Industria De Diseno Textil SA ADR Earnings Call Nuggets: Gross Margin Outlook and Flagship Store Refurbishment

Industria De Diseno Textil SA ADR (IDEXY) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Gross Margin Outlook

Richard Chamberlain – Bank of America Merrill Lynch: So my question, I guess, fairly obvious one, given the gross margin performance in second quarter and also the currency headwinds that you are facing this year, are you still confident of achieving a stable gross margin for the full year? So no worse than down 50 bps, below last year’s gross margin?

Pablo Isla Alvarez de Tejera – Chairman and CEO: You know that we always say the gross margin is a combination of many, many different things. What we can tell you is that having in mind the very demanding comparable that we had in the gross margin in the first half 2012, we are satisfied with the evolution of the gross margin during the first half. What we can tell you at this state is that what we are seeing is a stable gross margin in the second half of the year.

Richard Chamberlain – Bank of America Merrill Lynch: So between minus 50 and plus 50 for the second half?

Pablo Isla Alvarez de Tejera – Chairman and CEO: Net-net, that is what we always consider is stable, because we also – we always say that of course we work for the stability of the gross margin in the long-term. So it is a combination of many different things. It has to do with fashion trends, with product mix. It has to do with like-for-like sales growth. It has to do with currencies as you were mentioning. So there are many, many aspects. It’s impossible at the beginning of one season to know to the large basis point what is going to be the gross margin. But we work for the stability of the gross margin. We had a huge increase in the gross margin in the first half 2012. If you see, you see that the gross margin in this first half is above the gross margin in the first half of the year 2011.

Richard Chamberlain – Bank of America Merrill Lynch: Sure.

Pablo Isla Alvarez de Tejera – Chairman and CEO: (So I think in) the second half we are at this stage what we are seeing is a stable gross margin in the second half.

Flagship Store Refurbishment

Anne Critchlow – Soc Gen: My question concerns the flagship store refurbishment impact on the space contribution, because it looks if there was a 2 percentage point hit or more in Q2. So I am wondering, does this extend into Q3 and when do these refurb flagships come back into the like-for-like portfolio?

Pablo Isla Alvarez de Tejera – Chairman and CEO: Regarding the first part of your question, we always say that the space growth contribution, it’s better to analyze it on a full year basis. Now, because when you analyze it on a quarterly basis, there are many elements that could be involved. It has to do with the calendar of openings during the quarter or during the semester. It has to do with many, many different things. As far as you are mentioning the flagships refurbishment, what I can tell you is that this process through which we are going, we have refurbished 50 flagships in a very short period of time. We are very happy with the new store image. We think our customers appreciate it very much and when we analyze all the citifies in which we have refurbished the stores, well, we have refurbished in Tokyo, Berlin, Prague, Stockholm, Madrid, London Brompton Road, Paris. Now we are refurbishing in New York, Flatiron, Amsterdam. We are mentioning in the presentation, The Place store in Beijing. This Friday we will reopen what’s our first store in China, in Shanghai, in West Nanjing Road. After a full refurbishment, this store will be reopened this Friday. So it’s our process, we are going through this year, because as I was saying to you, we are quite happy with our newest store image, our customers appreciated it very much and it’s something – we think it’s a very positive process for the Company thinking about the medium and the long-term. Coming back to your question, what I was saying at the beginning that to analyze the space contribution in a short period of time is misleading. In terms of space contribution in full-year period, there are not any significant changes compared to what has always been the case, and perhaps Marcos you can elaborate about what she was asking regarding refurbish the stores and like-for-like sales.

Marcos Lopez Garcia – Stock Market Director: Yes, regarding that as you have mentioned. Once the store is refurbished, it’s goes out to the like-for-like calculation and revenues when they will – will be in operation again — will be in the space contribution and then when we have two full years comparably will go back into the like-for-like, but what I would like to add these that these minor differences in a quarter. Regarding a space growth, we are comfortably on track and that’s the relevant thing.

Anne Critchlow – Soc Gen: Just a quick follow-up, how many more refurbs will you be doing from now?

Marcos Lopez Garcia – Stock Market Director: Well, in this first half as Pablo mentioned is 50 flagships, total 70 stores and it is true that in the second half there are less. However, we have very important stores coming into operation in the coming weeks as we have discussed.

 

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