SMCP Q2 Sales Up 19 Percent, Despite Lingering Effects of Store Closures in China

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PARIS — Accessible luxury brand SMCP’s sales hit another period of double-digit growth in the second quarter, up 19 percent at constant currency over the same period last year despite being weighed down by COVID-19-related closure woes.

Europe, particularly the brands’ home country of France, and the Americas more than made up for closures in China during the quarter. Sales in France were up a whopping 63 percent, and increased 34 percent across Europe and the Middle East (EMEA) and 16 percent in the Americas.

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The strong growth in Europe was credited to the recovery of tourism to the region, as well as the result of the company’s long-term full-price optimization strategy to reduce sales and discounts.

The owner of French labels Sandro, Maje, Claudie Pierlot and De Fursac was severely impacted by continued closures in China and Hong Kong due to ongoing health restrictions, which shut down its brick-and-mortar stores as well as online servicing warehouses from March to May. Sales in the region were down 35 percent year-over-year at constant currency.

The second-quarter results beat analysts expectations, with the notably strong sales in Europe and the Americas being a standout. “We were impressed by the strong acceleration seen in both France and EMEA…[Asia] was not as bad as we feared,” said Jefferies analyst Kathryn Parker in company notes after the report was released. The Americas “achieved solid growth” amid tough competition, which bodes well for future strength in the region, she added.

For the first-half of 2021, sales were up 21 percent year-over-year at constant currency, driven by the second quarter growth, to 565 million euros. Net income was up, to 20.7 million euros in the first-half, while adjusted EBITDA was up to 121.8 million euros, again credited by the company to the strength of its pricing policy and reduced discount rate.

“We were able to perform very well in all our regions where local clients’ spending was above pre-pandemic levels, apart from Asia, where our stores were temporarily closed due to COVID-19 restrictions,” said SMCP Group chief executive officer Isabelle Guichot.

“This momentum, which could not have been possible without the strong commitment of our teams, confirms the relevance of our strategy focusing on brand desirability, with local marketing strategies which boost customer engagement. Over the first half, we also managed to strongly increase our profitability thanks to tireless efforts to increase full price sales,” she added.

The downturn in China and Hong Kong was also reflected in the first-half numbers, which caused a “sharp impact” on sales, the company said. More than 25 percent of its more than 200 stores in China and warehouses were closed, which had the effect of “slowing the business, immobilizing inventory, affecting digital orders and the replenishment of stores.”

Hong Kong and Macau were also affected by the drop in tourism. “The desirability of our brands remains intact in APAC, and especially in China, where we recorded an excellent Tmall 6.18 [shopping festival] event, with both Sandro and Maje ranking in the top three of Accessible Luxury,” the company added.

Parker noted that direct costs were increasing at a faster rate of sales in the first half due to the drag of the brick-and-mortar costs in China, “which was disappointing as we had hoped for a greater leverage on fixed cost elements.”

Average selling prices increased year-over-year to help offset the raw material price increases. SMCP sources more than 50 percent of its product from the European region, which is beneficial in terms of shipping costs, Parker added.

Looking at brand breakdown, Sandro sales were up 18 percent, while Maje boasted a 15 percent increase in performance.

The Claudie Pierlot brand will soon get a new head, and the company noted that former chief executive officer Jean-Baptiste Dacquin quietly left the company earlier this year. That search is underway and a replacement will be announced in the third quarter. Guichot is overseeing the brand in the interim.

Not only is the company working to cut down on discounts, it also closed some underperforming stores and merged others into unisex outlets. The result was a net closure of 14 stores in the first half, including eight in France of the Suite 341 multibrand concept, which brought Sandro, Maje and Claudie Pierlot all under one roof. The company will invest in omnichannel sales by brand moving forward.

The company compensated with new openings in Belgium, Estonia and Spain in Europe, and continued expansion in Asia with new stores in China and South Korea.

With an eye on the second half of the year and the reopening of China the company remains positive, added Guichot: “Looking forward, while the current geopolitical and macroeconomic environment creates some uncertainty, we confirm our 2022 full-year guidance if the situation does not further deteriorate.”

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