Q2 2022 On Holding AG Earnings Call
Ladies and gentlemen, thank you for standing by welcome and thank you for joining you on the holding a G Q2 thousand 22 resorts throughout today's call all participants will be in a listen only mode. The presentation will be followed by a question and answer session.
If you would like to ask the question can I press star followed by one on get touched on telephone.
Please post a stocky Philip Mezey ROFO, operator assistance I would now like to turn the conference over to Derrick Peter Head of Investor Relations. Please go ahead Sir.
Good afternoon, good morning, and thank you for joining <unk> 2022 second quarter earnings conference call and webcast.
With me today on the call are executive co chairman and co founder Casper capacity.
Bo and co CEO Marc Hoffman.
And co CEO Mark Bauer.
Okay.
For the first part Katherine Martin will lead through the prepared statement after which we are looking forward to opening the call for Q&A session.
Before we begin I would like to remind everyone that the remarks during today's call may contain forward looking statements regarding future events and financial performance within the meaning of the federal Securities laws.
These forward looking statements reflect our current expectations and beliefs, only and such statements are subject to certain risks and uncertainties that could cause actual results to differ materially.
Please refer to our 20-F filed with the Securities and Exchange Commission on March 18th for a detailed discussion of the risks that could cause actual results to differ materially from these expressed or implied in any forward looking statements made today.
Please further note that this call will also contain certain non <unk> financial measures such as adjusted EBITDA.
And adjusted EBITDA margin.
While the company believes these non <unk> financial measures will provide useful information for investors.
Patient of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with pay for it.
Please refer to today's release for reconciliation of non <unk> financial measures. The most comparable measures prepared in accordance with IRS with that I will turn over the call first the Casper followed by Martin for the prepared remarks.
A warm welcome to all of you joining us today I hope that you have been able to spend some quality time over the summer with your families and friends.
Spirit sizes to discuss our performance in the second quarter of 2022 with you share some big milestones and gives you some color on how we look at arms continued growth trajectory in the current macro environment.
This is our fourth earnings call post IPO and.
On behalf of the whole long team, we are very proud to present another record quarter.
Consumer demand for the owned brand remains very high on grew 67% overall in the second quarter of 2002, and many key markets had outstanding growth rates, such as the U S and Japan, which doubled or the U K and Australia, which grew by more than 60%.
All geographies channels and categories contributed strongly to this outstanding result, confirming on tried and tested strategy of maintaining a well balanced product and distribution portfolio.
Honest, winning with consumers and also on the race track as a result of this strong growth honest, making significant market share gains in the specialty and high end distribution channels that we choose to play them.
The growth comes from both established as well as new product franchises and I would like to call out some of these new products that have become instant fan favorites.
Promised Toronto's has to run on cloud.
We are doubling down on this with more on the food protection and ultra light comfort.
This spring we have introduced the cloud monster for maximum cushioning.
And the cloud runner for ultimate all around comfort and performance.
The Cosmos is already amongst the best sellers in our own distribution and it has given us access to an additional consumer and first time purchaser of our bread.
The cloud runner introduced early in Q2 jump straight to being one of arms and most successful performance running shoes.
At the combined run specialty and general Sporting goods channel.
In performance outdoor regardless of that also launched in Q2, it's quickly rising to the top of the leader Board.
Alaska leased the cloud five which we launched earlier this year is continuing its winning streak and performance all day.
But you also have new styles in this category if youre looking for like summer two for your August getaway, we can recommend the cloud easy with its ultra light slip on knit upper.
On the apparel side Q2 saw the entry into a new product category with the launch of our active Pearl and performance Bronx, both have received great feedback from customers being covered by numerous media channels and both for US are now among the best selling apparel.
On E Commerce.
Now, let's move on to our fastest product and to race track you will remember that we introduced you to our licensing program at our last quarterly update.
This includes a dedicated team that works on the fastest shoes.
Our athletes full potential.
Well, we didn't expect that we will be able to stand here only three months later and talk to you about on first track and field Diamond League victory on first Commonwealth games, Sweet treat and arms first broke championship metal as well.
You most likely have never heard Dominic Lowball Lu from South Sudan.
Oh, you're in good company.
Neither had the elite field into 3000 meters of Stockholm Diamond League meeting predominate came first head of the favorite who would go on to win three medals at the World Championships and the Commonwealth games.
Stuck homeless Dominic's first elite race for the simple fact that he's a refugee and does not have a passport.
It's important to him for some years now first through the athlete refugee team and now here in Switzerland.
And we are very happy for him and this incredible achievement.
Only a couple of weeks ago, all athletes Hello, Barry add is another huge milestone by winning our first track and field World Championship medals in Eugene Oregon.
And what do you see founding member only whore took the 1500 meter schools at the Kona both games in Birmingham.
We're not just winning on the track, but also making strong progress on sustainability.
First I would like to give you an update on our circle Rd program cyclone.
The shoe that he will never own and it's only available through a subscription called cloud Neil.
So car T and the use of lower impact materials are a big part of our mission to decouple on resource consumption from our strong growth.
One of the arms core company values is to survive or spirit and it stands for innovating our way to a more sustainable future.
Over the past weeks, our very first community of a cycle subscribers in the U S and Switzerland receives the club deal and we look forward to giving more and more people around the world the opportunity to run and exploring the most sustainable product to date.
This is very special lunch has brought on a step closer towards our sustainability mission to lower on footprint by designing product made for circle assistance and.
And engineered with full cell free material.
As you observed the consumer behavior in connection with cloud meal in a subscription model, if you're not addressing in our push to more sustainable product on all fronts in the short term as well.
For example, we have significantly increased the level of recycled polyester and some of our more recently launched running product cloudless cloud Monster and cloud runner contains 70, 484, and even 90% recycled polyester respectively.
In comparison.
<unk> spring summer 'twenty, one range to level had been at 16% on average.
We are on a steep learning curve and fast implementation cycle.
And some of the learnings from the groundbreaking claim you have already found their way into other products.
The newly launched Sneaker cloud easy is made with only 15 pieces about half of what a regular on users.
Let's parse mean less impact.
And higher Recyclability.
This combined with a new high speed board made from injected TPU.
The full knit upper made a 100% recycled polyester leads to significant waste reduction without any compromise on performance nor comfort.
We also believe that what gets measured gets done on a half to set ambitious clear sustainability targets and we are committed to trip transparently reporting on our progress towards them.
Which brings me to the pleasure of making you aware of the upcoming publication of arm's latest impact progress report.
Not only will we be updating on our goals and progress you will also find the number of fascinating case studies and projects. Our teams have been partially broken on over the past months and years.
In sum, while looking back from the halfway mark of our 'twenty to 'twenty two race half year, one has been incredibly strong for them.
Despite the supply challenges and macro headwinds.
We have achieved new record numbers launched well resonating product and reached new milestones together with our exceptional team at athletes.
At the same time, we have plenty of energy and stamina for the second half of the race.
But we are staying vigilant and financially prudent as always all indicators show that demand for the on Brian will stay very high.
This puts <unk> in the privileged situation to consciously select which of the levers we want to pool at which point in time to.
To deliver durable and controlled growth with that let me pass it over to Martin for the Q2 financial review and the outlook for the rest of the year.
Thanks for your customer and Hello, everyone also from my side.
It's $291 7 million Swiss francs, and 66, 6% growth net sales in Q2 has been by far the strongest in the history of all <unk>.
For the first time that sales in a single months exceeded $100 million and net sales in the first six months of the year have grown by 6% to seven 2% to $527 3 million Swiss francs.
Our adjusted EBITDA more than doubled compared to Q1.
And if you exclude the extra freight which was needed to overcome the residual impact of the supply side from last year's ex factory closures, our gross profit margin and adjusted EBITDA margin for both Q2 as well as health care, one would already reconfirm, our long term profitability targets.
We could not reach such incredible results without the dedication and passion our team puts into all parts of the business every day.
We have grown from 1150 to almost 1500 team members since the beginning of the year.
Over the last weeks Caspar David Mark all of you and I had the opportunity to visit our North America team the new office in Portland.
Our tech and happiness delivery team and our recently opened office in Berlin.
Our development and innovation team in Ho Chi Minh City.
After two years, we will also allow us again to visit Tokyo to meet with the Asian teams and to see firsthand, how on new Tokyo store resonates very strongly with Japanese customers.
We also had the opportunity to visit many of our factories and factory owners to align on our joint growth plans.
And last but not least we opened on left which is what we call our new office in Zurich and for the first time in four years, all our Switzerland based teams are now starting to lunch fronts from the center of it.
They share a coffee on our community blossom.
We also had the opportunity to already welcomed many of our global key retail partners to our new homepage.
Unless also serves as the new innovation heart for more than 30% of the space dedicated to research and product development, allowing us to take Swiss engineering to the next level we.
We haven't even opened our own sample production lines to produce choose underpowered samples onsite.
Together with an elevated computer simulation programs and devote class Sports Science Laboratory, we are now able to test and refine innovation at a much higher pace.
And on the left is home to our trust on retail store in Europe , which allows us to test the latest innovations for on store design and to further build a strong run community in our hometown.
Now, let me turn to our financial performance in the quarter in some more detail.
Our net sales growth has been stronger than expected and driven by all channels regions and product categories.
The success of our latest product launches exceeded our own expectations and lower effort raise allowed us to deliver more product to meet the incredible demand we have seen at our retail partners as well as our own direct to consumer channel.
In Q2, we saw our Omnichannel strategies Shine again strong growth of 71% in wholesale and 68% and direct to consumer.
And wholesale growth was driven by the continued gain of market share with most of our existing retail partners. This is driven by the success of existing and new products as well as first the selective expansion of our doors with our global in reach Nokia Cold.
We see the strong growth in our DTC channel consisting of only comment on retail as a further validation of our ability to build and retain a loyal fan base and to provide the best and most authentic experience to our customers.
For the first time direct to consumer net sales surpassed $100 million in the quarter, reaching $105 6 million.
The contribution of net sales from the D to C channel was 36, 2% for the quarter was 37, 5% in the same period last year.
Especially in Europe , Q2 D to C sales last year are still inflated by the ongoing lockdowns.
Germany for example, only lift that restriction in May 2021.
Starting in October we expect to rollout, our new website, which will provide our fans are much more tailored individualized brand experience.
It will allow us to show more product details, which we believe is a key driver for further growth of our parents sure.
Within DTC, while it's still a small part we are pleased to observe the success increasing contribution of our own retail stores.
The new flagship stores in Tokyo, and Zurich had a very successful start financially, but also as hubs for the local run community.
Our New York City flagship store had its strongest quarter in history, driven by a significant increase in in store traffic.
This success is giving us a lot of confidence for the next doors in the U S. We expect to open on it.
In September and on Miami in December .
The opening of our London store will be slightly delayed two very early 2023.
We expect to end 2002, with 13 owned and operated stores in China and six one retail stores in all other markets.
As mentioned all regions contributed significantly to the Netjets clubs.
In North America, we continue seeing the strong Brent momentum that has been fueled by the IPO by a strong product market fit of our existing and our recently launched products and by the successful expansion of our collaborations with the best key accounts and specialty stores in the reach.
Q2, net sales in the North American region more than doubled increasing by 102, 5% to $181 7 million Smith strikes with this North America accounted for 62, 3% of our business into three months period.
Net sales in Europe grew by 17, 5% to $83 3 million Swiss francs.
Wholesale has grown over proportionately.
As we continue seeing a stronger shift from online to offline shopping.
Also DTC sales in Q2 last year had been elevated due to the sustained lockdowns in many key markets in.
In addition.
This growth has been negatively impacted by the weaker euro and British pound compared to the Swiss francs.
We continue to be very encouraged by the development in individual markets within Europe .
<unk>, but not limited to UK and France.
Net sales in Asia Pacific grew by 52, 2% to $17 90 million Swiss francs.
The very strong growth in Japan, Australia allowed us to offset most but not all of the impact from the extensive lockdowns in China.
Alabama House in Shanghai, and around half of our China stores have been closed for two months, resulting in approximately $5 million lost sales.
Due to the structure of the China business the impact is over proportionate when our D to C and apparel business.
As soon as restrictions were lifted we have seen a very strong recovery in China and in June our own retail locations at the strongest months in history.
Finally rest of World net sales grew by 224, 2% to $8 8 million, reflecting the post COVID-19 recovery in many of our distributor markets as well as some earlier shipments of following the products compared to Q2 last year.
Moving to the performance by product category as Kasper mentioned, our expanded line of innovative performance running shoe is driving market share gain in the running market.
<unk> from existing as well as new customers.
Altra and cloud Vista has become papers on defeat Australia on it.
And the cloud Nova continues to drive us to new customer groups net.
Net sales from shoes increased by 68, 2% year over year for the quarter to 286 million Swiss francs.
Net sales from apparel products grew 31, 3%, which was slightly below our expectation, but also shows the large opportunity that we have in this category given the strengths and penetration of our brand in footwear.
Our strategy to build on the sportswear print has been validated in Q2 by the ongoing very strong apparel sales in our own retail stores as well as in shop in shop environments.
The apparel sharing our new Tokyo store is already at 18% and in Zurich at 19%.
In Europe , and North America, we continue to invest in shop in shop installation for example, Nordstrom Spot-check brightening.
As a result, we see both a strong uplift in overall itself and a significantly higher parents split between 15% to 25%.
Finally, net sales from accessories increased by 51, 9% to $1 8 million Swiss francs.
Gross profit in the second quarter, 2022 was $160 8 million Swiss francs compared to $106 3 million in the previous year period.
As expected we continued to selectively use air freight in Q2 to ensure key product availabilities.
We have however come a step closer to normalization and have reduced the required airfreight share in comparison to the first quarter.
As a result of the investment into airfreight, our gross profit margin decreased from 67% in Q2 last year to 55, 1% in Q2. This year, but was up sequentially from 51, 8% in the first quarter of the year.
In Q2, we continued to invest in all parts of the business, while still delivering profitability despite significant effort cost.
SG&A expenses before share based compensation and excluding $3 3 million of IPO related equity transaction costs in Q2 2021.
48% of net sales in Q2 this year.
Compared to 48, 7% for the same period last year.
Chip as compensation led to a lower expense both in Q2. This year and then the prior year period due to reductions of existing provisions to reflect revised estimates in connection with future option exercises.
Despite the investments in air freight as well as the higher but controlled SG&A expense, we achieved strong adjusted EBITDA of $31 4 million.
An increase of 4 million and 14, 7% compared to prior year period.
The EBITDA margin for Q2. This year was 10, 8% compared to 15, 7%, which this reduction again largely being a result of air.
Freight costs.
Moving to the balance sheet capital expenditure for the quarter was 11 million Swiss francs, or three 8% of net sales largely consisting of investments into new owned retail stores office build out as well as into IP infrastructure.
Inventories increased by $54 3 million compared to end of March reflecting the significantly improved supply situation.
This disposition, we were well equipped to deliver a strong fall winter season preorders beginning in early July .
Working capital was a key driver for the reduction of our net catch from $600 4 million at the end of Q1 to $557 7 million at the end of Q2.
Our strong balance sheet allows us to pursue our ambitious growth plans.
Coming investments.
Now, let's look at it.
To help frame our financial outlook, let me share our view on some of the underlying drivers.
First the macroeconomic environment.
Despite the macro uncertainty we currently do not see any signs of slowing demand for our products.
Appropriately in an environment like this.
Some key accounts have started to pay more attention to the in store inventory, but sell out numbers for AWN have states consistently strong.
And we are clearly planning the business this year for continued strong growth.
We are also focused on controlled Endurable accruals, which I'll come back to at a later point.
Second.
Given the macroeconomic uncertainties, we took the decision to grow our cost base more conservatively and to reduce our goal for new hires for the remainder of.
And while we've held the importance for our teams to come back to get a physically after the end of the pandemic, we plan to make more use of getting off the proven ability to working together virtually.
To reduce treble in the months to come.
Stuart.
Our financial results are impacted by the current volatility of currencies, especially the strength of the U S dollar and the weakness of the euro and ratio to our reporting currency Swiss francs.
A strong U S dollar versus with strengths can be considered a tailwind for net sales and absolute gross profit, but having a negative impact on gross profit margin.
A weak euro versus Swiss franc has a negative impact on net sales on gross profit and cross profit much.
We will continue to report our results on a stated basis and focus on the underlying business development, but a continued high volatility of currencies may impact those reported results.
Our guidance in general is based on spot rates.
Of course.
Thanks to the dedication and commitment of our factory partners, but they are able to compensate for the majority of the lost production capacity during the factory closures last fall.
Our supply situation has improved significantly and as announced in earlier calls we expect to use the more standard ocean freight for the vast majority of shipments.
But our recently launched cloud monster and cloud runner are exceeding expectations and in order to provide sufficient supply we decided to continue investing into effort for both franchises in Q3 to meet this demand.
This will have a limited impact on our gross profit margin of 150 to 200 basis points in the third quarter.
In addition, we expect an additional 50 basis points headwind for Q3 and Q4 from the current currency rates.
With all the context as a backdrop.
On the performance we have seen in the first half year. We are once again, raising our outlook for 2022 from 1.04 to $1 1 billion Swiss francs.
But effectively pass through slightly more than our Q2 over performance for the full year.
This new top line reflects a strong full year growth of 52% compared to 44% and our previous guidance.
As always we will continue to strive to exceed this number but only in the service of a durable long term growth.
Let me explain what we mean historical control group.
We are thinking long term and our goal is to build the door of a company at the intersection of performance design and impact.
Managing that growth ensure scarcity.
It's the key driver to build desire and to maintain our position as a premium print.
It also allows a balanced growth across both channels and all regions.
Growing strongly but control adult puts focus on efficiency across all parts of the organization as a prerequisite for a continued increase of our profitability.
And last but not least just drunk focus on tight inventory control premium positioning in a controlled growth of the cost base makes on more resilient against the impacts of a potential economic downturn.
The higher net sales will allow additional growth focused investments into the Brent and the team while increasing our adjusted EBITDA target for the full year to 145 million Swiss francs Reconfirming, our call of an adjusted EBITDA margin of search and 0.2% for the year even.
At the significantly elevate the topline outlook.
You can see our foundation is being laid for larger and even more profitable company in the years ahead.
But even 12 months ago, we filed for our initial public offering.
So much broke crest since then.
We became more diverse inclusive and more sustainable company.
We introduced new exciting innovation and sustainability trip in apparel and footwear products for running outdoor and performance all day.
We entered into new markets, including Latin America, and Hong Kong, and we started to work with some of the largest key accounts and devote to increase our share and run a cheat and also with the younger community.
We have grown our last 12 months' revenue by 64% from $570 million to $937 million.
And our teams.
Achieved all of this despite the ongoing impact from COVID-19 factory closures in Vietnam, and the recent Lockdowns in China.
Almost 600 people started at all since the IPO and we are proud to welcome them in our new offices around the world.
We're equally proud about our athletes their success and their passion for innovation that has driven this.
Many of exciting new products.
But most importantly, our culture has not changed and continues to be ruled by our pipe spirits to at least explore a positive survivor and the team spirit.
They will continue to drive our future and we couldnt be more excited about all the opportunities we see in front of us.
We will continue to ignite the human spirit through movement and to three months.
And just that customer Mark and I would like to open up the session to your question.
Operator, we are now ready to begin the Q&A session.
Ladies and gentlemen.
This time, where are they getting the question and answer session and you one wish to ask a question you May press star followed by one on that touched on telephone if.
If you wish to remove yourself from the question queue. You May press star followed by two P.
You are using speaker equipment today, please with the handset before making your selections.
Any one who has a question make like star one at this time.
One moment for the first question please.
The first question comes from the line of scanner Fernandez from tell Keith. Please go ahead.
Good morning, and congratulations on the nice quarter I want to ask about your.
The industry is.
Inventories across.
The market place.
But.
That is factoring into the.
Conversation.
Picking up on promotions increasing.
So how are you thinking about.
I'm looking at.
Okay.
Thank you for that question and this is Mark speaking also from my side.
Hello to everyone. So we're watching that very very closely and debate. We're looking at is one we are in close contact with all the factory partners and trying to understand how production volumes are moving and then we're very much focused on sell out in inventory days to also meet our key retailers to also understand.
What market dynamics from a discount perspective, we might see I mean, the second healthier I think what's very important for us and there and as you can see in our in our Q2 numbers.
We're still very much in the game of gaining market share and it's not about incremental growth and so we feel that the strong brands and we'll continue to see strong momentum also into the second half of the year and do this re contract I.
By our partners and how they're looking at their order book, We don't I think in general there is there is some expectation that that's M to brands that probably have a little bit less momentum and they will there is some higher inventory positions and probably also a slowdown on that on the production side.
Okay.
Yes.
Thank you and then.
Hum demand trends by region in North America.
Hello, Matt.
Perhaps Europe when growth had been a little bit slower how are you expecting that to congrats.
The back half of the year.
Yeah. So so I think what you're what you're seeing in the numbers.
Is it similar to what we expect to happen in day in the second half of the year. So we continue to see the U S and <unk>.
And to be very very strong and the order book looks very very good for the second half of the year key parameters that we're using for our D to C business and like for like traffic and so on look very very strong foreseen and Japan Asia strong and we spoke about how quickly China has has come back in the June and why.
Once we were able to reopen the matter hasn't the stores was strong.
And U K and continues to be strong also thanks to a continued and door expansion with some of our key accounts.
And then we are very happy and especially also in Germany, which is a very large market for us that the outlook is positive and they're having a bit of a shift from more online to offline shopping.
And that's probably kind of continue into second half this year, but it is also what's reflected in how we're looking at D C versus them wholesale business in our Q2 numbers. So I think you can kind of very much expect a continuation of what you're seeing and in India.
Yeah.
Okay.
The next question comes from the line of market maybe from Credit Suisse. Please go ahead.
Hey, guys. Thanks for all the detail here congrats on a great quarter, and obviously a tough macro.
Happy to see it could you would you help Orient us here with the model I guess just on the you mentioned 150 to 200 basis points of of current of freight sorry and.
In the third quarter, and 50 basis points of FX, how much were those two components into Q.
And then maybe how much are you thinking how much of it is in the full year for for air freight in particular and I think your.
I think you're baking in an EBITDA margin of about 17% in the second half of the year and that includes some level of unusual freight since we don't have a lot of history here with the model that I would consider to have occurred in a normal macro year to look at as we try to improve the model going forward. It is 17% plus what you would consider normal profitability levels for this business.
And in the back half of the fiscal year.
Hi, Mike.
Thanks for the question.
Just had a bit more light on this so.
The second quarter, we used about half of the okay.
Okay, all right and must be used in the first quarter. So you really see that.
Our supply.
<unk> improved dramatically.
And no for for the third quarter, we really talk about the a relatively low number somewhere around five to 6 million that'd be that they're going to invest into airfreight in order to provide sufficient supply for the products that we mentioned.
Mainly the cloud monster into cloud runner and then for the for the fourth quarter, we expect that.
That'd be are really the in a in a normal ratio of air freight to ocean freight to look you have also seen before the factory closures happened.
On an ethics, we had already had some some headwind also into into Q2 numbers.
And we expect that to continue or if it's just me are outlined on the call.
Comes from the from the relatively strong U S dollar to the Swiss francs, and then there was relatively weak.
Euro to the to the Swiss franc.
So that's.
If this continues to be the case then the impact is about three 4 million for the for the second half of the year, which makes the 50 basis points.
And.
And I think on on the on the on the EBITDA.
Clearly the we.
We talked about that would be a bit more conservative and growing our cost base.
We have Richard was a bit.
Our bullish we are on hiring new people that doesn't mean, we don't we don't hire anymore.
Crow significantly.
But just a bit more cautious to compensate some of those additional impacts on gross profit in order to maintain a certain point to EBITDA target that we have given for the full year.
And I guess just to follow that thinking a little bit bigger picture. What are you as we look out beyond 'twenty two and.
Get hopefully get back to normal here, what do you think are some of the biggest unlocks coming up that we'll see in on both the apparel side and moving our footwear assortment beyond the cloud platform.
Yeah.
Uh huh.
That's a very good question the are there in the business of delivering innovation to the market. That's why consumers are drawn to the brand and innovation <unk> has several aspects of it.
Most of the performance driven for many people performance translates into comfort so that that's mostly on the running side.
We innovate on the design side and fair.
Very very big focus it's also the sustainability side.
As we go through the second half of the year and into 2020. The C. We're actually going to deliver on all these from sportswear footwear and apparel.
We have.
Tremendous success with products like the monster.
The rollout, which which cater to a greater cushioning experience for others.
Very.
Really catching up with the demand here.
We're extremely happy with how cloud E. C has launched barely have incorporated some of the learnings from actually the cyclone program on making a less complex shoe that's still extremely comfortable but it has a very positive impact on the environment and it's at the same time, creating a new look.
The consumers gravitate to and of course, we are seeing the success of our ultra franchise that cutover continue on the apparel side, you know the doubling down on everything that's related to running because that's where we're seeing consumers transitioning the most easily from from military to the apparel side. So the.
The running for US has been a great.
As I said on the call earlier these items aren't out of the top 10 and our own distribution.
We added the tide rising see more over the next 12 months.
And then we have some first installation pieces coming for affordable always from a perspective of.
Making very light and structural and products and turning to our.
Spring 'twenty, three and with a level set on the last call.
Nobody called cloud Tech, we have the product coming called the cloud surfer that features like face, which is an evolution. Some I'd say a revolution of the sensation of running a cloud a different aesthetic.
That allows us to provide more cushion and a slimmer package.
So it's basically a combination of these things.
I don't want to go through a level as the policy about the key takeaways.
So we're bringing this product to market.
They are already contributing significantly to our results so they're they've already meaningful to our growth in total revenues and our profitability.
Yeah.
Thanks, a lot guys congrats again.
The next question comes from the line of expressions among Stanley. Please go ahead.
Great. Thanks, so much for taking my question and congrats on another outstanding quarter guys.
I know you guys said, you're slowing your hiring rate, which definitely makes sense in light of the uncertain macro and it's what we've heard from another a number of peers as well. So I just wanted to clarify will that be a slowing across the board or in specific areas and then aside from the lower travel expense you mentioned, what other cost saving levers Kent.
On pull on to kind of push in profitability should the topline slow for the rest of the year.
Thanks.
Hi, Alex.
Martin again so.
As we said in the first half you have a we hired.
Our recruiting team by about 350 team members to 1500.
You can expect a similar number for the for the second half, but we would have grown faster than that and and does this maybe where we just become a bit more.
Defensive which is those are always a good a good thing in such a high growth environment to slow down a little bit in order to also drive efficiency in the company and improve processes.
We will not compromise on areas where b.
<unk> be really talk to the customers, so, especially in happiness delivery.
That's why we will continue building the team to the size of the business that we expect especially around the holiday season in the U S.
We are committed to continue investing in brand building and sports marketing really in driving the brands. We also continue to invest in inventory in order to be in a position to fulfill the demand that we that we currently see it. So we don't want to artificially cuts the opportunity.
In that area, but there are there are always levers.
And in all of the cost elements to to slow down to react again, we are not in the frozen wire ment. So for us it's not about taking something away. It's it's just about adding.
Cost more cautiously than in any area.
Yes.
Great that's super helpful and maybe one quick follow up it seems like price increases are also a way to kind of maybe offset some of the headwinds can you just remind us how much you guys have taken price. This year, what the plans are for the back half and then next year as well as if you've seen any consumer pushed back it seems like not part of the results.
Just any color there would be great.
The other way photo execute on what we announced in the past so in the U S. We have increased our prices on about 40% of our volume mainly the cloud by by 10 U S dollar another 20%.
Volume will be affected in the second half of the year and then another 20% to 30% in Q1 next year and then Europe will see the price increases on about 80% of the volume in Q1 next year.
So I think with that we are in a in a good position also to offset some of the higher cost that we expect on the on the purchase prices for our products.
We have a pretty good picture how that looked like it was before for spring next year.
In a good position Mr. Mr price increases that would be that we have planned at the same time, we continue seeing markets. There we have a strong pricing power and where we will use debt and and then selectively used price increases in some of those markets.
Thank you so much.
The next question is from the line of Jim Duffy from Stifel. Please go ahead.
Thank you I hope, you're all doing well and have a nice summer very impressive results and congratulations on the strong market reception to new products.
I wanted to start by asking you about the June strength that you highlighted some others have reported slowing trends in June can you speak to the composition of your June strength was that driven by DTC or increased volume of wholesale shipments and was it led by any particular geography.
So the question is about the basically the way I understand is about.
Mark had mentioned that the month of June was the strongest month in the history of Vaughn and and basically Verdi.
Growth came from if I understand it correctly, so I think.
And he's very much again in line with what you've seen the Q2 number it's not an outlier to two the other months from from a D to C. N geographical split so India. Andy was just kind of at the highest level definitely if achieved so far with that so very similar split and I mean, we have some seasonality in India.
[noise] business, so two and has historically been a good month and the very important months to Ana I think July is not a month that is that it's very important and big and so I think this is a bit better seasonality also plays a role.
Yeah.
Thank you for that.
Can I also ask about the D to C drove can you speak about how that splits between new customers versus repeat purchasers, perhaps given some context of the growth in the D C customer file.
And then can so.
And we're not sharing the exact details on on that new customers and repeat customers.
And they're watching it very very closely because it is important to us when you look at the health of the business and so when you look at the market like the U S and which has experienced a very very strong growth.
We added some some that definitely more new customers than we would add in a more mature market like like Switzerland, Dora or like Germany. For example, I think one area that we're focusing very much on adult which will be important for us in the months and years to come as well as how can be provided.
Yeah.
And basically very good brand environment to our consumers. So that we can bring them back or keep them in their own environment.
Use our dependency also unpaid acquisition and which is something that consistently working on and.
This is gonna be expect that to be a focus over the months and years to come and then I think you know we we spoke about.
Metrics that we're using so you know I said retention is important to your customer acquisition is important and conversion. It's important that this is also how.
Theyre looking at brand versus category. So we're looking very closely at some Google data on how the categories involving online versus offline on how the brand is evolving there and we really see that the on brand on all parametric continues to be very very strong with our conversion rates continue to be very very.
The positive in all different consumer segments.
Right.
Yeah.
Thank you for that.
The next question is from the line of Jonathan Komp bump back. Please go ahead.
Yeah, Hi, thank you.
I wanted to ask about the.
Martin I know you made the comment that you still have the ambition to be able to exceed the full year revenue guidance.
Which I believe is the typical approach, but I'm I'm wondering if you could maybe just discuss some of the levers that you see.
To drive revenue growth, whether it's some of the distribution opportunity you have I know you mentioned that e-commerce site coming up.
Just any other drivers that you see is as long as levers going forward.
Hi, John .
I'd be happy to do so.
I think if you look at the opportunities that we have to to grow.
At our guidance, our robust and clearly the expense and.
And then also the continuous increase in sell through with the key accounts that we have started to work with.
It's a key driver and it gives us a lot of levers.
We spoke about new products that are launching.
And in early Q3 like the cloud go which.
It's another high volume models at the success of that.
Define.
Some of the some of the growth and the holiday season in the U S of course, it's a very important element of our DTC business on an annual basis.
It would be currently see Mark just explained in the in the data.
We are on track to continue growing strongly.
Just also Derek can always.
Go go a bit stronger or weaker.
If you just to put them and also the second half of your growth into perspective for the first half year of growth.
Why is the outlook be below our year to date growth.
One important element of course is to see some shifts that we had in the first quarter. So we're basically at the first quarter growth.
Well, it's not like for like compared to last year, and then especially in the U S. We have seen a strong uplift from the IPO since September . So we also run into a year over year effect there and.
Therefore, a bit more cautious on the on the underlying growth rates of the U S business.
As of October .
And so all of those elements are together is why we.
While we feel there is a lot of opportunity.
But at the same time.
It's also necessary to plan long term.
Look at this.
From a durability perspective.
Really plan for it for the long term.
Not chasing growth so as I said, we will be ready to capture the demand if its there, but we were not artificially chase. It is things that are not in the benefit of the of the long term thinking of the Brent.
Yes.
Yeah, that's really encouraging thank you and then kasper if I if I could I had two product follow up questions first on the cyclone any any learnings that you've seen from our behavior from the consumers or any expectations around you know longer term economics or profitability of that model.
As you prove it out over time, and then and then secondly, just on the Roger or any update on that franchise and the plans we should expect going forward.
Thanks, John .
One cycle.
Consumer behavior, it's too early to tell laboratory because he was I've just received the chute, but it's very clear to us that people like the product.
The learning curve to every Rodney wherever this is gonna be a.
Retention game and in the management of churn going forward. So we also feel that these are areas that are going to positively benefit the way to look at that we're all D to C business.
We were definitely encouraged by the first reaction and we're also thinking about introducing additional models within the cyclone program.
Within the next Oh.
Yes, those are 12 months or so, but it was some footwear and apparel.
And then there's thanks for the question on the raw, obviously, a very important franchise for us.
With the USO coming up I'm actually Roger came up with a very.
Cool looks back flashback on the early part of his career and we're going to introduce.
Limited edition of its top level.
I can't say too much, but it's going to be a very exciting.
Launch potentially resulting in some lines outside of some key retail stores.
These kind of things need to stay secret up to the last minute. Another Smith type model.
Long list with other Roger updates are going to hit the market as well this fall.
So that people can go stylish through.
Hopefully a nice fall anywhere in the world.
Great. Thanks for all the color best of luck.
The next question is from the line of Jay sole from UBS. Please go ahead.
Great. Thank you so much cast remark Martin can you give us a update on just the wholesale door count globally, you sort of give us an idea of how much it's grown and teach you over last year and sort of give us an idea of where you think it can go bigger picture and maybe how some of the performance in the newer wholesale door.
Or is it like a foot locker has been thank you.
Okay.
I'm, Kevin suite, our door count by the end of half year, one is 8612 stores.
So and in the paradigm in roughly a quarter a little bit over 2000 of these store similar for for accessories.
And the and it basically end up.
And 21364 doors and so that's the growth. So you're also seeing that a lot of the growth is actually coming from same store growth or not.
From adding door, which is very very important to us and expect a slight increase to continue or four for the second half of the year, but again the growth will mainly come from in store and girlfriend not from from door expansion.
On some of the key accounts.
You're aware that we opened with Dick's houses sports and we have already opened in Houston, we already spoke about this.
And with public glance, then our expansionary foot locker is well underway our expansion with JD is well under way and will continue to grow with them in their best and TRA doors and we're closely watching sell so we're extremely happy and with all three accounts is very happy with the consumers are getting in on product you know that'd be one.
To run on that we want to win on runners seats and that's why it takes this very very important to us and out of the gate on was extremely strong in the door that'd be opened so so so definitely we will continue to see a little bit of shift more towards key accounts also in the second half.
Got it thank you so much.
The next question is from the line of Tom Mitchell from Wedbush Securities. Please go ahead.
Oh, Hey, everybody. Thanks for taking my question.
To ask about the gross margins you know I think when.
You reported three months ago, you said that excluding.
Airfreight gross margins would've been close to 60%.
Is that the way we should also think about our Q2 gross margin excluding freight and when we look at the back half of the year I know you highlight a deal a little bit afraid in Q3 and from some FX headwinds.
But should we think about gross margins being higher.
Year over year in the back half of the year.
Yes.
If you exclude the air freight than we basically reconfirmed again, the ability to go towards 60%.
Now in Q2, we also had the negative impact from from FX.
And therefore this wood.
Stuart it as well in order to 260% to 60%.
But for the for the second half of the year.
It is exactly as you say so 60% is that they will consider the baseline and then.
<unk> from Air freight comes on top of a traditionally Q4 and can even be a bit stronger Q2. This drove <unk> sales that you will be seeing and expect to be seeing out of state holiday campaign.
But that depends on the share of DTC to wholesale in Q4 nothing jewelry.
Understood. Thanks, very much and congratulations on all the momentum in the business.
The next question is from the line of Sam Poser from Williams trading. Please go ahead.
Good morning, Thank you for taking my questions.
I wanted to know.
What the what you mentioned the headwinds of about 200 basis points your gross margin in Q3.
Three and around 50 basis points in Q4 can you give us what the offsets can you sort of give us a flavor.
And where do you expect the gross margins to be by quarter, just make it simple.
Yes.
I mean, we don't we don't give the.
Guidance on gross profit.
So more indicators to what I just said.
Basically commentaries.
As Derek and last year, and the long term expectations.
And then I also mentioned a bit.
Absolute impact it would be that we are expecting from both.
The FX headwind as well as the.
Higher higher airfreight.
Yeah.
But you would expect I'm, just confirming and I have one other question. After this you you expect gross margin in Q4 to be higher than it is in Q3 from a mix perspective, I I gather from what you said.
It's from more Dude, yes Saturday.
Yes.
And then.
Based on current expectations from the fact that we will not be using excessive airfreight SBA.
SBA SBA.
Outlined for Q3 of this dose.
$5 million to $6 million additional spending for cloud runner in 12 months' time.
Okay, Great and then.
You mentioned, you've been mentioning key accounts a number of times can you give us some indication on you know.
Who you regard as key accounts at this time.
Okay.
Thank you Adam.
And in India, and it's about the size, it's about the size of an account it's about how global account is the growth potential and also.
About the significant in a contest in a in a specific consumer segment. So it's a bit difficult to answer his question about the again if you look at.
And for example, the U S. We would have in our core running segment, we would have it and it sounds like fleet feet.
With an amazing partner drawn and very very important to us and if you look more in the outdoor space than they had been working with them for many years and they are very very good and very good account for US and then more on the performance of all decided they spoke about hey, Dave you spoke about footlocker.
So those are some examples of key accounts and you would have that for different geographies and this is what will be basically tend to get on to and its clear that theyre all multi door accounts. So so a single door count whatever will never be a catch up.
And then lastly, if I may.
With the expansion that you're having within these key accounts withdraw so it does impact the number of doors that you're in.
Are you.
How are you allocating product are you like.
The smaller accounts are our U.
Are you able to maintain inventory levels in the smaller account as you become more aggressive with the key accounts.
Yeah. So when we look at the product allocation, it's always about the consumer and so the question is.
You know if you're speaking to a koran are there to support under sharpened, what's the product that caters best to that community or to the core runner and this is how we would allocate product. So if youre looking into a hiking shoe and then our best outdoor partners independent no federal or key accounts or independent small accounts would have.
The highest level of priority if you look at.
And if you're a runner Andy want to access our latest running product then again, we would look at the accounts that are very much specialized in running all our on specialty partners that we're working with adult sitcoms like fleet feet and then if you're more looking at the products for you all day use.
<unk> J D or footlocker being prioritized and the only the only account or channel that basically gets gets highest priority in all different categories as our own D to C. Because we feel very much that with our own D to C website and stores, we cater to all the community.
And that we're targeting and therefore, they should find.
The respective products there as well.
Thank you very much appreciate it.
Our final question comes from the line of Eddie.
From Piper Sandler. Please go ahead.
I don't think you guys keep getting and do you have an update on your market share in specialty Ron and then how does this differ in North America versus Europe , and then secondly, I got to as the new consumer that you can carry it seemed like products like cloud Monster and can you comment on which brands or maybe watch styles. He think on is gaining share from and that actual events. Thank you.
Thanks Savi.
So with the Clermont Silicones, I never really reaching maybe some people that didn't there too.
We posted two light then maybe not enough.
Yes.
And with these two models, we're able to provide.
The full protection.
Apparel the comfort to your very very average trauma, maybe it wouldn't even consider themselves around it but they run for the state to.
To stay in shape.
Maybe they are little bit older and I kept myself in that same target group.
Once you go past 40 running becomes harder now.
We are seeing with this success.
These two models that we need to have almost left out this market segment.
And part of the U S success is also explained by that.
A lot of this kind of lenders.
North America, now able to offer them a product as well.
No we're tomorrow on the market share.
And so when we're looking at market share I think we are.
And most of all around specialty doors in the key markets, such as Germany, or the US we are amongst the top three brands.
And we're seeing in many doors and for example in the U S still a growth rate of above 50% and this is all growth did come from same store because everyone's back around specialty is definitely the area, where we already have the highest distribution highest density. So we continue to gain share we continue to to grow.
Stronger than the channel is growing.
And and and also looking at the order book and looking at the product innovations that Kasper already spoke to.
They are very positive that consumers will continue to benefit from that.
Great. Thank you so much.
Yeah.
Ladies and gentlemen, this concludes the Q&A session.
As now concluded you may disconnect your telephone thank you for joining.
Goodbye.
Yes.
Okay.
Okay.
Okay.
Yes.
Hum.
Yes.
Okay.
Okay.
Okay.
Yeah.
Okay.
Okay.
Yes.
Yeah.
Yeah.
Okay.
Yeah.
Yeah.
Okay.
[music].
Right.
Yeah.
Yeah.
Yes.
[music].
Hum.
Hum.
Okay.
Yeah.
Okay.
Yeah.
Yes.
[music].
Yes.
Okay.
Yeah.
Yeah.
Yes.
Okay.
Yeah.
Hum.
Okay.
Yeah.
Okay.
Yes.
Okay.
Yes.
Yeah.
Okay.
Yeah.
Yes.
Yes.
Okay.
Yes.
Okay.
Yes.
Hum.
Yeah.
Yeah.
Okay.
Okay.
Yeah.
Oh.