Lanvin Group Holdings Limited Ordinary Shares

Thank you for joining us and welcome to the Lonvon Group's Fiscal Year 2022 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Now please take a moment to review the disclaimers. During this presentation, the company will be making certain forward-looking statements, including but not limited to, future performance and industry outlook. Forward-looking statements are inherently subject to risks, uncertainties, and other factors, and they're not guarantees of performance. For today's presentation, I would like to introduce Joanne Chang, the Chairman and CEO of Lawn Vaughan Group, David Chan, Executive President and Interim CFO of Lawn Vaughan Group, Siddhartha Shukla, Deputy General Manager of the Lawn Vaughan Brand, and Sylvia Azali, the Chief Commercial Officer of Wolford. With that, I would like to turn it over to Joanne Chang to start the presentation.

Thank you all for joining us today. I'm Joanne Chang, the Chairman and CEO of LaVaughan Group. 2022 was a transformational year for LaVaughan Group. We successfully launched several initiatives to improve our brand's prominence around the world, as well as improve our operations and our financial performance. Our initiatives include reinforcing our brand equity, refocusing product strategy, increasing digital engagement through e-commerce in North America, and reducing overhead, hiring key men, improving inventory management, and streamlining our production. For 2022, we achieved a record revenue of $422 million compared to $309 million for the full year of 2021, representing a growth of 37% and beating our planned revenue of $416 million. Our gross profits for the year increased to $238 million from $170 million in 2021. with our margin improving to 56% versus the 55% in 2021. We continue to optimize our cost structure in 2023 with multiple initiatives and expecting improving results throughout the year. With that, I'd like to turn it over to our Executive President and Interim CFO, David Chen, to go through some of the details.

Thank you, Joanne. Thank you all for joining us today. My name is David Chan. I'm the executive president and interim CFO of Lamont Group. As Joanne mentioned, we had a very solid year, expect to build off that momentum in 2023. Our 2022 results reflect our efforts to promote brand awareness through omnichannel and digital marketing, with online and offline client engagement as a framework for our expansion strategy. Additionally, the strategy to optimize our product offering successfully drove growth, and combined with our brand strategy, we've built a strong foundation for growth and margin expansion. These efforts, paired with a strategic approach to our footprint expansion, resulted in strong organic sales that we carry into 2023. Today, I will be walking through the presentation, which you'll be able to get a copy from our IR website. So starting from page six through nine, a detailed revenue announcement in February, the group had a tremendous year of growth. with all brands delivering positive revenue numbers. Something's worth highlighting is all our regions growth year over year with EMEA and North America leading way at 39% and 36% respectively. Even with the COVID-19 challenges in Greater China, the group managed to achieve 15% growth versus 2021. We also grew in all channels of D2C revenues which represent near 60% of our total sales grew 32%, while our other large channel wholesale grew 41% versus 21. To me, this is a testament not only to our effort, but our positioning and our size. We're clearly demonstrating that we have plenty of room to grow and a lot of low-hanging fruits to pick. Turning to page 10 and 11 of presentation, I'd like to discuss our probability and margin performance. we analyze the contribution profits regularly, which is defined as net revenue, less the cost of sales, as well as selling and marketing expenses, which constitutes the majority of our variable costs. This allows us to assess the improvement in our variable profitability as we continue to work on normalizing our fixed cost structure. For 22, the group generated gross profit, sorry, the generated contribution profits of 13 million Euro versus 4 million Euro in 21, which was our first year of positive contribution profits and a tremendous improvement compared to 2020, where we had a contribution loss of 34 million euro. Also, our margin at all operating levels show consistent improvement with our adjusted EBITDA margin higher than 2020 by over two points in 2021 and by 23 points in 2022. Our efforts to improve our cost structure show enough results, with a significantly improving margin profile year over year. One thing I should note about Wolfer's contribution profit, which were negatively impacted by legacy consulting costs, as well as the cyber attack and the logistic provider delaying shipments during the critical holiday period at the end of 2022. These are issues that have been respectively removed and remedied and will not impact Wolfer's results going forward. We still have work to do to match our cost structure to our organizational size. Many of the steps we need to take and have taken are basic blocking and tackling steps. We're not faced with reinventing the wheel, but rather establishing fundamentals while pushing growth. We have established a strong foundation over the past year to accelerate our path to profitability, and furthermore, we have taken steps to streamline our cost structure without sacrificing growth in our brand awareness and revenues. Taking a brief look at our global retail doors on page 12, you can see we continue to pursue a smart yet aggressive strategy to grow our footprint. But this means we also need to remove the poor performance. While the total door did not increase year over year, we selectively opened 47 new doors while closing 48 underperforming locations. In short, 22 was a year of significant improvement to our footprint. Improved store strategy implemented in 22 have improved the unit economics, with groups wholesale the whole network of retail doors achieving double-digit growth on a like-for-like basis. Looking at our store growth regionally, we took advantage of opportunities in Greater China and North America, benefiting our strategic plans while refining our legacy location in Europe. Going forward in 2023, we expect to focus more attention on opening new locations as we complete our door rationalization plan. On page 13, I'd like to highlight our continued improvement in working capital efficiency. Even though we had significant revenue growth, as a testament to our focus on operation, we improved our working capital management in 22 versus 21. Our cash conversion cycle is improving year over year, and our trade working capital has become smaller as a percentage of revenue as we continue to move on an asset-light model. Additionally, despite a significant increase in revenues, we managed to lower our day sales outstanding and keep our day's inventory outstanding at the same level as 21. Looking ahead to 2023, macroeconomic challenges continue to be a concern, including inflation. Additionally, recent disruption in banking industry may further impact our customers' ability to spend. Notwithstanding the continued macroeconomic issues and recent disruption in the banking industry, the group expects to achieve solid margin improvement as year progresses. we have demonstrated our ability to make swift changes where we need it and remain optimistic in our ability to build upon our achievements and we'll continue to focus our expansion, particularly in Greater China. Much of the nuts and bolts initiatives started in 22 and will reach completion in 23, resulting in continued margin improvement. Additionally, a significant portion of restored optimization has taken place and while the group will continue to enhance its retail network this year, We believe the foundation is to place to grow our footprint. We remain on track to break even probability into fiscal year 2024. For pages 16 to 20, as you can see, the growth Lamang Group was able to achieve in the past year is a result of competitive advantage of our unique global platform. We're uniquely positioned as the only global luxury headquarter in China. We have local access to fastest growing luxury market and fastest growing region of luxury consumption in the world. We are advantageously positioned to understand the market we operate in and react to real-time feedback with group executives members in Shanghai as well as in Europe. Furthermore, while our global manufacturing base has a production facility in Europe and the U.S., our direct access to manufacturing technologies in China allow us first access to new materials and concepts that can be integrated into our worldwide production capabilities. A recent Bain-Altagama luxury study found a rapid recovery in profits post-COVID, showing the resilience of luxury goods industry as well as strong industry-wide investment in marketing, modernization of operation, and reconfiguration of store networks through renovation and relocation projects. Furthermore, the study cited mainland China, younger customers, and online channels as the growth engines that will reshape the luxury market by 2030. I referenced this study to validate the strategy of our platform. These growth drivers are fundamental to our strategy, which is why we're confident we will achieve goals we have planned for the next two years. In page 21 to 23, I'd like to reiterate our strategy advantages. As we indicated to all investors many times in the past, we are relatively smaller in size compared to our peer groups. Our smaller size is advantageous for our strategy. Our smaller size allows us to be nimble and quickly react to changes in the market. We're not as strongly impacted by macroeconomic issues as small changes can generate significant improvements to our financial performance. We have significant room to grow, both physically and geographically. Here are two simple examples. Since we took over the brand, Lanvin's global revenues has grown 3.4 times in the past three years, and its global e-commerce sales grew almost eight times world first a leisure collection which we launched in 2020 as one of our category expansion strategy is already contributing over 20 of the brand's annual seasonal product sales in 22 we will continue to adopt these types of high impact incremental growth strategy across all our brands on pages 23 to 24 you will see our roadmap to profitability In 22, we executed our cost structure strategy by making a number of changes at a brand level. These included selected price increases to match our peers and revision of our discounting policies, rebalancing profit offerings to increase the percentage of seasonless products, streamlining our supply chain, as well as improving our manufacturing efficiency and reducing production costs. Our strategic approach balances top-line growth and an efficient cost structure to build a strong foundation. We continue to work on our top line as well as enhancing the appeal of all our brands through marketing initiatives and category extensions. Additionally, we are capitalizing on growth opportunities with a targeted approach in each geography region by increasing our footprint in under-penetrated regions and expanding our digital presence to promote engagement. In short, we are confident in our ability to elevate our brands, expand our footprint and digital presence, and normalize our expense structure so that we will achieve our long-started forecast to break even at a group level by 2024. Now, I'd like to discuss the brand-level results, starting with Long Dong on page 26 of the PowerPoint presentation. Revenue saw strong growth, 64%, from €73 million to €120 million. Both the D2C and wholesale channels performed extremely well in 2022, with strong D2C growth from improved product offerings and enhanced digital engagement. and from wholesale demand, especially for accessories. Additionally, Lamont's regional sales growth also saw strong growth increase in all areas, with EMEA and North America growing 93% and 79% respectively. Even Greater China, in spite of the COVID-19, was able to grow 9%. This shows the resilience of our brand and the result of our strategic planning to renew our status as iconic French couture house. Gross profits has increased from 34 million to 61 million year over year from increasing economic scales and higher sell-through rates for all product categories. Contribution losses were reduced and contribution profit margin improved significantly. I'd like to highlight on some of the achievements in 2022. Lanvin's plan to increase its accessory business proved successful, growing higher margin sales Additionally, client engagement with a digital focus attracted a new generation of Long Bon consumers that will lead the brand into the future. Lastly, Long Bon continues to refine its retail footprint. The 2022 initiatives helped lay the groundwork to improve store economics and will make expanding our footprint increasingly profitable. As with all our brands, Long Bon has made big strides in controlling cost, improving its working capital, and ultimately improving its margin profile. They have more to do, but we are confident Lombard's management team will achieve its objectives this year. Turning to page 30, I'd like to discuss Wolfer's results. Wolfer saw strong revenue growth driven by the DTC channel revenue increase from 109 million euro to 126 million euro in 2022, with North America growing an impressive 44%. Wolfer had another year of double-digit growth, 15% in 21 and 15% in 22. This result was driven by the brand relaunch started in 2020, which is a showing consistent result thanks to a new product strategy focused on brand DNA and heritage. Geographic growth, particularly in North America, was a key objective for Woford in 2022. Revitalizing the brand in the U.S. is a cornerstone for our retail expansion, and we expect this momentum to carry into this year beyond as we introduce new product categories. Gross profit improved on an absolute basis from 79 million to 86 million from higher revenues. The margin decreased slightly due to inflation and procurement market shortages resulting in higher prices for materials, energy, and logistics. Additionally, both contribution profit and operating profit were hammered by legacy costs. As I mentioned before, consulting expenses related initiatives were supposed to be completed in 2022 ended up impacting the second half of 22. Wolfer began to see some of the benefits of these initiatives towards the end of the year, but had expected more of an impact in 22. The company expects to see a more profound impact in 2023 from these initiatives. Further impacting 2022 expenses was a return of Wolfer's full workforce from furlough at increased wage levels. as well as a cyber attack on Wolfer's logistic partner shutting down deliveries during most of December, the highest-grossing month, costing Wolfer €3.9 million in sales and close to €3 million in gross margin. The nature of most of these expenses is non-recurring, and Wolfer should see a significantly improved margin profile this year. Moving to page 33. Surjarasi was acquired in the second half of 2021, so its full year as a part of Lamang Group was 2022. Last year, we saw revenue growing to $62 million compared to $59 million in 2021 on a performer basis, resulting in a growth rate of 5% while managing the integration into Lamang Group. Surjarasi saw growth in its D2C channel with e-commerce, particularly in Greater China, growing by double digits. Its market leadership in Japan and reputation throughout Asia are a springboard for us as we grow all our brands in the APAC region. The brand has adopted an effective product strategy where its core competency in women's classic shoes has been further cemented. At the same time, the new brand hype is now being consistently generated through its trendy collaboration and young collections, achieving our goal to attract new customers to the brand. Gross profit margin improved from 46% to 50%. Contribution profit margin decreased slightly due to higher marketing, personnel, and rental expenses as we began to integration effort into the group platform. For 2023, Sergio Rossi's focus for the year is to continue to grow the brand visibility while attracting younger customers. And it's also increasing Sergio Rossi's wholesale penetration and retail footprint. while macroeconomic and geopolitical challenges persist in U.S. and EMEA, we feel Serge Rossi is uniquely positioned for strong growth in these regions. In particular, marketing strategy targeting the white spaces, like its effective reintroduction into the U.S. market, should have a significant impact on the results, as we have a lot of room to grow in the U.S. Next is St. John. 2022 revenues were 86 million, compared to $73 million for the full year 2021, representing a growth of 17%. St. John had a great year of growth, despite the broader downturn in U.S. retail and increasing inflation. The company transformed itself into a brand-led lifestyle business, moving away from being a manufacturing-centric company. As such, it has focused on increasing its higher-margin, season-less product offering. The results have been positive so far in 2023, And this new foundation has provided a lot of operating and financial stability for the brand. St. John's DTC channel grew 29% year over year, driven by initiatives in client engagement and new product line launches, strategically de-risking from third-party wholesale partners. Refocusing on a brand's core North American market led to 20% regional growth and improvement of the company's overall operating efficiency. Gross profits grew from $39 million to $53 million in 2022, with a margin improving a remarkably eight points in 2022 and 11 points versus 2020. Contribution margins have also increased slightly significantly going from negative 14% in 2020 to positively 12% in 2022. St. John is a great example of nuts and bolts steps we're taking to make significant improvements. St. John's management team has made tremendous progress in reducing fixed costs by rationalizing its manufacturing operation and personnel as well as streamlining supply chain and improving its vendor quality and terms. Additionally, the company is continuing to improve its working capital and reduce inventory carrying costs. For 23, we're expecting John to complete its operating initiatives as well as continue its international expansion and enter new markets with a strong foundation. Finally, On page 39, I'd like to discuss Caruso's results. Caruso's 2022 revenues were €31 million compared to €25 million for the full year 2021, representing growth of 25%. With people returning to the office and trending in getting back to elegance, Caruso proprietary brand grew significantly thanks to playful elegance-style positioning, Italian craftsmanship, and attractive pricing. The B2B Amazon manufacturing business shows strong growth with a new account acquisition driven by made-to-measure production growing. Caruso's ability to deliver quality products during a period with regional supply chain issues helped attract new customers and build significant loyalty with its B2B customers. Growth profit grew also from $4 million to $7 million year-over-year, and contribution profit followed, growing from $3 million compared to $6 million. Both gross profit and contribution margins increased 5% from 2021 to 2022, growing to 23% and 18% respectively. In 2023, Caruso will continue embracing the current trend of back to elegance with its smart, contemporary, and high-quality Italian menswear with modern style and appeal by streamlining its product portfolio, expanding its production capacity, and nurturing digital engagement to enhance both the B2B and B2C customer base. At this point, I'd like to introduce Siddhartha Shukla, the Deputy General Manager of LongVon, and Sylvia Azali, Chief Commercial Officer of Wolfo, to lead the discussion on a brand strategy and outlook for 2023 for each of their brands. We wanted to invite all our brand executives to join our call. With respect to everybody's time, we'll only have Sid and Sylvia present today. As our two largest brands by sales, they will present their strategic directions and outlook for 2023. Sid, would you get us started by talking about Lanvin?