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Good afternoon, ladies and gentlemen, and welcome to Maisons du Monde's conference call chaired by Julie Walbaum, CEO; and Eric Bosmans, CFO. [Operator Instructions] And just to remind you all that this conference is being recorded. We would like to also to inform you that this event is also available live with synchronized slideshow. During this conference, statements could be made that constitute forward-looking statements based on management current expectation and beliefs and are subject to number of risks and uncertainties that could cause actual results to differ materially from future results expressed, forecasted or implied by such forward-looking statements. For a more complete list and description of such risks and uncertainties, refer to Maisons du Monde's filings with the French authorities of the financial market. I would like to hand the call over to Julie Walbaum. Madam, you may go ahead, and I will stand by.
Thank you. Good evening to all of you and thank you very much for joining this call to present Maisons du Monde's third quarter 2019 sales. I am Julie Walbaum, CEO of Maisons du Monde. I am joined on this call by Eric Bosmans, our CFO. Laurent Sfaxi, our Head of Investor Relations, is also with us. Throughout this call, I will be referring to the presentation that can be downloaded from website, which complements the press release we issued after market close. I will start by presenting the highlights of our 9-month performance. Eric will then detail our third quarter sales, and I will then come back to present our 2019 outlook, which we have updated to reflect both our strong sales performance and acceleration in store openings and closures as well as growth challenges at Modani that impact our EBITDA margin, all of which, I will detail. After that, we will be happy to take your questions. Turning to Slide 5. Maisons du Monde delivered a solid sales performance in the third quarter and over the first 9 months despite a soft trading environment in France. We continue to roll out our international and omnichannel strategy, with strong double-digit growth in online sales and those sales outside France. We are also on track in terms of our expansion plans with 20 gross openings over the first 9 months. The Modani stores that we have opened are also delivering solid output. So overall, the Maisons du Monde model continues to perform well, delivering profitable growth. Regarding Modani, the acceleration in expansion led to strong sales. We are, however, encountering short-term challenges linked to Modani's rapid development and associated ramp-up costs, which impact its profitability this year. We expect profitability at Modani to improve in 2020, thanks to the continuing good store performance of the newly-opened stores and the normalization of the cost base. This combination of solid top line and a momentary impact on profitability leads us to update our full year 2019 target. We are raising our sales and growth store opening target, and we are revising our EBITDA margin target to reflect the negative contribution of Modani this year. I will return to this in my concluding remarks. Let me stress that this bump in the road does not affect our commitment to the implementation of the 2024 plan that we presented last June and that aims at delivering double-digit annual sales growth, robust profitability and strong free cash flow. On Slide 6, you see how our performance translated into numbers over the quarter. Our sales reached EUR 283.7 million in total, including the condition of Modani, representing year-on-year growth of 9.2% at constant exchange rates. If you consider the Maisons du Monde Group only, sales were nearly EUR 272 million, up 8.2% at constant exchange rates and up 3% like-for-like. Modani for its part posted sales of EUR 11.9 million, representing year-on-year growth of 37.2%. Eric will provide more granularity on these numbers shortly, but let's just look at the drivers of the top line growth in the third quarter. Going to Slide 7. First of all, we further enhanced our product proposition. In line with our new strategy, we started to revamp our collectioning process based on releasing more [ but pristine ] collection to offer additional freshness to our customers. Our fall/winter decoration collection launched at the end of July proposed more distinctive themes, each composed of a narrower and sharper offer. This collection has been received by our customers, in line with expectations. We have also initiated our in-store merchandising localization program through a better selection of furniture with displays based on local demand. This is a long-term program, but we have been pleased to see encouraging initial results on the ground. Second, we continue to develop our B2B activity in order to support our ambition to be the #1 B2B destination for furniture and decoration in Europe. On September 5, Maisons du Monde opened its first B2B showroom in the Paris Grands Boulevards flagship store, where customers can find inspiration and discover specific B2B products but also get decoration advice and place an order. Initial feedback is extremely positive. Over the period, the B2B team continued to grow its business portfolio, implementing 2 new projects: the refurbishment of the co-working space in Bordeaux and the partnership with Adagio, part of AccorHotels Group, to redesign the AccorHotels, bringing a feel-at-home atmosphere to their customers. Third initiative. We continued strengthening our omnichannel experience through different programs. In order to increase online and offline integration after the start in Spain, we're implementing in-store returns of online decoration orders in France, Belgium, Luxembourg, Switzerland and Germany. We also started to deploy an upgraded version of a salesforce tablet application in-store to propose an increasingly seamless customer experience. This has been rolled out in about 20 stores in some states. Finally, on the website, we have enhanced our customer account space to improve access to personal order and delivery information, contributing to improved NPLs on deliveries. Turning now to our fourth initiative. We continue to improve the efficiency of our CRM activities. The contribution from e-mailing to our online activities continue to increase. Online traffic generated by e-mailing increased by 23% over the period versus last year, and online sales generated by e-mailing increased by 30%. We have also rolled out a series of automated life-moment-based marketing campaign targeted on relocation, using different drivers such as e-mailing, stack, Google, display and social media. Our fifth initiative was focused on strengthening our brand. In June, we conducted our annual awareness parameter, and thanks to our different brand initiatives across Europe, our brand awareness improved in all countries between June 2018 and June 2019. In Italy, brand awareness increased by 9 points, positioning the brand in the most popular furniture and decoration brands in the country with a third best top-of-mind position. In France and in Spain, Maisons du Monde's brand awareness improved by 5 points. Finally, we have deepened our partnership with Pinterest, implementing the Shop the Look ad to drive additional traffic to our website and increase sales from Pinterest. So as you can see, our third quarter was another quarter of customer-centric and omnichannel initiatives, pivotal to our next growth chapter. Over the period, we have also started to structure our marketplace team, setting up the building blocks of this new e-commerce approach. Going to Slide 8. Another pillar of our top line sales growth is expansion, and we continue to invest in our store network as part of our omnichannel development. As you can see on this slide, in Q3, we opened 7 stores on a gross basis, including 5 in France and 2 in international market. In the first 9 months, we opened 20 stores on a gross basis under the Maisons du Monde banner. These openings were heavily spread between France, where we opened 11 stores; and Europe with 9 openings, including our first store in Portugal, where we already have an online presence. The store is located in Faro in the Southern Algarve region, and first results are promising. At the same time, we closed 8 stores during the period, of which 5 in France, 1 in Belgium and 2 in Italy as part of the group's active management of its store portfolio. As we explained previously, we manage the network in a proactive and dynamic fashion, selectively relocating some stores to better locations in the same catchment area or in city centers, strengthening our omnichannel model and reinforcing our brand visibility. So as of September 30, 2019, Maisons du Monde operated 348 stores in 10 countries. We have also accelerated the store expansion of Modani with 4 growth openings in the first 9 months and 3 on a net basis, bringing its total network to 16 at end September. I will now hand over to Eric to talk about the detailed results of Q3 and 9 months.
Thank you very much, Julie, and hello to everyone. Let me start by detailing our third quarter sales numbers on Slide 10. Our total sales were up 9.2% at current exchange rate and 8.8% at constant exchange rate to EUR 283.7 million. That includes EUR 11.9 million in sales by Modani in the period, which represents a growth of 31.2% versus the same period last year at constant exchange rate, driven by expansion. At constant scope of consolidation, that is excluding Modani, sales were up 8.2% at current exchange rates and 8.1% at constant rate to nearly EUR 272 million. On a like-for-like basis, that represents growth of 3.0%. On Slide 11, we take a closer look at the breakdown of our sales, and you see that our strong top line momentum was driven by continued strong growth in international and online sales, demonstrating, once again, the strength of our model. We continue to see good momentum in our international sales, which were up by a strong 17.7%, adding EUR 20 million in sales between Q3 2018 and Q3 2019. France also grew by 2.7%, in line with the H1 number despite the challenging environment we faced in this market with continued stock trading conditions. Our online sales also continued their fast-paced growth, rising by 19.3% to EUR 11.8 million, while store sales were up 6.1%. Digital, as a whole, including click-in-store sales, is at 49% of our total sales as our model becomes incredibly increasingly omnichannel. Finally, we saw growth in both of our product categories in the quarter, with furniture sales up by 12.6%, while decoration sales rose 6.1%. So our growth continues to be well balanced and driven by all business lines. On Slide 12, we take a more detailed look at our 9-month sales. Our total sales were up 10.5% at current exchange rate and 10.2% at constant exchange rate to EUR 847.7 million. The Maisons du Monde business accounted for EUR 815.6 million of sales, growing 8.4% at current exchange rate and 8.2% at constant rate. On a like-for-like basis, sales growth in the first 9 months was 3.9%. Modani's contribution of EUR 32.1 million represents more than a doubling of sales on a reported basis over the EUR 14.5 million in sales recorded in the first 9 months of 2018. As a reminder, we acquired Modani in May of 2018, so it was not consolidated prior to that. Largely as a result of Modani's sales growth, we are in a position to revise upwards our previous 2019 sales guidance of sales growth of around 10%. Julie will comment on that later. As we did for Q3, on Slide 13, we break down our sales by geography, channel and category over the 9 months. And you see that here, too, there is a good balance. International sales were up by a strong 21.5%, adding nearly EUR 69 million in sales compared to the first 9 months of 2018. France grew by 2.7%, again, reflecting the soft trading conditions we mentioned previously. Online sales were up in strong double digits, rising 29.9% -- 21.9%, while store sales rose 7%. Finally, in terms of our product categories, furniture sales were up 13.9%, while decoration sales rose 7.4%. On Slide 14, we focus on the evolution of international and sales (sic) [ online sales ] for the first 9 months of the year. As shown on the slide, over the past 3 years, we have maintained solid double-digit growth on a compound basis, both in international and online sales. Overall, international sales, including Modani, has grown at a compound annual rate of 20% over the past 3 years and now represent nearly EUR 389 million or 46% of Maisons du Monde's total sales. 3-year CAGR of online sales is also 20% and online sales have crossed the threshold of one quarter of our total sales to reach nearly EUR 222 million in the 9-month period. On Slide 15, you see that our growth is also well balanced between like-for-like expansion and acquisition. The bridge on this slide details the respective contribution of each of these factors. Between the first 9 months of 2018 and the same period in 2019, incremental like-for-like sales amounted to EUR 30.3 million. Our like-for-like growth in a period of 3.9% is a decent number, given the previously mentioned soft trading environment in France. Sales from stores opened in 2018 contributed EUR 23.9 million, and 2019 openings added another EUR 8.5 million, for a total of EUR 32.4 million coming from expansion since the start of 2018. The contribution of the 2018 openings reflect phasing as the openings were concentrated mostly in the second half of the year. The contribution from this year's openings reflects net effect taking into account closures for relocations. As in previous years, a greater share of this year's openings will be in the second half and notably in Q4. Julie will comment later on the target for store openings and closures for the year. The third engine of our top line growth is acquisition. On a reported basis, Modani has added EUR 17.6 million over the first 9 months. And Rhinov, the internal decoration service, the acquisition we announced in June, made its first contribution of EUR 0.5 million. Please note that Rhinov sales going forward will be reported as part of the Maisons du Monde business sales. With that, let me now hand back to Julie, who will comment on Maisons du Monde's outlook.
Thank you, Eric. Let me start my concluding remarks on Slide 17 with the key highlights of the Maisons du Monde growth. We posted a solid sales performance over the first 9 months with strong growth in both online and international activities. Besides, the Maisons du Monde part of the business is delivering profitability above 13% despite the soft retail environment in France. Our store expansion plan is in line with our road map. We expect full year growth openings to be in the high end of the targeted range, and the openings will be well balanced between France and international. At the same time, we have taken the decision to close the 4 corner in Debenhams store in the U.K. as part of our active store portfolio management. In short, 2019 will be another year of profitable growth in the Maisons du Monde group. Turning to Slide 18. I did mention Modani's bump in the road in my introductory remarks, and I would now like to give you some further detail on this slide. So what do we mean when we say growth challenges? Well, as you know, when we acquired Modani in May last year, it was still something of a startup. In its 11 years of existence, it had opened 11 stores. So on average, about 1 per year. As we announced at the time, we acquired Modani to accelerate its development, and that is what we have done. It has opened 8 stores on a gross basis since joining forces with us 18 months ago. That is almost as many since its acquisition as it previously opened since it was founded. This is generally a quantum leap. [ dici ] has had very positive effects on top line growth, and the newly-opened stores have been performing really well. Now it is important to understand that Modani stores have a negative profit contribution in the first year, as sales are ramping up progressively. Considering the share of new openings in the overall state, as at September, let's keep in mind that as many as half of the 16 stores were less than 15 months old, the impact on profit is significant. Furthermore, the second thing of the openings was more backloaded this year than we initially planned, further delaying the benefit of ramp-up, at the same time the acceleration in development and sales logistic costs, as we mentioned in H1, as well as higher investment in marketing and support function than anticipated. Finally, profitability was also impacted to a lesser extent by the effect on gross margin of the new U.S. tariff policy. So the bottom line of all this is that the group EBITDA has taken a hit of about EUR 7 million from these growth challenges, leading us to revise downwards our EBITDA margin guidance for the year. But let me be very clear. The issue is circumscribed to Modani, and the Maisons du Monde model remains robust, delivering profitability above 13%, fully in line with expectations. Furthermore, profitability at Modani will improve in 2020, thanks to the continuing good sales performance of the newly-opened stores and also thanks to the normalization of the cost base. We absolutely remain fully confident in the strength of the Modani's business model and its medium-term growth profile. So let me now conclude on Slide 19 with the updated 2019 outlook. Considering our strong sales performance to date, we have raised our sales growth target to around 10.5%. We have slightly accelerated the dynamic management of our store portfolio and Modani's expansion, and we now expect to open 38 to 42 stores on a gross basis, and we will close 13 to 14 stores per relocation as part of the active management of our portfolio. These closures include the store corners at Debenhams store that we will close by the end of this year. All in all, we are comfortable in achieving our objective of net openings for the year. Concerning EBITDA margin, I mentioned that the growth challenges in Modani would impact the profitability, and we have thus revised our EBITDA margin target for the year to circa 12.5%. We continue to implement our business priorities, laying the foundation for our 2020-2024 plan. Despite the growth challenges at Modani, we continue to be very confident in the strength of our international omnichannel model, and we are fully mobilized to deliver our plan and continue Maisons du Monde's story of profitable growth. This ends our presentation. Thank you very much for your attention, and Eric and I are now very happy to take your questions.
[Operator Instructions] Excuse me, ma'am, your first question comes from the line of Aurélie Husson from Kepler.
Two questions, both on the [ warning ]. The first one, so Modani, this lower contribution, was it only in Q3? Are you just discovering that right now? If not, maybe you could have told us something in H1? So can you explain me the phasing of this EBITDA margin of Modani, which I guess is negative? And second, combining the 2 elements of guidance, I get to EUR 153 million of EBITDA roughly versus the EUR 158 million that you had previously in the previous guidance. There is absolutely no way for you to do this extra EUR 5 million in Q4, considering that you have like very weak comparison base for Q4 like-for-like. So we guess that maybe there should be a ramp-up in like-for-like in Q4 versus Q3, and it's a quarter for which you have very high gross margins. So was it really necessary to lower the guidance now, considering that December is such an important month for you?
Thank you, Aurélie. I'll take your first question, and Eric will take the second. So as we mentioned in our H1 call, we've been accelerating Modani's expansion of the H1, and we've further done that in H2, seizing further opportunities, especially in terms of openings, as we are planning to achieve a number of gross openings of 7 versus the -- about 5 that we had in the plan. And this is leading to additional cost. We said at the time that...
Sorry, sorry, sorry. I didn't even catch that. So you're opening more stores than expected?
We will be opening by the end of the year about 7 stores against the 5 that we initially planned, right? So this...
Okay. So 2 more stores?
Yes. In growth openings, yes. And we are closing -- we've been closing a store in San Francisco due to long-term work. In net openings, that will make 6. But in gross openings, that is 7.
And you did not know that in July?
Well, actually, the openings were -- it's true in Europe, but it's even more true in the U.S., like the pipeline is moving quite fast, and we did not know at the time, indeed, that we would be able to open up to 7. As you might remember, we had opened 1 in Q1 and 1 in Q2. We are opening 2 in Q3, and we are planning to open 3 in Q4. So you see the acceleration over H2, and this is, indeed, seizing opportunities that came along with the Q3. Now as I said, as you know, a Modani store is clearly driving a negative profit contribution in the first year, so accelerating the development is contributing in a negative way to the overall profit of the company. We have decided to do that because we think it's the right call from a strategic point of view. Because if we believe that the model is very robust and if we can accelerate its development and get returns sooner than later, we should do it. What made us not change the guidance at the end of H1 is the fact that, in parallel to this acceleration, we were planning to have an environment -- consumption environment in France, which would be more dynamic. And the environment did deteriorate over the summer at other retailers, as mentioned, and we happen to have a like-for-like sales growth of 3%, which is in the lower end of the bracket that we added -- estimated back in the time. So we were planning to be able to absorb with the Maisons du Monde scope this further investment at Modani level, and given the soft environment, we are now seeing that we will not be able to absorb this extra investment. This is why we're updating the guidance now. To the second question, Eric will answer.
Yes, which is -- so Aurélie, thanks for your question. Just let me rephrase it to make sure I got this right. So basically, your question is, can you absorb rather than revising your guidance? Obviously, the answer is no. Otherwise, we'd have maintained the guidance. Just to quote a few numbers. In H1 last year, we generated EUR 48 million of EBITDA. This year, we had EUR 45.6 million. In H2 last year, we delivered EUR 100 million of EBITDA. So basically, to deliver even the revised guidance, that means a significant growth year-on-year in EBITDA in H2, which we are concerned that we can do. The Modani number, and we've quoted a precise number, the impact is EUR 7 million. And obviously, the view is that this cannot be absorbed somewhere else in the business. However, it's very important to note that the revision of the guidance between the above 13% and the circa 12.5% equates very much to that EUR 7 million, which basically means that the Maisons du Monde business is performing as expected.
And -- but on -- in H1 this year, you mentioned that the, I would say, the shortfall of EBITDA was linked to the fact that you had done some promotions and that would be compensated in H2. So did you continue to do promotions in Q3?
So what we said actually is the -- if we talk in terms of EBITDA margin, it was 140 basis points we needed to explain, of which 110 was linked to gross margin. And we basically said 3 things -- 3 impacts. One being exchange rates. The other one being increased promotion. And the third one, to a small extent, about 10 bps was a mix. What we also said is that basically the effect of the exchange rates and the promotion would be offset in the second half of the year, and that all in all, the gross margin for the year would be in the region of what it was last year. So I reconfirm that, and that basically is in the current forecast, and therefore, is in the guidance.
We've got another question. It comes from the line of Tushar Jain from Goldman Sachs.
A few questions from my side. First of all, just looking at the decoration number, it does seem like it has slowed down to 6% in the third quarter. Just wondering if there's something going on there in terms of collections or anything, if you can give us some more color there. And second, coming back on Modani. I'm just thinking how much of the EUR 7 million hit you're taking this year, we should be expecting next year? And how many store openings you would be doing for Modani next year?
Thanks, Tushar. I'll take your first question, and Eric will take the second one. So your question is around the performance of decoration collections and maybe an underlying question of the like-for-like link to that, right?
Yes.
I guessed so. So I think that the deceleration that we're seeing right now is contextual, and it is not structural. And why am I saying that is because we are taking active steps to reaccelerate on like-for-like. And if you take the covenants of like-for-like, it's about traffic, and it's about sense of visit. Traffic is about finding the right locations, doing the right marketing. And this is exactly that we are going to implement through the new strategic plan. Sense of visit is indeed around the performance of collection and also the quality of the purchasing experience. And if I'm thinking in terms of collection, there is furniture, and there is decoration. We have a very strong offer in furniture, and we can see here in the numbers the furniture collections are going very strong. Still, we see further potential there around localization in terms of merchandising and also services, whether it is financing or interior design service. So not only the financial dynamic is very strong, but we think that it can really keep that momentum. In terms of decoration, this is indeed an area where we see further potential in offer competitiveness. And if we look back at the CMD presentation, this is indeed what we mentioned in terms of revamping the collectioning process and improving the product design. And what we've done over the last few months is taking the first step to improve that offer competitiveness. The first one of them is more and shorter collections, and the second one is the recruitment of the new team. So we welcomed in the team last month a new member to our executive committee with our new product director, name is Agathe Lacoste. She has 25 years experience in purchasing and product management in home and fashion as she spent 20 years with the Galeries Lafayette group in fashion and home, inventing the home concept of Galeries Lafayette. And the last 5 years, she spent at Monoprix, which is a retailer in France, where she did the complete turnaround of the decoration collections with spectacular results. So I am confident that Agathe will bring a lot of value in the team to further improve and further strengthen the competitiveness of our decoration collection. And indeed, we are taking the first step there, and we see several improvement areas. So this is why I am personally very confident about the long-term competitiveness of these collections, especially given the proactive steps that we're taking now.
Got it. And just a follow-up on that one. Is there any price investments you need to make beyond what you might be doing right now just in decoration?
Yes. No -- I would not say, yes, to a large extent. So there might be some pricing investment that we envisage in certain categories, but this will not be the main driver of improvement that I see. It's -- as it is the recipe of one of our main secret sauces, I will not explain in the full detail of what we're planning to do to improve on the competitivity of the collection, but it's more about rethinking the product design and rethinking the structure of a collection, also opening up to its [ some more ] talents and so on. So more qualitative drivers than pricing investment.
So Tushar, to your second question, so the EUR 7 million we mentioned of negative impact of Modani, just to be clear, it's EUR 7 million compared to an expected number, i.e., a budget number we had for Modani. It's not actually an actual EBITDA loss. Modani's only generating a small negative EBITDA. The stores we opened last year and this year are actually performing well. And obviously, despite the fact that generated -- they generate a negative EBITDA in the year. So for next year, it's obviously early to guide, and we won't guide until we announce the full year results. But what I can say is that we expect an improvement in Modani's EBITDA in 2020 and as well as strong top line growth. So yes, significant improvement expected from Modani from '19 to 2020.
Again, another question comes from the line of Georgina Johanan from JPMorgan.
Just a follow-on from the previous question, first of all. Sorry, I'm a little bit confused because you've talked about the soft environment in France, but you also seem to be referencing some improvements that are needed to the decoration collections. So can you just sort of -- which do you think is the larger factor? And indeed, I suppose, is this a concern going into Q4? Because of course, my understanding is decoration is a larger proportion of sales in the final and most important quarter of the year. So does this leave you -- if you are somewhat less happy with your collections than usual, does this leave you incrementally concerned into the final quarter? And that was my first question. And then secondly, I just wanted to clarify, and if my math is right, that France was around 1.5%, 2% like-for-like negative in the quarter? And then finally, just again, on my math, on my calculations, in stores, you're sort of running around the minus 3% like-for-like at the moment. So can you just talk about like the negative operational gearing that's coming through as a result of that and how you're offsetting that, please?
Can you repeat -- thank you, Georgina. Could you please repeat your second question?
Second question was just around the like-for-like in France. On my estimates, it looks to be down around 1% to 2% in the quarter. I just wondered if you could basically share if my math was right.
All right. So I'll answer your first and second questions, and will then hand over to your third question. So on the collections and the traffic, let me be clear, we are confident with our decoration collections, right? We just see further opportunity to improve it, to enhance that and to strengthen it for the long term. And I think that is really good news because the collections we're having right now do provide a good result that we have because the top line results are good at group level, and the decoration collections we see, are performing well if you take the online segment and the international segment. So it's not a structural element that should be a matter of further worry for Q4. But what I'm sharing with you is the fact that we think we can further improve it in the medium term, and this is what we've introduced with the Capital Markets Day. So it's not that there is any new effect around the collections for the fall and winter. It's actually performing fully in line with our expectations. So the soft environment is the main reason between the soft like-for-like in France. And this is explaining the global like-for-like, and the forecast of Q4 is included in the guidance that we've given. Eric will now answer the question on like-for-like in France.
Yes. So yes, so Georgina, your question for, if your maths are correct, the like-for-like in France, actually negative in the quarter. And you know that we don't guide actually at that level, but what I can tell you is that it is not negative in Q3. The like-for-like for France is not negative in Q3.
Okay. And in stores?
Sorry, what do you mean by stores?
What -- is this -- I mean the store like-for-like's running negative, around 3%, I think. So I guess first of all, is that right, given, obviously, the miscalculation on France? And second of all, I mean, presumably, there's some negative operational gearing associated with a negative in-store like-for-like trend. And I just wondered if there's any cost-saving measures that you're implementing to offset that.
Well, likewise to what Eric said, you know that we are not commenting on the like-for-like at stores versus web level given the omnichannel model, but I can tell you that Maisons du Monde has a history of keeping its cost ratios. And we've been proving that in 2018 by maintaining our EBITDA besides the softening trading environment. And this is also why we are confirming the EBITDA guidance at MDM level. Again, the revision of the guidance is really linked to Modani. The Maisons du Monde model keeps its profitability level in line with expectations.
We got another question, comes from the line of Hugo Henson from Jefferies.
My first question, I was wondering if you could give us an idea of what margin you're getting for the more mature Modani stores, just as a comparison what impacts are -- being how the ramp-up cost is affecting the guidance.
Sure. So as you -- you know that we are not guiding on the EBITDA margin per [ BU ], that is Modani versus Maisons du Monde. What we can share, though, as we did share at the Capital Markets Day, the fact that Modani in 2018 has the margin -- EBITDA margin of about 11%, right? So this is still our midterm objective. Now at the store level, as I said earlier, the profit contribution is negative in the first year. The ramp-up of the store is about 12 months, and the payback is around 2 to -- 2 years, 2.5 years. So if we take Modani at a global level, it's important to understand that the acceleration in development may create bumps in the road, especially when the new openings represent half of the real estate and given the fact that the profit contribution is negative in the first year. But it's actually -- we do see it also as good news because this acceleration of development is also a proof of the potential of the concept, and nothing in the period has made us doubt about the long-term potential and really the robustness of the model. So if we take the EUR 7 million gap, most of it is really linked to growing pains. I would say about half of it is about the negative profit contribution of this newly-opened stores, and the rest is about logistics costs and further investment in marketing. Now the first bit is a mechanical effect. So by definition, it will improve over time. And when it comes to logistics costs, it was really related to exceptional storage costs, and we do expect a normalization of that component in the near future. The last piece is around gross margin erosion. The application of the tariff indeed impacted in 2019 the gross margin. To a lesser extent that it could have -- because as you remember, our H1 results communication, we said that we did anticipate some of this tariff increase by ordering more ahead of time, but the tariffs were done in 2 steps, 10% at the beginning of the year and another 15% in H2. So overall, the impact was still there, right? And we could not in that time scale negotiate with the suppliers to be able to absorb this tariff increase. And this is part of the plan that we are planning to implement with the Modani team in 2020. This is why we are very optimistic about potential of improvement in terms of gross margin. So none of this is structural. It's really about ramp-up costs and costs that will be normalized in the near future.
Great. Very helpful color. So the next question. I was wondering if you could give any color on the regional performance for international.
Performance of international, details around this performance, right?
Yes. So just any kind of -- for example, Germany is the...
Yes, yes, absolutely. So as we said, we are very satisfied with the performance of the group, internationally speaking. I will not mention Modani. You've seen the numbers. Obviously, the top line dynamic is very good. And if we look at Europe, all of our countries have a positive growth, and it is indeed talking to really the increased awareness in each of our countries and also the performance of our omnichannel model in each of our countries. So not only each country is showing positive growth. The countries, such as Germany, is still showing spectacular results still because I know that I mentioned that in H1. It is still the case in Q3. So this is why we are very optimistic about this international expansion and the fact that it's not one country that is bringing the entire international [ crop ] up, it's really very well balanced across the countries. The only element that is not growing so much is the U.K. at store level, and this is why we've decided to close the shop-in-shops. As you remember, it's EUR 1.5 million total sales. So it will not make a great impact, and we are not planning to open any new store during the plan in the U.K. given the macro. So U.K. aside, all the other countries are very positive.
Great. And looking at the Banque de France data, it seemed quite weak, French consumer credit. Are you -- do you have any additional insight on that?
Well, what we see is indeed a tough retail environment, and we've discussed already the indices and the relevance of comparing Maisons du Monde performance to those indices, whether it is Banque de France or IPEA, and we are moving away from those indices because they give a too-partial view of the activity of Maisons du Monde, which is really around furniture and decoration online stores growth and international. Now if we take the Banque de France furniture index and the IPEA Index, they are both positive, but coming from very unfavorable basis last year. And as you know, we are not disclosing our activity sales by countries. So I'm not able to disclose furniture sales for France. But what I can say is that we are very satisfied with those numbers, and we are definitely satisfied with comparing to those indices. Now to the credit index of Banque de France, this, I guess, indeed, is an evidence of an environment of consumers who are more of a wait-and-see attitude than they were in the past. And it does not impact our furniture sales because we are not that much linked to this index, and we are also in the business of redecoration, so it's not linked to the housing index that much. So we are very satisfied with our furniture sales there.
Great. And maybe just changing talk a bit. Could you give us an update on the take-up of interior design services?
Sure. So we're talking here about Rhinov. And indeed, the Rhinov business is developing very nicely. They have recruited more than 15 interior designers over the last 2 months, which is a common decision that we've taken to make them in a position to accelerate that growth. We've decided for the remainder of the year to really leave them the room to structure for growth. And as of early next year, we will start promoting the services in our stores and on our website in a more proactive fashion. And an evidence of that is that we are actually just testing in 5 stores the promotion of these services in Q4 this year. So we will be happy to provide you with an update in our next communications about how it will have gone.
And just my -- or maybe it's my last question. Are you seeing a change in the marketing shift based on your marketing optimization? For example, you moving more into social media or elsewhere, looking at ROIs? Or how do you think about it?
Yes. We've always tried to have a very balanced strategy in terms of media spending, and we've started to invest very early on in social media. So investment there is indeed growing at a faster pace compared to our, let's say, traditional performance marketing sources, such as FCA, for example. Now it's really important for us to adapt to each country. And social media does not have the same importance in Germany versus Italy, for instance. So it's really about having your local marketing strategy, and this is where we're doing. The new bids that we're implementing as part of the plan that we presented in June is strengthened branding effort, and it is true there that social media is indeed a great vehicle for branding and brand image. But overall, we are able to maintain a very low marketing spend as a percentage of sales and to maintain really good ROI so far.
Another one more question, comes from the line of Anna Patrice from Berenberg.
A couple of questions from my side, and I apologize, I was a bit late to the call, so probably I missed some information. There was a lot of focus on low profitability at Modani. Can you quantify how much is due to [ the cue bid ]? How much is due to logistics cost? And how much due to the opening cost? That's one question. Second question is, you're saying that the profitability will improve next year. Honestly, obviously, it was making this year, so there is no way you can't improve it next year. But you want to improve it compared to this year? Or you want to improve it compared to 2018, which is kind of more normal level before the acquisition? So when you say that it's improving, what do you mean exactly? And what do you see as sustainable margins for Modani?
Okay. Great. I will take your first question, Anna, and Eric will take your second question. So sure, we are able to break down the EUR 7 million for you year. EUR 3 million out of the EUR 7 million is due to the ramp-up of the openings and the fact that these openings happened later in the year, right? So we had this back-end program of openings, and the fact that the negative contribution is particularly high in the first month, all of this accounts for EUR 3 million out of the EUR 7 million. And as I said, it's a mechanical effect, so we'll actually be able to see a lot of benefits of these openings next year, especially as we are doing more openings than we initially planned. EUR 2 million is around the logistics costs, and it's really costs occurred through exceptional storage that we had to incur to allow for the acceleration of development. Since then, we've been able to find new processes and new locations, and we are in a good position to imagine that we will improve this logistics ratio as of next year. And the remainder, EUR 1 million, is a combined effect of gross margin impact. So as you can see, it is to a lesser extent because, as we said in H1 comps, we were able to avoid part of the tariff impact. And next year, we are planning to negotiate with our suppliers to restore our gross margin to the level that we had in 2018 roughly. The combined effect of this impact on gross margin and a couple of other things, such as increased marketing investments. So this is a breakdown of the EUR 7 million. So as you can see, these are really growing pains, and we see no reason why this should improve structurally in the near future. That links to the second question that Eric will answer to you.
Yes, thanks for asking the question because it allows us to clarify what we mean by that it will improve. So just to go back to what we said about Modani. When -- in the 2018 free announcement, there was an appendix saying that Modani is generating about 11% margin. So that was 2018. Obviously, this year, as we said, it's generating a small loss. So it's obviously a negative EBITDA margin. So the improvement next year, it's obviously an improvement on this year, but it will not go back to the 11%. That's for next year. However, it's probably fair to say that our long-term view is probably to go back to where we were. So that's in terms of percentage. In terms of action and EBITDA value, obviously, next year, we'll improve on this year. But we're not in a position to say that it will improve on where it was last year, and I'm talking about EBITDA value in actual dollars or euros.
Okay. Understood. Initially, the story of Maisons du Monde was all about profitable growth. It's actually really applicable to Modani. So when do you expect that Modani will also show profitable growth?
Thank you for your question. Well, if we look at Modani, we really see it as a growth engine, right? And if you're taking a business potentially small size and we accelerate it to such a big extent, it does mean a phase of investment. And we can see it in 2 ways, right? First one is like to have a very gradual investment phase, so that the EBITDA margin of the Modani business is not being too much deteriorated, but then you're limiting your growth potential. Or you can decide to be more active in this first investment phase, which we have decided to do because the more we are -- the faster we are able to scale up, the faster we are able to benefit from this growth potential. And as Eric said, by the end of the plan, the idea is to indeed be on this good target -- EBITDA target, and this is what we have included in the plan. So this is to say that this bump in the road that we're seeing in 2019 is a bump in the road. It does not question at all our belief in the robustness of the model and the growth prospects of Modani. The only thing that we've done, if anything, is to accelerate this phase of development, seizing further opportunities, moving from 5 gross openings to 7 because we do believe that in the current context of -- in the U.S. market, we have an opportunity to seize. The Modani model is very strong, is very well catered at millennials. And if we seize those opportunities to grow faster, then we will. We will because, at the end of the day, it's good value for the company.
Okay. Understood. And then just a couple more follow-up questions. One question then on the tariffs and associated costs. You're saying that you want for your suppliers to improve the pricing basically so that your margin is improved. Why can't you pass on the increase on the consumers, I would assume as this is something that affects all of your peers? So do you see that your peers, they don't increase the price? My understanding was that some of the peers are also trying now to reallocate in terms of suppliers and to avoid the tariffs. So maybe more on what you expect to do next year here. That's one question. And then another question as for the difference. Obviously, Haverty is up for sale. Some of the stores were already sold in Germany. Some are now up for sale in France. How do you see -- is it potential for you to acquire some stores in and out of France? Is it something that is actually good, given the competitive environment? How do you see the changes on a competitive environment?
Okay. So first, on the tariffs, the passing on the cost increase onto consumers through price increase is always an option. However, at this time, at this point in time, we are not betting on it. We are not factoring this in next year gross margin improvement or only to a very small extent. Because as I said, we want to optimize our capacity to win in the U.S. market and to grow there, and we want to stay very competitive from a price point of view. Price competitiveness is one of the biggest assets of Modani, and we don't know what competitors will do. Some might pass it on to consumers, some might not, and we do not want to put the competitiveness of the offer of Modani at risk. So this is not a preferred option. Now the option that we are taking in -- well, actually the Modani team has started to do it, is indeed to renegotiate with suppliers. As you can imagine, a lot of Chinese suppliers are facing with this issue around some U.S. customers moving out from China. So that actually gives us some leverage to further negotiate with suppliers back in China. And actually, we've already achieved some good results there. So we are confident that some outcome of this will come into the numbers next year. The other thing that the Modani team has been considering and have started to do is to relocate part of its sourcing. Specifically, they've been moving some of their sourcing in terms of sofas from China to Italy, achieving better purchasing costs than in China through harder negotiation. They've managed through this new sourcing to achieve even better costs, sourcing from Italy versus from sourcing to China. So supply and negotiation, sourcing diversification are the 2 main levers that we want to operate to restore the gross margin. And then if that is not enough, we might envisage passing on some price increase to consumers. But is that clear on that one?
Yes.
Yes? Okay. Around the competition, we've not seen any drastic change in the competitive environment over the last 2 months. It is true that we are seeing quite a few retail struggle on the European landscape. And we've always been very -- we have always looked with a lot of care to any opportunities that might arise in terms of stores, and we keep doing so. But we do not see any massive change in opportunities linked to the evolution of the competitive landscape. It's very much on a technical basis. We might want to take back some stores, but we are not envisaging a step-change due to that evolution of the competitive environment.
So from Haverty, there are no really particular interest for your [indiscernible]...
No, if you want my personal opinion, I think that Haverty is a great brand. It's been a great company. And now if you think about the EUR 1 million, the Haverty brand does not have the same strength as the one it has with the 40 plus, and we are more interested in making sure that we can capture the millennial audience. And as a brand and as a company, it comes with a set of challenges that makes this not a good move for us in the future. So we are not seeing any particular opportunity linked to that situation.
Okay. Understood. And just, sorry, last question, and I'll leave the floor for other analysts. One question is on the longer-term guidance, given as you downgraded the guidance for 2019 because of Modani and because some of the issues will still remain for the next few years given the exploration of growth, is it still valid 11% to 12% EBITDA margin? Also do you expect it to be decreased by 25 basis points for some of the debt? And what are you thinking about 2020 margin? I know that you don't give the guidance until the full year results, but I think it will be quite useful for us to be prepared and to have some indications where you think the margin will go. That's the first question. And second question, on like-for-like, 3% in Q3 despite a very low comparison basis. How is the current trading? How was the month of October? And do you see any exploration in Q4, especially in France? How do you see the situation with traffic, especially as decoration is quite important in Q4, and traffic in stores is quite important in Q4 in France? And with that, also the comparison basis, but [ as indeed ] as it was in Q3.
Sure. So thank you for asking the question around the 2024 trajectory because it gives us an opportunity to clarify a very important point. We absolutely confirm our 2024 plan, and I think the road that Modani level, is just a bump in the road. So if anything, it makes us even more confident in our ability to drive long-term growth with this model, and this capacity to accelerate openings is really good news, especially as we can maintain with the newly-opened stores the same strong performance as the historic stores. So we absolutely confirm our midterm guidance, that is a 5-year plan guidance. When it comes to 2020, as you said, it is too early for us to give you clear indications about 2020. But if you break it down between Modani and Maisons du Monde, Maisons du Monde is performing exactly in line with expectations. We are both in terms of staff and in terms of profitability. And when we are talking about Modani, we're talking about some ad hoc investments, some short-term challenges. So it's not like we are changing the trajectory by a huge amount. We will -- we might adjust a couple of elements in what we foresee in terms of the very near future at Modani level. But again it's a small part of the group, so we don't expect a significant impact on our 2020 guidance. Around the current trading for Q4, well, we not only confirm our guidance, but we have slightly revised it upwards in terms of sales, going from 10% to 10.5%, and it's essentially due to Modani, but it also means that we are comfortable with our guidance at Maisons du Monde level. And indeed, that means that we will have a Q4 that is between the Q3 performance and the 9-month performance, and this is linked to the fact that, indeed, we've been seeing some uptake in the store traffic over the last few weeks. Again, our furniture sales are going very strong. So the combined effect of that make us confident about the Q4 and then about the full year guidance.
There are no further questions at this time. Please continue. Excuse me, ma'am, there are no more question at this moment.
Oh, okay. Thank you. So thank you very much -- okay. Well, Eric and I would like to thank you very much for your time and attention, and we are looking forward to meeting and talking to you again in a few months for our full year communication. Thank you very much, and have a good night, everyone.
Goodbye.