Max Stock Ltd

Good morning and good afternoon, everyone. Thank you for joining us today. I'm Talia Sesler, Chief Corporate Development and IR Officer for Maxtalk. And with me on the call, as usual, Nir Dagan, our Deputy CEO and Head of Finance. Nir will start with a review of our second quarter and first half results, which were fantastic. And I will be presenting the second part of the presentation. Before we start, as a reminder, there is a presentation accompanying today's remarks. And the slides, as always, are available on our IR websites, website on ir.macstock.co.il. And on slide number two, this is our standard disclaimer language. I think everyone is familiar with it. And with that, I'll turn the floor over to Nir to go through the financials. Nir, please.

Thanks, Talia. Starting on slide 3, our very strong second quarter results represented an acceleration of growth across a number of key metrics. We delivered a second quarter revenue of $316 million representing growth of more than 25% from the second quarter of 2023. Our top-line performance was driven by our continuous store expansion that added more than 7,000 net square meters of selling space in the period, combined with an impressive 14.5% increase in comparable store sales. Second quarter comparable store sale benefit from the shift of Passover holiday into the second quarter of 2024 compared to a falling in the first quarter of 2023, which drove a more robust increase in volume and also positively impacted our basket size in the quarter. We also delivered 50 basis points of growth margin expansion in the period as we continued to capture operational efficiencies. This factor was the main driver beyond the 220 basis points expansion in adjusted EBITDA margin and a 60.3% increase in GAAP net income in the second quarter. Slide 4. Turning on slide four to a look of our long-term second quarter trends, our revenue CAGR from the second quarter of 2020 to the second quarter of 2024 is 16.1%. And we expanded gross margin more than 300 basis points over the same period to 41.7%. Adjusted EBITDA, which excluded the impact of IFRS 16 and stock-based compensation, and adjusted EPS attribute to shareholders have grown at a CAGR of 11.1% and 14.7% since the second quarter of 2020. Turning to slide five, to look at our first half performance, which is a better representation of the underlying health of the business, given the Passover shift, we deliver revenue of 630 million, representing growth of more than 18% from the same period in 2023. Our top line performance was driven by strong volume growth that delivered a nearly 9% increase in comparable store sales, along with new stores addition in the period. We are quite pleased with this strong sales trend we've witnessed so far in 2024. Like the second quarter, our top line result combined with 70 basis point of gross margin expansion fueled a 140 basis point increase in adjusted EBITDA margin and a 36.8% increase in gap net income in the first half of 2024. Turning to slide six, Comparing the first half of 2024 to a long-term trend on slide six, our four-year revenue kegel from 2020 to 2024 is 16%, and we expanded gross margin more than 250 basis points over the same period to 42%. Similarly, first-half adjusted EBITDA has grown at a CAGR of 13% and adjusted EPS attribute to shareholder has grown at a CAGR of 14.7%. Now I'll turn the call back to Talia. Talia?

Thank you, Nir. Slide number seven and slide number eight, looking at our track record over a longer period of time on these slides, we're very pleased with more than 2.5x growth we've achieved in revenue and gross profit over the past seven years. along with doubling adjusted EBITDA and adjusted EPS during the same time period. Note on slide 7 that over this period, despite the changing macroeconomic environments and everything that we've experienced, our annual gross margins were relatively stable and have improved significantly over the past few years, as we have recently surpassed 42%. Now turning to slide number nine, our strategy of rapid growth coupled with moderate capital expenditure results in very strong operating cash flows. And that is despite of our strong top line growth. As a result, we have a long history to actively return value to shareholders through annual dividends and share repurchases. And since 2017, we've returned approximately 370 million to our shareholders, including 60 million year-to-date this year, with a trailing 12-month dividend yield of about 5%. Now, even with our substantial cash deployment this year, we had about 75 million shekels in net cash at the end of the second quarter versus net debt of about 20 million shekels as of December 2021. We have ample liquidity and financial flexibility to both reward our shareholders and to continue the strong execution of our growth strategies. Then going to slide number 11 and then to slide number 12. So first slide number 11. This slide refers to our product categories and they all delivered strong double digit growth in the first half of the year. We provide a mix of private, max-labeled and third-party branded products across six core categories that you all know. Housewares, consumables, toys and baby, arts and crafts, office and school supplies and apparel basics. And as you can see, the first two largest categories housewares and consumables which represent together approximately 45 percent of our revenue from sales in the first half of the year grew more than 15 and 18 percent respectively compared to the first half of 2023 we also saw some of our smaller categories outperform with arts and crafts growing more than 18 percent and apparel basics growing nearly 19 percent And then on the next slide, slide number 12, I'll also point out that our other category, which represented approximately 27% of our revenue from sales in the first half, it grew at an impressive 25.5% when compared to the first half of 2023. The more than 25 smaller subcategories that comprise this other category are together growing at a much more rapid pace than our more established categories as they scale and they provide significant upside to our already impressive growth trajectory. Then moving to slide number 13. This slide covers some of the relevant KPIs of our store fleet, starting with comparable store sales growth. So as Nir mentioned, Q2 strong comparable store sales reflected the shift in the Passover holiday. However, Comparing the combined first and second quarter of 2024 to the year-ago period, comparable store sales grew 8.9%, well in excess over a long-term target of approximately 3%. This notable acceleration was driven by strong store traffic, along with a return to positive average basket size growth, as you can see in the bottom two charts. Next, on slide 14, store growth has been very robust over the past year, with six new stores added in the last 12 months. Since August 2023, we've increased our net selling space by approximately 13%, or 7.7K net square meters. This has had a notable impact on the outsized growth we've been able to deliver in the recent quarters, and about half of our top line growth in the first half came from these new stores. Now, next on slide number 15, As we look at our signed pipeline over the next three years, we have four additional stores adding total of approximately 9,000 gross or 6,000 net square meters. However, note that these are only signed contracts within our pipeline and our target of opening three to five owned stores each year remains the same. And there are additional potential new stores that are in various negotiations. stages. Next, slide number 16, you can see how our store expansion strategy has progressed since 2019, a significant white space opportunity that still lays ahead with our longer term 2030 target. As of the end of June 2024, we have roughly 65,000 net square meters of selling space representing growth of 60% from 2019. And looking ahead, we believe we can expand our current footprint at additional roughly 70% to 110K net square meters. And this long term target would result in a 2.7x expansion of our net selling space. Then on slide number 17, as we mentioned last quarter in the past few quarters, one of our more recent key initiatives was moving to a new logistic and distribution center to help enable our next stage of growth. And I'm really happy to share that the transition is progressing as planned. We've started to operate the new DC on June 1st this year. according to Plan, and one out of our three legacy logistics centers has already been consolidated. We expect to consolidate one additional legacy DC by year end. CAPEX has also been in line with Plan, with 11 million shekels invested as of June 30th, and a total of 30 million in CAPEX expected in total. As we said previously, these initiatives will support our future growth in Israel while potentially extracting operational efficiencies. Lastly, on slide number 18, I want to share that we've recently published our second comprehensive ESG report. This report quantifies and demonstrates the broader impact that we have on our communities. An English version of the report is now available on our investor relations website. We're very proud of our efforts and encourage each of you to utilize our report to better understand our ongoing efforts around ESG. So before we proceed with the Q&A session, and as always, I would like to thank the entire Maxtalk team for their ongoing effort. Even right now, even during our back-to-school season, their efforts have been critical to delivering these impressive results. Our strong teams and proven growth strategies are delivering record results while positioning us for future growth. As we look to the second half of the year, we are confident in the underlying strength of our business and expect our strong momentum to continue as our leading market position and resilient business model position us to outperform in a variety of economic climates. We're now ready to take any questions.

Let's see.

Yes. Can you please talk about your comparable sales momentum and the drivers of that? How do you see this unfolding ahead? So I think as I mentioned earlier the vast majority of the same stores was driven by volume growth as opposed to last year when where we had negative change in our average basket size this year. When we look at the first half, the change was slightly above zero. So we were able to capture all the volume and translate it into same store sales growth. This is also reflecting the strength of the Israeli economy as also evidenced by high expenses in credit cards and other criteria that is used to measure the strength of the consumer going forward we do not know how to model you know the same store sales growth and hence we keep our longer term target of three percent it is not for the full year of 2024 rather it is from July and going forward or potentially even 2025 and going forward you can use the three percent threshold, yes. Can you please talk about the drivers of gross margins? What do you believe is a sustainable level ahead? Okay, so first, you know, in prior quarters, and I think it's the same this quarter too, we think 41% and above is probably the right way to model gross margins in the next two quarters and potentially more. On one hand, we are benefiting from stronger buying power with our suppliers. That translated to significant reduction in cost of goods sold. On the other hand, there are some offsetting elements. One of them is a transition to the new logistics center, which is not apparent so much this quarter, but is expected to have some impact, not a major impact, but some impact in Q3 and potentially Q4. as we do the transition and consolidate the DC into one consolidated distribution center. Of course, in the longer term, we expect to benefit from this transition and to extract operational efficiencies, which will enable us to expand our gross margins potentially to the higher range of our gross margin on a more consistent level. Anything to add?

No more questions. No more questions.

Okay, so we are available to speak with you and would love to speak to you and give you more color on any question that you have. It was a pleasure to have you again during our earnings conference call and looking forward to see you again.

Thank you.

Thank you.