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Hello, and welcome to the SMCP 2022 H1 Results. My name is Jess, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand over to your host, Mathilde Magnan, Head of Investor Relations, to begin today's call. Thank you.
Thank you, Jess. Good evening, everyone. This is Mathilde Magnan, Head of Investor Relations speaking. Thanks for being with us today for the presentation of SMCP half year results. I'm here with Isabelle Guichot, our CEO; and Patricia Despointes, our CFO. As usual, we will go through the presentation, and then we'll have a Q&A session. Before I hand it over to Isabelle and Patricia, I invite you to go through our usual disclaimer on Page 2. And I think we can start now.
Thank you, Mathilde. Good evening, everyone. Thank you all for joining us today. It's the first time we publish our semester figures on that date, sales and profit at the same time, and we thank you for all being here, with us today on the 1st of August, rather than enjoying deserved vacations. However, as we bring quite good news, we hope you will forgive us. So now let's see the key highlights of this semester, both on key figures and business initiatives, then Patricia will deep dive in our performance, and I will briefly conclude. Moving on to Slide 4 and 5. As you've seen from the press release, we are very happy to announce the strong H1 sales growth of plus 24.7% led by Europe and America, combined with the sharp adjusted EBIT improvement, thanks to good execution of the strategy. A strong performance despite the significant impact of COVID restrictions in APAC, including long store closures in key cities, distribution affected by the complete shutdown of our brick-and-mortar and digital warehouses and a massive traffic drop. On an organic basis, sales were up plus 21.4% versus last year, fully driven by like-for-like growth. Adjusted EBIT jumped by plus 76% to stand at EUR 45 million, resulting from the rise in sales, combined with an increase of the gross margin, reaching 74.4% and the continuing strict cost management. Net income rose very sharply to stand at EUR 21 million in H1 '22 versus EUR 1 million last year. Financial structure remains healthy, and we've showed our continued effort in decreasing the leverage ratio from 2.5x as of December 21, to 2.1x adjusted EBITDA as at the end of June. Finally, our teams have demonstrated, once again, their capacity to deliver our strategic pillars, including an increased brand desirability and pricing power, a full price strategy continuation with strong discount rate down by 6 percentage points versus H1 '21. The finalization of our network optimization plan in France early this year, and the current normalization of our digital penetration reaching 22%. On Page 6 now. As you can see, we are very proud to announce an all-time H1 sales record of EUR 565.4 million, a strong achievement in this difficult environment. I think the trend that you can see in this graph is really self-explanatory. Moving on very quickly to Page 7. You will find here the performance by region, mainly driven by Americas and EMEA, and the breakdown of sales in H1. Patricia will get back in more detail later in the presentation on this chart. Page 8 now. Let me present some relevant brand initiatives implemented at local level during Q2. Starting with the first pillar of our strategy; brand desirability, with our successful local marketing strategy carried out all over our geographies. For instance, to enhance the promotion of its summer paradise capsule collection, Maje announced the opening of a pop-up store in one of the most desirable locations in the Hampton, the Montauk, Surf Lodge. The space highlighted the newest capsule and offered a vibrant shopping experience for luxury customers. To promote this exciting event, Maje invited for a few days, international influencers and key opinion leaders to join a unique experience. The program included enjoying a night out in New York and then heading to Montauk for the festivities , including a beach cruiser bike takeover, a Pilates class, a surf lesson and beach stays and of course, dinners. To complete its 360 worldwide communication plan, Maje decorated also, its stores windows and its key cities across -- in key cities across North America, obviously, Europe and also APAC. Moving on to Page 9, on other local initiatives. Let's move to the Middle East, Dubai. Sandro designed a capsule collection for the Ramadan holiday, filled with bright colors and shiny finishes. These 2 capsules were all about elegance and feminine dresses, without being too excessive. In this month of festivities, this collection abstract the right balance between style and celebration. Moving on to Paris now, for another exciting news. Fursac collaboration with l'Orchestre de Paris, the Paris orchestra. Since April 22, the musician have been performing in their new outfits designed by Fursac, drawing on his firsthand experience as a musician, Gauthier Borsarello, the Artistic Director of Fursac designer, black shawl collar tuxedo, white shirt and silk cummerbund, bringing touches of excellence, of elegant, sorry to the chic and solemn Paris Orchestra outfit. He sets out to strike the right balance between comfort, elegance and transition. As we mentioned Fursac, moving on to Page 10, we're really proud to announce that Fursac has been in the spotlight. And for the first time since its creation, the brand was named as a new entrant of the Paris Fashion calendar -- Paris Fashion Week calendar and unveiled its Spring/Summer '23 collection at Le Palais de Chaillot in Paris, back in June. The collection designed by Gauthier draws on the codes he holds dearest and sees Fursac's need for speed and warm come to the surface, reinterpreting outfit normally reserved for racing drivers and offshore pilots. The stripped back environment speaks out for the Fursac men impertinent and elegant, his natural panache and the obvious pleasure he takes in dressing both for himself and the delight of others. To quote fashion source, Women's Wear Daily, called it an aspirational wardrobe in the best sense. Page 11, as we presented last semester, some pretty collaboration, the brands are -- especially excited about. Let's start with Sandro, for which art is central, both as a source of inspiration and as an endless core expression. For this new season, Evelyne & Ilan Chetrite have invited a French multidisciplinary artist, the architect and designer Garance Vallee. She imagined a set of modules and architectures as many ways of inhibiting the specific space of store windows, a place for both inside and outside in a dialogue with the new collection. For Evelyne & Ilan, giving the keys to their windows in the manifesto of their support for emerging artists and part of Sandro's committed dialogue between fashion and contemporary creation. Now turning to Maje. In an exclusive partnership with Sailor Moon, the iconic figure of Japanese Manga animation and ultimate symbol of girl power, Maje invite the heroine for limited edition collection with Kawaii inspiration. Love, boldness and femininity are valued at Maje and Sailor Moon share, speaking to young women around the world for several years. In this capsule Maje revisited Sailor Moon's feminine and assertive styles. This initiative add desirability to the collections and enable us to speak to our audiences in a more intimate way, thanks to a 360 [ digital ] communication plan, giving the opportunity to surprise and seduce our community and to enhance customer experience. And the results are very promising, boosting sales, driving traffic and attracting new customers. Moving on to Page 12. As part of our strategic plan and among the key initiatives we implemented this semester, our collaboration with the key opinion leaders is significant and emphasizes a strong brand desirability. And we wanted to highlight that organically our brands attract more and more new carriers and celebrities. We have here examples, Lady Gaga or Lupita Nyong'o. Their authentic artistic carriers and vivacious personalities allow the brand to extend original elegance to broader audiences all over the world, thanks to the halo effect. Now let's move to a very important pillar, a key pillar of our strategy, sustainability, on Page 13. I'm very proud to announce the last SMCP's carbon footprint measure, highlighting a decrease of minus 8%, since the latest study dating from '18. This result is in line with our strategic plan, is all the more remarkable given that it includes 2 additional key activities impacting carbon emission, which were not included in the 2018 report. Season after season, our brands are committed to a more sustainable and responsible fashion through various initiatives such as their key partnership with Fairly Made in terms of traceability. A few months ago, our brands became one of the first accessible luxury brand to offer their customers detailed and transparent information on the traceability of its product. By 2025, SMCP intends to attach a QR code to all products sold by the group's 4 brands, allowing full traceability of its product. This QR code provides a quick, simple, transparent and centralized access to all information relating to the traceability of each product, such as the country of origin of each material, the number of kilometers travel, location of the manufacturer, et cetera, et cetera. I'm delighted to announce that we tripled for this winter season, which is now entering the stores, the number of references having a QR code from 40 SKU last season to 120 references for each and any brand. Our teams stay fully committed in the execution of this plan, which will, I'm sure, enable SMCP to meet targets and potentially go above and beyond. Let's move now on to Page 14. Here you can see some examples of our network expansions in Europe for some meaningful additions -- with some meaningful additions in Q2, such as Sandro opening an Ibiza after Maje, which opened last year, and Fursac opening in the nice city of Deauville in France. Moving now to Page 15. Other openings in Asia, this time in Greater China, with a store opening during the quarter in Wuhan and Fuzhou. Page 16, let's now talk about digital. In Q2 we continued to expand our digital presence. In Canada, after almost 4 successful years on the Hudson Bay and to develop our digital business, Sandro and Maje opened their first on website. And in Korea, where we opened 2 new digital stores of Sandro and Maje and Claudie Pierlot in the country, thanks to a key partnership with our local partners. These openings strengthened our brand exposure all around the world, and I like the appeal of our brand to worldwide consumers. So now I will turn it over to Patricia, who will take you through the half year performance in greater detail. Thank you.
Thank you, Isabelle, and good evening, everyone. So moving on to Slide 18. Let me highlight some key messages on our sales performance by region. Europe as a whole, France and other EMEA countries, experienced a very steady performance in this semester, and we are very pleased with the figures for all brands, channels and countries. In France, we recorded a sharp improvement over the semester, reaching plus 41% organic, fully driven by like-for-like and leading to a level of sales exceeding 2019. Since the beginning of the year, SMCP outperformed the market and gained market share, thanks to the success of our collections. Q2 was strong with plus 8% organic above 2019. We continue to observe a discount rate reduction, which is quite impressive, to more than 10 points. All brands and channels benefited from this trend. We have also finalized our network optimization coming mainly from the Suite 341 end of concepts mostly in Q1. Some great openings are coming soon, and we look forward to telling you more next time in October. Most of our comments regarding France are also valid for EMEA. In this region, H1 performance was strong, reaching plus 50% organic, driven by both local demand and progressive recovery of tourism, coming from other European countries, Americas and Middle East. Same as in France, Q2 was excellent, exceeding 2019 by 11% organic. And the decrease of average discount rate was material, we gained 6 points. Now let's move on to Slide 19. In APAC, the intensifying credit restrictions first in Hong Kong and later in Mainland China had a sharp impact on sales, leading to a minus 24 decrease organic. In Mainland China, we recorded long store closures, peaking from March to May with the closure of an average of 25% of our physical stores during more than 2 months, mainly large stores located in Tier 1 cities, thus having a heavy impact on revenue. This situation also caused important drop in footfall in the other stores that remained open. On top of that, Mainland China distribution was also affected, especially during the lockdown of our warehouses, which slowed the business, immobilizing inventory and impacting both digital orders and other stores replenishments. Hong Kong and Macau also suffered from the restrictions, leading to a fall of traffic and tourism. June progressive reopening was encouraging. The appeal of our brand is intact. We recorded an excellent Tmall 618 event with both Sandro and Maje ranking in the top positions of accessible luxury brands. However, traffic is not back yet in stores, leading to June sales still below last year, but reducing the gap. In America, sales grew by plus 28% organic, a substantial growth versus '21, but also versus 2019. The main features of sales figures this semester, include a strong performance in all our distribution channels fully driven by like-for-like and the massive discount rate reduction above our expectations during the semester, a reduction of 10 points coming from digital and brick-and-mortar. Both U.S. and Canada had an excellent semester driven by high demand. As you may remember, H2 last year was very high in America. So comparison base should become a bit more challenging going forward. On Page 20, before going into the details of our P&L, we wanted to give you a quick overview of how we manage the current challenges of today's environment. First, on inflation, SMCP has implemented an agile pricing policy to protect margins. We believe that this policy yields strong results as we continue to decrease our discount rate, validating the relevance of this policy and the strength of our pricing power. In the meantime, we try to limit the impact of inflation on consumers working thoroughly on our collections plan and including entry prices in all product categories. Regarding P&L, we, of course, managed the semester with cautiousness, having a disciplined approach on cost management. Second, on sourcing and inventory to mitigate the current supply chain tensions of our industry, we rely on our diversified sourcing with the major part coming from Euro Mediterranean Basin, limiting our exposure to sourcing in Asia. We also continue to be agile on freight, switching or combining transportation mode or increasingly using rail, for example. And finally, our inventory management enables us to maximize sales while controlling the level of inventories. We have several product ways to inject novelties, but progressively over the season. We have also implemented a centralized global demand planning system to fine-tune our forecast and inventory needs. And finally, within the framework of this demand planning policy in the sourcing context that you all know, we have taken the opportunity to secure some inventories of raw materials and carryovers, as enablers of future growth. Now Page 21, let's focus on the P&L performance. We are very happy about the improvement of our gross margin ratio increasing by nearly 3 points, reaching 74.4%, demonstrating our brand pricing power and also sustained by continued solid progress on full price strategy, resulting in an in-season discount rate decrease of more than 6 points, discount rates dropping in-season below 25%. In parallel, store costs as a percentage of sales slightly increased by 1 point compared to last year, mainly attributable to 2 points, first channel mix, including a higher share of brick-and-mortar this year, due to the store closures in Europe in H1 '21. And second, and to a lesser extent, to the sharp restrictions in China. As already mentioned, we, of course, continue to adopt a disciplined management of our expenses. As a result, our retail margin corresponds to gross margin minus store cost stood at 32.6%. Moving on to Page 22, with the SG&A, which slightly decreased compared to last year in percentage of sales, reflecting a better absorption of all main expenses and the continuing discipline on cost management. All those factors enabled us to reach a sharp growth of adjusted EBIT of plus 76%, 3x faster than sales growth of plus 25%, leading to an EBIT margin of 8% of sales, gaining 2.3 points versus last year. Now let's have a look on Page 23, to underline the main variances of the net profit, which stands at circa EUR 21 million in 2022 compared to EUR 1 million in 2021. The main source of change comes, of course, from the additional revenue generating operating income, but other lines of the P&L also compared positively. For example, nonrecurring expenses, which are very low, smaller amount than last year and same for financial results, benefiting from a decrease of average debt this semester compared to last year. All this additional pretax revenue leads to higher income tax, but our net profit increases materially, at circa EUR 21 million is comparable to 2019 H1 net profit and not far from full year 2021 net profit. On Slide 24, highlighting working capital and CapEx. The Group maintained the strict control of its investment throughout the semester amounting to circa EUR 19 million, representing 3.3% of sales, slightly lower than last year due to a phasing effect, as you know, project scheduling can be a bit different from one semester to another. Working capital increased in absolute value from EUR 134 million to EUR 160 million from inventory, as we mentioned earlier, but it remained stable versus last year in percentage of sales. This evolution is meant to accompany growth and ensure H2 sales. This amount of working capital is expected to stabilize in H2. As a result, we recorded a free cash flow generation of EUR 5 million, moderate, but positive despite working capital evolution and despite external environment, including Asian restrictions. Finally, on Page 25, a few words about financial structure. We continue to decrease our leverage ratio from 2.5x at year-end '21 to 2.1x at the end of this semester. As you remember, we intend to get back to a ratio of 2x at the end of this year, which means that 80% of the expected progress is already achieved in 1 semester. Net financial debt lands at EUR 314 million, slightly down compared to last December. We repaid about EUR 70 million of financial debt this semester, part term loan and part guaranteed loan. During this semester, the EUR 200 million revolving credit facility was undrawn, which means that our financial headwind continues to be very comfortable. I will now hand over to Isabelle for final words.
Isabelle, the floor is yours.
I was on mute, sorry. A few words on our financial outlook on Page 27. Thank you, Patricia. The strong results of SMCP in the first half of '22, despite adverse external factors demonstrate, once again, the resilience of the Group and the strength and desirability of its brand's portfolio. Based on this performance and provided geopolitical situation, microeconomic context and sanitary conditions do not further deteriorate for the rest of the year, SMCP confirms its 2022 full year guidance. Thank you all for your attention. We're happy now to take all your questions.
Thank you, Isabelle. And Jess, do we have any questions?
[Operator Instructions] The first question comes from the line of Kathryn Parker from Jefferies.
So I have 3. My first question is just on the exit rate of the quarter, or like any update you can give on July trading that you've seen across the different regions? And then my second question is on pricing. And I wondered if you could give us an update on what the average selling price increase was like in the first half year-on-year? And just what your expectations are for pricing in the second half? And then my third question is on like retail KPIs. And I wondered if you could share a figure for the sales density or any other metrics that we could use to track your progress in improving the productivity of the retail network over time?
Okay. Thank you, Kathryn. I will take the first and second question, and I will hand it over, for the third question to Patricia. If I understood well, your first question was on current trading in July. Am I correct?
Yes. Yes, correct.
I mean, July for the time being, we -- there is no much difference between Q2 and July. It's still -- we're still seeing a double-digit growth versus last year overall, driven both by brick-and-mortar and digital. Same picture than previously, growth versus last year in France, which we consider a good performance in July last year, had benefited from the postponement of public sales, which is not the case this year. EMEA, strong double-digit reported versus last year. Excellent momentum continued in all our European markets and APAC still impacted by the drop of traffic and the continuing restriction, governing access to stores, we learned this morning that we have 2 additional stores that have closed in [ Chengdu and Mengzi ] due to some resurgences. So kind of ongoing question mark about China, and the impact of COVID restrictions. And Americas still a solid growth versus last year despite high comps. This is probably the answer to your first question. Second question is our pricing power. As you know, we priced the collection usually a few months before they enter the store, but we have also the capability to adjust our carryovers. We have factor in additional increase of raw materials, the increase of energy costs, increase of freight cost, and so we're able really to register an important material increase of our cost in store, which translated into an increase of our average selling prices. And at the same time, what is quite remarkable is we managed to decrease also -- we managed to decrease also our discount rates, which is the means -- which is the proof, the ultimate proof that our pricing power exists and that is very strong as long as the collections are aspirational. Patricia?
Yes, I will take the third question about retail KPIs. I would say, Kathryn, that most of the KPIs are in the green area, average transaction value, average selling price, number of transactions. We are in the normalization phase with most of the markets in the Western world are back to full operations. So of course, everything normalizes. So I think that the growth is quite organic with not only inflation on the prices, but really coming from an increasing number of transactions, which is, of course, quite sound. I think you talked about sales per square meter, which is, of course, a very important KPI to analyze our performance, which is what is a bit delicate that during 2020 and 2021, with the long-lasting closures and still this year with the closures in Asia, it's very difficult to have a reference here for sales per square meter. So while we normalize in France, Europe and America, it's still not a normal year in this respect for Asia. But for sure, this is a KPI that we follow closely and all our initiatives tend to make this KPI progress since, of course, the source of the increasing profitability of our brands.
Thank you, Kathryn. And Jess, I think we have another question.
The next question comes from the line of Marie-Line Fort from Societe Generale.
I've got -- the first question is about your OpEx evolution, which increased by 31% to 34%. Could you tell us what…
Sorry, I didn't get that. What? I didn't get that.
The OpEx.
OpEx.
Operating charges which increased by 34% roughly. Are there some phasing effect on this increase, meaning that last year, part of your stores were closed. So I suppose that you've got more OpEx naturally this year compared to last year. I just want to measure what kind of increase we should expect for second half? My second question is about your purchase basis. So you mentioned that most of your purchases are in euro. Are you intending to decrease further for 2023, part of your purchase in dollar in order to protect from the rise in the dollar?
I'll hand Patricia those questions.
Yes. First question about OpEx. As you mentioned, Marie-Line, the OpEx increase in percentage is a bit higher than the increase of sales, which comes from several impacts. The first one is that last year, OpEx were sometimes in the western world, quite relieved in Europe and the U.S. from [indiscernible] or rent relief that was diminishing the amount of OpEx. This year, we don't have that in the -- neither in France or EMEA or America. In Asia, we have some store closed, as we mentioned, but it seems that there is no longer really a sharing of the constraints, and we do not have as many impact of release as we could have last year in Europe and America. So I think these are the main impacts explaining the OpEx growth. Second, about the purchasing, be it in dollar or in other currencies. As we mentioned, we have increased our inventories. Part of the increase is explained by dollar evolution, but it's only part of it. It's also an increase coming from our growth in volumes done in the first semester and expected in the second semester. So we expect this phenomenon, which is purely linked to this semester to stabilize. We had registered 2 years of very strict control of our inventories in 2020 and 2021 in a strong COVID context. Now returning to growth requires some accompanying efforts on our side to foster this growth. But we don't see any material impact on dollar or euro purchasing.
And just to come back on one question. Do you expect OpEx to evolve in the same impact on the third half? Or will be less than the first half?
Sorry, Marie-Line, I had forgotten this one. Yes, you're right. No. Second half of the year, I would say it will depend if China operates normally installs or not. So I wish I could tell you, in a very positive world with stores open and operations working as usual, this increase should normalize.
Thank you, Marie. Jess, do we have other questions?
We currently have no questions in the queue. [Operator Instructions].
Okay. I think we are done with the questions. So thank you so much. Sorry, Jess, do we have a final one?
Yes, we do have another question in the queue. This comes from the line of David Da Maia from CIC.
I was late, sorry. Just a question on your gross margin. So we have seen a strong improvement in H1. Can you just give us the kind of guidance for the whole year? And do you expect a strong improvement in your gross margin in H2 as well related to this very strong discount rate discipline?
Thank you, David. Regarding gross margin ratio, yes, we are quite happy about this level of 74.4%. It's not far -- it's nearly exactly the same level as full year 2019. So for us, it's quite a good level. You mentioned the discount rate decrease. It was particularly impressive in H1 this year as it was already in H2 last year. The progress we can expect in the coming months or semesters, there can be some, but which will be more marginal as we have reached a level which is very, very satisfying. So we may be optimized to align the channels altogether or to align the areas or the countries at the same level, but it will be more marginal. So I think that this level that we experienced this semester, we consider it quite a good level, maybe a little bit optimizable with discount rate, but most of the job is now done.
Thank you, David. Jess, I think we are done with the question?
Yes, there are no further questions in the queue.
Okay. So thank you so much, everyone. We wish you a very nice evening, and good holidays.
Thank you for joining today's call. You may now disconnect your lines.