U.S. markets open in 28 minutes

Edited Transcript of MDM.PA earnings conference call or presentation 11-Mar-20 5:00pm GMT

Full Year 2019 Maisons du Monde SA Earnings Call

VERTOU Jun 8, 2020 (Thomson StreetEvents) -- Edited Transcript of Maisons du Monde SA earnings conference call or presentation Wednesday, March 11, 2020 at 5:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Christopher Welton

Maisons du Monde S.A. - Head of Investor & Banking Relations

* Eric Bosmans

Maisons du Monde S.A. - Administrative & Financial Director

* Julie Walbaum

Maisons du Monde S.A. - CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Adam Gareth Cochrane

Citigroup Inc, Research Division - Director

* Anna Patrice

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Aurélie Husson-Dumoutier

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Clement Genelot

Bryan Garnier & Co Ltd, Research Division - Analyst

* Georgina Sarah Johanan

JP Morgan Chase & Co, Research Division - Analyst

* Marie-Line Fort

Societe Generale Cross Asset Research - Equity Analyst

* Nicolas Langlet

Exane BNP Paribas, Research Division - Research Analyst

* Tushar Jain

Goldman Sachs Group Inc., Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to Maisons du Monde 2019 Full Year Results Conference Call.

(Operator Instructions)

And just to remind you all, this conference is being recorded. We would like also to inform you that this event is also available live with a synchronized slide show.

During the conference call, statements could be made that constitute forward-looking statements, statements based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to defer materially from the future results expressed, forecasted or implied by such forward-looking statements. Our listeners are reminded to read the forward-looking disclaimer on Slide 2. For a more complete list and description of such risks and uncertainties, please refer to Maisons du Monde's filings with the French authorities this [March finance year].

And now I would like to hand the call over to Chris Welton. Sir, you may go ahead, and I will be standing by. Thank you.

--------------------------------------------------------------------------------

Christopher Welton, Maisons du Monde S.A. - Head of Investor & Banking Relations [2]

--------------------------------------------------------------------------------

Thank you very much. Good day, everyone, and welcome to Maisons du Monde's Full Year 2019 Financial Results Conference Call. My name is Chris Welton, and I have the good fortune of recently joining Maisons du Monde as Head of Investor Relations. Please do not hesitate to contact me directly, should you have any investor-related queries or if I can be of any assistance. My contact details can be found on today's press release.

Our CEO, Julie Walbaum; and our CFO, Eric Bosmans, will be making today's presentation. The conference call slides can be downloaded from our website, maisonsdumonde.com. This call's also being audio webcast, and a replay will be available on our website later today. All listeners are reminded to read the forward-looking disclaimer on Page 2 of our presentation.

And with that, I now turn the call over to Maisons du Monde's CEO, Julie Walbaum.

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Chris, and good evening, and welcome to everyone. I will start as usual by presenting the highlights of our full year performance, Eric will detail our financials, and I will come back to present our 2020 business initiatives and outlook. After that, we will be happy to take your questions.

Overall, as you can see on Slide 5, Maisons du Monde delivered a solid performance in 2019. We delivered on our updated target and finished the year with strong market position. Our strong performance is due to several factors: first, the success of our multi-style, inspirational yet affordable collections, which do travel well across the geographies; second, our expanding international footprint, with more than half of our net store openings outside of France; and third, the sustained dynamics of our online sales, which continue to combine strong growth and profitability.

Regarding our newer growth avenues, the rapid expansion in Modani resulted in solid top line growth while generating temporary challenges at EBITDA level, as explained during our Q3 results presentation. Our B2B activity also posted strong growth over 30%, with EBITDA in line with our plan. This 2019 performance does demonstrate the strength and resilience of the Maisons du Monde model and brand and the relevance of its omni-channel and international strategy. We know this model will be further tested this year, and we do expect 2020 to be a challenging year, as we will discuss later. But we remain fully confident in our company's ability to generate profitable growth in the medium term and to remain one of the best-performing models in this fast changing retail world.

On Slide 6, you see 2019 in key numbers. First and foremost, as you already knew from January, our sales grew by more than 10% to EUR 1.2 billion. That includes 3.6% growth in our like-for-like sales, which is an increase over the 3.1% recorded in 2018. Our EBITDA surpassed the EUR 150 million mark, representing 12.5% of our sales. So as you can see, we did hit our additive target, both of sales growth and of EBITDA margin, which were respectively around 10.5% and around 12.5% of sales. We did so despite a challenging Q4, once pricing trends of our pension reforms kicked both our store traffic and our product availability.

For us, best of all, we generated more than EUR 84 million in free cash flow, an increase of over EUR 70 million year-on-year, allowing us to reduce the net debt leverage from 1.3x EBITDA last year to 0.9x this year. We therefore entered into 2020 with a solid financial structure.

Now moving on to Slide 7. As you know, last year was marked by the unveiling of our 2020-2024 strategy, which we presented at our Capital Markets Day in June. And as we explained, the Maisons du Monde growth story will continue, thanks to the sustained development of our core omni-channel and international business, and thanks to the development of new growth avenues. While in 2019, we laid out the foundation for this plan, notably by making progress on the following levers: one, enhancing our product proposition and merchandising; two, managing our store network in a dynamic manner; three, strengthening our omni-channel experience; four, heightening customer engagement to enhance brand attractiveness; five, developing further our B2B activity; and finally, expanding our U.S. operations. I suggest we have a look at these initiatives in further detail.

And moving to Slide 8, let's have a look at our renewed product approach. In line with our strategy to further strengthen our differentiated offer, we started to revamp our collectionning process, releasing more and [preferred] collections. Our fall and winter decoration collection were launched at the end of July, with -- as we said, more and sharper themes. We introduced original colors with our Azuki collection and innovative shape and fabric with our In the Woods collection. We also introduced the modern version of our classic romantic style with our Bruges collection as well as a more masculine offering with our Boston theme. All of these collections did strengthen our product offering, and they were all well received by our customers. As a proof of that, [sales] grew by 5% on a like-for-like basis.

We also launched our, what we call So Me customizable sofa, which was popular with our customers and did increase the overall category order value as it came with an average price, twice as high as the average sofa at Maisons du Monde. And here, you can see the value of our in-store customer advice service, which was key in promoting this offering, with 80% of the So Me orders coming from our stores through the advice of our store associates.

Finally, we initiated our in-store merchandising localization program for better selection of furniture, testing display based on local demand. Thanks to the combined effect of data management and the local expertise of our teams, our localization pilot delivered very encouraging results.

On Slide 9, you can see that investing in our store network is a key aspect of our omni-channel development. We manage our network in a proactive and dynamic fashion, selectively relocating some stores to better locations in the same catchment area or opening in key new areas, strengthening our omni-channel model and reinforcing our brand visibility.

In 2019, I'm proud to say we opened a record number of stores, with 41 gross store openings in 8 countries. 18 of these were in France and 23 internationally. We opened 7 stores in the U.S., including one under the Maisons du Monde banner. Modani now operates 18 showrooms, and we opened our first store in Portugal. We also closed a record number of 13 stores, 6 in France and 3 in the rest of Continental Europe, plus as we have previously announced, our 4 corners in the U.K., following the end of our test period with Debenhams. These active closures are an integral part of our dynamic management of our store portfolio. We did accelerate in 2019 as a result of this strategy. Overall, our global store network now counts 376 stores.

As shown on Slide 10, to enhance our omni-channel experience for our customers, we introduced several customer-centric initiatives. A few examples: first of all, we successfully deployed our in-store decoration advice corners across our network. This service is now available in 206 of our stores, providing our customers with comprehensive use of our materials and colors and access to personalized quotes and the ability to order the product selection with our store associates. Next, we launched in-store returns of online decoration orders, the logical move after our [freedom] retail stores of online decoration orders. This in-store return functionality is now available in 7 countries, and provides a complementary solution to free in-store delivery, further boosting in-store traffic and also helping us controlling costs. We have also optimized our website navigation and improved our search engine to facilitate product selection. This resulted in a new increase in our online conversion rate.

Finally, we have further enhanced post-purchase customer satisfaction, thanks to enhanced information and order and delivery. And the delivery of an ambitious improvement road map with our third-party carriers in 2019, we managed to improve home delivery Net Promoter Score by 6 points between 2018 and 2019, reaching the score 15 total.

To conclude, the acquisition of a majority stake in Rhinov is enabling Maisons du Monde to democratize the access to professional interior design service at affordable prices. Rhinov sales grew by 35% between 2018 and 2019.

Moving to Slide 11. We boosted our brand differentiation last year, thanks to an enhanced customer relationship and marketing program. We implemented a 360-degree marketing plan with commercial and branding initiatives. We implemented selected product promotions, bring down store inventories in Q2, as explained in our strategy to make room for a revamped collectionning process. We also moved our French private sales forward from early January 2020 to late December 2019 to mitigate the negative impact of strikes in France, but also to align with the French market practices.

On the branding side, we stepped up targeted local actions in this strategy of marketing localization, notably around store openings. We implemented technical media partnerships such as the sponsoring of TV shows and online publications in France, Italy and Spain. We launched actions to raise brand awareness in Germany and Belgium, and we have also tested private parties for very important customers to increase our customer loyalty. Overall, thanks to our different brand initiatives across Europe, our brand awareness improved in all of our countries between June 2018 and June 2019.

Enhanced targeting and personalization of our CRM activities improved by 31% the effectiveness of our e-mail. We rolled out a series of life-moment-based marketing campaigns using different drivers, such as emailing, [Slack], [Google], display and also social media. Overall, this increased targeted and personalized approach of our communications with our customers proved to deliver better returns on investment.

As an example, we tested a powerful digital content for Christmas in France and also Spain, which attracted more than 150,000 participants, adding 30,000 new contacts to our database. Overall, our active customer base grew to 6.5 million active customers in 2019 versus 5 million in 2018, a very sharp increase in all of our countries.

Now turning to Slide 12. We can see B2B, one of our newer growth avenues. B2B generated total sales growth of 30% between '18 and '19, reaching a total of EUR 40.6 million. We operate different customer segments, such as architect, hotels, restaurants and retail. Well, in 2019, we particularly developed one new segment, which was the office customer base and offices is now our third vertical.

Our key account sales grew by 96% in 2019, and we also developed a new service avenue, our decoration advice services, with sales increased by 57% between 2018 and 2019. In 2019, we also launched our third B2B catalog, featuring fully decorated B2B environments and 140 bespoke B2B products based on the feedback from our professional customers.

Also in September, Maisons du Monde opened its first B2B showroom in the Paris Grands Boulevards flagship store, where customers can find inspiration and discover and find specific B2B products, get decoration advice from B2B professionals and place an order.

As we said before, one major highlight of the year were the opening in May of the Maisons du Monde Hotel & Suites, showcasing the expertise in the half of our B2B team in partnership with the Vicartem group, owner and operator of the hotel. This hotel's P&L is still a great success. The occupation rates and customer feedback on both booking and trip advisers are excellent. This is also obviously a brand awareness accelerator as it generated very high engagement rate this year, both on social media and also in the press.

On the next slide, Slide 13, we look at Modani in a bit more detail. When we acquired Modani in May of last year, it was opening about one new store a year. Since then, Modani has proceeded to 10 gross stores opening. Taking into account 2 store closures, Modani's total network has gone from 10 stores to 18 since we acquired it. This is generally, as we discussed in the previous call, a quantum leap, which has had very positive effects on top line growth as the newly opened stores have been performing very well. In 2019, Modani posted annual sales of EUR 44 million, up 21% year-on-year. This rapid expansion and associated ramp-up costs led us to encounter higher logistic costs and marketing expenses than anticipated. On top of a drop in gross margins because of the U.S.-China trade war that led to a tax on Chinese imports.

Finally, store openings were dilutive in the year, partly because the openings were late in the year. These reasons, largely explained during our last Q3 call, explained the temporary profitability drop in Modani in 2019. Overall, though, we do remain satisfied with the potential of Modani's business model and are very confident in its medium-term growth prospects.

Let me now hand over to Eric to go into greater detail on our financial performance.

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [4]

--------------------------------------------------------------------------------

Thank you, Julie, and hello to everyone. Before commenting on our numbers, I would like to bring to your attention the main impacts of the IFRS 16 standard on our key financial metrics, as shown on Slide 15. We are applying the simplified retrospective method since the first of January 2019. As a result, we've established 2019 consolidated financial statements in accordance with IFRS 16, although the prior data was presented in accordance with IAS 17, the standard that prevailed at the time.

This page shows key financials for both reporting standards. As you can see, IFRS 16 has a significant impact on some of our key numbers, partly EBITDA, financial results and net debt. On the EBITDA line, it has a positive impact of EUR 107 million on our 2019 numbers, and EBITDA under our IFRS 16 was EUR 259 million. This compares to an EBITDA of EUR 153 million under the previous norm IAS 17. At the EBIT level, there is a positive impact of only EUR 6 million. In terms of financial results, the impact is a negative EUR 13 million on our 2019 numbers due to the increase in lease-related debt under IFRS 16. Net debt is significantly impacted by the recognition of lease liabilities as debt, and stands at EUR 805 million. It is important to note that the impact on free cash flow is neutral, and change in working capital is broadly stable.

I would also like to point out that going forward, we will be reporting our financial results under IFRS 16 only. But for now, to allow comparability with 2018, I will be commenting on the 2019 numbers, restated pre-IFRS 16.

On Slide 16, let me just go over the highlights of 2019, which, as Julie said, was a good year. Sales were up 10.3% and 3.6% on a like-for-like basis. Gross margin grew by 9%, slightly lower than the top line growth rate. We'll look at this in more detail a little later on.

EBITDA came in at EUR 152.7 million with an associated margin of 12.5%, in line with our guidance. Net income for the year was EUR 62 million, allowing us to propose to shareholders an increase of EUR 0.03 in the dividend to EUR 0.50 per share. And finally, free cash flow was EUR 84 million and gives us space to face 2020.

Let's look at each of these in more detail. On the next slide, we take a closer look at the breakdown of our sales, and you see that our strong top line momentum was driven by continued growth against -- across geography, channel and category. In 2019, we continued to see the strong momentum in our international sales, which were up by a strong 19.2% over 2018. France grew by 3.9%. Our online sales also continued their fast-paced growth, rising by 20.1%, while store sales were up 7.4%. And this evolution is very much in line with our increasingly omni-channel model. Finally, we saw growth in both our product categories, with furniture sales up by a solid 14.4%, while decoration sales rose 7%.

Moving now to Slide 18. You can see that over a 3-year period, we have posted solid high double-digit growth both in our international operations and our online sales. Between 2017 and 2019, Maisons du Monde's international sales have grown by a compound annual growth rate of 20%. International sales totaled EUR 552.8 million at the end of 2019, representing 45% of our sales.

Similarly, the 3-year CAGR of online sales is also 20%, and online sales account for 1/4 of our total sales. Over the period, we have added EUR 92 million in sales. Digital as a whole, including click-in-store sales is now about 50% of our total sales.

On Slide 19, you see that our top line growth of 10.3% was also well balanced. LFL growth of EUR 40 million represented more than 1/3 of total growth. Growth from development totaled EUR 55 million and accounted for close to half of total top line growth. And finally, the acquisitions of Modani and Rhinov added the remaining EUR 19 million. Overall, our growth was at the time, at the same time, organic and driven by development and acquisition. This is a powerful combination, giving us several engines to increase our top line.

Slide 20 shows how we go from gross margin to EBITDA margin. Gross margin at 65.3% of sales was down circa 80 basis points due to an increase in the share of furniture sales, which carry lower margin than decoration products and increased promotional intensity over the year as a whole.

Maisons du Monde's gross margin remained best-in-class and very robust by any standard. Total operating cost as a percentage of sales are flat year-on-year at 52.8%. This results from the combination of a year-on-year increase in global operating costs as percentage of sales, partly due to Modani, offset by a decrease in furniture cost and advertising cost percentage. Overall, group EBITDA margin was 12.5%, which remains at best-in-class level.

Slide 21 shows the bottom half of the P&L. Current operating profit before IFRS 16 amounted to EUR 117 million in 2019 compared to EUR 108 million in 2018. Other operating expenses increased by EUR 3.6 million year-on-year, reflecting a write-off in accounts receivable related to an asset disposal and a provision for a commercial dispute.

Net financial expense declined by nearly EUR 1 million in 2019. This reduction is due to gains on foreign exchange transactions. The cost of net debt at EUR 6.8 million in the year pre-IFRS 16 is relatively stable year-on-year. At comparable reporting standard, pretax profit was up by EUR 6 million or 6.4%. And although the income tax charge increased by EUR 4.2 million, net income was up 2.9% versus the previous year to EUR 62.4 million. Excluding the impact of trade tax, our effective tax rate for the full year 2019 was 31%, in line with 2018.

Moving to Slide 22. Our strong performance in the year puts us in a position to propose to our shareholders at our AGM on June 12, a dividend of EUR 0.50 per share, an increase of EUR 0.03 versus 2019. This amounts to 1/3 of 35% of our net income group share, in line with the prior year. This equates to 38% under IFRS 16.

On the next slide, you can see that our free cash flow saw a sharp improvement in 2019, with an inflow of EUR 84 million compared with EUR 13 million in the previous year. This results in [large part] from an improvement in working capital requirements with a positive swing of EUR 113 million, mainly due to a reduction in inventory by EUR 30 million in the year compared to an increase of EUR 72 million the year before.

The outflow for the year from CapEx increased year-on-year. CapEx restood at EUR 61 million, up EUR 15 million versus previous year. 2019 CapEx represents 5% of sales versus 4.1% in 2018. The main investments were geared towards store development, which represented nearly half of CapEx and IT investment for EUR 12 million, linked to our step-up in digital. Maintenance and refurbishment accounted for nearly EUR 10 million.

On Slide 24, we put the spotlight on our strong improvement in working capital. This resulted, as I said before, from a strongly reduced inventory level down EUR 30 million year-on-year, translating into a sales inventory of 181 days against 225 days in 2018. The reduction in inventory was essentially attributable to inventory cap at our warehouse in Marseille while the average inventory per store was only slightly down versus 2018. The significant reduction in -- of EUR 28 million in trade and other receivables versus 2018 was mainly due to deferred charges relating to property leases reclassed under IFRS 16 and, to a lesser extent, to a reduction in advances paid to suppliers.

On the next slide, Slide 25, let me comment on our financial structure and leverage. Our net debt at the close of the year stood at EUR 143 million, a decrease of almost 1/4 from the EUR 186 million at the end of 2018. When equated with our last 12 months EBITDA, that brings our leverage ratio to 0.9x, an improvement versus the 1.3x posted in 2018. This gives Maisons du Monde a very sound financial structure.

With that, let me now hand over to Julie.

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [5]

--------------------------------------------------------------------------------

Thank you, Eric. In this section of the presentation, we will focus on our 2020 initiatives, priorities and outlook. While it will come as no surprise to you that we are operating in a difficult environment since the start to the year. First, due to the continuing strikes in Marseille, affecting product availability and now to the coronavirus epidemic. I will further comment on this later on.

But this is not preventing us from advancing upon the 2020-2024 strategic road map we presented to you last year. This road map, as you remember, is built on 2 different pillars: the first is to enhance our core business through an even more differentiated offer, a strengthened omni-channel model that is increasingly digital and data-driven and continued international expansion, notably in Europe; the second pillar is to develop new growth segments. We will do this in 2 ways: first, by expanding our core business through the launch of our marketplace, the logical next step for our curated model. And also by developing our services, notably through our partner, Rhinov. Second, by developing emerging growth avenues, namely the development of B2B and franchising and further expansion in the U.S.

Let me give you some color on these on the next few slides.

On Slide 28, we aim to further sharpen our product leadership by reinforcing our creativity, our CSR commitments and our merchandising. Our new 2020 indoor and outdoor collections embody our focus on creativity and sustainability, our multi-style collections combine additional know-how and modernity, our premium summer decoration collections. We visit the exotic style by adding an urban touch that celebrate the beauty of imperfect fabrics and the art of craftmanship and they also make industrial decor [meet the jungle], all with strong and differentiated [stories], that I hope you will be able to notice in store.

Product innovation is also in style as we proposed new functional products, such as automated sofas or [back-lit] cabinet. We are also enlarging our product ranges with a broader bed, kitchen & bathroom offering. Second, building on the success of our So Me customizable sofa, we are launching a range of customizable table. Last but not least, our sustainable offer is growing again. 68% of our wood and furniture collections now come from sustainable resources compared to 64% in 2019.

To support this product road map, we have put in place a new and powerful organization. In September 2019, Agathe Lacoste joined the company as our Chief Product Officer, with his strong track record as Head of Home and Fashion categories at Galeries Lafayette and then Monoprix. Agathe adds to our creative engine her vision around lifestyle, brand, product design and also category management. We are thrilled to have her on board, and she will be strongly supported in our action by 3 key new people around her. Over the last quarter of 2019, 2 other key people joined the product team, Geraldine FLORIN and Helene GUIET. Geraldine is our new Artistic Director, the role that has just been created in the company. She has a very solid background in fashion and lifestyle, coming from the internationally-recognized fashion fair, Who's Next, which she turned around to make it more modern and more prone to sustainability and previously, coming from Galeries Lafayette, Swarovski and Balenciaga. Geraldine is in charge of refining our brand platform to help drive our product region. She is also in charge of identifying the upcoming decor and furniture trends to support our product innovation. And also, she will be proposing and delivering relevant external collaboration for our brands. Helene GUIET, our Head of Quality and Sustainable Sourcing, another new position in the company, comes from SYSTEME U and Casino. She's an expert at setting and delivering the right quality standards with a customer focus in mind. At Maisons du Monde, her mission is to set the appropriate quality standards for each of our product lines and put in place the adequate tools and processes to deliver these standards consistently and at an optimized cost. She is also driving our product CSR road map, in line with our '24 ambition.

Finally, Frederic Sionis, the third but not the least, is our new Head of Style. He started last month. Frederic is a talented designer who graduated from Ecole Boulle and Ecole normale superieure and that worked at Hermes, Zara Home and Alinea. At Maisons du Monde, he is in charge of defining our brand style platform, supervising our integrated design studio and proposing new product creation, combining style and functional design. He's also working in close relationship with our product managers and with our suppliers to further strengthen our design-to-cost approach, which is a fundamental pillar to our model. So as you can see, we are well equipped for the future. We have a clear product strategy and a new, very strong team of experts.

Moving to Slide 29. Our main omni-channel and marketing priorities are based on brand awareness, increased traffic and conversion as well as customer loyalty. To boost our brand awareness in a cost-effective way, we use key drivers such as nimble PR and influencers' programs, small media partnerships and an enhanced SEO plan. To increase quality traffic on our website and through our stores, we are accelerating a new set of campaigns. We are also developing in-store codes that can be later converted online. To increase our customer loyalty, we continue to organize private events for our key customers and to enhance post sale experience through new services such as evening deliveries and weekend deliveries that have been tested in '19 in the Paris area and will be further deployed in France in 2020.

On Slide 30, our 2020 store game plan combines increasing our store network attractiveness and leveraging our international strategy. First, our strategy is based on enhancing our sales effectiveness in our current stores. In addition to the rollout of our latest sales force training module, we are implementing the first test of our merchandising localization program. Leveraging successful tests in the second half of 2019, we will update the floor plan of part of our store portfolio this year to improve sales density. Moreover, we will roll out, through our fresh network, the in-store promotion of our new professional interior design service delivered by Rhinov. Second, Maisons du Monde is optimizing its branch network based on the relocation and refurbishment of [some] stores. International is our main focus this year for net openings, as it is throughout the plan. Our strategy is to adapt the store format links to each market, including where and when we see fit, premium locations in selected city centers to enhance brand awareness and boost online activity.

That being said, given the exceptional external circumstances, we are currently reviewing this year's store opening program to balance out investments between future sales growth and cash production.

Finally, we are continuing to develop our store network in a responsible manner, in line with Maisons du Monde's DNA and customer expectations. You remember that in 2019, we established CSR representatives in our French stores. In 2020, we are aiming to deploy this program in several of our international markets. We will also be implementing this year an ambitious LED-based relamping program which should reduce the energy density of our stores by 10% and will also deliver substantial cost savings. As you see, in 2020, we are implementing the foundations of our store game plan, dynamically managed, internationally driven and increasingly data based.

Slide 31. In terms of our marketplace game plan, our ambition is clear: develop a selective marketplace to become the go-to curator to stylish homes. The launch is expected this summer as planned. To make it clear, we are not launching a separate marketplace from our current website. We are transforming our current website into a marketplace in order to propose more choice and inspiration to our customers. We are going to open a website to brands that are compatible with our brand DNA and meet currently unmet customer demand on the very long tail of our product family. We plan to launch the product with about 50 vendors and about 15,000 products in the following categories: furniture, bedding, outdoor and textile to start with. To implement this marketplace, we have upgraded our technical infrastructure, including a new Magento-based ordering platform. Our marketplace is designed to follow a drop-shipping model with which means vendors will deliver products themselves from their warehouse to customers' homes. Likewise, vendors will monitor interactions with customers to ensure quality of service but we, Maisons du Monde, will also closely monitor vendors' performance based on user reviews. We will also put in place our own customer care procedures to ensure smooth operations and offer more advanced support to our customers should they need it.

On Slide 31, we look at another new business avenue, which is interior design service through Rhinov. Maisons du Monde is evolving towards the lifestyle partner position with an enriched service offering in order to provide an ongoing enjoyable experience. We have a 3-step plan this year: first, develop Rhinov online sales, thanks to a robust marketing plan and a dedicated B2B sales force; second, we are going to start to sell Rhinov services in our French stores following a first pilot at the end of 2019; and third, we will increase the share of Maisons du Monde's products sold through Rhinov's prescription by adding more products in that catalog and enhancing their visibility in Rhinov shopping list.

Slide 33. In terms of B2B and franchising priorities, well, the B2B market offer strong further potential, a strength in hospitality and workspaces match Maisons du Monde's style and DNA. This year, on top of continuing to promote our B2B interior design service, we are doubling again our B2B product range. And we will also roll out new delivery services adapted to professionals. Also, The Maisons du Monde hotel story continues. With Vicartem, our partner, we have just opened 7 hotel-type apartments in the historic city center of Nantes, offering all the convenience and freedom of an apartment with the facilities and peace of mind of a hotel. And I'm pleased to announce today the opening this year of a second Maisons du Monde Hotel & Suites. It will be located in the iconic old port of Barcares, decorated entirely with Maisons du Monde's furniture and decor.

Regarding franchising, we plan to open by summer, our first store in Algeria with our new partner, Numidis, part of the Cevital Group. With this new store, we will reach 2 stores in the Maghreb Region, along with our store in Casablanca in Morocco. And overall, we will reach 8 franchise stores.

As far as our U.S. operations are concerned, we will continue with Modani's development and its retail growth with a few additional openings across the USA. Given the current context, we have decided to decelerate the number of new openings. The smaller number will allow the team to spend more time on improving profitability, namely through supplier negotiations and supply chain improvements. We will also reduce marketing spend this year.

Regarding Maisons du Monde, we will use our 2 stores in Aventura Mall and Wynwood to further test and enhance our circumstance to fit the U.S. market. In the current environment, we are not planning to open any new Maisons du Monde store this year. We will, however, work on operational enhancements such as e-commerce development and supply chain optimization.

On Slide 35, we turn to the outlook for 2020. Our fundamentals were well oriented at the beginning of the year, with sustained good dynamics in most activities. However, the course of things has changed as we are now facing an unprecedented combination of adverse external events. First, the tail end of the French transport strikes, which came to an end in January, keep traffic in our French stores and contributed to a sub-consumption mood. Then the continuing dockworkers' strike in the Port of Marseille, where our central warehouse is located, has inhibited inventory recycling. This, in turn, has reduced the in-store and online availability of some of our best-selling SKUs. We currently estimate the combined strike effect to reduce anticipated first quarter sales growth by 4% to 6%.

Last, but unfortunately, not least, the outbreak of the coronavirus epidemic began disrupting SKU production in China towards the middle of February. Till then, production at most factories has restarted but at reduced levels with an unknown ramp-up timetable. The resulting supply chain disruption is affecting [more sales], and the group estimates that first quarter top line growth could be further reduced by 2% to 4%. We currently expect that this situation alone will [further] diversely affect top line growth impact in the second quarter. As a result of the supply chain challenge and of the impact on store traffic of the current confinement measures in Italy, we expect Q1 2020 sales to be broadly stable year-on-year. Indeed, and this is very much [largely in news], we are about to take, in a very next few hours, the decision to close down all of our Italian stores, that is 48 stores, completely for one week. This estimate of Q1 2020 sales to be broadly stable year-on-year takes that estimate in consideration.

Q2 2020 sales are most likely to be down versus last year for the reasons we've just described. Now to mitigate the margin dilution of this event, I have decided several weeks back already to implement at group level, a stringent cost-cutting program to curve operational spending wherever possible while maintaining minimum investment in our main growth avenues such as the launch of our marketplace, as I explained. Cost containment and the preservation of cash will be our key priorities for this year. This unprecedented combination of factors gives us reduced visibility and we believe it is cautious to withhold giving you full guidance until the overall impact becomes clearer. We will update you on the next quarterly call on our activities and on the progress we are making on the cost-cutting program and on operations overall, though.

I would like to stress that all of these are external factors that do not call into question Maisons du Monde's model or strategy. 2020 will be an exceptional year, but our vision stays unchanged, and Maisons du Monde remains fully committed to its strategic road map. Our company has proved its resilience in the past and we continue to believe that our product offer, strong brands as well as our omni-channel and international strategy will deliver sustainable profitable growth in the midterm.

Before I close and open to questions, let me draw your attention to a separate press release that we also issued this evening, announcing that Peter Child and Michel-Alain Proch are joining our Board as Chairman and Vice Chairman, respectively, and as independent members. They bring very extensive experience to our board, and we are delighted to welcome them.

Let me take this opportunity to thank Sir Ian Cheshire, who is stepping down as Chairman, for his commitment and support since 2016 and to Marie Schott, who is also stepping down, for her valuable contribution.

With this, thank you very much for your attention. And Eric and I are now happy to take your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions)

And the first question comes from the line of Nicolas Langlet from Exane.

--------------------------------------------------------------------------------

Nicolas Langlet, Exane BNP Paribas, Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

I've got 4 questions, please. The first one, in terms of store closures, so you mentioned the expected closure in Italy. Do you -- are you considering at this stage to close stores in other countries outside Italy? And if yes, is it included in your Q1 and Q2 outlook?

Second question. Beyond the cost control you are targeting, do you have the capacity today to adjust OpEx like rental expenses or staff cost quickly in your key countries?

Third question, on the gross margin. Given the expected FX impact, product mix and the CSR investment, is it fair to assume roughly the same trend in 2020 compared to 2019 at around minus 80 basis points?

And finally, on the net store opening, as of today, how many stores were opened since the beginning of the year? And for the rest of the project, how many projects are too much advanced to be delayed? So at least we can have the low end of the potential net opening for this year.

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [3]

--------------------------------------------------------------------------------

Nicolas, thank you very much for your questions. I'll take the first 3 questions, and Eric will answer on the net store openings due the beginning of the year.

On store closures, so far, we are only anticipating the closure of Italian stores, which are not effective as we speak. It will be effective from tonight if we do consent the decision, which is very likely to be the case. Even though there has not been specific demand from the Italian government, we believe that it is our responsibility towards our customers and towards our colleagues to act in the safest possible way. This is why we are closing for one week all of our Italian stores, and we will see day after day if it's relevant to extend this closure. This 1-week closure is embedded in the Q1 estimate. If there is any extension, that might change the estimate of Q1. We are not planning any other closure at this stage in any other countries.

Regarding cost control, about our capacity to adjust personal and rent in key countries. Well, we have a track record in the past, to have been able to adjust different operating cost and to preserve EBITDA. We did so in 2018 with the yellow vest movement. We did so in 2019. And as we explained, we did match our 12.5% EBITDA margin despite the Q4, which was much more challenging than one could have expected at the beginning of the Q4. So we have this track record and what I can add is that the cost control program that I decided that we implement at group level is a very ambitious one, and which is a level that is also at the -- which is about to address the challenge that we are facing.

So we are now considering all sorts of measures to indeed be able to curb personnel and rent expenses in all of our key countries. In certain countries like Italy, we are already doing some of these measures, using the vacation days in agreement with the staff and obviously, according to the law. And we will also, in constant discussions with the different authorities, to see if measures like a technical work interaction can be considered. So we are actively looking at every line and those lines in particular.

On the gross margins, and Eric might complement my answers, but so far, I think it is difficult to say, given the fact that our mix might evolve differently from what we initially expected at the beginning of the year. I'm thinking here, online versus stores, France versus international. And within international, the country mix might also be different based on the impact of the coronavirus on the consumption of each country. So the mix, maybe at the end of the day, different. This is -- this could indeed impact the gross margin.

And Eric will further comment on this.

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [4]

--------------------------------------------------------------------------------

Yes. To further complement Julie's answer, on the exchange rate front, which -- well, has got an impact on our gross margin because a significant proportion of our purchases are in U.S. dollars. For 2020, we expect a neutral to slightly positive exchange rate impact year-on-year.

--------------------------------------------------------------------------------

Nicolas Langlet, Exane BNP Paribas, Research Division - Research Analyst [5]

--------------------------------------------------------------------------------

Okay. And in terms of CSR investment, are you keeping the same target share during the Investor Day?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [6]

--------------------------------------------------------------------------------

So as I said, this year, the focus will be very much on cost control, EBITDA and cash preservation. We will have to delay some investments, which are not critical to the continuing operations right now. So it is fair to say that some CSR investments will need to be delayed up until we have further visibility on the impact and the situation can be further improved in terms of operations.

We will very much closely monitor both the situation and also the cost control program. I have set up a specific ad hoc committee for that objective, and we are meeting every week and we have even more regulated direction. So the idea is to be very much on the Board and to adapt as the situation ends there. But so far, it is fair to say that some of our CSR investment will have to be delayed. Now sometimes making progress on CSR, it's not just a matter of pure investment, just a matter of working differently, both with our suppliers and also about product design, sustainable design. This is not more expensive in many cases compared to, let's say, old design. But whenever there is a significant investment to be made, we will have to reconsider that for this exceptional year.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

And the next question comes from the line of Aurélie Husson from Kepler.

--------------------------------------------------------------------------------

Aurélie Husson-Dumoutier, Kepler Cheuvreux, Research Division - Equity Research Analyst [8]

--------------------------------------------------------------------------------

I have a few questions, please. The first one is, could you tell us how much Italy represented in full year '19. I know you don't disclose sales by country, but I think this is kind of an exceptional situation, and this will be pretty helpful.

Still on Italy, in your guidance for flat sales in Q1, I understand that you have already forecast the fact that some stores will be closed for one week. Have you thought about a scenario that [saving in Italy] could be close to 0 in March, and then what would be the impact?

Coming back on the cost base, could you guide us a little bit more through what part of this cost of this OpEx is actually variable? And this may lead me to my final question, the cost control program, you said it's very ambitious. Could you share this ambition with us? What shall we put at the EBITDA margin level? You're a retailer, so a fixed cost business, per se? So you can understand that some guidance would be very much welcome, that analysts are going to do some forecast for 2020, and it will be very helpful for you, for us and also for the share price, if you don't have a range of EBITDA margin for going from 2% to 13%. So can you help us on that, please?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [9]

--------------------------------------------------------------------------------

Aurélie, thank you for your question. Could you please repeat your third question? I'm not sure I've got it well.

--------------------------------------------------------------------------------

Aurélie Husson-Dumoutier, Kepler Cheuvreux, Research Division - Equity Research Analyst [10]

--------------------------------------------------------------------------------

The third question is on the -- what part of the cost base is actually variable of your OpEx?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [11]

--------------------------------------------------------------------------------

Okay. Thank you. So -- and again, I will surely answer to the questions, I'll take the first 2, and Eric will take the next one.

So we're talking to Italy. So with indeed a second estimate of this 1-week closure, this assumption in our estimate because we were anticipating a little bit this evolution. At least we have about 10 stores in Italy that had to close over the weekend in Veneto and the Lombardian region for the last 2 weeks already and monitoring closely the situation, this kind of scenario was a possibility. So we could anticipate that, and we embedded this assumption in our scenario. Now one week leads us quite close to the end of Q1. This is what we've put in our estimates. If it goes further than that, then that is not included in our estimates. So it might have a slight impact and much can't be done. But overall, we believe it is fair to give you this guidance at this point in time.

What is -- there is more in Q2. As I said, it is very difficult to see how the situation will unveil for the second quarter. This is why we can say that Q2 will be down year-on-year. You were [facing] challenge to the store traffic [challenge]. To what extent? It's too difficult to say right now. And the same goes with EBITDA. I absolutely understand that it would be very helpful. So it used to have a size of what can be squeezed out in terms of cost and the size of the cost control program and what part of the cost base can we squeeze out, and Eric will further comment on that.

But what I would like to share is the fact that we're doing everything we can to an unprecedented level when it comes to cost control mechanism. We're piloting week-by-week the operations trying to curb wherever it is possible. That goes for OpEx, that goes for CapEx. Because we are all about EBITDA protection and cash protection for the year. So this is why we are also revisiting one by one, the opening and closure program in this combined perspective. So at this point in time, it is first not -- we don't believe it would be fair for us to give you guidance because it is too early to say, both in sales and in EBITDA.

That being said, at the Q1 call, which is in May, we will provide you with the progress we've made both on the re-evaluation of our store opening and closure program and on the cost control program. As we said, the situation is very recent, the escalation has been very recent. So we piloted in very serious and timely manner, but it is now too early to say.

--------------------------------------------------------------------------------

Aurélie Husson-Dumoutier, Kepler Cheuvreux, Research Division - Equity Research Analyst [12]

--------------------------------------------------------------------------------

And so we will publish our forecast in May then.

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [13]

--------------------------------------------------------------------------------

I think we have realized the unprecedented combination of events. And first, we believe it is our responsibility to give you guidance where we can. This is why we give you some guidance on Q1. But as we have greater visibility, maybe it will come before the end of H1, where we hope to give you full of the guidance. Maybe at Q1 results, we will be able to give you more indications. But at this point in time, this is the best that we can say to stay in our duty to give you relevant information.

--------------------------------------------------------------------------------

Aurélie Husson-Dumoutier, Kepler Cheuvreux, Research Division - Equity Research Analyst [14]

--------------------------------------------------------------------------------

Okay. So fair enough. So in that case, can you tell us how much Italy represented in 2019, and this OpEx, this fixed cost part of the OpEx?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [15]

--------------------------------------------------------------------------------

So I'll answer to Italy, and Eric will answer to the OpEx.

So you're right. We don't disclose the share of each country in our overall sales, and I can make no exception here. But that -- what I can say is that you can compare the size of our store portfolio to our total portfolio. Italy is now 48 stores on the total number of 355 European stores. So you have a rough sense of the size when it comes to the store portfolio. And the online sales, as part of the country sales, is on a rather low end of the average of the group. That should give you a sense.

Eric, do you want to comment on the OpEx?

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [16]

--------------------------------------------------------------------------------

Yes. About your questions about OpEx, what is fixed and what is variable, there is no easy answer to that. Because in the very short term, pretty much all costs are fixed, and in the longer term, pretty much everything is variable. If you look at the costs we can play with, which is basically what we've got between the gross margin and EBITDA, if I take the 2019 numbers, it's about EUR 650 million of cost. So what we are doing is not -- obviously not just flexing what is flexible, but basically looking at every cost, even the one deemed fixed cost and basically renegotiate wherever we can, take costs out wherever we can. So it's just not a game of flexing what is flexible. It's really about being hard on every cost and every single line.

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [17]

--------------------------------------------------------------------------------

And if we want to go into specific examples of timing, obviously, expenses such as advertising can be cut pretty quickly when we resort to our procurement, to external people to do some of our missions, that can be cut pretty quickly. When it comes to more structural expenses, such as rent, it has to go through a renegotiation. Now the context is such that everyone expects renegotiations to take place. And in some countries and locations, we also have the local authority support, which also may expedite some of these negotiations. But indeed, there is a different timing depending on where you are in the P&L.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

And the next question comes from the line of Marie Fort from SG.

--------------------------------------------------------------------------------

Marie-Line Fort, Societe Generale Cross Asset Research - Equity Analyst [19]

--------------------------------------------------------------------------------

I've got one question about your assumption about your Q2 sales. You mentioned a decrease. I would like to understand, is it -- what part is due to a sourcing impact, lack of product? And what part is due to your assumptions for drop in store traffic?

The second question is about working capital requirement. I would like to know what is your -- in the reduction you reported for 2019, what is due to [strong efforts] and what is not replicable, what is exceptional and will not be in 2020?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [20]

--------------------------------------------------------------------------------

Thank you for your questions. So I'll take the first one, and Eric will take the second one.

The assumptions around Q2 being negative is indeed linked to the 2 factors: supply chain and consumption. We are, at this stage, in a difficult position to assess the impact of consumption as it evolves every day. So the main assumption here is around supply chain. And when it comes to supply chain, the impact is mainly due to a furniture fulfillment because, as you know, in our model, which is a design-to-cost model, we keep an open to buy. So we order for a few months of sales only. And then we sort of plan for the equivalent of 2 to 3 months manufacturing, then one month of sea transportation. And this is how we go throughout the year.

When it comes to furniture, if I take into account the closure of the Chinese factories, post Chinese New Year, which were about 5 weeks, and the fact that if we look at the current state of activities, the sourcing for furniture in China in our current factories, the capacity is approximately at 50% of total capacity. The active capacity right now is 50%. So it is ramping up. And now all factories are being opened, but it's still 50% capacity. So basically, we took the equivalent of 1.5 to 2 months delay in the reopening of the factories plus this ramping up capacity, and this led us to assess that for supply chain reasons, Q2 is likely to be negative. So if you add the consumption effect, it will be negative. We have not modeled the weight of each because the second one is to -- we have to assess right now.

--------------------------------------------------------------------------------

Marie-Line Fort, Societe Generale Cross Asset Research - Equity Analyst [21]

--------------------------------------------------------------------------------

And do you have any problems to deliver clients' order because of the lack of product availabilities?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [22]

--------------------------------------------------------------------------------

So it is a good point because already in Q1, we could have had this challenge because the strike at the Port of Marseille did reduce product availability. And the main impact of that was the fact that we were not able to ship all of our customer orders, especially those furniture orders. There's a lot of the bulky containers where -- the bulky items in the containers were still being blocked. We've had a very active strategy with our customer care teams to make sure that we maintain a very active dialogue with our customers to explain the situation, and we didn't see any peak in customer cancellations. So right now, we still have more unusual share of undelivered sales with merchandise, which is still at a warehouse and will be ultimately delivered to our customers. But there is nothing in cancellation, and we expect this merchandise to be ultimately delivered. Because when we look at last [micro quotation] from our warehouse to customer homes, there is no problem. Everything is now fluid. And we have a very effective third-party carrier management system, where for each zone, we have at least 2 carriers. So if there's a problem with one, we can resort to the other immediately. And there is no strike in B2C carriers. So there is no reason why we should not be able to fulfill those orders.

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [23]

--------------------------------------------------------------------------------

To your question on working capital. In -- well, we quoted on several occasions that a normative number of stock days is around 200. Last year, we -- last year -- the year before, in 2018, we were above that, at 225. And this year, at the end of '19, we were at 181. So obviously below what we consider as be the normative level, which indeed, generated an inflow in the year. Given what we are facing will be absolutely tough on working capital management, as Julie said, our plan is about cost, it's also about cash. So our aim is to get to something similar to what we had this year in terms of stock days.

In terms of total working capital day, so that is total working capital expressed in days sales. Again, we said at the Capital Markets Day, that a normative level is around 34 days. And that's pretty much where we were in 2018. This year or in 2019, we ended about 14 days. So again, similarly, that's what we are aiming for by the end of 2020, which is not the norm, but basically, given what we are facing, that's what we are aiming for in 2020.

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [24]

--------------------------------------------------------------------------------

And again, these assumptions are being taken in the current situation and knowledge of things. Should the coronavirus be contained in a very positive scenario very soon, then we shall revisit these assumptions, shall the growth reaccelerate in H2.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

And the next question comes from the line of Georgina Johanan from JPMorgan.

--------------------------------------------------------------------------------

Georgina Sarah Johanan, JP Morgan Chase & Co, Research Division - Analyst [26]

--------------------------------------------------------------------------------

A few questions from me, please. The first one, and I sort of very much appreciate how difficult it is to provide guidance in this environment. I guess, is it possible to give us any sense of the EBITDA margin range that you were planning and budgeting for fiscal '20, ahead of the COVID-19 news and breaking sort of both from a supply chain and a demand perspective? So that's my first question.

My second question is on the store rollout. And again, I appreciate sort of the lack of visibility over how many new stores will be opened this year, but at this point in time, how many are you actually committed to? So for example, if you didn't even open those stores, you'd be committed to paying the rent on those stores.

And then my third question was, is it possible to just share the FX hedge rate for 2020? And just let us know what proportion you're hedged? Because I must admit, I actually thought that there was a material proportion hedged at a weaker rate year-on-year already. So just a little bit confused on that. So any help on those would be appreciated.

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [27]

--------------------------------------------------------------------------------

Okay, Georgina. So it seems like all your questions are coming my way.

So I will start with the EBITDA margin ahead of COVID-19. What we said at the Capital Market Day, basically, is that -- and what we said repeatedly, that we will be somewhere between 11% and 12% EBITDA margin. Obviously, all of this is pre-IFRS 16. And without the circumstances, that's very likely where we would have been. So that, obviously, we are facing very difficult circumstances. But that's what we were planning for.

On the ForEx exchange. We, obviously, you're right, we hedge in advance. And what I can share quite openly is that the budget rate for 2020 is actually $1.16 to the euro. That's what we -- that's the budget rate, and which compared to somewhere between $1.14 and $1.15 for 2019. So no big swing one way or another to be expected from the U.S. dollar. Obviously, we don't hedge 100%, but the rate that is not hedged shouldn't move that too significantly.

And about the openings. And as you know, we tend to open stores more at the back end of the year, rather than at the front end of the year. So typically, we kind of close the stores in Q1 and -- well, in half 1 rather, and we actually do open more stores and in the second half of the year. Obviously, we are reviewing all that. So it's actually quite difficult to say how much we will end up opening because that's a decision that is not taken, and it's certainly not final.

Directionally, what I can tell you is that in France, we wouldn't expect the net store account to actually increase and obviously, so the increase would come internationally. And we are committed to a few. Yes, I don't want to quote a number because obviously, we are negotiating with landlords. And so that's not something we want to share at this moment. So I'm afraid I won't give you any more clear answer to that.

--------------------------------------------------------------------------------

Georgina Sarah Johanan, JP Morgan Chase & Co, Research Division - Analyst [28]

--------------------------------------------------------------------------------

That's really helpful. And just one very quick final one, please. The port issues in Marseille, am I right in thinking that has -- that, that is now finished and it's just about clearing the backlog? Or are there -- is there anything ongoing still?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [29]

--------------------------------------------------------------------------------

No, we can consider that this is now being so because there is just like the tail end, one day a week, but now it's going more and more to back to normal as they go on. And now we are able to very much absorb the backlog. We expect the backlog to be fully absorbed by end of March.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

And the next question comes from the line of Tushar Jain from Goldman Sachs.

--------------------------------------------------------------------------------

Tushar Jain, Goldman Sachs Group Inc., Research Division - Research Analyst [31]

--------------------------------------------------------------------------------

A couple of questions from my side. First looking at the store growth review, should I assume there's only temporary and not something in medium term? That's the first question.

Second question is around your advertising cost. It grew less than sales in '19, you're still cutting it in 2020, partly understandable. I'm just trying to understand, is this some sort of a medium-term strategy and how are you allocating your advertising cost because your online channel continues to grow quite strongly?

Third question. Just wanted to understand, in terms of the U.S., Modani, do you think that the team needs to be strengthened there in terms of execution? And -- I mean just in terms of execution.

And finally, in terms of your online, when you're looking at the first quarter and the second quarter, the assumption is that online continues to grow strongly, or do you think that, that will get impacted as well?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [32]

--------------------------------------------------------------------------------

Sorry, Tushar. Your last question is about online?

--------------------------------------------------------------------------------

Tushar Jain, Goldman Sachs Group Inc., Research Division - Research Analyst [33]

--------------------------------------------------------------------------------

Online growth. I mean I can appreciate that the footfall in stores will go away, but are you expecting sort of a disruption in online business as well? Or you're thinking that things will be fine because sometimes, there is an argument that the online -- the demand that is lost on the store gets picked up in online? Just trying to get a sense around that.

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [34]

--------------------------------------------------------------------------------

Right. Okay. So thank you, Tushar, for your questions. I'll answer all of them. So about the store issue, well, this is very much of a measure to address the exceptional situation right now. I mean, if we were to have this call 1 or 2 months back, we would be telling you that we are exactly in line with the plan, both in terms of openings and closures, and the pipeline is absolutely there with the strategy we set out last June.

Now given the exceptional circumstances, we will review both the store opening and closure program. We might either pause or delay, we will see on a case-by-case basis. But this is absolutely not a medium-term strategy. This obviously assumes the fact that the coronavirus epidemic impact will be limited to this year. But obviously, the medium-term strategy is absolutely the one that we've developed last year, and this is not put into question. When it comes to marketing, you're right. We've increased marketing spend less than sales last year, and I think this is a source of pride for the company because, once again, we managed and proved that our marketing stunt effectiveness is really robust. And we did manage to maintain or paid, end total marketing ROI, despite [adverse] mix, both in terms of international and paid versus free traffic. So this talks to the expertise of the team to be able to manage growth in traffic and sales with a very tight control of the marketing spend. And this is a full faith that I have in the team and I know, and we've done that in the past that we can reallocate marketing spend to an even more ROI -- an even higher rate target.

Let me take an example -- well, 2 actually. We know that our marketing ROIs are different country by country. And our normal strategy is to develop every of our markets, especially the highest potential ones, like Germany. We also know that the marketing costs more in Germany. Well, maybe this year, we might reallocate some of the marketing spend that was done for Germany to other countries where it is more effective in the short run.

Second example. Part of this marketing spending is branding. And as I was saying for CSR, there might be -- there is times where we have to delay some of our investments, even though they are the good ones in the midterm, where some of this branding investment might have to be delayed to be reallocated to more performance marketing. So I have full faith that even though we keep enhancing our marketing ROI and curb some of our spending, obviously, we will be very vigilant in how much we curb on this one. We will be able to support the development of our sales, especially of our online sales. And as a further proof of that, we are refinancing a budget for the marketplace. Because I think it is really important to keep the planning of the marketplace as initially scheduled. It is important because it is digital. It is important because it will enhance the product availability in times where supply chain can be a challenge for Q2 and maybe Q3, we don't know. So it is really important that we build up this flexibility in our model, and the marketplace will be a great way to do that.

Now going to your first question because somewhat it is linked around online growth. And so far, we have not seen it. That is the question, a move from store sales to digital sales, we have not seen that, I think, for 2 reasons: first, we've been -- in Q1, affected by product availability at central level, and product availability hit both online and store sales. Again, this will be different when the marketplace is active and the mitigating lever that we are currently acting upon is the fact that we will probably enrich the marketplace with more vendors that we initially planned over the course of this year. So we keep the launch as it is and to make sure we launch it well. But we probably will add more vendors for the following months to make sure we can support online growth as much as possible. But product availability has been a limiting factor for online sales development and second, there is some sort of consumption mood that is somewhat affecting online. It is less affecting online. It is true compared to stores for 2 reasons before. First, because we drive more furniture sales compared to decoration sales, and furniture sales are more equipment sales, so it's more a need-based purchasing behavior. So this, somewhat, is more protected compared to decoration sales. And second, back to marketing ROI, we are very much able to target hot lead. So with customer acquisition campaigns based on very specific profiles. So we are able to drive the quality traffic to our website, which is different from stores, which has a high share of income inflow and that the store cannot pre-qualify. So with those 2 reasons, we are very confident in our ability to preserve online sales even though we don't see a natural shift from stock consumption to aligned consumption, at least not yet.

--------------------------------------------------------------------------------

Tushar Jain, Goldman Sachs Group Inc., Research Division - Research Analyst [35]

--------------------------------------------------------------------------------

Right. And just my last question in terms for the U.S. team, do you need to strengthen that on your hub?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [36]

--------------------------------------------------------------------------------

Indeed. Indeed. So Modani is a powerful concept, and it has a strong track record. If we just take a step back at the last 18 months on Modani, we said it made a quantum leap in terms of openings. When you look at the history of Modani, the year that Modani has been opening a lot. It has been dilutive for objective reasons that is the Modani stores are dilutive in the first year of operations because there is a ramp-up. There is more ramp up than for Maisons du Monde stores. So by a mechanical effect, it is dilutive. And also, it is true, the team has the less time to spend on operational optimization, gross margin enhancement, supplier negotiations. The Modani team is still somewhat of a big start-up team.

So it is a matter of arbitrage, where you spend your time. This is why Modani and us, collectively, we've decided to strongly decelerate the number of openings. So far, there's been one Modani opening at the very beginning of the year in the New York region. And honestly, we envisage maximum a couple more, maximum, for us to really focus most of the Modani [screen] time on operational optimization. And every time they did that, every time they enhance notably the different economics line. And as a proof of that, already looking at the very past few months, we've seen an enhancement, a significant enhancement in the gross margin just because they were very much actively involved in sourcing diversification and renegotiation with suppliers. So the gross margin impact we saw last year with the [Trump tax], we are confident to say that the gross margin will improve because we already see the effect of the supplier renegotiation in their P&L.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

And the next question comes from the line of Adam Cochrane from Citi.

--------------------------------------------------------------------------------

Adam Gareth Cochrane, Citigroup Inc, Research Division - Director [38]

--------------------------------------------------------------------------------

In interest of time, I'll make it one question. You've talked a lot about cash preservation and EBITDA preservation. These are quite concerning (inaudible), you got a strong brand, you've got a profitable business. Why do you need to have such intense focus on managing profitability in this period rather than trying to sort of utilize your position of strength as other competitors will probably be weaker during this period?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [39]

--------------------------------------------------------------------------------

I think it's not all 1 and 0 or the other. However, it is also very important for the organization to have clear priorities. I absolutely believe in the power of the brand and of the omni-channel model. We have the -- we are lucky, in a way, to have the digital model that we have, which will protect us better than other players. And in the medium term, there is no doubt about the brand, the strength of the brand and of the offering and so on.

Now I think we need to be very progressive, right? If you take Italy, we are top third brand in Italy. The Italian people love us. And again, we saw in the brand survey we released a few months back. So it's not a matter whether our brand is strong, or our products are being liked by the consumers, if there is a shutdown in the country, and nobody can go to the store, there will be an impact in short-term sales period. And the same goes with supply chains. If the products don't come and we don't have product availability, it is really important that we are able to grow marketing spending because there is less point in attracting a lot of traffic, if there is less products to sell them to. So I'm not saying that it will be forever. On the contrary, it's really important to take the situation now very seriously, but also to be able to reassess as time goes by. And this is why this ad hoc committee is getting together every single week to make sure that we are taking the right decisions as every week goes by. And if, by any chance, the growth -- the prospect of the growth is coming earlier than expected, then I have strength in the model to be able to reboost growth also very quickly. And online is very fast. And also in -- when it comes to store, it is quite easy to add extra time and to make sure that we can extend some hours and so on and to have more people on the floor.

So I believe our model, with also central inventories, so that means we can be very agile. We're reallocating inventory to countries where growth is being preserved. So Amazon is very agile. This is the strength of the model, the agility of it and it is being agile in a period of cost containment, it will be the same way agile in the course of growth relaunch.

--------------------------------------------------------------------------------

Adam Gareth Cochrane, Citigroup Inc, Research Division - Director [40]

--------------------------------------------------------------------------------

Just to check that, there is no -- none of this has to do with any net debt, any covenants? There's no reason why you're having to be especially aggressive due to any financing reason?

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [41]

--------------------------------------------------------------------------------

Absolutely not. That's absolutely not the reason. In terms of financing and availability, we've got 2 RCF for EUR 75 million each. So that's EUR 150 million total that are completely unused at the moment, and we are cash rich. We've got almost EUR 100 million of cash. So nothing to do with covenants.

And we've got absolutely no -- well, no issue whatsoever in terms of financing all the liquidity. So to be absolutely clear about that.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

And the next question comes from the line of Anna Patrice from Berenberg.

--------------------------------------------------------------------------------

Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [43]

--------------------------------------------------------------------------------

Yes. Can you hear me?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [44]

--------------------------------------------------------------------------------

Yes, we can.

--------------------------------------------------------------------------------

Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [45]

--------------------------------------------------------------------------------

There are only 3 questions from my side, given all the discussions already.

One question. Could you please explain, once again, the issue with the gross margin. Because basically, in H1 -- H2, the gross margin has further declined, while previously, you were saying that there should be positive impact on foreign exchange, et cetera. So there should not be such a negative decline. So was it also promotional activities in H2? Or what were the main drivers?

The second question on inventories, again. So before you were also spending inventories volatility because of the Chinese New Year, so should we expect [to see this] again this year? And what reduction in inventories last year because of the promotional activities trying to improve the stocks?

And then the last question is on the (inaudible). When do you think you will start to report the sales numbers? When they will be important enough for you to report them to the community?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [46]

--------------------------------------------------------------------------------

Sorry, Anna, could you please repeat your last question?

--------------------------------------------------------------------------------

Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [47]

--------------------------------------------------------------------------------

On the marketplace, obviously, right now, you don't disclose how much sales you have generated. So when do you think you will start to disclose it from what point? Is there any minimum level that you want to reach before you will start to disclose the sales from marketplace?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [48]

--------------------------------------------------------------------------------

Okay. Thank you. Eric will start by answering your first 2 questions around gross margin and inventories, and I'll respond on the marketplace.

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [49]

--------------------------------------------------------------------------------

Yes. So on the gross margin, indeed, in H1, we had the gross margin down year-on-year by about 110 basis points. And what we said at the time is that we were expecting H2 to be favorable year-on-year. That didn't materialize. And there are basically 2 reasons to that. Well, you see, 3 things impact gross margin: one is exchange rate. And as we said before, year-on-year between '19 and '18, the impact of foreign exchange is next to 0. So it's about neutral. Then we had a mix effect in H2 for a number of reasons, including the strikes. The decoration was more impacted than furniture sales and decoration generates more gross margin. So obviously, we've got a mix effect.

And we also had slightly higher promotion, partly due by the fact that we moved the private sales in France, which is before -- or actually in January, so we moved them forward to December. So all of -- so that's basically those 2 impacts, that explain why the gross margin is down by about 80 basis points year-on-year. So that's our first...

--------------------------------------------------------------------------------

Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [50]

--------------------------------------------------------------------------------

Can you, say, [make] a bridge for the H2. How much was foreign exchange in H2? How much was the mix, and how much was the promotional activity?

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [51]

--------------------------------------------------------------------------------

Yes, I certainly can. So the foreign exchange was about 50 basis points favorable. And if you remember, it was about 70 down in H1. So because H2 is -- weighs more, that's why it cancels out between H1 and H2. And that pretty much offsets the promotion impact. What remains, then, is the mix. Well, mix basically explains entirely the H2 drop in gross margin.

And so to your question about -- yes, sorry.

--------------------------------------------------------------------------------

Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [52]

--------------------------------------------------------------------------------

So in H1, you had 100 basis points decline out of which...

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [53]

--------------------------------------------------------------------------------

Yes. 110 actually, yes.

--------------------------------------------------------------------------------

Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [54]

--------------------------------------------------------------------------------

Yes. Out of which 70 was due to foreign exchange. Now you have also pretty much 80 basis points decline, but you have 50 basis points positive. So you have 130 in underlying...

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [55]

--------------------------------------------------------------------------------

Sorry, it's 80 for the year. The H2 decline is more like 40 basis points, and you've got dollar being favorable by about 50 and promotions going the other way around, so that cancels each other. So you're left with just the mix, and the mix plays about 40, which is basically just a drop in half 2.

--------------------------------------------------------------------------------

Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [56]

--------------------------------------------------------------------------------

Okay. But then I'm just a bit surprised because you already had kind of high-level, unusual promotional activity in H1. And at the end of H2, it was even higher. Okay. I buy your argument about the December sales, does that mean that in January, there should be positive impact or not?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [57]

--------------------------------------------------------------------------------

See, it has been moved forward from January to December.

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [58]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [59]

--------------------------------------------------------------------------------

Backwards.

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [60]

--------------------------------------------------------------------------------

Which is a decision we took at the beginning of December.

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [61]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [62]

--------------------------------------------------------------------------------

So in January, you don't have much promotion?

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [63]

--------------------------------------------------------------------------------

As we see it, no. Because of slippage, it will move forward.

--------------------------------------------------------------------------------

Anna Patrice, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [64]

--------------------------------------------------------------------------------

Backwards. Yes. Okay. A year forward, yes. Okay.

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [65]

--------------------------------------------------------------------------------

Which is kind of -- it's probably new, -- it will be neutral in the year because, obviously, at the back end of 2020, we're all very likely to do the same again. So it's just a one-off, and then it stays flat.

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [66]

--------------------------------------------------------------------------------

To your questions on the Maisons du Monde, Anna, well, it has not started. It will start this summer with the volume that I've described that is about 15,000 SKUs. And we're probably disclosing at the end of the year, our gross merchandise value as well as revenues, which you -- could give you a sense, we've laid out those numbers for the plan. So probably, we will release those numbers also on a yearly basis. But so far, we can't give you any number because that's not started. What I can share with you, though, is the onboarding of the vendors is going very well. With -- we are having very positive feedback from all sorts of vendors. And this is very positive. The heat which we have on getting employment, getting into discussions is really high. And we have already hit our target of vendors to be onboarded. So that means a little bit -- one more ahead of time. So now we are very much focusing on making sure that the execution of the onboarding is going well. Because as we said, we want to be a truly selective platform. So right now, we are applying a very strict curation protocol and to the catalog of these vendors to make sure that we are in line with our DNA with those new products. And this is going on as we speak, as well as the technical integration. So everything is going as planned and going very well.

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [67]

--------------------------------------------------------------------------------

Yes. And your third question was about inventory and Chinese New Year. So I will take that as one. And so again, we said the normative level of inventory is about 200 days, we were at 181 at the end of 2019. Under normal circumstances, I would have probably expected us to go back to something more normative by the end of 2020. But because we want to be focused on cash because it's just the right thing to do. It's nothing, as I said, nothing to do with constraints, external constraints like banks or covenants, it is just the right thing to do. So yes, we are aiming to a similar level of stock days by the end of the year. And as Julie rightly so, that is the vision as of now. Should external factors change, we might be somewhere in between where we're at the end of '19 and the normative 200 days.

--------------------------------------------------------------------------------

Operator [68]

--------------------------------------------------------------------------------

And the last question comes from the line of Genelot Clement from Bryan Garnier.

--------------------------------------------------------------------------------

Clement Genelot, Bryan Garnier & Co Ltd, Research Division - Analyst [69]

--------------------------------------------------------------------------------

Yes. Do you hear me?

--------------------------------------------------------------------------------

Eric Bosmans, Maisons du Monde S.A. - Administrative & Financial Director [70]

--------------------------------------------------------------------------------

We can now.

--------------------------------------------------------------------------------

Clement Genelot, Bryan Garnier & Co Ltd, Research Division - Analyst [71]

--------------------------------------------------------------------------------

Two questions from my side, if I may. The first one is regarding the covenant. Because you announced 2 new Board members, and if I'm right, [2 days ago], [that you were able] to highlight there on this subject, could we have a [net debt] on this matter? Did you reach out to 2 of them, and did you start some discussions regarding other board membership?

And my second question is regarding the logistic cost. Do you actually expect additional transport costs both in Europe and in China? In Europe because I guess if you were forced to unload some items in other ports [other than Marseilles], which could imply further cost. And also in China because I guess you might face the bottleneck when all the factories will reopen, and all the other retailers and producers will try to export other goods from China to the U.S.?

--------------------------------------------------------------------------------

Julie Walbaum, Maisons du Monde S.A. - CEO & Director [72]

--------------------------------------------------------------------------------

Thank you for your questions. So I'll answer them. So first, on governance and on Teleios.

First, I would like to underline that we highly value engagement from all our shareholders and are open to constructive dialogue with them. We do not usually comment on interactions with specific shareholders. However, to your question, I can confirm that we have made, on several occasions and discussed with Teleios and a number of topics, whether it is operational performance and also governance. And the expectations we have and the point they've made, we think, are being entered through today's announcement, because we think that today's announcement of new Board member proposed appointments are a testimony of our Board's commitment towards having a diverse set of highly qualified individuals to support the management in the development of the strategy and also in facing short-term challenges.

I think for my end that both Mr. Child and Mr. Proch have deep recognized experience and qualifications. They have been selected following a thorough review process with external professionals, and will have highly valuable competencies to the current setup.

So not only I am very clear that the reinforced governance that we have will allow the company to navigate both the short-term challenges and also to advance upon the strategic plan, but we are more than ever, as we've always been and will keep being, very open to a constructive dialogue with all of our shareholders, and that's the position we've always had. So we will keep in a very few -- next few days and next few weeks to have this dialogue, and the new members of our Board will actively participate in this dialogue and discussions to make sure that we address the interest of all of our shareholders.

When it comes to your questions around the logistic costs in Marseille and China. So you're absolutely right, as part of our plan to increase product availability over Q1, we had to divert some of the containers to other ports, especially one in Barcelona. And it had the expected impact on product availability. It did also entail extra cost. So we are currently in negotiations both with the port and also with the freight forwarding companies and also our insurers to basically get back some of these extra costs incurred. And as I said, now the -- this event is behind us, so we're currently just in the process of mitigating some of the extra costs incurred for this last mile forwarding to our warehouses.

When it comes to Asia, actually, we did not see any big congestion in the Chinese ports so far and right now either. And looking forward, if we expect the Chinese factories ramp-up to be strong. And the fact that it might incur some problems at the Asian ports. Well, I do not think so for 2 reasons: first, the ramp-up that we are seeing is actually quite progressive. So there is no extra bump in the activity. You know that China is very much used every year to have a sort of shutdown of the country for one month over the Chinese New Year, and they are used to be resuming activity all of a sudden, so they are used to being able to manage peaks in activity. And actually, the ramp-up that we're seeing is smoother. That's what happens every year. So that's one reason.

And second, we -- the contracts we have with our freight forwarding companies is to negotiate a certain number of spots per month, per category type, per harbor. So we have that plan for the rest of the year. And we are concerned with each of them that those ports are being kept. And we're also adding a safety net of adding some extra [support] if, at some point, we decide to provide alternative -- a complementary sourcing to make sure that there will be no problem on that side. And the news is very reassuring on that front. I don't expect problems at that level.

--------------------------------------------------------------------------------

Operator [73]

--------------------------------------------------------------------------------

There are no further questions at the moment. So please go ahead.

--------------------------------------------------------------------------------

Christopher Welton, Maisons du Monde S.A. - Head of Investor & Banking Relations [74]

--------------------------------------------------------------------------------

So that finishes our call for today. Thank you very much. If you would like to have us answer questions, Investor Relations is standing by. You have our numbers, and we're happy to answer your questions. Thank you very much, and have a good evening.

--------------------------------------------------------------------------------

Operator [75]

--------------------------------------------------------------------------------

Thank you so much. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please continue to stand by.