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Edited Transcript of GWI2k.F earnings conference call or presentation 11-Aug-22 10:59am GMT

Q2 2022 Gerry Weber International AG Earnings Call Halle/Westfalen Sep 16, 2022 (Thomson StreetEvents) -- Edited Transcript of Gerry Weber International AG earnings conference call or presentation Thursday, August 11, 2022 at 10:59:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Tim Cruise Montega Partners - Moderator * Andrea Rolvering GERRY WEBER International AG - Head of IR * Angelika Schindler-Obenhaus GERRY WEBER International AG - Chairperson & CEO * Florian Frank GERRY WEBER International AG - CFO ================================================================================ Presentation -------------------------------------------------------------------------------- Tim Cruise, Montega Partners - Moderator [1] -------------------------------------------------------------------------------- Yes, good afternoon, ladies and gentlemen. A very warm welcome on behalf of the [Montega Connect] team to the Gerry Weber International AG earnings call regarding the Q2 '22 financial results. My name is [Tim Cruise], I head the consumer analyst team at Montego, and I'll be the host for today's call. We are delighted to welcome the CEO of Gerry Weber, Angelika Schindler-Obenhaus, as well as the CFO, Florian Frank, who will now give you a presentation of the Q2 numbers. And also on the call is Dr. Andrea Rolvering, Head of Investor Relations at Gerry Weber. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions following the presentation. And now I'll hand over to Andrea, the floor is yours. -------------------------------------------------------------------------------- Andrea Rolvering, GERRY WEBER International AG - Head of IR [2] -------------------------------------------------------------------------------- Tim, thank you very much. A warm welcome here from the Gerry Weber management and from my side to our call for the first half of 2022. We'll proceed as usual, Angelika and Florian will be give you an overview over H1 of 2022, and afterwards, you will have ample opportunity to ask questions. So with that said, let's get started. Angelika, the floor is yours. -------------------------------------------------------------------------------- Angelika Schindler-Obenhaus, GERRY WEBER International AG - Chairperson & CEO [3] -------------------------------------------------------------------------------- Thank you, Andrea. Good afternoon, everyone, and a warm welcome from Halle/Westphalia. Thank you for joining us today. I would like to start by taking you through the most relevant key facts concerning our interim financial report for the period from January to June 2022. We are very pleased to announce that we achieved positive normalized EBITDA of EUR2.2 million in the first six months. Our net sales of EUR157 million, an increase by 48.4%, are fully in line with management expectations. The brick-and-mortar business is recovering as nearly all COVID-19 measures have been lifted in Europe. Germany was the last country to lift the restrictions in March 2022. We are satisfied that the retail performance in Germany is improving as well. And it's above the overall [mark of] performance. At the same time, our e-commerce business grew by 27.4% in the first half of 2022. This is in line with the midterm growth cut. One of the highlights of the first half year was our first-time participation in the PREMIUM fashion show in Berlin. This was the first post-pandemic Fashion Show since January 2020, and a good opportunity and platform to show our new brand identity, launch our new [foreign inter-company], #WEARESOGERRY, and present our new store content to the world. I would also highlight our group equity ratio, which decreased to 16.2%, and our robust cash position of EUR63.8 million at the end of June 2022. This is above the cash position at the end of 2021. The results show us that our business model of having three brands and three different distribution channels is exactly the right one to, once again, make us the leader of what [it would have to look at] the mainstream classic segment. I would like to emphasize that this half year was impacted by other events. Just when we saw the long awaited end of the COVID-19 restrictions, we witnessed the beginning of a [turnover] war in Ukraine. It shows how fragile peace and security are even today. At the same time, inflation started to rise and supply chain disruptions continued. We managed these challenges well in the first six months but, as a result of all these developments, we are still far away from any type of new normal. Despite the deteriorating macroeconomic environment, we have specified our guidance for the financial-year 2022, as we expect further optimization measures in our current operations to be implemented successfully. We will explain these measures later on. Let me go now into more details of our sales, as shown on page five. We will start with our e-comm segment, where sales increased by 27% to EUR26.5 million. We should not forget that e-commerce was the only channel that was left open for part of the year, especially in the first months of 2021. In 2022, some customers returned to the brick-and-mortar business. So we are satisfied with this performance in the first half-year at e-comm's 16.9% share in total group sales. We have initiated the following measures to support the projected growth of 20% per year. We launched our samoon.com in March 2022, addition of new marketplaces, go live off Turkish spectrum. These measures will allow us to respond even more effectively to the needs of the on-line oriented customers and to win market share, for example, of the dedicated Samoon shop in the curvy market. We want to make our importing more transparent and have decided to provide you also with key performance indicators of our e-commerce segment. You will find these on the next page. At 12.5% increase in the number of users means we are well on track. Although their conversion rate has declined to 4%, there is no need for concern. This is an attributable for the previously described shift from online back to retail in the first half of 2022. Our average shopping cart is worth EUR166, which is very good. What is more, we have been able to improve the number of new customers by minus 2.5%. If we now take a closer look at the retail segment on page 7, we should be aware that better comparability is limited because we lost about 55 sales days from the previous year due to the COVID-19 restrictions. In spite of all these challenges, such as lower customer footfall, inflation, COVID-19 restrictions and uncertainty after the outbreak of the war, we were able to grow our sales by 78.8% to EUR76 million. Like-for-like sales even increased by 88.9% in the first half of 2022. Net sales per square meter have grown by 46.6% to EUR1,800 over the past 12 months, which means that clearly moving in the right direction. It remains our goal to increase performance per square meter as well as like-for-like sales to the level of 2019 and above. If we take a look at page 8, we see that the GERRY WEBER group almost entirely outperformed the market in the first months across all store types and segments in Germany. In the past weeks, this consumption-oriented segment dominated the panel with above average sales campaigns, which means that comparability is limited. Our above average performance shows that our ageless collections and our focus on quality, fit and value for money are the right strategy. Our customers are very much appreciating this development of the collections, our increased service orientation and the new visual merchandise presentation. This clearly improves our retail performance, which is nevertheless [suffering] from the weak overall consumer sentiment especially in Germany. Needless to say, our wholesale operation shown on page 9 was subject to the same macro-economic challenges as our retail segment. We have nevertheless been able to further increase the trust placed in our brands and to grow our sales by 26.2% to EUR54.5 million. Sales to wholesale partners does account for 37.2% of the GERRY WEBER group's total sales. The increased brand appeal, our product performance and the message of our collections are increasingly appreciated [far] above the specialized trade. Active sales are provided by our field staff, trading at the point of sale and monthly newsletters to each brand had to increase sales and to transfer the [#WEAREGERRY] [feeling] to our hosted partners' sales teams. Today, it is increasingly about selling not only attractive products, but also emotions. That is another platform factor and competitive advantage. Our first-time participation to the PREMIUM show in Berlin was a highlight. Our exhibition booth showcased our new orientation of the worldwide preview of our new brand campaign #WEARESOGERRY, which was launched last week. It attracted many retailers and was a positive inspiration and successful kickoff for the subsequent pre-order [route] for spring/summer 2023. I would like to emphasize the importance of pre-orders for our company. Page 10 presents a transparent overview of the preorder system and its advantages as well as the like-for-like pre-order figures. Let me reveal that the preorder round for months from January to March, which has just ended, exceeded our expectations. But let's now look at the chart. On the left, you see our pre-order system. Right now as much as 80% of our total wholesale sales for 2022 are secured. These sales also include the second half of the year actual and including November. Add to this never out of stock and stocks sales. On the right, the presentation shows that our wholesale partners have regained trust in GERRY WEBER and our brands. And they have done so steadily as like-for-like sales have increased steadily. The orders placed in February and April of this year will be delivered from July to December, and already secure us an increase of 26% for the second half of the year, compared to the previous year from preorders alone. Before updating you on sustainability and the supply chain, let me briefly summarize. The positioning of the brands, the differentiation between them, the development of our new target groups, the product [charts] quality value for money, reliable fit, (inaudible) and brand identity are well on track. We have regained the trust of our customers and our wholesale partners in spite of the gloomy geopolitical and general situation, which is consumed by growth across all three channels. The GERRY WEBER group remains intact. Page 11 gives you a brief update on the progress made with regard to our sustainability strategy. This progress can be tracked on our website where it is presented transparently at [net] revenue. Besides the GOTS cotton certification obtained many years ago, we have now also obtained our first OCS cotton certification. This means we will not source cotton from [Sinyang] whose origin and our production cannot be transparently tracked. While our headquarters became carbon neutral back in March 2020, almost one year earlier than planned, our international B2B shipping operations are now also climate neutral. Just for the sake of completeness, let me point out again that ESG targets [are family and caught] on the long incentive plan for the management. Sustainability is my responsibility and an integral element of all aspects of the company. Page 12 gives you an overview of the still very tight situation of the procurement market. We do not expect to see noticeable relief anytime soon. Nevertheless, through daily screening and decision-making, we have achieved 85% to 95% on-time delivery in the first half of 2022. This was made possible by the long-standing trust and cooperation with our producers and that close interaction with our current offices and our inbound-outbound task force. We continue to expect challenges of all kinds such as closures of production facilities due to energy charges in individual procurement contracts, further increases in lead times, further increases in the cost of materials, energy and freight to an impact [of fuel]. We continue to conquer these challenges with an agile up-to-date policy. We are testing near shoring in Eastern Europe, and we are confident that we will be able, as we were in the first half of 2022, to include price increases and inflation in our calculation and to pass on price increases to our wholesale partners. Ladies and gentlemen, I would like to thank you for your attention, and turn over to Florian, who will present our next year guidance. -------------------------------------------------------------------------------- Florian Frank, GERRY WEBER International AG - CFO [4] -------------------------------------------------------------------------------- Thank you, Angelika. Thank you for joining us. If you join me on page 14, I would again highlight that we reached positive normalized EBITDA, excluding the effects of lease accounting under IFRS 16 of EUR2.2 million. But starting at the top left of the page, the company consolidated sales of EUR157 million in the first half of 2022, which is 48.5% higher compared to 2021. The sales split shows retail, EUR75.8 million; wholesale, EUR54.5 million; e-comm grew to EUR 26.5 million. Furthermore, we generated other sales such as licensing fees. Net income is minus EUR12.4 million, we generated EUR11.7 million operating cash flow. Operating cash flow was mainly used to finance inventory. Cash and cash equivalents at EUR63.8 million improved by 27.5%, compared to last year. In January, we received the cash of outstanding state support of EUR17.1 million and further the EUR2.5 million in August. Net debt at EUR20.6 million, and equity ratio of group level at 16.2%. Looking at sales figures, a bit more detail on the next page. Net sales, as already mentioned, EUR157 million, in line with our expectations. Growth in e-comm, again, of 27.4%, in line with mid-term targeted growth in this segment. Sales growth Retail and Wholesale mainly due to continuous store opening in 2022. Retail like-for-like sales were at plus 88%. On the next page, I will give you some background of the segment performance of normalized EBITDA level. Positive normalized EBITDA at EUR2.2 million in H1 '22, compared to minus EUR9.2 million of last year. Retail segment on the right track and on its way to reach breakeven. Wholesale segment shows solid normalized EBITDA. E-commerce below last year's level due to a higher cost in H1 2022. Segment Support shows negative normalized EBITDA due the fact that sales with the subsidiaries do not cover segment costs. Let's turn to page 17 and to details of our cash flow. On the left side, you can find the starting cash [revenues] of EUR50 million at the end of '21. Positive cash flow from current operating activities of EUR11.7 million. Already mentioned, the increase in working capital may be financed by payment of state support, investments kept low due to uncertainty of COVID-19. Cash flow from financing at plus 4.5, which for us came in as expected, includes refinancing and [roll off] RCF, EUR17.5 million. Payment of liabilities relating to rights of use IFRS 16 of EUR11.1 million and Repayment of the insolvency liabilities, EUR1.9 million. This leads to the already mentioned stable cash position of EUR63.8 million. Current cash position is still around EUR60 million. Let's have a look at the capital structure in detail on the next page. On the left of the page, you will find a detailed net debt analysis with book values and undiscounted cash flows. Please bear in mind that there has been a devaluation of contingent liabilities of EUR13.3 million in [2021]. Therefore, the concession contingent is zero. Starting with the already presented to EUR63.8 million cash, deducting debt leads to EUR20.6 million net debt. Debt structure includes senior debt, which is our RCF EUR7.5 million, other credit facilities EUR10 million and book value of the principal term loan with EUR38.2 million. Unsecured debt consisting of EUR22.5 million, straight bonds, EUR1.2 million, convertible bonds and further insolvency cash quota of a total of EUR4.9 million. There are EUR4 million secured by escrow accounts. In the second column you can see undiscounted cash outflows at the end of '23, including PIK interest. On the right page, you can see our debt distribution profile, currently an amount of roughly EUR80 billion, has to be refinanced at the end of '23. On page 19, I want to sum up the highlights of our first half-year 2022. Despite deteriorating macroeconomics environment and new reporting period, GERRY WEBER GROUP reported strong net sales increases driven by continuous opening stores. Significant improvement in normalized EBITDA compared to H1 2022. Normalized EBITDA slightly positive. E-Commerce grow again, in line with mid-term target of plus 20%. Retail development on track to reach breakeven. Wholesale performance, very solid, in the all-around is very satisfying. Ongoing robust liquidity position, as already explained. Please follow me into the outlook, starting with the assessment of the current situation and additional measures which led to an update of our guidance in July. Optimization of inventory and merchandise management, such as clearance of stocks and introduction of new software to support inventory optimization in Q4 2022. Supporting EBITDA through further cost savings in personnel expenses. Optimization of retail portfolio, the pandemic accelerated changes in shopping behavior of customers, additional cities are losing shopping appeal which will lead to additional soft store closures in H2 2022. On the next page, you will find an overview of our main assumptions for our guidance 2022. I will focus on the changes compared to our Q1 presentation. If you follow me on page 22, main change regards customer sentiment, H1 already shows reduced purchasing batches of customers, the impact in H2 2022 remains to be seen. On page 23, you see that we implemented the already mentioned measures to stabilize EBITDA, which led to an updated guidance for full-year 2022 in July. For the fiscal year '22, we are expecting the following: net sales is expected between EUR315 million and EUR340 million; normalized EBITDA is expected in the negative single-digit million-euro range to positive single-digit million-euro range. We also included our covenants in this presentation. Currently, we do not expect covenant issues in Q3. Nevertheless, we are discussing already refinancing strategy with our main lenders. Due to potential downsides already mentioned in the guidance, there will be an update in Q3. Now let me hand over to Andrea, she will give you an update on our capital markets activities and our financial calendar '22. -------------------------------------------------------------------------------- Andrea Rolvering, GERRY WEBER International AG - Head of IR [5] -------------------------------------------------------------------------------- Yes. Thank you, Florian. We are planning to attend five more conferences in the remainder of the fiscal year. We'll start with the Hamburg Investment Days organized by Montega on August 24. Then we will attend the Autumn Equity Forum on September 6, Angelika and I will attend that. We are planning on attending the Baader Investment Conferences, most prevalent date is going to be September 16, so Friday. We are going to be at the Munich Conference in November -- November 15 after the release of our nine months figures, and then you will be attending the German Equity Forum. So if you want to see us and get a one-on-one, please bear these dates in mind. And then to close this presentation, the remaining financial calendar for 2022 is November 10, publication of our nine months figures. With that said, let's move on to the Q&A session. So I hand over to you, Tim. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Tim Cruise, Montega Partners - Moderator [1] -------------------------------------------------------------------------------- (Operator Instructions) Mark Josefson. Please go ahead. Mark, are you on mute? We can't hear you unfortunately. Okay there seems to be some difficulties. Maybe, Mark, you couldn't join via telephone, and we ask your question. I will submit it by the chat. I'll be happy to read it for the management team. In the meantime, I would be interested to know -- you highlighted, thank you very much for the detailed chart, your performance -- the retail performance in Germany compared to the overall market. How was that in the other international markets? Do you have some insights on that? And maybe, a follow-up question to that. What were the highlights and lowlights in the international market or the country split you had in the second quarter? -------------------------------------------------------------------------------- Angelika Schindler-Obenhaus, GERRY WEBER International AG - Chairperson & CEO [2] -------------------------------------------------------------------------------- Unfortunately, we don't have such a [panel] for the international market. We don't have any idea where we can get it. We have it only for Germany from text filler chart. And from the international market, we are performing in some markets over Germany because of Spain is a very good market and Poland and something else. It depends on the restrictions -- of COVID-19 restrictions, there are in Germany other -- the highest restrictions. So the international market is a little bit better on -- going, but we don't have a panel. -------------------------------------------------------------------------------- Tim Cruise, Montega Partners - Moderator [3] -------------------------------------------------------------------------------- Okay. And maybe compared to your expectations, what was sort of the high or low lights in terms of your regional split? -------------------------------------------------------------------------------- Florian Frank, GERRY WEBER International AG - CFO [4] -------------------------------------------------------------------------------- That's relatively easy. Germany was hit very hard by restrictions. The foreign countries haven't been hit so hard, so they expected more in line with our expectations. The main deviation came from Germany in the first quarter, and currently, current trading now is supporting our guidance. -------------------------------------------------------------------------------- Tim Cruise, Montega Partners - Moderator [5] -------------------------------------------------------------------------------- Okay. I have another question, in terms of your inventory levels, you had EUR80 million, if I recall, roughly. How happy are you with that? What's your insight on the sort of mid-season sales development with the competition, et cetera? Maybe you could give some insight on that, that would be helpful. -------------------------------------------------------------------------------- Florian Frank, GERRY WEBER International AG - CFO [6] -------------------------------------------------------------------------------- From the CFO perspective, we have kind of overstock of our space from the Q1, so settings. And that's the reason why we implemented a progressive merchandise financial planning program to solve this issue until the end of this year and avoid further write-downs, and that's the -- but that's the purity of [our] perspective. -------------------------------------------------------------------------------- Angelika Schindler-Obenhaus, GERRY WEBER International AG - Chairperson & CEO [7] -------------------------------------------------------------------------------- Yes, and we can say we are selling all goods and overhang. We have clearance outlets offline and online, and also third-party merchandise by us. For example, if we have (inaudible) sorted assortment or something like this, we will also introduce a new soft batch to support inventory optimization starting in Q4 2022. So we can manage that in the future better than now. -------------------------------------------------------------------------------- Andrea Rolvering, GERRY WEBER International AG - Head of IR [8] -------------------------------------------------------------------------------- And I think -- let me add something, like the H1 figures, they showed clearly that the season sales that you just talked about a minute ago, Tim, that they started quite early in H1. You can see that (multiple speakers), they were like weeks 13 to 18 where we were definitely outperforming the overall market in Germany. But then, in weeks 20 to 25, there is some very early and aggressive sales activities by our -- by someplace in the market, which we didn't follow. So does that answer your question? -------------------------------------------------------------------------------- Tim Cruise, Montega Partners - Moderator [9] -------------------------------------------------------------------------------- Yes, thanks very much. Yes, I have a further question, if you could maybe give some insight the current renegotiations of the loans, which we have to renegotiate until next year. But I guess that's the elephant in the room. So if you could, that would be obviously interesting for the parties to have maybe some insights there? -------------------------------------------------------------------------------- Florian Frank, GERRY WEBER International AG - CFO [10] -------------------------------------------------------------------------------- As you know, we managed already to refinancing partially our revolving credit facility at the beginning of this year. Right now, we are checking other options, for instance, asset-based lending [in the respect] HQ. And we will address and already addressed our main financing partners to step into further negotiations this year. -------------------------------------------------------------------------------- Tim Cruise, Montega Partners - Moderator [11] -------------------------------------------------------------------------------- Okay. So starting this year, but not any conclusions this year expectable? Or is that something you can't --? -------------------------------------------------------------------------------- Florian Frank, GERRY WEBER International AG - CFO [12] -------------------------------------------------------------------------------- Not yet. -------------------------------------------------------------------------------- Tim Cruise, Montega Partners - Moderator [13] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Florian Frank, GERRY WEBER International AG - CFO [14] -------------------------------------------------------------------------------- There will be definitely an update in Q3. -------------------------------------------------------------------------------- Tim Cruise, Montega Partners - Moderator [15] -------------------------------------------------------------------------------- Okay. Thanks a lot. Right. So at this point there seem to be no further questions. Once again, please, if you have any questions. Mark Josefson, maybe you could send your questions to the company directly after the call. There seems to be some technical issue. Otherwise, at the moment, there are no further questions. The company is obviously always open for your questions also, after this, and -- yes. I thank you very much to the management team, Angelika, Andrea, Frank, for your time. And I will hand over for closing remarks to you, Andrea. -------------------------------------------------------------------------------- Andrea Rolvering, GERRY WEBER International AG - Head of IR [16] -------------------------------------------------------------------------------- So thank you very much for participating in this call. As Tim already said, if there is anything left unclear, also, Mark, if you have a couple of questions that you couldn't ask, please contact us directly and we'll be more than happy to help. And with that said, thank you for your participation and have a nice afternoon. -------------------------------------------------------------------------------- Florian Frank, GERRY WEBER International AG - CFO [17] -------------------------------------------------------------------------------- Thank you, and good night. -------------------------------------------------------------------------------- Andrea Rolvering, GERRY WEBER International AG - Head of IR [18] -------------------------------------------------------------------------------- Bye-bye. -------------------------------------------------------------------------------- Angelika Schindler-Obenhaus, GERRY WEBER International AG - Chairperson & CEO [19] -------------------------------------------------------------------------------- Bye.