Q2 2022 MYT Netherlands Parent BV Earnings Call
[music].
Greetings and welcome to the March resist second quarter fiscal 2022 earnings conference call.
At this time all participants are in a listen only mode.
Today's call is being recorded and we've allocated one hour for prepared remarks and Q&A. It is now my pleasure to introduce your host Martin B Y to reaches Chief Financial Officer. Thank you Sir please begin.
Thank you operator, and welcome everyone to mitral <unk> Investor Conference call for the second quarter of fiscal year 'twenty to 'twenty two.
With me today is our CEO Michael singer.
Before we begin we'd like to remind you that our discussions today will include forward looking statements any comments, we make about expectations are.
Our forward looking statements are subject to risks and uncertainties, including the risks and uncertainties described in our previous annual reports.
Many factors could cause actual results to differ materially.
We are under no duty to update forward looking statements.
In addition, we will refer to certain financial measures not reported according.
With Iff's on this call.
You can find reconciliations of these non <unk> financial measures in our earnings press release.
Which is available on our Investor Relations website at investors Dot My Teresa Dot com.
I will now turn the call over to Michael.
Thank you Martin also from my side, a very warm welcome to all of you and thank you for joining our call today we.
People today coming from the result, and performance of our second quarter fiscal year 'twenty to 'twenty two.
We are extremely pleased with our results and performance, we believe that they not only clearly show the fundamental strength and long term growth potential of our business, but also that we are emerging as one of the few winners and they clearly consolidate in luxury e-commerce space.
I wanted to leave you today with three key messages supporting this view.
But they are still massive growth opportunities for our business driven by the shift of consumers to online.
And untapped geographic as well as category growth potential.
All of them support our long term goal of 22% to 25% annually for our business.
Second we believe that we have the best brand relationships in the industry based on trust and our ability to create value for all our brand partners through impactful digital content and campaigns.
This drives our confidence remains the best partner of choice for luxury designer brands to engage with our high value multi brand customers, who cannot be easily reach mono brand offering.
But we believe that our proven ability to execute at the highest level has never been more important.
Then in the volatile times like today.
Our operational excellence is driving customer loyalty, which in turn delivers outstanding financial results.
We have consistently outperformed expectations, both on growth and on profitability over the last quarter.
Let me now come in more detail on these three key messages for today.
First in the second quarter, we grew our gross merchandise value by 26, 2% compared to Q2 of fiscal year 2021 .
This was above our continued long term guidance of 22% to 25% annual <unk> growth.
We have seen a slightly lower growth rate compared to Q1 fiscal year 'twenty, two which is fully in line with our stated view that the pandemic has accelerated the online demand for luxury and that this trend will continue.
At a slower pace in the post pandemic world, but it will continue.
Our multiyear growth potential as evidenced by the very high two year growth rate of G. M D.
67, 7% in the second quarter of fiscal year 2022 over Q2 of fiscal year 2020.
We combine this growth with a gross margin of 53, 4% in the second quarter of fiscal year 2022, compared to 49, 5% in Q2 of fiscal year 2021 .
Our growth was driven by healthy and strong consumer demand not by promotional intensity.
We had a record number of new customers with over 120001st time buyers.
<unk> was up in the second quarter fiscal year 2022.
The backdrop to all of this is the change in consumer demand in luxury shopping it.
It is estimated by some consulting firms that over 30% of the personal luxury goods spend will be online by 20 to 25.
This would be an online market of your $110 billion.
Which at least 30% August 33 billion, New rule is estimated to be captured by multi brand fashion platforms of which we are the clear leader.
The second quarter again saw also big growth in the United States for <unk> was 74, 2% growth in <unk>.
Net sales compared to Q2 of fiscal year 'twenty into 'twenty one.
The U S accounted for 16, 3% of our business in the second quarter compared to 11, 1% in the second quarter of fiscal year 2021.
My theory is gaining traction as a top of mind shopping destination for U S luxury consumers.
As a boy in the U S retail landscape for true luxury a retail player.
And consumers are leaning into my to revert to help fill that void.
There has been a shift of the New York customer moving to warmer weather locations, like Florida, and Texas, where the weather allows for the customer continuation of outdoor activities and events people are spending their disposable dollars on unique and special pieces.
And are really dressing up yes.
The establishment of our team in New York focused on our expansion in the U S is starting to show results. We are also seeing strong growth in other regions of the world in the second quarter of fiscal year 'twenty to 'twenty two.
Mainland China for example grew by 51, 7% of net sales.
In China, we will also soon strengthened our local leadership and teams on the ground.
From a category perspective, we see continued success with our newer departments of kits were in menswear combined they already accounts for 15, 7% of our business in the second quarter of fiscal year 2022, even though we have only started recently with debt.
In menswear, we have established <unk> as a fashion authority and the post Street, where you are.
In home products. We had also a very good first campaign in November 2021.
We plan to increase our activities in this category.
Overall, we see a lot of additional growth potential across multiple luxury lifestyle categories, including beauty.
All in all we feel therefore, very confident to deliver multi year annual growth target of 22% to 25% for all business.
Second we believe that we have the best brand relationships in the industry. This is based on trust and our ability to create value for our brand partners through impactful digital content and campaigns, we have a unique high value multi brand customer base that cannot be easily reached by mono brand.
Great.
This drives the desire of brands to collaborate closely with US examples from the second quarter 2022 include the launch of the very first winter collection of ease of Belmont Hall exclusively on mitral reason.
Our first exclusive women's we have Tom Ford capsule collection only available at my Teresa and featured wildly and fashion media a little bit there.
The launch of our selection of Javan. She menswear looks first available only for my Teresa customers like <unk>, New year's Eve collection only available at my Teresa The first six Omnipod outerwear collection exclusively available with us and many more.
A clear highlight an amazing example of how <unk> is able to create unique and engaging digital content for customers was 360 degree virtual pop up with Montclair, which we produced and launched in October of last year.
The pop up allows visitors to our best side into actively navigate through the 10 minutes, Yahoo, ASEAN, and Austria and explore as well as shop Mong can air products at micro arrays.
This campaign was featured in Ww D volt, gotcha fashion, United and many more outlets.
Innovative digital content and campaigns like these produced in house by Nitro visa.
Strong differentiator and drive the continued desire of brands to work with.
The curated platform model, which we recently launched is also rolling out with great success in the second quarter, we had already six brand partners live on the platform.
Under the CPM the inventory remains in the ownership of the brand partner until it is sold by my Theresa to the customer.
Nevertheless, citizens all aware.
We have successfully integrated all data feeds to the brand so that the inventory can be efficiently managed.
The CPM allows us with the respective brands to scale the availability of merchandise much more quickly and even provide in season replenishment. While my Teresa continues to do what it does best.
Neat product duration, engaging marketing content and superior customer service.
The lower platform under the CPM compared to the gross profit margin under the wholesale model is compensated for by marketing and SG&A cost efficiencies as well as additional growth potential.
The topline due to in season replenishment and access to exclusive retail products.
The total profit pool generated with the brand under the CPM is that's very comparable to the wholesale model. This is evidenced by the continued high profitability as the rollout of CPM takes place.
This innovative partnership model creates a win win situation for brands able and willing to manage inventory until it is sold to our customers can.
Please see our investor presentation for more details on the CPM business impact.
This focus on true partnership has been and will continue to be a driver of the unique success of mitral visa.
Third we believe that we have again delivered many significant proof points over the last quarter of our excellence in execution.
Of course, our ability to deliver quarter after quarter is evident in our strong and unique financial performance that Martin will talk about in a few minutes. However, the most important part of excellence and execution is our ability to excite and develop customers.
Our business focuses on a highly curated multi brand offer attuned to the big spending wardrobe building customer segment, which provides us with the best customer base in digital luxury.
We have successfully expanded our LTM active customer number by 32% year over year to 747.
This was of course fueled by new customer growth as mentioned before.
Noteworthy in this context is that we achieved this with our customer acquisition costs remaining very stable compared to the second quarter of fiscal year 2021 .
Fight the often discussed challenges with many companies seem to phase with stricter privacy protection rules and rising online marketing costs.
Our focus on top customers is a key aspect of our business model and to drive up almost 100% revenue retention from year two onwards for newly acquired customer Cogs or <unk>.
<unk> customer base grew by 39, 6% in the second quarter of fiscal year 'twenty to 'twenty two.
Spend per customer grew by two 3%.
To engage and satisfy top customers, we have significantly grown our team of personal shoppers around the world and particularly in the U S.
This allows us to organize intimate top customer events that are often described as money can buy experiences around the world.
Just in the second quarter of fiscal year 2022 we held events in Miami L. A New York, London, Paris door, Angola, and other locations. Despite the unfortunate rise of only crone infections.
One excellent example was the opportunity for our top customers to attend the dinner on Paris together was the creative director because you won't she Matthew Williams.
Very important for execution excellence in times like these was that we maintained full business continuity across all operations at <unk> in the second quarter.
A focus on health and well being of all my Teresa employees at least in the second quarter, we with us able to insulate ourselves from any workforce shortages that did occur in the industry. This highly correlates with the very good customer satisfaction measured internally with a net promoter score of 80.
Two 2% in the second quarter of fiscal year 2022.
This is a slight decline compared to the second quarter of fiscal year 2021 mainly driven by delays in shipping as carriers across the world due to workforce shortages around the holiday season.
The quality of execution and health of our business is best captured by our ability to grow the business globally.
Hi, food price shale revenues as evidenced in our robust gross margin.
Finally, I would like to mention that we will shortly publish our ESG commitment, which is based on the four pillars planet talent product and policy each of the deeply intertwined four pillars paved the way for our continuous profitable and responsible growth as we.
Built in our ongoing efforts to create a positive impact in our industry and our plan.
With all of the above it should come as no surprise that we are very satisfied with our performance in the second quarter fiscal year 2022.
We believe that our results demonstrate not only the fundamental strengths and long term growth potential of our business, but also that we are emerging as one of the few winners in the clearly consolidating luxury e-commerce space.
The combination of high growth potential.
Brand partnerships and not the least of track record.
<unk> execution gives us full confidence to continue achieving outstanding results in the future.
And now I hand over to Martin to discuss the financial results in detail.
Thank you Michael.
I will now review the financial results for its fiscal second quarter October to December 2021.
And we will provide additional detail on some of the key topics previously mentioned.
Otherwise stated all numbers referred to euro.
As Michael highlighted we are very pleased with our performance during the second quarter, which came in above expectations.
Gross merchandise value or <unk> during the quarter was $200 2 million, a 26, 2% increase from $158 6 million in the prior year quarter.
As a reminder, <unk> indicates.
Indicates that total amount of merchandise that our customers.
<unk> on our platform and it shows the depth of our customer relationships.
We delivered strong <unk> due to robust new customer growth and strong existing customer cohort performance.
For a customer that values, our curated multi brand offer.
We are the number one destination in the world to go to.
This sustained and resilient successes clearly visible in our numbers for.
For fiscal year 18, two fiscal year 'twenty one.
We achieved a GMB CAGR of 26, 3%.
In the last six quarters.
Our quarterly two year GMB growth with stable and strong.
Ranging from 58% to 66% in each quarter.
And now in this quarter, 68%.
Customer engagement and retention continue to track very well as our active customers who shop with us in the last 12 months grew by 30.
2% to 740 <unk>.
This continued success.
That's also in line with our performance.
In the last quarters and years.
From fiscal year 18.
For fiscal year 'twenty, one our CAGR.
Active customer growth is at 31%.
In the last six quarters.
Our quarterly two year customer growth LTM was stable and strong.
Ranging from 63% to 68% in each quarter.
And now in this quarter 66, 7%.
This robust two year growth rates in active customers and higher retention speaks to our unique positioning.
Attracting a highly valuable multi brand customer.
And our ability to deliver excellent service.
During the second quarter net sales increased by 29 million or 18, 3% year over year to $187 6 million.
Due to the one time effect.
Selected brands switching from the wholesale model to our curated platform model our CPM.
The net sales increase.
It's slightly lower than our GMB growth in the quarter.
As planned in.
In the second quarter, we had an totaled six spreads.
We had started shifting from wholesale to CPM.
So those brands switching we now report the platform fee and.
Net sales and not the <unk>.
12 months after the transition of those trends. This one time effect will be over.
Our net sales will grow in line with <unk> again.
Those six brands that switch to the CPM are almost half of the total brands that we expect to shift in the medium term.
The CPM is fully implemented and is working as planned.
Along with the strategic benefits of this partnership the.
The CPM enables a continued strong GMB growth.
And a profit pool that is comparable to the wholesale model.
I will talk about our unique profit generation and updated guidance for the full fiscal year shortly.
Please also have a look at our investor presentation, where we talk to the CPM in more detail.
As mentioned before we once again saw significant growth across many regions of the world the second quarter.
The U S remains a top growth regions with 74% net sales growth.
Compared to the prior year quarter, China grew significantly above the average net sales in Germany increased almost 20%.
Our total order shipped in the last 12 months increased by 31, 8% to one point to $66 million.
Gross profit of $101 million increased by $21 5 million or 27, 4% year over year.
The gross profit margin 53, 4% improved by 390 basis points compared to the prior year period of 49, 5%.
Driven by our continued higher level of full price sell through growing CPM revenues and a higher share of countries with prepaid duties charged to the customer.
For example in the U S. Please also recall that sales from our CPL model generate 100% gross margins our consistently strong gross profit margin reflects the unique high end positioning of mitral zone in.
In each of the last four fiscal years, we had a solid and stable cross profit margin of 47%. We are very proud of this accomplishment and we believe this differentiates my Teresa.
Shipping on payment costs grew by $7 7 million to $25 5 million driven by an increase in total order shipped.
As a percentage of GMB shipping and payment cost this quarter increased to 12, 7% from 11, 2% in the prior year quarter.
This increase of 150 basis points is mostly driven by an increasing share of countries, where we pay all customs duties for the customer such as the U S.
As mentioned before the payment of these duties is reflected in our prices and therefore increase our gross profit margin in respective countries and the same amount.
During the second quarter marketing expenses increased to $23 8 million compared to $19 7 million in the prior year quarter.
Primarily due to the increase in the number of customers acquired.
As a percentage of GMB.
Marketing expenses slightly decreased to 11, 9% from 12, 4%.
Prior year period.
As we could not engaged in all of the activities that we wanted.
In addition to acquiring new customers at a stable CAC.
We were able to significantly improve our existing customer performance.
<unk> per active customers increased by six 4% in the quarter year over year.
Driven by a strong growth of 39, 6% of our top customer cohorts within our performance marketing approach the idea of a affected customer traffic share is low and with our ongoing optimization ideas impact continues to not be significant and manage them.
We respect the privacy rights of our customers.
Selling general and administrative expenses grew by $18 9 million to 41 million <unk>.
Predominantly driven by onetime grants of share based compensation expenses related to the IPO.
We adjusted a net effect of $15 7 million in relation to these one time granted share based compensation expenses and.
And 1 million other transaction related costs as we do not consider them to be indicative of our core operating performance with these adjustments SG&A expenses as percent of G. M. B increased modestly to 12, 1% from 11, 7% due to an increase in insurance.
And public company costs.
Adjusted EBITDA was $28 3 million.
As compared to $22 1 million in the prior year quarter. This is a profit increase of 27, 8%. This growth is driven by a robust top line growth and a strong gross profit margin in this quarter. The adjusted EBITDA margin expanded by 110 basis points to 15, 1%.
Off net sales.
Driven by an increasing CPM share the adjusted EBITDA margin in relation to <unk> is stable compared to the previous year quarter, our unique and resilient profitability profile.
Has it been proven in the last quarters and years.
From fiscal year 18 for fiscal year 'twenty one.
<unk> EBITA grew by a CAGR of 38%.
In the last six quarters, our LTM adjusted EBITDA margin has consistently been around 9% and increased to 10% of LTM and this quarter in relation to net sales due to an increasing CPM ship.
This is also a unique track record of resilient and strong profitability.
Depreciation and amortization expenses were relatively stable at $2 3 million compared to the prior year period, it's $2 million.
Teresa achieved this strong increase in profitability also on adjusted operating income or adjusted EBIT level for the second quarter of fiscal 2022.
Hi, Teresa reported adjusted operating income of $26 million.
Compared to the $20 1 million in the previous year quarter, and thus representing a solid growth of 29, 6%.
The adjusted operating income or EBIT margin in this quarter is 13, 9% compared to 12, 7% in the previous year quarter.
We have produced these strong adjusted EBIT levels throughout the past years and quarters.
In the past six quarters.
Our LTM adjusted EBIT margin.
<unk> consistently been around 8%.
And now slightly increasing.
The increasing CPM ship.
Adjusted net income in this quarter was $18 9 million as compared to $14 8 million in the prior year period, representing a solid growth of 27, 3% also on adjusted net income level, we have generated a multi year track record of <unk>.
<unk> and resilient performance.
In the past six quarters.
Our LTM adjusted net income margin is.
Has consistently been around 5%.
And now slightly increasing due to the increasing CPM shape.
As we have always stated we continue to focus on delivering profitable growth, which remains clearly visible in our very simple and transparent P&L.
Our unique customer focus and position in the online luxury market will continue to deliver strong profitable growth EBITDA adjusted EBITDA adjusted operating income and adjusted net income are non <unk> measures.
Moving to the cash flow statement.
During the three months ended December 31, 2021 operating activities generated $7 2 million positive operating cash flow, resulting from our strong operating performance and a lower increase in owned inventories due to brand switching to CPM and having their spring summer 'twenty two.
Deliveries in our warehouse.
And our balance sheet.
Wholesale and CPM combined inventory at the end of this quarter increased in line with our expected <unk> growth.
We ended the quarter in a strong financial position with cash and cash equivalents of $79 7 million and total unused availability under the revolving credit facilities of $90 million as of December 31, 2021.
My Teresa has no liabilities to banks and equity ratio of 72% and for its size a solid cash position of $80 million.
The expected positive operating and free cash flow for the full fiscal year underscores that mitral visa operates a superior capital light model. This is also visible when we release adjusted operating income or adjusted EBIT to our capital employed adjusted for own goodwill and the balance sheet.
Yeah.
The past four years.
We achieved growing above average adjusted return on capital employed for fiscal year 18 to fiscal year 'twenty. One we continuously grew our adjusted Rosie from 13, 4% to 25, 7%. We also have information on their Oc calculation and our investor presentation.
The strong and growing adjusted <unk>.
Highlights the attractiveness of mitral <unk> unique business model from an Investor perspective. In addition, with no bank debt, we are less affected by rising interest rates and continue to be able to invest in our sustainable growth due to our strong performance year to date.
We updated our guidance for the full fiscal year 2022.
Which will end in June 2022.
We now expect GMB and the range of $755 million to $775 million.
Representing 23% to 26% growth.
Up from our prior guidance of $750 million to $770 million and 22% to 25% growth.
Addressing the luxury customer with apparently lower sensitivity to price increases we are confident that my Teresa will be less affected by inflation.
We confirm our net sales guidance in the range of $700 million to $720 million, representing 14% to 18% growth.
We expect cross profit at $350 million to $365 million, representing 22% to 27% growth up from $345 million to $355 million and 21% to 24% growth and finally, we now expect adjusted EBITDA in the range of <unk>.
64 to 71 million, representing 16% to 30% growth and an adjusted EBITDA margin of 9% to 10% up from the prior guidance of 8% to 9%.
Strong adjusted EBITDA in absolute numbers, and then margin highlights the strong profit pool from customer orders for brand b, they wholesale or CPM due to.
The omicron effects, we expect Q3, a bit weaker than Q4 because of delays in spring summer deliveries.
We are very proud of our continued delivery of <unk>.
Strong numbers.
In fiscal year 2022.
We plan to achieve profitability levels that we originally targeted for fiscal year 2023 at the IPO a year ago, we confirm our guidance of a positive free cash flow for the full fiscal year 2022.
And therefore target positive operating and free cash flow conversion.
Finish, let me talk a bit about our medium and long term targets.
As laid out in our investor presentation.
We target annual Jim via the net sales growth of 22% to 25% medium term.
We expect to double our $612 million <unk> achieved in 2021 already in fiscal year 2024.
Adjusted EBITDA will also grow 22% to 25% per year in the medium term with a stable adjusted EBITDA margin around 9% to 10%.
In the long term.
And with a higher share of existing customers in our <unk>.
We would be able to reduce our current 13% marketing spend of GMB substantially.
And position ourselves for higher adjusted EBITDA profitability level longer term.
I will now turn the call back over to Michael for his concluding remarks.
Thank you Martin.
We are very pleased with the strong second quarter earnings results.
See ourselves perfectly positioned to take advantage of the ongoing shift to online that luxury spending continued consolidation distribution platforms and the global expansion opportunities.
We believe that mitral visa offers higher value luxury consumers the best multi brand digital shopping experience there is.
And with that I'd like to ask the operator to open up for your questions.
Of course.
He would like to ask a question. Please press star followed by one on your telephone keypad.
Change your mind, please press star fleets by chain.
Please limit yourself to one question and one follow up question.
We're preparing to ask your question. Please I'm sure you'll find some niches lately.
Our first question comes from the line of Matthew Boss from Jpmorgan. Please go ahead.
Great Thanks, and congrats on a nice quarter.
Thank you Michael it's.
Michael as we think about market share opportunity can you elaborate on the untapped category potential that you cited in the press release and as we exit the pandemic. How do you believe the return of global travel and tourism might impact your model.
I mean, we believe that with our position.
Absolutely have a right to play in what we would call luxury lifestyle categories, because when we think about additional categories. We always think about the same customer.
There are her or his additional spend so as you know we have already run one pop up in beauty, we will have in the next quarter. Another pop up where we have no current plans to enter beauty, because we still want to understand it I referenced to the home.
Category, where we are sort of already present, because we already carry.
On the whole we're products from brands like me, Sony and Brunello in Versace, and so luxury lifestyle.
Clearly as evidenced in such a product. So I think these are.
We're sure categories, where we will see <unk> play a bigger role over the next years beyond that.
No current current clients on on travel.
Clearly traveling.
Consumers are tourists or not.
Buying online I mean, if you travel to Europe , or if you're traveling to the U S. You are out there.
And so an increase in travel.
May bring additional portfolio two boutiques in Europe .
Or in the U S from from abroad, but on the other hand, we currently clearly see that all the customers. We have acquired through the pandemic show exactly that the robust repurchase rates of the robust loyalty that we have seen before us. So we believe that the customers we have acquired and truly.
Aligned with the expectation that the online share will continue to rise.
This 30% and 25, we believe travel will probably move footfall traffic across geographies, but we will certainly not be detrimental to online.
That's great and as a follow up on the bottom line. So on your bottom line EBITDA margin.
Raised your outlook to 9% to 10% for this year inside of the stable margin outlook from here, how best to think about the step function higher margin runway that you see remaining and is it fair to think of 9% to 10% is a new floor multiyear for for the EBITDA margin.
Great.
We'll also refer them to margin, but I think you're absolutely right you have to think of two two principle.
Effects that are taking place one is as we are still increasing our share of brands with CPM. There is of course, an effect that the comparable profit pool is expressed in net sales terms. So that number is sort of the new normal I would call.
And on the other hand, we all.
Also referred or Martin refer it to step.
A step change longer term I reiterate longer term.
As we grow our business and as we have the continued loyalty of cohorts the share of existing customers' constantly increase in our <unk>.
Not as the effects of a slowdown in new customers to just core its retention drive up existing customer and marketing expenditure for existing customers are far lower than for acquiring new customers and that allows us longer term to see increasing EBITDA as a marketing.
<unk> has come down but this is longer term medium term, it's more than 9% to 10 that we have quoted now.
That's great best of luck.
Our next question comes from the line of Kimberly Greenberger from Morgan Stanley Kimberly. Please proceed.
Great. Thank you so much I wanted to ask about G. M D.
And what percent of G. M. D. Eventually do you expect the CPM model to be over the longer term.
Looking here into the third and fourth quarter.
Martin I think you said there would be some delay in spring receipts.
That would potentially be impacting third quarter revenue growth I was just wondering if you could talk about that a little bit what happened with this spring summer receipts.
Then the gross margin in the quarter.
Showed you know.
Really nice increase.
390 basis points.
Could you just unpack the drivers of that gross margin increase for us a little bit. Thank you.
Yes, so thanks, thanks Kimberly.
On the first question and then micro 10 gentlemen.
Regarding the CPM sure.
The gross margin and we continued or guidance that.
For this fiscal year will be well below 20% and in the medium term it will be.
Well below 35%.
On the Q3 to Q4 shifts.
It's a shift between Q3 and Q4.
Just due to the delayed spring summer deliveries. So there is a shift in.
Top and bottom line from Q3 to Q4.
Compared to the consensus.
Combined the Q3 and Q4 combined.
The two quarters will be at the level of the consensus.
And.
The last question sorry, Kimberly what was the last question.
Unpack the gross margin increase.
The gross margin impact of 390 basis points.
They are the three factors in there as I said in the call.
Biggest factor is the increasing coal price share.
Second.
Is the increasing revenue.
From the CPM model and the third.
Which is a smaller portion.
Is the increasing share of countries, where we prepay the duties for the customer and basically.
Charge that to the customer it's reflected in our prices and Thats why it is.
It increases the cross profit margin, so if theres a higher share of those countries. For example, the U S with a strong U S School then the share of the <unk>.
<unk> charged to the customer increases and that's that's why the overall gross profit margin also increases so we have to take that didnt come in combination with the shipping and payment duty cost line.
Okay terrific that is very helpful.
And Michael I was wondering if you could just talk about some of the strength youre seeing in the U S.
You talked about the new team on the ground here.
Is there are there a variety of strategies that you've implemented or towards laid the ground work for over the past year that you feel like are really.
Starting to produce the does that strong growth rate here in the west.
Absolutely I clearly feel that having a local team was local resources not only in New York, but also based out of Florida and based on the West Coast is helpful I won't.
I wont deny there is also a strong <unk> wins in the U S luxury market as evidenced by also many reports from brands.
What we need to get as feedback from customers that we gain and progressed on the spend with us that.
We seem to fill a void for a true luxury retail platform and they are leaning into <unk> to get the extravagant pieces to get the special pieces and Q2 was very much about dressing up was very much about going out was very much about having that.
Spectacular look and as I said, we are very excited that we see strong traction in Florida.
In Texas I think these are the states that are really growing in terms of luxury demand.
Probably also because of wealthy consumers moving to the South and also California has become a really nice.
Ground for business.
I believe they're also our maintenance, we're positioning being a fashion authority beyond Street wear is helpful. And this is where the team has done extraordinary work and organizing the IC events, we had top notch event in L. A we are top notch events in Miami.
In New York really reaching out to those top customers really following our customer focused approach and where every customer really food fields personally addressed by mitel lays out.
Thank you so much.
Our next question comes from the line of Mike <unk> from Credit Suisse. Michael. Please go ahead.
Hey, guys. Thanks for taking our questions here and thanks for all the detail today, congrats on a nice quarter from from US as well, let me I just wanted to ask you for a little bit of help reconciling the comments that the profit pool for CPM is comparable to the wholesale model, if we pull the numbers apart a little bit today.
The.
The mix I guess the growth rate of <unk> relative to sales is accelerating so that underlies what you said that the.
CPM is growing as a percent of mix here, but.
When we look at the incremental profitability in the quarter. It was a lot higher than it has been in the past on similar revenue growth rates and especially if we exclude some of the headwinds from the shipping cost, which the whole industry is dealing with that added a lot of pressure in the quarter. It just it just looks like the underlying profitability in the business.
This is moving up.
Lot faster per point of GMB growth than it did in the prior model and I can't quite reconcile that with the comment that CPM has comparable profit pools.
Wholesale is there anything you can help me understand to unpack that a little better.
Okay, Let me, let me comment a bit on the margin showed.
Okay.
The comparable profit pool cleaner refers to as a percent of GMB.
The CPM business with the brand brings the same results, but of course, our quarter profitability is not only driven by CPM.
So.
Fully agree with your analysis, we have we have performed also better on other drivers and so the headwinds of shipping in the headwinds of marketing happen also compensated by.
And again, an increase in our full price business across all business models also wholesale so we continue to grow with a higher fleet price share, but if you can if you want to have apples to apples.
Inside of course, a composite result than our reference is that with the effects of additional topline growth was the effects of marketing and SG&A efficiencies a brand switching from wholesale tool.
To CPM generates the same comparable.
<unk>, which is expressed the GMB margin of EBITDA of adjusted EBITDA gets the same number.
But Martin maybe you will add on.
On that.
Exactly I mean, you laid it out very well.
Michael I mean, if you look at the bottom line of the.
Adjusted EBITDA in percent of GMB.
Stayed stable relating to the previous quarter. So on the bottom line. It is very stable and obviously as Michael said Theres a lot of factors in there and don't forget the strong continued strong increase in the full price share.
And that increase is not only the the gross profit margin, but also the euro dollar.
Out of all of the GMB and then there is marketing cost efficiencies, but some.
Some slight increases in.
And in the shipping and.
At payment cost ratio, so theres a lot of <unk>.
Factors in there.
But as Michael laid out whether it be from a wholesale or from the CPM.
Overall profit pool is very is very comparable and CPM is put just a certain number of brands that will be well below 20% this year and midterm well below 35%. So traditional traditional part of our business model.
Okay.
Maybe followed that but maybe just asking how you see the full how far full priced share is from historic levels does that is that still have some some runway in your view and then I'm also curious if the guidance as you laid it out and I know you didn't give us quarters with a lot of detail for the back half here, but does the guidance assume any sort of shifting.
<unk> out of fourth quarter into first quarter from these delivery delays continuing somewhat similar to what youre seeing from <unk> into <unk> or any reason to believe you start catching up on deliveries based on what you see on shipping.
Okay.
So let me talk about because I think also Kimberly was referring to that so.
What we know at the moment see is that we are behind in spring summer delivery ratio. So I mean, obviously, we track how much of the order of spring Summer has already arrived and we are behind the number.
Last year that is a combination of as always different factors, we have been advised but some manufacturers that they some brand owners that they had.
Issues in their factories because of workforce shortages. So stuff comes later, sometimes which has also happened in the past.
They have been quality issues and therefore, a brand says look.
We have to do rework you will get it later, but.
Whatever this is this will be caught up by Q4, because this is spring summer and spring summer will be fully deliver by end of May. So this may not made we believe it does impact Q3, but this will be caught up in Q4 just to be fully <unk>.
Parents on the.
Comment on delivery delays.
Excellent alright, thank you guys so much.
Our next question comes from the line of all of this trend from Cowen. Please go ahead.
Thanks, a lot hi, Michael Martin Congrats on also the meta versus developments among Clara that was great on the curated platform model would love your thoughts on the percentage mix evolving over time also key learnings and how this partnership may evolve over time.
I imagine different brands have different perspective on how they want to partner with you and the curated platform model.
Second as we think about China relative to the U S. They are both great opportunities could you help contrast, the marketing and awareness builds.
These markets and also as you think about infrastructure and distribution centers and will that be a critical part of the longer term growth stories in both of those markets. Thank you.
Thank you Oliver I'm happy to address the second part.
On the first one.
Martin should reiterate our guidance, but what is very important.
Was reference in your symptoms, which I think is core to our attitude.
Each brand has their own priorities each Brian to have their own.
And we believe in true Brian partnerships.
Key success factor and therefore.
The CPM is one way to part them wholesalers, but even if you look into how we partner with some brands on the wholesale there are differences, we really want to get it right for both sides to create win win.
Also our marketing approach is reflecting of that its not cookie cutter, we really try to create unique campaigns. So this whole.
Business Park brand partnership approach is very much driven by different priorities and you're absolutely right.
Also the CPM is not for all brands and build up before all brands.
On the second part.
I mean, the main challenge or opportunity better to say in both geographies speed Asia, China was precisely in the U S is creating brand awareness, creating brand trust and one key aspect of that is increasing marketing spend opex.
Opex, but also increasing presence on the ground, reaching out to customers the China opportunity as you say is as great as big as the U S.
It is nevertheless also.
Slightly more complicated the China E Commerce landscape has its own created its own ecosystems in terms of social media in terms of payment options.
Therefore, it needs even more adjustments to the local markets, but the levers are the same increase marketing spend to put people on the ground for both geographies local distribution capabilities.
Clearly a driver for future success, but that's on the long term horizon.
It does not prohibit or it does not hinder us in achieving super nice growth rate as we demonstrated in Q2, even without presently having local distribution, but as we grow infrastructure will also be put in place into these markets, but as always this is also fully rich.
Collected in our long term guidance of Capex requirements.
And so this is part of our ongoing business model evolution.
Thank you very much.
Inflation and pricing has been an industry topic also luxury goods has had.
Our solid track record of raising prices, what's happening with your business and customer response as well as.
The cost of goods sold across those topics.
Michael you spoke about consolidation, we're seeing creative M&A infrastructure combinations jv's.
You think about organic versus M&A are there categories or capabilities or technology or consolidation opportunities that could be value accretive. Thank you.
Sure.
On inflation I mean, obviously, we are dealing with a very special customer segment and if anything the last years and decades have shown that this customer group as long as it's a desirable product seems to be quite pricing incentives, we have seen throughout the pandemic price increases.
Yeah.
Brands increased the prices of their products.
I mean, we have those price increases that also on our web site and so far we have not seen.
Price increases leading to lower demand of course, it always requires to have highly desirable product, but this is a unique customer segment. Obviously this.
Cannot be extrapolated to.
Contemporary fashion or even premium fashion.
On an M&A versus organic I mean number one focus for us as a management is pursuing organic growth our growth targets can be and should be fulfilled with organic growth. That's the beauty of our business. We are in we don't need M&A to achieve our targets. Nevertheless.
We are open.
Unless we are in a fantastic financial position, we are debt free we have cash we are very well placed.
Or should.
Interesting opportunities show up so we are not rejecting M&A as a growth Avenue, but we don't require organic growth potential is in abundance for us as a business and that's exactly how we approach. These two avenues for growth.
Thank you best regards.
The next question comes from the line of Canal much Walker from UBS can I. Please proceed.
Hi, Thanks for taking my questions a couple if I could one on <unk>.
On the new customer additions to 120000 director customer additions there are these customers coming from.
Especially because the the shift to online.
Been a probably has already happened in a lot of that.
Places because of Covid.
And then when you think of like the churn in the first year, where are those customers going the customers that have churned.
And then I have a follow up please thank you.
Well I think the pandemic has accelerated the shift of luxury consumers to online but by no means.
Have we reached the limit.
It is estimated that we have now roughly 21, 22% share of online personal fashion luxury.
But that will increase again estimated by consultants to 30% by 'twenty five so the shift is ongoing and ongoing Lee there are luxury consumers who embrace.
More and more luxury as that channel and I cannot see at all that we have now seen all consumers that are willing to go online.
Got it.
A continuous trend maybe accelerated through the during the pandemic, but the growth continues and is not stopping and in terms of where are they churning.
One key element of our business is that we really focus on customers that are ongoing.
Spending on luxury I mean, our top customers as disclosed 116 times a year average basket close to 1000 euros and obviously you also attract customers, who sometimes want to buy one luxury bag or one pair of luxury sneakers.
That is the one luxury purchase they will do for the next 12 months and as our definition is active customer.
Within 12 months, they kind of churn because they haven't done any other purchase in the next 12 months.
May or may not come back.
The real importance of our business model is coming year too.
Newly acquired customer cohorts, we achieved close to 100% revenue retention because these are the ongoing wardrobe building.
Multi brand.
Luxury shoppers.
Great. Thanks.
A follow up to that when you think of the 100% revenue retention.
D be outbid spend per customer is about a thousand euros, let's say ballpark in that kind of facility, but what that customer the high net worth customers probably spending on luxury is probably a multiple of that the cosan euros, that's not all that theyre spending so what do you think of like revenue retention.
How does that spend to kind of increase over the next few years as the customer kind of stays on the platform.
And if that if that is that if that spend remains at about 1000 euros, but you're on.
Average then is that opportunity for you to kind of expand your selection in order to expand and be the watershed.
Thanks.
Just to be clear the 1000 euro refers to the average basket of our top customers. That's not the annual spend of the top customers just to be to be clear. So I mean close to 100% retention. What is behind that is we do over time see a slight diminishment in customer counts. So we still do.
It was 1% to 2% of customers in cohorts for many different reasons change of lifestyle change.
Change of location, but the remaining customers continue to gradually spend more and therefore, that's how we achieve close to 100% revenue retention just to explain the mechanics behind it in terms of increasing because I fully agree with your rationale there.
This is not the full wallet we capture this.
Good share of their wallet, but it's not the full wallet and so it's clearly our ambition to increase our share of wallet of their whole luxury spend and.
We do see that opportunity was additional categories with strengthening.
The offering also in hard luxury.
We definitely don't see an opportunity because that goes against our strategic focus and also our customer needs to add.
Brands and add Skus that are not representative of the luxury at but share of wallet increase in terms of adjacent categories.
Clearly is an opportunity that we are pursuing and that we have pursued.
The next question comes from the line of Ivy Knutsen from Society Generale.
Please proceed.
Yes.
I have a couple of questions. So one is on the return rate.
I think Michael mentioned that could set in menswear and now account for more than 15% of our fields.
So are you seeing what all the deduction reduction in the overall.
<unk> for the company and number.
Number two in terms of geography, I see that excluding Germany Europe has declined by around 1%. So any specific reason or any specific geography.
That you would like to discuss about yeah.
Thanks.
Martin do you want to take the question on return rate for US, Yes, yes definitely the overall return rate is very stable.
And due to the mix effect of an increasing menswear and kits for sure the return rates overall.
Slightly goes down due to a slower due to a lower return rate on the menswear and kits were.
We also had in the investor presentation that the return rate for womens were very stable.
And the <unk> of the womens who are an 8% increase so very strong performance overall, there from the different departments.
And your question regarding the geographies.
Europe , excluding Germany as laid out.
On a <unk> level overall increases by 20%.
The quarterly report it's the it's the net sales with the overall net sales increase of the 18% laid out at the end of the quarter.
Okay. Thanks.
Thanks, Matt.
The final question comes from Alex Jeffrey de Mendez from Bank of America Jaffray. Please proceed.
Thank you very much hi, everyone.
A couple of questions. The first one is on the guidance for the profitability for the full year. So.
It seems that if you want to reach your targets you need to do about 7% EBITDA margin in the back half.
Turning to first half.
12, I understand there is Q2 should be quarter for you with.
With Christmas but.
A little bit low in the back half. So is it just caution here or is there something else that we should.
We should consider so that's question number one.
And then question number two is around you would take rate for the P. M I noticed.
You didn't really want to.
Comment on the level of take rate, but maybe that has changed given you have more companies.
And I have gone through and your comment on this would be helpful and more generally.
The biggest competitor in the concession model.
Hum them Farfetch has a lower take rate. It seems so how do you sort of just defined that you have this significantly higher take rate.
Thanks Heather.
Maybe I'll take the second question and then Martin could comment on the.
Profitability in the second half so.
It's really comparing apples to pears I mean, our our service our platform see completely includes of course.
Logistical services, which does not so all the shipping all of that is part of our.
The platform fee and also we serve a preferred customer I mean, the customer that our model serves as a high value multi brand customer.
That is a different customer than the customer that typically goes to.
Marketplaces.
Different and in terms of marketing.
So.
It is a difference, let's say service or value that we create and that's why there are differences in platform fees.
Also you cannot compare their platform fees with our because we have additional services also included.
And on the EBITDA margin, yes, Joe for you rightfully pointed out the seasonality in our business. So every quarter has a different adjusted EBITA margin in the second half.
Off the fiscal year always has a lower adjusted EBITA margin of the previous year.
EBITDA margin for the second half was was 6.7.
7%.
So that.
That's.
If you back out the 7%.
To look at that is about the number that we achieved from our farmer profitability standpoints in the previous year.
Okay. Thank you.
That is the end of the Q&A session today and this concludes today's COVID-19 . Thank you for joining you may now disconnect your lines.
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