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

Hello, welcome to the SMCP 2023 quarter 3 revenue. My name is Caroline, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand over the call to your host, Amelie Dernis, Head of Investor Relations, to begin today's conference. Thank you.

Thank you. Good morning, everyone. Thanks for being with us today for the publication of SMCP Q3 '23 sales. I'm here with our CEO, Isabelle Guichot; and our CFO, Patricia Despointes. As usual, we can 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 this morning. We'll have, first, a look at the key figures of this quarterly sales and share an overview of the main business initiatives. Then I hand it over to Patricia, who will deep dive in our performance by area, and I will conclude. On Page 4. You can see that our Q3 sales came in completely in line with the trading update that we released in September at the level of EUR 295 million, decreased by 1% at constant foreign exchange rate and 2% organic, explained by the consumption slowdown in Europe and America and a slow recovery of China's economy. To be noted also that we're fighting against very high comps as Q3 last year was the highest level ever in the history of the SMCP Group. At the end of September, year-to-date sales stand at EUR 905 million, up 4% on an organic basis and growing 5% at constant exchange rates. Like-for-like growth is up 2%. Here are the key messages from this quarter: First one is the trend in homogeneous across the brands. Two, the pursuit of full-price strategy with a stable discount rate despite high comps and challenging environment is a key milestone of our strategy. Three, digital sales are progressing at certainly increased at brick-and-mortar. Digital share remains at the satisfactory level above 20%. And four, as we had announced, the network expansion this year is concentrated on the second semester, which materialized in Q3 with 46 net POS opening this quarter. To be noted that a significant part, almost more than half of it, are done with our retail partners during the semester. Moving on to Page 5. You will finally hear the performance by region. Patricia will get more in detail later on in the presentation, but I just would like to comment a few highlights. By brand, as I mentioned, a homogenous performance across our brands during the quarter with fall/winter collections well received by our clients, we express positive feedback. By region, APAC gained 1 point versus last year resulting from 22 impacted by COVID restrictions; and America decreased by 1 point, resulting from 2023 more challenging economic environment. By channel, no change with 92% of our business coming from of our retail network. Moving now on Page 6. Let me present some of the key initiatives in terms of marketing and to foster our brand desirability. Starting with Sandro, a very nice capsule collaboration with Wrangler, the denim brand. This capsule is intended to be versatile for both men and women. This [ frailty ] of gender and Chiffre is the very sense of Sandro, where the women and men could you take pleasure in creating pieces that can be worn indifferently by all genders. For Wrangler and Sandro, it was essential to incorporate sustainable design choices in each pieces, for example, the tobacco jacket trouser. And Sandro was developed using 50% recycled material from continuous circular production process and limiting environmental impact. Page 7, An important launch for the group this quarter, the new Miss M bag launched by Maje. The bag received a very strong response from our clients as it really embodies the cool spirit of the brand and tweak classic details of our famous M bag, which is the main vocal of the brand in accessories. While being clearly identified as belonging to the same family as the its biggest sister, the M bag, it's also completely different and unique. The launch of this new line was supported by the [ foliage ] campaign showcased in [ Lila Moss ] in London but there has also been a wide coverage all around the world through impressive outdoor visuals from Paris to New York and even Wuhan in China and through windows animation in the main flagship of the brand, as you can see from the picture. Page 8, initiatives from other brands. So Claudie Pierlot, Fursac. Claudie Pierlot continues to reaffirm its Parisian style before. The brand launches a new monogram, large display on the communication and product, just for example, the cinema here that you can see on the left side. Regarding Fursac, let's have a look at this. Very nice pocket in Galeries Lafayette Haussmann to showcase the brand's fall/winter collection that was inspired by the Alps region, the kind of a Chalet ambience. The proper was designed to combine tradition and contemporary blending because of the Chalet with the look of the [indiscernible]. Page 9, a few pictures as we use the big feature of our collaboration with key opinion leaders. And this obviously is an ongoing work that we do to foster the brand desirability and visibility all over the world. You can think of [indiscernible], for example, the Chiara Ferragni with Sandro or Rami Malek at Fursac, just to name a few. Page 10, and a few highlights of our dividend strategy. You can see interesting openings for first Fursac in Madrid, Spain and on Claudie Pierlot in Berlin, this is part of the strategy for the brand. Love both key flagship in key cities mixed with a network of -- corner opening in department stores. America, as we mentioned earlier, I thought to expand the network in the U.S. start to bear fruit. Here, we can see a nice opening of Sandro in Georgetown, Washington, and we have other openings planned for Q4 in America. Q3 in APAC, 3 examples of some openings. We mentioned earlier the importance of the Hainan region. And so you can see our store in Sandro in large in Sanya Haitang Bay in Hainan and also another opening in The Londoner in Macau, which is benefiting from the reopening of the city. Page 13. Another -- a few pictures of our planning with partners, as I mentioned that in Q3, there were very potent contributors to the network opening, Three important countries, and we just opened in Egypt with a partner. We opened important store, Galataport for Maje in Turkey and Vietnam. Now I'd like to hand it over to Patricia to do a deep dive on the different regions and channels.

Thank you, Isabelle. Good morning, everyone. So a bit more detail by region on Page 15. After quite robust performance in H1, Europe as a whole, grows strength and EMEA countries, saw a slight decrease in Q3. The period was impacted by low traffic due to general inflation, so mechanical consumption slowdown and low to reach slows especially in France, the U.K. and Italy. In France, however, the group outperformed key market indicators such as IFM or Banque de France, consolidating its competitive position. Digital sales signed a positive like-for-like growth. In EMEA, to be noted that in the Middle East, the trends remained positive. The network expense with 20 net openings in Q3 in Egypt, as Isabelle mentioned, in the country Turkey by our partners, adding to some other openings in key and retail markets in brick and mortar and digital. On Page 16, in America, after a very strong year 2022. Third quarter sales went down by minus 7% with a contracted performance by country. While the activity in Canada was still heavily impacted by the retail market environment and the lack of tourism, sales in the U.S. were more resilient despite a complex economic context. The group with positive results in key cities such as Miami and Houston is well positioned compared to market trends. The network regained growth momentum with 9 net openings. In APAC, Q3 is up plus 1% on an organic basis and plus 5% at constant FX. In the context of slow China economic recovery, sales in Greater China are slightly positive while the trend in other markets such as Singapore and Malaysia was more positive. The region benefited also from the integration of Australia and New Zealand in our own retail network, which explains the difference between organic and constant FX. The network continues to extend with 17 openings, particularly in South Korea, Greater China and Vietnam. On Page 17, in this tough environment, we have launched a savings plan that we explained during the latest publication at the end of July. This savings plan bears its fruits in line with expectations. It will trigger some savings in both quarters of H2 with more or less similar impacts in Q3 and Q4, depending on the line and depending on the seasonality of the different natures of expenses. This action plan enables us to contain more than in H1 the evolution of our operating expenses. Moving on to Page 18. Aside from OpEx control, the top focus is paid hedging, inventories and preserving cash. Regarding inventories, we have launched an action plan based on several initiatives that you can see on the slide. Spring/Summer '24 purchases our site to match exact needs, but avoid unnecessary buffers. And we continue to liquidate including Chinese collections impacted by profit constraints last year. Considering this action plan, we are confident we can maintain the value of inventories at year-end '23 compared to year-end '22. The direct consequences on cash and debt. As you know, cash generation for us is always higher in H2 than in H1. As a reminder also, we have secured our liquidity until 2026 and 2027 for our main sources of financing, term loan, state guaranteed loans and revolving credit facility. We estimate that year-ended debt should land somewhere between year-end '22 and June 23 levels. so at circa EUR 300 million. I leave it to Isabelle to conclude.

Thank you, Patricia. I can only confirm that the management team at SMCP is completely focused on delivering performance, controlling costs, managing inventories and preserving cash. Thanks to the solid progress of the action plan and the consolidation of this action in Q4, we confirm the adjusted target. I thank you for your attention. We'll be happy to share with you our full year figures at the end of February '24. And now we'll take on your questions.

Thank you, Isabelle. Operator?

[Operator Instructions] We will take the first question from line David Da Maia from CIC.

The first one on current trading. So you have mentioned a consumption slowdown in Western markets during Q3. I was wondering if this demand weakening has continued in, I would say, in most recent weeks or whether you are starting to see some sign of, I don't know, stabilization or even improvement in October with the rollout of your fall/winter collections. Actually the same one on China. You are talking about the slow and weak economic recovery there. But we also heard about improving trends recently in this market. So obviously, any signs of improvement in store traffic more recently? And the second one on your action plan. So you expect an increase -- increasing impact in Q4. Can you tell us which lever, which pillar will be -- will have the biggest impact in Q4 with the cost savings or scope effects? And related to that, how many DOS do you plan to open in Q4? Just to understand the scope effect to anticipate in Q4.

I will take the first question on current trading. To be honest, the beginning of October was in line with September trend. But the second half of the month showed some good signs, especially in Europe. So that's all we can see at that time. We know to that for China, we're just at the eve of important commercial operation and activities like 11.11. So It's too early to say. And at the same time, Q4 in China will be -- compared to last year will benefit from a very, very low comparable because the network started to be really impacted by COVID. So we'll see. That's what we can say at the time of the year. On the action plan, I will leave it to Patricia.

So on the action plan, as a reminder, and maybe we can get back to Slide 17, 4 main families of initiatives. The first one is on the discretionary cost, the T&E event consulting, et cetera; the second one is on marketing; third one is on IT infrastructure projects; and the fourth is about staff productivity. As we mentioned on slide 17, we are basically at the middle of it. So it's in line with expectations. It just depends on the seasonality of expenses. For example, marketing is more heavy traditionally in Q4 than in Q3. So the effect will be more visible in Q4 than in Q3. So for the rest everything is progressing as expected. We reorganized the time line of our project. We also tried to scope a bit differently or roll out a bit differently. In terms of productivity, we did some progress in stores also in H2. And you were also mentioning the scope effect. For sure, it will be more visible in Q4 than in Q3. And the difference actually between legalized organic not so big in Q3. It's 1-point-something percent. Why? Because most of the openings of the quarter, there were many openings, but most of them were in September, explaining a relatively low impact on perimeter. And the rest being on a wholesale, so not impacting monthly sale.

And you had the last question of the number opening in Q4 always a bit of a rush and it won't be -- a lot of them are in December. So then again, it won't have a huge impact on Q4. But it's around between 12 and 15 openings roughly.

We will take the next question from the line Adam Gildea from Bank of America.

I just had one. On trading in Europe, you called out U.K., Italy and France with specific trends. But I was wondering if you could provide any color on trends in Germany just because there's been some reports from other companies explaining that maybe the consumer is under particular pressure in Germany in the overall DACH region.

No, we don't see any major difference between the Europe and Germany or Germany lagging behind in really -- I mean, in a noticeable way. Don't forget also that Germany, for us, is, yes, a physical retail country but also an important digital country. And there, again, we don't see any major impact. And it's not -- I mean, it's not a major market for us in Europe. It's a contributive market, but it's not #1 market in Europe, obviously.