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Good day, and welcome to the Maisons du Monde First Half 2023 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. And I would now like to hand you over to your speaker of today, Carole Alexandre. Please go ahead.
Thank you. Good morning to all of you, and thank you very much for joining this quarter to present Maisons du Monde's first half 2023 results. I am Carole Alexandre, Head of Investor Relations. I am with our CEO, Francois-Melchior De Polignac; and our CFO, Regis Massuyeau, who will be making today's presentation. It will be followed by a Q&A session.
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. This call is also being audio webcast, and a replay will be available on our website later today. All listeners are reminded to read the forward-looking disclaimer on the Slide 2.
I will now turn the call over to Francois-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 Maisons 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 sustainable, profitable growth.
The agenda for today's call is on Slide 3. 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 full year guidance.
Let me begin this presentation with a brief overview of the H1 highlights on Slide 5. 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 you 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 3 positive developments. First, Maisons du Monde's Fall-Winter '23 showcase collection with inspiring universes and diverse materials and colors have 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 EUR 85.1 million, up plus 73.3% compared to H1 2022, of which EUR 77.3 million were generated online and EUR 7.7 million 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 1 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 and market dynamics, the marketplace growth improves our economics and it's a margin-accretive activity. Third, we successfully tested the transfer of 2 stores in France to the affiliate model. And here, too, we will continue the rollout going forward with up to 5 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 slide, but on the first C, customers, we launched tactical commercial initiatives that supported traffic and sales. And the second C, costs, we have actually already achieved half of our planned cost savings of EUR 25 million, which will help support the EBIT. And on the third C, cash, we have reduced CapEx by EUR 12 million and inventories by EUR 23 million, 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 3 fundamentals that are customers, costs and cash. Those are our 3 keywords on which the entire company is focused to create the conditions for return to profitable growth. As we 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 7 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 3 key customer priorities. First priority, develop customer-centricity. While 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 reinforce customer-centricity applied to furniture is to radically accelerate the elimination of unavailable products on display, so as to maximize potential sales.
Second priority, reinforce quality of execution. A key success factor is our sales force, with skills and dynamism on the shop floor makes the 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 on 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 Boost 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 8, we turn to the second C, costs. Our objectives are to maintain our gross margin at around 65% in the full year and so with that, the company cost base with annual savings of about EUR 25 million before inflation. To do so, Maisons du Monde is acting on 3 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 3 key levers. One, aggressively prioritize CapEx. We reinforce selectivity of in-store CapEx and optimize investments on projects. Two, dynamic management of inventory. We manage a significant decrease in inventories while further improving product availability. Three, 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 5 stores, 3 in France and 2 in the rest of Europe while reducing our network by 11 stores, 7 in France and 4 in Europe. Of those 11, 2 have been, in fact, transferred to affiliate. At the end of H1, the Maisons du Monde network that comprises 352 stores, of which 350 integrated and 2 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 on-channel 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 the net closure -- net 15 closures overall or 5 more than we initially said. After the successful transfer of 2 integrated stores to affiliation, we will continue to roll it out in up to 3 more stores in the second half. This model has been successfully implemented by other retailers, and we think it has the potential to expand Maisons du Monde's footprint while optimizing CapEx.
With that, let me now hand over to Regis to present our financials.
Thank you, Francois-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 EUR 611 million in H1 was down 5% and down a more limited 3.5% in Q2. This highlights 2 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 EUR 543 million. 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 basis, H1 sales were down 11.4%, including still a positive net contribution to sales from 2021, 2022 openings of EUR 10 million and a negative EUR 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 Francois-Melchior just presented. H1 decoration sales were down 9.7% to EUR 289 million. Sales reached EUR 134 million in Q2, down minus 10% due to nondiscretionary expenditure prioritization by customers. H1 furniture sales were down 10.3% to EUR 254 million. In Q2, sales dropped by a more limited 4% to EUR 136 million, recording a sequential improvement to Q1, which was at minus 16.5%. This category, this is fitted from price adjustment of 140 price adjustment of the most attractive product and promotional initiatives, notably on the outdoor collection that posted a plus 5% versus last year in GMV.
Turning to channels. First, online. Online sales stood at EUR 161 million 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 rates continue 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 regards to stores, sales amounted to EUR 382 million in H1, down minus 6%, comparable to Q1 while Maisons 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 benefit 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 EUR 16 million despite a decrease of EUR 60 million in sales, down from EUR 28.4 million in the corresponding period last year. Margins at 3% was down from 4.7% last year. The bridge on the slide shows you the different building 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, as 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 negotiations with suppliers with first effect of freight cost improvements; additional promotions on the contrary, well monitored to support traffic and an efficient hedging policy.
The marketplace, growing by EUR 35 million 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 enabled us to contain the decrease in relation to cost inflation and makes us confident in Maisons 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 enhance flexibility and be as variable as possible in the context of negative volumes.
Moving to the next block. Store operating costs and central costs decreased by nearly EUR 14 million to EUR 157 million in H1. As Francois-Melchior mentioned in his introduction and its 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 savings of EUR 25 million already achieved in H1.
Lastly, advertising expenses decreased by 13% to EUR 28 million. Maisons 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 cost, and we'll continue this effort in '22 and '23 to return sequentially to higher profitability levels. On the following slide, Slide 14. We look at free cash flow, which turned positive at nearly EUR 3 million in H1 from a negative 6.6% last year. Here are the main moving parts. First, lower EBITDA for EUR 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 EUR 15 million.
Maisons du Monde benefited from negotiation with key suppliers and tight monitoring of inventories, which decreased to EUR 246 million compared to EUR 265 million last year in the same period. Third, a EUR 14 million positive impact from lower CapEx, thanks to disciplined 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 Maisons 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 #15, we look at earnings per share, which ended at EUR 0.02 in H1 from EUR 0.19 in H1 of last year. This decrease reflects a number of factors: first, a negative EUR 0.17 linked to operations and the declining volumes that we commented before. Second, another negative EUR 0.11 due to nonrecurring items, notably related to store closures already booked in June as decisions to stop some leases have been officially communicated. And third, a positive EUR 0.09 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 canceled by the end of the year, with a clockwork accretive impact on EPS.
Let me now hand back again to Francois-Melchior for the outlook.
Thank you, Regis. 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 objective, 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 the 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 communicated in May, namely top line decrease in the low to mid-single-digit range, with a sequential improvement in H2 versus H1; EBIT in the range of EUR 65 million to EUR 75 million; free cash flow in the range of EUR 40 million to EUR 50 million; a dividend payout ratio of 30% to 40%; and on the ESG front, 1/3 of Maisons 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.
[Operator Instructions] And our first question comes from Clement Genelot from Bryan Garnier & Co.
Three questions on my side. So the first one that is under the sales guidance. Now what makes you so confident about the fact that the sales trend or what improved in H2? The second question around these price cuts that we've seen in H1. Could you give us some quarter around demand? There is this IT post-service price cuts on some furniture and some other items. The third point is on the freight. Could freight following provide the biggest headwind that's unexpected and push the gross margin even above 65% [indiscernible] this year?
Thank you, Clement. I will start perhaps on the freight question, and then I will let Francois-Melchior comment on your 2 other points vis-a-vis sales guidance and the return or the dynamic for H2 and the reading we have on the elasticity on price cuts.
On freight, as you remember, I commented in H1 -- in Q1 and at the time of the full year on the benefit indeed expected from the renegotiation and the adjustment of the market. All in all, we consider that it should bring a 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 2-tier momentum on gross margin development this year that we can observe already in H1, i.e., slightly below 44 and perhaps -- 64%, sorry, 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-a-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 Francois-Melchior for the 2 other points.
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 output 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, trade-off from customers favoring travel and leisure expense, for instance. Still, what gives us confidence in the second semester is basically threefold. First and foremost, we will benefit from an improvement of the comparable base. Second, we will continue to deploy and enhance our 3C initiatives on the customer side, i.e., [ tech-led ] promotion, again, 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 3C actions, the objective to be stable is certainly ambitious but also really achievable.
[Operator Instructions]
Yes. I do read here a question about the pricing adjustments. Let me read the question first. You mentioned the pricing adjustment on 140 references, which represent less than 1% of your references. Is it enough to give a clear signal to the 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 suggest flat or small growth in 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 the 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 volume elasticity and that we are also again going to make clear to our customers.
Second part of the question, I think, is to get clarity vis-a-vis the variation of sales, including the like-for-like and the benefit of opening and closing. Mathematically, we have reported sales declining by EUR 60 million. It's a like-for-like evolution of EUR 67 million, hence the minus 11.4% that I commented. It's a positive contribution of opening in H1 '22 and Q3 related to the last 2 years opening of nearly EUR 10 million, and we have a net negative effect of this semester closing of EUR 3 million.
And as far as H2 sales are concerned, I think you probably wrote the question, just otherwise answering the other questions. So I have really nothing to add to the 3 points I just made to answer Clement's questions.
There are no questions on the phone conference at this moment, so I'd like to hand you back to Carole Alexandre.
Do we have another question by chat -- with the chat?
Neither have -- yes. A new question from Michael Niedzielski. Can you please give us a guidance for 2023 CapEx? And any 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 in the second warehouse. So next year should be -- should no more be impacted by that. On 2023, I think the range of the EUR 50 million, considering the last phase of the second warehouse, still some investments vis-a-vis IT developments that I mentioned in our previous call, give you an indication. And the EUR 50 million zone is pretty much the way we view 2023.
Any other question, operator, over the phone?
There are no more questions in the queue at the moment.
I think now we can close the conference. Regis, FM and I will be at your availability if you need some follow-ups after the call.
Thank you very much for your attention, and Regis speaking. I wish you a good summer after this torrent of [indiscernible] today and this week.
Thank you. This is FM speaking, and wishing all the best to you for this lovely summer to come.
Thank you very much all. Bye-bye.
Thank you. Bye.
This concludes today's conference call. You may now disconnect.