

So you still suffered during the second quarter for different difficult context. I would like to know if you see some better momentum in Q4? I know it's very difficult to anticipate. But given the cumulative comps base [indiscernible] comparison base. Is it wise to see such quite an improvement at the end of the year? And the second question is about the new concept. Is it possible to quantify the improvement on the like-for-like sales before and after? And also just to share with us, do you expect the benefits of the refurbishing over 6 months or something you will need to recover more traffic to get all the benefits from the new concepts? Just to have an idea of the momentum, the phasing.

Thank you for your questions. So to start with the turnover trends and the context. It's true that there has been a specific momentum, adverse momentum in France in June because of the political context, and we have seen that in our figures, and we are able to see that because the momentum in France, in sales was quite distanced by the one in the rest of European markets, just in June, as an exception month compared to the rest of the year. So indeed, having something specific affecting our main domestic market in June. And let's say that, hopefully, this political context is not going to harm in the future, any longer the consumption momentum in France. I will not dwell too much further than that because we did not guide on sales, basically. So we do not see any huge sign for market improvement in H2, apart again from the fact that I do hope there would be no such other impact as the one we experienced in France in June. About your second question on the new concept. So when we go for the full-fledged new concepts, we do see -- we haven't seen consistently something which is a strong double-digit improvements compared to the like-for-like of the remaining stores, let's say, on the same comparable basis that gives you a hint of where it heads. And then in terms of seeing the benefit, in fact, what we see is that the positive impact on sales of the stores that we are revamping is coming very fast. It's nearly immediate. However, of course, the revamping of the 70 stores we plan with them for this year is going to be progressive. And so there will be a large momentum of those 70 stores, representing 25% of the retail sales only in Q4, because the last of the 70 stores will be revamped very early in November before we read for the end of year period. And of course, we will make sure that we have some local communications to increase the awareness of customers around those stores, which, to be honest, we have not been doing that much so far.

The next question comes from the line of Christophe Chaput from ODDO BHF.

Just one question for me, please. In H1 2024, you benefit from lower freight cost. But since that the freight cost, let's say, on the market increased, let's say, quite sharply, what kind of effect it could have on your P&L H2 2024? And what about 2025 as well if you get some visibility regarding the length of your contract, I assume?