Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the OVS first quarter 2021 results presentation. 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 everyone for joining this conference regarding the first quarter 2021 results. I am not in my office, I am traveling today, I also asked my team, composed by the CFO, Nicola Perin, our investor Andrea Tessarolo, and our business development, Francesco Leoncini, to support me and to present some of the slides. Let me start by saying that this conference will be maybe a little bit more limited in our disclosures compared to other periods, given that we are in the final period of our discussions with the public authorities regarding the next coming capital increase. We are closer to the approval we hope to be held in the next weeks regarding the prospectus, the memorandum regarding the capital increase. We ask your understanding if maybe we are a bit less open compared to other moments.
Nevertheless, I think that from this conference you will be able to appreciate the situation of the company, which I start announcing, I think is quite satisfactory. We are very satisfied first of all, in looking that the market starts reacting to the long period of consumer apparel decline, which started more than one year ago with the first lockdown and lasted for the entire 2020 and also for the beginning of this year. Finally, after the last new measures introduced at the end of May, which allowed even shopping mall to remain open, combined with what we believe is buying power in the pocket of Italians, mostly in the middle class, which didn't suffer so much from an economic point of view from the lockdown, given that thanks to the measures introduced by the government, they didn't lose their job.
I refer to the public workers, to the middle class, the one that works in the big companies. I think there is a lot of liquidity in the pocket of this kind of consumers, which are our typical consumers. The real family, the real daily buying power. As a matter of fact, having been able to increase materially our market share during the year 2020 and also for another quarter in the first quarter of 2021 of a material amount, means that our positioning is really appreciated by Italians. I believe that this means that once the market will finally re-stabilize, every company will restart its own performance from a position that has been achieved just before the recovery. We believe that our position is today better than one year ago, two years ago.
Thanks to our strategy, I believe that, I can also tell you that the strategy of opening in smaller catchment areas is working. As a matter of fact, from the figure, you can see that, for instance, the growth of Upim has been even higher than the growth of OVS, or better to say, the recovery. This is because many locations that we opened recently in Upim are second tier city or villages. In general, this strategy is working, and we have a lot of requests from Italian and also European small entrepreneurs to open our formats, particularly the kids, also out of Italy, and in Italy, also small Upim and kids and home decoration. Part of the strategy is already in this month of recovery, generating good results.
This part of the strategy I refer to is the part of the growing through franchisee store in smaller catchment areas. Another part of the strategy is also providing good results, I refer to the introduction of brands in our assortment and also in the higher characterization of the existing brands in our merchandising offer. As a matter of fact, the recovery this time has been very strong, not only in kids but also in men and women. Also, the recent month of May that we announced as being a very positive month with a double-digit growth, is performing so well, not only or not mostly because of kids, but also because of the excellent performance of men and women, and particularly the women. What is generating the better growth are the new brands that we introduced recently.
This means that we are becoming a bit lighter in terms of capital investment because these brands, in certain amount, are sold under a consignment agreement, which means lower stock. Also, they generate new interest in visiting our stores. All in all, I think a good quarter with market share increase means very well accepted, our positioning, either for OVS and Rip Curl. Good margin as expected. Since a couple of half years, we are insisting in saying that we don't want to push too much on markdown. We are reducing our markdown, as a matter of fact, thanks to the lower markdown, we have been able to increase materially also our gross margin. Again, this quarter, cost control means a strong EBITDA recovery.
In the month of May, all these guidance are working in the same direction, positive sales, higher gross margin, and lower cost. We expect that this combination will generate an excellent May result. The same trend, I hope, I believe, we will be able to maintain for the next coming months. From a financial position point of view, we generated more or less what we expected before the unexpected period of closures, which unfortunately impacted the month of March, when for several weeks we had also 75% of our network closed. In spite of the turnover that we lost because of this, the lower volume of intake that we very prudently decided to buy, thanks also to a more and more flexible sourcing mechanism.
The cost control, the margin increase, we have been able to end up this quarter with a net financial position, which is more or less in line with what we expected. For sure, the excellent performance of May will enable the financial position to improve. In general, we can say that thanks to this, we believe that we are at the end of May, with results which are better than our expectations. Having said that, I'm happy to hand the word to Francesco Leoncini for a better clarification on some of the slide that you already have.
Okay. Thank you, Stefano, and good afternoon to everybody. I will quickly guide you through the document that is published on our website, starting from page three, where we have the usual representation of the key economics. Net sales more than doubling versus last year, plus EUR 127 million. That allowed us, on one side, to strongly increase the market share from 8.1 12 months ago to 8.7 this year. More than 60 basis points of increase. On the other side, delivered us a plus EUR 40 million in terms of EBITDA. That allowed us to come back to profitability already in Q1, which is due to the seasonality of the business, the weakest quarter of the year. Altogether, these are bringing back to a very sound situation.
The net financial position is worsening by EUR 46 million, but following, let me say, the usual path of cash absorption in Q1. I would then move to page four, that gives an interesting view on the impact of this Q1 on last 12 months EBITDA. In January, we closed the fiscal year with EUR 73 million EBITDA. Let me say, the mechanism of removing the first quarter of last year, that was negative for EUR 34, and adding the Q1 of 2021, which is positive by EUR 6 million, delivers us EUR 113 million EBITDA for the last 12-month view. The run rate, basically. How was reached this improvement? As said, we had the increase in sales that delivered a EUR 70 million increase in gross margin. We improved the gross margin percentage thanks to a better and a lower markdown pressure that accounted for additional EUR 6 million.
On the cost side, of course, we have a rebound versus 2020 when the stores were closed, but we are still midway, plus 36 versus 2020, minus 28 versus the baseline of 2019. Altogether, we delivered the plus EUR 40 million that we were discussing before. On page number five, we have some additional views by channel and by business unit. All the numbers are extremely positive. As anticipated by Mr. Beraldo, Upim in Q1 performed slightly better than OVS, but even OVS was more than doubling its result. This is due to the fact that in Upim, the franchising channel has a higher weight, and also that Upim was less impacted by the closure of the shopping malls that on the contrary, had a negative impact on the OVS potential.
The closure of the shopping mall during the weekend, that are the days that the shopping mall works better, was prolonged until the mid of May. In any case, very positive under all the aspects. I move to page 6, where we start to have the financial view of Q1. You have the prospectus of the working capital. Trade receivables are increasing EUR 14 million versus one year ago. This is not due at all to an extension of payment terms that are instead reducing, but simply to the fact that we are normalizing the deliveries to our franchisee versus the stop that we had in 2020 due to the lockdown.
Basically, we are back to the normal levels of trade receivable, in a situation where we have no particular criticalities because as said also very by Stefano, our franchisee, being focused on kids, being focused on small catchment areas, suffered even less than the big surfaces or the big stores in the main cities. Inventory is showing a decrease of EUR 4 million. We planned to have a significant stock reduction in Q1, basically cleaning the stock that was accumulated during the lockdown of 2020. We are partially achieving it, unfortunately the third wave, of course, blocked us from achieving even a better result. As said, the good sales in May had as a consequence, also the fact that we are cleaning more stock than originally expected. There is some delay in the cleaning, but the process is going ahead.
Finally, the trade payables that are reducing by EUR 36 million, but the value that we are checking on 12 months ago was of course impacted by the longer payment terms that were granted by our suppliers in this exceptional period. The number that we have today, on the contrary, is underlying a payment schedule which is 100% in line with the due dates, so no overdue at all. I move to page number 7, that represents the investment that the company started again in Q1. Here the comparison with last year, of course, is uneven because last year we had, on one side, the physical block. It was not even possible to work on the stores. On the other side, of course, the focus was on liquidity.
This year we are back to normal or even more than back to normal because we want to be ready to gain the wind that is coming from the reopening and somehow the normalization of the economy. We had in Q1, a lot of refurbishments that are delivering us incredible results. If someone is in the area of Treviso, I really invite you to come and visit the new store that we have down there, which is really a flagship of the company. You can find renewed OVS stores basically in every region of Italy. We are going ahead with our new openings plan, and we are again restarting all the digital transformation projects and logistics, and in any case, operational improvement projects that were stopped due to pandemic last year.
We also recorded a purchase of the Stefanel brand, the Stefanel brand for overall EUR 5 million. These projects will show their potential across the full year of 2021. I move to page eight. I focus on the bar chart on the right, where we see that in Q1 is normal. The company always has a cash absorption. In a normal year like Q1, the cash absorption was like 2019, the cash absorption was EUR 70 million. In Q1 2020, of course, extraordinary, we had EUR 120 million cash absorption, and this year we are basically back to normal, EUR 74 million cash absorption, despite the EUR 20 million investment. We are really back to the normality in terms of cash management. Just to remember, the EUR 70 million that we achieved in 2019, that matched with a EUR 65 million cash generation across the full year.
The seasonality on cash is even higher than the one that we see on EBITDA level. Finally, I move to page nine, where we have the view on the debt and the leverage. Again, I think that the graph on the right is even more explicative. One year ago, we were at 4.4, but still leveraging, let me say, the natural mark EBITDA of 2019. After the one year, the 2020 fully impacted by the pandemic, the ratio increased to 5.5 end of January, and now it reduced to 4.2, even better than 12 months ago, despite the fact that the LTM EBITDA is improving but still has the second wave and the third wave inside. We have some work on the outlook.
Maybe here, Stefano, I give back the worst news so that you can a little bit give some more colors on how the month of May is performing. You already said many things, but if there is any more comments to do. We have time for the questions.
Thank you. Thanks, Francesco. I will be extremely fast because most of the points which are included in page 10 has been already covered. Only I would like to underline the great success of several brands which have been introduced in our range, either in digital. Yesterday, we started with Napoli Child, which is also distributed in the U.K., in Selfridges, for instance. A couple of weeks ago, we launched a young talent, a young designer in the web with a lot of social media talking about him, and the result has been incredibly high with out of stock in four, five hours of six, seven different SKUs. In general, the brands which we invited in our playground are performing very well. PIOMBO is performing extremely well.
I believe that this, I call it a bit of change in continuity, introducing a discontinuity element in our shop front, which doesn't mean that we stop being vertical. We continue being a vertical company. If we really want to be an inclusive brand, a democratic brand, we believe that opening our boundaries also to unexpected talent or international brand, like Everlast, which is made by us, by the way, under license, or like Gap, which obviously is made by Gap, of which Italians are loving, particularly the logo products, means that OVS is gradually transforming and opening his door also to clients which are willing to experience different positionings and different brand. PIOMBO is a great example of it. We have evidence from our CRM that we are receiving a lot of new customers, men in this case, which were used to buy other brand.
Given the advertising, given the quality of the product at incredible price, because the prices are really low, really attractive, we are experiencing a higher number of new customers visiting OVS. I think that this strategy is quite promising, and we will continue in this direction. I leave the space to question now. Thanks for listening.
Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Anyone wishing 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. Please pick up the receiver 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 just to start. In particular, when I look at the lower cost that I see in Q1 compared to Q1 2019, I'm trying to understand how much of this can be really a structural saving, how much is still affected by restrictions and temporary savings. Second question is on the payables, if I understand properly, you do not have any more any kind of, let's say, overdue or payables related to renegotiation of rents. Last question, you are talking about the gross profit, gross margin, quite favorable. Should I expect to see this trend also in the second quarter? If I understand, you are still quite confident that the promotions will stay lower compared to, let's say, 2019.
Yes. Thank you for the question. As regards the first one, difficult to say how much in mathematical term, but what I can tell you is that part of the cost reduction is temporary, like the Cassa Integrazione support, for instance, or the fact that in the shopping mall, during the day of closures, we didn't pay the extra salary that normally we have to pay for the Sunday working time, which normally is higher than normal by 30%-40%. On the other side, there are other costs, like rents or headquarters, which have been reduced to a new, lower level. Without a mathematical answer, I tell you that 50% of the cost reduction, more or less, is the new normal, and the rest will not be repeated because the result of what I told before.
Regarding the gross margin, yes, we believe that the gross margin will continue to remain healthier and higher compared to last year's reference periods as a result of the pursuit of the strategy of lower markdown, basically. In some cases, we have increased modestly prices. We believe that it was appropriate to do it, also in conjunction with some more quality that we introduced in sustainability and recyclability, et cetera. Most of the gross margin increase comes from lower markdown. This approach to lower markdown will be maintained also in the second quarter, to answer to your question. Can you kindly repeat me the third question, because I couldn't take note?
Just related to the overdues on the payable. Sorry.
Yes.
The rents in particular.
The overdue has been completely absorbed.
Okay. Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, please press star and one. The next question is a follow-up from Domenico Ghilotti with Equita. Please go ahead.
Well, I have additional question. First is related to the situation. I'm not talking about quantitative indication, but I'm trying to understand if June is still another. It started with the same pace and same positive trend compared to 2019. Second is a bit strange, but we are looking now at the potential strengthening of the dollar and trying to understand what's your position now on this in terms of hedging. The last question is on the competitive environment. Maybe I see in the streets that there is less competition, that you have competitors that are struggling, particular the smaller one, but you have a much better view also on the market share of competitors. You can give us maybe some color on what's going on. Thank you.
Thank you for the question. June is doing well. I ask you to be patient. I would like to avoid telling more. We are very happy also about the June performance. Most importantly, the structural drivers that characterize the recovery are continuing, all of them, to be in place: sales, margin, cost. On dollars, we are not concerned about it because of our amount of hedging, which we made. We covered a material amount of the future needs at very favorable exchange rates. I believe that at the end of the story, any season has its own issue. Sometimes dollar, sometimes raw material, sometimes logistic cost. At the end, all these elements are part of the global competition drivers. All our competitors are suffering or benefiting the same terms and are reacting accordingly.
I don't expect that because of the dollar strengthening, we would assist to a margin decrease. This, in any case, will not impact year 2021 and also part of 2022, which have been already hedged. Regarding competition, yes, I have to say that I believe that based on the market share observation that we have a look monthly, the super positive performance of OVS in terms of market share increase tells clearly that there are other brands which are suffering. The last quarter, we have assisted to a market share increase of OVS, which is even higher compared to the market share increase of Amazon and Zalando. In the last three months, we have achieved higher increases compared to the winners of these years, which are the pure players, the digital players. We are looking at other companies, Italian and also non-Italian, which are suffering particularly.
I prefer to avoid mentioning the ones which are suffering the most. Some of the international key players are reconsidering their strategy of maybe opening big stores in big city, and they are removing part of the, or closing down part of the network, exiting from smaller city because maybe the smaller city are less appropriate to their positioning. There is a kind of a mix of different behaviors. I believe that in this there are only few winners. Segments like underwear, which are still performing well. You can imagine the brands which are performing well in Italy, but they are not real competitors for OVS. Generally, weakness in the kids segment, where we are really being not only the category killer, but it is incredible how much we are still growing kids in spite of birth rate decline.
We are increasing market share more than in the other segment, and we don't see strong competitor there. All in all, the competitive scenario is more favorable than ever, I would say.
Okay. Thank you.
Once again, if you wish to ask a question, please press star and one on your telephone. A final reminder at this time, if you wish to join the question queue, please press star and one. The next question is from Marco Baccaglio with Kepler. Please go ahead.
Yes, good afternoon. Two questions from me. The first one is, if you give us an update on Stefanel, on what you are doing and what could be the contribution. The second is, you are planning to expand in franchising, and also there is the plan of Conad of stores in the Conad space. Maybe if you just help us in modeling what kind of contribution, let's say, all this project, what level of sales could generate, let's say, on a two, three-year basis from now. Thank you.
Thank you, Marco. Honestly, the second question to me is very difficult in this moment, because giving you perspective figure about future is, in this moment, where we are particularly sensitive as always.
Okay, no problem
even more than normal. I prefer only to give some color about it. You can consider that each store is generating on average from EUR 40,000 to EUR 60,000 EBITDA, for us, as normal. This is normal. You can easily find these references also in the historical performance. We gave some number also one month ago, I think, regarding new openings or franchising. Basically, you can easily create, I think, your model from information which are already available. What I can give you as a color is that more than ever, we are really assisting to a renewed demand from small players, small entrepreneurs, which are in retail with several brands, who have access to our portfolio of brands. Never like today, we are receiving requests from partners to open a kids store, to open CROFF, which is home decoration store.
This means that our positioning is appropriate and that the market shake, which is happening with certain shopping mall under trouble, weak retailer forced to close stores, and a general reduction of the real estate value, related to retail locations, is making the opening of smaller store cheaper, more easy to be managed by these local entrepreneurs, and we are taking advantage of it. Remind me the other question, please.
On Stefanel.
On Stefanel, nothing really important to say. What I can tell, but it is not very important for you, is that I'm very happy with the quality of the collection, which I have seen. The samples has arrived, and the quality which I've seen is really promising. I have good feeling about the appreciation of Stefanel collection from Stefanel customer base. What I can tell you is that more than 20 Stefanel store will be provided with the new assortment starting from September. Another 15, 20 stores will be opened, as I told, thanks to carving out part of existing OVS store. We have a good pipeline of requests from Italian and international franchisees to open a Stefanel brand. Everything is based on expectation today, because no one has still seen the final collection. Everything must be postponed to the second half.
What I can tell you is that we are not taking big investment in this moment, we are renewing only three stores with a completely new image, and this is because we want to test this image in a prudent way before rolling it out. Let's cross fingers here.
Thank you.
Thank you.
For further questions, you may press Star and one on your telephone. Mr. Beraldo, gentlemen, there are no more questions registered at this time.
Thank you. Thank you very much for attending this meeting, looking forward to seeing or to speaking to you next. Thank you very much.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.