Maisons Du Monde Sa

Good morning to all of you, and thank you very much for joining this call to present Maison du Monde first of 2023 results. I am Carole Alexandre, Head of Investor Relations. I am with our CEO, François Melchior de Polignac, and our CFO, Régis Mathieu, who will be making today's presentation. It will be followed by a Q&A session. You have no doubt, since the press release we issued this morning, The conference call slides can be downloaded from and viewed on our website. This call is also being audio webcast and the replay will be available on our website later today. All listeners are reminded to read the forward-looking disclaimer on the slide too. I will now turn the call over to François Melchior de Polignac.

Thank you very much, Carole. Good morning, everyone. I hope you are all doing well. I'm very pleased to be with you today to discuss Maison du Monde's first half performance and update you on the progress we have made on our 3C plan that aims to set the company back on the path to sustain and profitable growth. The agenda for today's call is on slide three. I will begin with a few introductory remarks to set the scene and give you some insights on the 3C plan. I will then hand over to Regis, who will take you through the details of our first half performance, after which I will return to discuss the outlook and our unchanged Fourier guidance. Let me begin this presentation with a brief overview of the H1 highlights on slide five. As you can see, we come to you today with two positive notes. First, as anticipated, Q2 sales sequentially improved compared to Q1. Second, the 3C plan is fully on track. Still, let's call a spade a spade This first half was challenging, and this is reflected in our H1 numbers, with Group GMV down 5.1% and sales down 10%. These numbers reflect the weak consumption environment in which we are operating, with inflation affecting discretionary spending in the home and decoration segment, but also exceptional circumstances such as social unrest in France. However, when we look more closely at our numbers, we do see sequential improvement in Q2 versus Q1, with more limited GMV and sales decreases in the second quarter of 3.5% and 7.3% respectively. This reflects the first green shoots of our 3C plan, as we will see shortly. This combination of an easing of the comparable base and the growing contribution of all our self-help measures makes us confident that we will achieve our full-year targets. From a business point of view, I would highlight three positive developments. First, Maison du Monde's fall-winter 23 showcase collection, with inspiring universes and diverse materials and colors, has received very positive feedback from industry experts across Europe, with an increase of nearly plus 40% in press coverage compared to February spring-summer collection. This further underscores our unique positioning. Second, our Marketplace continues to ramp up very strongly. Marketplace GMV reached 85.1 million euros, up plus 73.3% compared to H1 2022, of which 77.3 million euros were generated online and 7.7 million euros in-store. Allow me to highlight at this stage that the share of Marketplace GMV generated in-store illustrates the genuine omnichannel uniqueness of our model. Q2 growth was a solid 47.3% as the marketplace matures. We are very satisfied with the progress in Spain, which has now been operating for one full year, and we are planning to open a fourth country after France, Spain, and Italy, namely Germany, in Q3. Let me remind you that on top of complementing our offer and unique service to our consumers and providing us with key data on market dynamics, The marketplace growth improves our economics as it's a margin accretive activity. Third, we successfully tested the transfer of two stores in France to the affiliate model. And here too, we will continue the rollout going forward with up to five stores transferred by year end. This is a capex efficient way to grow, and it will also allow us to gather insight from our partners. For the sake of clarity, let me remind you that in our affiliation model, our partners carry the capex while we carry the inventory. Finally, among the H1 highlights, and in this case, really Q2 highlights, we have already made very satisfactory advances on our 3C plan launched in May. I will go into some granularity on the next slides, but on the first C, customers, we launched tactical commercial initiatives that supported traffic and sales. On the second C, cost, we have actually already achieved half of our planned cost savings of 25 million euros, which will help support the EBIT. And on the third C, cash, we have reduced capex by 12 million euros and inventories by 23 million euros, which will help us achieve our cash flow target. After reviewing the key H1 highlights, I would like to give you a progress report on our 3C plan, which is already paying off. This company-wide plan focuses very simply on the three fundamentals that are customers, costs, and cash. Those are our three keywords on which the entire company is focused to create the conditions for return to profitable growth. As you understand, it's not a new medium-term strategy, but rather a full mobilization of the entire company on our short-term challenges in the tough environment we are all aware of. Slide seven focuses on customer and illustrates the group's customer obsession. Let me illustrate that with the example of an initiative for furniture called Boost Furniture, which reflects our three key customer priorities. First priority, develop customer centricity. Well, I can illustrate this in a very, very simple way. When considering buying a piece of furniture, say a table in a store, customers want to know in which sizes and materials it comes even before engaging with an associate. We have decided to make our furniture presentation more customer friendly by enhancing the availability of such information with a light touch to maintain at the same time the right level of inspiration of our presentation. Another very pragmatic example of our reinforced customer centricity applied to furniture is to radically accelerate the elimination of unavailable products on display so as to maximize potential sales. Second priority, reinforced quality of execution. A key success factor is our sales force with skills and dynamism on the shop floor makes a difference. That's why training our sales staff is a key priority to us. 90% of our sales force has already been retrained, and we took the opportunity to adapt their selling approaches to engage with now more cautious customers. We also shifted store work hours from non-sales staff to dedicated sales resources, even hiring sales associates again, despite overall staff optimization at store level. Third priority, ensure price accessibility. We have made pricing adjustments 140 selected furniture SKUs for which we rightly anticipated elasticity. Such targeted price cuts are complemented with tactical promotions and free shipping initiatives to maintain consumption excitement in an overall heavily promotional market. Our customer obsession is reflected in a host of small commercial initiatives which when put together make a real difference to our customers in-store experience. All these initiatives combined with many others, are bearing fruit and contributing to the sequential improvement in our sales. The furniture booth initiative has allowed us to significantly improve furniture sales. They were down 4.2% in Q2 after a 16.5% drop in Q1. On slide eight, we turn to the second C, costs. Our objectives are to maintain a gross margin at around 65% in the full year. and to adapt the company cost base with annual savings of about 25 million euros before inflation. To do so, Maison du Monde is acting on three fronts, negotiate, negotiate, and again negotiate. That's what we did, discussing continuously with all key suppliers. Second, streamline our cost base, which we did through such actions as in-store reduction or optimization of working hours and headcount reductions at headquarter level. Third, rigorously allocate resources. We did that, for instance, on our marketing investments with an approach laser-focused on return on investment. This strict cost discipline allowed us to post a resilient gross margin of 63.8% in H1 and to achieve half of our SG&A savings before inflation in H1. Last but not least, cash, on slide 9. Here, too, we have three key levers. 1. Aggressively prioritize CAPEX. We reinforce selectivity of in-store CAPEX and optimize investment on projects. Dynamic management of inventory. We manage a significant decrease in inventories while further improving product availability. Improve all working CAP components. We did this notably by improving payment terms with suppliers. Regis will discuss the results shortly. Turning to slide 10, we also continued our active management of our store network in H1 while beginning to test our affiliation model. Over the first half, we opened five stores, three in France and two in the rest of Europe, while reducing our network by 11 stores, seven in France and four in Europe. Of those 11, two had been in fact transferred to Affiliate. At the end of H1, the Maison du Monde network comprises 352 stores, of which 350 integrated and two run by an affiliate. This compares with 358 stores at the end of last year. We continue to see stores as a key strategic asset and a key part of our omnichannel strategy. But in the current context, we also continue to be very cautious and disciplined in the pace of developing our store network and remain very attentive to the evolution of our category. In the full year, we expect a net 15 closures overall, or five more than we initially said. After the successful transfer of two integrated stores to affiliation, we will continue to roll it out in up to three more stores in the second half. This model has been successfully implemented by other retailers and we think it has the potential to expand Maison du Monde's footprint while optimizing CAPEX. With that, let me now hand over to Régis to present our financials.

Thank you François Melchior and good morning to everyone. I'm really happy to be with you to give you more color indeed on our H1 performance. I will start on slide 12 with our sales performance. First, Group GMV at nearly 611 million euros in H1, was down 5%, and down a more limited 3.5% in Q2. This highlights two elements, sequential improvement in Q2 versus Q1, and the positive and growing contribution of our marketplace when we compare the GMV trend with the sales trend. First half sales stood indeed at 543 million euros. This is down minus 10% year on year, out of which a significant sales decline of 12.5 in Q1 due to a very challenging comparable base, and of 7.3% Q2 showed indeed the benefits of the 3C action in a difficult context marked by severe constraints on consumer purchasing power. In this context, in-store traffic was low single-digit negative during Q2 and nearly stable compared to Q1. On a like-for-like base, H1 sales were down 11.4%, including still a positive net contribution to sales from 2021-2022 openings of 10 million and a negative 3 million in relation to 2023 store closures. Looking at the breakdown of sales by category, performance was well-balanced between furniture and decoration in H1, with furniture benefiting from the boost that François Melchior just presented. H1 decoration sales were down 9.7% to €289 million. Sales reached €134 million in Q2, down minus 10, due to non-discretionary expenditure prioritization by customers. H1 furniture sales were down 10.3% to €254 million. In Q2, sales dropped by a more limited 4% to €136 million, recording a sequential improvement to Q1, which was at minus 16.5%. This category benefited from price adjustment of €140 million. price adjustment of the most attractive product, and promotional initiatives, notably on the outdoor collections, that posted a plus 5% versus last year in GMB. Turning to channels. First, online. Online sales stood at 161 million euros in H1, down minus 18%. This decline is mainly linked to a decrease in traffic, a deterioration of the conversion rate, while the marketplace continues to yield positive results. At minus 10, Q2 online sales showed a sequential improvement after a minus 25 drop in Q1. In Q2, we observed a positive change in online traffic compared to the same period last year. However, it is important to note that despite this improvement, the conversion rate continued to be negatively affected when compared to the previous year. This decline in conversion rate can be attributed to the persistent challenging consumer context. In regard to stores, sales amounted to 382 million euros in H1, down minus 6, comparable to Q1, while Maison du Monde continued its active store network management with the first impact of closures. Finally, by geography, sales in France, which represent about 54% of the total, were down minus 6.7% in H1. Despite the sequential improvement between Q1 at minus 8.5, heavily impacted by strike in France, and Q2 at minus 4.8, showing a certain resilience despite lower traffic and conversion and the impact of the riots in June. Overall, France resisted better with the benefits of the ramp-up in maturity of the marketplace. International sales were down minus 13.6% in H1, lower than the group average. as the group deliberately adjusted its web acquisition investment in some countries to defend a reasonable return on investment in the context of strong competition and high web investment costs. Let's now look on slide 13 at EBIT, which stood slightly above €16 million, despite a decrease of €60 million in sales, down from €28.4 million in the corresponding period last year. margin at 3% was down from 4.7% last year. The bridge on the slide shows you the different bundling blocks. Let's start with gross margin that stands precisely at 63.8, nearly stable versus 2022. This is a good result in the current context, but it is the output of a good balance between the effect of past price increase, which allowed to mitigate the impact of cost inflation, Productive negotiation with suppliers with first effect of rate cost improvement. Additional promotions, on the contrary, well monitored to support traffic and an efficient edging policy. The marketplace, growing by 35 million euros in GMV over the half versus last year, also contributed positively, notably thanks to the ramp up in Spain since the launch in Q2 last year. Altogether, This enables us to contain the decrease in relation to cost inflation and makes us confident in Maison du Monde ambition to deliver a gross margin of around 65% in 2023. Expected lower freight costs will support a sequential improvement in the second half. On logistics, we continue to implement measures to increase efficiencies in transportation and warehousing, to adjust operations to changes in channel dynamics, and also to adapt our organization to enhanced flexibility and be as variable as possible in a context of negative volumes. Moving to the next block, store operating costs and central costs decreased by nearly 14 million euros to 157 in H1. As François Melchior mentioned in his introduction, amidst persistent inflationary pressures on operating costs, all 3C plan cost initiatives are paying off. The recovery plan is well on track, with 50% of the annual cost saving of 25 million euros already achieved in H1. Lastly, advertising expenses decreased by 13% to 28 million euros. Maison du Monde is striving for strict financial discipline and is prioritizing projects with the highest return on investment to drive consumer traffic. Overall, while we lost some operating leverage due to negative volumes and faced continued inflation pressures, we managed to contain costs and will continue this effort in 2023 to return sequentially to higher profitability levels. On the following slide, slide 14, we look at free cash flow, which turned positive at nearly 3 million euros in H1 from a negative 6.6 last year. Here are the main moving parts. First, lower EBITDA for 14 million due to sales decrease and a lower margin rate that I just commented. Second, positive contribution of the change in working cap for 15 million euros. Maison Dumont benefited from negotiation with key suppliers and tight monitoring of inventories, which decreased to 246 million euros compared to 265 last year in the same period. Third, a 14 million euro positive impact from lower capex. thanks to discipline allocation of capital resources, notably for in-store expenses, capex ratio decreased to 3.2% of sales versus 5.2% last year. Overall, this positive trend in free cash flow generation reflects Maison du Monde's strict financial discipline, particularly, again, in capital allocation. This approach puts the group well on track to achieve its annual free cash flow target. To conclude on the review, Of our financial metrics, on slide number 15, we look at earnings per share, which landed at $0.02 in H1 from $0.19 in H1 of last year. This decrease reflects a number of factors. First, a negative $0.17 linked to operations and the declining volumes that we commented before. Second, another negative $0.11 due to non-recurring items. notably related to store closures already booked in June as decisions to stop some leases have been officially communicated. And third, a positive nine sets from lower financial and tax expenses. Note on the slide that following the completion of the second share buyback program at the end of June 2023, 1.8 million shares will be conserved by the end of the year with a clockwork accretive impact on EPS. Let me know and back again to Francois Milker for the outlook. Thank you, Régis.

Let me now conclude on slide 17 with our outlook. After a challenging first half, we consider that the consumption environment will remain challenging in general and in our category in particular. The sales season is paying off in line with our internal objectives. but we do see consumer cautiousness with a greater inclination to spend on categories such as travel or entertainment. The back-to-school moment will be important to confirm the underlying trend. In this context, we do, however, expect to continue the sequential improvement we saw in the past quarter in the second half with a continued positive impact of our 3C plan and a dynamic commercial planning as of September. Combined with a gradually improving comparable base, it allows us to leave unchanged the full year guidance we communicate in May. Namely, top line decrease in the low to mid single digit range with a sequential improvement in H2 versus H1, EBIT in a range of 65 to 75 million euros, free cash flow in a range of 40 to 50 million euros, a dividend payout ratio of 30 to 40%, and on the EAG front, one third of Maison du Monde's 2023 collections included in the Good is Beautiful selection. This concludes our presentation. Thank you very much for your attention. Regis and I will be happy to answer any questions you may have. Thank you.

Thank you. As a reminder, to ask questions, you'll need to press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question,

please press star, one, one, again. And we're now going to take our first question.

And our first question comes from Clement Gennelot from Bryan, Garnier and Company. Your line is open, please go ahead.

Thanks and good morning to all of you. Three questions on my side. So the first one is on the sales guidance. What makes you so confident about the fact that the sales trend would improve Lineage 2? The second question is rather on the price cuts that we see in Lineage 1. Could you give us some core order around the demand, the elasticity post with price cuts on some furniture and some other decoration items? The third point is on the threat. Could threat to the wind provide a bigger threat to the wind than expected and push the gross margin even above the 65% threshold? Thank you.

Thank you, Clément. I will start perhaps on the FRET question, and then I will let François Melchior comment on your two other points vis-à-vis self-guidance and the return or the dynamic for H2 and the reading we have on the elasticity on price cuts. As you remember, I commented in Q1 and at the time of the full year on the benefits indeed expected from the renegotiation and the adjustment of the market. All in all, we consider that it should bring 150 basis points positive over the year. It's fair to say that it's mainly in H2, despite the fact that we have a couple of million already in H1, but the big bulk of the freight adjustment will be in H2. That's why I commented already on the two-tier momentum on gross margin development this year that we can observe already in H1, i.e. slightly below 44 and perhaps 64 and 66 over the year. Should we expect more than the 150? I don't think so. It's fully embedded in this direction of 65, which remains our trajectory. And we are very pleased in the way we are managing this indicator at the time of the adjustment we have to provide on the market vis-à-vis price elasticity and so on and so forth. So 150 bps positive on freight over the year as an element of the gross margin dynamics, mainly in H2, to return to a full year of 65. I turn to François Melker for the two other points.

Hello, Clément. Thank you for your questions. I will first give you just a few words on the elasticity. What you have to understand is that we do select key items for which we have measured a potential for elasticity, which is why we have been encouraged by our results on 140 SKUs in furniture to then extend this kind of approach to other products and not necessarily only in furniture. So we did measure the positive outputs of those price elasticity, let's say, tests, Second, on the H2 sales level and confidence, I think you will agree that the consumption environment for home and decoration is obviously not favorable. And we still see, as I said, tradeoffs from customers favoring travel and leisure expense, for instance. Still, what gives us confidence in the second semester is basically threefolded. First and foremost, we will benefit from an improvement of the comparable base. we will continue to deploy and enhance our 3C initiatives on the customer side, i.e. tackle promotions against selected price cuts, going back to your first question, and other initiatives. Then, obviously, everything is not comparable, but as a kind of macro sanity check, we were stable in H1 versus H1 2019, i.e. last pre-COVID year. And we aim to be, again, stable in H2 versus H2 2019. This is suggesting that on top of our screechy actions, the objective to be stable is certainly ambitious, but also really achievable.

Thank you.

Thank you for your question. Just to remind everyone, if you would like to ask a question, you need to press star 11 on your telephone keypad and wait for your name to be announced. And to withdraw a question, you'd need to press star 11 again.

Yes, I do read here a question about the pricing adjustments. Let me read the question first. Hi, you mentioned the pricing adjustment on 140 references, which represents less than one person of your references. Is it enough to give a clear signal to customers that you make some efforts on pricing? We do not have the bridge regarding store contribution coming from last year and this year. Can we have some colors on that? Your guidance on sales suggests flat or small growth on H2. Do you already have some good trends to confirm that? So I will give a part of the answer and Regis will complement after that. On the price adjustments, I started to give a first part of the answer. What I can add to that is that we will go further with playing some tactical price reductions. And of course, we'll make sure that our customers see that. So it's not about going down with all prices. It's about going down with some prices for which we do expect a volume elasticity and that we are also, again, going to make clear to our customers.

So part of the question, Florent, I think is to get clarity vis-a-vis... The variation of cells, including the like-for-like and the benefit of opening and closing. Mathematically, we have reported cells declining by 60 million. It's a like-for-like evolution of 67, hence the minus 11.4% that I commented. It's a positive contribution of opening in H1-22 and T3 related to the last two years. opening of nearly 10 million, and we have a net negative effect of this semester closing of 3 million.

And as far as H2 sales are concerned, I think you probably wrote the question just as I was answering the overall question, so I have really nothing to add to the three points I just made to answer Clément's question.

Okay, there are no questions on the phone conference at this moment. So I'd like to hand you back to Carol Alexander.

Do we have other questions by chat, with the chat?

Neither have I. Yes, a new question from Michael Niedzielski. Hello, can you please give us a guidance for 2023 CAPEX? And an indication for 2024.

Okay, so no surprise. I think it's a bit early for next year, except that I think the description of the way we manage the network to optimize each country implementation of stores may give you an indication. And you know that we are closing this year the big project we have with the second warehouse. So next year should no more be impacted by that. On 2023, I think the range of the 50 million euros, considering the last phase of the secondary house, still some investments vis-à-vis IT developments that I mentioned in our previous call, give you an indication. And the 50 zone is pretty much the way we view 2023. Any other questions, operator, over the phone?

There are no more questions in the queue at the moment.

So I think now we can close the conference. Regis, FM, and I will be at your availability if you need some follow-up after the call.

Thank you very much for your attention. And Regis speaking, I wish you a good summer after this torrent of releases today and this week. Thank you.

This is FM speaking and wishing all the best to you for this lovely summer to come.