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

Welcome to the SMCP 2024 Full Year Results Conference Call. My name is Ellen, 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, Head of Investor Relations, to begin today's conference. Thank you.

Thank you. Good evening, everyone. Thanks for being with us today for the publication of our full year results. And here with our CEO, Isabelle Guichot; and our CFO, Patricia Despointes. You can listen to the publication, just the usual conference call or you can connect to the webcast to have the presentation displayed. 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 evening, everyone. Thank you all for joining us today for the 2024 full year results. I think we all agree that 2024 was a very special year, year of multiple elections in many countries, year of the Olympics in Paris, year of very complex context in Asia, et cetera. So before going in detail with facts and figures, it's worth taking some time to share a few qualitative highlights on what 2024 was for us. This has been a transitional year for our business with strong decisions made, which we think will set the stage for sustainable growth, long-term profitability and cash generation. Three main messages on this slide. First one, despite the challenging macroeconomic context and our ongoing network optimization, we've achieved a resilient sales performance across most of our regions. And we also saw a consistent quarter-on-quarter improvement of the trend, demonstrating the strength of our 4 brands and the desirability of our collections, even in the face of external challenges. Second point to note is that this year has been transitional for our profitability, which improved in H2. We have implemented essential measures toward the future to streamline our network, improve our cost efficiency, optimize our production processes and accelerate on sustainability. While we are seeing some expected short-term costs now, we are confident that these efforts are an investment and will yield significant returns in the next months and years. Then I want to highlight our focus on cash management. We executed a strong set of cash protection measures that allowed us to generate significant free cash flow. This is a key achievement, enabling us to reduce our net debt quite substantially and creating a solid foundation for future growth, ensuring we are in a sound, strong financial position to meet our strategic goals and drive long-term profitability. Let's move on to Page 5, where we go a little bit more granular on our full year figure, sales figure. They came at EUR 1.212 billion, a slight decrease by 1.5% at constant foreign exchange rate versus last year and minus 3% like-for-like. Excluding China, the group records a sound fiscal year performance with a growth of sales by 2.3% driven by Sandro and Maje good performances in the other geographies. We saw an improvement quarter after quarter, notably in H2 with positive like-for-like performance in Q4. Other points worth mentioning are the following: we stick to our full-price strategy, which is almost an obsession in our 4 brands with a 2-point decrease of discount rate in season despite good comps in discount level in 2023 and challenging environment. Our digital share remains at a satisfactory level at circa 20%, you can consider that this level is a normative threshold today. As expected, the network decreased by 68 POS this year with the implementation of our network optimization plan that we already presented during the midyear results, and in China and for Claudie Pierlot in Europe and with the expansion of our network through -- mainly through our partners. Page 6 now, you'll see a detailed bridge of sales evolution between 2023 and '24. All the decrease comes from the like-for-like network in China, no big surprise there. The other region's like-for-like performance is slightly positive, driven mostly by Sandro and Maje in France and Europe. The network optimization in China and for Claudie Pierlot accounts for a loss of EUR 16 million of sales compared to last year, more than 80% of this amount comes from China. The evolution of the rest of the network is positive coming from the effect of 2023 and to a smaller extent, '24 openings and relocations, especially in America. And finally, wholesale revenues increased by EUR 5 million, aligned with our strategy. Moving on to Page 7 now. You will find here the performance by region. Patricia will get into more granular detail in the presentation, but no big surprise there. By region, Europe gained 2 points versus last year. France and America gained 1 point each resulting from resilient performance in the region. Symmetrically, APAC decreases by 4 points from a very challenging economic context. By brand, a good performance for Sandro and Maje were showing their resilience in all weather, and by channel, wholesale increased by 1 point, in line with our strategy, retail network remains the largest part of our business with 91% contribution. Within retail channel, corners performed particularly well this year. Page 8 now. Let's do a little bit of a focus on China, as it has been a main -- the main focus of our strategy this year. Our strategic road map in China has been written to address the challenging context and strengthen our strategy and positioning. Network optimization was the first key step. We closed 65 less profitable stores, allowing us to focus our resources on ensuring the best experience to our customers in the remaining store, more clienteling activity, more marketing activations. In parallel, we have continued the discussion with landlord to strengthen our business relationships and be ready to seize the future opportunities of growth. We also reorganized and aligned the HQ team accordingly. For 2025, we plan to finalize the optimization of the network. With a few remaining closings in H1, we want to be more local in our marketing actions, work on clienteling and improve discount rate. From Q4 '24, we started to see some first encouraging signs in retail KPIs, such as like-for-like sales improvement like-for-like being now the key metrics we will be carefully following for China. In parallel, we worked on customer strategy, and we can see the first signs of improvement in conversion rate directly linked to a better experience in our stores. We also managed to reduce inventory from old collection. Despite the closure plan that we executed in '24, we keep a large network in Mainland China, with Sandro and Maje, having each of them roughly a bit over 60 stores in 30 different cities, which is a large footprint. Page 9 now, some key figures on P&L and cash. Additional details and bridges following the course of the presentation, obviously. I will just insist on 3 messages. Gross margin ratio remains at a high level, a sound improvement by 0.6 points versus last year. This is a translation of our strategy to focus on full price sales. Adjusted EBIT at EUR 53 million, representing 4.4% of sales. This year was impacted by one-offs, especially in H1 and macroeconomic factors, partly compensated by cost optimization action plan. We saw an encouraging improvement in the second half and where you see that EBIT comes at 5.5% of sales in H2. The strong free cash flow generation of circa EUR 50 million leading to a decrease of debt by the same amount. Net debt lends at EUR 237 million. This is a very good achievement in a particular adverse context, this achievement results from tight management of inventories and strict control of investments. So this is a little bit for the big picture in terms of figures. Let's move on to Page 10. I'm pleased to share with you the progress we've made in our commitment to sustainability. You know that it's a key issue for the group and something that we really are very focused on. I will not comment in detail our 3 P's of our strategy because you know them perfectly. I just focus maybe on 2 main achievements this year. First one on the planet side. This year, we took a major step forward with the adoption of a biodiversity strategy. Our commitment includes ambitious goals, such as achieving 0 deforestation by 2025, and supporting regenerative agriculture projects. These efforts are central to our long-term vision of contributing to a healthier planet and a more virtuous industry. On the people side, a major step was the deployment of a new worldwide parental policy, based mainly on French rights. This policy reflects our commitment to supporting our employees in balancing their professional and personal lives regardless of where they are located. By ensuring equal parental rights across all our locations, we're fostering a more inclusive and supportive workplace where employees feel valued and empowered both at work and at home. I will move now forward to brand initiatives and products, starting with collections. And the 4 brands have seen an encouraging start of the new collection that was introduced in store at the end of 2024, the spring summer collection. It's been really well received by our clients. We can already see some bestsellers sending out, and you can -- some of them are pictured on that -- featured on that slide. Sandro continues to register strong performance with both women and men's collection. At Maje, we can underline the Russell dress, which is an amazing success which was injected with a newness and freshness in the dress category animated in several materials, color and length this season. And we continue to have strong results of the mix and bag, which is just pictured in the -- just above the dress with a new animation this season. And I take also the opportunity to mention that Maje has a little bit revamped its logo, which is a little bit more bold and rounded. As Claudie Pierlot, the positive reaction on the pieces of this campaign, such as the very cute cardigan on this slide, shows that the realignment of product image and commercial results is progressing, and we're really proud of that. Finally, at Fursac, the good results of some pieces of elegant casualwear is also in line with the enlargement of the offer beyond formal wear, and we can also note the success of the first runway show that took place earlier in January. Now key initiatives of the last quarter. The capsule, usually, the Q4 is a good season to launch some capsules to animate the end of the season. On Sandro, you had a winter escape collection that was shot in the French Alps. Quite beautiful and sleek scenery was amazing step to showcase those products, and Maje is brand that loves to party. We -- you have the picture of the party capsule that was introduced in store for the year-end and which is the occasion for gifting and parking. Claudie Pierlot, a few pictures of the presentation that took -- of the spring summer collection that took place during the autumn, blending the codes of the brand with the summary feeling, and it was a very big success. And Fursac presented the collaboration with Mephisto, the shoe company, around the dribbler, the dribbler shoe, which is famous for skater. And there was a big success, especially on digital in the U.S. combining style and comfort. Page 14 now. We always work on engaging more with our consumer, especially on the social networks. So an elevated Q1 strategy with very interesting KOLs, such as Damiano David, the leader of the Maneskin rock group or Clara Luciani, a famous French singer, and on Fursac, Rufus Sewell as well as Pete Doherty who was a close friend of the brand has been featured recently. Q4 openings, with retail partners that increasing the retail partner activity is also a key strategic act for the -- for our group, and we opened some interesting stores in South Korea, in Kazakhstan, which is a new country for the group. And in Riyadh in Saudi Arabia for instance, as well as we already anticipated last year the first opening in India that took place in January for Sandro and Maje, and with this new country, we have now officially reached a presence in 50 countries around the world, which is also for us a strength to be very well developed worldwide and to be able to balance geography for our brands. I will now leave it to Patricia to go more into detail in the figures.

Thank you, Isabelle. Good evening, everyone. So let's start with more details on sales on Slide 18. France, first, sales at EUR 418 million, progressing 1% versus last year with the strong performance of Sandro and Maje outperforming market indices. The second semester was initially impacted by the organization of the Olympic Games during the summer, which disrupted a bit the activity, particularly in Paris before a recovery in the fourth quarter, driven by an increase in store traffic and the higher influx of tourists contributing to a return to like-for-like growth. The network remains roughly stable with 2 net openings. In EMEA now, with the sales at EUR 403 million, progressing 3% organic, driven by like-for-like, which was positive in almost all our retail markets. The growth was supported by increased traffic and a continued reduction of discounts. This performance was particularly strong in corners. Partners also reported strong results, especially in the Middle East. The region recorded 19 net closures during the year, mainly reflecting Claudie Pierlot's network optimization strategy. In America, on Page 19, sales at EUR 183 million, are growing 6% organic versus 2023. This growth remains consistent and quite strong throughout the year. In highly promotional environment, the group maintains strict pricing discipline with more than 2 points improvement in the average discount rate. In the U.S., like-for-like sales grew particularly in physical stores. In Mexico, sales showed strong performance. Finally, the network is growing in North America with 11 net openings. In Asia, sales stood at EUR 208 million, minus 18% organic. In China, we were heavily impacted by a decline in traffic, as you know, as well as by store closures in line with the strategy to optimize the network. The group closed 65 less profitable stores, as explained earlier by Isabelle. Our action plan also aims at revitalizing sales in the country by focusing on enhancing the desirability of brands and improving retail execution in-store clienteling experience. This led to a trend which is still negative in Q4, but much less than Q1 to Q3, as you can see on the right in the graph. In the rest of the region, sales remain resilient in several markets, we can mention Singapore, Vietnam, Malaysia or Thailand. On Page 20, you will find a bridge of EBIT between 2023 and 2024. This is not the easiest exercise and there are a lot of boxes, but it is important to understand the dynamic of the P&L. As you know, we had to face in this year, '24 some exogenous factors. You can see two of them in the first 2 brand blocks in the graph, a decrease of volumes coming mostly from soft consumption in China, and a continued inflation, notably on rents and salaries. We implemented action plan to mitigate those impacts, thanks to our tight management of gross margin, which remains at a high level and even progress. And thanks to our action plans and cost optimization linked to operating costs, including store costs, notably from closures and indirect purchases. We managed to compensate to a large extent, those external factors, as you can see from the bar in the middle. Despite all those efforts, we were exposed to some other adverse impacts. Some are one-offs and will not affect 2025 P&L, in particular, restructuring costs, especially in China. Others are the results of specific market conditions, such as the relative outperformance of channels with variable costs, corners and e-corners, which resulted in higher expenses. So for those impacts, it was not possible to compensate. So this is how we get to an adjusted EBITDA of EUR 53 million. So if we move on to Slide 21, you can see the evolution of the rest of net results versus 2023. The significant variances are from EBIT. We just talked about it. And also nonrecurring expenses, but you can see that the biggest start was booked in H1. H2 brought only minor changes. The total amount of those nonrecurring expenses for the year is nearly 100% explained by noncash impairments. The biggest part was on goodwill for EUR 22 million on Claudie Pierlot brand booked in H1, plus some store impairments, notably on Claudie and in China. As far as other lines are concerned, the increase of financial expenses is mostly explained by a level of market interest rates and spreads, which remain quite high throughout the year. But to be noted that interest expenses started to decrease in H2. And more generally, you can notice a strong improvement of net results in H2 compared to H1, starting from EBIT, which is nearly twice as big in the second semester compared to the first one, and leading to a positive net result in H2 at EUR 4 million published and even EUR 8 million excluding impairments with no cash impact. On Page 22 now, let's talk about balance sheet and cash in more detail. We are very happy with our free cash flow generation in 2024, especially in the second semester, EUR 58 million, leading to a full year generation of EUR 49 million, supported by a strict control of costs, inventories and CapEx. All our actions to manage the evolution of the key drivers of cash are bearing fruit. On the bottom of the page, you can see that the decrease of inventories contributed to an improvement of EUR 22 million, sorry, and CapEx reduction contributed to EUR 15 million improvement. Page 23, the exact mirror of the previous page, the EUR 49 million free cash flow generation results logically in a decrease of net debt by the same amount leading to a level of debt at EUR 237 million at the end of the year. It's a very material reduction. A sound one, since you can see in the detail on the right, that we have reduced our gross debt while maintaining the exact same level of cash equivalence, meaning that the cash we generated enabled us to meet debt reimbursements. Finally, debt-to-EBITDA ratio remains nearly stable compared to '23, which shows that we fully manage to compensate the reduction of EBITDA, thanks to a reduction of net debt. Isabelle, I leave it to you to conclude.

Thank you, Patricia. A few words of conclusion. '24 has been definitely a transitional year for us, where we faced some short-term challenges, we are encouraged by the strong decrease of debt that we have achieved, thanks to robust cash protection measures that of proven resilience with quarter-after-quarter improvements, reflecting the strength and desirability of our brands. We also launched a series of action plan that are already well underway. These initiatives drove short-term cost in EBIT. Obviously, we remain confident that these efforts will deliver growing benefits in '25 with the full effect expected to be realized in '26. Our approach is focused on delivering long-term value even if it means navigating some temporary expenses along the way. Looking ahead, we remain confident in the strength of our brands and in our business model, will continue to -- which will continue to deliver profitable growth. '25, we're focused on 2 main areas: like-for-like growth, as I mentioned earlier, and a continued push through our partners. These priorities will be critical in driving our success in the near term and supporting our trajectory towards our midterm goals. While it's very difficult to commit on the level of sales for '25 given the geopolitical and economic uncertainty, we reaffirm our midterm targets of adjusted EBIT margin of circa 10% and free cash flow generation of EUR 50 million. We are confident to achieve the circa 10% adjusted EBIT margin in the second half of '26 with an improvement in '25 and an acceleration in '26. Our current level of cash generation shows that we can be confident also on the target of EUR 50 million free cash flow in '26. So to put it short, '25 is on the path of '26 ambitions. In conclusion, we are confident in the resilience of our business, our strategic initiative is progressing well, and we are positioned to meet our goals. We thank you for your attention. Just one point. We will now take your question obviously. But before, I'll give you a quick update on the legal proceeds in Singapore because I know some of you might raise the question between GLAS and Dynamic Treasure. We understand that the decision following the hearing that took place early February is expected somewhere between end of March and early April. So thank you, everyone.

Thank you. So I think we can start the Q&A session now.

[Operator Instructions]

Maybe while people get prepared to asking some questions, and don't be shy, we have the first one -- written question. So there was a question on Singapore, Isabelle has already answered. There is another one on the current trading in January and February. Could you please elaborate on the trends by geographies for the beginning of the year?

No secret that the market is not very supportive currently in all areas due to the uncertainty that prevails from geopolitics and from macroeconomic situation, obviously. That being said, in this complex environment, we continue to work on the best retail execution possible. The 4 brands had an encouraging start of their respective consumer collections. From what we see in retail panels, we continue to gain market share in France. We continue to be positive in EMEA, and we start seeing a stabilization of like-for-like in China. I think that -- that's what we can say at this stage. And that's what I can say at this stage, yes.

Thank you, Isabelle. We have another question from Marie-Line from Bernstein. In China, do you see any positive signs of recovery? Could you elaborate on first encouraging KPIs in China mentioned in the presentation?

To answer to that, Marie-Line, I would say that it's always difficult to comment China at the beginning of the year because the timing of Chinese New Year changes every year. So you never have really very faithful comps in this time of the year. Let's say that it's in line with the last week of December. We start seeing a stabilization of the like-for-like network and improvement of the like-for-like. We are tracking it as the only relevant KPI. What is interesting is that we see that improvement month after month. And that clearly is the result of the traction of the network. And I think we did it probably earlier than the competitors. So I think we maybe are seeing the fruits earlier than competitors. But that being said, we have closed 65 stores. So obviously, there is an impact that -- the few many stores to be closed will be still in H1. So -- but going forward, I mean after that final wave of closing, we will have a rational basis for like-for-like to be monitored.

Thank you, Isabelle. We have another one from Marie-Line. At the group level, the network optimization cut sales by EUR 16 million in '24, should be the same magnitude in '25, 2025?

Well, yes, likely -- I think we can assume that this figure is a good proxy of this -- of the impact in 2025. There's another question from Marie-Line about impact on tariffs on the business in U.S.A.

There is every day views on that part. I can answer for the time being on the Chinese tariff to start with. It's something that we had anticipated even before the results of the election. So I would say that it won't have a big impact on '25 because we have already a big part of the spring summer collection ready and a big part of the full winter collection that has been already in the process. We have only part of our production in China. So we've been monitoring the situation, both by negotiating with the suppliers, our main suppliers in China to mitigate that risk, by a few price adjustment if needed. So somehow, it's a risk that we really have mitigated and that should be very limited.

Thank you, Isabelle. We have another one. So what is the precise amount of restructuring one-off costs in 2024 factors in your OpEx?