Good afternoon, this is the conference call conference operator. Welcome, and thank you for joining the OVS First Quarter 2024 Financial Results. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Stefano Beraldo, CEO of OVS. Please go ahead, sir.
Thank you, and good afternoon to each of you, and thank you for attending this conference. Let me start by saying that, in spite of all, Suez Crisis that caused huge delays and lack of goods in the first period of the year, which is about to be absorbed almost completely now, basically, after four months of late deliveries. And in spite of second part of spring, that is not even starting basically, and the late start of summer, which penalized obviously the month of May and also the beginning of August. I think that never like now, the momentum of our group in term of brand, OVS and Upim, never has been so good.
The sales dynamics are so solid in terms of sales growth, and are still positive in these weeks, in spite of the very poor weather, tells me that the appreciation of the customers about what our group is doing has never been so strong. Women category, which commands most of the buying decisions of customers, is, again, the winner in terms of sales increase, followed by men. And no surprise, kids is late only because of the weather, because in the southern part of Italy, where weather is okay, sales dynamic is a strong like-for-like, even in the last two, three, four, five weeks. All in all, I think that in the next couple of months, there will be a strong recovery of what has not been sold in May.
I repeat, May has been positive in terms of like-for-like performance. Nevertheless, in spite of the poor weather, which is almost incredible to me because the market is negative. And again, it means that the momentum of the brand is pretty, pretty good. Very good news on margin, because in the first quarter, we enjoyed a better intake, but because of late deliveries, we have been forced to sell old merchandise, replacing in the store the lack of new arrivals, and all merchandising had a lower margin. So good news, because in spite of that, our gross margin is improving, and in the second quarter will improve even more, because we don't have the necessity to sell all the goods again, because now the Suez situation has been absorbed.
So all in all, I think that, we have a pretty good company in a pretty good momentum, a pretty good quarter, and also a pretty good current trading, which, which is suggesting us that, we have to expect, a good performance for the full, first half of the year. And also considering, the brand momentum, crossing my finger, also a good performance for the second part of the year. So now I, I hand over to Francesco Leoncini for a more detailed, comment on, our, figure. Thank you.
Thank you, Stefano. Good afternoon to everybody. I would start from page number five of the document that represent the income statement of the first quarter. Sales are increasing by almost EUR 16 million, 4.7%. And, as said by Stefano, this was due to the ability of the company to offset delays with extending intersales period and a previous season stock. EBITDA is increasing by 8%, thanks to the operating leverage, and so by EUR 2 million versus the already good performance of Q1 2023. And basically, we are increasing by 50% versus EBITDA of Q1 2022, when we stopped at EUR 20 million.
Profit before tax is increasing by 31% at EUR 10 million in a context of stable D&A and interest. On page number six, we have some more breakdown on sales and EBITDA performance. Sales is increasing in both DOS and franchising channel. In franchising, we had some slightly underperforming versus DOS, because of the delays in goods arrival. One more comment maybe needs to be said on the EBITDA performance of OVS versus Upim, with Upim increasing 14%, and this is a consequence of the business model.
Upim, having a higher percentage of franchising, usually anticipates the shipping by one month, three weeks or one month versus OVS, and in this case, it allowed it to bypass the closure of the Suez Canal, and so had a better stock. And, another comment on the gross margin, about the fact that OVS leveraging old season stock managed to do that at same sales price, but it was just a matter of lowering the margin of spring/summer 2023 and spring/summer 2022 versus spring/summer 2024. So all in all, a very good performance with a strong increase in both brands. I move to page number seven with the view on the trade working capital.
Trade receivable are increasing in line with the sales, so 3% increase versus last year in a context of stable DSO. Inventory is reducing by EUR 5 million, and this is the consequences of the sales of previous season stock, and despite the fact that we have about EUR 10 million increased in the stock in transit, due to the longer, more or less, 10 days longer shipping time from Far East to Europe, due to the circumnavigation of Africa. Trade payables are increasing by 4%, and this again is in line also with the growth in sales.
So overall, we have a cash positive impact of EUR 18 million versus last year in terms of reduction of working capital. In the moment, the end of April, in which the absorption of working capital is at peak level, given the seasonality of OVS business. On page number eight, we have the view on capital expenditures, but I will start from the picture on the right. We are very pleased to announce that on the 20th of April, we opened our flagship store in Venice. Maybe then Stefano can comment a little bit more on the building, which is an historic building.
And that is also one of the reason why we have some more investments on stores. The other one is an acceleration on refurbishment, given the very positive results that we experienced in 2023, and that we also are going to see in the next months from the stores that benefited of this refurbishment in Q1 2024. IT and logistics are very in line with previous year, and we expect to complete the year in terms of investments slightly below what we had last year.
Completing the peak of investments that over the past, the last three years in terms of renewal of stores, IT investments, for instance, in the new cash system, and the automation in logistics. The summary of all of that on page nine is the cash flow. Cash flow, that is the normal seasonal absorption in Q1, but that is an improvement both in terms of the EBITDA and of absorption on trade working capital. Part of it is reinvested in CapEx that are increasing by EUR 4 million, but net, we still have EUR 3 million of lower cash absorption versus 2023.
The overall performance of the net financial position sees also the extraordinary dividend paid in February, almost EUR 80 million, and a robust buyback of EUR 20 million in the quarter. In fact, the net financial position on page 10 is not changing versus last year, because I said all the cash generated was reinvested either in dividends or in buyback. But in a situation where the leverage ratio, depending on how we look at that, on average, at the spot moment of 30th of April, anyhow, ranges between 1.2 and 1.4, that is in a very normal and safe and safe situation.
As of 30th of April, we now reached 38 million shares, treasury shares, equal to about 13% of the total capital. Some final word on the current trading and outlook before then, of course, the Q&A session. The year-to-date sales remain robust in terms of current trading. We are growing more or less by mid-single digit versus 2023. And we will factor the beneficial effect of intake margin that is now stabilizing after the peak of the raw materials one year ago in the post-COVID.
Another element, a positive element going forward is the finalization of the labor contract that on one side stop the uncertainty on what could have been the future, both for workers and also for companies. And on the other, we were pleased with the solution that we found with increase to our colleagues in the sales departments that offset the inflation. But this increase is diluted, a little bit more diluted in terms of impact over the years versus what originally was conservatively estimated. So we could have some additional benefit also of this finalization of the contract. So all in all, we expect for the full year 2024 an improvement versus 2023.
With that, I leave the space to the Q&A.
Thank you. This is the conference operator. We are now beginning the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask you to use the handset when asking questions. Anyone who has a question may press star and one at this time. The first question is from Domenico Ghilotti with Equita. Please go ahead.
Good afternoon. A few questions. The first is on the latest topics on the new labor contract. So if you can help us in understanding how it works, and so what will be the impact this year and next year? Second question is on the first quarter. I'm trying to understand if you can provide any comment on what is the gross margin improvements and what are the trends in the operating costs, so particularly labor and rents? And the third question is on the capital allocation. You have already touched the topic of the CapEx. If I understood well, you are saying that for the full year will be slightly below last year level.
How do you want to proceed with the buyback, and do you have any M&A opportunity going forward that you are looking at? Thank you.
Okay. Thanks, Domenico. I start from the first two points. So, the labor contract, we originally expect some increase over just three years, so 2024, 2025 and 2026. And now we have a more diluted, as I was saying, over until 2027. So more or less, the same amount, which is globally about something more than 10%, but over this period of time. The impact on 2024, of course, is much more limited. We cannot really provide exact figures, also because the impact is person by person, depending on the one ad personam that each one could have.
But as we were saying, the forecast for the year is an improvement versus what we discussed in the April call of a couple of million EUR, just to provide you with a figure on the previous estimate. In Q1, we experienced some labor cost increase because in the [Foreign language] of the new contract, there was already a 30 EUR increase per person, starting from April 2023, so this one was included in the numbers, and also the provision for the [Foreign language] that is going to be paid in the next few months.
On the other side, on the rents, we have still the last portion of the inflation, the high inflation of 2022 until mid-2023, that completes the full year. So, we-- from now on, we expect to have basically the same rents of last year. In the Q1, there was a sort of a 4% increase on rents due to the inflation, the last part of the inflation curve. On the M&A, I leave the word to Stefano.
On the capital allocation, and referring also to the CapEx spending, we said that we expect for this year a reduction of CapEx compared to last year of about EUR 5 million. We, in the first quarter, we increased CapEx compared to last year, mostly because of a number of stores that has been refurbished, and also this new opportunity that has been identified recently, which has been the opening of the, probably, what is the most beautiful store of OVS now in Italy, which is 100 meters ahead from Rialto Bridge, a location characterized by a huge amount of tourists. And the store is big, is one of the biggest store of OVS.
It's a 4-floor store, and it is a kind of a turning point for OVS, because in this store, we are demonstrating to ourself you guys, as our investors, and most importantly, our customers, that OVS is able to satisfy the demand of an Italian, of an international tourist with a higher spending propensity. The ticket is higher compared to the other store. There is the biggest beauty personal care area ever realized by OVS, with almost 200 square meter dedicated to this segment of business in the ground floor. And the results as of today are much above budget. So we are super happy with this big store.
The rest has been invested in refurbishing stores, which are almost completing our big wave of restructurings, which started a couple of years ago with a new image. As of now, we have refurbished the vast majority of the important stores in Milan and in Rome, which were waiting, looking forward to receiving a new image. Just an example, we refurbished a beautiful big store in Marsala, where we are in the heart, in the heart of the city, and the store is generating today almost 70% sales increase since the reopening. So the new refurbishments are also sustaining the good like-for-like, and again, are important to give a boost to this change of image, improvement of image of our brand.
As far as concerns the future, as Francesco said, this is the third and last year characterized by big game-changing game-changer plan, like the new logistics, the automated logistics system, the introduction of new cash counters with facilities which are giving support to the omnichannel experience, and a better CRM activity on behalf of our customers. Being at the end of this process, we believe that starting from next year, 2025, we will go back again to the range of EUR 75 million, more or less EUR 75 million CapEx.
On M&A, we have no opportunity in our radar today, so we are fully committed to extract value from Goldenp oint, obviously, which is the most important M&A operation that we targeted in the last years.
Okay, thank you. If I just may follow up with the last question, is on the working capital. In particular, I wonder if the current level of inventory is so is fine for you, so is optimal, or if you still have some, let's say, carry forward extra inventories that you got from the previous season that is still sitting there?
No, we are super fine with the quality of our inventory because the in terms of aging, our inventories today is better than one year ago. Also, because we have been forced to sell more winter goods than expected during the period of January, February due to the lack of new arrivals. On the other side, thanks to several improvements that we made in our operation, which are making our planning and distribution system more precise and faster, we know that we can reduce by another EUR 10-20 million, the level of inventory simply by improving quality of operations. And let's keep in mind that we still have this EUR 10 million transit inventory, which once the Suez Crisis will be solved will be absorbed.
So by definition, we have a EUR 10 million excess of inventory, which is the excess of transit time, but besides this, there is another at least EUR 10 million improvement to be achieved.
Okay. Thank you.
... The next question is from Daniele Alibrandi with Stifel. Please go ahead.
Yes, good afternoon. Just for taking my questions, I have three. First one, what was the like-for-like in Q1? Second question was regarding if you can update us on the projects and that you presented last year, and what are the strategic priorities going into H2 and next year? And also, if you can provide for the full year, let's say, a kind of indication in terms of space expansion. Thank you.
About what? About?
Space.
Space.
In store space. Yes, exactly.
Okay. Okay. So like-for-like, in the 1st Q has been about three point something, and the rest is new openings. Projects, I think that the most important project, the one that is generating the biggest result is the personal care. We are continuing growing in this segment, double-digit, high double-digit since 24 months now. So, perfumery is becoming an important traffic generator, new customer opportunity to attract a new customer, sales density generator, and EBITDA margin per square meter generator.
So it's a huge improvement in our portfolio of merchandising, let's say, because it's attracting younger customers in a very synergetic way, also with a brand that we are developing successfully, dedicated to young generation, which is B.Angel and Utopja. So basically, all these three initiatives are contributing to attract younger generations, mostly girl, to the benefit of our overall performance. The second important project is the expansion of Piombo.
You might have seen in the store, starting this spring, also what we call Piombo Contemporary, which is a more, let me use improperly an expression, call it a kind of a quiet luxury approach, where there is nothing to do with luxury, obviously, but because the prices are higher compared to the average price of the adult categories, but are still super affordable. With this brand, Piombo Contemporary, that some of you might have seen in Milan, because until last week, we had a lot of billboards communicating to our customers this brand and creating intangible value in our company, utilizing and making advertising on Piombo, treating Piombo like a real brand.
And we are happy with the results, because we are attracting again more demanding customers looking for a more quiet style. Quality of materials is getting higher and higher, and the results are very encouraging, given that the sell-through of this new idea is very good and in line with, call it Piombo, if I may say, traditional. Another important project is B.Angel, which starting from next season will be dedicated also to men, young men, which is a segment where we feel that we were still not completely in line with the opportunities offered by the market.
We didn't comply perfectly with the request of the younger generation of male because our assortment was not in line with exactly in line with what they were looking for. And I'm convinced that with this new collection we can replicate the success that B.Angel had with the younger girl. Then we have many other projects, but I think that also for sake of time, these are the most important that I would like to remember. Last, maybe, we are continuing putting attention to the accessory where we are growing, but I think we will grow more starting from second half of the year.
Regarding space and new openings, we continue to open new stores in a range of about, we think 1.5% per year, this year, and also in the next coming couple of year, we will continue to have a similar opening rate, mostly Upim, but also we have identified several location we are appropriate for OVS. On top of this, or better to say, the bigger part of this expansion will be generated by franchising store that will continue to be opened. And on top of this...
So not included in this 1.5, there is what we expected to be the new addition to the group turnover generated by the EUR 100 million turnover of Goldenpoint, that we expect to be able to consolidate starting from July next year. And on top of it, there will be another probably EUR 100 million to be added as new openings of Goldenpoint stores in the next two or three years, and also thanks to the like-for-like improvement that we expect to generate on the existing stores.
Thank you.
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Once again, if you wish to ask a question, please press star and one on your telephone. The next question is a follow-up from Domenico Ghilotti with Equita. Please go ahead.
I had a question, just a clarification, because you mentioned before that the like-for-like performance has been driven also by the fact that they were not affected by the Suez issue. And I'm trying to better understand also, if I look at the performance of the franchising compared to the OVS DOS in Q1, if I'm not wrong, franchising was a bit lower than the DOS. So just to be sure that I understood properly your message there.
Yes, in fact, the +3.2% is a mix between the performance of Upim franchising that was higher than this +3.2%, and the performance of OVS that was lower because of the delays. Then, more or less, the size of the two franchising business is similar between OVS and Upim, but the weight, of course, is much higher in Upim than than in OVS. So this +3.2% is a mix of the two.
Okay, so at Upim level, it was stronger, and is explaining from a brand perspective, the performance of Upim.
Yes. In OVS, we are recovering this delay during the month of May and June in terms of shipping. So, then by the end of the semester, everything will be in line with the normal situation.
To be more precise, just to add a comment to Francesco, to be even more clear. The size of Upim is 1/5 of the size of OVS, but within Upim, as Francesco correctly said, the mix, the weight of franchising is much higher compared to the weight of franchising in OVS. That's why, as a business model, we decided, in order to facilitate, the Upim activity and operations, to anticipate, systematically, even in the last three, four years, the delivery of goods to Upim.
Because even if maybe I need for the DOS stores or franchised the goods one month later, because the weight of the franchising store is very high, I preferred, we preferred to receive the goods in advance just to facilitate the franchising side of the company, which is accounting for about 50% of the sales, maybe. And that's why we have a different model of deliveries. And that's why, by chance, this year this operation model, which normally requires a bit more inventory and a lower stock rotation, has been positive because of the late deliveries in general.
Okay. Very clear now, thanks. And, in terms of supply chain disruptions, so you're saying, okay, you are still having, say, the extra inventories because it takes longer, but you don't have any particular issues,
No. No, no, no.
Okay.
Everything is normalizing in this moment. We have a stable cost in this moment in general, so no issue on supply chain, no major issue on, on dollar rate of exchange, nothing strange, in the sourcing countries, in this moment. So from a political point of view or, social point of view, nothing to be mentioned.
Okay. Thank you.
Thank you.
For any further questions, please press star and one on your telephone. The next question is from Luca Bacoccoli with Intesa Sanpaolo. Please go ahead.
Hello, good afternoon, everyone. Can you hear me?
Yes.
Okay, good. So two questions from my side. The first one regards the kids segment. So it seems that in the last, maybe two or three quarters, this category is performing less than the other two. So I was wondering how the competitive environment is in the kids segment? How are you reacting to the competition? And the other one regards the profitability of the first quarter. You mentioned the impact due to the sale of last season collection. Also, I don't know if it's possible to have this kind of indication, but what would be the profitability in the first quarter, excluding the delayed delivery of stock for OVS, for the overall group?
... Okay. The first answer regarding kids is basically that on one side, we are in the middle of a trajectory where we are reducing gradually year after year, the size of the space dedicated to kids. That's in order to be realistic, considering that the birth rate in our country is reducing dramatically. So it's appropriate for us to try to became less and less dependent from the kids' performance, which is taking place gradually. And the very good news is that we feel that never like now, our completeness of offering the women in terms of breadth of range opportunities to buy different brands from the young generation, B. Angel, to the more sophisticated or adult Piombo or Piombo Contemporary.
We have a such a successful combination of offer that the increase of square meter, given every time we make a new store to women, is rewarded by sales which are moving in line with the new space, which is given to women. So this switch is not penalizing sales. This switch is making a company more in line with the market, because the size of the market of women is much higher of the remaining element segment. I remember that the market of women in Italy is 54% of the total apparel market. So it is absolutely positive for us to target and increasing women, at least at mixed level, to the detriment of the kids in terms of space allocation.
We are going toward the biggest part of the market, and we are attracting the higher spending part of the market, which is the women. On the second aspect, we reacted to the evolution of the competition, also decreasing prices in kids, as probably we already mentioned in a former conference call. And this segment is the only one where in year 2024, we decreased the price by about 4%-5%. The result has been a positive evolution of volumes in kids, which we consider positive because we don't want to lose customers. We want simply to configurate the company in accordance to the change of the demographic dynamics, let's say, as I mentioned before.
As a matter of fact, as I said, in the south of Italy, where weather has been more normal this year, the performance of kids in this first four and a half months has been very positive. So we don't think we have a problem in kids. We have an opportunity in enlarging women, beauty and accessories. Regarding the profitability in the 1st Q, I can tell you that the gross margin has been a combination, has been positive versus last year, first of all, comparing first quarter this year versus first quarter last year. The increase has been generated by a good increase in intake margin and a reduction of profit because of the unexpected sales of all the stock, as Francesco described.
The sum of the two elements is positive, so the gross margin increased. And in the second quarter, we will not suffer the same effect of compensation between a higher intake and lower margin on old goods, simply because we don't have old goods to sell, and we expect to have a second quarter characterized by a higher gross margin compared to the second quarter of last year.
Okay. Thank you.
Thank you.
For any further questions, please press star and one on your telephone.
Okay, so I think that it's over. Thank you for the attendance and, looking forward to meeting you next quarter. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.