MYT Netherlands Parent B.V. Q3 2023 Earnings Call
Greetings and welcome to the Mitek reset third quarter of fiscal 2023 earnings conference call. At this time, all participants are in a listen only mode.
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 Mitra recessed Chief Financial Officer. Thank you Sir please begin.
Thank you operator, and welcome everyone to my trees. This Investor conference call for the third quarter of fiscal year 2023 with me today is our CEO micro trigger.
Before we begin I would like to remind you that our discussions today will include forward looking statements and comments, we make about expectations are forward looking statements that 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 the IRS on this call.
You can find the reconciliations of these non <unk> financial measures in our earnings press release, which is available on our Investor Relations website at investors Doffed by trees, a dot com.
I will now turn the call over to Michael.
Thank you Martin also from my side, a very warm welcome to all of you and thank you for joining our call today.
We wanted a comment on the results and performance of our third quarter fiscal year 2023.
Overall, we are satisfied with our results in the third quarter.
Our business has shown once more financial strength.
Andrew.
Despite significant macro headwinds right Teresa stepped up its topline growth in the third quarter compared to the preceding second quarter.
Gross profit margin was impacted by aggressive industry wide promotions of competitors, but we remained profitable in contrast to most other players.
We stay fully committed to serving the high end water building customer.
Finance curated luxury also clear focus on full price selling and excellence in operations. We believe maintaining this level of integrity is the best approach to whether the trends in Torrey challenges in the market and deliver the results for the full fiscal year 2023, as well as protecting the.
Pending medium term prospects of our business.
Based on the superior business model and strategic positioning.
Let me summarize the three key characteristics of our performance as evidenced in the third quarter of fiscal year 2023. So that you can fully appreciate the strength and resilience of my Teresa Despite significant macro ahead.
First our focus on the high end wardrobe building customer and thus also on true luxury brand partners.
Makes us the best positioned platform to benefit from the ongoing growth in luxury and the expected consolidation of platforms.
This is clearly supported by our excellent top customer Kpis and continued success with money can buy experiences for them.
And the continued trust based relationships, we have with luxury brand partners.
Second we have built a very resilient and flexible business model that is profitable even in challenging market conditions, we are global.
Active across many luxury categories.
Really focused on full price selling.
And we have the highest share of cost variability.
But we are constantly innovating and laying the foundation for future growth in our business.
As evidenced by some major milestones recently achieved that I will describe in more detail later.
All of this happened while diligently operating our business.
Let me now comment in more detail on those three characteristics.
First let's look at the success with high end well Joe building customers in the third quarter.
We grew our gross merchandise value GMB by 17, 8% compared to Q3 of fiscal year 2022.
On a two year basis, we grew our <unk> right.
Plus 33, 4% compared to Q3 of fiscal year 2021.
This growth in the third quarter is clearly an exception in the industry.
It is driven by the clear focus on the true high end wardrobe building luxury customers and not be aspirational occasional luxury shops.
In the third quarter fiscal year 2023, our top customer base grew by plus 28, 1% compared to Q3 of fiscal year 2022, and the average spend per customer grew six 7%.
Overall, the business with top customers grew by 36, 8% in terms of <unk> compared to Q3 of fiscal year 2022, and our top customers accounted for 36 four in Europe percentage of total GMB.
Before a number of customers grew by plus 14, 4% and the average spend for all customers grew by plus four 3% in the third quarter of fiscal year 2023.
Also the repurchase rates in Q3 of fiscal year 2023 off customer cohorts acquired in Q1 fiscal year 2023, compared to Q1 of fiscal year 2022 cohorts were positive again.
Please see our investor presentation for more details on the cohort repurchase rates.
All the data mentioned shows the strength and quality of our customer base.
Gage and serve our high end customers. We partnered again was mainly leading luxury brands to create true money can buy experiences for our top customers.
<unk> brands are more and more interested in partnering with us or client telling activities given the increasing importance of top customers in today's environment.
Examples of recent top customers even include a party to celebrate the new design of virtual during Paris fashion.
The private did not the soloist copper alley.
The preview the fall winter collection, and the two day experience in Venice, including a gondola two of the privatization of an iconic ice cream shop, and the dinner and a private Palazzo independence of creative director Sandra Choi.
Please see our investor presentation for more details on our recent top customer activation.
Our unique ability to excite and engage was true high end luxury customers and build long lasting relationships with them provides us with a strong competitive advantage.
We have increased our top customer base by plus 120% since Q3 of fiscal year 2020.
Our focus on high end customer engagement is ultimately a key driver for luxury brands to continually partner with us.
We partnered once more in the third quarter.
Like no other platform with many leading luxury brands for exclusive capsule launches or pre launches of collections.
Examples for exclusive brand collaborations in the third quarter include an exclusive bank loans, which will take advantage of exclusive menswear capsule collections from lower piano and Deutsch Gabon are only available today.
No.
The launch of the exclusive Spike collection of Christian Louboutin.
Several pre launches from zero, Ashish, giving mitel <unk> customers first excellence.
The exclusive that such a capsule collection only available at my Teresa and many more.
Please see our investor presentation for more details on brand collaborations.
Second, let's look at the resilient flexible nature of the business.
In the third quarter of fiscal year 2023, we successfully continued our global expansion, we experienced high growth in Europe was plus 19, 2% compared to Q3 of fiscal year 2022, while the results in mainland China was still impacted by the Covid pandemic.
In the United States, which continues to be one of our key growth markets. We achieved again above average GMB growth was plus 27, 4% compared to Q3 of fiscal year 2022.
The share of the United States of our total <unk> increased to 17, 7% in the third quarter of fiscal year 2023.
We drove this growth with a strong lineup of customer and brand events across the United States, Although many.
Many highlights.
Our physical pop up in Aspen, where we took over the retail space and have withheld you're ruling and engaged with over 600, New high net worth individuals during our stream day presence. We also partnered with regional Tastemaker makers in Texas, Arkansas and <unk>.
North Carolina to engage was approximately 200, new high net worth customers and drove brand awareness.
Please see our investor presentation for more details on our events in the United States in the third quarter of fiscal year 2023.
However, rich last 12 months order value increased by plus three 9% in the third quarter fiscal year 2023 compared to fiscal year 2022. This is driven by our continued expansion across luxury categories. Most recently with the addition of home and lifestyle products.
We will continue to expand our offer in terms of luxury categories to grow our share of wallet with top customers continue.
The high cost variability in our business model allowed us to keep cost ratios within our budgeted ranges in Q3 of fiscal year 2023.
<unk> some inflationary pressures.
The number of first time buyers reached over 124000 in the third quarter of fiscal year 2023, while our customer acquisition costs actually declined by minus two 4% compared to Q3 of fiscal year 2022.
Our ability to decrease the CAC.
Was the result of leveraging new need of performance of meta as well as our continued success of applying AI algorithms in our billing platform.
72, 1% in Q3 fiscal year 2023.
Despite our ongoing focus on food price selling our gross profit margin.
Came in 320 basis points lower than Q3 of fiscal year 2023, compared to Q3 of fiscal year 2022.
This was driven by a significant industry wide promotional aggressiveness of many competitors on both fall winter, but even already on spring summer merchandise.
We view this as a transitory challenge until the excess inventory has been cleared and we see a strong medium term advantage of staying fully focused on full price selling.
Rewards the best customers.
Martin will talk in a few minutes about how all of this translated into our bottom line results for the third quarter of fiscal year 2023.
Third I mentioned about that we achieved major milestones in the third quarter laying the foundation for future growth.
We expect a strong recovery of the Chinese luxury consumer markets with a focus on domestic consumption.
Launched our China design, a program last year to celebrate the best New Chinese luxury fashion designer and to coincide with the recovery.
The four designers do Jack Susan.
Susan.
Sure.
Were chosen to create distinctive capsule collections exclusively available on nitrogen.
Last month, we celebrated the launch with a high caliber physical event in Shanghai.
<unk>.
And accompanying campaign attracted widespread interest by Chinese press and on social media.
<unk> pieces of the capsule collections were sold out quickly.
Today, we can also announce the expansion into another luxury category.
Through our exclusive partnership with the worlds largest luxury watches and jewelry retailer from Switzerland.
We will offer certified pre owned watches with an international two year warranty and full service package directly from the watch experts approval.
The offer will first be launched in Europe , and the most elevated selection of high end and certified pre owned time pieces from about 25 brands, including <unk> Brightening Kaki.
C Schaffhausen Diego <unk>.
And Omega will be on offer.
The continued build out of our infrastructure is an essential foundation for future growth.
In that vein if there is another major milestone to announce today that we have successfully concluded the multiyear project to upgrade our compete E Commerce technology stack, we migrated all our websites apps.
<unk> management system merchandising and product information systems to a new service based and highly scalable platform and will allow us to improve speed flexibility personalization regionalization and cost of development.
The transition to the new platform was achieved with minimal disruption of our business.
Finally, I am happy to report that the construction of our new warehouse and light Sweet is making good progress and we have started the intuitive interior building and construction group.
With all of the above it should come as no surprise that we are satisfied with our performance in the third quarter of fiscal year 2023, Despite significant macro headwinds, we believe that our results demonstrate the strength and consistency of our business model delivering profit.
<unk> growth.
We see ourselves as one of the few winners in the expected consolidating luxury e-commerce space.
Now I'll hand over to Martin to discuss the financial results in detail.
Thank you Michael.
I will now evaluate the financial results for the third quarter of fiscal year 2023, and that March 31, 2023, and we will provide additional color on the major factors influencing our performance during the quarter.
Unless otherwise stated all numbers refer to euro.
As Michael already indicated considering the continuously challenging macro headwinds.
We are pleased with our a plus 17, 8% topline growth in the third quarter compared to our preceding Q2.
Fiscal year, 'twenty, three with plus seven 8% topline growth.
We saw a significant increase in promotional intensity by competitors during the quarter, which affected our gross profit margin and adjusted EBITDA margin.
We expect this competitive behavior, driven by excess seasonal inventory to be transitory.
All of these factors combined created a unique and challenging environment that even <unk> was not entirely immune to.
However, it is also more clear than ever that might Teresa continues to be the most resilient player in the industry achieve.
Achieving solid topline growth and continued profitability, while delivering a superior customer experience and true value add for our brand partners.
Our business model and differentiated focus on the discerning high end luxury customer.
Has proven its resilience.
For these reasons along with favorable long term fundamentals for the luxury industry, we remain confident in our short medium and long term outlook.
Let's look at the numbers in more detail.
In the third quarter of our fiscal year 2023, and March 31 <unk>.
<unk> was at $219 8 billion growing at 17, 8% compared to the prior year quarter.
$186 6 million.
At constant currency the growth was at 15, 4%.
Our total active customer base grew by a solid 14, 4% in the quarter.
In addition, <unk> for all our customers grew four 3%.
We had a strong number of 124001st time buyers in the quarter.
And was most impressive is again, our top customer growth.
The number of our top customers grew by 28, 1% in the quarter.
As they appreciate the compelling experience we provide in addition to our strong GMB increase per top customer of six 7%.
This is in line with our impressive results in the previous quarters.
The two year growth rate of our top customer base was 65, 9% in the quarter.
During the third quarter of this fiscal year net sales increased by $29 4 million or 17, 3%.
$198 9 million in Europe .
As in preceding quarters net sales reported is impacted by brands transitioning to our Q&A platform model.
During the third quarter of fiscal year 'twenty three we continued to have seven brands operating seamlessly and.
The curated platform model.
With the revenue has now fully transitioned to the CPM model and Theyre switching period for most brands being longer than 12 months ago.
The difference between GMB growth and net sales calls has narrowed as expected.
In the third quarter the growth gap was only 50 basis points.
For Q4 of the current fiscal year, we expect the growth gap to range between 50 to 150 basis points as it will it be fluctuation between quarters.
As of fiscal year, 'twenty four and beyond.
With incremental brands expected to be added to the CPM, we expect growth rates.
To continue to be close to each other.
Which is the 18% GMB growth with strong and increasing sales coming from the U S.
And the middle East among others.
Strengthening the global reach of our <unk> brand and.
Our diversified customer base.
As a consequence of macro headwinds and significant promotional activities at competitors.
Inventory levels, our gross profit margin in Q3 was at 45, 6% a decrease of 320 basis points compared to the 48 eight.
8% in the prior year period.
Having promotional activities continued throughout Q3, and even in Q4 with spring summer merchandise.
With that our full priced share in relation to our share of sale activities.
Was lower than expected.
And put pressure on our overall gross profit margin.
We expect that this exceptional and significant promotional activities of our competitors are transitory.
As a result in Q4 fiscal.
Fiscal year 'twenty three.
We expect a similar contraction of the gross profit margin in relation to what we achieved in Q4 of the preceding fiscal year.
Full fiscal year 2023, we expect a gross profit margin of around 50%.
Compared to the 51, 5%.
Of the preceding fiscal year 2022.
With gross profit margins around 50%.
<unk> operates a superior business model.
Brand positioning.
Within the current temporary market challenges.
We are committed to our full price focused high end positioning.
Enabling us to keep growing profitably and.
And we believe that this unique market pressures are transitory and will decrease in the second half.
Calendar year 2023.
As of March 2023.
Our new spring summer collections have been fully delivered.
Although inventory levels are up 44% compared to March 2022.
We are confident we will return to more normalized levels of inventory in the next quarters without exceptional inventory clearance activities.
Our continuous double digit topline growth.
Diligent new season buying and disciplined pricing.
We will enable us to leverage our inventory levels best.
And to fortify our market leadership position.
The growth of inventories driven by the current and upcoming season.
And due to our unique positioning we are able to market the current season longer and with higher margins.
In addition.
Being their preferred multi brand partner for most luxury brands.
We have the best curated multi brand offering.
And with exclusive brand collaborations only available on nitrogen.
As a reminder, in our CPM partnerships.
Brands bear the inventory risk.
As a result.
<unk> has a more diversified risk profile in regards to inventory levels.
Shifting on payment costs grew by $6 4 million to $31 5 million as compared to $25 1 million in the prior year quarter.
The shipping in payments cost ratio in relation to <unk> increased by 80 basis points.
13, 5% in the previous fiscal year to 14, 3%.
The 80 basis points higher cost ratio, mainly resulted from the aforementioned strong ago outside of Europe .
<unk> energy price, driven surcharges, which had implications for shipping as payment expenses.
As a result of implemented changes.
Payment in custom setup, we expect that in Q4.
We will mostly offset cost increases.
And we will therefore achieved stability in the.
<unk> ratio at around 14%.
Which is in line with the cost ratio in Q4 of the preceding fiscal year.
During the third quarter of fiscal year, 2023, marketing expenses increased by $2 4 million to $25 7 million as compared to $23 3 million in the prior year quarter.
As a percentage of <unk> marketing expenses decreased.
From 12, 5% in Q3 of fiscal year 'twenty two to 11, 7% in Q3 of fiscal year 'twenty three.
The decrease of our marketing cost ratio is mainly attributable to our continued strong existing customer core performance.
Continuous focus on acquiring high quality, new customers with expected strong.
Lifetime values and shifts of PR events of our top customers between quarters.
We were able to attract more than 124000, new customers during the third quarter of fiscal year 2023, with lower customer acquisition costs, even compared to Q3 of fiscal year 'twenty two.
Adjusted selling general and administrative expenses grew by 6 million to $29 7 million in the third quarter of fiscal year 'twenty three.
Adjusted SG&A expenses as a percent of the GMB.
<unk> increased by 80 basis points from 12, 7% to 13, 5%.
Compared to the prior year quarter.
The increase of the cost ratio is due to the increase in ftes.
And related higher personal cost, especially in logistics.
As well as higher energy costs.
In addition to our focus on attracting and retaining the best and highest potential customers.
We are also being judicious with expense management.
We are committed to profitable growth and want to increase our profitability levels.
We expect the adjusted SG&A cost ratio to go down in Q4 of this fiscal year.
From the Q3 fiscal year 2003 level.
With our cost containment measures and despite the slower topline growth and cost inflation we.
We expect stability and the adjusted SG&A cost ratio for the full fiscal year at around 13%.
In line with fiscal year 'twenty two levels.
As a fast growth company with a relentless focus on delighting, our customers prudently capturing market share quantifying a leadership position, we will continue to invest in the quality of our personnel.
We won't compromise our service excellence.
Despite the macro headwinds affecting customer sentiment and the highly promotional short term focused actions of our competitors.
We achieved 18% topline growth with positive adjusted EBITDA performance in the quarter.
The adjusted EBITDA margin was at one 6% as compared to six 4% in the prior year quarter.
Mainly due to a lower gross profit margin.
Given the seasonality throughout the year, our Q3, usually has a weaker adjusted EBIDTA margin than other quarters.
For the full fiscal year 2023.
We expect adjusted EBITDA in the range of 34% to $43 million.
And adjusted EBITDA margin.
<unk> four five to five 5%.
Depreciation and amortization expenses in Q3 slightly increased to $3 1 million or one 4% of <unk> as compared to $2 3 million or one 2% of <unk> in the prior year quarter.
Adjusted operating income or adjusted EBIT.
And adjusted net income in Q3 were positive.
0.1 million and $1 4 million respectively.
For fiscal year to date 2003.
Adjusted operating income was $25 2 million.
With an adjusted operating income margin of four 5%.
Fiscal year to date adjusted net income was $19 6 million, representing a three 5% adjusted net income margin.
For fiscal year to date 2003.
Moving to the cash flow statement during.
During the nine months ended March 31, 2023 operating activities used $83 million in cash.
The main driver was the usual seasonal inventory buildup of current spring summer collections.
During the last nine months net cash used in investing activities.
Was it $18 9 million driven by the setup of the new warehouse in Leipzig.
Which will enable us to better serve our customers.
Quicker shipping times.
Around two thirds of <unk>.
Total cost of the new warehouses have already been paid in accordance with the outlined to set up plan and the remainder.
Of the 14% to $17 million will be paid in the coming quarters.
Through go live in fiscal year 'twenty four.
We ended the third quarter with cash and cash equivalents of 13 million no long term bank debt and $60 million revolving credit facilities as of March 31 2023.
Our equity ratio is at 69%.
This balance sheet.
<unk> gives us more flexibility.
Then what we see many competitors.
In line with our press release on April 19, we confirm.
Our expectations for the current fiscal year ending June 32023 as follows.
<unk> in the range of $845 million to $860 million.
Presenting 13% to 15% growth.
Net sales in the range of $750 to $765 million.
Representing 9% to 11% growth.
Gross profit.
$380 to $306 million.
Representing 7% to 9% growth.
And adjusted EBITDA in the range of 34% to $43 million and then adjusted EBIDTA margin between four 5% and five 5%.
We delivered solid results in Q3 of fiscal year 'twenty three despite the ongoing macro headwinds and peer promotional activities and.
And we remain focused on continuing to execute and deliver value to our customers and brand partners.
As the industry leader in growth and profitability.
And excellence in execution.
Ourselves well positioned to achieve our short term targets. Despite the challenging macro environment. We will continue to benefit from the ongoing shift to online in luxury spending. We also expect further market consolidation among digital platforms and we see continued global market share.
Gains for us based on our very attractive value proposition as well as a superior business model we.
And with that I'll ask the operator to open the line for your questions.
The floor is now open for your questions to ask a question at this time. Please press star one on your telephone keypad, if any point you'd like to withdraw from the queue. Please press star one again, you'll be provided the opportunity to ask one question and one further follow up questions.
We'll now take a moment to compile our roster.
Our first question comes from the line of Matthew Boss from Jpmorgan. Your line is open.
Great. Thanks.
So Michael maybe two to start off in the U S, which saw your strongest growth this quarter could.
Could you just elaborate on the progression of demand trends within your aspirational relative to your top customer cohort throughout <unk> Q1 <unk>.
<unk> seen in April and May and just what's your overall assessment today of luxury demand in the U S. Maybe if we looked at it by category.
Happy to do so Matt So we clearly see in the U S. The trend that aspirational customers.
Are slowing down their consumption are taking a wait and see position.
You can also see that in our global numbers in terms of the quite significant gap between our top customers.
Progress in consumption and average spend.
And all the other customers and the same is true in the U S.
It is also true that in the U S. The consumption at the high end has not exhibited any slowdown throughout Q3.
And.
The market is driven much more by their purchasing behavior, which is.
More ready to wear.
More focus on the high price points more focus on what the industry is currently calling quiet luxury.
Exemplified by brands that are less.
Less logo, driven more fabrication and material driven and so the.
Trends in shopping behavior or the trends in category behavior is actually not that aspirational customers change their behavior. It is just that.
The importance or the weight of the <unk>.
Behavior.
<unk> spending wardrobe building customer is more pronounced in the numbers and.
We continue to see that.
And in the current in the current weeks, but we also continue to see Wellington described.
The promotional intensity in the U S, particularly by players that are or have traditionally focused on the aspirational customers and there is.
Excess stock in the market in the U S enrollment, but we view that as a.
Transitory.
Great.
Recalibration of our budget process.
Okay.
Great and then maybe just a follow up for Martin on the profitability side any change to your medium or long term EBITDA margin target and could you just help bridge us back to your long term target relative to the mid single digit EBITDA margin guidance for this year.
Yes happy to do so masks.
I mean, the the current profitability levels and we are also always have to bear in mind, we're still profitable we were profitable in Q2 and Q3.
Despite this as we all know unprecedented.
The business model already shows a high variability and resilience to two.
To show a strong performance even in this unprecedented situation and so we all don't know how long the macro headwinds will affect customer sentiment and therefore, our performance in the.
In.
And the market and our positioning.
Obviously there are no.
Actual impediments for us.
Two to change our medium or long term guidance on profitability.
As we see I mean as Michael said this is also a.
A strong chance for us to fortify our.
Leadership position in the market with strong very strong brands brand support.
And therefore, we have the current profitability levels as shown in the guidance.
<unk> guidance and obviously, we're working hard on all cost containment measures.
And we'll want to increase profitability.
Great Best of luck.
Our next question comes from the line of Oliver Chen from TD Cowen Your line is open.
Hi, Thanks, it's Tom on for Oliver.
Just wondering if you could discuss the competitive landscape and maybe what youre seeing across the United States and Europe in that regard.
And maybe additionally, tying that in with your inventory position and any additional levers you see four leveraging acquisition. Thanks.
Sure happy to do so.
Slowdown on the aspirational occasional luxury shopper across the board. So the competitive landscape is therefore very much influenced.
How much focus.
Individual companies had on this type of customer whether they were more focused on.
Multi brands inspirational order builder or more on serving that one time customer and thus we do see players that clearly.
Overall, it has I expect more business to come with this type of customer and that drives.
Promotional pressures as they attempt to clear inventory.
Presumably driven by cash needs.
<unk> clearly stated.
Sure.
Every call. This is not our position. This is not our strategy. We are impacted by this behavior, but it does not change our position as being the one player that treaty.
Focus on food price, serving that wardrobe building customer and we do believe that.
Even if we are impacted.
In.
Generate profit generate cash gives us potentially an even greater leverage to not only so.
They did file fortify our leadership, but even take market share in the current environment.
In terms of luxury to luxury arenas.
Other platforms evolve in a different direction.
That's fine.
It serves their purpose thats great.
We are in a good position, whereas our curated platform model to react.
Once we see sentiment improves as margin explained this is a business model, where we don't carry inventory risks, but are integrated into the supply chain of these major leading brands.
And on.
On the wholesale positioning.
We would characterize our.
Approach as cautiously optimistic there is a lot of risk in the environment, but we have a solid base, we have a customer segment accounting for 36% that has delivered 37% growth in the last quarter. So we have.
The base to drive.
Further topline growth but.
Current times like this.
Also cautiously looking at.
Inventory positions, we take or we don't take.
Great very helpful and a quick follow up could you just comment on what you've been seeing in China.
To date and essentially how your expectations for China inform your guidance ahead.
As stated in <unk>.
<unk>.
In our introductory remarks.
China, Greater China was still very much depressed in in demand.
This was very close to the unfortunate events that took place in October November December .
We also mentioned that we did a major activation in April we had multiple press sessions with our Chinese design, a capsule collections of major event talk.
And I was personally in Shanghai, and I must say the mood was very good very positive. So I can confirm based on the numbers and based on what I saw.
And heard went on the ground that there is.
Very good recovery.
Although this is not an immediate bounce back so we expect from the Chinese luxury consumer market, a continual but steady return to.
The levels that we saw in 19, but not immediate returns and that gives us confidence for.
Growth not only as in Q3 in Europe and in the United States, but also growth in greater China and even.
Southeast Asia for the coming quarters.
Great. Thank you very much.
Our next question comes from the line of Kunal <unk> from UBS. Your line is open hi.
Hey, thanks for taking the questions.
One on the inventory.
Just a follow up.
On the last question I wanted to understand.
Inventory turns at unprecedented levels. Despite the fact that you've transitioned to CPM model.
And if the industry itself is.
How do you expect to kind of.
Given the given the seasonality aspect of it.
In time and at decent prices.
I'm happy to give a first interim that Martin will address that yes or no.
Was not in terms of top line, what we expected.
But we of course, it's not dollars $2 you have to look at you have to really look at the composition in terms of what are these products.
What season B, what brands and then even within brands are these core or slash carryover items that have multi season.
Irrelevant or pure seasonal items that are.
As you said.
Our aging rapidly.
Also we have had always success in the past of.
Driving revenue from inventory longer than one season.
Our proven that so we see the need to work through that high inventory absolutely right, but we are not in a position where we need to.
Of course, any panic button, we are optimizing for gross profit margin.
We are not optimizing for short term cash needs.
Our balance sheet position, our cash position is such that we can really drive through with customer demand and of course, we do expect and this was built an hour.
Our new guidance, we do expect us.
Some margin pressure so it will take some margin to work through this but we absolutely view.
Few that the Recalibration, we did which is included in our new guidance for profitability.
Captures and cover that.
With that I hand over to Martin.
Yeah, maybe maybe in addition, kunal.
Next to it continues.
Double digit topline growth, which will also help on the inventory side and the diligence new season buying in.
What do we take a closer look by brand and by by segment also bear in mind that the inventory levels base of the previous year is influenced by brand switching.
To the CPM model so in fiscal year to date 22, so the preceding year nine months inventory levels decrease.
20 million, despite our growth top line growth of 15%.
So that usually would.
Translate and an increase in inventories, but we actually decreased due this to tune the switching effect.
But your observation is 100% correct, we have high inventory levels and we will continue.
To work on that diligently along the lines that that micro I explained.
Thanks, and just a quick follow up so.
Michael talked about being cautiously optimistic about.
The near term competitive environment.
We look at.
The environment and maybe macro Mike <unk>.
Might be would worsen from current levels.
In that situation how should be expect.
Mike Lisa.
Kind of growth should we kind of expect that worked in a large and should we kind of think macro goes worse.
We don't know so you're right it could get worse.
And it may get not worse, so that that is unfortunately the facts.
Can we expect from our business.
I think we are showing that wisdom focus on high end wardrobe building customers.
We are in the best position to mitigate.
A lot of these challenges I mean, plus 18% growth is good.
But what is really good in this quarter. If you look at our top customer revenue items.
And Q3.
Economically not a great quarter it was not.
Bad quarter, So I think in an environment like that you can expect off of.
Mitra raise up to really grow the business with top customers in this quarter a growth of 37% overall.
The quarter 12 months ago, where I believe.
Fannie be set the economic situation.
Several regions was much more positive.
And that is what we are focusing on because we do believe the aspirational customer will come back, but it will take time.
It may take longer depending on the.
On the worsening of the economic situation. It may not take so long as situation picks up but.
We are as managers not.
Experts in assessing that but we see.
Excellent solidity and excellence desire by our top customers and this is what we are driving and this is where also the launch announced today of three owned luxury watches was price points up to 100000 euros. This is all sitting there is this.
And therefore.
We believe with this Q3, we are fully in line with the guidance for our fiscal year that ends.
In June .
We are not giving today guidance for for the next fiscal year, but.
Given the current environment, we are very comfortable with continued growth and continued profitability as being the hallmarks of our business.
Got it thank you so much.
Our next question comes from the line of Lauren Shang from Morgan Stanley . Your line is open.
Alright, thank you.
All of the above our thoughtful question about your philosophy on optimal top 40 versus top line growth.
Is there a scenario where you might <unk>.
Mobs for Coca Cola FEMSA.
We reported an overall impact on top line.
Hello, and thank you Bob.
For our armed with a follow up.
How are you calling on behalf of <unk>.
No that's helpful.
Hello.
Thank you Laura and I will take the first question of margin can address the second one so I think it is maybe.
Is it helpful to just described.
How margin pressure is reaching all of our business in the current environment.
Unfortunately.
<unk> was a part again.
It is best to buy items on sale to.
By items with reduced prices and and wait for this to come if they don't see it so what happens in our business at the moment is that we see consumers.
Buying more.
On on items on sale, so our sales share has grown in Q3.
There was of course still fall winter sale.
And.
Usually spring summer is already a good business in Q3, which drives of course, the free price share and here we saw reluctance.
Our reluctance by consumers to buy spring some upward price because they already started to see slash I expect.
So we will see these full price items some wells already on discounts. So there was unfortunately.
Sort of <unk>.
Learning from these customer or I can wait I can find the discount some wells so it's not that we.
Engage retaliate.
In these type of promotions, but were impacted by consumers, saying, Oh I don't have to buy full price I can find it somewhere else. So it's the mix effect.
Which gives the highway to sale and.
Therefore higher.
Lower mixed.
Margin just to explain that.
Continued to.
Stay in all of our strategy and not all but the mix still effects our margin as shown in Q3 and.
Reflected in our guidance.
Maybe Martin you can take the second part Jordan's question.
Yes, Laura and happy to do so on the inventory as Michael said our approach is cautiously optimistic so on the one hand, yes, we we look at the.
Forward into 'twenty three by even the spring summer 'twenty four.
B being very diligently.
On brands and on.
On the orders, but not following <unk> approach of just trying to focus on short term cash generation.
But on the other hand, as well thinking about in this unprecedented situation where.
Peers are struggling.
To build on our strong.
Top customer performance and growth.
Yes.
We'll focus also on capturing market share and continuing to grow.
Therefore also have a balanced approach on the inventory side.
And from those two lines. The overall approach is cautiously optimistic which is in.
The fall winter 2003, and the spring summer 2004.
Our final question comes from the line of.
Asking of Sienna.
Side eight Generale your line is open.
Hi.
A couple of questions from my side.
In terms of geography, as you said like DMV grew 27% in U S and probably it does not so great in China sold.
From the field some of what we see there was a like a slowdown in Europe .
Overall, our muscle any color on Europe , and how you see the current trading in Europe and second question is on the on the gross margin so.
Any comment on like.
Our <unk> Lake, who basically beef competitor that because we are the <unk>, saying that in poker to any to reserve that they also.
Hadn't had gross margin issues same with Neiman Marcus probably same attacks and the lender in Europe . So like first of all with Vitol. These Lake region say youre facing this promotion entity.
Who are the typical players.
I mean, who are leading this.
And I think you've already said.
Most likely you will see it.
Getting completed by <unk> of the calendar year.
Happy happy to address some of the questions. So just a clarification for the regional <unk>.
We saw in Q3, so global growth was 18% Europe grew 19%.
S grew 27%.
So as clear as I should have been.
Slower region and I can confirm the slow region was greater China Southeast Asia.
Remember Jan to March was still very much <unk>.
Near to the unfortunate events in November December .
The reversal of Covid policy.
We have seen in our recovery, but this was not taking place in Jan to March So again Europe .
About the average of our global growth U S ahead of lower global growth.
In terms of.
Who are the players I'm not going to name any individual players I think as followers of the industry. You can easily see who has engaged in heavy promotional intensity you has already started to discount.
Spring and summer merchandise end of March early April .
I think the.
The real factor off.
Who are those players comes back to what I said initially the biggest problem at the moment is for platforms that had a high share of aspirational occasional.
Buyers that are not luxury reward all builders, but occasionally buy luxury items and the bigger share of your business with that segment.
Challenges are in an environment, where that consumer segment is slowing down.
And.
As we.
As we have lead times for inventory purchases.
At the moment.
Spring Summer 2004.
Buying starts for the whole industry and so given the current context spring somewhat 24 in our view will be bought.
Much more carefully cautiously.
Therefore that spring summer 24 will be a season that.
Reflects the recalibration for those platforms that are focused on the aspirational customers for.
Winter <unk> three.
Already also observed that certain platforms have reduced.
The orders.
After placing them I mean, you can cancel them. So we do expect indeed in terms of our quarter us that with Q3 the situation will have <unk>.
<unk> significantly in terms of excess stock, but I have to add of course.
This is sort of one element of the equation. The other element of the equation is how is demand away. So if demand stays as it is my statement is valid.
Demand improves.
It actually gets easier earlier and of course, if the situation worsens then some of the inventory Recalibration of is happening now may not even be enough, but that goes back to it's very hard to.
Sure.
Make definitive.
Predictions for consumer demand at the moment.
In the aspirational sector.
Okay.
On your <unk>.
On your gross margins I mean, what is your strategy on <unk>.
And that idea I mean are you sticking with your fast start to the off like doing less promotions on the on the in season.
I had season products and more on the out of season product or does does that mix also get impacted.
Good morning.
The main impact of what is happening at the moment is how consumers shop.
So.
A year ago.
<unk> are seeing spring summer merchandize that they like that that we're excited about it.
More concerned about if our weights I don't get it anymore and my size.
The current activity of course leaves the customer with a view I might still get a cheaper because somewhere on some platform there will be a discount and actually not late in the season, but quite early in the season and thus customers are.
More reluctant to buy immediately at full price. This is the main impact.
Three were in the past we may have.
Could it not as the main message on our website that theres deploy winter sale not as as a main.
Masks and all to all our new set of subscribers. So thats, how we adapt and how we adjust but its not our our policy remains that we focus on full price and so we are not increasing discounts or starting discounts earlier.
We don't believe that this actually optimize for food.
Gross profit.
In absolute terms.
It may optimized for short term cash, but we are.
Very good position in terms of balance sheet and cash.
Thank you.
Thank you ladies and gentlemen, this does conclude today's call. Thank you for your participation you may now disconnect.
[music].