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

Welcome to the SMCP 2025 Q1 Sales Conference Call. My name is Alan, 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, [ Emily Denis ], Head of IR, to begin today's conference. Thank you.

Good morning, everyone. Thanks for being with us today for the publication of SMCP Q1 sales. I'm here with our CEO, Isabelle Guichot; and our CFO, Patricia Despointes. You can listen to the publication via the usual conference call or you can connect to the webcast to the presentation displayed. 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, Emily. Good morning, everyone. Thank you all for joining us today to talk about the Q1 sales with first, the key highlights and figures and business initiatives. Then I will hand over to Patricia, who will detail our performance by region, and I will eventually come back for a quick conclusion. Moving on to Page 4. You can see that our first quarter sales came at EUR 297 million, representing an increase by 2.6% at constant FX versus last year and plus 1.8% like-for-like. The first quarter performance was supported by growth in all regions, except Asia, which was pretty much expected considering the impact of the network optimization that we initiated last year and that clearly has an impact on sales. Other points worth mentioning are the following: the pursuit of a full price strategy with once again a significant decrease of discount rate in season by 3 points despite good comps and despite a challenging environment. This will sure help us drive gross margin and in context where it's crucial to have a strong pricing power, this demonstrates the strength of our brand in this respect. Our digital share stands at a satisfactory level above 20%. The network goes down by 22 POS during the quarter. This is notably linked to Clodipiello network optimization in Europe, but also explained by the closure of HPC Corners in Canada, leading to a temporary decrease of store counts before a new partnership in H2. In parallel, the retail partner plan is accelerating with openings in key markets such as India, The Balkans and Saudi, leading to wholesale share above 10%, slightly above 10%. Moving on to Page 5, you will see a detailed bridge of the sales evolution between the first quarter '24 and '25. It is mostly green with only one red box, which is obviously the network optimization, but which was anticipated. The increase of sales is driven mostly by comparable stores and wholesale development. The like-for-like network is increasing by EUR 4 million and 1.8% with a positive evolution in Europe and of course, stabilization in China. Other network evolution growth come from the opening of 2024, especially in the U.S. Reflecting our strategy of agile development, wholesale sales are increasing by EUR 8 million, driven by our retail partners. Network optimization in China and Foco DiPiolo accounts for roughly a loss of EUR 6 million of sales compared to last year. And finally, FX is positive by EUR 2 million, representing 0.8 points. Page 6, you will find the performance by region, which shows that the group has demonstrated the strength of its geographical footprint with the capacity to navigate macroeconomic uncertainties. Patricia will get in more details later in the presentation. But just a few highlights on the sales breakdown. By region, no major changes versus last year as anticipated and due to China network optimization, Asia loses 2 points and symmetrically, Europe gains 2 points. France and America keep their position in the mix. By brand, we can highlight the strong performance of Sandro gaining 1 point versus last year. And by channel, wholesale increases by 2 points versus last year, in line with our strategy. Retail network continues to represent the largest part of our business at nearly 90% contribution. Before we move to brand initiatives, I would like to take some time on our CSR achievements. Now that we have finally -- finalized the computation of all KPIs featured in our first CSR report, let me present to you some key figures of '24. First, the product, the first pillar of our strategy. We have improved on many aspects traceability, use of certified materials and products with lower environmental impact. I won't comment all figures, obviously, that you have on the slide and rather underline that for all 3 KPIs, we have improved by 10 to 15 percentage points between Fall/Winter '23 and Fall/Winter '24. On the planet pillar, let me highlight a few KPIs in relation with our continued efforts to reduce CO2 emissions. The main lever comes from an increase in the share of certified and recycled materials in our products. I also mentioned the positive impact of the optimization of inventory management, which is something I find particularly interesting since it shows that what is originally considered as a financial optimization can also lead to environmental progress. All those initiatives lead to a minus 20% emission in 2 years, which is a very significant step in line with the trajectory validated by the SPTI. Finally, on the last pillar, people. With the enhancement of internal mobility, this is a key focus on our HR policy as we are a retail-driven company. And we try to offer opportunities to our talents to grow within the group. Notably, more than 2/3 of our store managers came from internal promotion in 2024. And last but not least, we are very happy that Claudia Pielo obtained the B Corp certification. I'm proud of the teams of Claudia Pielo for this achievement. They demonstrated a lot of tenacity, but above all, an amazing authenticity in this process. This certification will be soon communicated by the plan with the ability to get that. I will now present to you some key initiatives illustrating our brand desirability. Moving on to Page 8. As usually, this time of the year, we do -- we did some Ramadan Capsule for Saint Laurent and Maj with very successful results. 2 different styles with nice knitwear and sandal silky dresses at March with, as you can see, local content activation, highlighting our global marketing approach -- or local, sorry, marketing approach. Saint Laurent and Maj, moving on to Page 9, also presented their Lunaria capsule collection designed to usher in the New Year with style, inspired by the Snake, the Zodiac of this year, which symbolizes wisdom, intuition and transformation. The 2 brands creatively blended Eastern tradition with Parisian elegance to craft those collections. Now moving on to Page 10. The first quarter is also this time of the year where we present our new collection, next collection. Let's start with Sandro, which unveiled its autumn/winter 2025 collection in the heart of the iconic Musee Bordell located in Montana in Paris, surrounded by the sculpture of Antoine Bordell. This immersive works offer guests a unique experience where heart, history and fashion collide. The intimate and inspiring atmosphere of the museum transformed the presentation into a celebration of culture and elegance. Next page, Maj presented its upcoming autumn/winter collection in its Paris showroom during Paris Fashion Week. This season, the setup moved our guests around the luggage belt of the Maj Airport. The collection captures the spirit of the Maj woman who will effortlessly navigate between timeless elegance and vibrant and cool energy. Claude Pierre Laut, painful winter collection on Page 12. Claude Pierre Laut featured a lineup of reinvented uniforms in the middle of a book store, a very nice setting in a place looking towards to the future with a bold inspiration and combination on the silhouette designed to reflect the everyday life of a woman. And last but not least, there was an important moment for FRSAC. FRSAC did its first runway collection during Men's Fashion Week at the end of January. It was the first time with this format of presentation with a balance between a classical wardrobe and some more fashion silhouettes. First picture, for instance, is this example, mixing a very qualitative material with badges at ornament on the shoulder. Q1 was also, as I mentioned, an important semester -- an important quarter in terms of partnership activity. You can see that the main partner openings in Q1 with was India, we spoke a lot about it. We opened 2 physical stores and 2 websites. This is still the beginning, but the launch is very encouraging, and we have very good relationship with our partner. We are confident in our common ability to develop and grow our brands on this very promising market. Page 15, other very nice openings with our partners in Saudi Arabia, Solitaire in Riyadh for both brand -- both Maj and Sandro and also in Chipotra World in Surabaya in Indonesia for Sandro. So you can see Q1 was a particularly rich quarter, full of initiatives and achievements. I now leave it to Patricia to go more into detail into revenue figures.

Thank you, Isabelle. Good morning, everyone. So some more details on sales on Slide 17. With France first, sales at EUR 102 million in the first quarter, i.e., an increase of 4% versus last year. The Group recorded a slightly positive performance on a like-for-like basis, driven in particular by a strong momentum at Sandro. Sandro and Maj continue to gain market shares, confirming their desirability and the strength of their competitive positioning. Meanwhile, the other brands are evolving in line with the Group's average. The strict full price strategy is ongoing, especially at Maj, which has sharply reduced its average discount rate. Finally, the network recorded 9 net closings during the quarter, particularly at [ Prodi ]. In EMEA now with a sales at EUR 98 million during the first quarter, an organic increase of 9% compared to Q1 '24, reflecting a good performance in the key markets. All the brands recorded a positive performance on the like-for-like brick-and-mortar network, especially in retail markets like the U.K., Germany and South of Europe. Moreover, activity with our partners, particularly in the Middle East and in Turkey is also showing strong momentum and contributes to the region's growth. 5 additional points of sale in the store count during the quarter with, in particular, the opening of new markets through partnerships in Eastern Europe, Croatia, Montenegro and Serbia and also in growing markets such as Saudi. In America, on Page 18, sales reached EUR 44 million in the first quarter. In a tough context and against a high basis of comparison with a plus 9% last year, the Group delivered a resilient performance with organic growth of 2% compared to Q1 '24. In the U.S. sales growth was supported by recent store openings. Activity was impacted by the fires in California as well as an increased volatility in consumer sentiment. But on a more positive note, the average discount rate improved by approximately 3 points, reflecting continued discipline and strong brand desirability, which will no doubt be a strong asset in this increasingly complex environment. In the rest of the region, Mexico maintained its growth momentum and Canada, as Isabelle explained earlier, accounts for most of the decrease in the store count with HPC Corners closed a few weeks ago. In Asia, sales reached $53 million in the first quarter, decreasing by 10% organic versus Q1 '24. The sales decrease is linked to the effect of the network optimization in China. As a reminder, we closed 65 stores in 2024. However, after several quarters of decline, sales are stabilizing in China on a like-for-like basis for physical stores. This stabilization is in line with our expectations and is supported by improving retail indicators, including a continued increase in conversion rate. In the rest of Asia, sales remained resilient with a positive trend, particularly in Malaysia and Thailand and a slightly negative trend in South Korea and Singapore. The region added 2 points of sales during the quarter with the opening of India.

Thank you, Patricia. The key takeouts that I want to highlight before the Q&A session are the following. First, Sando and Maj are continuing to gain market shares across Europe. This shows strong momentum and increasing customer preference for our brands, and we're really happy about it. In China, our strategic action plan is starting to pay off. As you remember, we are among the first groups to start resizing our network early last year, and it starts also to pay off. We're seeing the first tangible results with like-for-like stabilizing in our brick-and-mortar store, a key milestone for our recovery in this very important market. In the U.S., our brands continue to show strong resilience despite the challenging market environment, the strength and relevance of our operating model is confirmed. We've also enhanced our overall desirability and momentum through impactful new collection launches, as I've featured before, successful collaboration and continued international rollout, thanks to our strategic partners. On the ESG front, we've hit several robust milestones, reinforcing our long-term commitments as stated in our first sustainability report recently published that I encourage you to read. Looking ahead, while we remain cautious due to external factors like macroeconomic volatility and ongoing tariff uncertainties, we are confident in the strength of our brands. We will maintain a disciplined approach to operating margin and expenses, ensure sound cash management and continue to prioritize operational agility. I thank you for your attention, and we'll now take your questions.

We will take our first question from Marie-Line Fort, Bernstein.

My first question is about China. Just wanting to know how business recently evolves there? Do you see a new recovery in the traffic? And is there a difference between your performance -- between your brands and between the different regions? The second question is about your store closure policy. Do you think you are at the end of the process? And lastly, sorry to bother you on this hot topic, but have you got any news about the Singaporean decisions and about any calendar?

Okay, Marie-Line, thank you for your very comprehensive set of questions. First, to start with China, I would say that, as we mentioned, we're now coming back to flattish like-for-like in China, and it was really -- the idea behind all the plan that we started last year approximately at the time when we flew to China to start negotiating with vendors a downsizing of the network. And I think it's exactly what we wanted to achieve. Now it's -- we see quite -- between brands, we don't see any major differences nor do we see any major differences between regions. I would say that the only thing that we see a little bit the slight I would say that the brick-and-mortar trend is a little bit better than the digital trend. Digital trend is more volatile in China. And that's very reassuring to see that the brick-and-mortar trend is really coming to a good threshold of stabilization. So that's the comment I can make. In terms of traffic in stores, I mean, it's also very -- I mean, the first quarter, you have all that -- the Chinese New Year timing that definitely has an impact, and you have a lot of holidays and some promotion here and there. So I would say that we see a slight recovery in traffic, yes. The second question was...

Was on the network.

I can take it, Marie-Line. On the store closure policy, so I would say that if we speak on a year-to-go basis, we still have about a dozen of closures in Asia expected and around 10 for Clodipierre Lau in Europe. That being said, this will be partly compensated by a good pipe of openings that we have to go in -- with partners, meaning that the total network of point of sales for the end of 2025 should be stable or just slightly negative with some closures in DOS and some net openings in POS. Then...

16% [ saga ]. What I can say, as you know, I always remind you that we're not taking part in this proceeding. So it's -- our understanding is that early April following the hearing of February in Singapore, a decision was issued with positive conclusion for glass with, one, the lift of the freezing order on the shares; and two, the custodian bank has been joined to the case. We understand that hearing is scheduled end of May now in relation to the return of the 16%. That's all we can tell you at this stage. And I hope it answers your question, Marie-Line.

We will take our next question from David Da Maia, CIC.

Two questions for me, please. The first one on your full year '25 sales outlook and the second one on your gross margin. So the first question, I fully understand you don't want to provide any guidance for the full year given the current context. But focusing on what you can control, is it fair to assume that the wholesale positive contribution to your organic growth will continue to totally offset the negative impact from your ongoing network optimization plan as it was already the case in Q1? That's the first question. And the second one on your gross margin for H1, you have reinforced your full price strategy in Q1. So this should support your gross margin in H1. I understand you are still in the process of reviewing the impact of U.S. tariff on your P&L. But can you tell us maybe the main initiatives you plan to implement in order to mitigate the potential impact on your profitability? For example, are you planning to increase prices in the U.S. or maybe changing the mix of your sourcing in the coming months?

Thank you, David, for your questions. As you know, we're not providing any guidance on the sales forecast for global year. As we mentioned -- as I mentioned in my conclusion, it's -- we're trying to monitor and we try to manage our coming quarters with a cautious approach and trying to -- with our geographical balance and footprint to be able always to mitigate the risk arising in one area by our potential ability to recover in other areas. So that's all we can say for the time being. I will hand it over to Patricia on the gross margin with one point as an introduction because I think it's an important point. We've already passed a mid-single-digit increase in the U.S. depending on products to spread the impact over the year to avoid to have too a significant step for fall/winter. So you keep in mind that it's important -- you keep in mind that U.S. represents less than 15% of our sales and that the spring/summer collection has already arrived in the U.S. So for 2025 tariff would not impact all these products. We have a few weeks now left before fall/winter collection would be in store to decide what we're going to do for the next collection. And depending on the final decision, we'll see, but we've already taken some protective measures to secure our gross margin, and that gives me a perfect transition to Patricia.

Thank you, Isabelle. So regarding gross margin, David, I would say that the main elements of this H1 regarding gross margin are the positive impact first of the decrease in average discount rate, which continues. So this is impacting favorably our gross margin ratio. On the other hand, we have a mix effect of a bit more retail partners sales in the sales mix. This aspect of our activity yields a lower gross margin ratio than the average. But as you can imagine, it's also much less cost. So as far as the EBIT margin is concerned, of course, there is no negative impact. And the third one is about tariffs. But as Isabelle explained, we have already implemented an increase in prices to mitigate the impact and spread it over the year.

We will take our next question from Marie-Line Fort, Bernstein.