Good afternoon. This is the chorus call conference operator. Welcome, and thank you for joining the OVS first quarter 2023 financial results conference call. 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.
Thank you, good afternoon to everybody. I cannot start this conference without some comment on the surprising drop in the share price that we suffered yesterday and also this morning. Maybe also I can take advantage from your competencies and ask you some question and some explanation about the reason of this very strange market reaction. It's really hard to me to understand what happened yesterday and also this morning, if I consider that we are delivering one of our best first Q ever. Only EUR 1.8 million lower than first Q 2017, when the full year EBITDA has been EUR 196.5 million.
We are delivering an EBITDA LTM of EUR 187.5 million, versus the full year 2022, EBITDA of EUR 180.2 million, or 12.1%, versus 11.9%. We overperformed average EBITDA consensus by EUR 2.5 million, and the highest EBITDA expected by one analyst by EUR 1.5 million. Finally, we reiterated our confidence in a better 2023 compared to year 2022, either at EBITDA and also at cash generation level. I can't imagine what should have happened if we shouldn't have performed so excellent. On another side, our customers, as many of our investor are aware, because during the investor meeting we are exchanging information with them, our customers are in love with our brand like never.
The new customers that has been attracted by our new strategy with brand, with Piombo, are spending 40% more in term of average ticket than the existing customers, which means that we are in the right spot, where people coming or being forced to trade down because of recession and inflation, is looking to OVS as the ideal solution. During our meeting with investors, our equity story and our great momentum is well appreciated. Our management and our employees are committed to the company and to deliver good results. Our vendors has never been so keen to work with OVS like now. I hope that the explanation of what happened yesterday is the behavior of some player, which is speculating without any regard to the real result of the company. This is what I hope.
This is the only logic explanation to me. That's why, in any case, we will continue managing the company with the same passion and competence, with the same commitment that we already had to deliver good result, and with a commitment to deliver in 23, the best. That's why I hope that during this Q&A session, maybe I can receive not only questions, but maybe one or two of you might help me, giving to me some answer to my question, what happened yesterday, and why? We cannot do other than managing the company better than we can, and I hope that also during this conference call, you will receive evidence that the situation is pretty good, and the outlook is pretty good. I hand the word to Francesco Leoncini to comment the slide.
Thank you.
Thank you, Stefano. Let's start with page four, that synthesize the result of a quarter that actually is a clear path, that starts with growth in store traffic, that delivers +12.2% in net sales. This growth is slightly better, is better than the market one, and this leads to further increase in the market share to 9.5%. This increase in sales was achieved even further increasing a little bit the initial retail prices due to the last part of the tail of the inflation that affected raw materials and cotton last year. Again, with a very limited discount rate, low promotional pressure to the consumers. This allowed us to keep a very solid gross margin-...
Then thanks to the operating leverage, we are able to increase the EBITDA by 36.3% to EUR 27.5 million. EBITDA almost double to EUR 12 million, and these then happened in a context of a very strong financial situation with the leverage ratio that goes further down from 1.7 last year, 30th of April, 2022 to 1.23. One quick comment on year-to-date sales, as said by Stefano, the sales are still positive, are positive versus 2022, despite the month of May, characterized by unfavorable conditions. If we compare current May with a May with similar bad weather, 2019, then our like-for-like sales show a +20%.
That is, we are really moving out from a pure weather dependence to a more normal situation, where people comes to our stores to see even the new collections and not just for on a needed basis. I move to page five, where most of the points were already touched. I just put a quick highlight on the interest expense that reduces from EUR 5 million in Q1 2022 to EUR 4 million.
This is in a scenario where all of us know that interest rates are increasing by the fact that we have a bond, a EUR 160 million bond with a fixed rate, for the majority of our net debt, we are not suffering any increase on the interest rate. Page six provide some more details by channel and even more interesting, let me say, by brand. Both OVS and UPIM increases above 10%, there is also the growth on the other brands, Stefanel, Guess, et cetera. OVS benefits more from this increase in sales, given the business model more based on directly operated stores, with an embedded higher operating leverage.
While UPIM, that has a business where franchising has a relevant weight, has a result in line with the sales trend. In a nutshell, sales and EBITDA growing in all brands and in all channels. Page number seven, we move to a quick view on the net working capital. Net receivables are increasing, but normally, you know, due to the growth in the franchising business. Some more comments on inventory. As said, also in previous calls, we made the decision to anticipate the intake of the spring/summer 23 collection in order to avoid any risk of late delivery, like unfortunately, we suffer a little bit last year.
We have now a higher level of stock, but with a much better quality, having at the same time being able to reduce the amount of old stock that we had one year ago. Trade payables are, let me see, in line with last year, like other assets and liabilities. On page number eight, the trend of capital expenditures. We are more or less in line with last year, with a partial shift of investing on the investment on the network from new openings to refurbishment of the projects of the current network.
Always with very positive results than in terms of increase in sales after the reopening of refurbished stores. We see an increase in logistics since we are now in the middle of a big investment in automation in our central DC in Pontenure near Piacenza. Page number nine is a summary of the cash flow that as usual in the first quarter, see an absorption of cash, but nothing special to comment on that. We confirm our view on the full year in terms of cash cash trend. Page number 10, as commented at the beginning, show the reduction in the net adjusted debt.
That, of course, is expressed also after having paid in the meantime, in the last year, more than EUR 30 million, between dividends, and purchases of on on shares. A leverage ratio that even looked to the spot or on the last twelve months, is below 1.4. I leave on page 12 on the outlook. I give back the word to Stefano, to comment this what we have ahead of us. Thank you.
Thank you, Francesco. Well, as we said, and we declared, we are still in a like-for-like position in spite of a very rainy and cold month of May, and we don't really see any signal of consumer spending attitude decreasing. The only reason why our huge sales increase at like-for-like, that we experienced, until the end of April, has been driven by the floods, the rain. As normally happen in this beginning of summers, what you lose in the beginning of summer, which is May, you can recover in June, and even if weather is not entirely stabilized, we have clear signals of good sales increase during this month of June. In every region where the weather has improved, more materially, the sales increase, in term of current trading, is really huge.
We do not have concern as of now in terms of consumer attitude, driven by inflation or recession. We confirm that the mood of our customers in front of OVS brand is positive like never. And also in terms of cost, we are sitting on very good news, better than the ones that we incorporated in our internal budget. We didn't expect in our assumptions for the full year to understand and to realize that the drop in energy costs has been so material. Also we didn't expect that the cotton cost, which represent 70% of our raw material cost, is reducing so much. We will benefit in the second half of the year of higher than expected cost reductions. One word about what we thought to write about lenders.
There is no problem with lenders. There is an opportunity with lenders. We mentioned in the public statement that this comment on lenders, just in order to make the life of our real estate department easier in front of lenders. We need, we want to mitigate the automatic inflation-linked increase, which are incorporated in the rent agreement, by negotiating, because we do believe that the increase in inflation has been generated by unusual condition and must not be entirely incorporated in the rent.
That's why, for instance, just today, I signed a very successful negotiation with one of the most important lender on the biggest and most important OVS store, which is in Milan, and we obtained a reduction of 15% in the rent from now to the end of the agreement, even if we are making profit on that store. This just as an example. That's why, all in all, we feel comfortable that thanks to the present sales trend, to the projects that we are about to launch in the second half, thanks to the fact that the company is probably the only brand in the Italian market which is improving so much in term of quality of the store, windows, merchandising, compared to all our competitors.
That's why we continue having a solid confidence in increasing our economic and financial performance compared to last year. Thank you. I leave it to your question.
This is the chorus call conference operator. We will now begin 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 to use the handset when asking questions. Anyone who has a question may press star and one. At this time, we're pausing for a moment as participants are joining the queue. The first question is from Daniele Alibrandi from Jefferies. Please go ahead.
Yes, good afternoon, team, and thanks for taking my question. I have a couple of them. The first one, I understand the commentary about the adverse trading conditions in May, but can you please add more granularity on the categories or brands, maybe commenting where you've seen the biggest slowdown, or which were the most resilient ones, or maybe it was, say, widespread across the base? This is my first question. The second question is on current trading. If you said that year-to-date trends are positive. Can you please maybe quantify the magnitude of these? Are we talking about a low single-digit Gap percentage or a mid-single-digit percentage?
Related to this, if you have seen, as I understood, maybe if you have seen a positive trend in June, strengthening week after week, or if there is no clear pattern? This is my two questions. Thank you.
Okay, thank you. Regarding the categories mostly impacted by the weather, as you can imagine, this has been the kid. The kid is normally the one that is more weather dependent because mothers are not buying kids because they like it, but because they need. Surprisingly, not surprisingly, but noticeably, I would say, women continues to be the better performing category, which means that we are really attracting new categories of customer, not only mothers visiting OVS because they like to buy for the kids, but also women, young or adult, which are preferring OVS because of the quality of the assortment. In terms of brand, I would say very, very similar behavior across the network. It means that weather has been the real reason for the May performance.
Second question, I think, was regarding the current trading?
Current trading.
The current trading is positive mid single digit today, and is growing day after day. Which also gives you a partial answer to what is happening in June, basically. If I understood, you ask what is with some more granularity, the performance of the sales in June? As I said, it has been so dependent from regions that a few days ago, that the gain that was like yesterday in Florence was like flooded, was full of rain, and you can imagine was negative. In regions where the weather has been much better, like in the northeast of Italy, for instance, in the last 10 days, sales are double digit growing.
We are confident that based on our knowledge of the market, starting from the end of this week, once weather will stabilize across all the country, according to the weather forecast, we will assist it to a strong increase of sales, which will enable us to, not entirely, but partially recover what we have lost, in May. Considering that we were much ahead of our budget, before May, that's why we are pretty confident that, even if we will have lost forever some opportunities in May, which will not be entirely recovered in June, in term of profit and loss, this will not be an issue, and we expect also very positive sales in July and August this year.
Thank you. Maybe if I can squeeze in just another question. In terms of the initiatives that you presented at the strategy presentation, like in the last conference call, I was curious to hear which are, let's say, the initiatives where you are seeing more concrete signs and the contribution? Thank you.
For sure, the one which is performing the best, is the perfumery, beauty care. That's why we. That's because we changed, we improved several aspects of our operating model. On one side, introducing new items and new segments, and on the other side, because we drastically improved our logistic and CRM activation and processes. Today, we are almost 40% like-for-like, both in UPIM and OVS Perfumery, without space increase, which is also surprising to me, because the market is up. The perfumery market, according to NPD data, is about +20%.
We are overperforming the market as a result of one year of strong work and effort in order to improve all we identified as subject to be improved. Also, Piombo Kids is doing well, not in all the locations, but in the North Italy locations, Piombo Kids is doing very well. These are the most important ones.
Thank you very much. Thank you very much.
The next question is from Federico Beluati from Kepler Cheuvreux . Please go ahead.
Good afternoon. You hear me?
Yes, yes.
Can you hear me? Okay. Thank you.
Yes.
My question is regarding the market share gain. As I see, it's your market share has gone from 9.3% to 9.5%, and I was curious to know if it was something related to your competitors, like Zara or H&M in the market, as overall market heading down. The second question I would like to ask you is regarding the evolution of Stefanel and Gap, what are the trends you are seeing? Thank you.
Okay. market share increase, to me, to my figure, has been from 9.4 to 9.5. in any case...
Yeah, I saying the over a year.
... in any case, it has been driven by a mix. I think that we outperformed, again, most of our competitors. I think Zara did well, even if it's difficult to know it from market share analysis. But Zara remains the only competitor, in my opinion, which is performing well in the Italian market. H&M, to me, based on our information, is down, Benetton is down, and all the other are basically down, with the exclusion of Primark, which is still up because they opened new stores, but they remain very, very small and also relatively far from our customer base, because they are privileging only super low prices, and we are a bit changing our positioning, as we explained.
In term of performances across the brand, I'm happy to say that all the brand are performing well. Stefanel is the one which is performing better compared to last year, with a plus 20% increase in this moment. Gap is increasing as well more than OVS and UPIM, and the other brand, and OVS and UPIM are performing as you have seen. Because Stefanel and Gap are still small, the higher increase of sales of both Stefanel and Gap is not generating a material effect on the total group sales.
Okay, thank you.
Thank you.
The next question is from Andrea Bonfà from Banca Akros. Please go ahead.
Hi, good afternoon to everybody. Ciao, Stefano. My question is related to, say, the lower inflation environment. If it's possible, if you can share with us, let's say, what are the additional point the gross margin that you are expecting to extract with the autumn, winter collections? If you are, let's say, at 50% in each one with spring, summer, which you bought last year, how many additional points can you gain on the autumn, winter one, just so we, to have an idea?
Difficult question, because you are very detailed and very granular in this question, and we normally do not share this, these amounts, so precisely. What I can tell you is that compared to the first half, when we decided not to continue to transfer entirely to final customers the tail of the cost increase that we suffered in raw materials, in the second half, we will keep our prices stable. In the kids, we will reduce partially our prices. We will benefit in higher margin because the cost reduction is gonna be higher than the price reduction in kids. I don't have a final number to share with you, but the gross margin will be better than in the first half.
Thank you very much.
Thank you.
The next question is from Bacoccoli from Intesa Sanpaolo. Please go ahead.
Hi, hello, everyone. Can you hear me?
Yes.
Good. I have any share price drop yesterday, unfortunately, so I have only questions for you again. One is related, is a follow-up, so related to the profitability trend. Based on what you just said, if I'm not wrong, it's fair to assume that the savings on costs, even taking into account the price reduction in kids, should be enough to drive the EBITDA margin in the 2023 above 2022 level. Is that a fair assumption? Secondly-
Yes.
Okay, good. Nice. Second question regards the first quarter. I was wondering what extent the easy comparison related to last year war, the invasion of Ukraine from Russia, I've favored the stronger starting to the year. The last one is just a curiosity to understand how the DOS open in New York, so the Piombo flagship store is doing after maybe one month or something like that or from the openings. Thank you.
Okay. To the first question, I already answered. The second question. Yes, yes, I can be very transparent. We assumed in our budget to have a very positive first quarter, with almost a double-digit growth. This was the way we set up our budget. We overachieved this amount by several points. Basically, we already expected to have a stronger first Q, because of the war, and the consumer trend, that was a bit scary last year, the consumer mood, but we overperformed compared to our very aggressive, very positive, top line increase.
As Francesco pointed out before, it's worth mentioning that the first period, and also the month of May, has been stronger compared to a period which was 2019, where the month of May has been similar in term of weather. All in all, I think that this element demonstrate a solid momentum in the sales. The answer is clear, with our budget was positive, largely positive, and we overperformed compared to our budget. The third question was?
New York.
New York and Piombo. We opened three stores, Piombo stores, one in New York, one in Paris, one in Madrid. The reason for opening this store is that we would like to see this store as a small flagship in order to start penetrating the e-commerce and the department store in those relevant markets. The performance of the Piombo store in New York is in line with our expectation. An important turnover on a daily basis, an important trend, as you can imagine, and a small loss, as we expected. The is generating more or less our budget, something less, and consequently, the profitability will be very small, but we don't care too much about it, because these are marketing costs, in my opinion, in my strategy.
Surprisingly, the store, the small store we opened in Rue Saint-Honoré in Paris, is generating two times our budget in terms of sales. We opened 20 days ago, more or less, and it is performing super well. As a matter of fact, we are about to receive in the store the visit of the Galeries Lafayette buyer, because my goal would be to enter with Piombo partners in department store in France. All in all, we expect that from the store, we will receive a huge marketing effect. We have a lot of, how can I say? Positive rebound. Italian customers, which are coming back in Italy after having visited those stores and making congratulations to OVS because they have seen those small flagship around the world.
I think this is one of the reason why we are attracting a new kind of customer in OVS. In term of profitability, we might end up with either a zero balance or a few 100,000 EUR loss, which is much less than buying one good out-of-home advertising in Milan for one year.
Basically, based on what we have seen so far, do you think there's room for developing a independent network of branded Piombo abroad?
No, this is not the strategy. The strategy is to build the flagship of OVS, the teaser of OVS, and then to open OVS full format eventually, this is the strategy, or to open Piombo corner in department store. I have not in mind the hundreds of Piombo stores, then, and I prefer to consider them as a teaser...
the customers to apply how interesting is visiting an OVS store with a Piombo corner inside.
Okay. Thank you.
Thank you.
The next question is from Luca Orsini, from One Investments. Please go ahead.
Hello, Stefano.
Ciao, Luca.
-questions to you. One is on working capital. Let me go back to the page. Essentially, you have a growth in inventories, and you have a small growth in payables. Are you paying your supplier quicker in order to get better terms? Is that your strategy? Also... Essentially not trying to finance yourself on your suppliers, but using the bonds and-
No, no. Luca, it's only a time effect. As said, we anticipated, compared to normal, our intake, because we preferred to avoid the risk of late deliveries that impacted our industry last year. That's why, having anticipated by two or three months the intake, we have been forced also to pay some of those vendors, because in order to remain in parallel between stock increase and payable increase, we should have also delayed the payments, which we couldn't. Basically, we pay the similar than, but because we anticipated the intake of the inventory, some of those payable has been paid, they are not still outstanding.
Okay.
This will be fully compensated, during the year. In the second quarter, this effect will almost disappear.
Yeah. Okay. Then I have a second question: Because the season started late, are you also going to delay the sales period?
If it is in our hand, the decision, the answer will be yes. It is not in our hand, there will be only, and this is good news in any case, call it natural delay, because according to the current year, the sales will start, five days later compared... This is good news for us. Five full, five more full price days compared to a year ago, in July.
Okay.
The next question is from Francesco Brilli, from Intermonte. Please go ahead.
Good evening. Thanks for taking my question. Couple of questions. Several questions has already been answered, but I have two additional ones. The first one is if you can provide us the magnitude of the market segment so far as of today, and in the first quarter. The second one is on the profitability of the other brands, if you are and when you are projecting a positive contribution in profitability from these brands.
When you mean brands, you mean from these segments, of perfumery and jewelry, I imagine?
No, I refer to Gap and Stefanel.
Okay, okay. Some more information about the perfumery. I can tell you that the market increase has been 24%, and OVS, as of now, is generating is doing more than I said. Is making almost 50% sales increase compared to last year. Out of this 50%, perfume is doing 20%, skincare is doing 40%, and makeup is doing 60% in OVS. In UPIM, which is performing similarly in term of growth, makeup is making, as in OVS, the highest increase, and this is due to the post-COVID habits.
Basically, people are looking to buy things to improve the face, while during the period of the mask, people were maybe buying more fragrances. I don't know if this was the question which you asked?
Yes
... regarding perfumery. In term of profitability, let me add, that in perfumery, profitability is a little bit lower compared to the other segment. Because sales density is much higher, we end up with a higher EBITDA per square meter in perfumery, compared to the other segment, and also with an higher cash margin zero, compared to the other segment. Differently for jewelry has also an higher profitability and not only an higher sales density.
In a new business, that had to be relaunched, I think be even, and the +20% in say, in my opinion, must be only the beginning of the recovery of the brand, and we hope that we will be able for next year to project another similar growth rate, driven by collections.
Okay. Thank you very much. If I may add, is it fair, so to our personal segment that you didn't, very low single digit on sales?
Ask the question again, because,
Weight on total sales?
Weight on total sale, a little bit more. Weight on total sale, five, between 5% and 7%.
Okay, thank you very much.
One on your telephone. Clement, there are no more questions registered at this time.
Okay. I conclude, I have not received, any answer to my question, unfortunately. This means that you are only condemned, to provide answer and never to ask questions. Nevertheless, I thank you for your attention, and, I hope we will meet again, sitting on better, price results, but this will depend from you. Thank you, and, good after-.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.