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

Hello, and welcome to the presentation of SMCP Third Quarter Sales Call. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Amelie Dernis, Investor Relations Officer, to begin today's conference. Thank you.

Thank you, Laura. Good morning, everyone. This is Amelie Dernis speaking in charge of Investor Relations. Thanks for being with us today for the communication of SMCP's Q3 2022 sales. I'm here with our CEO, Isabelle Guichot; and our CFO, Patricia Despointes. 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. I think we can start now.

Thank you, Amelie. Good morning, everyone. Thank you all for joining us today. We will first have a look at the key figures of this quarterly and YTD sales and share an overview of main business initiatives, then Patricia will deep dive in our performance by area and will briefly -- and I will briefly conclude, sorry. Let's move on to Slide #4. We are extremely happy about the figures at the end of September, with the total year-to-date sales of EUR 874 million, of which Q3 sales are EUR 308 million, an all-time high record Q3 after a record level in H1. Year-to-date sales are up 17% on an organic basis, driven by like-for-like, and Q3 sales are up 9.4% organic worldwide and solid double-digit organic, excluding China, which is a very good level given the base comparison, which is stronger than in H1. In a nutshell, the key messages from this quarter performance are the following: first, on a global basis, the strong performance resulting in a solid level of growth, both versus last year and versus pre-pandemic level and quite homogeneous throughout the quarter and for all the brands. The continuing momentum in America and EMEA, thanks to a high local demand and also confirmation of the return of tourism from all nationalities, excluding Mainland Chinese obviously. In APAC, the store closures and footfall drop linked to COVID restrictions continue in Mainland China, but the trend is improving compared to H1. For all brands, we continue to reduce our average discount rate in season, minus 5 percentage points year-to-date versus last year, not very different from what we have achieved in H1, which means that Q3 registered another positive trend despite tougher comps. Digital keeps being strong. We focus on controlled and qualitative channels, our own website, obviously, and retail partners. Sales are growing mid-single digit year-to-date despite a high basis of comparison last year. And digital penetration remains high at 21%, normalizing a context of strong reduction of digital off-price sales. To conclude, SMCP posted a strong first quarter, enabling us to increase our market share in those markets. Let's move on to Page 5 quickly. You will find the early performance by region, mainly driven by America and Europe and the breakdown of year-to-date sales. No big change in the split by brand. As all brands of the portfolio enjoyed a significant level of growth, by region, you see that the wake of America is progressing, reflecting a rebalancing of our geographies. Patricia will get back in more detail later in the presentation about these figures. Page 6. Let's have a look at our main initiatives and starting with CSR. We continue to progress on our Traceability strategy by increasing the number of SKUs, including the programs that we developed with Fairly Made. Now we have more than 100 SKUs per brand, fully traceable for the fall winter collection. We also continue to develop circular economy initiatives with a progressive rollout of second-hand at Sandro, and I'm happy to tell you that Maje will be unveiling its second-hand site in France today. Germany is now live and other countries will come in the coming months for Sandro as well as for other brands. CSR is at the heart of our strategy. Let's move to Page 7. SMCP also fully takes part of the effort aiming at reducing energy consumption. We have implemented several measures in this respect, in particular, in our French and European network in terms of the lighting and air conditioning restrictions. In terms of lighting, for example, we go beyond the requirements. All our European stores will have lighting starting at the opening of the stores and turns off depending on the store at store closing or no later anyway than 10 p.m. This was about initiatives linked to the impact on environment. But more generally, we work on all aspects of CSR. This quarter, several initiatives were launched in terms of inclusiveness. This is more and more visible in our campaign in our conception of products with, for example, very nice body positive visuals at Sandro like the one on the right hand of the chart. But of course, it has to be reflected in product offer. In this respect, for example, Claudie Pierlot increases the size offer with more and more pieces available in size 44. Let's move on to Page 8 with a little bit of an update about brand network. This quarter has seen the opening of a major flagship for Sandro on the mythical Avenue des Champs-Elysees in Paris that was just opened a month ago. Very well located near the most prestigious brands, this store displays men's and women's collection of 3 floors, and is an introspection at the same time of Sandro's artistic vision and of the brand's commitment to the environment with the use of new durable and certified materials. Customer experience is at the heart of this unique store with exclusive products, gifts, omnichannel options and special attention. More than a flagship, this space is dedicated to be a new immersive experience in the brand, and we are extremely happy with the results so far. Page 9, some other store openings in the quarter in Europe. For example, Maje opened a store London, Covent Garden and Fursac continued development both in France with opening, for example, in Marseille, as you can see here in the middle. And renovation, for example, at Galeries Lafayette with stunning and impressive and large corner that was just unveiled end of mid-September. Fursac also continues to go outside plan with a new country for the brand, which is Germany. Now moving on to Page 10. We will conclude our panorama of EMEA with digital and retail partners with a focus on the Middle East this quarter. Sandro and Maje launched their first digital stores in the UAE. Sandro also relocated and extended its flagship to Dubai Mall with a special event a few weeks ago, and some openings also in Saudi Arabia, as you can see on this slide. Let's move on Page 11 to APAC. Asia with a very nice opening for all brands, with examples shown in this slide in Beijing, for instance, Shanghai and Taipei. Let's have a look on Page 12, our digital expansion in Asia. So we announced in July the launch of the brand official Douyin account. Being one of the first international brands in accessible agile luxury to open its official flagship on the current faster-growing e-commerce platform, which is Douyin. This store brings a free-spirited world and unlocks the infinite possibility of modern looks. This space makes a statement on independence and avant garde attitude towards life and creates a French fashion fairyland that features sophistication and modern vibe. In Southeast Asia, we accelerated our digital development with Zalora, a major online marketplace specialized in fashion, luxury, beauty and lifestyle, combining several areas of expertise. Brand storytelling approach is strong fulfillment capability and a diversified and elevated brand environment. Singapore and Malaysia are now live for Maje on Zalora. Page 13, let me present some key brand highlights on the quarter in terms of our campaign and collaborations. Let's start with Sandro with a new campaign called Believe, a very strong statement, inviting Sandro's customers to dare to follow their beliefs and hold on to their conviction. But actually, it's not just a campaign. It's also a gaming initiative and a charity commitment since the launch of this campaign was accompanied by a game offered to Sandro's community. Conceived with a charitable purpose and as a collective action, this Believe, the game represents the sense of community lying at the heart of Sandro. The points scored by all participants were converted by Sandro's fund together for the future in a EUR 100,000 donation to the organization, Pencils of Promise, which aims at creating a better world through education. You can see on the left part of the chart the game that was within the campaign. Let's move on to Page 14 with the Maje campaign this season, a new campaign featuring Taylor Hill, the famous American model and social network superstar with more than 21 million followers on Instagram. The idea was to be a copycat of a street side paparazzi campaign displaying the brand product in a very playful manner and follow Taylor Hill in her day-to-day activity in the street of Paris, where she's been followed, filmed and interviewed like in a paparazzi-like style. It was an amused eye on our hectic life and hectic days. And more seriously, this campaign that showcases our products in a very qualitative way and that resonated with a whole generation of customers. Claudie Pierlot on Page 15 for the fall winter collection, the brand reaffirms its Parisian style and Paris becomes Paris by Claudie. Essential, iconic pieces of the Claudie wardrobe turning to fashion accessories. This Parisian take is also reflected on store windows with drawings from the French artist, Marion Poujade, illustrating Parisian symbols. Among the iconic pieces of Claudie, its Anouck bag is turning 5 years old, and it was the case of an interesting celebration, both in brand's stores and communication. So the line was celebrated across the network. Now last but not least, Fursac on Page 16. Fursac resumed its collaboration, celebrating French craftsmanship and savoir faire with world-renowned bicycle maker, Alex Singer. Established since over 80 years, this company has dreamed up a new racing bike for Fursac with all modern technical features. The bicycle toured several Fursac stores according to the different stages of the Tour de France throughout the month of July through Santi, Annecy, Passy, Richelieu. A limited edition T-shirt was also available in correlation with that collaboration. Now after the panorama of initiatives, I will let Patricia get back to sales figure by area in more detail. Back to you, Patricia.

Thank you, Isabelle, and good morning, everyone. So moving on to Slide 18, you will find some key messages on our sales performance by region. After a strong H1, Europe as a whole, France and other EMEA countries, continued to benefit from a steady performance in Q3, and we are very pleased with the figures for our brand. In France, we recorded close to EUR 100 million sales this quarter, increasing by 13.5% organic versus Q3 '21. And given the higher basis of comparison in Q3 last year, this is a very robust figure with a strong performance of all the brands supported by both local customers and tourists from many nationalities, excluding Chinese. With those figures, we continue to outperform the market. The reduction of discount rate by 8 points this year from all brands and channels demonstrates the desirability of our brands. The same comments are also valid for EMEA. In this region, Q3 performance was excellent at plus 20% organic for the quarter and reaching an impressive plus 51% like-for-like growth YTD. Both brick and mortar and e-commerce are growing. The decrease of average discount rate is significant. We gained 5 points this year. And finally, we have a slight increase of the network in Q3 in EMEA. Now let's move on to Slide 19. In APAC, COVID restrictions continue. They are now mostly located in China. And though they result in a much lower number of stores closed, they keep on impacting traffic quite heavily. However, we can see that the trend is improving. The minus 24% organic decrease in H1 and Asia Pacific has been reduced by half and is now minus 12% in Q3, and this decrease is coming only from Greater China and fully explained by traffic drop. Other Asian countries such as Singapore, Malaysia, Korea and Australia had a pretty good performance. In North America, sales continued to grow double digit in Q3, which is a strong performance given the fact that Q3 '21 was already pretty good. Actually, the trend versus last year in Q3 is not far from that of Q2. This is a very strong trend coming from like-for-like because it is both in brick and mortar and in digital and with a lower discount rate, down by 8 points this year compared to 2021 on a YTD basis. I will now hand over to Isabelle for a few words of conclusion.

Thank you, Patricia. Let's move on to the conclusion. We are proud of SMCP Q3 figures. They show how strong our business model is and how attractive our brands are. Achieving a quarterly organic growth of more than 9% compared to Q3 last year, which was really good, with no significant COVID impact is an excellent performance, all the more impressive in a macro context which has never been uncertain and troubled. It is also a great satisfaction to see that this performance was homogeneous, both in terms of brands, with other brands recording quite similar growth rates and in terms of geographies, excluding China, of course, where we open and get traffic, we perform very well. Now that being said, we are, of course, very cautious about the coming months. Be it on the geopolitical side and the social and economic side or regarding sanitary constraints, we see that exogenous constraints continue to be very high. This leads us to be always more agile and more resilient. Despite all these constraints, our performance during the nine first months of the year enables us to confirm our full year guidance, of course, providing no further deterioration happens. I thank you for your attention. We'll be happy to share with you our full year figures at the beginning of March '23, and now we'll take our questions.

Thank you, Isabelle. Laura, I think we have 1 question.

[Operator Instructions] We'll now take our first question Geoffroy of ODDO.

Two questions for me. Many brands in the apparel sector have mentioned inventories as being a concern for Q3 and the coming quarters. What is your position on that? Although I know that you don't report inventories at this level of the year. And second question, if we could have some information on the sequencing of the Q3 month by month, if you see any trend and concerns about inflation.

Thank you very much for your questions. On the first one, about the inventories. As you precise -- we don't give precise comments for a quarterly sales presentation. And of course, we'll talk about that more -- into more detail early months with our full year set of figures. Now that being said, there are, of course, some market impacts on inventories this year, some inflation, a significant sales growth, which leads us to fuel this trend, of course. Also high competition with the suppliers and months of tension behind us in freight, which have led all actors to stock maybe a little bit earlier to make sure that all inventories needed were secured. Now of course, we monitor this very closely in order to keep a healthy ratio of working cap over sales while continuing to fuel the growth. We also continue to rely on our demand planning systems to allocate as best as we can the inventory in our geographies and to be as efficient as possible. In terms of sales per month and sequencing, we did not see material differences from one month to another.

It was a linear quarter.

We'll move on to our next question from Kathryn of Jefferies.

So there are 3 from me. Firstly, on your very strong European performance. I was wondering if you could give a separation between the performance of the local class versus the impact from tourism, which also would have had a strong contribution. And then my second question is on the reduction in the discount rate in the quarter of 2.5 percentage points. And I wondered if you think that the gross margin could continue to improve in H2 versus the prior year. Or are there other headwinds which could offset the improvement in the discount rate? And finally, on guidance, so you've obviously reaffirmed the guidance for this year. And one of the points of the guidance was that the EBIT margin adjusted would be in line with the prior year. But you did have a nice improvement at H1. And I wondered if that means that your expectation for the second half adjusted EBIT margin as that it could be lower than the previous year? Or are you just being nicely conservative with your guidance given the macro picture?

Okay. On your first question, Kathryn, European performance is a balance between all the local work that we've done over the past years and months on the local clientele and all the revamping of the network and the adjustment of the network, omnichannel capabilities that we discussed also, and it clearly pays off in the number. And it's true that the cherry on the cake was also the tourism flow that we experienced during the summer in Europe and France and Italy and the U.K. Definitely, the strong dollar helped a lot. And we saw a lot of clients from North America from the Middle East, even from some countries like Taiwan, for instance, and that adds to a very nice flow of traffic in our stores and in a very good performance. Patricia?