Q2 2023 MYT Netherlands Parent BV Earnings Call
[music].
Greetings and welcome to the my Teresa second quarter of fiscal 'twenty to 'twenty three earnings conference call.
At this time all participants are in a listen only mode today.
Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A.
It is now my pleasure to introduce your host Martin beer maturation, Chief Financial Officer.
Thank you Sir you may begin.
Thank you operator, and welcome everyone to mitral <unk> Investor Conference call for the second quarter of fiscal year 2023.
With me today is our CEO Michael <unk>.
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 forward looking statements and are subject to risks and uncertainties, including the risks and uncertainties described in our annual report many factors could cause actual results to differ materially.
No duty to update forward looking statements.
In addition, we will refer to certain financial measures not reported in accordance with IRS on this call you.
You can find reconciliations of these non <unk> financial measures.
In our earnings press release, which is available on our Investor Relations website.
It's investors Dot Mitra, it's a tougher comp.
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 will today comments on the results and performance of our second quarter fiscal year 2023.
Overall, we are pleased with our results our business has shown once more excellent financial strength and resilience despite significant macroeconomic headwinds.
My Teresa grew its top line in the second quarter and deliver strong profitability.
Our results are even more reassuring given the performance, we see with many of our peers.
And the broader consumer sector.
High inflation, the prospect of a recession.
The continued work in the Ukraine, and the dramatic return of the Covid pandemic in China. We are just some of the negative sectors dampening consumer sentiment in the second quarter.
My theories I wasn't able to distance itself somewhat.
From the significant macroeconomic challenges due to our unique focus on the high end wardrobe building customers, our highly adaptive business model built on cost variability.
And our excellence in operational execution.
These qualities make us confident to deliver against our communicated targets for full fiscal year 2023, despite ongoing economic and geopolitical uncertainties.
Let me summarize three key characteristics of our business as evidenced in the second quarter of fiscal year 2023. So that you can fully appreciate the strength and resilience of mitral reasons.
First our focus on the high end wardrobe building customer and also on truly luxury brands make us far less exposed to the aspirational luxury customer who is greatly impacted by negative sentiment at the moment.
This is clearly supported by our customer Kpis and our continued success with money can't buy experiences for top customers in the second quarter.
Second we have built a very resilient and agile business, we are global active across many luxury categories.
<unk> focus on full price selling and we have a high share of cost variability therefore.
Therefore, we can deliver a strong profitability even at times of slower growth.
But a key success factor for mitral Reis has always been the operational excellence in the business.
We consistently achieve high quality levels of service and create a production.
This can be seen in the high customer satisfaction and loyalty, we enjoy as well as the continually growing trust based relationships, we have with luxury brand partners.
That support us with exclusives and captures.
Let me now comment in more detail on those three key qualities of the mitral visa business.
Sure.
Let's look at the success with high end wardrobe building customers in the second quarter. We grew our gross merchandise value GMB by plus seven 8% compared to Q2 of fiscal year 2022.
On a two year basis, we grew our <unk> by plus 36, 1% compared to Q2 of fiscal year 2021.
This solid growth in the second quarter sets us apart from other digital platforms in the same period. It is driven by the clear focus on the true high end water building luxury customers and not the aspirational occasional luxury shops.
The latter.
We'll be impacted significantly by an economic downturn, while the true luxury customer is more resilient and.
In the second quarter of fiscal year 2023, our top customer base grew by plus 25, 3% compared to Q2 of fiscal year 2022, while the total number of customers grew by plus eight 8%.
It is evident that the occasional aspirational customer shop less in this quarter compared to Q2 of fiscal year 2022.
The holiday season is typically an important moment for aspirational customer.
This is also visible in the repurchase rate of customers acquired nine months ago, which dropped in December compared to the repurchase rates in December 2021.
Please see our investor presentation for more details on the cohort repurchase rates.
It is noteworthy to mention that the average spend per customer grew by plus one 8% in the second quarter fiscal year 2023, and the average spend for all customers grew by plus one 9%.
It shows our focus on the quality of customers and not simply the pure number.
To engage and serve our high end customers. We part that again was mainly leading luxury brands to create true money can't buy experiences.
Customers.
<unk> brands are more and more interested to partner with us and client telling activities given the increasing importance of top customers in today's environment.
<unk> for these in the second quarter include a priority in Paris to celebrate the launch of a capsule.
In attendance of the creative director all of your stuff.
The highly visible launch of the Pucci Fusari collection with a multi day experience and some more it's in attendance of the creative director.
Mikael.
As well as a private dinner for our top customers at the home of Diego della Butler Chairman of the top Stoop. Please.
Please see our investor presentation for more details on our top customer activations in the second quarter of fiscal year 2023.
Our unique ability to excite and engage with true high end luxury customers and build long lasting relationships with them.
<unk> is a very sustainable and growing revenue driver even in a challenging macroeconomic environment.
We have increased our top customer base by plus 111%.
Since Q2 of fiscal year 2020.
Second let's look on.
The resilient and agile <unk> business.
In the second quarter of fiscal year 2023, we experienced slower growth in Europe with plus three 7% compared to Q2 of fiscal year 2022, and saw a contraction in mainland China by minus 32, 3% in <unk> compared to Q2 of fiscal year 2022.
Both clearly driven by macro factors in.
In the United States, which continues to be one of our key growth markets. We achieved again and then above average <unk> growth was plus 12, 7% compared to Q2 of fiscal year 2022.
The share of United States of our total <unk> increased to 16, 9% in the second quarter.
Our fiscal year 2023.
We drove this growth with a strong lineup of customer and brand events across the United States. One highlight was the cocktail event that the saga that surround and New York City with the creative directors of Oscar Dela Renta in celebration of an exclusive capsule launch.
Please see our investor presentation for more details on how our events in the United States in the second quarter of fiscal year 2023.
In terms of categories, we saw solid growth in women's clothing kits, where as well as our recently launched life category featuring home and lifestyle products.
These are incidentally categories that have a high top customer sale revenues, while bags and sneakers showed much slower grows as they typically attracts more aspirational customers looking for investment piece.
As in the previous quarters, we achieved our GMB growth.
With a continued focus on full price selling.
Our average LTM order value increased by plus four 3% in the second quarter of fiscal year 2023, compared to fiscal year 2022, and aligning the focus on the true luxury assortment, our customer acquisition costs increased by plus 15, 5% in the <unk>.
Quarter, but this has to be seen in the context of a much higher quality of new customers with predicted higher nighttime values.
Due to our disciplined cost management and the high cost variability, we kept all cost ratios within our budgeted ranges despite slower growth.
Martin will talk in a few minutes about how all of this translated into strong bottom line results for the second quarter of fiscal year 2023.
Third, let's look at our key strengths of mitral Reso. The operational excellence are key indicator for this is customer satisfaction reached a very high level as measured internally with our net promoter score of 79, 5% in the second quarter of fiscal year 2023.
This is only achievable with a very high consistency and quality across all functions and in particular warehouse operations customer care and technology services.
All of this drives the almost 100% revenue retention of newly acquired customer cohorts.
As of year two of the relationship with us.
Our very high quality and creative campaign in digital asset production is also visible in the flawless and impactful execution of brand campaigns.
We partnered once more like no other platform does many leading luxury brands for exclusive capsule launches or pre launches of collections, we produced impactful digital content and campaigns that attracted our unique high value multi brand customer <unk>.
Focus on high end customer engagement is ultimately a key driver for luxury brands to continually partner with us.
Examples of our exclusive brand collaborations from the second quarter include the exclusive launch of the local piano cocooning connection.
First Deutsche in Gabon, a ski collection exclusively available at my Teresa <unk>.
Exclusive capsule collections only available at Mitel is up from Petro, Chris John Labutta, Kate and Oscar de La Renta as well as an immersive shopper will video created by my Theresa to celebrate exclusive styles of Montclair Grenoble and.
And featuring professional skills.
Please see our investor presentation for more details on brand collaborations.
With all of the above it should come as no surprise that we are pleased with our performance in the second quarter of fiscal year 2023, despite macroeconomic headwinds.
Believe that our results demonstrate the fundamental strength and consistency of our business model delivering profitable growth.
See ourselves as one of the few winners in the clearly consolidating luxury e-commerce space.
And now <unk>.
Hand over to Martin to discuss the financial results in detail.
Thank you Michael I will now review the financial results for the second quarter of fiscal year 2023 ended December 31, 2022, and we will provide additional details on some of the previously mentioned factors influencing our performance.
Unless otherwise stated all numbers referred to Europe .
As Michael already indicated given the difficult macroeconomic headwinds and tough comparisons to last year's Q2, we are pleased with our plus seven 8% topline growth in the quarter and plus 13, 7% in H one of fiscal year 'twenty three.
Even in this unprecedented macroeconomic situation might freezer proved again, its resilience and profitability in the quarter with a nine 3% adjusted EBITDA margin seven.
Seven 9% adjusted operating income or EBIT margin and five 8% adjusted net income margin.
Let's look at the numbers in more detail.
And as this is an unprecedented macroeconomic situation.
Also give some guidance for the second half of the full fiscal year ending in June 20.
2023.
Please bear in mind that we will not be doing this on a regular basis.
In the second quarter of our fiscal year 2023 ended December 31, 2022, <unk> was $215 9 million growing at seven 8% compared to the prior year quarter at $200 2 million.
At constant currency.
The growth was a plus 5%.
This growth was on top of our high growth comparable in Q2 of the last fiscal year, that's plus 26%.
The solid growth achieved in this quarter was above most industry peers.
It still showed a temporary slowdown as Michael explained, especially in December .
Compared to the growth rates that youre used to seeing at <unk>.
Given the mentioned macroeconomic headwinds our focus has been on the continued successful expansion of our top customer base.
As well as the acquisition of new high potential customers.
We were able to grow the number of our top customers by 25, 3% in the quarter in.
In addition to <unk> increased for top customer of one 8%.
This is in line with our impressive results in the previous quarters in each one of fiscal year 'twenty three.
We grew our top customers by 26, 2% and GM of our top customer by one 2%.
And in Q2 of fiscal year 'twenty three our total active customer base grew by eight 8% with <unk> increased for all customers of one 9%.
In H one of fiscal year 'twenty three our total active customer base grew by nine 6% with <unk> increase for all customers of four 3%.
On a LTM December basis, we had 814000 total active customers.
We view this slowdown in December is temporary driven by aspirational customers as Michael explained.
The economic news in regards to inflation energy supplies and GDP growth has started to improve.
We are already seeing that the luxury customer is coming back the earliest.
Our GMB growth quarter to date.
Very strong in line, what we have seen in Q1 of this fiscal year.
In addition, given the lower comps of the quarterly growth rates during the last fiscal year of plus 13% in Q3 and plus 18% in Q4.
We are confident in our ability to achieve our <unk> guidance at the lower end of the given a range for the full fiscal year.
This would imply a growth in H two of fiscal year 'twenty three of about plus 17% to 19%.
On a two year basis this translates into growth in H two.
Of about plus 36 to 30.
38%.
Compared to 45% growth achieved and the just finished H one fiscal year 'twenty three.
And this growth expectation for H two.
No extra ordinary geographical pickup that's built in.
It reflects an improving macroeconomic environment.
That is already visible.
Throughout the regions, including China.
Also for the medium and long term, we have no doubts about the success of our my choice of positioning and business model.
And therefore confirm our community communicated medium to long term target of GMB growth rates above 20%.
During the second quarter of this fiscal year net sales increased by one 3% $190 1 million.
As in preceding quarters net sales reporting is impacted by France transitioning to our curated platform model.
During the second quarter of fiscal year 'twenty, three we had seven brands operating under the curated platform model.
In Q2 of the previous fiscal year, we already had six brands under CPM, but five just started in the quarter with early sales of spring summer 'twenty two season.
Therefore, the CPM impact of the sales of these five brands in Q2 of the preceding year.
With the limited for early sales of spring Summer 'twenty two.
The growth gap between <unk> growth and net sales growth.
Due to brand transitioning to the CPM is narrowing as expected.
In Q1 of this fiscal year.
GAAP plus 1000 basis points.
And in this Q2 was 650 basis points.
We expect the growth rates of net sales.
The remaining quarters of the fiscal year to be much closer to the GMB growth rates.
For fiscal year, 'twenty four and beyond.
Growth rates will allow even further.
In or around 100 to 300 basis points.
As stated before the difference in growth rates between <unk> and net sales.
Purely a one time financial accounting effect.
As for the CPM breath, we booked the platform fee is net sales.
12 months after the full transition of those paths.
This one time effect will be over.
And net sales will grow in line with <unk> again.
The curated platform model offers special financial characteristics to Microsoft.
It enables a stronger topline growth.
Due to in season replenishment.
And overall yields a similar profit profile for mitral visa.
In addition inventory risks days with our brands as they maintain ownership of the inventory.
And my Teresa has a much much better cash cycle as we only pay the Brad Buss the customers paid us.
We achieved the 8% GMB growth ahead of industry peers in the quarter despite negative growth in China.
And weaker growth throughout most regions, especially in Europe .
But with the sales pick up in January and February we already see promising customer developments in all regions, including Europe and China.
Levels.
For the next two quarters, we expect this upgrade of gross margin slippage to be much lower.
Right of the margin levels, we had an H two of the preceding fiscal year.
For the full fiscal year.
Well you maintain our gross profit guidance at the low end of the communicated grinch.
The continued strong gross profit margin also reflects the unique and high quality of our customer cohorts.
And thus our industry leading ability.
Chief a high full price sale chair.
Despite the lower top line growth in the quarter.
Our inventory levels as of December 22.
Only up by 26% compared to December 21 solely on budget level.
More than 80% of inventory is related to the <unk>.
<unk> in the upcoming season.
Will enable us to grow at the target of level in the upcoming months.
The share of older seasons is at a record low.
In addition, please.
Please bear in mind that four hour CPM business.
There is no inventory risk for us.
Is the brand owns the inventory until it is solved.
We expect the CPM sure of G. M. B for this fiscal year to be around 20 per cent.
And some.
Inventory levels are why we want to have them and we stay true to our strategy offering the best merchandise at target at price levels.
Hi valued customer base.
Shipping and payment costs.
Increased by 10.9% to $28.3 million.
As compared to $25.5 million.
In the prior year quarter.
The shipping and payment cost ratio in relation to Jim be increased by 40 basis points.
$12 70 per cent previous fiscal year quarter to 13.1%.
The 40 basis points higher cost ratio.
Is due to stronger growth outside of Europe .
As a result of implemented changes and are a payment and custom setup.
We expect to mostly offset these cost increases.
And therefore achieve stability and the cost ratios of the upcoming quarters.
Compared to last year's quarters.
The shipping cost ratios in the remaining quarters of the last fiscal year.
We're between 13.5% to 14%.
We continued to invest in acquiring high quality new customers in Q2.
We acquired a solid number of 120000, new customers in the quarter.
We deliberately maintained our marketing budget on target.
Despite high attack as we captured market share among top of customers.
During the second quarter marketing expenses increased to 28.8 million.
Compared to $23.8 million in the quarter of the previous year.
As a percentage of G M b.
Marketing expenses grew from 11.9% in queue to a fiscal year 22, 213.3% in queue to physically twenty-three.
The marketing cost ratio in Q2 of the last fiscal year was exceptionally low.
As we could not execute all marketing activities planned due to the pandemic.
And the last full fiscal year.
We had a marketing cost ratio of 12.9% of G. M B.
We expect to achieve approximately this level also in fiscal year 2003.
One driver of our stable marketing cost ratio.
Spike strong new customer growth.
Also are excellent existing customer performance.
With increasing G M V for total customer.
4.3% in H, one physically of 23.
It just it selling general and administrative expenses grew by 4.1 million 227.
Seven $6 million in the second quarter of fiscal you of 23.
That's just that's actually expenses as percent of G. M be increased by 100 basis points from 11.8% to 12.8%.
The prior year quarter.
The increase of the cost ratio.
Is due to a higher personal costs, especially logistics as well as higher energy costs.
He adjusted actually cost ratio in the quarter at 12.8%.
Has been coming down from around 13% to 14%.
And the two preceding quarters.
The increase in personal cost us fully line with our budget and we will continue to manage those cost pressures fiscal.
Fiscal year 2003.
Four H two of fiscal you're twenty-three.
We expect the adjusted SG&A cost ratio to stay below 30% of G. M B.
We will continue to invest in the quality of our personal.
Position the company for growth.
And we will make no compromise and our service excellence.
This will be key to sustain our medium and long term growth strategy.
Xraying market share.
Thus far.
<unk> our leadership position.
And the second quarter of fiscal 2023.
We achieved an adjusted EBITDA of 17.7 million despite significant macroeconomic challenges.
The adjusted EBITDA margin was that a strong 9.3%.
Which is an industry leading performance.
And it shows the strength and resilience of our unique and profitable business model.
It just it EBITDA margin and last year's Q2 had been exceptionally high at.
At 15.4%.
Mostly due to exceptionally low marketing expenses due to Covid <unk>.
Lower adjusted SG&A expenses.
In H one.
Of the current fiscal year 2003.
We achieved adjusted EBITDA margin of 8.3%.
And an H two we expect a higher profitability.
As mentioned before.
<unk> Q3.
Already show signs of improvement.
In Q4 is expected to be strong on top and bottom line.
The last four fiscal year, we achieved an adjusted EBITDA margin of 9.6%.
This fiscal year, we confirm.
Alright, just an EBITDA margin guidance at the lower end of our communicated range full fiscal year.
Depreciation and amortization expenses and Q2 slightly increased to 2.8 million or 1.3 per cent of G. M b as compared to 2.3 million or 1.1% of G. M b the prior year quarter.
The resilience of our proven business model.
Even in times with macro headwinds.
<unk> a parent also on operating and net income level.
Q2 of US is clear my Theresa reported and adjusted operating income.
Trusted EBIT a four.
$14.9 million at a 7.9% margin.
And then adjusted net income of $11 million at a 5.8% adjusted net income margin.
We charge to continuously deliver profitable growth.
Which is clearly visible focus business model.
Also.
Minder, we run a highly efficient capital light model.
With an adjusted return on capital employed.
At 828% and.
Physically of 22.
Moving to the cash flow statement.
During the six months ended December 31st 2022.
Operating activities used 45.1 million net cash.
The main driver of seasonal inventory build up and.
In comparison to last year with no major changes in the inventory status.
Brands switching from wholesale to C. P M.
Inventory levels as of December 22 are up by 26% compared to December 21 fully on budget level.
80% of inventory is related to the current and the upcoming season.
And will enable us to grow at the targeted level in the upcoming months.
Net cash used in investing activities was at $12.4 million.
Driven by the buildup you warehouse in Leipzig, which will enable us to better serve our customers.
Quicker shipping times.
Including last year's Capex.
$25 million or about 65% of the assume total costs for.
So the new warehouse between 35 to 40 million.
Been paid already.
The remainder will be paid during the current fiscal year.
Except for about $5 million to $7 million in the next fiscal year upon finalization.
The warehouse with a life as plans and fiscal year 2004.
We ended the second quarter with cash and cash equivalents of $52 million No bank theft, and 60 million unused cash availability under the revolving credit facilities.
As of December 31st 2022.
That's some of our expectations for the current fiscal year ending June 30th 2023.
We confirm our previous guidance at the lower end on top and bottom line.
Achieving strong profitability levels.
More specifically, we confirm our guidance at the lower end of the following ranges.
<unk> of the range of 865 to 910 million, representing 16% to 22% growth.
Net sales at the lower end of.
755 million to $800 million, representing 10% to 60% growth.
Gross profit at $410 million to $435 million drawing the line with Jim B, all representing 16 to 22 per cent growth.
And it just it EBITDA in the age of $68 million to $76 million and then adjusted EBITDA margin between nine and 95 per cent.
We are pleased with our good performance and Q2 of fiscal you're twenty-three despite macroeconomic challenges.
Especially to achieve an adjusted EBITDA March in the quarter above 9% is excellent.
Burnt macro situations.
Business is already showing signs of picking up in January and February .
And we are very confident to achieve the low end of our guided ranges for the full fiscal year stated before.
I will now turn the call back over to Michael for his concluding remarks.
Thank you Martin we are pleased with the second quarter of fiscal year 2020 Street earnings results.
Our selves very well positioned to achieve our short term targets, despite a challenging macroeconomic environment.
We will continue to benefit.
The ongoing shift to online and luxury spent.
We also see strong signs of market consolidation among digital platforms, and we see continued global market share gains for us.
We are convinced that my Theresa offers.
Consumers the best multi Brian <unk> shopping experience there is.
And with that I asked the operator to open the line for your questions.
If you would like to ask a question at this time simply press the star followed by the number one on your telephone keypad.
To withdraw your question Press Star one again.
To be fair and allow each person time to participate we are requesting you stick to one question and one follow up.
Your first question comes from the line at Matthew Boss J P. Morgan.
Great great.
Great. Thanks.
Michael you cited a clear focus on the high end the true high end versus the aspirational shopper in the release and then multiple times on the call. So maybe can you speak to changes or just elaborate on changes in the spending that you saw with the aspirational side maybe by category.
And if you could just elaborate on trends in the business that you've seen post holiday, maybe breaking down what you've seen from the true high end customer relative to this aspirational base and if you could maybe by region or also by category would be really helpful. On on this level of acceleration of rebound that you cited.
Happy happy to do so Matt so let's.
Let's start first with was the aspirational customer and the behavior.
C Q.
<unk> if you go by category.
The share of top customer is the highest in ready to wear and the aspirational customer is much more important particularly in shoes.
And they're in the subcategory sneakers and and the bags.
And so a slowdown in demand by aspirational customers is evidenced by a slowdown in shoes and bags overall nowhere business in the second quarter.
Versus a ready to wear category much less.
<unk>.
Then.
Simply put the aspirational customer as a customer that buys once a year and a very simple manner. So.
If.
Does that for Rachel customer buys once a year.
It is the seasonal.
First of fees and the holiday season, the Christmas time, and so the the importance of aspirational customers is even higher doing an hour right fiscal year logic in our queue too.
So the impact of their slowdown is evident in categories of our bags and categories of of shoes, particularly iconic pieces that.
They take some time before they they decided to buy and in this quarter. It seems a lot of the aspirational customers decided to take a pause and by later.
So what we see in current trading is two fold one.
The importance of aspirational customers, particularly in January February is not as high as in October November if you immediately by luxury products again in January February .
You're much more in the in the wardrobe building camp, but the.
The recovery the rebound the statement that the results in January February so far I'm much more in line with levels of Q1 is therefore of course also reflected more in bags and shoes than it is in ready to wear.
In terms of geography, there are of course <unk>.
Two stories that is not only the aspirational customer slowdown story, but for China. There is clearly the story of a complete change in the approach of fighting Covid in mainland China as well as in Hong Kong Macau and so.
The second quarter was.
Sure highest by half of half of the population big cities.
Hill and half of the population not feeling comfortable.
Being out and so that was really what what what we saw in November December instill in January .
We are seeing now is is a return to a more noble I slice the strategy of having the virus.
Go go round seems to.
At least now I mean, the process to get there was was it was <unk> that.
That people are going out.
The numbers our numbers.
For Hong Kong, Macau picking up we are seeing gross in greater China again, and so there is there is a <unk>. This is of course <unk>, it's hard to predict but if it continues like that we will see that you are but for your rebound and in Europe and in in the U S.
The the.
The slowdown off the aspirational customer.
Has.
Improved we believe the economic news has improved but again also.
The aspirational customers far less.
And so to speak in the current and the next quarter I mean people buying now spring summer.
This is much more of the high end luxury customer.
That's a great color and then Martin as a follow up could you just help break down the drivers of gross profit dollar growth in the back half of the year and in particular relative to the second quarter, just the acceleration I'm, assuming some of the more current business gives you a call.
For them and then just lastly, your overall comfort with the composition and quantity of your inventory today would be helpful.
Yeah of course natural happy to do so let's start with the inventory S said I mean, we are at a at a record low of <unk>. So we are we we kept our inventory buildup to fuel the growth and and the as we as we see that there's a lot of <unk>.
<unk> most reasons are coming back, especially the top customers are coming back really early and that.
Everyone enable us to too few and provide for the for the growth of the upcoming quarters, while we are where we are bullish.
And so the the inventory level is 26% compared to to December and we are <unk>.
Line with our budgets and feel very comfortable around that.
Uhm gross profit margin in the.
First have are basically in the in the corner.
That that was just finished.
We had a 50 basis points slippage an upgrade it cost profit margin.
But still on a very high level, we have a overall cost profit margin of 54.8% <unk> remember we used to have a 47 per cent I mean, it's this shows are our strengths and focus on continued focus on this high end customer on our positioning and the ability to achieve.
Oh really high full price sales chair.
There was some operating margins slippage contact with a <unk>, there's always in comparison to the previous quarter.
So you have to always understand that previous your quarter and there was a bit less.
Promotional intensity due to the pandemic now it's coming back to normal ice levels that that was the reason for this 50 point slippage going forward, we see that slippage to reduce.
Especially for look at the gross margins offer the last fiscal year, because it's always comparison of Alaska careers.
<unk> the C. P M S X, which drives just the numerical gross profit margin in relation to net sales will.
Slowdown will come down as the overall effect describe and in the grocery difference between G. M. B a net sales.
Same.
Gross profit level. So the cross profit margin in the in the second half is then very comparable to to to the proceedings H two off the last of his career.
That's a great color best of luck.
Your next question comes from the line up my account than any with credit Suisse.
Hi, Good afternoon. This is Dan Silverstein on for Michael Thanks for taking our questions.
Just firstly it was nice to see top customer growth and the number of first time buyers accelerate in the corner.
Given the pressure sided on the Internet and luxury shopper. What are you doing today to turn recent customer adds into top customers and can you speak to any positive indicators within recent cohorts, which kind of show the evolution of turning those recent ads into top customers.
And then if you could also speak to the CAC increase Sean and the physical second quarter. What were the drivers behind that is that just a function of you know spending more to gain.
Top customers, which have a higher L T V or or anything to call out there. Thank you.
Thank you Dan let me start with the second question Indeed, as as I mentioned in the beginning the increase in the second quarter is.
Majority driven by the fact that we focus even more on high end customers prospective customers with high predicted lifetime value.
So CAC as an absolute number has gone up and this quota, but we feel the cat L. T V. Rachel based on our <unk> is actually very good and we felt it's it's really an opportunity to invest in these customers as they drive the second year cohort loyalty across the board.
The first question, yes, Indeed, we are very happy to see again in this quota increase of top customer numbers of 25%.
So we are continuously succeeding even and current microeconomic environment to turn.
Time buyers.
To our highest drank off of spending customers.
This is sort of.
And even higher quality achievement, if the total growth of customer is even below the growth of top customer. So we are getting better in in attracting the right customers but to be fair.
It is also a kind of self fulfilling prophecy, because the true aspirational customers there.
Shopping less so the first time buyers. We acquire are also of a higher quality.
So evident in the increase of a U V. In the increase of right. When you put customer and closing the loop also of course, allowing us to spend more <unk> and the.
The the the the cohort behavior that we see is very healthy. We always include an hour investor presentation to repurchase right that was the overall repurchase rate of old customers. You saw the dip in December but when we look into the patterns right now we look on average spend drive now.
If you look on and you'll be right now, we see a very healthy pattern.
Thank you.
Your next question comes from the line <unk> with you B S.
Hi, Thanks for taking my question can you hear me.
Yes, loud and clear.
Okay, great. Thanks so.
A couple of if I could <unk> in terms of the new customer as that was about level on a <unk> basis. So can you talk about you know given given the macro backdrop <unk> macro backdrop, you sign the quarter.
How.
<unk> customers come from.
Maybe geographically.
And then I'll <unk> in terms of the high network individuals that you kind of swelling in too.
Can you talk about two things one is what percentage of your G. M. V is the exclusives that you highlighted in your opening remarks.
Then.
For the for the for the folks that by Exclusives, what percentage off G. M V. Two data present.
Thanks.
Thank you.
Last one this is of course a level of detail. We we we are not sharing but I'll I'll give you a high level of <unk>. So so the the exclusive the capsules are very much a device to attract.
Spending customers. They one special day with newness they want things that are different. So this is really <unk>.
Indexing into high end customers, the capsules and exclusive.
Terms of the total share.
Business.
It is.
It is not our main business capsules and exclusives are not our main business. They are really a device to keep the loyalty of our best customers because they know there's always newness, there's always special product on my Teresa and these are of limited according to gene Noel's available so.
It is.
So to speak of forcing devised to regularly check in to regularly monitor our campaigns directly monitor on a new arrivals.
In terms of where we added customers and a mountain may speak in a minute to the the L. G M growth in the quarter growth but of course.
Special situations unfortunate situation, we had in mainland China in greater China.
The the the <unk> of U S and <unk> of Europe over indexed in this quarter in terms of additions of new customers, whereas whereas I'll need not only business was down.
In mainland, but also additions of new customers was down because there was just no occasions, no business and and maybe Martin on on gross of new customers.
The the the the top customer they're the overall active customers. They grew in the quarter, 8.8% in H, 196% and if you looked at the L. T M basis, our customers grew 10%, but what is also unique the the the quality of those customers and.
New customers is constantly increasing as we this is also laid out on the customer and the investor presentation, but also R. G. M V per capita.
Increases in the in the <unk> in the in the quarter and in the last six.
Three per cent G b per customer increase.
Also on an L. T M basis and that is also reflected in what what might have set the a O V increased by by by $26 Uhm L. On an L. T M basis, so very strong increase in quality I'm very focused on potential new customers.
Thank you so much.
Your next question comes from the lineup Oliver Chinn with Carolyn.
Alright, Thank you Michael Martin.
On the train that you're seeing lately, what's giving you confidence an improvement in terms of.
That happening and also what's the nature of improvement as you think about aspirational versus non aspirational.
And then second a lot of the competition is likely very over inventoried.
What are your thoughts on promotions that you may or may not need to execute relative to what you're seeing in the marketplace as well.
Alright, Alright, alright, I'll leave the inventory question to Martin but.
I hope we can you say that we we're not over inventory.
With our competitors is pretty your better judgment on the first one I mean, what gives us confidence the overall business numbers in recent weeks since the beginning of the year give us confidence.
Uhm.
We also see that.
The.
The slowdown that we saw particularly in bags and shoes is is is improving.
That gives us confidence because it shows that the the mix and what is what gives us <unk>.
<unk> is that it.
Excellent positive numbers and top customers growth of that.
<unk> <unk> <unk> top customer share in our business off top customers a O V of took all these kpis or show up or improve and so we we have this very solid core base core business. It has not suffered in.
In the second quarter it is pushing.
Pushing 40 ahead and the improving economic news the.
Just for energy crisis in Europe , Abating recession abating, we do see a return of the aspirational customers, but also to be clear.
Two two is the one quarter aspirational customers Ubah indexing at our business because of the holiday season at one time.
But Martin maybe you could take inventory also again.
Yeah, I mean on an inventory levels and all of our <unk>. You know that you know are different positioning very well also on the promotional landscape and obviously, we cannot insulate us.
Totally from the oval promotional environment also a competitive but we are in a different camp we are in a different positioning and and and it has and you and you.
Statistics that also the last four years, we had a very stable operating gross profit margin despite ups and downs. Despite you know competitors are being very promotional less promotional we are uniquely focus with with a lease promotional sure in our sales and therefore.
Sure, we we see with the inventory levels that we have that we have and staying true an hour positioning and we see that also in the ramp up of January and February where we have a have a great great support and great success on on customer on customers.
Sentiment we.
We are very confident that we that that we can.
Can capture the growth capture the share and stay true to our positioning.
And and therefore not change the the any any promotional.
And loss in what we see in the market.
Okay. Thank you and Michael as we think geographically.
Spectation that Uhm Asia, and Europe improve sequentially in U S holds at this outstanding level, how should we think about that.
Uhm also conversion rates within the industry, we've been seeing some noise around conversion rates are you happy with the traffic relative to conversion digitally. Thank you.
Thank you your your your view on expectations is is absolutely right, but for different reasons. So we do expect in the coming months.
Good to rebound in China, Greater China evil splitting spilling into southeast Asia. So that's one source of rebounds, and remember two two minus 33.
But also remember we are now Where's the month of March April may.
<unk> with a month's where Europe last year was heavily hits I mean, the the <unk>.
Start of the war in Ukraine was particularly negative for consumer sentiment across the different consumer segments that we serve last year. So there will be in comparison to last year again, Europe will drive a lot of the optics, but.
Because it is <unk>.
Very low comparable so we against verses in the U S where last year the co barrels from the U S are good so I would say.
Would you describe as the as the right you, but it's maybe more reflection of what happened last year than necessary. What happened this year because of the U S is doing well Europe is coming back to normal levels at least compared to the.
Months of March April may, but we're having a impacted by the start of the war.
Ukraine.
Your next question comes from nine <unk> Avenue <unk> with Society General.
Yeah, Hi.
Question from my end on the margins and Uhm, if I look at the lower end of your guidance.
<unk> that into which twenty-three <unk> would be 10%, but if we look at history. I mean have you have data 419, 2021 and 22. It has been mostly around the six to seven 8% range. So how should we I mean, what's your underlying assumptions on the margin expansion into H given that.
Depression is still exist and the marketing cost is still up so yeah on that please.
Thanks for the question happy I can I can take that think about it that that way in the first half we achieved 30 million adjusted EBITDA and then the second half to achieve the 68, which is which is low and we we we need to cheap another $38 million. So.
And the first half $38 million second half.
And the second have always has a higher wage on the on the on the overall business on the G M B.
So we are very comfortable to achieve the 38.
And also if you look at the Q4 of last year, we had an 8.2% adjusted EBITDA margin, but <unk>, which is if.
If you look at the historic range is uhm lower than usual. So we are comfortable to see to to achieve the.
The adjusted.
EBITDA and adjusted EBITDA margin as reflected in the lower guidance with staying true to our profitability I mean bear in mind that we have an H two already and 8.3% profitability and in the in the in the overall productivity levels.
On the low end is 9%.
And so we.
<unk> component of achieving that lower end.
Okay. Thanks.
Your next question comes from the line of leeway here with C. I B C.
Good afternoon Litecoin marketing. Thank you for taking my question. My question is on the C. P. M front. So we have already established.
Seven brands under the C. P. M model could you share a bit more details on that and especially after D. C. P. M. Partnership is you know effective cause it have you seen any change in terms of inventory location from these brands and what would you do.
Impact on us thank you.
I mean on the on the financial.
Results of C. P. A minute Martin speak in terms of the the.
The inventory location.
Just to.
Repeat the logic of the C. P. M is that we work together as partners as we do.
Wholesale arrangements so the assortment of location.
Clarify the initial location is billed without buying team.
In dialogue was the branch it's not.
Naturally by the brand or unilaterally by us it's it's.
It's jointly build and then as we progress through the season. The model allows us inventory exists, which is <unk>, most permanently encore and carryover styles, but sometimes also diseases styles to replenish.
To replenish my size to replenish.
Certain styles go out so the inventory service levels are actually improving.
On the on those areas, where we can replenish and on the initial allocation for items, which are only produce colder.
It's it's jointly developed Oh T B order book by buying our buying team, which continues to be involved also in the C. P M.
Logic.
Got it thank you very much.
There are no further questions at this time. This concludes today's calling you may now disconnect.
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