L'OCCITANE INTERNATIONAL S.A. EDITED TRANSCRIPT
973.HK - Interim 2016 L'Occitane International SA Earnings Call
EVENT DATE/TIME: NOVEMBER 16, 2015 / 8:30AM GMT
Good afternoon everyone and welcome to L'Occitane's presentation for the interim results for the six month ended 30th September, 2015. I am Olivia Wang, Investor Relations Director.
With us here today is Mr. Andre Hoffmann, our Group Executive and MD for Asia Pacific. Joining us via the teleconference today, we have Mr. Reinold Geiger, our Chairman and CEO and Mr. Thomas Levilion, our group CFO.
First, Thomas will walk us through the presentation to discuss the interim results and we will open for questions. With that, I would like to pass it on to Thomas.
Thank you, thank you Olivia. Good afternoon, good evening for everyone. So we're starting with the highlights. In H1 grew by 12.5% at actual rates and 5.8% at constant rates.
The environment was very challenging with the softening economy and the stock market crash in China, the MERS in Korea, the depressed economies in Hong Kong, Brazil and Russia and also bumpy recovery in other countries.
Along with the economic turmoils, the currency movements resulted in changes in the flow of tourists which impacted countries like Hong Kong and the USA but benefited to Japan and Europe. The travel retail business was particularly disrupted by these changes.
Our operating profit remained stable whilst we continued to invest in our future sales growth, notably in digital and our emerging brands. We were also impacted by some deleveraging due to the tough sales environment.
This was offset in the operating profit by continued gains from pricing, product mix and efficiency efforts and also positive FX as the euro, on average over the period, was less strong against several major currencies as compared to the same period last year.
The currency volatility in September strongly hit the emerging countries' currencies and resulted in material unrealized, non-cash foreign exchange losses. And as a result, the net profit was down from the same period last year by 46%. However, due notably to our efforts at improving our inventory management, we increased our net cash by 30%.
One quick word about the seasonality. Due to the seasonality in sales and operating profits, our second half profit is historically higher than that of the first half. As an example, in FY 2015 our 1H net sales accounted for 41% of the full financial year and our operating profits represented 19% of the year. In the second half, we should benefit from a better operating leverage due to the higher sales during the holiday season.
Now moving to slide 4, net sales breakdown. The growth in sell-in was primarily contributed by the distributors wholesale and B2B activities with the emerging brands contributing 49% to this growth.
Travel retail was more challenged. We had a drop in Asia, primarily due to the MERS in Korea and less traffic to Hong Kong and Macau. This drop was largely offset by strong growth in Europe whilst the Americas and Middle East suffered from the strong USD.
Within sell-out, we continued to deliver strong growth of 20.6% in own e-commerce. Our own e-commerce was 9.4% to retail sales in the first half. However the pace of e-commerce sales growth was softer than in previous quarters, essentially in the USA due to our discount control efforts.
Among our key countries, the share of China increased to 9.4% of our total sales as compared to 7.3% in the same period last year. The USA also increased their share in our total sales primarily due to the favorable currency effects.
Slide 5, the non-comparable stores, combined with the other sell-out activities, contributed 59% to the overall growth. The market place activities, notably in China and Korea, are part of the other sell-out activities with a growth of almost 153%. The market place activities contributed significantly to the non-comp stores and others.
The comp stores grew by 1.6% with a softer performance in Q2. This was due to the challenged situation in Hong Kong, Taiwan and USA, combined with the softer performance in China. The growth in sell-in was driven by wholesale B2B and the sales to our distributors. Finally the weaker euro, on average against most other currencies contributed 6.7 points to the overall growth.
Looking now at sales growth by geography, first with America and Europe.
France grew by 11% driven by a healthy performance in retail and e-commerce combined with a significant contribution of the emerging brands, particularly Erborian and Melvita.
The U.K. benefitted from a continued strong performance in e-commerce and solid contribution of sell-in with good results in wholesale, department stores and TV channels. Retail was softer due to traffic and an impact of the strong pound on the tourist traffic.
The U.S. was impacted by a soft retail environment with a negative same store sales growth being offset by the development of non-comparable stores. The challenging results of retail are notably explained by the strong USD impacting the touristic stalls and also the decline in traffic. The sell-in activities were impacted by the exit from Nordstrom but this was offset by the development of e-commerce though in a softer pace than in previous quarters. Part of the softer sales in sellout is also attributable to a lower level of discounting and promotions in order to protect the bottom line.
Brazil grew by 6%, delivering an acceptable performance given the Brazilian economic situation and also the strong first half last year. The growth was primary driven by L'Occitane au Bresil, both from the development of the franchise network and the own stores. L'Occitane en Provence also delivered a solid performance notably due to the launches of new products like Divine Oil, whipped Shea and Cedrat.
Russia, in a depressed economy experiencing high inflation and material drop in consumer spending, Russia managed to grow by 8% primarily due to sell-outs with a high same store sales growth resulting notably from the recent price increases and the very strong growth of more than 50% in e-commerce. Sell-in grew by 26% driven by the successful development of the franchise network.
Now Asia and the other countries. Japan experienced a healthy growth of 8% driven primarily by retail sales and e-commerce. The good performance benefitted from the success of the new Cedrat men's range and the Immortelle and Citrus Verbena windows. Melvita confirmed its good results in Japan and contributed more than 15% to the growth in this country.
Hong Kong retail was impacted by the soft environment and the lower number of PRC tourists. As a result, sell-out was down by 14%. Travel retail decreased also due to the softness in Korea and Hong Kong and despite good results in Thailand and Japan.
China's strong performance was driven primarily by the non-comparable stores and Tmall. The market environment turned very soft particularly since the stock market turmoil, which resulted in lower same store growth than in previous quarters. Also, with the first 8 stores opened, Melvita contributed 7% to the growth in China.
Taiwan was challenging with soft retail sales due to the weak economic environment and also to a series of typhoons that hit the country during the summer. This was offset by an impressive growth in marketplace and solid developments of the spa and cafe activities.
Despite soft results in Korea, Singapore and Malaysia, the 'other countries' contributed 42% to our overall growth and this from strong performances in Australia, Canada, Germany and Mexico in particular.
Store network, slide 8, our total stores network reached close to 2,860 point of sales, an increase of 2% over March 2015, with our own stores network now having 1,441 doors, an increase of 57 from March 2015.
The following slide will provide more insight on the changes in our own store network so we move to slide 9. We opened a net 57 stores in 1H this year, as compared to 38 over the same period last year excluding, of course, the acquisition of our distributor in Norway in July 2014.
So, the openings in Asia were primarily in China, Japan and Korea with 19, 6 and 5 stores respectively. In the Americas, 4 stores were opened in Canada and 7 in Brazil. The openings in Europe and Africa include 6 stores in South Africa.
It's worth noting that out of the total 57 net store openings, 14 were Melvita stores, which were all opened in Asia. We've also opened our first two Erborian stores in Paris in May and in Seoul in September and since then we have opened a store in Russia in Moscow as well.
Same store sales growth profile. At 1.6% the same store sales growth was more challenged than in the same period last year. This was driven by softer results in Asia, the U.S. and Russia.
Hong Kong continued to suffer from the deeply depressed retail environment and the reduction of profit from mainland Chinese, partly switching to Japan and Europe.
In Taiwan, the same store sales growth was affected by the disappointing results of the Mother's Day campaign of department stores and the typhoons during the summer. The same store sales growth in China remained positive but was obviously weaker than in previous quarters, reflecting the deterioration of the market at the department stores and shopping malls in the context of the softening economy, and the crashing stock market.
Negative same store sales growth in the U.S. is explained by a sharp fall in sales in the touristic stores and the overall discount retail environment. The growth in e-commerce sales was also softer than usual partly due to a voluntary reduction in discounts in order to protect the bottom line.
France was very dynamic with good results in the stores, notably in the touristic areas and strong e-commerce.
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