OVS S.p.A. (OVS) Q1 FY2027 Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the OVS First Quarter 2020 Financial Results 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.

Hello, good afternoon. Thank you for being with us for this first quarter conference call. But let me start by saying that we are very happy because the first quarter, first of all, confirms that we are in a very healthy moment with our company. And the rightfulness of our strategy has been confirmed by this quarter. All the brand, and I mean really all the brand or the business unit of the group performed well, even thanks to a positive market behavior. But as usual, we overbeat the market by far with incredible performance in some case, like Stefanel or with a super solid performance in our flagship brand OVS also open very well also the integration of Goldenpoint. So really, we are happy and inside OVS, all the brands that we have in coherence with our House of Brand strategy from Piombo to Golden to Les Copains from Altria to B.Angel, even Utopja are performing very well. And the women as we are starting to say, as usually, in the last years, is performing better than men and kids, which is exactly what we want to achieve because the market size of the women in apparel is much bigger than the men and kids. So we are gradually quarter after quarter, season after season, increasing our market share in the most important portion of the market. And still, there is room for our growth. So the strategy has been rewarded by the result. On top of it, weather has been supportive this time, we must be honest. And I think that this is the main reason why the market has been positive up to now. So basically, nothing more to say. When things are doing so well, we have only to work in the direction we are already pursuing and continuing to provide support to our initiatives in terms of attention from the team. CapEx [indiscernible] necessary because even the return on CapEx, when we refurbish stores, the return is very positive. When we open new store, even in Italy, there is still room to open store, the return is positive. So I think the company is well placed with this amount of brand and initiatives to continue a solid trajectory of growth. And also, out of Italy, the early signals, which we are receiving from our newly opened full format are very positive and encouraging. So I hand the word to Francesco for a more detailed presentation and I will back -- I will be with you for your questions as usual.

Thank you, Stefano. I will start from Page 4 on which on the left side, you have the table with the P&L. Last year, first quarter, we realized EUR 350 million of sales with an EBITDA of EUR 28 million and an EBITDA margin close to 8%. 2026 figures are exposed both in the organic way that is on the same perimeter of 2025, excluding Goldenpoint and the total consolidated and reported values. If we focus on the organic perimeter, we see that the growth in sales was 7.5%. And this drove thanks to the operating leverage, a strong increase in EBITDA of 27% to EUR 35.7 million and with EBITDA margin increasing by 150 basis points to 9.4%. Goldenpoint, which on itself had a very good performance with sales increasing by 11% and EBITDA improving by a couple of million versus last year, has a technical impact from seasonality because the first 3 months of the year are the weakest moment because we just have the end of period sales of full winter and the collection is entering into the store in the month of May and June. So it has a negative contribution. But globally, nonetheless, the sales grow to close to EUR 400 million, just EUR 3 million ahead of this number. And EBITDA, nonetheless, is growing EUR 1.3 million versus last year. So the group was able to include Goldenpoint, keeping its growth trajectory. And we are close to complete our first year after the acquisition of Goldenpoint that took place the 1st of July 2025 and the projections for this consolidated 10 months and 2 months ahead, May and June should drive to breakeven situation over 12 months with the expectation to then land on the fiscal year '26 with a positive EBITDA as of January 2027. I move to Page #5, where you have the usual breakdown by channel. Both channels are growing, directly operated stores and franchising and brand by banner. OVS had this time a better result in terms of EBITDA growth, but it is due to the higher incidence of directly operated store. And so the higher impact of operating leverage versus Upim but both brands are growing significantly versus last year. And OVS also had an EBITDA margin above 10% also in this first quarter that, as you know, is the -- due to seasonality is the weakest quarter of the year. Page #6, provides you with some figures on cash flow. Last year, starting with EUR 148 million of net financial position, the cash absorption in the quarter was EUR 113 million. This year, we improved by EUR 7.5 million. And so the cash absorption is slightly above EUR 100 million. But as said, with reporting more than EUR 7 million improvement versus last year. Differently from last year, when buyback was close to 0, this quarter -- the quarter, February, March, April was characterized as you all remember, by the outbreak of the conflict in Iran, and this led to some higher-than-normal buyback movements, especially in the month of March when the share price dropped versus from EUR 5 to EUR 4.3 -- EUR 4.4. Overall, the net financial position is the same of last year. And given the increase in the EBITDA -- in the last 12 months EBITDA, the leverage ratio is part reducing from 1.34 to 1.25, which, of course, also in absolute terms is a very robust number. I close with Page #8, what is ahead of us. The current trading of the first 45 days of the second quarter is -- the sales are maintaining a good growth particularly high in May, a little bit less in June. But overall, we are continuing the growth. And we are continuing the growth alongside all the lines that is the brands, Piombo, Les Copains are even overperforming within the OVS banner. And the Golden Point and Stefanel are recording double-digit sales versus the previous period -- the period -- the same period in 2025. So we are confident to have in front of us the fiscal year 2026 with a further increase in sales, EBITDA and margin and cash flow versus last year. And so we completed the successful quarter also with optimism versus the next quarters. So thank you so much, and then we are waiting for your Q&A.

[Operator Instructions] The first question is from Luca Bacoccoli, Intesa Sanpaolo.

A few questions from my side. So the first one is on Stefanel. Sales have increased a lot, so 30%, a sign that the recovery is gaining momentum. Could you tell us what factors are driving this acceleration and whether it is sustainable for the rest of the year? Then on the apparel market, in your introduction, you mentioned one of the reason of this growth in the first part of the year, so the weather -- good weather conditions. I was wondering if there is something else that could explain this reversal versus secular negative trends? And also another question on profitability. If you can give us how the gross margin changed during the quarter? Or if you prefer to what extent the decline in purchases given to the FX contributed to the improvement in the EBITDA margin and [indiscernible] what is the impact from the operating leverage?

The first is regarding Stefanel. How sustainable is this growth? Well, from a brand reputation point of view, we are receiving a lot of requests from international partner and also Italian entrepreneur to become a franchisee partner for this brand. And this is based on a mix of appreciation of the quality of the collection. We are talking about fashion. And at the end of the story, the way the product looks like is a super important element for the success of collection. The other aspect is a great positioning in terms of pricing because customers, I mean, entrepreneurs so B2B, I mean, and final customer, which is even more important, [ are rewarding ] Stefanel because they consider Stefanel very well placed in terms of price to quality compared to other similar brand more in line with the average prices of the bridge or premium segment. So brand like Liu Jo, PINKO, Patrizia Pepe, these kind of things are more expensive. And they are -- if you might consider Stefanel more similar to Massimo Dutti maybe in terms of pricing and also positioning, you understand why customers are paying attention to this brand. How sustainable? Honestly, it depends from -- not from the second aspect because the price-to-quality ratio is very solid and is related to the strong supply chain that we have. But the quality of collection remain more unpredictable. So we are very happy about our team. In this moment, our team is developing product, which I'm convinced are very nice. We have to keep in mind that this portion of the business is still depending from the way the quality perceived by customer in term of fashion content, quality of material price, everything is a combination. So difficult to say. We are very positive. I would be surprised, honestly, to continue at this pace because this pace is much higher than what we expected. But all in all, we remain very comfortable and positive because I have seen obviously the correction for the second half of the year. And from a qualitative point of view, if I may say, in my opinion, it is even better than what we have in the store, in the shop in the first quarter. We will be prudent in opening new stores because we wanted to open profitable stores or even when we open franchisee. So the good news is that if we are growing by 30%, 30% is the rate of growth on a like-for-like basis for comparable parameters. So there is a solid growth not only because we are opening new space, but because the like-for-like is positive. And this is the most important aspect. Regarding the weather, difficult again to predict how the market will move because nobody knows how the weather will be. We are getting used to a very hot summer. So in principle, I expect a good start of the sales because the swimwear, in general, this year started later. So probably, there will be a good reaction in July when the sales period will start. I'm convinced that people are still waiting for sales in this moment of the year. And that's why, as Francesco said, June has been a bit lower compared to the other month. But if I have to say, in my opinion, I think that when the sales period will start, we will assist again to a positive market dynamic. And hopefully, we will overbeat the market again. Regarding profitability and gross margin, before maybe handing the word to Francesco, which is more detailed and precise than me, for sure. But the gross margin has been impacted basically by a portion of the year with the markdown of February which has been not higher than normal. But because sales in February has been higher, much higher than the year before, the impact of the markdown in absolute value has been higher even if percentage-wise has remained stable. While in March and April, we sold almost entirely at full price and the intake is much higher than last year as you have been guided -- that you have been informed because we are benefiting from what was a stable cost of material and a favorable dollar. And we expect that this effect will continue to be in place for the remaining part of the year. I think -- I'm looking to Francesco, he has nothing to add.

The next question is from Luca Orsini, [ Orsa ]

I just have a question on -- if you can tell us something about how the international expansion and your international tests are working with Goldenpoint and also with OVS?

Okay. Look, with Goldenpoint, we are not having in this moment, a plan. So we are not paying a focus and attention on expanding Goldenpoint out of Italy. We are working hardly in order to relaunch and make Goldenpoint profitable again, and we are in the right trajectory to achieve our goal. Regarding international expansion, we are focused finally, as I think I told to the one of you that [indiscernible] present to a former conference in a more strategic way compared to the past because we are starting opening full format store in select geographies. So it's still early to draw a conclusion, but the initial openings are giving us extremely positive indications. In Spain, we opened 2 full format in 2 important shopping malls. The stores are not as big as we would like, but they are big enough to present a full -- an almost full assortment of an image of OVS like you may see today, Milan, Rome or whatever in Italy. And the 2 stores are performing better than our budget. In one case, much better. And in the other case, a little bit better than the budget. So we are very happy with Spain. We are about to open a third store. And we are looking to -- we are assisting to a great interest from the landlord in exploring the possibility to have OVS store in the country. H&M is not that -- is not performing that well as it was in the past. So probably some landlord is also looking at OVS as a possible outsider. And this is true also in other geographies. We opened also 2 stores in India. This is very important because Spain and India, we have direct subsidiaries. We don't have franchise. We have directly managed store. Spain is positive. I missed to say in terms of country EBITDA, largely positive. In India, we decided to have a direct subsidiary because we need -- we want to control the market to have a full capacity to understand mistake, opportunity in order to readdress also the evolution of our merchandising. The first store we opened in Delhi was opened in October, if I'm not wrong. The store performed -- the store is big. And in the same shopping mall, we have one Zara, one Uniqlo. The store according to an official information was performing very, very similar to Zara in terms of [indiscernible], much higher compared to our expectation. You can say 20%, 30% better than our budget. And what is interesting for us and was also expected very much driven by the buying of younger generation. So basically, 60% sales are made to people which are below 30 years old. The store started decreasing sales suddenly with the war because a few weeks after the war has been declared, the shortage of gasoline in India, also Bangladesh has been more material than in other countries like in Europe, for instance. And you might have read that the President Modi invited, more or less one month ago, the population to limit internal movement to stop going to the office, doing more smart work, et cetera. And we have seen the sales decreasing. In the last 10 days, sales are again up in this moment in line with our budget. In -- the second store we opened in Mumbai is another big store, just near an Apple store. The shopping mall is still in a moment of growth because all the store mix that was expected is still not there. So we are waiting to have one H&M and one Uniqlo in the shopping mall. So the shopping mall is performing less than expected in terms of traffic, and our store is performing a bit less than expected just because of traffic. So in my opinion, very good indications. We also opened our first big full format in Saudi Arabia with a new partner which is performing better than budget. The partner is super happy. We will open another 2 or 3 stores in the next coming months. All in all, the remaining stores are performing positive like-for-like -- is part of the world. We have a material portion of our turnover in the Gulf, maybe 40 stores, something like that. And they are performing well, even if impacted by the war. Very [indiscernible], but everything is happening is, to me, is encouraging. And it means that our format, like it is today, with a very strong [indiscernible] that 10 years ago, we didn't have is legitimating, if I might say, expectation for continued growth how do we [indiscernible]. So as I said, a Goldenpoint, there is -- in this moment, it is not on my radar, but hopefully, it will become because in principle, because of the high gross margin, the format is suitable for finding a large number of franchisees ready to invest in this brand.

The next question is from Francesco Brilli, Intermonte.

Can you hear me now?

Yes, please go ahead.

Okay. Couple of questions on -- the first one, I would say, on current trading, again, you confirmed the good growth continuing in Q2. So this -- the growth profile remained broadly stable through May and June compared to the high single-digit trend that you indicated at the end of May or you have signaled so just -- I mean the last weeks performing better than that also in light of the actuals. And on the contribution on the other businesses of the Stefanel in particularly Goldenpoint continues to improve as Stefanel now reach the breakeven and the secondary brand like GAP continue to remain dilutive. Can you help us like have an idea on the contribution on profitability of these businesses, what you expect in terms of timing for GAP to stop being a drag? I mean, until when you -- it will be in the perimeter?

Okay. Thank you for your questions. First, regarding current trading, even if we are never so granular, say, week by week or quarter-by-quarter where we are in terms of numbers. What I can confirm is that May has been super positive, even a bit higher compared to the 7% growth that we achieved during the first quarter. June has been weaker, but mostly because a lot of summer dedicated sales has been anticipated due to other aspects. So we believe that the week -- beginning of June has been only commanded by shifting weather. But if I have to say a number, today, we are higher than 5% in the second quarter. So very much will depend from the change. If the sales will be similar in terms of behavior -- consumer behavior to what we experienced in January, February, well, it will be another super good quarter. If not, it will be a good quarter. This is the way I see it. Then you asked regarding the remaining -- the small format. Let me start from GAP just to clean the table from a misunderstanding. We told GAP management that we don't want to continue with GAP. And we have an agreement based on which we can close all the stores, which are not performing. So based on this agreement, which expires in '29, but based on this agreement, we know that we will arrive in maybe 6 months, 12 months to close basically all the network. This is what we believe. Anyway, we are reducing the number of stores. The turnover is not material. We are talking about a few millions. The cash flow is positive. Why? Because we are reducing the new buying and we are exiting the old stock. So basically, the combination of these 2 aspects is driving to a neutral EBITDA, lower dilution because the top line of GAP is decreasing and a modest positive cash flow because based on our actual performance, which is still decent, but we are not looking for decent performance, and we have no strategic reason to keep this brand anymore. But based on our financial planning in the -- from now to the final windup of the election, we expect to have maybe a couple of positive -- of positive cash flow. On Stefanel. Stefanel contribution on -- Stefanel is making 35 -- something more than EUR 35 million turnover on a yearly basis. Obviously, we are not looking for the breakeven. We are looking for at least a 10% to 15% EBITDA margin, which means to make EUR 4 million, EUR 5 million positive EBITDA. If you consider what we made 2 years ago, we were losing probably $3 million, $4 million. Now we are breakeven. The goal is to achieve a EUR 3 million, EUR 4 million profit, maybe in 1 year, 1.5 years. My real goal with Stefanel is not remaining at EUR 35 million, EUR 40 million. My real goal is to achieve maybe EUR 100 million. In how long? Maybe in 3 years. Also considering that we have some situation, which we want to leverage, for instance, Korea -- in Korea, we are selling EUR 10 million only with a partner on digital sales, we do not report these EUR 10 million sales because we only have the royalties on this EUR 10 million. Or today, we have -- in the last 6, 7 months, we have opened 7 stores in Turkey with a local partner, and the stores are doing very well. So I think that we need to be patient. We are not draining any money here. And I'm convinced that with Stefanel in good shape, we have another project, another interesting format to offer to Italian and international customers. Goldenpoint, well, we are happy because everything we are doing works rightly. We have increased the space dedicated to categories where we are very strong and they were very weak like nightwear, like knitwear and everything we did in terms of product has been well appreciated by customers. And that's why, like-for-like, we are more than 10% in this moment. We are also opening new stores, which are performing according to the expectation. We are refurbishing stores, which are giving a contribution to the positive like-for-like. We have still another 30% of work to be done in certain categories, which we haven't the time to reset up or to adjust. We are happy with our [indiscernible] department and product development. All the synergies are in place. The goal there is to achieve at least EUR 15 million, EUR 20 million of EBITDA. And we are in the trajectory, in my opinion, to achieve that number. So this company I think that in 3 years, with the new store and with a better performance of the existing stores, with also some enlargement of stores because the stores are small, and we want to improve the mix in terms of privileging bigger store versus smaller ones, can achieve at least 12% or 13% EBITDA margin. But in principle, it should achieve a higher EBITDA margin compared to the group. So this company should be accretive in a 2- or 3-year period of time.

The next question is from Domenico Ghilotti, Equita.

Two questions, maybe 3. The first is a follow-up on the Goldenpoint expansion plan. Because I remember and you were mentioning the objective, the target to expand the network. So far, so looking at the number of direct operated stores, I see that it has remained basically the same as compared to the time of the acquisition. So I'm trying to understand if you're already in the pipeline, some new openings already for this year, if you see an acceleration more '27 or '28? So far, you have been mostly working on the organic improvement. Second, on the profitability side, I don't understand if at the end, the gross margin of the quarter, you were mentioning a dilution in February and then a good recovery March and April. So overall, should I assume that gross margin has been similar to last year because this is -- so the -- I am trying to understand the cost trajectory. If I calculate, I'm assuming some numbers on the gross margin, a 5% growth in Q1, try to understand it, this is the trajectory that you are expecting also for the full year? Or was a matter of phasing among the different quarters?

Okay, Domenico, thank you. On Goldenpoint, no, we opened as of now since the acquisition of the company, more than 20 DOS. Only this year, we opened 15 new DOS, more or less in line with the budget in terms of performances. Then we opened several new franchisee stores. The company was basically having a business model mostly based on DOS contrarily to the bigger competitor, which is [indiscernible], they have mostly franchising stores. As of today, we have 55 franchising and -- 30 of which has been opened since the acquisition -- more or less 30, I have not the right number in front of me, since the day -- since the acquisition of the company. So all in all, we opened 70 stores, 15, 20 DOS and the remaining ones franchise, more or less. But if you need more precise information, we can provide you maybe on a separate basis -- on a separate call. And also we refurbished, as I said. I think we refurbished 50 stores. All in all, out of the 300-and-something store that we had, 50 has been refurbished. And these 50 stores are achieving plus 10 -- from plus 10% to plus 15%, in some case, plus 20% performance. I was in [ Messina ] last week. The Messina store, which is in the best shopping street of Messina is increasing by 40% for instance, after the refurbishment. And we still didn't invest that much in marketing but we sustained the CapEx to have 200 stores with a new digital screen to be used as a main communication tool to sustain the brand positioning because the brand is still worth a marketing effort to be communicated again after years of a sluggish position, if I may say. On gross margin, before handing the word to Francisco, which is more informed than me, I tell you that the gross margin is improving as a combination, as I said before, of February characterized by higher markdown because the level of sales in absolute terms has been higher. But the intake for the new buying -- the new intake for year '26 has been better than last year. So there is a gross margin improvement in the first quarter to be continued also in the next coming months of the year. Francesco, do you have anything to add?

We've not normally released the absolute values, but we talk about 40 basis point increase, more or less, in the gross margin of the company. And we expect also for the following months to have this increase in the wait of the sales season because this is also where the market is going. More and more people wait for the sales and then they make the purchases in that moment of the year. And on the other side, the improvement in the intake margin, that is the ratio between the price and the cost paid in for instance increased -- is increasing in the summer '26, is increasing even more in the full winter '26 because of the dollar of last year when we made the orders. And so we expect that the gross margin trend will increase even before the effect of Goldenpoint because Goldenpoint as a business model with about 10% -- 1,000 basis points more than OVS. And so this -- in the blended consolidated figures will have some impact also. But just to avoid any misunderstanding. The gross margin for the full year is a combination of all the assets that we [indiscernible] is supposed to grow materially compared to year '25.

And on the cost, so -- because if you had an expansion in gross margin, is it correct to say that costs were up like mid-single digits, more or less? And so what has been driving?

Do you mean -- the company SG&A, you mean?

The operating costs, so between margin and EBITDA.

Not expected to change. They are proceeding in line with a little increase of energy, but not that much compared to the year when energy was a problem. A slight increase in cost of labor as a consequence of the evolution of the national labor agreement, all things that are under control and more than covered, more than hedged also by a price increase. Let's keep in mind that this company, thanks to me, this is extremely important. Thanks to what the company has made in the last year in terms of branded reputation, better window, better stores, store refurbished, Piombo, Les Copains, we are able to increase prices because we are attracting new customers, which are sometimes demanding, asking for better quality and they are ready to pay higher prices. All the people which were buying -- I don't want to mention a listed company, but I can mention [indiscernible], for instance. If you want to buy a denim and you are a customer of [indiscernible], they are suffering. Why to buy the [indiscernible]? You can buy OVS and the price is lower, so lower that we can even increase the prices. And if today, we are selling [ suede ] jacket at EUR 170 and we will increase the price to EUR 190. We do because we have a lot of customers which are asking us to deliver even higher quality items, ready to pay more for something that out of OVS, they would pay much, much more. And finally, let me reiterate that we are always paying attention to cost to SG&A. We have in place a project in the last 1.5 years, the project has a name, it's called [ Pruning ]. Maybe the name is not sexy, but it means that we are cutting every month something that is not delivering the right value to the company. We have a team, an internal team in place. This work has provided as of now in the last 2 years, almost EUR 10 million cost savings thanks to single initiatives. We have 70, 80 single initiatives. Each of them accounting for from EUR 20,000 to EUR 4 million, EUR 3 million because there is one initiative regarding efficiency of equipment [indiscernible] yes, equipment systems which has a worth of more than EUR 2 million. So cost -- attention to cost is always in our culture.

[Operator Instructions] The next question is a follow-up from Domenico Ghilotti, Equita.

I had a follow-up. On -- well, the first is on Upim in the sense that, okay, the profitability in Upim has remained broadly unchanged despite a very strong top line growth. And so if you can -- you were mentioning clearly, there is less operating leverage because it's more linked to franchise. But anyway, I was a bit surprised to see the same EBITDA with much stronger sales.

On Upim, there is another element that works this year in the first quarter, because of working capital reason, Upim has been more active in getting rid of all the stock compared to OVS. So there has been a higher amount of markdown in Upim in the first quarter compared to OVS. This is the other reason. But nothing structural, nothing -- so the first quarter is already the weakest in general. So every effect in the first quarter became higher in magnitude when operating leverage is taking into account. So nothing which can suggest that Upim has any kind of problem.

Okay. And my last question is -- so on category mix, you were mentioning, for sure, the women contribution as a key driver for the strong top line. Any comment on men, kids and beauty, I would say?

All positive. Women plus 9%, plus 10%, something like that, men plus 3%, kids plus 1%, something like that. I'm looking to a slide now. So yes, as I said. So the biggest contribution is women followed by men and we are very happy that still kid, despite of the birth rate decreasing, is still positive. It means that the price adjustment that we made last year, has been done correctly, and we have a customer happy to come to OVS because they -- what happened even from a market research customer or kid are aware that the quality of OVS is much better than Primark quality. So basically, they recognize that if they go to Primark, then very often, they come back to OVS. That's why we decided to readjust a little bit downward the prices of kids and that's why we are positive also in this category where the market, if I'm not wrong, Francesco is not positive. The market in kids has been neutral this year. So while women in the market and men man has been positive, kid is neutral, we are positive.

[Operator Instructions]

Okay. Good. So thank you for attending this call again, and hope to see you or to speak with you soon. And when is the next call?

23rd of September.

So I wish a good summer, good holiday to all of you and [indiscernible].

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