OVS S.p.A. (0OV1.MU) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the OVS Full-Year 2022 Financial Results and Strategy Update Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Stefano Beraldo, CEO of OVS. Please go ahead, sir.

Thank you and good afternoon to everybody and thank you for attending this conference call regarding the full-year '22 results. As usual, we have a presentation for you. I would hand over to Francesco Leoncini to illustrate the main financial results which has been already disclosed to you and to the market. And I would like to take some time to describe the main ideas that we are working on regarding our strategic update. So I hand over to Francesco to start.

Thank you, Stefano. So the first chapter of this call is dedicated to comment very good results of 2022. On Page #4, you can see a snapshot of the main figures. Sales above EUR 1.5 billion and growing by 11% versus last year and even higher growth percentage-wise in terms of EBITDA from EUR 147 million last year to EUR 180 million this year, driven by the capacity of the company to keep and even slightly increase the gross margin despite the pressures on raw material costs and on supply chain in general and by the operating leverage of the growing sales. The particularly good is the result of the Q4 with EUR 56 million EBITDA in the quarter. This leads to a net income of almost EUR 80 million or EUR 78 million, growing 75% versus 2021. And to a cash flow of EUR 64 million after having reinvested a significant portion of, let me say, the profit from the P&L into investments that set the ground for even further growth and operations improvement in the coming years. The net debt is landing at EUR 162 million. That is a leverage ratio below 1x, 0.9x and would have been even better, excluding from this calculation as you will see the impact of dividend distribution and share buyback. In that case, it would have landed at EUR 126 million with a leverage ratio of 0.7x. Given this scenario, we will propose to the shareholder meeting a dividend distribution of EUR 0.06 per share, which is an increase of 50% versus last year. Other elements important in the daily life of the company, our sustainability, which is out there of the heart of everything we do, as we say. And that so the company deserved the title of most transparent company in the world for the second year in a row by the Fashion Transparency Index. Moving to the current trading to the start of 2023. We had a very positive start. Like-for-like sales are growing by more than 10% for all the brands of the company. And so this will comment also afterwards give us some positive outlook also for 2023. I would move forward trying also to focus mostly on the key elements. So as I said, the Q4 sees an increase in sales of almost 12%, in line with the performance of the full year and had a very important operating leverage impact with EBITDA growing by 30% from EUR 43 million last year to EUR 56 million this year. Next page is the view on the total year that recommended introductory slide. So again, all numbers with double-digit growth, growing, of course, towards the net income. On Page #7, we have some details by channel and by brand. On these couple of -- with all signs positive, but a couple of them are of particular interest. The first one is in the sales by channel, the growth of franchising, which is above 20%, which is a sort of a constant year-over-year. We are managing to find new partners that are willing to couple with us in order to share their business. And this is also very profitable for us, because it requires close to 0 investments in terms of CapEx. The other element I would like to comment is the EBITDA percentage of the 2 brands, with OVS brands already up 13.3%, which is a standard high for the retail industry. And UPIM, which is still close to 10%. Also given the smaller size and that has in front of it a potential for further improvement as long as it managed to exploit the operating leverage. Moving to next slide, we move to the balance sheet view. So on the net working capital, a couple of comments. The first one that needs some specification is inventory. Here, we see a significant growth versus last year, but, is mainly due, as commented also in the previous calls by the decision to anticipate the spring summer '23 shipments. In order to avoid any risk of late deliveries that on the contrary affected a little bit the spring summer '22 last year. This brings some increase -- some relevant increases in the trade payables. So that overall, the impact is very limited. Considering also the other assets and liabilities, we had on one side, an increase of EUR 150 million on sales. And on the other, just EUR 5 million that is 3%-3.5% increase in terms of net working capital. So a good balance between the growth and the capital absorption from the operations. Moving next, we have a quick view on the investments that are said are still relevant, EUR 80 million, but in line with the previous year and with some shifts from new openings to the refreshment of our stores. That's proved to be very positive for the like-for-like trend. And investments in IT and logistics, especially the automation of our main distribution center in Pontenure and [indiscernible] [00:08:42] that will lead, of course, some cost reduction from 2024 onwards. Going ahead, we have the cash flow statement. As I said, the flow of the year is EUR 64 million, which is in line with the results, the pre-COVID result of fiscal year 2029 (sic) 2019 of EUR 65 million, but with an investment in the future in the CapEx, much higher compared to the previous year. So we decided to balance the extra profit from the EBITDA and the limited absorption in the working capital on one side, of course, to funnel the distribution of dividends and on the other to invest in the future of the company. We are to the last slide that summarize the financial position and the debt leverage ratio, which I said is declining further from 1.3x last year to 0.9x this year. And we also have a graph of what took place in the last few years when we suffered a little bit for the COVID up to 5.5x leverage ratio as of 31 January 2021. But now we are, let me say, in a very, very solid situation of balance between cash and debt, EBITDA and debt. So of course, I leave for the next -- for the final session of Q&A, if you have any questions. And I give back to Stefano Beraldo for the main topic of today, which is the strategy update of the company. Thank you.

Thank you, Francesco. Now, my point is that we believe -- we feel after many, many years during which we had played with most of the external condition adverse to our business. We believe that after many changes and challenging changes, which also impacted our industry, we are conscious that our equity story now is quite interesting as many of the aspects which were acting against us are finally turning in our favor. And we believe that the combination of our business model, which has been recently successfully updated and evolved on one side. And the trend, many trends, which most of the external conditions are undertaking are again positioning obvious in the sweet spot. On one side, the business model. The business model has evolved in the last 3 years from a pure vertical into a more hybrid concept, more versatile, where we are becoming a platform aiming to, call it, emphasized and leveraged our core competence, which are being among the best and the biggest sourcing platform in Europe, being the strongest retailer in apparel domestic market. And at group level, this means enabling us to develop the best possible merchandising at different price points from value to premium, utilizing also different brands when appropriate, like PIOMBO, STEFANEL or LES COPAINS and now recently acquired EVERLAST inside or outside our main formats. And this mix was clearly different from most of the other companies which are playing in a similar play in our playground. On the other side, it means to be able to distribute all these brands through our different brands and channels, leveraging our ability as the biggest Italian retailer. And finally, this enabled us to invite brands inside our format and the formats being mainly OVS and UPIM. And we believe that every time we believe they can be complementary to our house brand and/or to our product segments. And I believe that all; this ecosystem is offering us great opportunities that are already generating value. And that's why we are increasing sales and profitability in a market which is modestly growing, but not at the pace that we are experiencing in our like-for-like sales in the last 18 to 24 months. On the other side, also the external factors, which in most of the 17 years, during which I managing the company are impacted -- have impacted negatively in our industry are finally becoming either neutral or positive. The inflation, many times, I received the question and I wonder about the effect of inflation is inflation a danger for our industry? And my answer is no. After many, many years of declining retail prices, which determined a constant challenge in profitability as several costs couldn't be reduced. And basically, now finally, with the prices which start became higher. From one side, we have customers which are forced to trading down and to find inside of as a new perfect answer to their needs, which and the needs are quality at affordable prices. With a new brand like PIOMBO and many others, even if they are vertical, so verticals clearly to avoid the mistake, means that we make -- we develop everything like it is a private label, like it is our own business. So a new brand, a new windows, new logo, new store or heavily refurbished store, new advertising efforts, because we increased advertising are all playing in favor of our repositioning and enabling us to attract more demanding customers. On the other side, the market trend, market per se which has lost more than 30% of its size in the last 15 years. Now finally, in our opinion and also in some observer opinion, is subject to change the trend. After the technical rebound in 2021, 2022 and '23 are seeing the market in a positive side. And also according to situations, there are expectations for the market in Italy, apparel market in Italy to grow by 4%, which I believe is a bit excessive, as estimation. But it means that, in my opinion, the era of a constantly declining market is over. Also, the impact of e-commerce has stabilized. We are not suffering any more erosion of our physical sales from e-commerce. In Italy, I believe that there has been a start of new balance between e-commerce and physical stores. Also, supply chain and costs are strong -- supply chain costs in general are reducing. Raw materials are down. Logistics is reducing. Energies are reducing, more than compensating what we expect to be the salary increase. And finally, even competition, which has been fierce during the last -- at least the first 10, 12 of the last 15 or 17 years with the entrance of players like Inditex, H&M Mugler is much less aggressive than in the last decade. So within this framework, we believe that our strategy and our position, is not that bad. And we believe that we have many actions to be implemented in order to take advantage of this new situation. So on Page 13, we have described what we feel to be like a platform. We have a proprietary brand. We have designer, profitable brand, which enable us to play also with higher margin in some cases, like Piombo or higher price point like STEFANEL or LES COPAINS. We have concession brand. So famous brand like EVERLAST or unknown brand, but really nice brand like NINA KENDOSA working well on which we have a pure transaction model. There is a mistake with EVERLAST. I beg your pardon, EVERLAST is not a concession. It's a vertical where we pay a royalty. And then we have brand which we are working with as a pure retailer like GAP or JANSPORT, which is part of that. So having said that regarding the platform, I believe that contrary to what we did for most of the 17 years, where we focused our efforts to create value in opening new stores because in a constantly declining market, the idea to generate like-for-like positive sales was very challenging and also risky because it might have implied an excess of inventory in the effort of filling the store with goods. Now finally, the time has arrived in order to enable us also to project, to make projects in order to sustain like-for-like growth. So differently from the past, we are structuring our strategy not only with the main effort to act in a defensive mode with new projects in order to protect our like-for-like from a negative direction, but also to generate products with the aim of sustaining positive like-for-like. Obviously, without forgetting that still there is room for our group to grow in terms of number of our point of sales, particularly under UPIM brand in this moment. Also, we believe that the strong improvements we are making in terms of digital transformation and operation will be the correct basis for -- in order to support our like-for-like. And we don't forget the people, because once the traffic is lower and now traffic is lower, even it strongly increasing compared to last year, but is still lower compared to year '19. And this has a lot to do with the new balance between e-commerce and physical sales. But also when conversion rate is getting much higher than in the past and average ticket is becoming higher. The importance of people in order to transform also the store manager into a personal shopper becomes more and more important. Because with higher prices and higher conversion, we need to have our people more trained in order to act as a real sales consultant. And we are making important actions in order to make it happen. So I try to be faster. In terms of new products, our pipeline of new ideas is full. After having successfully launched the Piombo adult men and then women, we are introducing in this spring summer, Piombo kids. The scope of it is to make happy also those demanding customers, which are buying Piombo adult and now they can find a more pricey and more qualitative offer also for kids. Then, we are increasing our attention paid to the younger generation, and particularly the girl, the young women. We are investing in growing and giving more space and more intake of product to Baby Angel, which is now about to be called the B Angel, which has been founded many years ago with Elio Fiorucci, which is targeting the same customers that normally are looking at Stradivarius, main things like that. We have a new team in place. We will have a new hard corner inside of the store to make the shopping experience very clear. And we are already experiencing in this last 2.5 months of the year, impressive like-for-like growth in this segment, which means new generations are visiting OVS store. Then, we have Les Copains, we just acquired Les Copains. And the scope of this is not to develop an independent network of store. The scope of it is to provide UPIM to make a gift to UPIM, if I can, given this brand with the same logic that we used with Piombo in OVS, so hard corner with Les Copains will be set up inside the UPIM stores. So no CapEx will be involved. No risk will be undertaken. We have a market research that tells us that the brand has a strong reputation in the 50-plus years old customer base, women. And we are -- we believe that this will make -- we'll exercise a great appeal for UPIM customers. It's a kind of a trading app in this case. Finally, but not finally, we have many others. We try to illustrate you may be the most important ones. We are about to start the launch of a capsule of denim, which has been elaborated in collaboration with Adriano Goldschmied, which is the creator of the denim culture. He founded together with [indiscernible] [00:23:37]. And he is a strong advocate of sustainability and water leisure. We will launch a waterless collection men and women. The combination of these activities we generate in our opinion, at least EUR 35 million, EUR 45 million, maybe EUR 50 million net of the overlapping. So an incremental EUR 40 million - EUR 50 million will be regenerated by these activities. Then, another important aspect of our project regards the beauty and personal care. Some of you might have been noticed that the beauty market, the personal care market is in strong expansion. And also most of the analysis, are expecting that this expansion will continue for the next coming years. And we are aware that we never dedicated full focus to this segment. We basically created the brand and the merchandising of Shaka 7, 8 years ago. It has been successful. But we never really considered it as a strategic part of our assortment. Now we are realizing that the customers which are visiting OVS are more and more inclined to buy makeup. And by the way, we have also put in place a very promising collaboration -- cooperation with the most successful and iconic blogger and entrepreneur, digital entrepreneur in the makeup activity, which is ClioMakeUp. She was having a business model based only on digital sales. She decided to see into OVS the preferred partners for trying to open also physical stores. We opened in the last 12 months, 4 corners; the last has been opened 2 weeks ago in Rome. They are hard corner and the sales density generated by ClioMakeUp is unbelievable. So even 5 to 6x higher than the normal sales density of the Beauty Care area, which is already more than 50% higher than the average of the apparel. So we are experiencing the capacity to attract a new customer and to increase conversion also in our beauty and proprietary beauty. That's why we are conceiving to increase the space that we will dedicate to perfumery. There will be another about 20,000 square meter dedicated to perfumery, because the sales density is higher, at least 50% higher than the rest of the assortment. We expect that we will have at least EUR 50 million, EUR 60 million incremental turnover; from this initiative. A similar thing will happen on accessories. Also in accessories, mostly jewelry, we are experiencing a stronger growth. I forgot to mention that in perfumery, we are experiencing even now in the next -- in the first 3 months of the year, a growth of about 30%, 40% like-for-like. That's why we are convinced that it worth pay more and more attention to this segment. And similar things are having similar trend are interesting, the accessories and particularly jewelry. Even in this segment, we didn't focus probably maybe over focused or properly focused in managing this segment. We are experiencing good results from what we are doing now. And we will dedicate another 10,000, 15,000 square meters to this segment, whose sales density, again, is higher than 50% compared to apparel product. The margins are very high. And we will -- we expect to increase another maybe EUR 50 million turnover. Thanks to this category. Both the perfumery and jewelry basically are not overlapping other category, if not, because they are utilizing part of the space that was used by apparel. But we expect that the net increase of sales will be very material here, in the range of EUR 100 million in total. Another project where we are moving our first steps is the sport. In Italy, there is basically a market which is dominated by one player in the value segment. We believe and we hope we will try to challenge this player with the entrance of this segment. We have identified 3 main sectors. One is the hiking and trekking, which is also the most important in terms of market size. One is cycling and the other one is paddle and tennis. We will utilize a reputed brand like Slazenger in tennis where we pay a royalty. It will be vertical. We make, we develop, we source and we pay royalty or proprietary brand like ALTAVIA for hiking and trekking or urban rider for biking. On this activity, we believe we will take advantage from being a resident in Veneto, where many successful companies are having headquarters like Technogel and many, many others. And it is becoming very easy to find to attract a good know-how and competencies from this region, which is basically a strong district for these kinds of items. We don't forget. And we believe that we still have room to continue growing our network, particularly with utilizing the UPIM brand. We will open full format store in the main catchment areas, mostly UPIM. But we have another about 30, 40 locations already identified also for OVS. We will continue opening a small format store under franchising; already Francesco told you something about it. And we believe that we will continue with opening at least 70, 80, 100 stores per year in the next 3 years. And we will continue refurbishing store, because we -- in the last 3 years, we have refurbished more than 100 stores. And the results in terms of sales increase are about between 7% and 8% on average. So we will continue to renew our network. And it's important for the one of you that doesn't know OVS, that the new format is really beautiful. Floor and furniture are in the style wood. There is a warmer lighting. There are bigger fitting rooms. And there is -- and you can find the customer can find an easier customer journey with corners dedicated to the brand or corner dedicated to functions like Chinos, Denim network. Another area of expansion is underwear. Underwear has been a segment where in the last 4 years; we increased our efforts to dedicate a specific team and to improve the quality of our range. And we have evidence that the good work which has been done translates into a much higher sales density in underwear compared to 4 years ago. Our sales density increased by about 20%. Now we believe we are ready to enter in a bigger challenge, which is also to opening standalone store. We have, in this moment, about 7, 8 independent standalone stores across Italy as a test. The test is doing well. We are now thinking to expand this opportunity backed by our wider number of franchisees, which are asking for new business opportunity. And we feel that we are ready now to roll-out this product. We are only thinking in this week if utilizing a reference to OVS as a brand like OVS underwear or a specific brand. So we are halfway in the internal process of decision. A few words about international expansion. We have renovated the team. We gave the mandate to manage the team of international to the same person, which is in charge of Italy. First, basically making every decision process more effective and simpler and we have already evidences that this is working. And we believe that we are now prepared to enter in what we consider to be a new wave of international expansion. Also, thanks to the fact that for the first time in 17 years, in the last 3 seasons, women is performing better than men and better than kids, which means that the main decision maker, which is the women is getting much happier about OVS also than in the past. So Piombo as a brand, the women in general doing better and our operations, which are improving, thanks also to this new organizational structure that we put in place make us confident that we can try to restart considering seriously our possibility to expand our sales out of Italy. Also in some markets, we are experiencing the success of a new business formula transforming from a fuel franchising into royalties mechanism. That makes all the operations leaner, simpler and the impact of custom beauty strongly reduced. Finally, as a retailer, we also are considering that we can leverage our ability of being the biggest apparel retailer in Italy in favor of other brands. And the first that we decided to onboard in this challenge is GAP, not because we like GAP full assortment. But we believe that GAP kids in Italy can be another segment to be added to our kids' culture, positioning the product branded GAP in a higher price range and basically competing only with the only player, which is finding -- playing in this playground, which is Original Marines. We have been working with the GAP headquarter. I was in New York 2 weeks ago to finalize an agreement with them, because we are aware that in order to be successful with their assortment, we need to be able to increase the merchandising mix to improve the merchandising mix by GAP kids in certain segments like [indiscernible] [00:35:50] for instance, which is missing or underwear. They approved our ideas. So they enable us to improve their assortment with our products. And we feel ready to push the bottom. And even in this case, we will utilize the more than 200 franchisee partners, which are ready and asking for new businesses for their activities. A few words about e-commerce. We recently put in place an important achievement. It took 1 year to arrive there. What we call the extended availability or ship from store in Italy and we call it [indiscernible] [00:36:35]. It means that basically, since 2 weeks, every order that is generated by the e-commerce instead of looking only to the central warehouse dedicated to e-commerce can grab, can pick the product from every store of our network, utilizing an algorithm and a system that makes the research superfast. This is reducing the stock out, which is very frequent in the middle of the season from 20%, 30%, basically with too early to zero. And we are already experiencing in the last 2 weeks, an important result from this new achievement. Also the new website will be delivered in June '23, with much higher and better graphics and functionality, making also the store journey much faster and easier. Also, we believe that we will try to take advantage from one strategic situation. We have mostly a turnover generated by physical stores in Italy. And we are lucky because Italy is a market where the e-commerce didn't grow so much. And we would like to utilize at this point of time to play the other way out of Italy. So basically, instead of opening many stores out of Italy, we are considering that we have to invest maybe some marketing activity in a website like marketplace like Zalando. In order to exploit the high potential of certain markets that doesn't require the brand to offer a physical store, but can justify an effort to become material only or mostly thanks to the digital, like in Germany or in Austria. As a matter of fact, the sales -- the e-commerce sales of Stefanel in Austria and Germany, which has been the first market where we opened the Stefanel website -- are already material and growing very fastly. Finally, a few words about digital transformation. We already mentioned some of those, which, is impacting the efficiency of the digital sales. We are improving our automated warehouse system with a scope of making faster and seamless the activity of distributing product and enabling us also to distribute in-season a single product instead of inner of product, which was compromising the efficiency. We are also rolling out the implementation of the new digital POS, which will provide more information and will help to increase conversion rate. The rollout is expected to be finalized for the spring summer 2024. A couple of words about people, as I said, we are experiencing an increase of average ticket from '18 to today of more than 20%. This means that customers are more careful also to the information that they need in order to decide to spend more. And that's why we believe that the people, is more important than ever. And we are entering and providing training program in order to provide a better know-how to our population and also to attract talent and increased retention. Having said that, we believe that we have in front of us strategically, then obviously, every time something can happen that can endanger any good strategy. But we believe that after having played for '17 only with headwind, we feel that for all the reasons which I said, we can -- maybe we can have some tailwind finally. And we are ready to enjoy and to take advantage of them. We believe that our positioning is better than years ago. We are still able to talk with customers, which are looking prices and low prices. But we are also attracting and this is one of the most important thing new categories of customers. And we have full evidence from the CRM data that we attract a new customer because most of new customers, has more Piombo or other branded ticket than the old historical customers. This is a clear evidence that we have new customers and also the increase of average ticket is another evidence that we are a bit changing the profile of our average customer with positive consequences in our sales. That's it from my side. So I think that the other slides are mostly financial and technical. So and you have probably time to read them. So we are happy to answer to your questions.

[Operator Instructions] The first question is from Francesco Brilli from Intermonte.

Thank you for the very interesting presentation you gave us. I have 3 questions from my side, which are related to each other. If you can help us just to understand if you have internal targets or what are you expecting from these activities in terms of additional revenues and the time frame in which you are expecting this evolution? And I think you mentioned EUR 45 million to EUR 50 million additional revenues for some activities. I'm not sure for what is all. And if you can also provide some color on the profitability of this project, some indication on how much you are expecting from these activities in terms of accretion, on group's profitability? And the third one is on the level of CapEx that we should expect for the rollout of all these projects?

Okay. Thank you. And I'll go one by one. I cannot give you a precise answer on the first question, because we have not kind of approved a 3-year business plan. I try to give you like a broader color about it. I already mentioned that the square meters that will be dedicated to beauty and accessories will be like 35,000. We have a sales density, which is 50% plus higher than the average. So you can determine that about EUR 100 million of turnover, is expected to be generated by these activities, which are overlapping very little, very poorly, which are basically not overlapping the apparel. And the profitability is going to be high, higher than the average profitability. So here, you can assume 2 kind of accretive effect. One, the simple fact that we are utilizing in a better way, the same space, so, without increasing proportionately the store cost. So that's operating leverage. And second, the EBITDA per square meter, but also the gross margin per square meter of those 2 activities is higher than the apparel EBITDA per square meter. So in this way, I answered also to the second question about accretive effect. On sport, I prefer not to make any assumption. If successful, there will be at least EUR 100 million. But the level of visibility in terms of being successful in launching this sports segment is lower, because we never did it on a material way. Compared to the high level of visibility that I can have in perfumery and accessories where we are already present in those segments. And we are only basically improving our know-how and operating attention to those. Then, how we can be the opening the store, for instance, of GAP or the underwear? We are speaking about hundreds of stores. So if successful, there will be hundreds of stores, maybe 100 GAP and may be 100, underwear. But if underwear will be successful, they will be more than 100. So assuming that they are, in total, 200, just to be reasonable, GAP and underwear, each of those could generate EUR 300,000 million, EUR 400,000 million, EUR 500,000; call it, EUR 300,000 million to be prudent. We are talking about EUR 60 million turnover maybe, with a good profitability in the range of 12%, 13%. So basically, I think that I tried in this way to give you an idea. Then, we believe that all these initiatives will be indispensable also to sustain the like-for-like. So the combination of like-for-like generated by Piombo kids by Baby Angel, by Goldschmied, the denim, et cetera. We generate another EUR 30 million, EUR 40 million. So clearly, this is not a number that I can put as a project. This is an idea of size. We believe that without sport, we have in mind at least EUR 150 million to EUR 200 million, turnover here with good profitability. The CapEx will not be very high because the opening of a GAP or the opening of underwear will be made mostly under franchising agreement. And the opening of the hard corner of beauty or jewelry will basically be done with very low CapEx, because they will be done internally to our existing stores. So we will continue with our EUR 80 million - EUR 85 million CapEx also in the next coming years.

And just a quick follow-up in terms of time frame just roughly. You are thinking of developing these projects in the next couple of years or in the next 5 years?

Yes. No, no, no, in the next couple of years. So the number, which broadly I gave you as my personal call it, managerial undertakings, which doesn't mean that they are written on the stone. But they are the number on which we will try to achieve our results, our goal. We'll imply a plan under developed under 2 years. So basically, those numbers might be the run-rate at the end of second year.

The next question is from Domenico Ghilotti from Equita.

A couple of questions. The first is -- the focus is on your updated strategy, in particular, on your projects and entering several niches, I would say, in which there are sectors especially. So you are not sector specialist, you are trying to get a bit of that market. Don't you think that so your risk to be perceived I'd say, having an offer that is too light or not being able really to attract customers and to get that part of the market and maybe to lose some of your focus on the Apparel? And in general, more in general, what are the main risks that you see in the implementation of all these projects?

Okay. On the first question, I think that the risk of being perceived as losing focus, in my opinion, is not material. All competitors are utilizing jewelry and accessories. Someone is doing better than us, like Inditex is doing shoes and bags better than OVS. H&M or Department Stores are doing jewelry, Department Store much more widely, H&M similarly to us. When we speak about the jewelry and accessories, the answer is definitively no. They are part -- and basically, they are very impulse-driven. And the customer doesn't look for really a specialist there. Unless when you speak about spending EUR 200 for a silver ring in that case, this is not our game. So we are talking about average prices, which are from EUR 5 to EUR 30 maybe. So no, I don't think, because also the competitors are doing the same. The only thing is that we want to do it better. But we are already doing. In perfumery, that might have this risk. And that's why in the past, I didn't exploit too much this segment. But the behavior of our customer is demonstrating that they are happy of buying and cross, I hope my answer is for you, sufficient. But for sure, we have evidence that this is not -- this risk is not taking place. Regarding the second question was the -- was it about the CapEx involved?

No, no. What is the main risk from your perspective? So when you look at this product, what are your -- the main risks that you perceive?

Honestly, not that much, because we know those 2 businesses. The different answer, once we move to the sport. That's why in beauty and jewelry, I'm a bit aggressive in feeling that we are not taking risk and it is only an opportunity; do it better, doesn't mean to enter in different playgrounds. We already are -- we have EUR 50 million, turnover in perfumery in OVS and EUR 20 million turnover in UPIM and growing hugely. So we know how to do it. The question is that we put in place a much better operational model. Thanks to a couple of years of hard work in order to improve. We have a new layout. We have new furniture. We have also new brand populating this. And we have a very solid and expert manager doing in charge of it. And the risk in jewelry is even lower, because those are 2 activities that we are already doing and working with internally to our stores. Different story for the sport, here, the risk is higher. But what is the risk that maybe we don't -- we are not able to attract our customers. So they will continue to buy Cueta or the other -- the other brand of [indiscernible] [00:53:57], the leader in the market, I'm done. So basically, we believe that Dectron has invaded the market. They are super good. But one limit of Dectron is that they are so good and so distributed that some human can get board of dressing that at long because it is like a uniform. So we hope -- we believe that the rationale behind it is that our customers are already buying Dectron, because we are playing in the similar price range. So why not offering them the possibility to buy a different wind breaker; a shop shell or a trouser for working inside OVS? The risk is not that big. If it will not work we have not spent CapEx on it. Maybe we will sell out the unsold stock the next coming season and that's it.

[Operator Instructions] The next question is from Federico Belluati from Kepler Cheuvreux.

Congratulations from my side. I have just one question and regarding your own shares, because now you have almost 60% of your own shares. So I'm asking you if you have some M&A views or something like that in your pipeline right now.

Nothing on the desk now. So basically, in this moment, we believe that part of the share will be utilized in order to sustain equity plan in favor of things like stock option plan, et cetera. And the remaining ones in this moment will be subject to the decision of the Board. In this moment, we have no visibility on extraordinary activity also because we have so many internal initiatives that we tried to describe you that we are happy with what we have. We have to develop Stefanel. We have to develop internally to UPIM Les Copains. We have to develop this new idea with the GAP Kids store. And then we have to develop all the projects that I described.

The next question is from Luca Bacoccoli from Intesa Sanpaolo.

So a few questions from my side. First of all, on the strategy update and more specifically on the new product proposition, I want to go back to the sports activity, because the main competitor is much larger than the new. So what is the competitive advantage you are relying on in order to steal a few percentage points of market share? And the second question is, again, sort of a follow-up in the sense that in the last 2 years, you have pushed off giving more sale space in the stores to Piombo, first of all, men, and women and then now kids and also to the others, third-party brands. Now you are introducing jewelry, perfumery and these new products which are basically and still in surface commercial process to be OVS and original sales. Don't you see any risk of losing the traditional earlier customers in this way? And the other question is a clarification on the EUR 150 million, EUR 200 million of additional sales that you expect in the next -- to get by the end of 2 years. So is this will be the target, I understood correctly. So that's what we should expect increase in sales?

Can you repeat the last question, Bacoccoli, because I'm not sure to have captured the last question.

Yes, yes, yes. I'm referring to the additional space that you -- I don't want to say the guidance. But you hope to get from all those initiatives? You mentioned EUR 150 million, EUR 200 million of additional sales with a higher EBITDA margin, of course. So is that the right number, I got it correctly?

Okay. Okay. So number one question, which is the competitive advantage of doing, over doing all the things that I described, first of all the size of our network; and second, the brand credibility. I think that OVS is enjoying the fact that people is paying attention to the quality of our stores, the quality of our strategy, the quality of our advertising, the quality of our sustainability and transparency policies. So I think that OVS is getting more and more institutional in the highs of our customers. So they trust us. And we have to continue to try to operate in a way that they will continue to trust us. So this, I think, is an important competitive advantage. They know that we are offering them a very appropriate price-to-quality ratio. We are not overpricing our product. And finally, we have stores. We have existing stores. And there is a huge comeback to stores in this moment. So we believe that this is another important element of competitive advantage. So to open 100 clear stores, which I didn't mention, but it might happen maybe. It is easier for us than for anyone else because we already have the space. With reference to the space, which is your second question, I remember that I spoke about, I think, 30,000 something like that square meter. And what we have in OVS, only in OVS, we have more than 500,000 square meters, maybe 600,000 square meters. So we are talking in any case about the limited amount of space. And you have to consider that in the last 15 years, the market decrease of 30%; has also been paid by OVS, because OVS has been forced to decrease like-for-like several years. So we have space to increase sales density without enlarging our stores. So global space will not suffer, because of this activity regarding enlarging space to be dedicated to accessories and other items. Once regarding the -- maybe the confusion that seems to me that your question is similar to the one of your colleague Belluati. As I said, I don't see this risk. It is already there. If you enter data, if you enter OVS, if you enter -- you might have read last week that H&M declared to be willing to invest heavily and expand their perfumery worldwide. So basically, this is a trend and I don't see this risk at all. And OVS is better placed than others because OVS is already became in like a platform, so the format of OVS is becoming more hybrid than the others. But apparently, what makes our customers super happy is that in the new format, they find much more answers and solutions to their needs than before. So finally, regarding the number, I don't want to -- really, I don't want. I don't -- I cannot and I don't want -- not only I cannot because of consult rules. But I cannot because I'm illustrating new ideas, projects, which in some cases, are very solid, like the perfumery and accessories, others that must resist to the proof of evidence of working well. So -- but in principle, all these projects can generate numbers, which, if all successful, can be much higher than the one that I mentioned. So I think I gave you a number just to make clear that we are not talking about EUR 30 million, EUR 40 million, EUR 50 million in total. We are talking about much higher numbers. But then the size of this number will depend upon the success of the project.

The next question is from Luca Orsini from Fund Antares.

Thank you, Stefano. I just wanted to understand on your buyback, whether the intention besides the stock option plan, is then to cancel the shares?

I don't know, Luca. Really, I don't know, I don't know. I have no answer here. We didn't discuss with the Board about it. I think it will also depend very much from which will be the behavior of the share price. We have assisted in certain periods to in excess of volatility to the prices of short investors. And the buyback is also and has also been used somehow also to create a stock of shares and also to help the market to find a kind of small stabilization effect. But we will convene again with the Board after the general shareholder meeting and we will decide. Basically the request of keeping in place the stock option -- the buyback activities just to give the company an ammunition to activate in case of a -- we believe it's going to be came up a bit. But in this moment, I have no visibility.

Okay. Thank you, Stefano, and keep up with a good work and a lot of projects.

The next question is a follow-up from Domenico Ghilotti from Equita.

I have a couple of additional questions. One is on the cost structure. You were mentioning that, okay, the inflationary pressure on some items are clearly, is clearly decreasing from raw materials to logistics from -- to energy. But in general, so I'm trying to figure out what can be overall -- really your operating cost growth in 2023. So what is the kind of pace that we should expect considering also personnel and brands? And the second question, any particular -- sorry, just to complete on this. I was curious on marketing costs. It's not a big item for you. But how much has been invested in 2022? And what should we expect in terms of trend for 2023? Because I think that there are also some really -- we have to build some brand awareness on some initiatives. The second question is on the market share. So if I'm not wrong, in 2022, at the end, your performance has been quite similar to the market. So it's not been a big jump in market share. I was curious if the strong current trading is also in your view. I don't know if you have numbers reflected also in the market trend. And in general, how do you see the consumer, because I was frankly surprised by the resiliency of the consumer, not only in your business despite some inflation and some maybe switching spending to other segments. And so, I was trying to get your comment on this resiliency.

Okay. On cost, it's not easy for me to give you a precise number of the operating cost, because I can describe the different elements. If you know the profit and loss, as I do or even better than I do, you can calculate the effect. In the cost of goods sold, the most important aspect is the cost of the raw material, the cotton and all the other. Total represents 70% of our sourcing cost. And those costs are drastically decreasing. Exactly for the similar amount to what they increased last year. So we have about a 20% decrease sometime even more. I'm trying to furnish it today, just to screw if I can say that the vendor to talk to my team of sourcing and procurement, because in this moment, it is extremely important to be aggressive with the vendors after 3 years during which we paid to the vendors probably more than was supposed to be paid. The reduction of international trips from our buyer, for instance, coupled with all the tension in the logistics and supply chain put the vendors in the position to be very rude some time. I've to say this is the price, if you want it; you have to buy because otherwise, I have plenty of requests, because there is a shortage of everything. Now the situation is over. So there is also a certain margin of personal capacity. Every company has its own techniques in order to be effective here. But all in all, we are assisting to a drastic reduction of raw material costs. Then, we have a material reduction of logistic costs. But this is less impacting on us, because we already have been able to minimize the logistic cost increase, the container cost increase, because we hedged the logistic cost 2 years ago and the hedging is over basically now. So we are expecting a lower reduction, a small reduction of logistic cost. And most important will be the reduction of logistic cost. Thanks to the investments in our new automated logistics season. This will be visible next year, not in '23, but in '24. Energy has been a very important negative impact in the 2021 and 2022 profit and loss, there will be a positive effect. What will happen to the energy, you are better positioned than me. It seems that the prices were supposed to go down very materially. Now they have gone materially down compared to the peak. But they remained much higher than 3 years ago before the crisis. So we expect that they will remain lower compared to last year, but still more material than in the past. But in any case, they will act as in favor of our profitability. The only cost that we assume to be modestly growing will be cost of labor. But here, we have an interesting equation. On one side, I want to pay more my team also because, as I said, I need to gradually transform them into sales assistant. On the other, there has been a reduction in volume. You might remember that last year, we increased our sales like-for-like by more or less 5%. The price increase has been more or less 10% and the volume decrease has been more or less 5%. So this volume decrease makes basically possible to avoid increase in salary in absolute term because I need some headcount less than the year before. And I can pay a bit more according to the likely increase that we will experience due to the inflation impact. So all in all, we see positive effect. I don't have a number that I can tell to you in terms of saying how much. But I think that talking more deeply with my team and with Eric or with Nicola, et cetera, you can achieve your own well informed the conclusion about what will be the global effect. Regarding marketing, I have -- I ask that to my team. I think we are in the range of EUR 80 million, EUR 90 million. We increased the marketing cost in the last 2 years. We don't need to increase materially next year, because most of the marketing costs have been devoted to the creative knowledge and a potential for Piombo. Now Piombo is known, very well known. And I think that we will continue investing, but a bit less compared to what we invested in the last 2 years, because we don't need to make this -- that according to our standard has been an important investment to make Piombo more aware in the -- in our public. So I don't expect a big increase. This year, we will have a small decrease of marketing costs. Market share, market share has remained more or less stable in the last 12 months, only because of our reasons. We had very late deliveries in Kids. We suffered very late deliveries in the first half of the year, because of the tail of the logistic disruption that has been suffered by the worldwide supply chain in 2021. And that's the main reason why we have not increased compared to the market. And because our Market Share in Kids -- the size of kids in our brand is much higher than the market. We couldn't continue increasing market share. But if I take men and women, I can tell you that in men and women, OVS market share in 2022 has increased again. So that means that we are in good health. In the first 3 months, we have evidence of the figure since a few days ago. So we -- the new figure has been released by -- I think, last week. And we are -- we declare that we are growing double-digit. I cannot tell you more, because we decided not to give too much precise number now. But we know that we are increasing market share materially in the first quarter of this year. So, we are, again, recovering any market share compared to the others. The fourth question was about --

So you've partially answered. So part of the performance is the company specific. So the market is not performing as you are. So it's not a more general positive trend stronger trend in the consumer. So I was surprised by the consumer resiliency or even more than resiliency. So consumers are spending more apparently in every category from travel to restaurants and to apparel.

You're right. And what market trend tells is that market is growing in the first quarter. We are growing more than the market, but market is growing. I think that many reasons are behind this consumer habits. The country culture is also changing a bit. Maybe we are becoming more similar to Americans, which are spending in consumer goods even before having savings to be used to compensate the expenditures. Maybe the boost generated in the economy by the super bonus has been higher than expected. But it's true. We are experiencing this. But from my point of view, I think that what is important is that, as I said, I believe that after a structural decrease in the apparel market in favor of other segment of expenditures, technology, TV, music, gym, travel, et cetera. I think that finally, this structural drop of the market is over. People need -- at the end of the story, apparel is a commodity like food. People need to dress, Italian like to dress. And they are discovering OVS as an alternative also when they continue to spend. But they cannot continue to spend at the same price level that they were used to do. So there will be brand which will suffer more and brand or companies, which will be taking advantage of this.

The next question is from Charlotte Barry from JPMorgan.

Thanks very much for your presentation. You actually began talking on the topic just now. But I wondered if you could give any more detail on current trading, whether the really positive trend that you've seen has been consistent through February, March and April so far. We've seen other retailers commenting on the weather and the impact of that whether that's something that's made demand a bit more volatile over the past couple of months?

Thank you for the question. What we are experiencing is a positive -- first of all, it's a positive trend in all our segments and all our geographies. So like-for-like is largely positive in OVS. Like-for-like is positive -- largely positive for UPIM. Like-for-like is largely positive for Stefanel and also for GAP. Each of them, to be honest, is experiencing kind of discontinuity in the offer. Because in Stefanel, finally, we believe that we are finding the right path to profitability, because after 2 collections, which we did basically without any understanding of the history, now we start having a sort of history track record that we can correct a mistake. In GAP, we put in place an internal organization of buyers. So this season GAP is not delivering what they want to deliver to their partner, which results. But we are selecting items like we are a pure buyer, excluding what we believe is not working because of our knowledge of the market. OVS has introduced and a large offer of Baby Angel and Piombo Kids and is benefiting from the beauty trend. So the super performance of OVS is driven by, again, discontinuities, which partially depends on the market like beauty, partially depends from our internal actions. And UPIM is basically improving his collection with a renovated team and is benefiting from the perfumery. So basically, Piombo is doing super well. Baby Angel is doing super well. UPIM is doing very well. Perfumery is doing hyper well. So clearly, there is a market that must be positive. Otherwise, it's going to be impossible that we do -- we performed well everywhere. But we believe that we have plenty of good activities, which create a further reason why we are doing better than the others, at least in this moment. And we expect that from the point of view of seasonality, we received also a good support from the seasonality, because weather has been appropriate with a mild March, month of March, not difficult, with a decent first half of April than has been worse. And also, we have to take in mind, to be honest, that last year, in the first quarter, there was also the effect of the psychological consumer concern about the starting of the war. So we experienced a negative sales in the first quarter. So being so positive is okay. But it means also that there is a technical recovery and a lot of things will -- might become more challenging in the next coming months. I don't expect a double-digit growth in like-for-like for the next coming months, for sure. I hope we have been able to answer to your question.

The next question is a follow-up from Luca Bacoccoli from Intesa Sanpaolo.

So -- but it's a simple one on your commercial strategy. So I'm referring to the prices given the relevant savings that you expect on -- and the other OpEx. Are you planning to retain 100% of those savings partially to pass on to DD final consumers, so reducing prices?

I will pass part of the advantages to the consumers in the second part of the year. The year will be twofold. The first part of the year will be characterized -- is being characterized by still higher prices, because the cost in the first part of the year are still reflecting the increase of cost that was present 7, 8 months ago. So the orders have been placed half of last year when the prices were still higher. So this is common to all my competitors. The positive thing is that some competitors like H&M, for instance, they didn't increase prices last year. And nevertheless, they didn't increase market share. And they have been forced to increase prices this year more suddenly. And in the second half, I guess, they will be forced to continue to increase prices because they didn't increase any price last year. So I think that I will be a little bit advantaged by what happened to some of my competitors. But to make a short -- to give a short answer to your question, in the second half where -- when I'm experiencing a strong cost reduction, I will pass part of it to my customers, especially in kids and partly be retained.

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

Thank you. Thank you to all and hope to -- not to see, but to talk with you again in the next coming conference call to be expected for the first quarter results. Thank you. Thank you to you all. Thank you. Bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.