CCC S.A. (CCC.WA) Earnings Call Transcript

Good afternoon. I'd like to welcome you to the conference of CCC to sum up the results in the second quarter of 2025. This time, we're meeting remotely. It's in the middle of the vacation season. We're not joined today by the CEO, and that's why we selected this form of communication with you. Today, we'll talk about the results of Q2 2025. At the same time, I'd like to emphasize what we're concentrating on is not the results of a given quarter or the subsequent quarter, but we want to achieve the 5-year plan, which we agreed to follow with you at the beginning of this year. This plan assumes that over the 5-year period, that is by 2030, the revenue will be at least PLN 25 billion. We'll have an EBITDA result of at least 20%. And as we look at our expansion, the work on our products and the additional licenses of the Modivo Club, which was successfully launched, and we're starting to introduce it in subsequent venues, and we'll have it in all of our markets next year. These are things that we're doing with systematic cost discipline. And that means within 5 years, we should have a PLN 5 billion EBITDA result. This is the direction that we have defined. This is what we are trying to do, aspiring to do on an unwavering basis as a company. Now let's look at the results of Q2 and we'll begin by summing up the key factors which contributed to these results. First, we had the development of commercial space above the ambitious plan. Number two, sales like-for-like in the group in a very difficult business environment. And having in mind the results from last year, then we had a record-breaking second quarter. We've had the highest EBITDA result in the group in a given quarter. And so we have the LTM EBITDA profitability of 17%, which is an increase of 5% year-on-year. Another thing that's become part of the DNA of the group is cost discipline. That means that for the eighth quarter in a row, we've been able to reduce our cost ratio. The most recent quarter in terms of weather was one of the least favorable periods. We had a very cold May. We had a rainy July and only June enabled us to really sell the summer wears. As I said, we have a very demanding base effect from last year. So we had a high level of like-for-like sales figures in the previous year, which were double digit. So if we look at the most recent quarter, we believe that the results were satisfactory in the last quarter, having in mind what happened across the industry and also looking at the 5-year plan, we have expansion, the utilization of our own brands, our own production, improving quality. And all of this is being done while, of course, pursuing a very rigorous cost discipline approach. Now let's go on to look at the sales growth in the group. So in Polish zlotys, we had an increase of 11%. But if we add local currencies, it was a little higher, and it was 12% in terms of this pace of sales growth. And so it was 4% like-for-like sales in local currencies. And this is all done even though the weather was not fostering or was not conducive. So we had the strength and resistance of our business model and a good product offering. This all contributed to that. And so the fact that we had a flat e-commerce was the reason why we had differences in terms of -- so we were focusing not so much on the volume of sales in e-commerce, but the sales through our commercial space. In Q2, the group was able to deliver the record-breaking EBITDA result, which was PLN 481 million. And so the second quarter was a quarter in which we were able to improve our profitability. It was up by 1 percentage point. And over the last 12 months, it's up by some 5 percentage points. So we can say that for the last 2 years, we have been gradually moving towards our 5-year target of a 20% EBITDA ratio at the end of this 5-year period. So we're moving closer in every period. So having in mind the regular growth in sales, 11% in zlotys of growth, we have high margins of nearly 50%, which is very high level, having in mind the industry. We are reducing cost ratio clearly below the 40% watermark. This is a phenomenon that is long term. Do we see room for improvement, of course. So we have operating leverage. And so then, of course, having lower fixed expenses and then the licensing brands across all of our brands, and this will improve our gross profit on sales. And maybe a few more words about the last subject in terms of cost discipline. If we look at the financial results, sales and margin are the most important, but you also need to have cost discipline. This is something that we can influence. This is our shield in terms of unfavorable market conditions. During the most recent quarter, this was a quarter and with the eighth quarter in a row in which we've improved our cost ratio. So in the red circle, we see how much we've been able to reduce cost year-on-year. So we're down below 40%. This was our goal. We want to go even lower with cost discipline because cost discipline is part of the group's DNA. Let's take a look at what's happened in the individual brands. Let's begin with CCC, which is the biggest brand. It's responsible for 44% of the group's business. So we have a record high level of profitability, even though we've had a very difficult second quarter in terms of the overall business environment, which is driven primarily by the weather. So for the last 2 years, we've been able to deliver EBITDA above 20%. This shows that our model is highly resistant and durable over time. This is something that's unheard of in the footwear industry. What's more, we're on our way to achieving a 50% share of high-margin licensed brands. And so in 2030, we want to move from the [ 832 ] that we have today, while at the same time, making sure that we have basically our cost base very rigorously disciplined. If we look at CCC, we see revenue up by 16%, while the area -- sailing area has increased by 4%. So we had to have a slightly higher result in terms of discounts, and this is something that you can see in terms of the margin, which is very high in terms of the footwear industry. CCC is also monitoring costs. Costs are growing because we have 40 new stores year-on-year, but the rate of growth is much slower than the rate of growth of revenue. And that means that we have the cost ratio down by 2 percentage points year-on-year. And so dynamic growth is herald -- it's what heralds HalfPrice. So HalfPrice has a high level of profitability at a very fast pace of growth. In the last 12 months, it's a 14% EBITDA margin, which is substantially above the margin generated by the competition. So we have a stable, sound and recurring level of profitability. And so the pace of growth is very fast. We've increased the amount of space by some [ 48%]. We have 180 stores. We have a large number of new stores, 108. And so we have to remember that this is what's happening at the end of the year -- at the end of the quarter. So most of our openings were done at the end of the quarter, and some of these stores were only operating and generating sales only for a portion of the quarter. So that means that we owe our sales to the stores that were opened previously. And they've been able to continue a good, solid, robust level of sales. And had the weather been better, we would have been able to sell more sunglasses, more summer wears, something like swimsuits. So we're not slowing down in terms of the HalfPrice development. We want to add another 60 new stores. Of course, the pace of expansion will affect our cost because we have to incur certain costs upfront. We're not able to post these costs later. We have to post them on a timely basis. We're training people, staff, we're buying goods because the goods are being purchased and not just to be sold immediately. So we're utilizing, of course, the logistics in order to roll out the network. But in the future, this will change. We're building a new warehouse that would be dedicated to logistics for HalfPrice and this should be ready to go in this latter half of 2026. We believe that we're going to be able to reduce cost by half there, and that should give us an additional percentage point of profitability in the HalfPrice concept. So having such a dynamic pace of growth means that we're generating recognition in new locations, but we're going to be able to use -- utilize this operating leverage more and more. So we're basically refreshing our wears -- our inventories. So we're able then to -- we've been able to grow things by 5%. And if we look per square meter, we've been able to reduce those costs by some 20%. So we want to increase basically the turnover. We want to change the structure of our inventories. And so we're going to be able to be produced more in using our own licenses, so in accessories, footwear as well as basically apparel. So basically, we'll have a very positive impact on our margin. We continue to improve our product offering. We see that not all across the -- in terms of the full price, we didn't do well everywhere, and we're going to be able to utilize that opportunity in HalfPrice in order to give the best offer for the upcoming season. So the Modivo Group is another brand, which is making a positive contribution to improving the profitability. This was also the case in Q2, we've been able to improve EBITDA by 7 percentage points year-on-year. And so it's the sixth quarter in which we've been able to improve basically the EBITDA year-on-year. So our goal is for this to be the most profitable e-commerce in Europe. That's our goal. Along this path, we've made a major step on the cost side for 8 quarters in a row. We've been able to reduce the cost of Modivo on a year-on-year basis. In Q2, we reduced cost by 10%, while revenue was growing by 2%. And that means we've been able to improve the cost ratio by some 5 percentage points. If we look at the 12-month period, so it's PLN 1.240 million -- PLN 1.4 billion compared to PLN 1.6 billion where we had in the previous year. So we were able to reduce cost by some PLN 300 million. And we can say that we, in this way, have made savings in order to cover 1 quarter free of charge. And of course, this is adjusting to some extent. Once again, we can say that the improvement of profitability was a result of improving the gross margin by 2.5 percentage points year-on-year. And so this means -- this is coming from having a higher percentage of licensed brands, so in the first half of the year was 13%. So it's an increase of 4 percentage points year-on-year. So this effect will continue to grow as we have a better segmentation of licensed brands. So having a higher margin and a lower cost ratio by 5 percentage points year-on-year has improved the EBITDA of Modivo Group by some 7 percentage points. Another important topic, our inventory. So the inventories of the group have grown by some 12%, and this is above because we have the new collections for 2025 being delivered. So 46% of our orders are from 2 quarters already in the warehouse. Last year, we only had 30%. So we've improved that. So if we think about the inventories or the products that have already been delivered in July, these products will be on the way for 2 months. So 97% of our collection for the new season are in our balance sheet. Last year, it was only 78%. That means we have nearly 20% more products available for sale. And that means for the first time in the history of the company, we have all of the collection on timely basis, and we'll be able to begin the next season. In the past, we had some delays, which made a negative impact on the sales across the full period in terms of the full margin, the first margin. And so optimizing the delivery dates was possible, thanks to the refinancing we have factoring as well as guarantees and reducing the financial expenses. As a result, we have timely deliveries, and that means we have at a very low cost or a 0 cost, this is something that's totally uncomparable to a situation in which we lose a margin. It's not hard to have a situation because there are very difficult situations on the major transport routes across the world. So having in mind the mega dynamic expansion and ensuring that we have the right amount of inventories per square meter of selling space. So as we normalize the level of purchasing and making sure that we've reduced the overall size by some 30% and that we're expanding very clearly in the latter half of the year. So if we calculate the inventory per square meter, it's down by some 16% across the board. So this is inventory per square meter. So if we look at CCC, we see a little bit of increase year-on-year, but this is because of the centralization process of licensing brands under CCC for our joint warehouse for all of the brands in the group. So we can say 30% -- 32% of the inventories are high-margin licensed products and margins. So we can see that we're working on improving the quality of our stock. And so we've been able to reduce the cost by half. So we've been able to refresh the stock. And in the upcoming quarters, this should benefit us greatly. So if we look at -- what's going to happen in upcoming quarters, we're going to be able to move forward more quickly because we're not going to slow down on the expansion. We're going to -- in the [ SS '26 ], we're going to be able to do that, and we're going to have a reduction of some nearly 30%. That's our plans for spring/summer 2026. As you -- as we said to you at one of our previous conferences, the major motor or driver of our 5-year plan is to be -- is to expand basically our offering. And so we want to talk about our opening plan for 2026. So this year, we'll be able to exceed the plan because we have some 350,000 square meters, HalfPrice is roughly 60-some-odd percent of that. Next year, the expansion plan has been secured in terms of 280,000 square meters in good locations and on good terms and conditions. The record-breaking expansion that's planned for this year. Well, you don't see it yet in our results because these openings are spread across the year unevenly. Only 30% of the new openings are in the first half of the year and the remaining 70% will be in the latter half of the year and 40% of that will be in the fourth quarter because we're phasing that in and having in mind the low base from last year, that means we should have a much faster expansion pace in the latter half of the year compared to the first half of the year. So we should have 1.2 billion square meters. And so this will be up by some 41% year-on-year in terms of the total amount of selling area. And if we look at the expansion achieved in 2025 above the plan for this year, well, this is a step in the direction of achieving our ambitious targets for 2030. How do we want to achieve these targets? So we want to increase basically the commercial space by 250,000 square meters per year. We want to have more licensed brands in all of our brands. And of course, this applies to the market segment served by each one of these brands, and we want to have restrictive control of the head -- head office costs. And we've done that very strongly in the past quarter, and we'll continue doing that in the upcoming quarters. And at the end, let's say, the quintessence -- the essence of our results. So we're above our ambitious plan in terms of expanding commercial space. We're not slowing down, but these are not openings being done on a forced basis. We have great locations on very good terms and conditions. Second, our like-for-like sales growth -- the group's like-for-like sales rate is some 4% if we compare it to the previous year. As I mentioned, the pace of growth should be even higher in upcoming quarters, having in mind the relatively low base that we had in last year. Then cost discipline. So our cost ratio is falling for the eighth quarter in a row. So that means we're clearly below the 40% watermark, and we want to continue reducing costs. So the EBITDA of the group as a result is growing by leaps and bounds, some 5%. Ultimately, we only achieve 20%. So we had the highest EBITDA result in a given quarter -- in a single quarter in the history of the company. Thank you very much for your attention. This is it in terms of the Q&A -- this is it in terms of the presentation. Now we'll begin the Q&A session in just a second.

Welcome, ladies and gentlemen. We will kick off the Q&A session. We would like to thank you for all of the questions that you posed during the course of the presentation. We've selected some of the most frequently appearing questions. Let's go to question number one. Would you uphold the assumption -- target for this year, having in mind what you have achieved in the first half of the year. Do we uphold the targets? Well, there's no reason whatsoever for us to change those targets. As we said during the presentation, in the latter half of the year, we will have a major impulse linked to the openings of new stores. We'll have an additional 240,000 square meters of commercial space. And so we'll have a major portion of the openings in the latter half of the year achieved. We have more and more licenses in our offering and that translates into a higher margin. We're well prepared in terms of products. We have all of the stock in our warehouses. There will be no time lags in terms of having stores available for the new season. Today, we're starting the back-to-school session season. So we're ahead of the competition. All this taken together means that we can look with optimism at the latter half of the year. And as I said, we don't see any reason whatsoever to alter the targets and the goals for this year. Question number two, the high pace of store openings, does this have a negative impact on your profitability as a business? Well, let me put it this way. In the first half of the year and in Q2, we had a high pace of openings and the profitability of the group continued to improve. This is hard evidence that new openings do not negatively affect our profitability. Of course, we're doing the openings in order to improve profitability. So we're opening stores in CCC and HalfPrice. And as I said, we're not opening just by force. It's not so much that we want to maximize the number of square meters. We want to have good locations on good terms and conditions. New openings do not lead to higher fixed expenses or costs. We keep costs under control. So new openings means that we have an operation -- more operational leverage. We don't see any threat to our profitability. Quite the contrary, it should improve our profitability. Are you worried by the decline in profitability in HalfPrice? No, not at all. We're not worried at all. We look at HalfPrice in the strategic period and not over the period of a single quarter. Individual quarters are basically a section of the road along to achieving our ultimate goal, which is to have a highly profitable HalfPrice concept. We know why this happened in HalfPrice in this quarter. And we have tried to explain that in great detail with a lot of granularity today. As we were working on stock, we had stock that was much lower per square meter. We invested in the visibility of this brand in new markets. We're preparing ahead of the game for new openings. So in July and June, we had some costs that were linked to openings in the subsequent period. So all of this has an impact on the cost base. At the end of the day, HalfPrice is one of our key concepts in terms of the 12-month period. And so the most profitable HalfPrice in the world, so HalfPrice has EBITDA of 18%. So no competitor in the industry has such a high level of profitability. So we're looking at this over the strategic period, and we're doing everything we can to make sure that this would be as efficient and as effective as possible. Does the Management Board of the group feel comfortable with the current level of stock at the end of the quarter? What do we feel comfortable? The question is whether or not this stock is adequate or suitable to this time and this place where we are as a group. From this point of view, we believe that the stock is suitable. It's clearly suitable to where we are. We would draw your attention to the fact that the rate of growth of stock is, of course, slower than what's happening with the commercial space. So we should have 40% at the end of the year, but the stock we're talking about today -- this is an increase of 12% per square meter, this is clearly falling. We've accelerated the deliveries of collections year-on-year, and this is one of the reasons why we have an increase of 12%. But of course, this will have an impact on sales and at full margin. Historically, in previous quarters, we were making some initial investments in licensing products. Well, this period has come to an end. And so we could normalize the level of purchasing. And so for spring and summer '26 and autumn and winter of 2026, we were able to reduce those purchases by 30%. And so basically, by having new meters opened, we'll be able to absorb that stock. Next question. What was the impact of your wholesale activity on the overall results of the group? If we talk about Q2 results, we can say this is a relatively small percentage of the results of the revenue of the group, a couple of percentage points. So we haven't given a larger commentary because of that reason. Well, that -- it's also true of ShopX or [ Woodbox ]. So this is something that will be more visible in the latter half of the year as we pick up goods in the autumn, this will be Q3. So these are things that are going to be happening at the beginning of Q3. So at the next conference, we'll probably say more about that subject. And as the significance or materiality of this business grows, then -- which we assume will happen, then of course, we will propose to you more granularity in terms of our results, and we'll share those results with you in the individual channels of sales. Can you say something today about the beginning of Q3? Well, with this caveat that we're only talking about 7 days, it's only the 8th of August. I'm not sure what we can say after 7 days. We started off pretty well. What we can say that we finally have summer. It's better for summer to have showed up later than not at all. So we have sales increases in the double digits. We're well prepared in terms of products in terms of the new season. We have the back-to-school season getting started now. We have the full inventory stock in our warehouses, and we have products on display in our stores. We have purchased new collections at very good conditions. So we have high margins. We have a higher percentage of licensed brands, and that means this translates into better margins, higher margins and better rotation. So we feel very comfortable as we kick off Q3 and the autumn and winter season. What else can we say? We have secured or hedged the dollar at very good conditions. We have much smaller or lower cost of transportation. This should also help us improve our margins. We could list all of these conditions and factors that will improve our results in Q3 and that's why we're able to look at that with a lot of optimism. I think we can wrap up today's Q&A session with this optimism because we've basically exhausted all of the topics that were put forward in your questions. We'd like to thank you for your participation in the CCC earnings conference for Q2 2025, and we would invite you to come to our next conference at the beginning of November. Thank you very much. Okay. Thank you very much. Bye-bye.