Q1 2024 MYT Netherlands Parent BV Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your lines again will be placed on music hold thank you for your patience.
[music].
Greetings and welcome to the Mitel released that first quarter of fiscal year 'twenty 'twenty four 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 mitral reached as a chief financial officer. Thank you Sir please begin.
Thank you operator, and welcome everyone to my trees. This Investor conference call for the first quarter of fiscal year 2024.
With me today is our CEO Michael trigger.
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 we under no duty to update forward looking statements.
In addition, we will refer to certain financial measures not reported in accordance with fast on this call you can find reconciliations of these non <unk> financial matters and our earnings press release.
It is available on our Investor relations website at investors <unk> com.
I will now turn the call over to Michael.
Okay.
Thank you Martin.
So from my side, a very warm welcome to all of you and thank you for joining our call. We will comment today on the results and performance of our first quarter of fiscal year 2020.
We are pleased with our results in a challenging market.
So a positive revenue growth and a small financial loss, we not only surpassed market expectations, but also outperformed almost all competitors.
As expected we saw a slowdown in demand was aspirational customer across all geographies and the high promotional intensity in the market due to excess stock fall winter merchandise.
Even though the macro environment remains very challenging we continue to improve.
The mental strengths of our business model we.
We saw strong double digit revenue growth in the United States grew.
Grew our business with top customers over proportionally.
<unk> managed to mitigate significant margin pressures with cost.
With our resilient business model and our focus on the high spending wardrobe building customers, we will be best positioned to benefit and accelerate when market conditions improve.
I want to highlight today again street aspects of our business.
US apart in the sector and will give us a head start in improving market conditions.
Our unique focus on big spending water building customers enabled us to generate growth with top customers and particularly in the United States in the first quarter.
Second the strong relationships and support from our brand partners allowed us to offer our customers once more.
Any exclusive capsule collections and activations or experiences in the first quarter that drive top customer engagement and loyalty.
But we continue to evolve and innovate our business model as evidenced by the successful launch of our new.
State of the Art distribution center Leipzig airports in the first quarter and our expansion into fine jewelry.
Sector, leading growth.
<unk> financials and ongoing innovation for future growth.
Parts from peers.
Let me now comment in more detail on the street highlighted areas once a day.
First.
In the first quarter, we grew our net sales by plus six 8% compared to Q1 of fiscal year 2023.
This strong growth is above market expectations and above typical.
It is highly noteworthy that the United States generated again, an outstanding growth was plus 25, 1% in terms of gross merchandise value compared to Q1 of fiscal year 2023.
<unk> States continues to be a significant growth driver for my Theresa and the market accounted for $18, 7%, while our total business in the first quarter of fiscal year 2024.
The key driver for our growth is our continued focus on the big spending wardrobe building top customers and not the exploration occasional luxury shopper.
Our top customer base grew by plus 19% compared to Q1 of fiscal year 2023.
In the U S. Our top customer numbers increased even greater by plus 56, 1% in the first quarter.
Further evidence of our focus on top customers is that our average order value LTM increased once more by plus five 4% to a record high of 660 Euro in Q1 fiscal year 2024 compared to fiscal year 2023.
Second the first quarter, so again, mainly high impact campaigns exclusive product launches and events as well as money can buy experiences demonstrating our strong relationships and to support from brand partners.
All of them further increased our brand awareness brand equity and positioned us as the leading digital luxury platform.
We have the exclusive launch of styles from wave.
The launch of an exclusive 2007 piece capsule collection from Brunello Cuccinelli only available at Mitel.
The relaunch of the Alexander Mcqueen crews collection ahead of anyone else. The launch of my note Atlantic shoes as a key brand addition to our assortment and the launch of our lower Purion a capsule collection only available micro arrays.
Please see our investor presentation for more details on brand collaborations.
We also hosted again exclusive events for our top customers, providing bandwidth money can buy experience.
<unk> of events in the first quarter included Dana and Hurricane Wausau, Poland to celebrate the launch of the exclusive market footprint caps.
It was the creative director of sales at 10.
The two day experience with top customers and cut our costs in Spain.
Spain in partnership is it about as.
As well as events in Chicago, Milan, Paris and Beijing.
Furthermore, I'm proud to announce today that we opened the holiday house, our second truly immersive physical luxury shopping experience in partnership with Flamingo has stayed in Los Angeles for the first three weeks in December.
We expect with this pop up again, a strong boost to our business with U S top customer.
First in the first quarter 2024, we continue to drive innovation, our business for future growth.
The first week of September our new warehouse at <unk> Airport successfully started to operate.
As anyone who has gone through a similar large scale DC project can tell you. This was a major milestone with.
The new facility was at 55000 square meter of building space will not only provide ample capacity for the future growth of our business, but it will also dramatically improve customer service. Thanks to its unique location and direct adjacency to the international Airfreight hub of DHL.
We are now ramping up the staff and throughput of the Pier house and already in the second half of fiscal year 2024, we expect to see the positive impact of the new facility.
Our business.
Customers will benefit from significantly later cutoff times international deliveries additional slides options to the United States and faster return processing from customs destinations.
Another initiative that we have kicked off last quarter was the expansion of our fine jewelry offerings was item values exceeding 25000 euros.
We are already carrying fine jewelry brands, such as Red policy, a mulatto yet all marina.
And we'll add several more in the coming months.
Deliver the high value pieces, we have set up a dedicated white glove Courier service with DHL Express globally.
This new category will further strengthen our offerings and business with high spending top customers.
I would also like to mention that <unk> published its second positive change report.
Some of the highlighted achievements in this report for fiscal year 2023 include an 11% decrease of C. O two emissions per order shipped 92% usage of renewable electricity in the company.
8% women in leadership positions and more than 4 million Euro work pre owned products resold by our customers via our partnership with GE Air quality.
Please see our investor presentation for more details on the market today is a positive change report.
With all of the above it should come as no surprise that we are pleased with our solid performance in the first quarter of fiscal year 2024, Despite significant macro headwinds, we believe that our results demonstrate the strength and consistency of our business model delivering profitable growth.
We see ourselves as one of the few witness the expected consolidated luxury e-commerce space.
This also drives our strong confidence in our medium term growth trajectory.
And profitability levels. Despite a short term uncertainties in the current environment.
And now I hand over to Martin to discuss the financial results in detail.
Okay.
Thank you Michael we are pleased with our top line performance in a challenging macro environment and with persistent heavy promotions from peers.
Despite these headwinds we achieved net sales growth of plus 12% constant currency in the quarter.
The slightly negative adjusted EBITA margin of minus 0.4% in Q1.
Which is in line with our expectations.
As a result of this heavy promotional environment and in our view as transitory.
Looking ahead.
And despite these ongoing pressures we expect to finish Q2 of fiscal year 'twenty four ending in December 'twenty, three with a positive adjusted EBITDA margin.
In addition for the first half of calendar year 2024.
Due to adjusted spring summer inventory in the market, we expect a slowing of this heavy promotional environment leading to improvements in the <unk>.
And bottom line.
Our performance in Q1 of fiscal year 'twenty four despite the headwinds is a testament to our superior and unique market positioning resilient business model and our ability to adapt even in difficult times.
I will now review our financial results for the first quarter of fiscal year 'twenty. Four ended September 32003, and we will provide supplementary details on certain key developments that affected our performance throughout the quarter.
Unless otherwise stated all numbers refer to euro.
In the first quarter of fiscal year 'twenty for <unk> increased by plus 8% on a constant currency basis to $204 1 million as compared to the prior year period of $197 9 million.
Growth on an IRS basis was at plus three 1%.
Our growth in this quarter is again, a result of our focus on the highly valuable top customer segments.
Our top customer base grew significantly increasing plus 19% throughout the quarter.
Overall customer engagement and retention is strong.
But the number of active customers, who made a purchase during the last 12 months, increasing by plus eight 2%.
Reaching a total of 865000 active customers.
During the first quarter net sales increased by 11 9 million, a plus 12% on a constant currency basis increase year over year to 187 8 million.
Both on an IRS basis was at six 8%.
As of Q1 of fiscal year 'twenty four.
We continue to have seven major brands operating seamlessly under the CPM.
And our collaboration efforts with brand partners, we are able to provide them with full flexibility.
<unk> both models.
And we expect to have one to two brands transition from the wholesale model to the CPM each fiscal year.
We once again saw growth in various regions of the world during the first quarter of fiscal year 'twenty four in the U S. In particular, we continue to build our leadership position.
With continued double digit growth.
We grew <unk> in the U S by plus 25, 1% the number of top customers in the U S grew by an impressive.
Plus 56, 1% during the quarter.
The number of first time buyers in the U S increased by plus 18, 9%.
As of the end of the first quarter. The U S makes up 18, 7% of our total GMB.
Our average order value LTM increased by.
Five 4%.
<unk> industry, leading 660 euros in absolute figures the increase in AOA represents plus 34 Euro four.
Shipped order.
The continuous increase in <unk> in the past quarters in years.
<unk> order economics and reflects our successful focus on full price selling.
<unk> operating in the sweet spot of high end luxury.
In Q1 of fiscal year 'twenty for our gross profit margin continues to be affected by the intense promotional environment that we mentioned earlier.
We still witness unusual level of promotions as competitors are trying to balance the inventory levels.
Consequently, our full price share in relation to our sale activities.
Continues to be lower than anticipated.
Leading to a decrease in gross profit margin of around 400 basis points due to this mix effects.
To what we saw in the prior quarters.
A few other factors contributed to another 340 basis points decline in gross profit margin.
Among those factors were one.
An exceptional provision for expected inventory depreciation ends too.
Certain financial effects, driven mostly by a stronger performance of several of wholesale brands in relation to individuals' CPM brands.
Uh huh.
That only the commission with CPM brands is accounted for in net sales.
With a 100% gross profit margin.
If certain wholesale brands performed better that individuals again brands than the gross profit margin decreases mathematically.
On the other hand, if CPM rates would increase their share in the upcoming quarters than the gross profit margin, which increase method.
Mathematically due to this effect.
All factors considered we achieved a gross profit of $79 8 million.
Representing a gross profit margin of 42, 5%.
During Q1.
Shipping and payment costs increased by $4 3 million or 17, 8%.
$24 million for the three months ended September 30, 'twenty two to 'twenty.
$28 3 million for the three months ended September 32003.
The increase in the shipping and payment cost ratio.
12, 1% to 13, 9% in Q1 was mainly due to a one time positive effect and DDP cost in the previous year quarter.
13, 9% cost ratio was also the ratio we achieved in the preceding quarter Q4 of fiscal year 'twenty three.
For the full fiscal year 'twenty four.
We expect a similar ratio.
Marketing expenses decreased from $25 4 million.
Last fiscal year's first quarter to $23 7 million in the first quarter fiscal year 'twenty four.
The marketing cost ratio in relation to <unk>.
Decreased.
12, 8% to 11, 6% as we continue to focus our marketing efforts on the most promising new customer acquisition and.
And top customer tends to strategies and.
And aligned our marketing efforts with an overall softer market sentiment.
Adjusted selling general and administrative expenses increased by $2 8 million to $29 5 million during Q1 of fiscal year 'twenty four.
Adjusted SG&A as a percentage of <unk> increased modestly by 100 basis points from 13, 5% in the prior year period to now 14, 5%.
The increase in SG&A expenses is mainly due to higher personal expenses, especially for staff and operations and logistics.
We anticipate a continued reduction India, just adjusted SG&A cost ratio.
Throughout fiscal year 'twenty four.
Getting to reach a lower level.
Then in the preceding fiscal year.
As already anticipated during the last earnings call.
Adjusted EBITDA during the first quarter of fiscal year 'twenty four was at minus 0.8 million slightly negative and already reflected in our full year guidance for fiscal year 'twenty four.
As seen in prior years.
Our quarterly performance varies due to seasonality.
With Q1 being one of the weaker quarters.
For Q2 fiscal year 'twenty four.
And despite an ongoing heavy promotional environment, we expect to end the quarter with a positive adjusted EBITA margin.
In addition for the first half of calendar year 'twenty four we expect a slowing of this heavy promotional environment.
Adding to improvements in the top and bottom line.
In addition, we will be able to leverage our new technology platform and the new Leipzig warehouse for growth and margin improvements.
Depreciation and amortization expenses in Q1 of fiscal year 'twenty for <unk>.
Increased slightly to $3 4 million or one 7% of GMB.
As compared to $2 5 million or one 3% in the prior year quarter, mostly due to higher depreciation and right of use assets related to the new warehouse in Leipzig, Germany.
The low level of depreciation and amortization expenses.
Also a key strengths in our business model.
Adjusted operating income or adjusted EBIT during the first quarter of fiscal year 'twenty four was at minus <unk> four points.
$2 million with an adjusted EBIT margin of minus two 3%.
We ended the quarter with an adjusted net income of minus $2 9 million and an adjusted net income margin of minus one 6%.
During the three months ended September $30 23.
Operating activities used $33 3 million of cash.
For the typical seasonal inventory buildup of current fall winter merchandise.
We finished the quarter with no long term bank debt.
7.5 million cash and $16 4 million of borrowings under our 60.
Million revolving credit facilities.
Due to the seasonal deliveries and the slower top line.
Our inventory levels increased plus 44% year over year.
Which is below the inventory buildup during the preceding quarter.
Of plus 57%.
End of October.
Inventory was plus 36% to previous year.
We continue to tactically manage our inventory levels.
While our overarching focus is to attract and retain the right customer cohorts with focus on full brands.
Being mindful of brand relationships and preventing undo inventory aging.
We are carefully managing our inventory levels from a position of confidence.
Leveraging our cash and balance sheet strength.
Given all this we are confident in our business model and remain a short to continue our profitable growth story, even in a very challenging environment.
While we expect the macroeconomic uncertainties to continue.
We expect a slowing of this heavy promotional environment in H two of our fiscal year.
Leading to improvements in the top and bottom line.
We therefore confirm.
Our guidance for the full fiscal year 'twenty four.
At the lower end of the guided ranges.
<unk> net sales growth between plus 8% to 13%.
Gross profit growth between plus 8% to 13% and adjusted EBITA margin.
Between plus three 5%.
Based on the current trends of this Q2.
Running from over to December.
We expect a similar top line growth.
What we saw in the preceding Q1 ended positive, but low single digit adjusted EBITDA margin.
At the gross profit margin level, we expect similar precious compared to Q1.
We remain very confident in the medium and long term outlook for our business.
We are currently gaining market share and have completed two major infrastructure milestones.
We will benefit more quickly and over proportionately on.
On the luxury market recovers from the current economic challenges.
Our market positioning is getting stronger every month.
During this fiscal year and beyond you will see a fortification.
Our leadership position.
And multi brand luxury building the most successful powerhouse for the luxe and the <unk>.
Luxury customers and the top luxury brands.
I will now turn the call back over to Michael for his concluding remarks.
Thank you Martin we are pleased with our first quarter fiscal year 2024 earnings results.
<unk> is well positioned to achieve our fiscal year 2024 guided targets. Despite the <unk>.
<unk> challenging macro environment.
We will continue to benefit from the ongoing shift to online and luxury spend the increasing importance of the big spending customer segment.
And to desire by Brian partners to work with only the best digital platforms in the market.
We are confident that my Teresa office high value consumers, the best multi brand digital shopping experience there is.
And with that I'll ask the operator to open the line for your questions.
Thank you if you would like to ask a question. Please press star followed by the number one on your telephone keypad again that is star followed by the number one on your telephone keypad and we ask that you limit yourself to one question and one follow up your first question comes from the line of Matthew Boss from J.
P. Morgan. Please go ahead.
Thanks.
So maybe Michael just to start off could you speak to changes in consumer behavior that you saw as the first quarter progressed and then maybe just elaborate on what you've seen more recently as we've moved past the summer travel and leisure demand, particularly if you've seen any material differences in behavior.
From your top customers relative to the aspirational customer.
Sure. Thank you Matt.
The story of after somehow Q1 was of course.
Different elements I mean, one.
Very traditional retail comments, but September was a reward.
So winter merchandise.
Late start.
In in terms of.
Differences, probably behavior by customer segment, the top customers continue to spend well.
They did spend.
Substantial time.
Amount.
On the holidays in August, but as they were coming back to their continued to spend they continued to spend on ready to wear.
Continue to spend on high price. So we grew the top customer base by 19%. We grew it by 66% in the U S. The <unk> is going up so that trend is absolutely holding up while the other trend is also holding up which is aspirational.
Customers are much.
Slower demand there are of course now.
Enticed to buy with us.
Offers already hitting discounts I mean already hitting the market as of October.
So.
They may be entitled to now spend what they haven't spent for quite a while but that is of course very fiscal and sales focused and so we also of course with our top customers see already starting interest in spring summer merchandise as they start to plan for vacations.
Beyond the Christmas holidays so.
Current months are obviously on the one hand for winter merchandise sale.
Susan and sale and the start of spring summer and.
The start of spring summer is of interest for our top customers and is also of interest for us as it is a full priced business.
Great and then maybe a follow up for Martin.
So as we think about.
The guidance relative to three months ago.
Led to the revision to the lower end of the prior ranges and then could you just elaborate on that timeline from here to see inventory levels more aligned with <unk> growth.
Yeah, Matt happy to do so.
The the guidance for the full fiscal year is still I mean.
A strong guidance of plus eight two plus 13% for the full fiscal year given.
A flat or slightly positive Q1.
For the full fiscal year.
Positive adjusted EBITDA margin of plus three.
Two 2%.
5%, we guide at the lower end.
As we in this unprecedented situation.
Half two.
See how.
If situation evolves and.
Q2 as expected, we see a continuation of this heavy promotional environment.
And we therefore have a have a prudent guidance on the overall outlook.
As you as you well know there are a lot of uncertainties in the market.
That we cannot fully occur.
Account for our capture in the full year guidance, but overall.
Our expectations for the full fiscal year and beyond is very positive.
Great Best of luck.
Your next question comes from the line of Oliver Chen from TD Cowen. Please go ahead.
Hi, Michael and Mark.
Gross margin margins.
Came in.
Lower.
May be more transitory and also as we think about the gross margin components, what components were mix impacted relative to merchandise margins.
And more profitable.
On gross margin.
In the next few quarters.
What.
And also the environment that you're seeing thank you.
Thank you Oliver you were a bit cutoff, but I think that is really about the gross margin evolved in this first quarter. So maybe margin Martin you take it.
Yes happy to do so thanks Oliver.
We saw.
It's kind of it in this quarter, an unprecedented 740 <unk>.
Basis points decrease in the gross profit margin the operate of gross profit margin due to exactly what you're referring to.
A more heavy promotional environment and a lower share of our full price in the quarter.
It was again.
100 basis points exactly what in line, what we've seen in the preceding quarters.
And what we what we expected.
And also the gross profit margin in this quarter was driven by an exceptional.
Provisions for expected inventory depreciation.
That we took.
Looking at the inventory levels.
To reflect that.
And the certain and the and the second driver of this additional 3300 300 basis 340 basis points.
With this mathematical effect of CPM brands with a lower performance compared to wholesale brands and brands and they have a 100% gross profit margin. So we.
This is the key drivers of Q1 and Q2, we see.
A continuation of this heavy promotional environment, therefore, a continuation of this operator.
Gross profit margin effect, the CPM effect, we have to.
We have to see but obviously this one time exceptional provision for expected inventory depreciation. This is just a one time effect.
As stated in the in the second half of the fiscal year. So from January to June.
24.
Due to a different expected situation in.
And spring summer 24 in the market, we expect a lower promotional intensity and therefore.
Decrease in operating gross margin slippage.
Okay, just a follow up.
Why would you expect a lower promotional environment, we hope so, but we're seeing deteriorating trends.
In different ways and second.
Michael as you zoom out.
Is there a way to future proof your business against these <unk>.
Dynamics or things that may be in your control as you think medium and longer term about promotional vulnerability that clearly exists. Thank you.
Sure Oliver maybe just yes.
Go ahead and be happy to take that so.
The logic of improvements in H two on spring summer as spring so about 24.
The season.
That was smart.
The slowdown in demand towards presence up to now Paul Winter 23 was still bought back.
Back in October November last year, when it was not crystal clear, where the market was headache spring summer 'twenty forward was crystal clear, where the market was heading and we know that many.
Any platforms, many retailers and also because of cash constraints took a much more conservative approach to spring summer 2004, so while it is not easy to predict the demand for spring. So 24, given the uncertainties that Marty was talking to it is.
Crystal clear that there will be less merchandise in the markets there will be less spring summer 'twenty for merchandise in the market, which.
Is the driver for.
More.
Disciplined Moore.
Our focus on food price and instead of promotions.
And your second question of course.
Our ongoing efforts to a focus on the top and top customers be focus on taxes exclusive collections focus on ready to wear.
All of these efforts are exactly to allow us to compete on price not on discount but to compete on newness on exclusivity.
Combine that with superior service for our best customers.
That is the approach that has allowed us to grow in a market where most people.
<unk> has allowed us to still deliver.
Solid results or not.
Fall into big financial losses.
But the current situation needs to be seen as the worst market conditions since 2008 2009. So.
This is really a test.
And we believe the numbers we are posting right now the numbers we are guiding our full evidence of the resilience of the business model.
And.
The tough conditions out there unprecedented at least for the last 10 years.
No.
Our test business models, and we believe our creative multi brand business model is performing much much better than other business models, which are much more focused on aspirational customer is much more focus on endless aisle.
Product choice and Thats.
Very important at the moment to understand that difference.
In business model that difference in customer base, we are focusing on that difference in how we approach merchandising and product choice because that is the key differentiator.
That is the.
AMA against.
The promotional intensity that is out there.
Happy holidays and best regards thank you.
Your next question comes from the line of Ashley Hogan from Jefferies. Please go ahead.
Hi, Good morning, it's Blake on for Ashley I wanted to first ask about the U S strength, you saw top customer spend up there very nicely around 56% I was wondering if you could unpack and the key drivers of this and then how you view that right.
Throughout the rest of the year are those drivers sustainable.
We do believe.
These drive ourselves sustainable. So we do believe we can continue to grow double digits in U S. As we have done.
Almost.
Six quarters now consistently.
The drivers for that is coming back to <unk>.
We have a different go to market approach, we offer things others don't or at least don't focus on.
We are.
Very curated offer we are focusing very much on the high end look for product on our website.
Not confused distracted by products.
Very low price points.
With brands that are not in your bulk set.
We are very much focusing on inspiration and we offer our products, which last just in this quarter.
Had exclusive product was brunello cuccinelli one of the best performing brands, we added exclusive product there is normal or not.
Our best performing brands.
We offer our customers uniqueness.
And that is what seems to resonate very well with the U S consumer.
We will continue to do that and we'll of course.
<unk> to build market presence.
The score weak presence was a pop up in east Tennessee.
For our multi brand retailer gave us unique access to high end.
Customers.
Clearly see that this resulted in acquiring new customers and getting into new customer cohorts.
And as of next week, we will start again.
Experiential pop up.
Holiday the holiday house in L. A again, something very unique something that underlines our focus on emotional inspiration created offers and we will continue on exactly on that track with our great U S team.
It was a great personal shoppers space in the U S.
We do see that this can be sustained against.
U S competition competitors.
That's helpful. And then a follow up question I know you mentioned you expect positive EBITDA margin in the second quarter did you say, where you think gross margins could shake out in Q2 as well.
We don't guide for gross margin in the immediate quarter.
We usually don't also give quarterly guidance, but in this exceptional situation we wanted to at least.
Lead you a bit too to the next quarters, how they evolve, especially while the second half of fiscal year 'twenty four is driven by a significant improvement in the gross profit margin due to what Michael referred to.
Given the different buy in the spring summer 'twenty four.
Susan.
<unk>.
Yes.
Got it thank you very much.
Your next question comes from the line of Kunal Mad at two <unk>.
<unk> from UBS. Please go ahead.
Alright, thanks for taking my questions.
One when you when.
When we are talking about the top customers can you talk about what percentage of GMB do.
Do the top customers represent and how is that different from <unk>.
<unk> fiscal <unk> 23, and then in terms of how.
How was <unk> four top customers versus <unk> for non top customers, how did that kind of perform on a year over year basis.
Yeah.
Thank you for the question Kumar.
On the top customer.
The share of the business in terms of GMB.
For Q1, LTM was 39, 4% so another increase.
The last earnings report, we reported 38.4 or five I don't recall exactly so we added another one percentage point and as we went from the last quarter to this quarter. So it is expanding.
The continued spend of the top customers versus the continued slowdown aspirational customers make that share business bigger we.
We don't.
Break out in our records.
Specific needs for top customers with standard customers, but.
We have repeatedly stated that the top customer.
It's more around 1000.
Compared to the average that we achieved in this Tim.
7060 euros.
Got it and then one of the things that you kind of talked about was <unk>.
When it comes to the spring summer 2024.
Is that the.
The buying levels were determined after the slowdown started so what if the luxury market.
<unk> continues to remain weaker overall and so even at the lower level.
Caesars.
Is it possible that.
Been a retail conduct with like more inventory Deb.
Than even what they feared.
I mean, obviously the answer to that is in the equation.
And one part of the equation is for sure a smaller inventory of course spring summer will be smaller than the combined inventory of fall and winter in the market or the combined inventory shrink somewhat 'twenty three so thats.
The other part of the equation is where we see demand levels comparable to the last 12 months or will there be up and down.
<unk>.
The best guesses, there will be similar because the rest will be speculation and if they are similar then.
It leads to improved sales tools it leads to less promotions in the market.
It leads to a better top line and to a better better margin of course.
If the market <unk>.
<unk> suddenly quickly it gives you an extra boost with the market.
Go South.
It could.
Very much E that reduced and with various sort of.
Eaten up by even further reduce demand, but that's speculation.
Got it and then one last one and I'm sorry.
Just keep going on on the on the liquidity side can you help us understand how we should think of like free cash flow for the rest of the year in order to understand whether the $60 million revolver that you have.
Is sufficient to meet our liquidity needs for the near term.
Yes happy to do so kunal, so in the quarter, a $33 million use of cash a very typical as we build up the seasonal fall winter 23, merchandize and pay for that.
We ended the quarter.
With no long term bank debt, which is quite unique in our balance sheet.
Seven 7 million in cash and $16 million use of the revolver. So a.
Net utilization of.
$10 million of the $60 million revolver and.
Yeah.
We expect that our revolver is fully sufficient to fully sufficient because we now have the full winter merchandise all.
And the warehouse, we expect that the rollover is fully sufficient to cover the seasonal peaks.
And so we're very comfortable.
What we have today.
Thank you so much.
Okay.
Your next question comes from the line of <unk> Sinha from Society Generale. Please go ahead.
Yes, hi, thanks.
So two questions one on the on the top customers you said that.
Due to the 39% of the Dnb. So my question was is that correct.
I'm, Bob beyond which it will start showing on the EBITDA margin.
And second is.
On the on the gross margin.
Was the one I mean, if I remember correctly.
Normalized scenario you have a 46, 47% gross margin for the <unk> business. So.
How was that was it also down six 7% or was it was better than men.
Then the rest of the business. Thank you.
Yeah.
Well, let me take the first question.
Since the margin question I mean is there is there I understand that like the tipping point or.
Number one as you rightfully assume.
Profitability was top customers is higher than with aspirational customers and so if we would sure.
Theoretical scores.
80% business with top customers. It would of course also impact the EBITDA of the of the overall customer and also the overall P&L.
So in that sense your logic is absolutely right.
But as you've seen we are continuing expanding our share of top customers, having gone from 74 to <unk> 36 to <unk> 38 over the last three years, but that is the organic speed.
So there is no expectation.
I was actually also know organic way to boost.
Top customer share.
<unk> was sort of within one quarter or two quarters to something close to 50, that's not possible and therefore the improvement in EBITDA.
<unk> continued focus on top customers, but reduced promotional intensity in the market.
Gotcha, Okay and happy to do the gross profit margin question exactly as you pointed out.
I mean, the last years, we have consistently achieved a 47% gross profit margin.
Due to our focus on the sweet spot.
Luxury.
Due to our focus on top customers due to our the core elements of the business model and.
And right now we are in this unprecedented.
Transitory or situations, where we see the 300 to 400 basis points operators gross margin.
Dilution.
Due to this situation due to this heavily promotional environment driven by excess inventory and.
So this phase is transitory and obviously, we then expect.
In the in the next quarters, and especially then fiscal year 'twenty five.
A normalization.
Of this gross profit margin.
Slippage too to again achieve the cross corporate margin levels that we.
That we saw before.
Sure Thanks for that.
Yeah.
Your next question comes from the line of Yore when Gal from CIC. Please go ahead.
Okay. Thanks.
Thanks for taking my questions I have one for China, and the Chinese cluster I.
So akshay companies sign there too late to influence the demand recovery in China market.
Just wondering what about the observations and could you give more comments on China market and also the Chinese cost is performing thank you.
Thank you I'd be happy to address that question.
Our observation is very much in line with.
The luxury brands.
We have seen.
A rebound over the last six months.
Starting.
In March April, but it's a very small one so.
Recovery for Us in China is slow and we contribute this to two factors one is <unk>.
We saw initially.
So by hour.
On the ground teams or high <unk>.
<unk>, hi, inclination of Chinese consumers to spend on.
Going out spend on.
Travel within China travel was in.
Within the region.
So that is actually a similar pattern that we've seen.
In other markets and then the second one is <unk>.
So in China aspirational customer segment that is much slower.
Much slower and rebound than the top spending customers. So overall the market is improving.
Lower speed than many people expected.
Okay.
Thank you.
This does conclude today's conference call. Thank you for your participation and you may now disconnect.
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