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

Hello, and welcome to the SMCP 2023 Q1 Results Call. My name is Andrea, and I'll 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 Manager, to begin the meeting.

Thank you, Andrea. Good morning, everyone. This is Amelie Dernis speaking in charge of Investor Relations. Thanks for being with us today for the publication of SMCP Q1 2023 sales. I'm here with our CEO, Isabelle Guichot; and our CFO, Patricia Despointes. As usual, we'll 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, Amelie. Good morning, everyone. Thank you all for joining us today. We will first have a look at the key figures of this quarterly sales and share an overview of main business initiatives. Then Patricia will be guiding our performance by area, and I will briefly conclude. Let's move on to Page 4. On Page 4, we are happy to announce a Q1 sales at the level of EUR 305 million, up 7% on an organic basis driven by like-for-like and growing 8% at constant exchange rates. Let me share with you some key messages from this quarter's performance. On a global basis, a strong performance resulting in a solid level of growth with a high basis of comparison, '22, as you remember, was a record year. Both volume and prices contribute to Q1 growth, volume contribution slightly higher than price. Digital sales progressing at the same pace as brick-and-mortar, which is a very good news. On the DOS network, we reached [ 100,000 ] square meters, including Australia. That's now a new metric that we will be glad to follow. Discount rate continues to decrease as anticipated. It is more marginal than in '22, obviously, and it's mainly driven by digital and Asia due to a higher basis of comparison. Moving now to Page 5. You will find here the performance by region. Patricia will get back to more detail later in the presentation. By brand, I would like to highlight the robust performance for Sandro with a high single-digit growth; with solid performance for the other brands, Claudie Pierlot and Fursac, with a strong double-digit growth. Maje saw a slower start to the season due to a very strong basis of comparison and the collection composed by various summary pieces this year. This should improve as the summer is coming. Page 6, the major pillar of our strategic road map, let's have a look at our main sustainability initiatives. Let's start with the first pillar, SMCProduct. The continued implementation of our traceability project [ and reach now ] 1/3 of SKU fully traceable for spring/summer '23 collection. And for the -- and this will be improving season after season. Now let's talk about SMCPlanet. As far as circular economy is concerned, after a successful launch in France and Germany, Sandro launched rental services in the U.K. in collaboration with HURR for spring/summer '23 collection. In addition, you all know that SMCP's commitment to sustainability also translate in the design with the use of more eco responsible materials. Not [ soon ] in that stage. But we are also proud to announce that one of our stores in China, [indiscernible], has received a gold grade of LEED certification, LEED meaning Leadership in Energy and Environmental Design. Regarding the third pillar, SMCPeople, the official launch of the omnichannel sales adviser training took place in Paris on January 13. Since then, the students have started training at EMA SUP and also taken courses on fashion culture at IFM, Institut Français de la Mode, and a master class dedicated to the discovery of our brands. They are also integrated, [ their point of sales ], in all our 4 brands. Another point to highlight is that SMCP has pursued its partnership with Médecins Sans Frontières to help the victims of the earthquakes that devastated Turkey and Syria in February. Finally, the Board of Directors of SMCP has decided to create a sustainability committee, which will be in charge of following all topics in relation with social and environmental matters. This committee will also oversee the integration of these topics in the implementation of the group's strategy. Now on Page 7. Let me present to you some initiatives in terms of marketing strategies and creative collections to foster our brands' desirability. Starting with the celebration of the Lunar New Year, Sandro, Maje and Claudie have created once again dedicated New Year capsule collection featuring an exclusive product offer. In particular, to celebrate the Year of the Rabbit, Maje and illustrator Jiayi Li deep dived into poetic scenes of Chinese mythology and captured some candid moments that occurred during the celebration. With her own vision, she created strong and vivid images honoring the Year of the Rabbit, as you can see on the left side with the [ white ] t-shirt. Page 8. Now let's talk about specific initiatives on each of our brands, starting with Sandro. You can discover the Sandro unisex pieces which women can borrow from men's wardrobe to make it their own. Purchasing in the other gender is a more and more common phenomenon. And many customers, especially the youngest, adopt gender-free consumer behaviors, [ constraint some old ] positioning in men's and women's with a timeless approach, this brand is perfectly positioned to seize this opportunity. Page 9. Now to celebrate the month of the Ramadan, Maje has released a dedicated capsule of colorful, elegant and delicate dresses. The collection features feminine pieces that can be worn during the day or the evening. Once again, the [ femininity of Maje and its strategic ceremony ] dresses enable the brand to offer a perfect wardrobe for such an occasion. And what's displayed here on that chart is a [ specific asset ] that we've developed for the -- to launch that collection. Page 10. Now let's move on to Claudie Pierlot. The story of the brand is, first and foremost, one of allure roots and a true Parisian style as its creator, Claudie Pierlot. This season, the brand has reinvented the wardrobe of a Parisian woman in need of timelessness, a style composed of occasionally updated basics, strides, guts, new shades, new workwear and signature accessories, the perfect expression of the DNA of the brand, as you can clearly understand it from the pictures that are featured on the chart. Let's move on to Fursac on Page 11. For the second season, as part of the official Paris Menswear Fashion Week, Fursac takes up residence at the very famous Comédie-Française theater in January. In line with the brand's strategy, Fursac's autumn/winter '23 menswear collection is made of elegant [indiscernible] combined with casual pieces. Obviously, they are distinct fall/winter collection because they're part of the [ calendar ]. Key openings now in the brick-and-mortar network. Moving on to Page 12. We can see some openings in Asia with, at the same time, opening in China, both in Tier 1 and Tier 2 cities; and in other areas of the region, for example, in Singapore, where we want to take advantage of the strong dynamism of this market. As you know, from one quarter to another, the seasonality of openings is very different in the second quarter. The network will continue to grow in this region, and we'll also get back to growth in Europe. I will leave it now to Patricia to do a deep dive on our regional performances.

Thank you, Isabelle. Good morning, everyone. So regions now, starting with France. With an excellent performance this quarter, sales reached a record level of EUR 106 million and were up 13% driven by like-for-like. The quarter recorded a double-digit growth both on brick-and-mortar and digital and was sustained at the same time by local customers and tourists. We are all the more satisfied about the performance in France as the context was quite adverse with several days of demonstrations in many cities, which have a negative impact on traffic in the stores and opening hours. In this challenging environment, we overperformed the market trend, and we continued to gain market shares, reflecting the work performed on retail excellence and brand liability. Other brands, Claudie Pierlot and Fursac, benefit from good momentum and performed very well with a strong double-digit growth. [ Group price ] strategy is continuing with a discount rate optimization and digital. And finally, the network slightly decreasing by 4 POS, including the closure of the remaining 2 Suite 341 stores, which was expected. So this format is now officially over. In EMEA, the group maintained a very good momentum with a robust growth despite a high basis of comparison. Sales of EUR 89 million were up 7% organic with a strong retail like-for-like growth of 15% from both brick-and-mortar and digital sales. This performance was driven by the largest markets, such as the UAE, Italy and Spain, and was supported by touristic flows. The significant difference between retail growth and total evolution in EMEA comes from wholesale. As you may remember, we stopped our partnership in Russia, and the last deliveries took place in Jan and early Feb '22 before the start of the war. No deliveries this year since this partnership is now finished. The average discount rate registered a slight decrease, which comes from digital, same as in France. Finally, the network is down by 7 POS in Q1, excluding the impact of Russia, 40 POS closed by the partner. But EMEA's network is expected to get back to growth in the course of the year. Moving on to Slide 15 now. In America, we recorded a revenue of EUR 39 million, in line with last year, which is quite good considering the outstanding performance that we had registered in 2022. During the first quarter of '23, sales in the U.S. were resilient with a positive like-for-like growth in brick-and-mortar. Actually, the slightly negative trend for America at minus 3% in Q1 mostly comes from Canada with a slow traffic normalization due to level of tourism, which is low from Asia, and rather weak local demand. Finally, the network is down by 2 POS in Q1 but is expected to grow in the second half of the year. APAC is getting back to growth at plus 3% organic with a gradual recovery of the traffic in Mainland China month after month and a return to growth since March. Good performance in Hong Kong, Singapore, Malaysia, Macau, which was supported by a dynamic tourist flow in the region. Australia and New Zealand are now fully integrated in our retail network. The average discount rate decreased by more than 4 points. This was the only region with an increase in 2022 considering the COVID situation, but now discount is on its way to normalize. Regarding the network, the region continues to expand with 5 openings net in the quarter, as explained earlier by Isabelle, to whom I will now hand over for a few words of conclusion.

Thank you, Patricia. I won't repeat the main messages of this quarter. In a nutshell, we are satisfied by the resilience of our brands in all our markets. The growth recorded in Q1 enables us to confirm our guidance for the full year. It also shows a good level of growth and especially, of course, in China with a very strong double-digit growth given last year's basis of performance -- of comparison, sorry. Before we turn to the Q&A, I will answer the question you will all ask me about the shareholding situation. As you remember, GLAS announced earlier in March the launch of a sale process for 37% of our share. You may remember that in their statement, they have also announced that it would start with the first phase of a few months to initiate contacts on their side on the basis of publicly available information. Therefore, it's too early for an update on this operation, and it was totally expected given the time line they have announced. So no big news today, [ but there's possibility ] the market inform in due course in case of any significant evolution of this process. Thank you all for your attention. We'd be happy to share with you our [ actual ] figures at the end of July, and we'll now take your questions.

The first question comes from the line of David Da Maia from CIC.

Two questions for me, please. The first on China. So you were mentioning a gradual recovery there with the return to positive growth in March. Obviously, considering the lower comps in March, this sounds quite logical. But in this context, is it fair to assume that trends have also sequentially improved during the quarter compared to 2021 in a 2-year stack? And if so, is this trend continuing in April, again, compared to 2 years ago? The second question on shareholding. Can you give us a bit -- maybe a bit more detail on the way the sales process is organized by GLAS? What is your level of involvement in this sales process? I mean are you being consulted by GLAS?

First question about China. Yes, your analysis is absolutely right, and I can confirm that we see a clear evolution of the trend in April. And if you read the -- there was a very interesting article in [indiscernible] daily yesterday about the recovery in China. And they were mentioning that [ there's a study saying ] that the back to '21 levels should happen between first and second semester of the year, and that's clearly what we are seeing. But we can confirm that we see a very clear, gradual recovery of China. I just come back from China with all week -- all last week in China, and I toured 5 cities. So what we see is a country that is back to normalization, and it's very clear in the consumption. It's true nevertheless that the growth [ and standing ] of luxury companies, it is mainly driven by a few big spenders. We have a more mixed clientele. We have big spenders. We have also middle upper class, which is slightly more cautious due to the economic outlook and the measures that are expecting from the government. So we have a more mixed clientele. So the way that our sales are recovering is slightly different from luxury, but it's really on a positive curve. I will hand it over. I don't know if I answered your question, but then I can -- what? No, I'll leave to you in the process...

Regarding the process, just like Isabelle explained in the conclusion, GLAS is still at the beginning and the first phase of this process. So obviously, it's a bit early to comment on that. And we will probably have more updates in the coming weeks and months. But obviously, too early to say more today.

The next question comes from the line of Geoffroy Michalet from ODDO BHF.

I have 2, and they're on the store network. Two things. First, in America, we see a slight decrease of the network, whereas I had in mind that you wanted maybe to focus a bit more on America. So could we expect in the coming quarters a network [ quantification ], be it on DOS or POS? First thing. Second thing is on APAC and the fact that you bought back your Australian and New Zealand stores. Just wanted to know if there were any costs, be it OpEx or CapEx, related to that, that we should take into account?

First question, America. Yes, you're right. As Patricia mentioned, it's a phasing issue. Yes, we have some openings that are planned in different cities, New York and other regions, especially in the south, on Q3 and Q4. So that's only a phasing on this first part of the year.

And your second question regarding Australia and New Zealand, yes, we bought back the network. The amount of the buyback was not disclosed, but it's a very limited investment corresponding roughly to the net accounting value of the stores and the inventory. So nothing specific...

And also, the CapEx request for this network will be the same as all our mature markets in the world, which is global maintenance, some re-localization, few openings and closing, nothing different from...

It's not a material investment for the group.