SMCP S.A. (SMCP) Earnings Call Transcript & Summary

Hello, and welcome to the SMCP Quarter 1 Sales Call. My name is Judy, and I'll be your coordinator for today's event. Please note that this call is being recorded. [Operator Instructions] I would now like to hand you over to your host, Mathilde Magnan, Head of Investor Relations, to begin today's conference. Thank you.

Thank you, Judy. Good morning, everyone. This is Mathilde Magnan, Head of Investor Relations speaking. Thanks for being with us today for the presentation of SMCP Q1 sales. I'm here with Isabelle Guichot, our CEO; and Patricia Despointes, CFO. As usual, we will go through the presentation, and then we'll have the Q&A session. Before I hand it over to Isabelle and Patricia, I invite you to go through our usual disclaimer on Page 2. And I think we can start now.

Thank you, Mathilde. Good morning, everyone. Thank you all for joining us today. I'll begin with a quick overview of Q1 sales and key initiatives, and Patricia will detail out the performance by region. So if you turn to Slide #4. As you've seen from the press release, we are very happy to announce Q1 sales up 23.7% on an organic basis, driven by like-for-like, thanks to a strong local demand. In the first quarter, which we reported sales of EUR 283 million, up 26% reported. Let me share with you some of the key messages from this quarter's performance. First, on a global basis, this strong performance results from our brand's desirability and local demand, tourism flow remaining low, unfortunately, fully driven by like-for-like at 23.6%. America and EMEA posted an outstanding momentum, relying on a high -- very high local demand. Despite a good start to the quarter in APAC with a successful Chinese New Year, our performance was significantly impacted, as everyone knows, by tough COVID restrictions. Finally, France has outperformed the market with a progressive improvement over the quarter. Our teams continue to be fully committed in the execution of our One Journey strategic plan, leading to a new successful step, including, notably, first, the continuation of the full price strategy with the discount rate down by 60 -- 600 basis points in Q1; second, the finalization of our network optimization in France; then a strong digital penetration reaching 25%, 1,000 basis points versus '19 level. To conclude, SMCP posed a strong first quarter, above our expectation in this nontypical context with notably low tourism and less promotional sales. If APAC was impacted by very high COVID restrictions, including lockdowns, America and EMEA recorded an outstanding momentum, and France outperformed the market with a progressive improvement over the quarter. Moving on very quickly to Page #5, you will find here the performance by region, mainly driven by Americas and EMEA, I've just explained, and the breakdown of sales in Q1. Patricia will get back in more detail later in the presentation. Now on Page 6, let me present you some relevant brand initiatives implemented during Q1. Starting with the first pillar of our One Journey strategy, brand desirability and how our 3 brands operating in China celebrated the Lunar New Year. Sandro, Maje and Claudie Pierlot has created again dedicated New Year capsule collections featuring an exclusive product offer with a strong impact. Our brands have elevated their signature codes with refined elegance and fashionable allure, showcasing a unique vision of French elegance and style. To celebrate the year of the Tiger, as you all know, and promote our capsules, dedicated content, image, video were produced and displayed across all digital platforms, including social media, e-commerce and Tmall flagship in China. To develop these local assets, Maje decided, for instance, this year to collaborate with Estelle Chen, with more than 700k followers on Weibo and Sandro with a native illustrator to design special Tiger family illustration. These key initiatives demonstrate our strategy to invest in APAC and particularly in China to benefit from our fastest-growing region of the group in normal circumstances, obviously. Image-wise, they offer us an opportunity to boost visibility whilst preserving rarity. And when it comes to figures, they are an enabler for full price conversion and to improve like-for-like. Moving on to Page 7, where you will see a few innovative and creative collaboration displayed in Q1 by our brands. Let's start with Sandro. For the last few years, Sandro and Smiley has been annually creating cheerful collaborations together. To mark the 50th anniversary of this pop-up -- pop culture icons, Sandro has designed a unique iteration of their most iconic products. Smiley's mission has been to spread good news and the founding mantra of take the time to smile, which feels more relevant than ever in 2022. The Spring-Summer '22 Claudie Pierlot, this Spring-Summer '22, Claudie Pierlot collaborated with a legendary American cap manufacturer, New Era, known for its iconic NY embroidery for over 100 years. The collection features four caps embroidered with Claudie Pierlot logo and a full-size monogram. To accompany them 3 sweatshirts, 2 T-shirts complete silhouette. And the results is very cool outfit, which are elegant at the same time and set out from the crowd. These initiatives add desirability to our collections and enable us to speak to our audiences in a more intimate way, a more engaging way, giving the opportunity to supply introduce our community and to enhance customer experience. And the results are promising, boosting sales, driving traffic and new consumers. Now on to Page 8, sorry. Let me show you some highlights of our worldwide disruptive communications. To promote its Spring-Summer campaign, Maje has decided to deploy a worldwide XXL outdoor plan and in the streets of key cities including notably a bus campaign in Berlin, displays in Paris, and a fantastic billboard in New York City. For Spring-Summer collection called Flyaway, Sandro has done big, organizing a 360-degree campaign with a strong social media presence and signaling its entrance into the metaverses, thanks to an immersive overlap reality experience. Now let's speak about Fursac, which took place in Parisian cinemas to promote its new campaign and have launched its first tram display in Geneva to celebrate the opening of its first store in Switzerland. Gauthier Borsarello, Fursac’s Creative Director, brought a new take on its first Spring-Summer collection with a #FURSACFRIENDS, a very innovative campaign. For this shooting, close friends of the brand mix pieces from Fursac collection with their own clothes and result is outstanding. These are key ways to engage millennials and Gen Z through disruptive communication and also to activate key traffic levers. Page 9, a very important topic. We wanted to highlight our team's key initiative on sustainability. Let's start with Sandro. By looking through its archive, the Sandro designed studio wanted to give new life to fabric from previous collections. Endless Love is a capsule of 100% upcycle pyjamas, made using leftover silicon cotton fabric. Available in limited edition on sandro-paris.com, the brand will donate all the profit to the Sandro Fund, working for charities and causes that reflect the spirit of the Sandro family. As part of the SMCP's commitment to sustainability and our desire to rethink our stores with respect to the environment in term of constructions and design with the use of more eco-responsible materials, we're proud to announce that our Maje Chengdu Taikoo Li store has received the highest certification in LEED Leadership in Energy and Environmental Design, which is a platinum grade. And we're extremely happy about that award. And then on traceability. As we announced a few months ago, we have signed a partnership with Fairly Made to offer our consumers detailed and transparent information on the traceability of our products. Our teams are fully committed on these very important projects, and we are proud to invite you to visit our website and even our stores to see the first references updated with that QR code. For all our teams, the notion of environmental and societal commitment have become a daily source of inspiration. These key initiatives, which are in line with our brand's commitment are the first of a series of actions that will be unveiled during '22. Let's -- now on Page 10. Let's look at some key openings of the quarter. In EMEA, for instance, Claudie Pierlot opened a new store in Lisbon with an eco-friendly design approach within a various standing historic building. As part of Fursac's international expansion, we are pleased to announce the opening of the Fursac in Antwerp, our second store in Belgium after Brussels, opened in June '21 and Geneva, the store I just mentioned, where we feel very proud to have opened our first Fursac free standing store in Switzerland after our openings within the Globus department store in Geneva and with Lausanne, it was natural Fursac to extend its French wardrobe to store with a brand owned unique architectural concept. We're convinced of the potential of Fursac French style in the Swiss market. Page 11, a few other openings with our partners. Opening of a store of Sandro and also Maje store, which are next to eachother in Tallinn, Estonia. It's a new country for the group. Page 12, key openings in APAC. As you can see here in the picture, first opening in China, new Sandro store in the famous Nanjing, Hexi Golden Eagle Mall, described as Asia's largest shopping mall. And then in Korea, 2 new stores -- 2 new malls in Korea at Seoul, Lotte Jamsil and Hyundai Daegu. Patricia now will get more back in more detail to this quarter's performance by area. Thank you.

Thank you, Isabelle. Good morning, everyone. So moving on to Slide 14. Let me highlight some key messages on our sales performance by region. In France, sales at EUR 94 million, grew nearly 23% organic. We noted a progressive improvement over the quarter. Since the beginning of the year, SMCP outperformed the market, thanks to a good start of our Spring-Summer collection. Our performance almost exclusively driven by like-for-like growth at 22%, which includes a sharp reduction in discount rates, down 10 points and the finalization of our network optimization plan with minus 13 points of sale, of which 7 Suite 341. In EMEA, group sales grew by 73% organic versus 21%, exceeding 2019 level for the first time since the beginning of the pandemic, from a significant acceleration over the quarter, driven by local demand. In addition, the strong sales momentum supported by an historical like-for-like growth x2, includes an impressive 7-point decrease in the discount rate and the rather stable network base. Now let's move on to Slide 15. In APAC, despite a good start to the year with a successful Lunar New Year, the intensifying COVID restrictions first in Hong Kong and later in Mainland China with lockdowns impacting mobility and traffic had a significant impact on sales, leading to a minus 13.9% decrease organic versus '21. This figure takes into account a high comparison base, especially in Mainland China. However, versus 2019, Mainland China sales were up plus 4% organic almost, including growth compared to Q1 '21 -- Q4 '21, sorry. The desirability of our brands is still strong in Asia and especially in China. Over the quarter, SMCP recorded a growth of the digital penetration plus 3 points versus last year and a stable network base. In the Americas, sales grew by more than 44% organic versus '21, an outstanding momentum, nearly exclusively driven by like-for-like growth at plus 42%. We observed a new sharp reduction in discount rates, down 14 points versus '21. Network is quite stable. The U.S. and Canada both outperformed, driven by high demand across all our distribution channels. The region also recorded a strong growth versus 2019, plus 20% organic for the area, of which plus 25% in the U.S.

Thank you, Patricia. Now looking forward, the outlook. SMCP is closely monitoring the health context in APAC and the impact of restrictions on the in-store traffic as well as on its supply chain capabilities and remains cautious about -- as the situation in Mainland China can evolve rapidly and new cities could be impacted. SMCP confirms its financial guidance for '22 provided that the health context in APAC improves fairly rapidly. As a reminder, for full year '22, SMCP anticipates solid double-digit sales growth versus '21 and mid-single-digit sales growth versus '19. Regarding profitability, the group expects an adjusted EBIT margin as a percentage of sales in line with '21 in the context of significant inflation. SMCP thus anticipates a net debt leverage ratio of inferior to below 2x at the end of '22 instead of end of '23. Thank you for all your attention. We're now happy to take your questions. .

Thank you, Isabelle. And Judy, I think that we have one question.

[Operator Instructions] The first question is coming from the line of Geoffroy Michalet from ODDO BHF.

Congrats for the good set of results so far. A couple of questions from me. First one, it is the first time that you leave so much granularity on a like-for-like basis in quarterly sales publication. Can we expect it to last? And why such a change in the communication? Just to be precise, it is much appreciated. Second question about China, what is your biggest source of concern? Is it the sales level in China? Or is it the sourcing from there, although we all know that part of your sourcing is from the [Indiscernible] area? Third question, how is the beginning of Q2 so far? Can you have an update on the current trading? And finally, last question, do we have any update from the shareholder situation since full year results on the 9th of March?

Thank you, Geoffroy. I will take number 2, 3, 4, and I will leave Patricia the first question on like-for-like. Current trading in China, as you know, we're closely monitoring in [Indiscernible] the impact of the tough restriction on the in-store traffic and supply chain capabilities. As you mentioned, a big part of our sourcing is more in the South of China. But overall, as you know, our logistics is also impacted because our warehouse is in Shanghai. So we have also add some effects on our ability to resupply stores and to also deliver the online sales. So for Shanghai and [Indiscernible] since the end of March, including our warehouse, and then Hong Kong and Macau also highly impacted in Q1 and we have -- as we speak this morning, we have 40 something, so which is 1/4 of our network, which is closed in 7 cities. So that's my answer. On the -- that also -- for the other countries, as you wanted to have some update on the current trading. Americas and EMEA are still enjoying a very good momentum. It's also the case of the Middle East where I was a couple of days ago. France is doing very well, driven by the brick and mortar and helped, as you know, by a lower comparison base. And what's also interesting in Europe and that we start seeing a return of European and American tourism flow in Europe, which would definitely help for the coming months. So that's all I can say on the current trading. And then on the shareholding situation, the only thing that we can say is, as far as we know, GLAS has not initiated any selling process so far so that there is not much of an update at this point.

And on like-for-like, Geoffroy, thank you for your question. As you have seen like-for-like represents nearly all of the growth of the quarter. So that's a very good thing. You know during the COVID period when some stores were closed, like-for-like used to not completely reflect the situation. Maybe this is why we have spoken about like-for-like a bit less. Now we are all convinced that it's a very important KPI, which is important to reactivate in terms of the communication. So we take good note that you like it. And yes, we will continue to communicate on that.

Thank you, Geoffroy. And Judy, I think we have another question.

Yes, we do. The next question is coming from the line of Kathryn Parker from Jefferies.

Congratulations on the good results. And I have three questions, please. My first question is on the reconfirmation of the financial guidance. So you said in the press release, but you reconfirm provided that the health context improves fairly rapidly in Asia Pacific. And I just wondered what your expectations were for fairly rapidly, whether it's a return to growth in May or in June? And what you're thinking at the moment around that? My second question is a follow-up question on sourcing. So I believe that you do some sourcing in Mainland China for stores in the rest of world. And I wanted to check that you're not anticipating any missing items or delivery delays going forward? And then my final question is on Americas. So you're obviously showing very strong growth. On a store base, that has been fairly stable since 2019. And we've heard from other companies in the sector that the growth is much broad-based in America, so southern states outperforming. And I wondered if you're rethinking your store footprint there. And if you see additional opportunities given your strong performance in the market also with the reduced discount rate?

Okay. Maybe Patricia on the...

On the first question?

On the first question.

Yes, on the first question, so yes, we said that we reconfirm our guidance provided by the situation improves fairly rapidly. As you know, it's very difficult to have clear visibility about the situation in China, and it may evolve from 1 day to another. And if they evolve from 1 day to another in terms of the number of stores closed. So I would say that we hope it will improve in the coming weeks and hopefully, as soon as possible.

Regarding this sourcing in China, yes, it's true that our supply chain teams is through [Indiscernible] in these days because they have really to anticipate what's going on in China. But also that we work with kind of events over a few months in that industry. So there is no risk of having empty stores. We may have some few delays in some SKU arrivals. But seeing the size of our collection, this might not be a huge issue, and we're anticipating what can be done to make sure that we mitigate that sourcing risk in China. As far as America is concerned, yes, as a lot of our peers and competitors, we will see some opportunities in the southern states of the U.S. We are presently looking at opportunity in the cities that are really seeing a boom in their vitality, that might anyway more impact '23 than the present fiscal year.