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 First Half 2024 Financial Results 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.

Good evening, everybody, and thank you for joining our call today on Moncler Group's first half 2024 financial results. As usual, let me introduce you to the speakers of today's call. Besides myself, you have Gino Fisanotti, Moncler Chief Brand Officer; Roberto Eggs, the Chief Business Strategy and Global Market Officer; and Luciano Santel, Chief Corporate and Supply Officer. 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 listen-only mode. So before handing it over to Gino, let me just present the key highlights of today's results on Page 4. Group revenues in the first half of the year were up 11% at constant FX, with the Moncler brand for the first time exceeding the EUR 1 billion revenue mark in the first half of the year, up 15%; and Stone Island, down 5% at EUR 189 million. The group also reached a notable H1 operating profit exceeding EUR 250 million, with an EBIT margin of 21% compared to 19.2% last year. Net income was EUR 181 million, and our net cash position at the end of June was very healthy at EUR 846 million compared to EUR 471 million in June 2023. Let me now hand it over to Gino for the key highlights of the Moncler brand. Gino, over to you.

Thank you, Elena. Good afternoon to everyone. Again, a few things from my end. I think on the back of a very strong Q1 in terms of executions and brand momentum for us in Q2, first of all, we have the opportunity to really create an interaction between Moncler and art, creativity and design. This was the first time for the brand to be present during Milan Design Week. And again, we were by design and lucky enough to have the Venice Biennale and Design Week happening at the same time. So we strategically took the decision to take over one of the most iconic landmarks of the city, which is the Stazione Centrale, the train station, the main central station. And by doing that, we were able to transform that space into an exhibit space that, as we discussed before, was all about art, creativity and design. A few things just to highlight. In terms of art, we were able to work with -- in partnership with the French iconic artist, JR, and this was able to create a full takeover of the facade of this very iconic landmark, something that, of course, created a lot of traction and invitation to everyone attending Design Week to look at. And then in terms of the creativity, of course, we work in a project created by Jefferson Hack, with some of the most extraordinary minds that shape culture today, like Daniel Arsham, Deepak Chopra, Isamaya Ffrench and others, by taking over the full communication of the station. Just to give you an idea, over 240 billboards and more than 100 digital screens were all took over to be part of this experience. That was able to connect with over 3 million people who passed by that week at Stazione Centrale, which was a new record. And of course, this helped us as a backdrop to our summer campaign that was able to reach over 0.5 billion people around the globe. Last but not least, connected to this as well, we were able to present through media our upcoming work and collaboration with iconic designer, Jonathan Ive, Jony Ive. This is something that we will be launching later this year, but we were able to announce during Design Week as well because we believe that was the perfect backdrop to do so. If we move to the next slide, and before I pass to Roberto to talk about Stone Island, of course, we continue our progression towards a Spring/Summer diversification, and this was not exception for us in Q2. This is why you can see that we have been doing conscious efforts around our Spring/Summer Moncler Collection. During this time, especially on the back of April and beginning of May, we were able as well to launch on the back of June our Moncler Collection Pre-Fall as well as the introduction into what's coming right now, our Fall/Winter collection. So again, as I mentioned before, hopefully, this will start making sense to all our conversations about how we're starting to boost to become a more all year round brand and the diversification we want to do into Spring/Summer as well. Roberto, to you.

Thank you, Gino. Good afternoon to everybody. I would like to bring you through the 3 main highlights of Stone Island during this last Q2. The first one, which is probably one of the most interesting co-creation of this year, which is the co-design capsule between Dior, so the 2 joint studio, and Stone Island, a tribute to Christian Dior and Massimo Osti, the founders of the houses. The collection was introduced as a preview during Milano Fashion Week at the end of June and then in Paris during Paris Fashion Week. The collection is being sold only in Dior stores, not in Stone Island stores, but it was very, very interesting to see the amount of coverage that this co-creation has been generating and the traffic also that has been driving also to the Stone Island store. The second important event that took place during Milano Design Week is our Series 08 that we call Stone Island Prototype Research, very much orientated around research and experimental processes. Also here, a very big success on the exhibition, with more than 12,000 visitors that came to visit the exhibition at the Stone Island position. Finally, the second drop of the New Balance 574, which is the Legacy model showcased by Stone Island, which is showcasing the expertise of Stone Island color research. Despite the fact that we increased a lot the volumes on this capsule, it has been sold out in 1 day, and we changed also the balance between online sales and physical sales in the store in order to drive traffic in the Stone Island stores. So it's something to be repeated, a very, very interesting launch that we did this time with New Balance. Let me drive you through the result of Moncler and Stone Island first by geography and then by channel. I would like to start by Moncler, where we reached, for the first half of the year, more than EUR 1 billion turnover at EUR 1.041 billion, which is a plus 15% compared to H1 2023. Q2 recorded a plus 5% growth, supported with a solid growth in DTC channel. Asia, which includes for us, as a reminder, Asia Pacific, Japan and Korea, recorded a plus 6% growth. And the big driver of the growth was driven by Japan, positive on locals, but really driving this growth through tourists, and also the positive performance of Chinese Mainland. We had also Korea and rest of APAC, which showed softer trends. EMEA revenues increased by 6% in Q2, supported by solid tourist purchase, but also with positive local consumption. Finally, the Americas declined by 1% in Q2. The positive performance of the DTC channel was offset by the decline of the wholesale channel, which is something that is driven by us through conversion, but also difficulties in department stores. On the next page, on the performance by channel. The DTC of Moncler showed an increase of 19% during H1 2024 at EUR 875 million. The comp sales during H1 is at plus 14%. In the second quarter, DTC revenues grew 8% versus the second quarter 2023. All 3 regions recorded positive growth, with EMEA outperforming. Wholesale revenues reached EUR 165.5 million in H1, down 5% versus H1 2023. Q2 was in line with the performance of Q1 with minus 5%, mainly impacted by the ongoing efforts to upgrade the quality of our distribution. Let me drive you through the results of Stone Island by geographies. Stone Island in H1 reached EUR 188.9 million, which is a minus 5% compared to 2023. Q2 was down by 4%, with a decline in the wholesale channel almost entirely offset by strong double-digit growth in the DTC channel. Q2 in Asia grew by 27% year-on-year. The strong performance of Japan and solid growth -- with solid performing in Japan and solid growth in Asia Pacific. Trends in Korea remained softer than in the rest of Asia. EMEA declined by 11% compared to 2023, with the strong double-digit performance of the DTC channels not enough to fully offset the decline of the wholesale channel. Finally, the Americas saw a decline of 15% in Q2. The positive here again, positive performance on the DTC channel, with a quarter that was offset by the decline of the wholesale channel. Last page on the performance of Stone Island, the performance by channel. Stone Island recorded a wholesale revenue at EUR 96.3 million with minus 24% for the H1. The second quarter was in line with the performance of the first quarter with minus 28%. The revenues in DTC channel grew at EUR 92.6 million with a plus 29%. In Q2, revenues of this channel were up 27%, thanks to a positive contribution from all regions, with Asia and EMEA outperforming. Finally, in terms of openings, we have 2 net openings regarding Moncler in terms of DOS, one which is a conversion from wholesale into retail in Macau with Four Seasons Macau, where we have been -- by changing, let's say, the ownership of the store, we've been able to double, more than double, the size of the stores. The second one is in Jinan, the MixC mall in the Shandong province. Jinan, for the knowledge of everybody, is a city of 6 million inhabitants. And finally, for Stone Island, one net opening, which is the former store of Moncler in Vienna that we transform into Stone Island. So the next 2 pictures that you see on the presentation are the example of what we did with Macau Four Seasons and with Vienna Kohlmarkt. The floor is yours, Luciano.

Okay. Thank you, Roberto. And good afternoon, everybody. Thank you for attending our call today. We are now at Page 16, where we report our profit and loss that shows a top line of EUR 1.2 billion that has already been commented in that by Roberto, and a pretty good gross margin of 76.7%, significantly higher than last year, thanks to the higher contribution of our DTC channel that grew very, very nicely as we said 2 minutes ago. On the other hand, the selling expenses increased as compared to last year for the same factor, but less than gross profit. That means that our stores were productive and profitable. Also turn to the fact that most of the growth was organic growth, so very good on this side. G&A a little bit better than last year, but also thanks to a one-off income of EUR 7.5 million associated with an insurance refund we received after the unfortunate malware attack of December 2021. Marketing expenses, a little bit behind last year, but only for a timing effect, a different and more balanced phasing of our marketing activities between H1 and H2, still with our indication of a 7% marketing spending for the year-end. And an operating profit of EUR 259 million, 21% margin. Worth mentioning financial income -- financial expenses that include a significant amount of financial income, about EUR 30 million, much better than last year. And at the end, a net result of EUR 180.7 million, up 24% as compared to last year. Let's move now to Page 17, where we report our net CapEx. Behind last year, EUR 56 million. Last year, we reported EUR 69 million. But this only for, again, a timing effect. We still maintain our guideline for the year-end of about 6% CapEx on our revenues, more or less equally distributed between our distribution network and infrastructure. Let's go now to Page 18. We report the net working capital. That shows a slightly better incidence as compared to last year, 8.5%. Last year was 8.6%. So very good, obviously. Nothing to add except a very, very good control of our credits and very efficient inventory management. Let's move now to Page 19. We report our net financial position. EUR 846 million after a dividend distribution of over EUR 300 million. That makes this number lower than the end of the year 2023, but much, much higher than the same period of last year that when we reported EUR 470 million. For some reasons, I'm going to comment in a second. Balance sheet, Page 20. Honestly, nothing to comment. Of course, I'm open to answer your questions, if any. And cash flow statement, Page 21, that shows again a quite a healthy free cash flow of EUR 126 million last year, and there was a negative number for EUR 34 million, so very good. All of the economic indicators are higher than last year, better than last year impact of net working capital for the reasons I said before, and a timing effect of EUR 65 million due to taxes that are due in Italy at the end of June, but because the end of June was a Sunday, we paid the taxes July 1. So this is only timing, and we paid EUR 65 million in July. But overall, again, a quite good free cash flow, quite a good cash generation. Thank you. We are done with the presentation, and we are ready now to answer your question.

[Operator Instructions]

[Operator Instructions] The first question is from Edouard Aubin, Morgan Stanley.

One question on sales, one on profitability. So Roberto, in the past, you've commented, you've given us some color on the trends by nationality. If you could do that again, please, for Q2 trends? And so that's for nationality, but also related to that, in terms of the movement in terms of geography you've seen in APAC and to what extent it might or might not have impacted your profitability? So that's question number one. And then question number two, Luciano, you had indicated that you were expecting gross margin expansion this year, among other reasons because of the higher DTC penetration. But clearly, it came in substantially higher, the expansion in H1, than anticipated by the market. If you can just provide a little bit more color. And obviously, that led to a bit in terms of your EBIT margin, so are you sticking to the full year EBIT margin of about 29.5%, 30%? Or are you now more confident that you could exceed that?

Thank you for the question, Edouard. Roberto speaking. I'll start by the question regarding the different nationalities and cluster that we have. I think the most important one everybody is interested to is to have a view about how did we perform with Chinese. Chinese, for us, were still up double digits, even if during the quarter, even if meaningfully, let's say, it's a slowing down versus Q1. So very positive on Chinese. Koreans were softer, but we have to remind that the Koreans have been the fastest-growing nationality for Moncler in these past 4 years. So it was something that was somewhat expected. Japanese, flattish, but positive locally in Japan. The growth for the Japan country has been, as mentioned during the presentation, mainly driven by Chinese and by South Asian clients that have been traveling to Japan because of the weekend. Regarding Europeans, we had single-digit positive growth for the main important nationalities. Americans were single-digit positive, in line with Q1 even if they remain volatile. So we see positive weeks and weeks that are not as good. But overall, they were positive during the quarter.

Edouard, about your question on gross margin. Of course, as you stated, our gross margin was much better this year than last year, thanks to the contribution of the DTC business. Assuming that in the second half of the year, the contribution of the DTC business will be still growing as compared to last year, we may reasonably expect a growth of our gross margin as compared to last year, also in the second half of the year. More difficult to answer is your question about EBIT, about operating profit, because as you know, our operating margins are totally driven mostly, mostly driven by the top line, specifically by this density, which is something that's difficult to predict for the second half of the year for the current uncertain situation in all the different markets. And having said that, of course, our ambition is still to deliver operating profit in line with what we did, with what we delivered over the past few years. That is what you said before. But again, very difficult to say now. It's something that I cannot guarantee it right now, of course.

And sorry, Luciano, sorry, just to clarify, did you say that you expect the gross margin expansion in H2 to be more or less similar to H1? Or did I misunderstand?

It's something I didn't say, and actually, I don't know the extent of the expansion. I can predict this expansion for the reason we reported the expansion the first half, that is the high contribution of the DTC business. The extent of this expansion is difficult to predict. And honestly, I don't want to bet on numbers that I can't know right now, sorry.

The next question is from Erwan Rambourg, HSBC.

Congratulations on a very resilient quarter relative to peers. Two questions. So one on the price and the space impact for Q2. I believe price should moderate in H2 and space might expand further, but I'm wondering if you can comment on what the contribution was for both price and space and how you can project the back half. Second question for Gino. I'm wondering how much you can tell us about the Shanghai events. Not in terms of what you'll be doing, but how do you measure this relative to the other big events that you've been organizing over the years, the 17th anniversary in Milan or the big event in London? What are you targeting for this event in terms of returns or visibility? Or how will it differ from the previous big events that the brand has organized?

Okay. Thank you for your question about -- I mean, you said the price space, am I correct, if I understand, comp versus space. I mean, of course, we don't report this number quarter-by-quarter. But normally, the guidance we provide to the market is that we expect, for the full year, a contribution of space, mid- to high single digit. And this, we still expect might be the case for this year.

And the question on price [indiscernible] you had embarked I think close to 10% of price in Q1 and I think high single digit in Q2. I'm wondering what the price part of the equation becomes in H2.

Okay. Price volume, you mean?

I think you're talking about price increases, right?

Price increase, yes.

Price increase for this year is, as we said, in the region of mid-single digits, more or less the same, first half and second half Spring/Summer and Fall/Winter. Last year was much higher for the reasons you know very well. This year is much more moderate.

A few things on Genius again. Let me go to what I can say or what to expect. I think -- the first thing I would say is, for us, is the very first time that we're bringing Genius outside of Europe, right? And again, it's for us a great step forward to bring this to Shanghai. Of course, as you know, we have a strong relation with this market since, I think, the first store in 2009. I think it's a strong developed market for us, and we believe this is a great opportunity to bring this there. As you know, Genius is a concept that is all about creativity, and we really believe the creativity is one of the sharp points that makes Moncler very distinctive within the luxury industry. We'll keep pushing to evolve this further, so you should expect something special again. I think Genius have been helping us -- when we start talking about not only the scale but the return, it's not only about the immediate return, but it's about helping us to not only connect with current communities, but open the door to new communities as well. We have seen the effect of London at the beginning last year. We are very hopeful about what we will do this year as well. So again, more to come. Of course, what we -- as you said, what we announced so far is the date, which is the 19th of October, and the city, which is Shanghai. So looking forward to share more as we go with you.

The next question is from Oriana Cardani, Intesa Sanpaolo.

The first is about current trade. Can you give us an update on the trend that you see in July, with some details on what's happening in each region? And the second question with regards to the online business. So how is this business line evolving?

Thank you for the question. Let me take the first one, and I'm going to comment only once on the current trading because we are here to discuss about Q2, but we are ready to make some disclosure about the current performance. Just maybe to put the context, I think it's important to clarify that the Q2 performance was pretty consistent across the 3 months. So it's not that we had 1 month very strong and 1 week, it was pretty consistent amongst the 3 months. Let me also remind you that for Moncler, July and August are still considered low season in terms of sales. So the trend that we're going to give is not an indication or a proxy for the rest of the year. I will say that overall trend at the start of Q3 is not materially divergent meaningfully from the Q2. We are quite aligned in terms of trend. The 2 regions that are outperforming currently are EMEA and Japan, and we have Mainland that is a touch softer, even if the Chinese cluster is still positive for us. In the light of the current environment and the ongoing sector normalization, you should not expect Q3 performance to be materially different from the one we disclosed for Q2 for the DTC business. For the wholesale, as -- let me remind you the guidance that we gave at the beginning of the year for the full year, which was a high single-digit decrease, we have seen a minus 5% during H1, so you can expect the second half, especially Q3, where we have usually the delivery of the Fall/Winter season, to be on the high side of the high single-digit decrease, especially because we took a measure last year for some of the e-tailers that were not performing. We have been cutting -- we took the decision a year ago to cut the volumes. And also, we continue with the elevation of our distribution in wholesale. So this is something that was guided by us, decided by us 1 year ago, so you're going to see some of these effects for the [ worse ] part on the second half of the year.

Oriana, thank you for the question. Regarding online, I think I have to say that definitely, Q2 show a weaker performance than definitely Q1 across all the regions. I think this business remains extremely volatile right now. I think we haven't seen this across the board. I will say -- I would say as well that we're seeing some of the reasons for this. Again, there is a lot of promotional activities going on in the market as well, which is sometimes affecting the -- mainly the conversion part. I think we're seeing still strong performance in terms of the paid traffic, less on the organic traffic. And I think there is a behavioral change we're seeing more and more of [indiscernible] being a search platform where some of the transactions are definitely moving into the physical retail as well. So that's what I can share as a top line of what's going on in the online business.

The next question is from Melania Grippo, BNP Paribas.

This is Melania Grippo from BNP Paribas. I have 2 questions. One, if you could please remind us your structure in terms of price gaps, Europe, especially versus Japan and Mainland China. And also, if you -- I understood that you said that your Chinese cluster is positive, but I was wondering if you could please comment, give us an idea of your performance in Mainland China in Q2?

Thank you for the question, Melania. On the price gap, we are still probably one of the highest of the industry even if we have materially decreased it in this past year, and this is part of the strategy that we have decided to put in place already 6, 7 years ago. So it's the first time that the price gap is between Europe and Asia below 40%, it's in the range of 36%, 37%. We decided to -- usually, we have, let's say, the region in Asia between Mainland China, Japan and Korea that are quite aligned. This year, because of the weak yen, we decided not to increase the prices in Japan to match the prices in China because we will have probably jeopardized or alienate the business that we have with our local consumers. So we increased it to an extent that is now having -- we're having a price gap between Mainland China and Japan of roughly 5%, 6%, 7%, depending on the fluctuation, which is lower than the price gap of some of our peers, but that is enough to generate a very healthy and nice growth with the tourist while also bringing positive figures with our local consumers. So we're positive on the locals and strongly positive double digits with the tourists, mainly from Mainland China and Southeast Asia, as I was commenting during the presentation. Regarding the Chinese cluster, I said that the Chinese cluster is up double digits even if it has been normalizing compared to Q1. We have been and we remain positive in Q2 in Mainland China. So not only the Chinese cluster is positive double digit, but we are positive locally with our Chinese consumer in China. While we have been experiencing, like most of the brands, an increase of the Chinese buying offshore, so we have currently 40% of our business with Chinese that is done outside of China, and it was 30% in Q1.

The next question is from Huang Chris, UBS.

It's Huang Chris from UBS. I have 2 as well. One, on Moncler, and the other one on Stone Island. Firstly, starting with Moncler, more theoretical question. Can you just share some observations when it comes to the consumer behavior during different seasons, given the business seasonality you have in the brand, especially in a weaker macro. Do you tend to see consumer demand concentrate on the core categories such as the outerwear? Or do you tend to see the higher-end categories outperforming the overall brand, which I guess, in your case, it will probably be the knitwear, the non-outerwear products? Secondly, on Stone Island, can you maybe just break down the like-for-like and space contribution and maybe share some key learnings on the brand's elevation journey?

Thank you for your question. I think -- again, great question. I think we mentioned about the diversification we want to do around Spring/Summer. I think -- without going too much into the details, I think what we can share with you is that we're happy to see other classifications growing faster than the brand right now. I think knitwear is that case. For us, this is something that I think we have been discussing before and is by design. So I think we're seeing, of course, on top of the strength that we have as a brand in outerwear, we're seeing other classifications. In this case, we can call out knitwear. But within knitwear, even cut & sewn as well, which is other classifications that have been contributing to the growth that we have been discussing. So we are happy to see, especially when you mention about consumer behavior, to see that, that behavior is starting to come around in terms of seeing Moncler as a relevant brand all year around.

Regarding the question on Stone Island, the DTC growth has been generating by a healthy mix between comp and space. We don't want at this stage to be more precise on this as we are just at the start and the beginning of our retail transformation. Retail transformation that is also for starting by the elevation of the product, very successful, let's say, performance of our sub collection, especially the [ growth ] collection that is having success in all the region, and that is also an elevation of the product portfolio that we have with Stone Island, also an increased weight of part of their outerwear collection. We have also a meaningful increase in terms of DTC performance on the main retail KPIs. We remain like -- the current sector, negative on the traffic. But apart from the traffic, all the metrics that we have started to [ monitor it ] in terms of conversion unit per transaction. Average tickets are up and are following the strategy that we are currently putting in place. And also the campaigns that we have started to run with people that are bringing also their communities and enlarging the reach of Stone Island, also with -- we are going to feature, for the first time, women in our campaigns. Peggy Gou, a very famous Korean DJ, is going to probably -- is what we hope increase the reach and increase the number of followers of the brand while staying true to the DNA of the brand.

The next question is from Luca Solca, Bernstein.

Luca Solca from Bernstein. One question about retail space productivity. With this healthy comp sales growth, so like-for-like sales growth, is it -- and without knowing how the average store size is evolving, I was wondering whether your new kind of goal as far as the sales per square meter is concerned,is now approaching EUR 50,000. I wonder if you have a more precise and sort of clear view on that. The other point I had in mind was the fact that you had such a big price up between Japan and Asia in general and Europe. It's not potentially a blessing in disguise because we see now a number of brands struggling to keep the sort of the desired price gaps between -- across regions, while the Japanese yen devaluation in a way is solving your problem because you are reducing the price gap just because of where the currencies are moving. So my question on that is are you experiencing a less extreme issue as far as damaging your own Japanese consumers with price increases, for example? And also without doing that, the less of an issue of Chinese tourists coming to Japan or Chinese professionals coming to Japan to create a parallel trade of your product.

Luca, on the -- on your first question regarding the retail space, you know that the ambition we have in terms of productivity is EUR 40,000 per square meter, which is not what we have achieved yet. We closed the year 2023 with a record of EUR 38,000 per square meter. Let's see at the end of the year, depending on how things are going to evolve in the second half of the year, if we can reach this ambition or not. It will very much depend on the performance of the last quarter of the year. We commented the comp on the first half, which is 14%, and there was a healthy comp positive also in the second half, if we don't disclose figures regarding this. So this is where we stand and where we want to remain. Regarding the price gap, I think we had many opportunities already discussed together to see if it's the right level that we have today. We know that we have still some work to do to further decrease the price gap. But currently, and also last year, it has not been an issue that was read by our local teams in Asia. We have been able to perform locally while enjoying a healthy growth with retail -- travel retail destination. For the yen, clearly, the decrease is helping us to decrease and to come closer to where we want to be, which is below 30%, probably in the range of 25% one day. It will take another couple of seasons to do so. But we don't see problems. We don't have questions or complaints from the local consumer in Asia, and we are enjoying nice growth in Japan and in Europe, thanks to the price gap with the tourists.