Moncler S.p.A. (MONC) Earnings Call Transcript & Summary

Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Moncler 9 Months 2022 Interim Management Statement Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to Ms. Elena Mariani, Strategic Planning and Investor Relations Director of Moncler. Please go ahead, madam.

Thank you, operator, and thank you all for joining our call today. The interim management statement call is hosted by Luciano Santel, Chief Corporate and Supply Officer; and by myself. I will start providing a brief overview of our results, and then Luciano will be happy to take your questions. Before starting, I need to remind you that this presentation may contain certain statements that are neither reported financial results nor other historical information. Any forward-looking statements are based on group current expectations and projections about future events. By their nature, forward-looking statements are subject to risks, uncertainties and other factors that could cause results to differ even materially from those expressed in or implied by these statements, many of which are beyond the ability of the group to control or estimate. Let me also highlight that given the nature of our business, interim results can be influenced by seasonal effects and therefore, cannot be taken as a proxy for full year trends or results. Finally, I remind you that the press has been invited to participate to this conference in a destiny mode. Now moving to Page 2 and 3 of the presentation. I would like to start our call today commenting on the celebrations of Moncler 70th anniversary, which were kicked off by an unprecedented event in Piazza Duomo in Milan on September 24. I hope you are able to watch it or at least to catch a glimpse of the show. It was the biggest brand event in Moncler's history with an impressive performance that featured 1,952 artists, which is the year in which Moncler was founded, centered around a revisited version of our iconic Maya jacket. The results have surpassed any expectation. The show was attended by over 18,000 people physically. And in the first 48 hours, the event recorded a reach of around 2 billion across all digital platforms. But this event was just the start of the celebrations. The show in Piazza Duomo kicked off a 70-day program of events, activations and experiences to connect and engage with our communities all around the world. Also, if you move to Page 4, you can see that as part of our anniversary, we conveyed the idea of extraordinary forever, which became the brand statement during the celebration. We created a unique and bespoke brand logo inspired by the Infinite logo connected with the idea of extraordinary forever. We also launched the brand of extraordinary a 2-minute brand film narrated by Alicia Keys, which was viewed over 20 million times in the first few hours. And we also launched the extraordinary forever brand campaign showcasing the 16 images inspired by the brand heritage that define the history of Moncler. But the quarter was not just about the 70th anniversary. As you can see from Page 5, it was also the quarter of Moncler's footwear reset. Moncler established Studio Senti a space to explore new footwear design, where we invited key members of the sneaker community to learn and to be seeded on Moncler's new footwear lines. In September, Moncler launched its new tail group footwear line with its debut product, the TailGrip-GTX Letop Sneaker made in partnership with outdoor specialists like Cordura Gortex and vibran. We also had a Genius launch to Moncler 1,952 man, a collection that included also collaborations with Barbara and Clarks. Last but not least, moving to Page 6. Let's talk about Stone Island brand initiatives. From an operational standpoint, in August, we took direct control of the Japanese market through a JV 80% controlled by Stone Island for the management of the local wholesale relationships and 16 U.S. We also integrated most of the retail distribution capabilities under the group logistics systems in Piacenza. From a brand perspective, we launched the full winter Gos collection inspired by the concept of Camouflage and monochromatic and also the full winter Selina collection, including a range of products with clean lines and urban performance identified by a small star invoidery. Let's now move to Page 7, where we comment the group 9-month revenue results, focusing on growth at constant effects. In the first 9 months of the year, the group generated over EUR 1.5 billion revenues, up 30% versus 2021 and 50% versus 2019. In Q3, the group grew 12% versus 2021 and 50% versus '19. The Moncler brand in Q3 was up 13% versus 21% and 24% versus '19, broadly in line with the growth of the first half of the year when looking at 2019. Stone Island grew 8% versus 21 and 51% versus '19. We remind you that Stone Island was fully consolidated from 1st of April 2021. Let's now focus on Moncler brand only and move to Page 8 of the presentation, where we analyze in detail the performance by region. Asia, that as you know, includes APAC, Korea and Japan, generated EUR 548 million in the first 9 months of the year, contributing to 44% of total revenues. The region rose by 14% in Q3 year-on-year and by 40% versus 2019, driven by the recovered performance in China, in particular during July and August when all the stores were open. Japan and Korea also continued to report a good performance. Both the DTC and wholesale channels in Asia recorded double-digit growth in the quarter. EMEA reached EUR 486 million in the first 9 months, contributing for 39% of Moncler revenues. Q3 was up 16% versus '21 and 15% versus '19, driven by strong demand from both local customers and American tourists. France, Germany and Italy were the countries that contributed the most to the growth in the quarter. The DTC channel in this region continued to grow at a high double-digit rate. Revenues in the Americas in the first 9 months reached EUR 218 million, contributing to 17% of total sales. Q3 was up 6% year-on-year and 16% versus '19. During the quarter, we recorded a significant outflow of U.S. tourists towards Europe. Let's now focus on Moncler brand revenues by channel on Page 9 of the presentation. In the first 9 months of 2022, DTC revenues reached EUR 903 million, contributing to 72% of Moncler brand total revenues. In Q3, DTC rose by 21% versus 21% and 39% versus '19, accelerating sequentially versus Q2, thanks to the strong performance of European and APAC stores and a triple-digit growth in the direct online channel. Moving to the wholesale channel. It grew by 2% in Q3 versus '21 and by 4% versus '19, in line with management expectations. Q3 performance was influenced by some conversions into retail of shopping shops and e-tailers. In terms of year-end indications, we can confirm that we expect the channel to end the year at mid- to high single-digit growth year-on-year. Before moving on to Stone Island, let's quickly pose at Page 10, which provides some highlights of our exceptional direct online performance in the quarter. All our dot-com KPIs were up significantly versus 2021, and revenues in the first 9 months of the year were up more than 80% at constant FX. Our direct online channel was also used as a platform for some of our prelaunches, including our first tail grip and our exclusive Triple white Maya 70 and both were sold out on the launch of our unique personalization project, Moncler bmi. Moving now to Stone Island Regional trends on Page 11. EMEA, which is the most important region for the brand, grew 1% in Q3 year-on-year due to a different timing of shipments in the wholesale channel. Italy outperformed the rest of the region in the quarter, reporting a double-digit growth. Asia grew 45% year-on-year in the quarter as a result of both excellent organic growth in APAC and some conversions from wholesale to retail. In particular, the Japanese market was fully converted to retail at the beginning of August, and I remind you that the Korean market was fully converted at the beginning of January. Americas recorded a growth of 21% year-on-year in Q3, mainly driven by the wholesale channel. Looking at Stone Island trends by channel on Page 12. Wholesale, the most important channel for the brand recorded a decrease of minus 3% in the quarter due to the conversion into retail of Korea in January, U.K. DTC in July, August and Japan in August, but also due to some different timing of shipments compared to 2021. The DTC channel instead benefited from these conversions and was up 59% in the quarter with a good underlying performance, even excluding these conversions. The direct online channel continues to register solid double-digit growth. Finally, let's briefly examine our store network on Page 13. At the end of September, our group's retail stores reached 313 units, 242 for Moncler and 71 for Stone Island. In Q3, Moncler saw 2 DOS net openings among which Dusseldorf for which you can see some pictures and 2 conversions at Duri Airport and Parilla Samaritan. The Stone Island network grew on the back of the conversions of the 16 stores in Japan and of the London store. Last but absolutely not least. In terms of sustainability update, Page 15 of the presentation, -- let me highlight that for the fourth consecutive year, Moncler is confirmed at the top of the textiles apparel and luxury goods industry, obtaining the highest score in the 2022 S&P Global Corporate Sustainability Assessment among the company's eligible for the Dow Jones Sustainability Indices. We are extremely proud of this result, and it's definitely a great way to end our presentation. I will now hand over to the operator for your questions. Operator, please open the Q&A session.

[Operator Instructions] The first question is from Melania Grippo with BNP Paribas Inc.

This is Melania Grippo from BNP Paribas. I have 2 questions. The first one is on Mainland China. Could you please comment on what was your performance in Mainland China in the quarter? And what you are currently seeing in October? And if possible, also what was your exit rate in the country in September? And my other question is on prices. You recently implemented a price increase for both brands. How is it perceived by consumer? Have you seen any impact on volumes? And if it is possible to break down your Q3 performance by price mix and volumes.

Okay. Melania, thank you for your questions -- about your first quest to Mainland China. Of course, this is a very, very good question, considering the overall scenario in that country, in Mainland China in Q3, that was positive, was very good in July and August, in line with June. You remember that second quarter was very weak in China because it was affected by the several severe lockdowns in June as the stores are the most important 2 cities, Beijing and Shanghai were open again. I mean our business not only started to do very, very well. So June was good in July and August in line with June, September, end of August, actually because of new lockdown business was weaker. But I mean, at the end of the quarter, that answers your question. Mainland China was positive. Currently, in China, of course, there are a lot of uncertainties in China due to the COVID issues. I can tell you that the first week of October and the second week of October were very, very strong. For China, you all know, you may remember that the first week of October is the golden week and our results to the week were very, very good value by good, strong double-digit growth. This, of course, due, I believe, we believe due to the impact of our 70 anniversary event that was at the very end of September. But even taking out the possible impact of that event that has been driven by the launch of the new Myer 7o, and the performance was good. Unfortunately, now I can take not say the same because now we are still under the uncertainties associated with COVID problems and the COVID restrictions. Some stores are closed. Some stores have been reopened and then closed again. So I mean, situation is still volatile, uncertain and not the idea situation for business. But in any event, of course, we keep monitoring the situation. What I can tell you that is very important from our perspective, that is more focused on the long term that the brand in China is really very strong. Of course, we have to live with this situation. The second question about the prices, you're right. We, for the first time, increased prices in this season, the impact the response has been honestly good, I would say, related to prices, of course, now we're talking about China before. I mean, currently weaker than the first week of October, that was amazing. But I would say, totally unrelated to the price increase. The impact on volume in Q3, honestly, I mean, the impact of price increase was higher than volumes. But I mean, we still maintain our historical guidance that volumes for the year-end for the 12-month period, the full represented 2/3 of the growth and the price, 1/3 of the growth. But in Q3, considering the price increase in following the price represented over 50% of the growth rate.

The next question is from Chiara Battistini with JPMorgan.

The first one maybe to follow up on Milan's question on the current trading in China, maybe if we could expand on the current trading also for the rest of the world in Europe and in the U.S. We saw the comments from Remo yesterday that October seemed to have started well. So maybe if you could provide further color on that comment and just generally globally. And specifically on China, actually following up on your answer regarding September and Q3, you mentioned positive double-digit or actually really normalized in September, so more single-digit level? And then my second question is on the U.S. in Q3. I was wondering if you could expand a little bit more on your performance for the Moncler brand in Q3 in the U.S. that saw quite a slowdown. So to what extent maybe this was related to the shift of spending with the tourist into Europe, so possibly commenting on the American cluster overall? And whether there was anything else in the U.S. going on impacting the performance and taking it to single digit.

Okay. Thank you Chiara. Your first question, okay. First of all, the performance of China in Q3 was positive, okay? -- let me stay on positive was not amazing, but was positive. Please don't ask me a precise number. But in any event, we are happy because it was positive about the current trend, current trading, okay, region by region, okay? China, we discussed a lot, unfortunately, very volatile, but with a very strong first and second week of October. Korea, very strong, honestly. I would say, as usual because Korea has been doing very, very well at least for 3 years. And so no surprises. I mean, surprising because it's doing very well. Japan also very well. So in Asia overall, well with the uncertainty associated with the current situation in China, Europe, well, DTC specifically is doing very well, considering that, of course, needless to remind you, but we still miss the tourism coming from Asia, from China, but we have the benefit coming from the tourism coming from North America, the U.S. And of course, low cash business with local is doing still very strong and do very well. And again, this is something we discussed already at that time. This is the result of a very important activity work that has been done over the past years and not just to develop a strong local customer base. Talking about the U.S., I mean, there are 2 phases of the coin on base is a very strong result of business with Americas in Europe and other phase is what you call a slowdown. I'm not sure that slowdown is the right word, even if -- I mean 100% is evidently lower than in Q1 and Q2. But okay, first of all, again, in part has been offset by the business we did in Europe with Americas. And the second factor is associated during the base comparison because last year, you remember that America started, let's say, to take up. I mean, to do very well exactly in August, I think, but I mean in Q3. And so now the base comparison Q3 on Q3 last year is let's say, tougher than what it was before. Important to highlight that if we look at 2019 and if we look at the U.S. cluster, okay, the U.S. cluster is strongly up in all the 3 quarters with even a light acceleration in Q3. So I mean, overall, we are happy with America. But again, you are in the third quarter, we reported 6% rate that is apparently a slowdown. But I mean, overall, honestly, we are happy with America. I think that I answered your question.

And just a very small follow-up on the U.S. actually. Was there any wholesale impact timing-wise or maybe lower shipments went into the U.S. in Q3 or nothing to call out there.

There are -- in the U.S., and not only some timing issues in deliveries, honestly, but not meaningful. I mean I would love to say that we are very late and you will see in Q4 a lot of deliveries that we missed in Q3, but this is not the case. There are a handful of million that probably we probably will be reported in Q4, but nothing really material. And handful of million. I mean, overall, not in the U.S. only. But in any event, the answer is yes, that meaningless.

The next question is from Anne-Laure Bismuth with HSBC.

I have 2 questions. The first one is regarding the performance in retail for the nuclear bond in Q3. So I know you are no longer disclosing the like-for-like performance. But I was just wondering if it's fair to ask you that the contribution from new space in Q3 was around 10% as implying like-for-like up 11%. And the second question is, would you be pile would it be possible to remind us what percentage of sales came from -- is coming from local clientele in Q4? And what are the PD initiative that you are planning around November and December to keep the brand it with the local customers in Europe -- thank you very much so go -- thank you very much.

Okay. Your first question, Laure, is about the contribution of space and organic growth. The vast majority -- I mean, the majority of our growth rate in retail in Q3 was organic growth, okay? Please don't ask me how much towards the comp because you know that we don't report the comp in Q1 and Q3. But again, if I can give you more than color, the majority was comp in line with the previous quarters. And this is because, I mean, the space contribution was much lower, but this is simply because in Q3 this year, we opened 4 stores, I think. And last year, we opened about 10 and also important stores because it's not only that this year, we are a little bit late in the new openings and most of them, all the stores that will be opened this year will be opened in the current fourth quarter. but it is even more about the fact that last year in Q3, we opened not only many stores, but many important stores because Milan--, the relocation in the flagship store in Anjo, can and the Sinai store, the expansion of selinexor store. And so last year, Q3 was a quite important month for new openings and relocations this year, much weaker. So the contribution of space in Q3 is not particularly strong, but is expected to be much stronger, of course, in Q4. In Q4, I mean, the contribution of our local business in Europe because I mean I think you are thinking of Europe that is the most important region for contribution of tourist Europe. In Q4, contribution of locals is much more important than tourism. I mean tourism historically, talking about before, before Covina Chinese we're coming to Europe. Q3 business was strongly impacted by tourism. Q4, much less. Q4 is more a local business quarter. Of course, what are we doing in Q4. We are doing exactly what we have been doing for at least the past 5, 6 years when we developed -- we started to develop a strong clienteling strategy, that is about building, developing and protecting relations with our customers. So again, we have a plan that is in line with what we have been doing so far, nothing special, no particular events planned, but again, a constant work to maintain this kind of relations that are very important.

The next question is from Susy Tibaldi with UBS.

So my first one, I just wanted to follow up was very helpful to hear about the U.S. cluster. And given that Europe, as you just mentioned, is so important with low cost in Q4. I was wondering if you can give a little bit of color also on the European cluster because you mentioned in the release as well the markets such as Germany are also very strong for you, whereas we have heard from some of the other peers in the industry that Germany may be the one market that is already a bit more volatile. So if you can add any color that's super helpful. Secondly, on space for -- can you provide an update on what we should expect for the full year space. H1 was around 12%. Should we expect something along those lines for the full year as well. And third question on Stone Island. This month, you opened the first retail concept in the U.S. Can you give a little bit of color on your plans for the rollout of this concept store and what kind of opening number of openings we should expect in the coming quarters and in the next year or so?

Yes. Okay. The first question was about the European last our period last year. is doing very well. I mean the regions. The countries we mentioned that there was -- you did mention that Germany, France, U.K., I mean, are doing pretty well, honestly. So honestly, I mean nothing, nothing to add to what we said and what you stated unless you have additional question. But I mean, overall, I mean, the European taste is very good. The other question was about the space contribution. I mean, for the year-end, we still maintain our as guidance to achieve a high single-digit contribution. And again, in Q3, this was not the case, but for the reasons I said before, but considering the impact -- the expected impact of the new openings that will be in Q4, I think, because at the day end up we are still missing 8 stores that will be opened in Q4. At the end of the year, the contribution will be much higher, but still in line more or less with what we normally expect that is a high single digit. Stone Island we just opened the first and unique -- the only store this year because all the retail contribution we reported in the third quarter is totally driven by the conversion of business in Korea, Japan and the business in the U.K. So the very first store we opened was notably Chicago, which is very important also because not just for business being the store just opened a week ago, I think. But it is very important because it represents the new store format that has been designed by yes, I mean an architecture study that interpreted in my opinion, very well the assess and the DNA of the brand. So we are very happy with the design and with the final result of the store. I can't tell you yet anything specific about the business results. But again, we are very confident. About 2023, I mean next year, we will open some stores in ForstronIsland and will be new openings honestly, let me mention a couple of them. That will be a story Ben. There will be a store in Zurich and others. Honestly, the retail expansion next year, and I mean the current retail strategy ForstronIsland is not driven by the, let me say, aim to increase volumes to change additional volumes, so that could be the case, but it will be a short-term state. Our priority now is to build a real strong retail culture, Eastern Ireland, which is something that takes some time. And the second point, we are also opening some important stores like the one I told you then and Zurich because we believe that, I mean, this stores in very good locations will be very strong way to communicate to properly communicate the values of the brand. And so again, a brand strategy first and retail business as a consequence of the brand strategy.

The next question is from Charles-Louis Scotti with Kepler Cheuvreux.

3 questions for me, if I may. The first one on your full year sales target for this year, that implies a low double-digit organic sales growth in Q4 on tougher comps on a 3-year stack considering upcoming stores opening and what seems to have been a good Q4, good start into Q4? Are you still comfortable on this objective? Second question on footwear. Is there any chance you can share with us the preliminary results of your recently launched footwear collection and whether the reception from clients is positive or not? And third question on pricing. Some of your competitors have already announced sizable price increase for next year. Should we expect another significant price action at Moncler in 2023? And how do you see the risk of negative price elasticity and demand, especially in Europe?

Okay. Thank you for your question. About your first question, the target for the current fiscal year and the consensus. I mean we said, and I can tell you again that we believe consensus is reasonable. But I have also to highlight that we have had the 3 months, actually 2 months and half most important for our business as we will totally depend on the overall scenario let me say, geopolitical, macroeconomic and also associated with COVID considering what I said before about China, but not only. So overall, we have a very clear in mind the consensus, and we believe that, that target is achievable. To answer your second question, footwear, I mean I could share some results. But obviously, please don't ask me to share this result. But let me give you some color. We are very happy with the first results. But numbers are totally meaningless and irrelevant. What is very important is that this product, this product line, we have been working on for more than 1 year, investing in design, investing in product, investing in communication. I think that for the first time, let me say, we seriously invested in a category we want to become relevant, not only for our business, but also for our brand identity. The first results are very good. I mean we are talking about small numbers because we didn't put in the stores a lot of shoes. This was not our intention, our goal. But what we put in the stores is performing very well with a very strong sell-through. I mean the first prelaunch online was sold out in a few hours. So small but a very clear and strong signs that, I mean, we are getting there. Of course, it will take time. We are not in a have not at all. But again, we are very confident for the future. I can tell you that in the upcoming presummer season, the footer collection will be broader and in the next full winter season will be even broader. And the perception of our customers, of our people for the time being, is very, very bad. So again, we are confident but again, numbers are still meaningless. Last question was about pricing. Yes, we increased the prices in this season, and we plan to increase the prices. I mean, for sure, prices will be increased in spring/summer 2023 of the same the same about 10%. Of course, the 10% is an average. I mean, let's say, it's more indication of the price increase in Europe because in the other countries, it totally depends on the trend of the currency trend that there are some countries like the U.S., where the price increase will be way lower. Other countries where the price increase like Japan will be higher. I mean, of course, it totally depends on the current level of the individual currencies. About the second half of next year. Right now, I can tell you, even if the seal not been made yet, but it will come over the next few weeks because we are now already almost ready to finalize our collection to present the collection to the buyers and to finalize also the pricing strategy. I can tell you that reno, we see the potential price increase also following the season because I mean that the production costs are still growing even if -- I mean, if we talk about energy, but I don't want to get into this conversation. But there are some signs that energy cost may be lower than just a few months ago. But in any event, for Spring, for sure, there will be more or less a 10% price increase for falling now, I expect more or less the same.

The next question is from Thomas Chauvet with Citi.

Three questions, please. The first one following up on the pricing question. So you said you Cannella 10 in Europe for spring/summer. And I guess you want to reduce the price gap with other regions. So less than that in the U.S. and Asia. So I don't know if I said 5%, 6%. Does that mean that on a weighted average basis, you will have a pricing effect of around 7%, perhaps on spring/summer and you said the same for on winter? Or did I get this wrong that this is a 10% increase in all regions? Secondly, coming back to the slowdown in the domestic U.S. market. The U.S. clusters, you said, did not slowdown in Q3. How do you explain that Europe is slowing down on a year-on-year but also 3-year stack basis. And can you comment on whether some European markets are seeing a weaker local demand in -- at the end of the summer. And then finally, a broader question on retail. Remember, last summer, Roberto talked about new ways of selling. He mentioned 30% of Korea sales now and 20% of Japan sales are done through private appointments. I was wondering whether there's other important markets where you're starting to see this trend emerging. I was thinking, particularly China, is that -- is this a trend in China? What's the comparable number in China, this is the Korea and Japan number. And as China doesn't seem to want immediately to relax the zero COVID policy that could be an interesting way of continuing to grow in China in the coming quarters. Okay. question.