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

Dear all, welcome to the full year 2024 Results of Maisons du Monde, Francois-Melchior De Polignac, CEO; and Denis Lamoureux, CFO, who will be your speakers today. I'll hand over to Francois-Melchior De Polignac. Sir, please go ahead.

Thank you, and good morning, all. Yes, your speaker today will be Denis, our CFO; and myself, and we are happy to have you today for the discussion about our full year results. So if we move to the first page of this presentation, you will see a page which is important to us, which is a reminder of what Maisons du Monde stands for. As you can see, we are a love brand. It's important to remind everybody of this love brand status, which is absolutely still completely the case. And this is why we have updated our also customer surveys to confirm the situation that you know of. It's also about remembering you about the fact that we are a very well-balanced model, which is all you see in the middle of the page. You know and this has not changed. It's been enhanced further, that we are a genuine omnichannel model with about 50% of our sales, which is purely brick-and-mortar, while 50% more or less our sales are also digitalized, which makes us quite unique in this respect in our sector. And you also see the remaining -- this balance between geographies and also this balance between categories. What's probably is even more important at this stage and with the results that we're going to share with you today is the fact that we also maintain our best-in-class gross margin level, and we'll go back to that later on. And of course, as you know, we are well recognized player and in fact, leader in the sustainability agenda in our sector, which is an important, of course, recognition for part of our fans and customers. Now having covered this background, let's move on to the next page, where you can see what you already know, of course, as well as we do, that we have been going for now a couple of years through a macro headwinds that impact the furniture market, as you see and as you know, with the specific case probably in France of the real estate situation and the construction of new apartments and housing, which has been extremely low for now about 2 years. This translates into, of course, a down cycle in the market -- in our market. What is probably important to notice and to underline is the fact that our positioning as inspirational player in this market makes us more sensitive to adverse market conditions and, of course, will have a greater potential for growth when the rebound will come. We don't know when it will come. I can assure that we do not count on it this year, unfortunately, but yes, we know that when it will come, we will be in a better position than other players of this market now. Moving to the next page. This, for me, is the most important page of what we want to share with you today. And in fact, the key elements are what you find on the top left and the bottom right because basically, it is a commitment we shared with you exactly a year ago, which was to embark on an in-depth full transformation of Maisons du Monde and its model, which is what we have been doing. And of course, we'll come back to that in a second. And yet at the same time, not doing that at the expense of the free cash flow generation. Indeed, remember, we committed to EUR 100-and-more million of free cash flow accumulated over '24, '26, with every single year being positive, including, of course, '24 the difficult year of the launch of this full-fledged transformation. Now if we speak quickly about what have been transforming. As you can see, we are talking here about the way we sell the distribution model. We have been reinventing and investing in the distribution model. We commented the fact that we have been refreshing 63 stores last year. We also highlight the fact that we are putting a specific focus on commercial centers. Why is that? That's because those stores have both, of course, a commercial impact but also they are used a showcase for our brands because they're located in places that see millions of passive buys and customers every year. So they play a very special role in our strategy, both commercial and brand awareness and recognition. We have also accelerated with the partnerships. So remember that we have chosen a model of affiliation at least for our close countries of Continental Europe, France and to come are Spain and Italy. And all this work, including what we have been doing on all other fronts, of course, has also helped us improve our NPS, Net Promoter Score by 4 points this year, which is a great satisfaction in a year of full transformation. Of course, a key part of the equation is what we do with the offer. I will come back to that later on, but we had decided to reduce our assortment to optimize it. It's very important for me to remind you each time that it is not with the sole objective of cost cutting, optimization of the cash. It does allow us to do that, but the origin of this optimization is a customer feedback saying, we love your brand, we love your product, but the offer is a bit confusing and even more so at store level. So this optimization of the ranges brings a few benefits, both for customers and for simplification of the model but also allows us to make some space for additional or new categories that also our customers were requesting from us, and I will come back to that in a moment. Remember that we were talking a lot about the customer, the 3 Cs that we started to speak about 1.5 years ago, the first of the 3 Cs, of course, the customer. So that's a key part of us, reconnecting with our customer. The loyalty program has been a key base for that in France last year, and we will expand on this experience in this year and in the coming years, of course. And we have also started other initiatives to reconnect with our customers as I will comment further. And the last point on the left, which stands with no figure at all, but it's very important to me is that we are really transforming the company in depth, which is also why we're talking about a 3-year journey. One example I'd like to share because it's the most obvious one is that we are not asking our store managers and teams any longer to be back to the customer and facing the merchandising the products, but rather to do the opposite and to engage in the relation with our customers, which is what we need to do now because it's what our customers are waiting for and is what you need to do when the time is a bit more under stress. It's just an example, but it's just to give you a hint of the fact that we are really transforming in-depth the company and the way people work and the culture of the company, which, of course, does not happen overnight, but we are really in this process. With local decision that comes as a consequence, natural consequence of what I was just describing, for the first time now, store manager in Maisons du Monde are allowed to have their say in the assortment that is shared with them at their store level, allowing us to be much more in contact with the local needs of customers. Now this in-depth transformation, which I could speak of course, for much more, but that gives you just a few hints and probably remember most of them did not result in positive sales in 2024. Clearly, we did not expect sales to be positive. But clearly, we know that the headwinds have been quite strong. But what is news because we commented the sales a month ago is what's rather on the right side. So you see that the gross margin ratio has been in the range of our best-in-class margin levels despite promotional efforts, despite some price reductions. So this is clearly a satisfaction and resilience of the model. We have, of course, as you know, been working very intensely on all the lines of the cost and cash. And you see that this results in free cash flow generation of EUR 15 million, of which we will speak again with Denis in a few minutes. So basically, the key message here is in-depth genuine transformation underway and yet as promised a positive free cash flow generation. As we move on to the next page, you see here our ongoing pragmatic I would say, approach to the store network. What you see is that the number of stores, a net number of stores has reduced by about 3% that we have opened a few stores, that we have increased the share of stores in affiliation and also increased, of course, the share of stores that have been refreshed or revamped. So you see a well-balanced and pragmatic approach to the store network to improve it progressively. As we move to the next page, just a couple of pictures to show you how -- what it means at store level to have an optimized and simplified offer. It allows us to showcase much better the assortment is what you see on the left side. I will not comment too much, but we also are now rolling out an AI-based tool to optimize the dispatch at store level. And what you see on the right side is just a couple of examples that allow you to understand what is the extension of ranges that we are now able to make thanks to the optimization of the assortment. So household linen, you can see. On the right side, you see something that illustrates two items, two parts of the offer improvement. New category, which is the bathroom items. It was an explicit request by our customers 2 years ago to say bathroom is a room that Maisons du Monde is not working with and we would love to see Maisons du Monde inspiration in the bathroom, which, of course, is important to customers. So you see our own products here. You see the well, one of the best lines of tableware, which is transformed into the bathroomware, which is already meeting with great success and also the towels. And you see another part of the selection, which is [indiscernible], a brand that matches well Maisons du Monde inspiration, and that is in the bathroom extended category. So as you remember, we have opened the possibility for us to partnership with a few well-recognized brands that match our inspirational promise. Now next page. It's all about the connection with customers. So we have been going back to customers in what they were expecting from us, i.e., part of our customers say, we love the website, but the inspirational access to Maisons du Monde should also be on paper. And you know that Maisons du Monde catalog used to be a real institution and something that people waited for eagerly for weeks before it came. So we are back with this tradition of making a big event of having the inspirational Maisons du Monde available to you in your own hands. We started that, as you remember last year, and we've been also distributing such catalog together with a few magazines, so we will enhance it this year because it met with great success on the part of the customers. I spoke about loyalty program, which is also key to relation. And of course, you also know that we started to shift from a nearly 100% ACA marketing allocation to a more balance allocation so that we are able to speak again about Maisons du Monde outside of the web, which is what you see on the right part of the page. This is the beginning of a mix shift that we are going to further work on and extend to other countries in this year and the following year. As we move on. Of course, as you know, and as you can see with the figures, we have been working intensively at each and every single line of cost and cash optimization. I will not, of course, lose through all of them because topics that are quite, I would say, self-evident. Just to give you a couple of examples that are very material. In the payroll, we have been launching the annualization of the work hours for store staff, which is a market best practice in France, but that we had not implemented before in Maisons du Monde. It allows store managers to have the better part of their teams for the peak weeks of the year, namely, for instance, Christmas, whilst they have less work hours with their teams for lesser weeks of the year, namely for instance February. So this is both a financial and a customer advantage, I would say, that we introduced last year. And to speak a little bit about the head office. We know we have been reducing the head office. You might know that we are in the middle of a collective plan to further reduce the head office. And this in turn has allowed us to reduce our rental costs by reducing square meters, both in Paris and in North where our head offices are located. If we move on to the next page. This page is something we shared with you a year ago, which was a way to share some of the key action plans that we wanted to launch. So the key message here is the following. Every single action plan has been really launched for good in 2024. You see that some of them already met their targets. Some of them could be late on their target, but showing progress compared to the history. There is only one where clearly, we have not been able to reach the objective not to progress, which is a store conversion rate. My view is that it is probably very much linked to some liquidation of all the inventories that we made in 2023, which allowed us to have a very dense approach, a sales approach to low-value products throughout the year and notably at the end of the year. But at the same time, I can guarantee you that I very much trust that the change that we are operating now at store level is going to bring this KPI back on track in the coming months or year. And we are indeed at the moment, changing the way we work and structure our staff at store level in France as a pilot, something which is quite promising and will be rolled out further. Now I will leave the floor to Denis, who will speak more about the financials.

Thank you, Francois-Melchoir, and hello, everybody. So we will go through some elements and key financial topics with Maisons du Monde for 2024. We will start with this slide where you can see that this is the one we shared a month ago regarding the sales. You can see that we have lost EUR 126 million of sales. Most of it are coming from like-for-like, so meaning all store. And some of that is coming from the store that we have closed last year. You can see also on the right that we continue to invest on the store. So we have 1 opening. We have 2 relocations. And basically, I remember you that it is what we call the [indiscernible] where we have the new concept started almost 1 year ago now. And we have also what we plan with Inspire Everyday, meaning the increase of stores under affiliation, and you can see both transfer but also openings of that store. At the end, the stores are 338, which is, as mentioned by Francois-Melchoir, a little reduction of 3%. And again, on that topic, we are working case by case, store by store, to see what is the best option for the store, either to be relocated, either to be closed or to be transferred from a very cash flow basis. If we look at the next slide, basically, the allocation of the turnover. I will not go into all -- the point what is very important to have in mind. Yes, we have -- decoration is declining faster than furniture. The fact is you have to remember that in 2023, we have declined the inventory by EUR 33 million, which is quite huge with a basis of EUR 200 million. And most of it were on decoration. So we suffer a little bit from that topic. And that's the reason why also we did not push too much on inventory in 2024. So you can see that in the press release. The inventory remained almost flat in value. In order to be able to start 2025 correctly as well as you have to have in mind that as mentioned by Francois-Melchoir, the inventory is quite better than the one in 2023, quite fresh, I would say, on that topic. And we have, in that case, better economics behind. What is also important to mention is that the business model remains balanced because the dynamics, even if it is not positive dynamic, but the dynamics are almost the same on all either channel or territory. What we can see still is that Italy and Spain, two and third markets are growing a little bit, which is very interesting. You have to have in mind that these countries was the one in 2023, that has, I would say, benefited from Inspire Everyday action, and France has only started in 2024. So that's something that to be noted. If we go on the next slide, on the EBIT one. If you look at the EBIT, so of course, the EBIT is quite low because it's 0.1% of sales, so 1.2, so almost -- at least is a bit positive. If we see the variation compared to 2023, what we can see? We have, of course, the volume effect linked to the sales decline. But we have an improvement of the gross margin, which is very important in terms of a balanced business model and -- business model of Maisons du Monde. So we can see this is a growing part of the margin ratio. And we can see also the impact of the savings in the EBIT as well as the impact on depreciation and amortization, all of it linked to EUR 1.2 million of EBIT. But of course, our guidance is on free cash flow. And if we go on free cash flow slide, you can see the EUR 15 million generated in 2024, why we generated EUR 27 million in 2023. Where does it come from? Most of it is coming, of course, from the working capital improvement. As you can see that in 2023, we have a working capital increase of EUR 24 million, while we have a decline in EUR 18 million in 2024, generating EUR 41 million or EUR 42 million of variation compared to 2023. Of course, we are hit by the decline of the EBITDA. We also have reduced a little bit CapEx, but if you look at the CapEx, we were at 2.9% in 2023. We are at 2.3% in 2024. And I remind you that still with that amount of CapEx, we were able to revamp 63 stores, which is quite significant in only 1 year. So basically, we are confident to be able with this envelope of around EUR 25 million CapEx to both invest on the IT side and also on the store side. So that's, of course, a good achievement. If we go on the next slide, and it will be the last one from the financial part of it. Again, this one is very important. What we can see is the following. We have a declining debt -- both declining and low debt. So now we are at EUR 85 million of debt -- of bank debt, why we were at EUR 105 million in 2022. This is a good achievement in that situation. Obviously, the leverage ratio because of the decline of the EBITDA is quite higher and goes at 3.8% -- sorry, 3.8. The good thing is that, as mentioned, we have renegotiate -- we anticipate that topic with our banks, and they have unanimously accepted to review all bank documentation, both for December 2024 and also June 2025. And we thank you for that because it helps to accelerate on Inspire Everyday plan, which is clearly our target. What we can see also is that -- we have no big reimbursement plan in the coming years. We have EUR 25 million, which is our term loan. And this one was exactly the same in 2024. So we have the capacity to continue to generate cash and to be able to finance ourselves, while? reducing the debt, which is quite important in that situation. And let me finish with two big elements on that liquidity topic. We have EUR 200 million of liquidity with the current bank documentation. And this documentation is validated until April 2028. So that gives us time to achieve the plan, which is, I remind you, a plan over 3 years. Thank you very much. And I hand over to Francois-Melchoir.

Thank you, Denis. So I hope this clarified any question you had. But of course, you remember that you can put your question on the discussion line here. So you probably, I hope have understood the key message in our part here is that we have launched this in-depth transformation plan Inspire Everyday, and we are on those action plans. And yet at the same time, as indicated a year ago, we are not sacrificing the free cash flow. And instead, we are progressively -- we are completing now the first EUR 15 million or EUR 100 million and more free cash flow over a period of 3 years. Now if I move on to the '25, '26 perspective. The first page that you see is investing for gradual return to growth. It will be part of the answer to your first question, I just saw on the chat here, which is we are really guiding our actions on the basis of transformation and free cash flow. Of course, it does mean to make some efforts on the top line, but it is not the first obsession that we are with. We are seeing a current trading, which is rather in line with the end of the year, and we are targeting a gradual return to growth within this 2025 year. So looking at what we are doing this year and next year, you will see no big surprise probably for you because we are really now pushing further our agenda of the Inspire Everyday 3-year transformation plan. By definition, it starts all with the customer. So I will probably repeat myself bit, but this is because we see the benefit of that, we see the magnitude of the change that we can bring, and we see the impact of what we do with our customers. Deeper connection with customers through customer events we see that the relation and the emotional bonds from -- with our customers, including at Store 11 is something extremely powerful. We have experienced that when we launched the loyalty program. And we know that classes with professional decorators, events, dinners, invitation to discover the new collection at store level are having a big impact and want to go on with this. I mentioned also that we want to make sure that the brand is quite seen beyond the ACA on the website, which is what we are doing, and we have further do and extend this approach also to other European countries while we started that mainly in France last year. There are new categories that will further increase their assortment and offer over the next seasons, although you can now see in the stores, if you are kind enough to go there that there are some new categories we shared with you a couple of pictures. And those categories are now quite visible at store level, but there is still room for increase of such ranges. We will go on with the pragmatic management of our store network. We expect an acceleration, of course, of the franchise and affiliate partners to increase progressively the number of stores, although we are not making any guidance or commitments on that. We -- on the contrary, we are committing to revamping an additional few dozens of stores to reach this, let's say, symbolic level of at least 100 stores revamped by the end of this year, with a specific focus on the stores in shopping malls. I mentioned that it's a dedicated new concept for such stores and that they are both quite important to us commercially, but also in terms of showcasing the brand where so many millions of customers are going every year. And we have been seeing the benefits of refreshing, revamping, reinspiring further our store layout. We will do the same with the website. So we will be over the coming months and probably more than a year, revamping, refreshing and enhancing the customer experience progressively at website level as well to better showcase our brand. And of course, that's on the next page. By definition, this needs to be fueled by further efforts on the cost and cash front. We, in fact, will increase our saving plan. We have been successful and quite on line with our target of cost reductions. And we now see that we can leverage further the simplification of the business that we've been bringing for the last 1.5 years, which will allow us, in particular, to simplify our logistics architecture and will allow us to reduce significantly the cost of rents at logistics level that will -- will bring, sorry, a big share of additional savings for the years to come. And of course, we will keep on with the pressure at all of the lines of the P&L to make sure that we get every possible savings and cash optimization. While still, as Denis was mentioning, reinvesting in the business. And you saw here our target to remain below 2.5%, but that means at a sufficient level to go on refreshing store network, website and basically investing in customer experience, which is why, overall, we are now considering that we are on track to deliver on our objective of generating this cumulative free cash flow over EUR 100 million during '24, '26 period with the first step of this EUR 15 million generated in this very intense first year of the full-fledged transformation plan Inspire Everyday. With that, we have covered the key messages we wanted to share with you, and we are now looking at the chat to see your written questions. Thank you.

I commented on the current trading. Just an additional word. Do we see any step-up in promotional activity from competitors? Step-up would be too much, but clearly, the market has changed compared to a few years ago. It has become much more promotional than it was. And I suspect it will remain so for the midterm. So we see no further questions, but we'll leave you, of course, some time to add your questions to the chat.