Maisons du Monde SA

PAR:MDM

Earnings Call Transcript 2021-Q1

[Christopher Welton, Head of Investor & Banking Relations]

Good morning to all of you, and thank you very much for joining this call to present Maisons du Monde's first quarter 2021 sales. Hosting today's call is our CEO, Julie Walbaum. She is joined by our CFO, Regis Massuyeau. Julie and Regis will be making today's presentation, and then we'll be pleased to take questions. You have no doubt seen the press release we issued this morning. The conference call slides can be downloaded from and viewed on our website, maisonsdumonde.com. This call is also being audio webcast, and a replay will be available later on today. All listeners are reminded to read the forward-looking disclaimer on Slide 2. I will now turn the call over to Julie. Julie?

[Julie Walbaum, CEO & Director]

Thank you, Chris, and good morning to everyone. Before beginning this call, I'd like to extend a warm welcome to Regis Massuyeau, who joined us last month as CFO. Regis has had a long and successful career in the consumer product sector in major international groups, first at Coca-Cola and then at Danone, which he joined in 2008 and where he was most recently Controlling and Performance Management Director. Some of you may have already crossed paths with him since one of the many senior positions he's held at Danone was Director of Investor Relations from 2013 to 2017.Regis succeeds Eric Bosmans, whom I would like today to thank for his commitment to Maisons du Monde over the last 2 years, contributing to strengthen the finance function. Welcome, Regis. Let's now turn to our first quarter performance, which you know continue to be atypical as an average of 15% of our store network in Europe was closed during the quarter, only slightly less than last year, as about 20% of our stores were closed in that same period in 2020. In this context, Maisons du Monde turned in an outstanding performance, providing another clear demonstration of the attractiveness of our differentiated offerings as well as the strength of our omnichannel model. Our Q1 sales of EUR 331 million were 36% above the same quarter last year, entirely driven by our like-for-like, which grew by 37%. This remarkable growth was driven by record online sales, up 76%, and also very strong store sales, up 19%, attesting again the complementarity of our channels, which do address different purchasing behaviors. This performance also reflects solid underlying demand for home products and the appeal of Maisons du Monde's differentiated offering. As we compare Q1 '21 sales to Q1 '19 to erase the distorting effect of the pandemic, sales displayed strong growth of 18%, including nearly 12% of like-for-like, which demonstrated the exceptional renowned capacity of our sales model. In this, Maisons du Monde returned to growth as early as H2 last year, and it's now hitting its stride with these exceptional numbers. We are proud of this performance, which does show the distinctiveness of our business model and also the skills and agility of our team. On Slide 6, I suggest to take a look at the operational highlights of the quarter. First of all, as every year, we successfully launched our new 2021 furniture integration collection between February and March, with a particularly strong reception for our outdoor collection and also very strong sales of categories like mirrors and indoor sofas. We also launched our new B2B catalog with nearly 400 SKUs in March. The current situation has increased interest in our leading places, as we all know now, and we think it is a trend will be lasting. Within this, we see growing expectations around product originality, style and coziness, which are typical strengths of Maisons du Monde. We also see growing expectation around durability and practicality, 2 areas where Maisons du Monde has started to further invest in for the last couple of years. Second, our selective marketplace continues to ramp up, and we are very satisfied with the performance to date, with now over 400 brands who have joined us to meet the need of our growing base of home decor enthusiasts. Third, we opened our second Maisons du Monde Hôtel & Suite in Marseille. The Marseille hotel is right in the heart of the city, in the famous Vieux Port and is a great way to highlight the brand and bring it alive for customers. Customer ratings are excellent. Our hotel gets the top grade on TripAdvisor already. It also captures the attention of the feminine and home decor press, such as HEL Magazine, which covered the opening extensively. We do invite you to live the experience and tell us what you think. And fourth, we began construction on our new distribution center in the North France. The second warehouse is, as you know, a key enabler of our strategic ambition. We expect the stage opening with the store section coming in the second half of 2022. Finally, a couple of highlights of the quarter that I would like to share. First, the EY-Parthenon study that awards every year the most preferred brands across sectors revealed that Maisons du Monde is France's second favorite home decoration brand for the third consecutive year beside IKEA and the second brand across all sectors when it comes to store experience. Furthermore, Maisons du Monde was also awarded the Prix Excellence Client Customer Excellence Award by L'Académie du Service, Ipsos [ Conte ] and Trusteam Finance for its customer-focused initiatives across the brand's touch points. These distinctions validate, in my view, the strength and focus we have been bringing to our customers and their satisfaction over the last years. This focus has been driving a number of initiatives, including the launch of the marketplace, the implementation of the click and collect, and also training programs for sorting built upon customer feedback. We strongly believe our customers are our most valuable asset and their interest drives our decisions more and more within the company. On Slide 7, we focus on our online growth, which reached 76%, with online sales standing at nearly EUR 244 million. Online sales represented as much as 37% of total group sales in Q1 versus 29% in Q1 last year. We saw growth in all countries, with the particularly noteworthy performance in France, Belgium, Germany and Switzerland. The traffic aggregates with -- showed very strong growth. Overall traffic was up 68%, up to 83% in France, and unique monthly visitors were up 67%, beating the 20 million mark. Alongside with the surge in traffic, we did see an improvement in our e-commerce conversion rate, which is excellent news and a further rise in our new online customers. That group increased by 54% over the quarter. I'll remind you that this growth of new online customers was up 38% over the full year of 2020. So still very, very new customer acquisition, strong dynamics. The results of all this were the combined result of high underlying demand, for one, but also capacity to still grow in share of this traffic through optimize online marketing, further work on mobile visibility and also an improvement in our delivery times by about 15%. The growth was also boosted in France by the sustained ramp-up of our selective marketplace. Its activity continues to exceed our initial expectations. The number of brands, as I said, has grown to over 400, representing a growth of 50% since launch. Customer satisfaction keeps being very high, at parity with our e-commerce operations. On Slide 8, you see that we continue to also actively manage our store portfolio in Q1. Store openings have slowed as planned. And at the end of Q1, Maisons du Monde's global store network stood at 366 stores compared to 371 1 year earlier and 349 at the end of March 2019. During the first quarter of 2021, Maisons du Monde opened 2 stores in Spain, 1 store each in Belgium and Switzerland. It also opened its first store in Vienna, Austria, at the country's largest shopping mall with very encouraging first numbers, and we are very glad to open in new omnichannel countries. As you know, we were live online in Austria for a few years, and now we are becoming omnichannel in that country. During the same period, the group closed 8 stores, of which 3 in Spain and 5 in France, all part of the relocation program we have. Total commercial space stayed broadly stable at 433,000 square meters. With this, let me now hand over to Regis, and I'll return after that to discuss some business initiatives, current trading and outlook for the rest of the year.

[Regis Massuyeau]

Thank you, Julie. Good morning to everyone. I'm really glad to sit next to Julie today and really thrilled to join Maisons du Monde. I obviously look forward to discussing with you very soon. Very happy to do so, probably already today with some of you. I will start on Slide 10 with our traditional sales bridge. With sales of EUR 331 million, we are above Q1 2020 by 36%. Getting into the detail of the different block. I will start with, traditionally, the development, which, as you see, contributed nearly EUR 4 million to this growth, most of that being obviously carryover of the 2020 openings. One point to highlight as well is the contribution to growth of Modani and Rhinov, above EUR 2 million versus Q1 2020. Modani, very good performance, benefits from people relocating in the U.S. in a pandemic context, translating into furniture sales and a very good category trend at the moment. Vast majority, as commented already by Julie, is like-for-like evolution, EUR 82 million that I will comment now. First, to comment on store, I remind you that last year performance was impacted by a negative COVID impact, combined to the French dockers strike for a global effect of roughly EUR 50 million. This year, in average, 50% of stores were closed versus around 20% last year. There is, therefore, a slightly favorable comparable base. If we put aside these elements related to lockdown measures, it's key to acknowledge a real store overperformance this year when stores were opened, minimizing the effect of COVID that we estimate around EUR 20 million net in Q1 2021. We consider as well that consumers were more able this year to plan and organize their purchasing in stores compared to last year when lockdown decision were more immediate. All in all, stores sales posted a strong Q1 performance at 19%, with a noticeable March performance well above 50%. Overall, we are really pleased with this good start to the year, remarkable Q1 growth performance that illustrates the success of Maisons du Monde collections in a well-oriented consumer demand for homewares as well as a strong business model. Let's move on next slide, which is another classic, where we present our usual slide on geos, channels category. And first, you see that we recorded high growth across the board. First, in terms of geos, growth was well balanced between France, up 42%, and international market, up 29%. France grew faster than international, mainly because its stores were opened approximately 90% of the time, while international stores were only opened about 75% of the time in the quarter. In international, considering those different elements on lockdown measures, we saw different situation from country to country in terms of performance, with strong double-digit growth in Spain and Belgium, mid-teens in Italy. Conversely, German stores were closed throughout the period and remain closed today, and 3 stores were closed from the end of Jan to the beginning of March. One point, which is important to notice, is in all those markets, e-commerce activity was extremely high, everywhere, every country being above 70% growth during the quarter. To complement on that slide, a couple of elements and comments on categories. As you see on the right-hand side of the slide, both furniture and decoration had strong double-digit growth, with furniture up 32%, decoration up by a strong 39%. Focusing on furniture performance. This one was first driven by outdoor, 40% of the growth in the quarter, and then sofas, 25% of the growth as the combined results of a very well-received collections and a relatively good product availability based on our sourcing prioritization approach to secure best sellers. Performance was steered by the month of March, which was exceptionally strong with sales 2/3 above the level of last year, benefiting from a favorable comparable base and a peak in seasonality regarding these products. Obviously, this contribution of outdoor will logically fade away in the coming quarters. Finally, what I would like to note in this first quarter sales is that everywhere, we are well above the pre-pandemic level, demonstrating the strength of our differentiated offering, reflecting the expanded store network as well as we operate 17 stores more than at the end of Q1 2019. As you see on the slide, we are up across the board versus Q1 '19, be it in geo, channel or category. Switching to the next slide, Slide 12. This slide, more specifically, stress international and online sales. And the graph illustrates that we saw strong double-digit growth in both as well as a very solid compound annual growth of over the last 2 years, which is important element on that slide. International first, sales are up 29%, as said, reaching nearly EUR 150 million. This represents 45% of total sales, which is down 3 percentage points versus Q1, reflecting those measures in some countries, as I just commented, but is up 1 point versus Q1 2019. On a compound annual growth basis, international sales have increased by 10%, fueling definitely Maisons du Monde's growth agenda and confirming the potential of our international footprint. Finally, looking at online. No need to repeat what Julie just said on this important part of activity. It's worth, however, pointing out that the compound annual growth of online sales over 2 years is 31%, highlighting again our Q1 performance this year, particularly strong. That growth is partly influenced by store closures, especially for international networks -- sorry. But this metric shows a continuous rising momentum in online sales, reaching on the quarter 37% of the total. Let me now hand back to Julie.

[Julie Walbaum, CEO & Director]

Thank you, Regis. On Slide 14, we focus on our commercial priorities for the year, which are broadly unchanged compared to the prior quarter as we continue to be selective in defining our priorities while maintaining cost and cash discipline. We will first keep strengthening our offering based on reinforced feedback loops. As I said before, customer is more and more at the core of our priorities, and we have launched product-based surveys to understand the perception that our customers have of Maisons du Monde products when they have bought and started using them. So we send these surveys about 1 month after they receive their products. This strengthened focus on product usability and rate improvement areas that our product teams are excited to work on. This goes hand in hand with continuing to develop our brand credibility and our proximity with our customers. Furthermore, we keep working towards normalizing the supply level in our different product families, actively managing sourcing constraints as they appear. As explained by Regis, we have proven effective in optimizing our available inventory through Q1. Now some families remain challenging, such as outdoor, which met, as we said, with exceptional commercial success to date and is likely to run low on inventory through the end of the season. Other categories, such as wood furniture and textile, will be impacted for the remainder of the year, in part due to the pandemic outbreak in India. Our teams are fully mobilized to strike the right balance between product availability and cost management, supported by a series of tools and processes that we implemented last year at the core of the pandemic. We will also maintain our efforts towards CSR especially regarding offer sustainability and product waste management as per our strategic plan. Finally, we will continue to reinforce our omnichannel model by accelerating our digital growth and also preparing the launch of the marketplace in the French store network and second online market, both planned for 2022. On Slide 15, let me give you a bit of insight on our current trading and business outlook. We are continuing to see sustained activity despite store closures and some supply constraints. Concerning stores. On average, 75% of the store network was closed in April, which is, of course, a challenge, but also an improvement over April last year where the entire network across countries was shut down. Based on the different country announcement, we expect about 40% of our store network to be closed in May, 2/3 up until May 19 when France starts reopening and 5% to 10% afterwards, corresponding to partial constraints mainly in Italy. We then expect to return to normal by end of June. Online continues to help offset partly these closures, and we are seeing a good increase in order intake year-on-year. Nevertheless, we are below the Q1 growth level as the comparable base for online becomes more challenging as of Q2. As a reminder, online grew by 47% in Q2 last year. Our marketplace continues to show strong momentum and continues to exceed our initial expectations, as we said. So as a result, our activity to date is well oriented, and we are expecting a solid Q2 performance. That said, it is not all plain sailing ahead, and we keep a realistic eye on the uncertain environment we are working with. Sales-wise, store openings are just resuming, and there are still differences from country to the next, as described. We also cannot discard a new possible lockdown after summer. Sourcing-wise, we are expecting the current wave of the pandemic within India to start impacting supply in Q3 -- sorry, sales in Q3, supply in Q2 and sales in Q3. India accounts for about 1/5 of our sourcing volume. We are monitoring the situation very closely and now taking action to mitigate the impact, as I said. However, our current scenario implies a potential hit in sales of EUR 50 million to EUR 60 million in H2. Finally, we are observing continued increases in transportation and raw material costs, especially metal, foam and fabric. These are factors to bear in mind looking ahead to the second half. So let me conclude on Slide 16 with our outlook. Our performance in the quarter shows that despite the challenging environment we face, Maisons du Monde's unique positioning and product offering as well as its omnichannel model continued to show the strength. We are confident in our ability to post an improved performance in 2021 with a strong first half. Visibility on the second half, however, remains limited, and operational challenges are not behind us. We also have to contend with a more challenging comparable base in Q3. As a result, we believe it is appropriate to leave our full year guidance unchanged at this point in time, and we do confirm our objectives set earlier this year, which are high single-digit top line growth year-on-year with broadly stable store count at year-end, an improved EBIT margin, increasing by up to 50 basis points versus 2020, and finally, free cash flow higher than its 2020 level. Thank you very much for your attention. And Regis and I are now happy to take your questions.

[Operator]

[Operator Instructions] And our first question comes from Clement Genelot from Bryan Garnier.

[Clement Genelot, Analyst]

I would have 2 questions from my side, if I may. The first one is on the consumer landscape. Obviously, H1 will be driven by the fact that households are really mal-constrained in their [indiscernible] managed spending. So what's your view on the consumer landscape in H2? And my other question is regarding India and this thing. What will be exactly impacts both in terms of cost and also in terms of delivery time?

[Julie Walbaum, CEO & Director]

Thank you. I'll take your questions. Regarding the consumer landscaping issue. So there are moving -- several moving parts, right? Like first, fortunately, we will start to -- we will resume finally going into restaurants. And hopefully, we can start planning for summer holidays, which is honestly great news. And we don't know, indeed, what part of the consumer spending, which was basically spent on home, will now be transferred to our leisure and travel categories. So this is yet to see. Now I believe that these dynamics, part of it at least will remain for 2 reasons. I think that there is, indeed, the lasting trends around wanting to feel more cozy at home and really wanting to also receive more of family and friends at home. So I think this will be lasting. Also, the work-from-home practice will be developing in our view. And we think that as a result, there will be good dynamics for the underlying sector. And that's for one. Second, I also think that the digitalization of the sector will continue to accelerate. As you know, the home and living sector is a bit behind compared to other sectors. Whether it's fashion or electronics, when it comes to online penetration rate, we have more, about 10% to 12% as a whole. So I believe that there will be also some catch-up in that move to digital. And I think that Maisons du Monde will be best placed to capture that opportunity. So all in all, I think that it is, indeed, important to see how the H2 will unveil to see how much of this lasting trend will stay, but we do assume there will be still good tailwind for us. Regarding India, so as I said, India is about 20% of our sourcing volumes. It's a bit more integration and a bit less in furniture, would be around 25% decoration, 20% furniture. So that's to give you a bit more granularity. So what does that mean on cost and delivery times? So we don't have that different mix when it comes to our Indian sourcing or global sourcing. So I don't expect a big mix effect here. Will it cost higher to source from this country given the pandemic? I don't think so because we are negotiating contracts not just for the quarter, but really for the year. And more important than that, our average duration of partnership with suppliers is a bit under 10 years. So obviously, we are committed long term with our suppliers, and that goes in both directions, right? So I don't see that situation impact, of course, more than the rise overall, which is freight and raw materials. When it comes to delivery times, so as I said, we start seeing some challenges in sourcing, and that will translate into sales in Q3. The delivery times are more a question of freight versus really production because in our scenario, we take a scenario of closure and then gradual ramp-up. So we believe indeed that they will be a bit longer. I don't have the exact details, but we can count on a few more weeks of lead time by the end of this year. We expect the situation to be absorbed by the end of this year or very beginning of next completely.

[Operator]

There are no further questions at this time. [Operator Instructions] We've have just received 1 audio question coming from the line of Philip Spain from JPMorgan.

[Philip Spain, Research Analyst]

I just had a question on -- given what you spoke about on the headwinds on the raw materials, what kind of gross margin would you be guiding to for kind of the rest of the year? I know that you previously said you're expecting it to be slightly down, but you think given the ongoing freight issues -- and you would previously expected them to end to be done by the end of H1 and now kind of extending that towards the end of this year, is there, therefore, going to be more of an impact on this?

[Regis Massuyeau]

Thank you for your question. Regis here. Indeed, what we say today is that there is a bit of high attention of inflation on both freight and raw material. You may remember that at time of the full year 2020 communication, we already indicating that year-on-year, we were expecting at that moment of time, 100 bps inflation of cost on this parameter. We do consider that now it could go up to 200 on a full year basis.Obviously, fully embarked in our model. And when we confirm guidance today, we definitely consider this extra element inside, something we need to monitor very closely, and we are working actively on the rest of the cost management so to maintain the fundamentals. But to your question, yes, maybe from the 100 base indicated in March to -- up to 200 for the full year.

[Philip Spain, Research Analyst]

And if I may just a follow-up on that. And do you, therefore, expect the trade margin to also be slightly down? Because I know you said that, that would -- you expected -- you previously said that would be flat?

[Regis Massuyeau]

Well, it's different component, vis-à-vis the overall model. So obviously, considering everything related to the mix, stores, web and the different categories, all in all, we consider we can manage this extra.

[Operator]

For the time being, we have no more audio questions, and we'll now be taking questions via the web. [Operator Instructions]

[Christopher Welton, Head of Investor & Banking Relations]

Operator, I'll take over right now. We have a question from Marie-Line Fort of Societe General. And Marie-Line asked us, on Modani, where do you stand on your strategic update?

[Regis Massuyeau]

I take this one. Thanks, Marie-Line. On Modani, as we said, we are looking at the different option. We are progressing well on this agenda. We are as well gauging external interest on the topic. So well on track with the analysis on the strategic review of this asset, and we will come back to you in due course. Thanks, Marie-Line, for the question. Any other question, Chris, from web, operator on your side?

[Operator]

We have no more questions on the phones. Please continue.

[Christopher Welton, Head of Investor & Banking Relations]

Okay. Well, thank you very much. Regis and I will be available this afternoon to take your questions. So please don't hesitate to give us a call. Thank you very much for your time and attention, and have a good day.

[Julie Walbaum, CEO & Director]

Thank you. Have a good day.

[Regis Massuyeau]

Thank you, all of you, and looking forward to discussing with you more in detail soon. Bye-bye.