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Operator
good morning and good afternoon everyone and thank you all for joining us today uh with me on the call is near the gun our deputy ceo and head of finance uh and myself talia sessler uh chief corporate development and ir officer uh near will start with a review of our second quarter and first half financial results and i will be presenting the second part of the presentation Before we start, as a reminder, as always, there is a presentation accompanying today's prepared remarks, and the slides are available on our IR site at ir.maxdoc.co.il. And on slide number two, this is our standard disclaimer language, which I'm sure you're all familiar with. And with that, I'll turn the floor over to Nir to go through our financials. Nir, please.
Be'erot Yitzchak
Thanks, Talia. Turning to slide 4, Q2 2023 financial highlights. We delivered strong second quarter results highlighted by net income attributed to shareholders that increased by 46.5% to $16.6 million versus last year. Despite the impact of Passover holiday, we shifted demand out of April and into March this year and drove 2.8% decrease in same-store sales. Same-store sales for the combined main June 23 period that had no impact for the timing of the holiday was positive of almost 4% above our 3% annual target. We continue to see strong gross margin gain in the quarter with an increase of 190 basis points to 41.2%, and gross profit increased 4.9% to 104 million. Adjusted EBITDA increased 2.6% to 30.1 million. And finally, adjusted EPS, attribute to shareholder, increased 7.2% to 0.11. Slide five. We also deliver a strong first half result, highlighted by revenue growth of 5.7%, aided by steady sales growth of 3%. Gross margin expansion of 220 basis points versus this period last year. And the 48% gain in net income attribute to shareholders. On slide six. Turning now to a more detailed review of our second quarter result. Total revenue was flat compared to Q2 last year. As I mentioned, our top line results reflected a shift in the timing of Passover spending from second quarter of 23 to the first quarter of 22 compared to last year. Sandstorm sales for combined May-June 23 period increased for almost 4%, primarily reflected strong traffic growth. Gross margin was 41.2%, up 190 basis points, which is the highest second quarter gross margin we've delivered in the past four years, driven largely by efficient management of inventory and continued moderate of global shipping costs that lower our expenses as well. Adjusted EBITDA, which excluded the impact of IFRS 16 and stock-based compensation, was 30.1 million, up 2.6% compared to the second quarter of 2022, with 1.7 million in expenses primarily to support the startup of our operation in Portugal. Thalia will later speak about the two new stores in Portugal, but these expenses are largely a result of building our initial presence in the country and our store pre-opening cost. Net of these expenses, our adjusted EBITDA margin was 12.7% in lining in our 13% annual EBITDA margin that we've guided to. Finally, our adjusted EPS, which excluded the impact of share-based compensation, was 0.11 in the second quarter, representing growth of 72% compared to Q2 of 2022. This was largely driven by an expected reduction in stock-based compensation expenses that we allowed in the past few quarters. In the second quarter of 23, we had several SBC expenses in the amount of 0.7 million, while in the second quarter of 22, we had share-based compensation expenses of 3.8 million. And if we neutralize the impact of Portugal that generated a lot of about 2 million attribute to our shareholder, adjusted EPS was 0.12% up 16.5%. Slide seven. Now moving to our first off result. Total revenue was up 5.7% compared to the first half of 2022, with the same store sale growth of 3% driven by a strong gain in traffic. Our top-line growth during the period also reflected the addition of 4.5 thousand new square meters of selling space and four franchise stores. Gross margin expanded 25%. 220 basis point and gross profit was up 11.6% versus last year. As we continue to optimize our inventory position and see global shipping cost moderate compared to the year ago period. Adjusted EBITDA was up 9.3% compared to the first half of 2022 at 66.9 million and reflected an adjusted EBITDA margin of 12.6%. When looking at adjusted EBITDA excluding costs associated with the operation in Portugal, we grew adjusted EBITDA in about 13.6% for the first half to 69.5 million. finally adjusted dps shared expanded 14.3 percent compared to the last year period slide eight on slide eight we present a look on our liquidity and capital development strategy we have a net cash position at at the quarter end of 30 point 8 million during the second quarter we paid down about 12 million in debt compared to the period prior quarter to reduce interest expenses and distribute 60 million in dividend to our shareholder As you know, due to our modest capital expenditure and working capital needs, we've been able to actively return value to shareholders. Since 2017, we had returned about 309 million to our shareholders through annual dividend and our share buyback program. With that, I will turn the floor to Talia.
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Operator
Thank you, Nir. I think that our results underscore the positive consumer response we had seen to our products offering, our shopping experience, our growing store footprint, and the great execution by our teams. Now, before I speak a bit about our growth strategy, I wanted to highlight a few key attributes of our business model. So on slide number 10, Like the largest best-in-class dollar store players, we are a pure player focusing only on value discount. Our business model is simple yet extremely effective. We combine a focus on best price that is driven by our strong supply chain and by our big volume purchases. And at the same time, we're a very nimble operator as our fixed assortment of product is quite limited. What also differentiates us is the breadth of selection of our rotating SKUs which contribute to our treasure hunt experience on one hand and serve as a barrier to entry due to the operational complexity it entails. And finally, we keep overhead as low and as lean as possible with no high street locations and minimal marketing investment as we benefit from word of mouth and strong organic social presence to drive awareness of our concept. Next slide, slide number 11. There are a few key drivers behind our continued success, with the first and probably the largest one being a growing demand for discount retail. That is true globally and true for Israel, and particularly the current economic environment. Second thing, we know our Israeli consumer very well and we have expertise in identifying growing consumer trends while making sure we have good availability of inventory in our stores. And of course, we are able to continuously expand our store base, expanding on the square meter nearly 50% from our starting point at 2019 year end. And as I always say, there remains a significant white space opportunity for us to further expand our stores in Israel, well above our 80K square meter target, and we expect to update it by year-end. The next two slides, slide number 12 and slide number 13, show you revenue growth by category. As you can see, housewares and party supplies and consumables together represent about 44% of our revenue, and they grew slightly over 4% compared to the first half of last year. Many of our smaller categories continue to grow at a more rapid pace as they scale, with office and school supplies growing almost 15%, apparel basic growing about 8%, and the other category segment, which represents largely 26% of our revenue, growing almost 8% when compared to the first half of last year. On slide number 14, you can see a look at our main operational KPIs for the first half and second quarter of this year. Since Nir had already discussed same-store sales growth, I only wanted to highlight a few points. First, it is best to look at the cumulative figures, so look at the half-year results as they neutralize seasonality. And second, what you see as the decline of 0.8% in our average basket size in the first half is driven by intentional price decreases we had done, and we've spoken about it in the prior quarters. And they contributed to strong transaction growth of over 8% that we had seen on average among our owned stores, i.e., all of our stores, including new stores. And that is despite the gross margin expansion we've experienced. On average, we have not seen any reduction in the number of items in our basket in our owned stores. Turning now to slide number 15 to discuss our owned store expansion and number of stores. As of quarter end, we had 61.7 thousand net square meters representing growth of 12.5 from the same period last year and 30% growth from Q2 21. Note that this number now includes our new stores in Portugal. During this period, during the last 12 months, we've added a net amount of 4.5 thousand owned net square meters and four franchised stores. We currently have 59 stores in Israel, 32 stores are owned, 27 are franchised, and we have two locations of owned stores in Portugal. We've tried to put all the details on the changes in our stores on the slide so you can easily track them and put them in your models. Turning now to slide number 16, our pipeline includes four new owned stores this year. There's one additional new store that we are announcing this quarter. So we have four, Be'erot Yitzchak, Kiryat Gat, Yavne, that's the new one, and Bet Yam. That total approximately 10,000 gross square meters that these stores will be adding. Be'erot Yitzchak is expected to be opened in September, hopefully before Rosh Hashanah. And there are other three stores that are expected to be opened in Q4. We also expect to add one new franchise stores in Jerusalem around December this year. In addition, we have four signed agreements for additional new stores with a total of approximately 11,000 square meters over the next two years. Slide number 17 now turning to a quick update on our new business in Portugal. Since our last update and in line with our plan, we opened our second store in Porto in June. We have plans to add one additional store in the fourth quarter this year. Nir mentioned that Portugal had a slight drag, which is absolutely expected, of about 2.6 million on our first half EBITDA. This does not represent the run rate of the stores. Rather, it primarily includes expenses to support the startup of our operations in the country, both the headquarter and pre-opening costs before the two stores started their operations. So slide number 18, before we move into the Q&A session, I want to close our prepared remarks by thanking the entire MaxTalk team for another quarter of diligent execution that led to our positive results. As we look to the second half of the year, we're very pleased with our momentum and the underlying strength and resilience of our business. The continued execution of our growth strategies combined with our leading market position in the value retail space positions us for continued strength for the balance of 2023 and in the years ahead. We're now ready to take questions. We'll check the chat. Please write your question in the chat and just give us one moment to collect them. Okay. So, yes, maybe the first question is regarding the extraordinary general meeting resolution that we also announced earlier today. There's a question here on the arrangement with ORI. and the change in his terms. So there's a slight increase in Ori, who's our CEO and the founder of the company, from 200,000 to 215,000. That's the first thing, which is completely reasonable.
Be'erot Yitzchak
There has been a few years with no... From 2017, there was no change.
Operator
no increase in his base compensation. And then his bonus will now be linked to the performance of our net income rather than our EBITDA. Now, EBITDA is a very common metric term that is used by various funds private equity funds primarily now that we're a publicly traded company there has been a few years since we've swift or more synchronized our ceo bonus scheme with the way investors price our stock so we as we understand we're mainly traded on pe and this is why we wanted to see a more synchronized or alignment between how investor prices and or a bonus. So that's the first thing. And then the other question relates to the Israeli consumer. There hasn't been any major change in the Israeli consumer since the prior quarter. Inflation will be announced today, I believe. We're waiting for the inflation rate. The expectation is that it will slightly decline. We'll see the actual numbers. I don't think there has been any major change, nothing in terms of interest rates or inflation. So pretty much the same situation as it was last quarter. Obviously, You know, the monetary policy now is a little bit more tight. It does have an impact on consumers' pocket. But overall, as we always say, we think we actually benefit from that, and we do see that in the traffic in our stores. There's another question. What gross margin impact do you expect to remain for the rest of the year? So I think last quarter we also said that, and we will repeat, with the current exchange rate and the current shipping costs, we think around 41%. 40 and 41.
Be'erot Yitzchak
40 and above, close to 41. We believe that we can get that level for the next year.
Operator
Yes, so we have the next half of the year.
Be'erot Yitzchak
At least.
Operator
Yes, at least 40 and potentially 41. Yes. If there are any other further questions. Oh, yeah. Can you give us any color around the judicial reform, protest impact? We did write something in our financial statements. you know we did not see any material impact on our operations we do not know how it will impact us going forward um but so far we haven't seen anything material on our on our operations on any uh aspect actually in may and june we had four percent sense of self-growth so i think that that's the best the best the best indication yeah if we are able to deliver uh almost four percent same store sales growth uh when we neutralize seasonality i think it's a it's indication of our resilience in our business and i think that's answer the next question of about how are you driving traffic stores like the system traffic Yes. Yeah, I think the strong traffic growth of around 8% that we have seen in the quarter and also in the six-month period is an indication of our ability to benefit from a situation where consumers have or see some tightness and see some reduction in their disposable income. I think what also contributed is our ability to reduce prices. It's true that We could have seen higher growth, a higher top-line growth, if we had not reduced our prices downwards. But at a situation where we can maintain and even expand by 220 basis points our gross margins while reducing prices and being very attractive in terms of pricing, it was a good decision for us, and it was reflected in the strong traffic growth. That's it. Yeah, there's a question here whether Ori is not an employee. So this is really technical. He's an employee. in essence, from all perspectives. But because he has his own company, he gets his compensation to his company, and this is why he gets it via an invoice rather than as a salary.
Be'erot Yitzchak
Which is very common.
Operator
It's very, very common. It has nothing to do in terms of the essence of his dedication. He works around the clock.
Be'erot Yitzchak
24-7.
Operator
24-7 to make sure that his business is growing and expanding and that we are doing as best as possible.
Be'erot Yitzchak
Any more questions?
Operator
I think that's it.
Be'erot Yitzchak
We've covered it all.
Operator
All right, guys, many, many thanks. Please contact us if you have any further questions. We'll be happy to speak with you directly, answer any questions you have, set up a Zoom meeting with you, and looking forward to seeing you next quarter as well.
Disclaimer