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

Welcome to the SMCP 2025 Half Year Results Conference Call. My name is Alan, 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 IR, to begin today's conference. Thank you.

Thank you. Good evening, everyone. Thanks for being with us today for the publication of SMCP half year results. I'm here with our CEO, Isabelle Guichot; and our CFO, Patricia Huyghues Despointes. You can listen to the publication via the usual conference call, or you can connect to the webcast to watch the presentation displayed. 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. And I think we can start now.

Thank you, Amelie. Good evening, everyone. Thank you all for joining us today to talk about H1 '25 results. Last time we talked about results for last year annual figures, we told you how much '24 has been a challenging year, but we also told you mostly about strong action that we've taken to navigate this tough environment. First semester '25 is, I think, the demonstration that those actions were the right choices, translating in a significant recovery. While there is still a way to go to reach our targets, the recent months make me think that the path we took is the right one, and I will show you why. In a nutshell, I think that H1 performance is quite healthy, especially if we compare to the market, and healthy because all KPIs are green. Top line is solid, 3% growth for H1 despite network rationalization, especially in China and marginally in other geographies. Profitability is recovering in a very healthy way. It's true that '24 was a low point, for sure, and we have the objective to recover as quick as possible. In H1 '25, adjusted EBIT margin in percentage of sales more than doubled and net profit turned back to positive. And finally, cash indicators are also excellent with a record free cash flow generation for the first semester, which is traditionally not the best one in the seasonality of our cash. Let's move on to Page 5, where I will focus on key figures about sales performance. You can see that our half year revenue came at EUR 601 million, an increase of 3% at constant FX versus last year and 2.8% like-for-like. Here are the main takeouts of the H1 sales. Sales was supported by growth in all regions, except China, still impacted as anticipated by the full year effect of the network optimization we initiated in '24. Second quarter sales performance was led by a very robust growth in America. Q2 positive trend is in line with Q1, even slightly better, despite a higher base of comparisons than it was in Q1. We definitely stick to our full price strategy with once again a 3-point decrease of average discount rate in season despite good comps. This was especially the case for Maje Europe throughout the semester, and in China especially in the second quarter. Our digital share remains at a satisfactory level, above 20%. And we also have to take into account that the network decreased by 20 POS in the first semester. This is coming from Q1. In Q2, the network was pretty stable. To be noted that during the semester, we continue to progress in our development through partners with the opening of 6 new countries, India and 3 countries in the Balkans, Croatia, Montenegro and Serbia, Jordan and the Philippines in Q2. Page 6, let's go a little bit more granular about revenue evolution. Here's the bridge between H1 '24 and H1 '25. It's mostly green with only one significant red box, which is pretty much anticipated and logical, which is the network optimization that I mentioned before. The increase of sales is driven mostly by comparable stores and wholesale development. The like-for-like network is increasing by 2.8% and brings EUR 14 million additional sales coming mostly from Europe and America. Other network evolution growth come from a few openings in '24, especially in the U.S. And reflecting our strategy of agile development with retail partners, wholesale revenue are increasing by EUR 12 million coming at the same time from like-for-like stores, new addition in countries already opened and new countries. Network optimization in China and focus of Claudie Pierlot accounts for a decrease of 11 million of sales compared to last year. And finally, foreign exchange effect is negative by small amounts of EUR 2 million, representing 0.3 points, but with a very different profile between Q1 and Q2, nearly neutral for the total of the semester. Moving on to Page 7 now, you will find the performance by region. Patricia will get back into more detail later in the presentation, but a few highlights. By region, Europe gained 1 point versus last year and now represent the same share as France. America gained 2 points and reached 16%, the highest share ever for SMCP. By brand, no big variances compared to 2024 split. And by channel, Q2 confirms Q1 trend and wholesale increases by 2 points versus last year, in line with our strategy. On Page 8, you will find some key figures on P&L and cash. Additional details and bridges will be also given by Patricia later on. I will just highlight the following messages. Gross margin ratio remains at a high level, above 74%, in line with last year. The impact of wholesale activity on gross margin is compensated by the strong retail margin, supported by the strict full price strategy. Adjusted EBIT improved strongly from sales increase and cost optimization action plans. This results in the net income back to positive territory at EUR 11 million and a strong free cash flow generation of EUR 33 million, the highest level ever in H1, leading to continued deleveraging with a net debt reduction of EUR 32 million in the semester and EUR 87 million over the last 12 months. So this was for the big picture in terms of figures. Before Patricia, let's move on to Page 9. Before Patricia goes more in detail the figures, as usual, I will present you our main initiative and achievements of the semester. I will start with Claudie Pierlot with a very -- with an achievement we're really proud of, which is the B Corp certification for the brand. As I mentioned in April, we are very proud that the -- of the Claudie Pierlot team for achieving this certification with a score of -- outstanding score of 96.7 points, well above the required 80. On Claudie Pierlot, we are honored to join a community of conscious and committed companies. The score is based on 5 key pillars: environment, employees, communities, governance and customers. This certification is not an end by itself, but a long-term commitment to continuous improvement. Key initiatives now in terms of brand desirability in over the last quarters, Spring-Summer '25 Sandro pays tribute to the Franco-American artist Louise Bourgeois, a key figure of the 20th century art scene. Evelyne Chétrite draws inspiration from Bourgeois' iconic spirals to create -- and spider webs to create an exclusive capsule of fluid natural material pieces. To bring this capsule to life, Sandro launched pop-ups in -- everywhere in the world from Dubai Mall, Shanghai, Galeries Lafayette, creating dynamic spaces that celebrate both art and craftsmanship. And we have some illustration of key windows that were implemented over the world. For the summer, at Maje on Page 11, Maje is more committed than ever to craftsmanship, partnered with an iconic Côte d'Azur and Saint-Tropez shoemaker K. Jacques. Together, they have designed 2 exclusive pairs of sandals made in Saint-Tropez to accompany women with a distinctive French elegance. The collaboration came to life both through content shot on the Côte d'Azur and in K. Jacques Saint-Tropez workshop as well as through a pop-up at the Le Bon Marché and customer events on the Riviera. Page 12, some illustration of very limited keyword strategy, which is visible on the slide. Sandro made numerous elegant appearances during events, among with -- along which the Cannes Film Festival or Roland-Garros with influential opinion leaders and celebrities, boosting brand visibility. You have, for instance, Eva Longoria there, Shia LaBeouf or Virginie Ledoyen. Then Maje, shown on the red carpet with looks worn by Diane Kruger in the black tulle dress from the Fall Winter Collection, and Iris Law in a custom-made outfit at The Carlton during the festival. Meanwhile, Bella Hadid was spotted in London wearing Maje double-buckle slingback heels for the launch of her new fragrance, Orebella. And then Fursac is regularly featured by key opinion leaders who appreciate its mix of timeless tailoring and modern style. You have here Julien de Saint Jean and Renan Pacheco. The organic mentions help strengthen the brand visibility and appeal among a wider, fashion-aware audience. On Page 13, moving to the commercial strategy, in line with our target of reinforcing our network with partners, we opened some stores in -- very interesting stores in new countries in Philippines for our 2 brands, Sandro and Maje, in Greenbelt, Makati. And also, Jordan, as I mentioned earlier, Sandro and Maje. Maje opened this quarter and Sandro will follow in the coming months in the Taj Mall in Amman. With these 2 new countries, we are strongly reaffirming our expansion strategy with retail partners. Page 14 now, we reinforced our presence in Thailand, in Phuket and in Egypt, for example, at Almaza City Centre in Cairo. I will now leave it to Patricia to give more details on H1 figures. Thank you.

Thank you, Isabelle. Good evening, everyone. So let's start with sales on Slide 16. France revenue stands at EUR 207 million for the first semester, progressing 2.3% versus last year. Like-for-like network rose both in brick-and-mortar and in digital, reflecting a good dynamism across all channels. The trend of decrease of discount rate has continued, especially for Maje and Claudie Pierlot. Q2 sales amount to EUR 105 million, stable compared to Q2 '24, which was a relatively high basis of comparison with a plus 6.5% versus prior year. The network decreased by 16 net units during H1, of which 7 in Q2, notably due to the network optimization at Claudie Pierlot. In EMEA, H1 sales at EUR 204 million progressed 6% organic, driven by like-for-like growth in retail, which is positive in nearly all markets and very homogeneous in Q1 and Q2. And by wholesale performance, which is dynamic, but with some timing effects between Q1 and Q2 on deliveries to partners. The network grew by 19 net openings during the semester, of which 14 in Q2 coming mainly from the openings of new countries through partners, as Isabelle just explained. On Page 17 now. In Americas, sales at EUR 94 million in H1 grew by 12% organic versus last year and by 22% in the second quarter, driven both by price increases in the U.S. and also mainly by higher volumes. All 3 markets of the region grew in retail with a positive like-for-like in both the U.S. and Canada and in our partner activity with a particularly robust growth in Mexico. And all this despite the network down by 25 net closures over the semester, including 5 in Q2, mostly from the closure of Hudson Bay Corners in Canada, which should be replaced by a new partnership soon. So a very strong Q2 in America indeed. Now let's be clear, we are, of course, very happy about this performance, but it's wise to anticipate that it will be difficult to replicate in Q3 with a relatively high comp. Finally, in Asia, sales stood at EUR 97 million in H1, minus 8% organic. Just like in Q1, the decline in sales is linked to the full year effect in '25 of the network optimization that we performed in '24, especially in China. You may remember that we had closed 65 stores. However, like-for-like sales are stabilizing in brick-and-mortar in the first half of the year despite a very strict approach on discounts, especially in the second quarter. In the rest of the region, several markets have shown good resilience, Singapore, Vietnam, Malaysia, Thailand and new markets such as India, Indonesia and Philippines have an encouraging start. No significant evolution of the network this year. On Page 18, let's have a look at the bridge of adjusted EBIT between H1 '24 and H1 '25. If you look at the full P&L in appendix, you will see that all major P&L lines contribute to the positive evolution of EBIT, including gross margin, store costs, SG&A and D&A. If you analyze where it comes from, you can see from the graph that we benefit from the following factors: positive volume effect, bringing additional gross margin in retail in the U.S., for example, and also thanks to our development through partners. In the middle, the impact of cost optimization plans, which start to bear fruit from network rationalization, production process optimization and also renegotiations of indirect purchases. And finally, some one-off impact from 2024 in connection with store network optimization do not happen anymore in 2025. What's particularly important to highlight in this slide is that the entire incremental revenue, plus EUR 16 million between H1 '24 and H1 '25 and even more translates into EBIT, which increases by more than EUR 23 million. As far as adjusted EBIT margin in percentage of sales is concerned, at 7.1% of revenue, the increase enables us to more than offset the fall of profitability that has taken place in H1 '24, and it also underpins our target of getting back to circa 10% adjusted EBIT margin in H2 '26. On Page 19, you can see the evolution of the net results versus '24. Apart from adjusted EBIT explained in the previous slide, the main change is on nonrecurring expenses with much lower effects from impairments this year. Maybe less significant but encouraging, we have also a positive trend in financial expenses, mostly explained by the reduction of our debt. Income tax obviously gets back to an expense from a positive pretax income. And in the end, we are back to positive net results of EUR 11 million. On Page 20, you will see our usual KPIs about balance sheet and cash. We are very happy with the free cash flow generation in H1 at EUR 33 million, more than EUR 40 million above last year, supported by better operational performance, efficient cost management and continued control of CapEx and inventories. Inventories continue to decrease by 13% compared to the same period last year. Logically on Page 21, it's the mirror of the previous page and free cash flow generation enables us to decrease net debt by comparable amounts versus end of '24 from EUR 237 million to EUR 206 million. This deleveraging is also quite spectacular compared to same period last year, with net debt down by EUR 87 million versus H1 '24 and debt-to-EBITDA ratio down from slightly above 3x to 1.9x in 12 months. During the semester, we have also regained maturity in our financing, thanks to an extension of our main facility, which is the term loan plus the revolving credit facility. Our contract enabled us to ask lenders a 1-year extension, each bank being free to accept, a vast majority accepted, and a significant portion of this facility is now extended to 2027.

Thank you, Patricia. Now a few words of conclusion. As you've seen, we've delivered a strong sales performance in H1. This growth, particularly on a like-for-like basis, has played a key role in improving our cost absorption, strengthening our operating leverage and supporting the resilience of our business model. I'm also glad to say that our strategic action plan are starting to bear fruit. Thanks to disciplined execution and clear priorities, we've seen a tangible improvement in our EBIT margin, putting us firmly on track to achieve our H2 '26 guidance. In terms of cash generation, the performance has been equally solid. Free cash flow generation was strong, enabling us to make -- take further steps in optimizing our financial structure. As a result, we've seen a notable reduction in net debt and a clear improvement in our leverage ratio, which reinforces our financial flexibility moving ahead. Looking forward, we remain fully focused on executing our action plan, both on top line growth and cost management. And I take also the opportunity to thank the whole team at SMCP, all our managers, our COMEXES, our management committees and all the teams in all stores in the world for their incredible dedication and fighting spirit for the brand they work for. In H2, we will also gradually fight against stronger comps. But while the external environment remains uncertain and challenging, our objective is clear to confirm in the second half, the positive momentum demonstrated by our brand in the first half of the year. And now before I preempt the question that I know will obviously come on the plate, a few words about our legal proceedings. As you remember, the Singapore High Court decided on July 4 to order Dynamic/DTG to return to European TopSoho/ETS the 15.5% stake of SMCP, which had been transferred in 2021. DTG had to comply with this order within 1 week following notification performed on July 8. We understand that DTG did not comply with this order in the required time frame and that GLAS has, therefore, initiated forced transfer procedures. We'll obviously keep the market informed about the next update. Thank you.

Thank you, Isabelle. Operator, we can take the question now.

[Operator Instructions] We will take our first question from Marie-Line Fort, Bernstein.

Congratulations on this very good set of results.

Thank you.

Of course, I've got some questions about U.S., Americas. I'm just wondering if there is extra profit in H1 due to the fact that you passed on price increase without having immediately the impact of tariffs. So just trying to measure what could be balance on the second half? And also, do you think that the price increase you passed during the first -- the second quarter would be enough to mitigate the increase in tariffs on the second half? That's my first set of questions about U.S. The second part of the question is about trading, current trading. I remember that last year, Q3 was under pressure, particularly in France due to the Olympic Games. Just wondering if you see some sign of improving. And also in China, we are hearing that there is some recovery there. Are you perceiving some signs of improvement also?