Fnac Darty Sa Ord

Good afternoon, ladies and gentlemen. Welcome to the FNAC 30Q1 Revenue Call 2022. I'm Benoit. I'll be your coordinator for today's event. During the call, you will be in listen mode only, but you can ask questions at the end of the call. You can do so by pressing star 1 on your keypad to record your question. If you need assistance, please press star 0. that will connect you to an operator. I'd like to give the floor to Mr. Jean-Brieuc Letinier, CFO of the group, to begin today's call. Thank you. Hello, good afternoon, everyone. Thank you for taking part in our Q1 revenue call. As usual, our press release, as well as our presentation, which we're going to comment on during this call, are already available on our website. The investor relations team is at my side with Stephanie and Marina. First of all, I'd like to give you an overview of the group's performance in the first three months of the year. After that, we'll be happy to field any questions you may have. I'm going to begin the presentation by talking to you about the main achievements in Q1. Firstly, FNAC.t held up very well in Q1 in terms of sales, only slightly down by minus 2.5 like for like, in spite of a very high comparison basis, because we've booked growth and sales of plus 21.7% in Q1 2021. Compared to 2019 pro forma, the group is still seeing strong growth and sales of 7.8%. According to most recent figures by the Bank of France two days ago, the group has continued to outperform the French market in the first quarter of 2022. Secondly, this performance is a result of strong growth in in-store sales. In the context when all stores are open during the quarter and online sales continue to be buoyant, making up 23% of group sales. I'd remind you in Q1, level of online sales is still lower than the annual percentage due to the seasonal nature of our business. Furthermore, click and collect. which is key to our omnichannel business model, still makes up over one online sale out of two, which is 47% of online sales in Q1 2022, up six points over a one-year period. Thirdly, the group managed to achieve its quarterly gross margin, growing more than 40 basis points compared to Q1 2021, driven in realia by the positive contribution from services and continuation of the rollout of DartyMAX, as well as a resumption in ticketing business. There's no significant impact from the franchise on the growth margin this quarter because business level has come back to a more usual level. Lastly, we signed two major strategic partnerships this quarter in the area of digital and data, firstly with Google and secondly regarding repairs with Apple. These are two major pillars in our everyday strategy plan, which I'll come back to in a few moments. Before delving into detail regarding our performance, I'd like to recall to you that we paid a one-time cost-of-living bonus to our employees who are the hardest hit by the current inflationary context. This means over 19,000 employees, which is approximately 80% of group employees. By the way, the illustration in France, this bonus was 400 euros for an employee who receives gross annual salary below 35,000 euros. All in all, impact on our current operating income this year will be above 6 million euros. Furthermore, the ratings agency's standards and scores and scope recently upgraded by one notch our rating. It's WB plus and BBB, respectively, outlook stable. We're highly satisfied at these upgrades, which underscore the sound financial management at FNAC-DRT in the context of this crisis. Now to go into detail, talking to you about our sales performance in this group, region to region. This is slide three. The France-Switzerland region is showing good resistance, like for like minus 2.8%. This is thanks to good in-sales stores. Online sales are normalizing. Most stores open in the first quarter. In this geography, the group continued opening new stores in Q1-9. new points of sale, including seven franchises. Furthermore, in Switzerland, we're rolling out a partnership with Manor, continuing this in accordance with our plan, additional opening of seven shops and shops snack within Manor, established in German-speaking Switzerland. As of end of March, we have 20 shop and shop snacks in Manor, still targeting 27 shop and shops by the summertime. In other geographies, sales are up in the Iberian Peninsula, up 7.4 percent, demonstrating continued gradual recovery in the geography, which had been harder hit by the health crisis. Lastly, the area of Belgium, Luxembourg, down minus 8.6% like for like, impacted by a high basis for comparison, as well as flat consumption levels and particularly high inflation. Let's talk about performance by category. Household appliances down this quarter mainly due to a drop in volumes in the market. as foreseen by most recent Bank of France figures, and also a strong comparison base. Large appliances are up. Technical products, good momentum in telephones, audio, photo, more than offsetting the drop in some categories that had been required previously for remote working and learning from home in conjunction with the health crisis. Publishing products growing strongly due to renewed in-store traffic. and very good online book sales, driven by the culture pass in France, which was extended to middle schoolers, as well as people's interest in comic books and mangas. Audio and video and also vinyl records performing well, gaming slightly down due to stock shortages of the most recent console generations. Lastly, services continue to grow in all regions, inter alia with the continued rollout of Darty Max. Good momentum in credit and also an encouraging recovery in ticketing thanks to good programming and an easing of health constraints during the quarter. Now onto slide four to talk about our two key partnerships which we signed during the quarter. Firstly, the group signed a partnership with Google. It's a partnership on cloud and data to improve relevance of our search tools and always provide extra services to our clients. Snack.t is the first retailer in France to roll out the Google Cloud Retail Search, on its snack.com and dirty.com sites to improve the performance of our search engines. We're going to be establishing new performance standards in terms of customer experience online and on mobile devices to reach our objective of 30% online sales by 2025. Thanks to the partnership, we'll also be able at snack.com to improve the coordination of our activities as well as promotions and better prioritize our after-sales service interventions thanks to inclusion of data processing and analytical tools, machine learning, and artificial intelligence. At the same time, we found a partnership which is highly innovative with Apple to strengthen our group's position, which has been helpful several years, in the area of repair and extension of product lifespan. Through this partnership, we're talking about having 42 WeFix points of service, which will be included in the Apple-approved network. We're also going to have training sessions for 500 employees to repair Apple equipment. Lastly, AppleCare services will be an addition to our current online mobile insurance products. This strengthens our long-term relationship between MACDAR-T and Apple, showing our commitment to product sustainability and repair. 2.1 million in repairs in 2021 already. The group has an ambition of reaching 2.5 million in repaired products by 2025.

To wrap up, moving on to slide five. Penedati has continued to outperform markets and has managed to ensure that its quarterly gross margin rates have been kept at regular levels and has also been able to stave off rampant inflation and a reclining household confidence index. While we pay close attention to what is happening between Russia and Ukraine in terms of the impact on visibility for markets over the coming months, we would like to remind everyone that the group has no sights directly in the conflict area and has no direct impact on its supply chains. For the rest of the year, Fnac Dati remains confident in its ability to continue to outperform the market, as has already been shown in this first quarter. In particular, thanks to its large product line of products and services, because it can give plants exactly what they need, and also because of the high premium type categories that will able to shore up its position. Moreover, the group is focusing its efforts to optimize the impact on its gross margin. That is the key priority. It will rely on being able to offset price increases, in particular through focusing on benefits that it will gain from its premium lines and renewing product lines. We'll continue cost management measures which will help us ensure strong performance to be able to stave off inflation. At the same time, we'll continue to invest implement our efforts so that we can achieve cumulative free cash flow from operations of approximately $500 billion over 2021 to 2023 and free cash flow from operations of at least $240 million from 2025. A few quick points on slide six. Just to remind you all that the General Assembly will be held on the 18th of May in Paris. We will... As you will see in the press release, there is an increase of 13% of share take from VESA equity investments this month, which will make it our second largest shareholder. That said, VESA is not going to call for a nomination of a number of its members to the board. And during the General Assembly, we will make a suggestion to renew three independent board members and the nomination of a new independent administrator, Stephanie Meyer, former VP of Projects for the group at Sesame. This will increase the expertise range of our board. I'd like to thank you all and now open up for further questions. If you would like to ask questions or ask any comments, please press star 1. If you would like to cancel a question, press star 2.

We have questions.

The first question comes from . from Brianne Garnier & Co.

Sir, the floor is yours.

Yes, I have three questions. First, about inflation. Are you going to see a drop in ranges? Are you going to focus more on proprietary brands, for example?

with the entry-level prices.

My second question is on the margins outlook. Are we going to see gross margins improve again at the same pace as we've already been seeing over Q1, given ticketing and other services are going to pick up again, and also given that there is an uptick from nature and découverte? Now, everything that you've been able to put in place for 2022, is it going to offset OPEC's inflation or is it going to impact a bit for this year? Or are we going to see recovery that isn't going to be as good for the gross margin? A third question, the partnership for ticketing for the 2024 Olympic Games. Are we going to see double-digit million euros investment? And for France, is their contribution also going to apply, or we would just like a bit more color on that? Thanks. For the first question on inflation and the feedback we're getting from customers, well, we aren't really seeing an impact on our product ranges. Maybe it's a little too soon. But for the time being, we haven't seen a change. Really, the changes we're seeing are more in long-term investment products. So here, high products such as white goods come at a high price. So they're long-term investments for households. And for these sorts of products, people are looking for long-term investments. And, I mean, the question you ask, we aren't really seeing any impact for the time being. That's the first question. Second question, on gross margin, we have no visibility for markets, as we mentioned in our previous presentation. But what we do know is that our gross margin is nevertheless one of the leaders that we could use to have an impact. So we're going to focus on ticketing. We're going to naturally dig without. And obviously, it implies that we need to have a capacity to... offset the impact that our customers are going to feel. And this is going to be the main focus of our efforts throughout 2022. Moving on to the next question. As you know, historically speaking, we've always been able to main a constant scope euro impact. This year, we see inflation is on the rise, and we According to our current figures, we should be able to maintain that cost management. But remember, costs account for about 23% of our top line. So we also need to bear that in mind when taking into account the margins and the 25% elsewhere that we're looking at. Again, we aren't giving guidance, yearly guidance for the timing. We're just trying to give you a bit more understanding. So really, we don't give gross margin guidance in terms of in euros, nor for EBIT. But that said, we do have levers and actionable schemes that we can put in place to ensure that we maintain the right capacity, that we can keep inflation in check so that it doesn't negatively impact either us or our customers. Next question, just on the partnership issue. Yes, we're quite happy with the partnership. We're quite happy that we won the tender for Paris 2024 ticketing services. As was said in the press release, that will generate mid-term revenue. But it's really quite a good omen for the coming years. And just quickly, the margins that you're expecting to see, is it going to bring additional business? Is it going to be similar to current ticketing activities, or is it a bit different because it's quite a major partnership? But what margins are you looking for there? Well, obviously, we're still negotiating commissions on that, and it's highly confidential for the time being, so we are going to be able to give away too much detail there. Okay, thank you very much.

Next question.

Marilyn Ford from Societe Generale. Marilyn, the floor is yours. Good evening. I would just like to talk about the drop in sales of white goods for the first quarter. Is this a baseline effect or is this because the market is oversaturated? given that part 18 months has been going through quite a level of upheaval, because obviously these items are the sorts of items that are fantastic for gross margins. So that's the first question. Second question on ticketing. What... What impact are you seeing, given the fact that there was the Omicron variant that had an impact on venues being shut down? So just like a bit of color on that. And then on a quick question about advertising, because shops were open somewhat in the first quarter. So how are clients perceiving a lot of the advertising that you're doing on current services? And the other question I would like to ask about is about the strategic plan. Some people are saying that it's about high time to see one. Could you tell us a bit more about that? Okay, for the first point, yes, the white goods market over the quarter was somewhat down, but that really is a baseline effect. When we look at the past two years, it has been really doing quite well. I mean, it's always challenging for us to look at performance over one years or two years. Really, when we look at the proper year 2019, the year that we can probably compare ourselves against, we're doing quite well. Ticketing. Ticketing was mainly impacted just for January. February, March, however, we saw quite strong business in terms of ticketing. DartyMax. So that's obviously what we're talking about, asking about the different advertising about that. And really, we're perfectly in line with what we forecast as part of that. Now, just quickly about nature et découverte.

So 2019 is when it all started.

However, those shops were hard hit because of the COVID crisis. But 2020 and last year, a lot of our shops were closed down. Now 2022 is more or less a normal year in terms of shop openings. But still a little early to say what it's like so far. But we will have more insight when we get to sit down with the general manager of Nature & Decor about it. but we certainly hope to be able to open up new shops in new zones such as Portugal or the overseas territories. And we are continuing to roll out that new shop plan that we have. Next question is from Geoffrey Michelep from ODBHF. Geoffrey, the floor is yours. Yes, I just have two questions. Could you just quickly tell us a bit about stock shortages for the main categories? And second, question about stock and inflation. How do you see the impact for the coming year from inflation on stock levels? And maybe some of this is all going to have a negative impact on your WCR. Okay, just quickly on stock shortages. Well, we aren't out of stock for a lot of items. Well, yes, there are challenges in supply lines. Well, a lot of these date back to pre-COVID, so in 2019. The group's relationship with our suppliers is to be agile and to be able to absorb certain risks. That's why we may have difficulties with supply lines, but we do our best to avoid having or running out of stock in our shops. We're currently increasing stock levels. Now, the reason we're doing that isn't because of inflation. We're not trying to make a bet on the future prices because that doesn't always pay off. But simply because of COVID, a number of factories have to close in other areas. Factories are closing down. So in order to plan ahead for future factory closures, we are increasing stock levels because of that. because we may see greater shortages in the supply lines as to what we've seen over the past few years. But that's why we're just increasing our reserves. I hope that answers your question. That's very clear. Thank you very much. No further questions in our queue.

If you'd like to ask a question, please press star 1.

Thank you.

We have a question now from Ms. Fabienne Caron from Cabochevaux. You have a floor. Go ahead. Yes, from Cabochevaux. Two brief questions. Could you talk to us about average inflation you're seeing for white goods? Next. Why is it in Belgium – The consumption pattern and context is so difficult. Remember, yes, we know there's inflation, but there's still automatic wage inflation in Belgium as well. It's hard to understand why consumption is such an issue in Belgium. Could you help us out? Thank you. Yes, of course. On inflation, white goods particularly, we signed contracts end of February as per the law. And there's part due to inflation, part through negotiation, but I'm not going to delve into detail on industrial secrets. We have our sales agreements. We may talk about this later on in the year. Yes, but follow-up. Are we talking about mid-single-digit or mid-double-digit? Could you give that type of comment? No, I cannot. No, I can't even give that to you, Fabienne. It was a good try, but can't give you that. Can't disclose that. What about Belgium? Yes, Belgium. The baseline effect is quite high. Remember, in Belgium, Luxembourg, they had other impacts that were stronger than in other geographies. So that was one of the other impacts. but no worry because they're seeing growth versus previous period.

The comparison baseline is particularly high in that geography. Thank you.

Next question.

This is Marilyn Ford again from Société Générale. Marilyn, go ahead, you have the floor. There was a question asked about Belgium. I've got one on mobility products. I've seen some of them sold very well. Are you still in this product diversification? Do you have anything in the pipeline in this area? Mobility. This is something we branched out into several years ago, doing well. We could be different, we realized. We started with scooters, went on to bikes, also electric scooters, continuing to develop, selling the products, and also product accessories, which are necessary for sales and margin. Marilyn, also showcasing these products. We've got XXL corners for mobility, very large size mobility sections to boost this product category. Is gross margin improved? Gross margin is entirely satisfactory for these products. Plus you've got the accessories and the services. We've got the whole system covered that we're developing.

Thank you very much for that. Next question, Mr. Krimishaluk.

From Brandon Barney and co. Go ahead. Two points.

Firstly, on your partnership.

Uber Eats platform. Deliveries come to the snack stores apparently to pick up the products and deliver them to the customers. Is this a partnership or a commercial relationship that's already beneficial? Do you think it should be extended to other platforms and conceivably other countries as well? Next point. Visa. Is this just... a financial investor for the time being? Or are they an investor that's got a closer relationship with you and with whom you have regular discussions? On your first question, Clemo, about the Uber Eats partnership, we work with these platforms in big cities. It's just for a short list of products, inter alia. so we can have an additional offering so customers can get products they're interested in outside store hours. For the time being, it's a test. Like any test, it'll take some time to see if it pays off for both partners. And then, of course, we'll go further if it's a positive. On Visa, we've met with them and their team, of course, like we meet with all of our investors. It says it should be. I think what I like about FNAC-DRT is our business model and our corporate project, our strategy plan, and our teams. Plus, it won't have escaped them that the share was being traded at a discount.

Thank you. We have no further questions.

I'd like to give the floor back to your host. Yes, well, thank you very much then for listening. Have a great evening. Meet with you again soon. Bye-bye.