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?

Yes, of course. Thanks, David. And thank you for the opportunity to speak about Lanvin today and where we plan to take the brand. We recently announced a new approach to creation with the launch of two new vertical organizational structures. The first is leather goods and accessories, and the second is something we're calling Lanvin Lab, that with the main collection, will power the brand's product strategy and strengthen its business as we embark on the next stage of growth. Leather goods and accessories, which account for more than half of Long Van's global business today and will drive our future growth, assume now a central place in the house's product language with a new creative team and industrial support. Long Van Lab, it debuts as an experimental space inviting creative partnerships with proven and rising international talents, the first to be announced in the coming weeks, resulting in dynamic synergies that simultaneously challenge and reinforce the house's values. With this, Lanvin really enters a new era where we're reclaiming French sophistication and savoir-faire, what our founder Jeanne Lanvin herself called the chic ultime, or the ultimate chic. Our product and brand approach will be reframed around a singular vision and creative strategy that drives alchemy in Lanvin's heritage with next-generation innovation. We are dynamically reimagining Lanvin, France's oldest continually operating couture house, embracing the values instilled in it by Jean Lanvin over 130 years ago. At a time of extraordinary and also inspiring change, we are situating the house at the vanguard of fashion and culture with the model that we believe expresses Lanvin's rich heritage and sophistication in a uniquely modern matrix of creativity. On the horizon, we will be building what is an under-penetrated retail footprint while powering digital commerce through new technologies, and growth marketing. Margin improvement will be driven through a more competitive pricing strategy, end-to-end product development and the optimization of the cost of goods, improved sell-throughs, and of course the right-sizing of our OPEX structure. All of this comes with our commitment to powering healthy, top-line growth across channels and across geographies. in what we believe will be a very exciting and fruitful 2023, and the establishment of a solid foundation for which we can secure profitability in 2024. Thank you. And now I will return the stage to David Chen.

Thank you, Sid. Next, I'd like to invite Sylvia to discuss the brand strategy for Wolfer and Outlook for 2023. Thank you, Sylvia.

Thank you, David. I'm very excited for Wolford in 2023 because we have made a lot of progress in our brand already and we have set the foundation to strengthen our brand equity. And so we feel that we are on the right path for our profitability. Our brand relaunch is highlighting the power of our iconic timeless design and quality. To put the speed up our successful new product strategy, we have appointed our new artistic director, Naotake Koshi. Who is Naotake Koshi is a very experienced creative leader who has experience in super brands like Issey Miyake, like Gucci, like Prada, Donna Karan, and Calvin Klein. Now has a stronger international mindset, thanks especially to him living in Paris, in New York, and in Tokyo. He has a unique approach to design and is one of the few creative leaders that is also able to combine the technology and the fabric knowledge with the aesthetics. And these are the two key elements for World4DNA, so we feel that is really a tremendous fit for us. Our efforts on rebranding and improving SACE have been successful, but still we have to finalize our work on the operations and cost structure, as David was saying previously. Warford indeed had an issue with profitability as operating costs significantly increased in 2022. The first issue which challenged the whole industry was inflation. Agri-prices for material, energy and logistics, of course, impacted our entire industry and this will continue also into 2023 and touching also HR costs where we saw increasing in collective national agreements. The second reason is from the ongoing cleaning up of the legacy costs, including excess external consultancy costs that we use to cover internal inefficiency issue. And of course, we use them also to repair broken processes. So these expenses increase. We are non-recurring ones. We will not see this cost again in 2023, as I say. And we are finally able to fill gaps in our organization by hiring a key leader like a chief HR officer and chief financial officers who join in September and December 2022 respectively. The third reason of the profitability drop is a very unfortunate one. Our logistic provider at the cyber attack beginning of December, which is the highest grossing month for workforce, And we were forced to shut down deliveries during the month of December and costing us 3.9 million euros in sales and close to 3 million to gross margin. Again, it's a non-occurring event that will not impact in 2023. We continue to focus on our product strategy to elevate our brand, having the new Naota Koshi collection in the store in June after a plus nine result on pre-orders. On top of the brand elevation, the new product strategy is also helping in the complexing our collection structure, which is reaching a plus 40% in productivity. That would be the foundation of the healthy part of the company. Great brands are also with the new W line to come. We will launch a new capsule perfect for business struggling, especially focused on leggings that will perfectly match with our DNA known for easy to wear and easy to care. We will support and strengthen our brand awareness thanks to our Iconocracy Tour. It is a new format that stands between an exhibition and an event that announces the story of Walsford and its icons, products and women. We launched it in February during the Milan Fashion Week with Grace John as the first icon of the tour. In 2023, as in 1994, she is still with us in celebrating Women Power timeless beauty and inclusiveness as key brand pillars. Last but not least, our collaboration, the W Lab. Of course, we will continue and we will continue to surprise our consumers with unexpected garments for every occasion of the Wolf of Woman, which we like to define her as a self-confident icon with a touch of femme fatale. That's it from my side. Thank you for the time and this opportunity to talk about our beautiful Walford. And David, I turn it up to you.

Thank you, Sylvia. I appreciate you and Sid coming on and sharing your vision for this year. At this point, I'd like to have Joanne provide some final remarks. Joanne.

Thank you, David. To close our result call, I would like to highlight several key takeaways. First of all, we successfully increased our brand awareness and assisted our brand equity through our omnichannel marketing strategy with a particular emphasis on digital media and by refocusing and streamlining our product offerings. We have set the path for accelerating growth and improving our margin profile. Secondly, there is a significant room to grow in many of our geography regions. So we will continue to focus on balancing our regional growth to take advantage of opportunities at both our retail doors and online. Third point is that our ongoing macroeconomic challenges in the US and Europe further point us to Asia as being a significant region of growth for us. Greater China will be an important growth driver in 2023, and we plan to take advantage of the opportunity to further establish our brand in the farthest growing luxury market and further enhance our presence in the APEC region. We spend 2022 establishing our cost structure foundation to be able to accelerate our growth and attract to profitability. We are beginning to see the fruits of our strategy at work with improving margins and are confident that our margins will continue to improve significantly in 2023 to meet our objective of a break-even in 2024. Finally, we continue to leverage our group's collaborative ecosystem to improve our operations as well as assess geography growth opportunities we continue to drive towards across all the brands in 2023. I'd like to conclude by saying that we remain confident in our ongoing growth and development in 2023 and beyond. On behalf of the entire management team, thank you for listening to this presentation.

Moderator, back to you.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Oliver Chen from TD Cowan. Please go ahead.

Good morning, Joanne and David. Regarding what you're seeing in China with the China reopening, would love your thoughts on how that's going with mainland and the pace at which changes may happen and also the Chinese traveling abroad. As we think about Lan Van, a second question, the competitive pricing strategy and what's ahead for full price selling and how you see that evolving would be very helpful. And then at Wilford, would love your thoughts on inventory, the current inventory levels relative to sales, and what are the focus areas for operational improvement? As you articulated, there's opportunity there in the year ahead as well. Thank you.

Thank you, Oliver. Joanne, you want to? Sure.

Hi, thanks, Oliver. Yeah, about China it becomes a very important topic because China start to reopen the board in the beginning of the year and we see the traffic is bad step by step. It won't be fully recovered until now because you know we can see the traffic is in Hong Kong, in Macau and a lot of Asian trips like in Singapore in However, still there's a long queue of get, you know, the visit back to Europe and the US and to plan for a long trip. That is in the plan of a lot of consumers' schedule. I still believe that China would be one of the most important market for luxury industry. And no matter whether it's a domestic shopper or, you know, shopping in the overseas market, It has to be very strong, you know, foundation of a customer's group for luxury. And it's also very important for Levant Group to best utilize our ecosystem from Fulton International and also find more synergies across the brand to get more penetrations into Asian market and the greater China market. because we still have a lot of low-hanging fruit in Asia due to the limit of our retail dollars.

Okay. So, thanks, Joanne. I think, Oliver, on the second question on bonbon, the pricing strategy, Obviously, we are selectively kind of choosing a certain SKU to increase pricing to be closer to our peer groups. I think we did a pricing analysis in 22. I think we still have some gap there. And then, obviously, the accessory strategy has always been there to improve our margin. But I would probably let Sid, Sid, if you're online, maybe you can comment a little bit more on this particular strategy.

Thanks, David, and indeed, thanks for the question. I would say that from a deep dive into price architecture, we've understood that there is real opportunity for us to re-articulate pricing, and some of that has already taken effect and to positive impact, and we still think there's room and opportunity for that.

Yeah, in terms of Wolford, I think we are, obviously it's a little bit different, we can't compare directly to, we always tell people we cannot compare directly to the ready-to-wear because they have a lot of never-out-of-stock products. and as well as kind of hero products we always want to carry. Maybe Silvia, you want to give a little color on this in terms of inventory to sales level.

Yeah, for sure. I mean, in terms of inventory, Oliver, you have to consider that Woodford turnover is done mainly by 65% up to 70% by carryover products. So because of that, we are talking about the never out of stock collection. And, of course, based on that, we have to produce in advance based on a sales forecast, right? I mean, because, of course, our customers, especially the wholesale one, are expecting to have the immediate availability of the stock. So this is the reason of the growing of the inventories.

Thank you. Just one follow-up, London Labs. London Labs sounds like a great idea. Why now, and what's the vision for how this will impact total revs as a percentage of total. And as you think creatively of Milanvan brand, you've had a lot of good momentum with younger customers already. But what do you see as the opportunity there and how might that intersect with creative decisions around the DNA of the brand?

Yeah. Sid, you want to take this one?

Yes, of course. Thanks again for that question. I would say London Lab is something that we felt was an opportune space in the brand to formalize what is happening already in the industry, but what we wanted to dedicate space and bandwidth to both in terms of, rightly as you said, to engage various demographics but also to create a healthy equilibrium within the brand between the expression of the main line, where, to your point, Oliver, I think there's a great opportunity to flex the muscle of the brand in order to speak transgenerationally, transgeographically, across customer profiles. And so, certainly, Longbound Lab will leverage the success we've had with the new generation of customers. But I think it plays nicely into what we're also working on, which is, as I mentioned in my points, the reinforcement of Lanvin being France's oldest couture house and really a beacon for sophistication and the elegance of French fashion.

Thanks a lot. Thanks for that.

Yeah, and then, Oliver, just in terms of the revenue, I think we don't, at least from, at this point, management, we don't look at it, lamb on lap, for a carve-out in terms of a specific of a revenue, percentage of revenue. It's more infused into the entire collection and kind of for the house. Okay. Great. Moderator?

The next question comes from Tracy. Kogan from Citigroup. Please go ahead.

Hey, thank you. I was hoping you guys could talk a little more about the performance of the accessory category at Lanvin and how much it grew in 22 and where you are relative to where you want to be in establishing a real group of key items. And then secondly, I know you mentioned inventory at Wolford. I was wondering if you could kind of go through each of your brands and and talk about inventory levels and where you might have too little and where you might have too much. Thanks.

I think for – thanks, Tracy, for your questions. I think to answer your first question on the Lambon prices, right? Accessory. Sorry, accessory.

Accessory.

Where you want to be and then – yes, sorry. Okay. We've been very consistently telling, you know, we are currently about 50% in terms of total sales. But majority of that 50%, I think we are, you know, we are telling the world is driven by footwear, right? And then the leather goods portion is still have room to improve. And as a company, as a brand, I think we won Lanvin. to be probably anywhere between 60 to 70% accessory-driven product, and then with the portion of letter goods to be at least half of that. So that's at least the vision for the next few years. That's a goal that we work towards. I don't know, Siddhartha, you have anything to add to this?

Thanks, David. And I would say simply that Yes, in terms of the proportion in the mix, that is where it sits. It was an important driver of growth. And I think that we're seeing in terms of the diversification within the category, really incredibly strong signs in customer affinities for what are to date iconic styles, truly working off of distinction. And though handbags, you're right, represent a smaller percentage of the total accessories mix, we see important demand around some of the new categories, particularly the cat handle bag, which is a bestseller across regions and across channels. So only opportunity ahead in doubling down on that and expanding the category of leather goods more generally.

Great, thank you. And then on the inventory across some of the other brands outside of Wolford, any call-outs?

Yeah, Tracy, currently we don't disclose inventory at the brand level. We're able to disclose Wolford because Wolford is a public company by itself. But what we can comment is, In terms of days, kind of inventory days, if you look at our trade working capital that we highlight in the PowerPoint, it's actually pretty good. We are managing very well relatively to increase in revenue. So that's kind of the metrics that we are telling the market, right?

Great. Thank you, guys.

Thank you, Tracy.

Again, if you have a question, please press star, then one. Our next question comes from Louis Hu from CICC. Please go ahead.

Thank you very much. Hi, Joanne. Hi, David and James. I have two questions. The first one is, it's great to see your continuous improvement and growth margin. Understandably, we're still in the DTC conversion process. Just wondering what will be the target for growth margin when our DTC and wholesale ratios stabilize? and what are the drivers to improve the gross margin? That's the first question. And the second one, since you've mentioned our comparative advantage, being closer to the Chinese market and having easier access to the most cutting edge technology, could you share a bit more concrete examples on that and how we could use that to empower the whole group? Thank you very much.

Thank you, Liwei. Thank you for your question. I'll get the first question out of the way first. I think we have a pretty clear vision and pathway to improve our gross margin, right? In terms of if you look at all our brands, I use Wolfers and Sid and Silvia on the call, use these two brands as examples for improving gross margin. We definitely need to first, we have to control kind of the wholesale strategy, right? I think the brands, all the brands that we had historically has been very reliant on wholesale. So now for all our brands, we're strategically, you know, kind of selecting the strategic partnership and location for wholesale. So, and then our focus is really, if you see our, you know, the formula that we put together is really focusing on e-commerce, which is directly operated by us. That doesn't include like Farfetch or all the third-party e-commerce websites. And then also our directly retail operate stores. So those are, in terms of channel expansion, that will lift the gross margin by nature because we are generating significantly higher gross profit margin from these directly operated channels. Second is the product category, right? This product category for Lawn Vaughan, for example, we mentioned is really focusing on the accessory business. And also, particularly, we want to get into leather goods. I think that's less seasonal. Uh, and then, uh, it's more kind of, uh, um, you know, less discount driven, right? Products and lots of seasonal products. So, uh, and then, uh, brands outside of Lombon that does not have the category, we also focusing on the never out of stock, right? Uh, like Sylvia mentioned, uh, the legging that we're doing is going to be a recurring item and hero product for Wolford. So this will also started to really penetrate what we really dominated in one category, Wolford for the last 30, 40 years, which is a tight business. So if we're able to create another level of products expansion into a non-seasonal, functional-driven product, that will also improve margins, sustain margin for economy scales as well as less discount. Same thing with Sergio Rossi and other brands. Sergio Rossi, for example, we're also doing kind of a hero or kind of a never-out-of-stock products. So more carry over season so that to improve margin profile. So really to answer your questions, really two strategy is one is D2C, channel improvement. Second is category and product improvement. Our goal as a group is for in the next, I would say two or three years to get to probably 60 to 65% in terms of gross margin. I mean, we are moving into that direction. Okay. I'll let Joanne maybe answer the China part, strategy part.

Yeah. So to clarify, uh, question is that, uh, what to make, uh, uh, for to grow the China market, right?

Yes. Uh, like what the, what's the comparative advantage we have being, you know, a China expert and any concrete examples you could mention. Yeah. Thank you.

Okay, sure. I mean, first of all, you know, China market versus a China consumer, I want to clarify that, you know, for all the luxury brands, not only the brands that belongs to Mulan Group, but also the brands belongs to the other fashion luxury group, that China consumers, China customers are very important. And then they are sometimes travel, they are sometimes shopping domestically, Our uniqueness is load penetration in this market because we don't have enough retail goals so far and then we have a lot of low-hanging fruits to develop not only the retail channels but also the digital channels. However, I also want to emphasize it's not only about China market. Levant Group also have a lot of focus on U.S. market as well where that we don't have enough you know, presence across the brands and a lot of room to improve our retail presence and also our digital channels. For example, last year we set up our US digital platform by partnering with Shopify as an example. So across the brands, there's a lot of white space to expand. You know, out of China, for example, you know, in general they have it in Europe, right? And we're looking for new space in Middle East. So if I want to have to give a very concrete example about how we be more flexible and more specific to grow ourselves in China market, I think that the real collaborations between headquarters of the brand DNA, where the brand DNA stays with the China team, to jointly come up with special capsules for China is a good example. So, for example, last year that we have a special capsule of, like, you know, that wrapped the year and also pronounced with a collaboration with the China local brand. That drives a lot of men, you know, sales locally in China to, feeding the requirement or demand from the market by young generations. So, I think, you know, Levant Group is still young. We are five to six years old. We are quite agile and also all the team working hand in hand as a one team spirit. And we are trying to bring more local lens in the local market and then, you know, drive the growth in the so-called new markets like China or U.S. where we don't have enough penetration by more local capsules in order to fulfill the demand of the customers from that region. I hope I answered your question. Thank you.

It's very helpful. Thank you very much, Joanne. The next question is a follow-up from Oliver Chen from TD Cowan. Please go ahead.

Hi, thanks a lot. I just wanted to ask about the bridge to profitability. Awareness is a big opportunity. So what are your thoughts on selling and marketing and managing that line in terms of how that will pace and what strategies you're undertaking on the bridge to profitability? And then also production costs looks like a big opportunity as well. Where do you see the best efficiencies there? What should we know about what's achievable there in terms of balancing lower production costs and also offering strong quality? And then geographically, a second question. We'd love your thoughts on the U.S. market and what you see happening there lately. We've seen some cautious optimism on the aspirational side of luxury in terms of that consumer and promotional levels. Thank you.

Great. Maybe I will let Sid to talk about a second question as Alon Vaughn, because I think Sid spent a lot of time in the U.S., but I thank you for the question, Oliver. I'll answer your first question on the roadmap to profitability. It's a big topic for us, right? I think the brand, you know, you would talk to all our CEOs. We have a very, very strong focus as a group for all the brand portfolio for profitability by 2024. That's in everybody's mind. So collectively speaking, if I had to sum it up, it's really scale, right? Whether the topic you talk about production efficiencies or manufacturing cost efficiency is merely a scale. I can tell you, for example, Sid mentioned about the cat-back that we produce. We actually sold out in a lot of countries because we just didn't have the quantity or kind of the scale in order to produce a vast volume One is because this is a relatively new product for us. Second, the factories who helped servicing us also did not give us enough capacity in terms of what they can deliver. So when we believe the company started to consistently improve in terms of their sell-through and stuff, we will be able to get production efficiencies. And then in sales and marketing, you know, channel improvement in terms of scale is really driven by, it's mostly variable, right? So I think once now we are able to, you know, at least for our group, we're able to really synergize a lot of these, I would say, regional costs, whether it is, you know, whether we are now having a U.S. digital platform, for example, we are actually centralizing a lot of the marketing services and then and then warehousing services, all these somewhat variable into one platform. So I think that's the synergies we're able to provide at the group level. But once we have a stronger business, I think some of these variable costs will also absorb some efficiency because the warehousing, for example, you have a certain fixed cost lying to it, even though you have a scaling space. To sum it up, it's really scale. As long as we're able to continue to penetrate different channels, you know, like Joanne mentioned, we are so under-penetrated in terms of footprint. Long Vaughn, I think by 2022, we only have like 30 stores around the world, you know, close to 30 stores. So, you know, compared to, you know, any single brand probably had in the hundreds, right? So imagine if you have 100 stores, your revenue should be in many, many tenfolds in terms of what they're able to do, and then your efficiency in terms of fixed cost is not going to increase dramatically, and variable cost will absorb some efficiency. So that is really where all the brands are going to go and get to profitability. I hope that that's helpful. And then U.S., in terms of U.S., Sid, you want to comment a little bit on that?

Yeah, absolutely. And I think, David, you touched on this already. Our outlook on the United States, despite the cautious optimism that you mentioned, is in fact still very positive given the white space. The points that David just made on the underpenetration of our retail footprint, but also just in terms of the pure conversation around scale. There is digital business that is very, very ripe for the picking in the United States. With the expansion of our footprint, we see a great promise for a bigger and more important business coming from the Americas. But I would also just say that some of the things we've touched upon already in the call are powering what has been extraordinary growth in the United States for long run, between brand affinity, our ability to speak across generations, but also Lanvin's ability to speak to men and to women. The fact that we are underpenetrated also means that we don't have the danger of overdistribution. And so we've seen a very strong affinity for the brand across channels and across demographics. And I would say that the outlook for the United States, despite any sort of temporary headwinds, remains very positive.

Thanks. And, Sid, Lonvin, what's your vision for the creative leadership going forward? And as you mentioned and articulate the back-to-brand ethos, the balance there, striking it between that relative to being culturally relevant as well as contemporary, where do you see the biggest opportunities as you return to elegance and sophistication? Which product categories or how should we interpret that?

Sid, do you want to take that?

Sure. Thanks, David. Thanks, Oliver. I would say that, you know, the return to elegance is linked to the strategy that we laid out where we were revamping the creative approach. It linked to London Labs. the lab gives us space to do in the main line what is the deep heritage of the house. And what we do in the main line allows us to speak not only to one specific audience that we have been successful with in the past few years. And so I think as we think about the new creative talent that we're going to be bringing into the house in any one of these three verticals that we've established, The goal is to play into the incredible potential Long Van has, a house that is not only associated with one gender, not only associated with one region, not only associated with one product category. To the extent that we can play on a lifestyle, we should and we will. And so I think that opens up a lot of opportunity across product categories for us to create scale and affinity across demographics and geographies. Specifically, however, as we've mentioned, there is a huge opportunity in leather goods. There's a huge opportunity in building accessories as seasonless, high margin, perfect for building scale across regions. And that's where the focus right now specifically is, and that's particularly why we felt it important to isolate a vertical to leather goods. The design talent and the industrial expertise to actually have a legitimate business in that space required us calling it out. So I would really point all attention to that vertical, knowing that we intend and we are in the process of building a dimensional brand across categories.

This concludes our question and answer session. I would like to turn the conference back over to David Chan for any closing remarks.

Thank you. Thank you on behalf of the Longmont Group Management Team. Thank you, everybody, for joining and paying attention to us and then onward. Thank you.

The conference has now concluded. Thank you for attending today's presentation.