Maisons du monde: Worrying warning from Maisons du Monde on household consumption

(BFM Bourse) – After the warnings from Target or Walmart a few days ago, the French furniture and interior decoration brand is carrying out a painful downward revision of its 2022 objectives or even beyond. A new alarm signal with regard to the level of household consumption, which is increasingly threatened by inflation.

A few weeks apart makes all the difference. In early May, the Nantes-based Maisons du Monde group reported a first quarter in line with expectations, allowing it to confirm its financial objectives for the 2022 financial year (unless “further deterioration in the macroeconomic environment and operating conditions ‘supply”). This maintenance had been greeted by an increase of nearly 5% in its share price. Three weeks later, the distributor of furniture and decorative items is forced to significantly lower its outlook not only for the current financial year but potentially until 2025. As a result, the Maisons du Monde stock plummets by 22 .56% to 13.70 euros on Euronext Paris on Friday around 10:00 a.m., the lowest level since November 2020.

Recalling the reservation made on May 4 last on the fact that the achievement of the objectives previously set for 2022 implied the absence of deterioration in the economic situation and supply conditions, the company declares that “these conditions have deteriorated significantly these weeks” requiring an update of the assumptions underlying its business plan.

“Inflation in Europe is expected to remain at high levels until the end of the year, which will weigh on the level of consumer confidence and demand in the furniture and decoration sector. “, points to Maisons du Monde. In addition, “the evolution of the pandemic in China continues to generate significant bottlenecks, which generate additional costs and may slow down our resupply plans”. Consequently, “the costs of freight, raw materials and energy remain at very high levels and should not decrease in the short term. In this context of high inflation and high volatility, cost projections have been undercut. -estimated, temporarily impacting the gross margin model”.

Replenish inventory while controlling costs

While the chain, renowned in the sector for its ability to launch new trends, drawing inspiration from different universes, including historically the theme of Asia, anticipated an increase in sales this year, Maisons du Monde is now counting on an average drop single digit (“mid-single digit negative” i.e. around -5%). The Ebit margin, expected this year around 9% after the record level of 9.5% reached in 2021, could in fact fall as low as 5% and the amount of free cash flow could remain between 10 and 30 million euros, instead of the range of 65 to 75 million expected so far.

Despite weak demand, the group says it is determined to support the development of its sales through short- and medium-term action plans, while taking care to protect its profitability through rigorous cost control. Investments in its main strategic initiatives, such as the opening of the second logistics center and the continued deployment of the marketplace, will be maintained. Maisons du Monde also intends to continue to replenish its stocks to support future sales by managing supply constraints.

“Maisons du Monde remains confident in the profitable growth model”, as detailed during the November 2021 investor day. The strategic plan unveiled on this occasion “remains fully valid”, assures the firm, but “the timetable for achieving objectives for 2025 could be extended”. According to its strategic plan, Maisons du Monde has so far targeted between 1.8 and 1.9 billion euros in sales in 2025, while generating profitability approaching 200 million euros in Ebit (i.e. a margin rate around 11%), and intended to generate around €350 million in cumulative free cash flow over the entire 2022-2025 period.

Guillaume Bayre – ©2022 BFM Bourse