HORNBACH Holding AG & Co KgaA Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Thomas Maul - DZ Bank AG - Analyst : Yes, good morning. Thomas from DZ speaking. Thanks for taking my question. I've got two. The first one, could you please elaborate a bit on current trading with regard to footfall and the average shopping cart size? And the second one, can you please remind us of your expectations for the gross margin? Can we further expect gross margin to remain stable on that elevated level? Thank you. Karin Dohm - HORNBACH Holding AG & Co KgaA - Chief Financial Officer, Member of the Management Board of Hornbach Management AG Yes. Good morning, Thomas, and thank you for your questions. So current trading is strong. We saw, as highlighted, good interactions with customers, both frequency as well as basket size in -- already in October and November. And now it is like that on an ongoing basis in December. We also see some components picking up, which give us, so to say, conviction that the slowly, so to say, silver lining also on some larger projects is coming through. I'm thinking here specifically about prefabricated construction elements or things like that, which keep getting more interest from customers than we saw in the earlier parts of this fiscal year. So there is a bit more momentum also on, let's say, midsized projects. We always said we don't see yet REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 20, 2024 / 7:30AM, HBH.DE - Q3 2025 HORNBACH Holding AG & Co KgaA Earnings Call the large projects coming through, but we see certain momentum throughout the last two months and now also throughout December into that direction. Footfall is fine. Customer frequency, higher than in the previous year. So that's all pointing towards the one direction. And then you had a second question with regard to gross margin. Yes, we definitely expect that to stay stable and positive as we are currently. I may remind you though that we're currently running when in comparison to previous year where we had the gross margin picking up in our efforts on the purchase side already coming through in the winter months. So of course, now the difference, so to say, between gross margin previous year and gross margin this year is becoming smaller or shrinking, but not because we're going down but just because the like-for-like difference is becoming smaller. So we feel very good about it. And that's in combination with asset active customers, and this tendency towards bigger projects gives us really strong convictions that we will have a good start into next year and depend whether you talk calendar or fiscal.

Question: Volker Bosse - Baader Bank AG - Analyst : Yes, good morning. Volker Bosse, Baader Bank. Thanks for taking my question. I would have two. EBIT declined in the third quarter. You mentioned in the press release that this was based on salary increases. So could you share some more details here, please? And given that trend in the third quarter, is it fair to assume that also EBIT should decline in the fourth quarter, which would be possible given your -- you have still some headroom to your full year guidance. So perhaps you take the opportunity to manage expectations in regards to fourth quarter? And final one, we had -- in November, we had a Black Week season. So what does it mean, Black Week, for you? Is it getting more important? Is it important at all? Or how do you look at these kinds of important seasons and more and more important seasons for the overall retail environment? But not sure how does it play into the DIY sector. Thank you. Karin Dohm - HORNBACH Holding AG & Co KgaA - Chief Financial Officer, Member of the Management Board of Hornbach Management AG Yes. Thanks, Volker. So on the EBIT side, you're absolutely right. Year over year, Q3 shows obviously an EBIT reduction. And yes, that is driven by the fact that we have -- on the one side, you might remember in Germany, where, obviously, given the way our store network is distributed across countries, the vast majority of people who are subject to trade union agreements is, so to say, based in Germany. And therefore, we had the final agreement between the retail industry and the trading units coming through in September. So that has, of course, had its influence on our Q3 figures as over the course of 12 months, there was an increase of salary from 10%. And of course, this is always an area continuously at any time where we focus on making sure that we -- on the one side, we are really, as you know, and we've said that often and keep repeating that, we're convicted that paying good salaries and being an attractive employer is key to having the right guys who then can also provide our customers with advice. So we are fine with that. But of course, we are keen to make sure that we offset that with process efficiency, with continuous improvement and with anything that we can do to make sure we are on top of things. And that has worked nicely, but of course, not in that degree as we are on the same time gearing up for REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 20, 2024 / 7:30AM, HBH.DE - Q3 2025 HORNBACH Holding AG & Co KgaA Earnings Call our new store openings. Now we have -- as you know, in February, there will be Nuremberg; in March, there will be the next store; and then we have more coming up in '25. And that means we're starting -- especially for these two I've mentioned earlier, we're starting already now in bringing people onto our platform to make sure we can train them. We can -- we really have them there when things are kicking off. And that, of course, partially is a little bit of a frontrunner there, which you also will see partially or have seen partially in our Q3 figures. So we feel comfortable with that, and we are absolutely convinced that that's talking -- addressing your other part of the question, that Q4 will be a good Q4. January, February, it is more on the more quiet side in home improvement. People are not doing a lot in the garden or outside. Often, things are a little bit subdued there by nature, by season. It depends on a little bit what February will bring on the weather side. You probably recollect well, last February, we had a very good season because things were picking up. Temperatures were nice, relatively early. So we need to see what February brings. But we're absolutely convinced that we will keep our guidance that we will be fine on the EBIT side as guided, so no concerns there. As said, we feel comfortable in the way we're currently set up. And then you ask for Black Week. Black Week is definitely not such an important topic for us. We are with home improvement in an area of the business where we are anyhow not so much in the pre-Christmas part, apart of course from Christmas decoration and some other things. But our main season, as you know, is spring, is our Q1. Nevertheless, what also is playing here into it is we have our everyday low-price strategy. So we are very actually outspoken also when you look a little bit into our communication to customers that we said to customer, look, we are really doing a hard job and try to make sure that you get the best size offers. We also, as you know, guarantee customers paybacks if they find [something] -- the same product somewhere else for a lower price or if we lower the price of something that they bought maybe last week. They get an automatic payback. So these things [are] how we operate. And so something like Black Week and doing campaigns to that part is not really our game. We want to be a reliable project partner. It's not really important for us, the Black Week effect.

Question: Miro Zuzak - JMS Invest AG - Analyst : Good morning. Can you hear me? Karin Dohm - HORNBACH Holding AG & Co KgaA - Chief Financial Officer, Member of the Management Board of Hornbach Management AG Yes. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 20, 2024 / 7:30AM, HBH.DE - Q3 2025 HORNBACH Holding AG & Co KgaA Earnings Call

Question: Miro Zuzak - JMS Invest AG - Analyst : Yes. In the cash flow statement, you have the EUR6.6 million. Karin Dohm - HORNBACH Holding AG & Co KgaA - Chief Financial Officer, Member of the Management Board of Hornbach Management AG Yes, that is a little bit -- probably, you're alluding to the KFW elements where that refers to some solar panel investments and other components.

Question: Miro Zuzak - JMS Invest AG - Analyst : Yes. Thank you, and Happy Christmas and Happy New Year.

Question: Johan Van Den Hooven - Value8 NV - Analyst : Good morning. Johan Van Hooven, two questions from me, please, one about the cost development. You already said that salary -- the agreement with the trade unions with a plus 10% in salary increase. I just wanted to double check. Did that start in September, so there will be ongoing effect on the cost base? And the second question is about the new store opening. You mentioned two in Romania, one in Germany and one in Austria. And I heard February and March. Can you give a bit more precise timing of them -- of the four stores? And the Nuremberg one, is that calculated as a new one because that's a sort of renewed one, if I remember correctly? Karin Dohm - HORNBACH Holding AG & Co KgaA - Chief Financial Officer, Member of the Management Board of Hornbach Management AG Yes. So absolutely, thanks for the question. And let me start with the store question first. So first one coming up, Nuremberg in February, absolutely correct. That's the reopening. We knocked it down roughly 12 months ago. It's the same location, but it's totally newly built. It's larger. It has more square meters, and therefore, it has also more employees. And then come the new store, so really net new. That is one in Germany that will come in March. Then we have one in Austria coming up probably in June -- maybe June, July. Don't nail me down, so to say, on that. And then we have two in Romania coming up in October -- September, October, so let's say after the summer break. I said, with these large building activities, it could always be that it moves a couple of weeks forward or backwards. But that's the rough timeline. That means we will definitely have the two ones in Germany, Nuremberg in February and then Duisburg in March, that those will definitely participate fully from the busy season, which is, I think, something that is obviously dear to our heart as usual. And then one in Austria will be roughly half of the year, and the ones in Romania will be coming in in our Q3. So nicely spread across the year. And as said, coming back to your first question on the cost development. Yes, the agreement with ver.di, that's the trade union in Germany, that was these 10% were split. That was first roughly by half, you could say, 5.3% and 4.7%. And the first one was kicking in spring, and now the second half was kicking in in September. So it was a little bit split -- and yes, period.

Question: Johan Van Den Hooven - Value8 NV - Analyst : Okay. All right. Thank you very much. Karin Dohm - HORNBACH Holding AG & Co KgaA - Chief Financial Officer, Member of the Management Board of Hornbach Management AG You're welcome.

Question: Tim Ashton - Frilsham SICAV PLC - Analyst : Good morning, everyone. Just a couple from me, please. Could you talk a little bit more about Switzerland? I think you said, if I remember correctly, it's the one place where you haven't seen like-for-like growth. But I see that your share of the market has increased. Is that a particularly difficult market in recent months or an exciting market for you? And secondly, I'm sorry, I think I'm being very thick here. In terms of your guidance for full-year EBIT, that looks like if we compare the total for the first three quarters where this year is well up on last year and you're guiding for flat for the full year, that suggests quite a lot of costs in the fourth quarter. Are these mainly pre-opening costs for the stores that are coming in the start of next year or is it quite a lot from the salary increase or something else? Thank you. Karin Dohm - HORNBACH Holding AG & Co KgaA - Chief Financial Officer, Member of the Management Board of Hornbach Management AG Yes. I'm happy to take those questions. So first on Switzerland, yes, we are happy with our market share development, and I think that shows how relevant we are for customers. Because, right, as you alluded to, there is a general -- yes, market sentiment in the sense of people keep holding back on DIY topic. So the market volume wasn't necessarily growing. And against that, let's say, non-growing market volume, we increased our market share. For us, is that a good positive message? Our underlying performance is fine. We now just need a little bit of macroeconomic development to understand how can we grow beyond just growing market share, taking business away from others as part of our retail game, as you know. So we're fine with that. But actually, of course, it's always more fun when you have a growing general market appetite, customer sentiment. But once again, similar to what we always said about Germany and Austria, we see a certain common pattern in the DACH region. So we think there will be a better mood in some of those countries or in all three of those in the next year, but good indications that that should turn slowly, gradually, but continuously. And then you asked for the guidance. On the EBIT side, yes, we always said, and we stick to that, at or slightly above. So please don't miss the slightly above. And we always give the ranges, what slightly, for example, means in our -- how do you say, in our wording, in our vocabulary, so to say. And please also take into account, Q4 is not a super active quarter. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 20, 2024 / 7:30AM, HBH.DE - Q3 2025 HORNBACH Holding AG & Co KgaA Earnings Call Customers are spending time with other topics usually in Q4. Plus, usually, it is cold. It might be wet. It might be freezing. So that's definitely not the time where people start spending activity, time, and/or money into home improvement. Nevertheless, that's the cycle we've seen literally since the beginning of this company, once spring is coming, once days are getting a bit warmer and then obviously also a bit longer. So somewhere in February or March, we will have all these effects, and then we will have the uptick in general activity level. So that depends a little bit, of course, whether that then flows into the end of this fiscal year or the beginning of the next fiscal year, talking about February or March. But on the other side, we're absolutely convinced at/or slightly above, and slightly above is absolutely also something what we see currently coming towards us.

Question: Duarte Murta - Kepler Cheuvreux SA - Analyst : Good morning, everyone. Thank you for the presentation. Two questions from my side. As we go into a low interest rate environment in 2025, how do you expect this to affect the next business year, both on operational and cost standpoint? But as well if you could give your outlook for the increase in transactions for the secondary market that could possibly finally trigger those large [DIY] projects that have been missing in the DACH region, so -- yes, particularly within Germany. And second, on the two stores opening in Romania, could you just highlight how the margin on that market compares to other countries within the international segment? Thank you. Karin Dohm - HORNBACH Holding AG & Co KgaA - Chief Financial Officer, Member of the Management Board of Hornbach Management AG Yes, absolutely. So let's start with the question on the -- sorry, that was a little bit unclear. Was it lower consumer environment or lower interest rate environment? Sorry, the acoustics were not --

Question: Duarte Murta - Kepler Cheuvreux SA - Analyst : Yes, exactly. That's it. Karin Dohm - HORNBACH Holding AG & Co KgaA - Chief Financial Officer, Member of the Management Board of Hornbach Management AG Yes, okay. Yes, that's a very valid point because right spot on that has been subdued over the last, and I would probably say, over the last two years. And yes, that is supposed to pick up, although I would like to caution, obviously, not very quickly. We see -- as said, we see a bit more sales and turnover in the construction elements. And we also see in those areas where we focus heavily more on the building -- on the new building side. Our main business is obviously home improvement, but we have some areas of our business where we focus on new buildings and on helping building corporations and other customers. And we see from the interactions from the way we discuss their activities, they give us the clear message that there is the silver lining on the horizon and that everybody is expecting that the building machine, so to say, especially on the residential side, will jump on and will be back into action in '25. But only, I would definitely like to caution, only in the second half. That is not coming super quickly. It will come, and then we will have more activity level in that region and specifically, of course, in Germany. So we are absolutely convinced that that will also be something that we will talk about in the second half specifically. The two stores in Romania -- Romania is a country we're really happy, for two reasons. Number one, we have the good growth momentum in general. There are more locations in the pipeline beyond those two that we open next year. We have -- Romanian people are really super interested and active in home improvement. Also, building activities are there way more active than in other countries where we operate. We have nice EBIT margins there, so we're really happy there. And therefore, we expect those stores. Obviously, they need first to open and then they need to be up and running, which usually takes to have them at a level where we want them to be. You usually need to calculate two to three years. And Romania is always a bit quicker, so two years is realistic. And then obviously, they will be providing good EBITs, and they will be providing good EBIT margin. So we are absolutely pleased on that side.

Question: Duarte Murta - Kepler Cheuvreux SA - Analyst : Thank you.

Question: Lars Hettche - HC Capital Advisors GmbH - Analyst : Hello, good morning. Just one question regarding the guidance for the revenues that was cut a little bit from slightly above now to stable. And on the other hand, in this call, it sounded that you're quite happy with the sales development within Q3 that some things picked up. You have some good indications that trading in December looks quite good. So how does it fit together on the one hand, good sales development; on the other hand, the cut in the revenue guidance? Thank you very much. Karin Dohm - HORNBACH Holding AG & Co KgaA - Chief Financial Officer, Member of the Management Board of Hornbach Management AG Yes. Thanks, Lars. I think the underlying pattern, if you dial back the time and think about the beginning of this year, so somewhere into the beginning of the calendar year '24, I think the overall expectation of consumer sentiment coming back in light of -- at that time, indications of interest rate cuts, indication of inflation going down, salary increases in many parts of Europe. So the expectation was, of course, to see a bit more of that. What we see now in the, so to say, in Q3, I spoke about the like-for-like sales growth, specifically outside of Germany. So yes, we see what we expected to see. We see it now a little bit later in the timeline than we had hoped for, so to say, at the beginning of the year. And once again, there is always this little bit -- the known unknown, so to say, with regard to when are things picking up, will it be February or March? Nevertheless, Q4 is, by nature, by season, not the strongest quarter. So yes, we think there will be a nice sales momentum in general also compared to the previous year. Nevertheless, the lever that we have with Q4 with regard to volume general activity level is, of course, way smaller than we have it in Q1 or Q2. And therefore, that is the reason why.