MYT Netherlands Parent BV ADR

Greetings and welcome to the MyTeresa second quarter of fiscal 2023 earnings conference call. At this time, all participants are in a listen-only mode. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A. It is now my pleasure to introduce your host, Martin Beer, MyTeresa's Chief Financial Officer. Thank you, sir. You may begin.

Thank you, Operator, and welcome everyone to Mitrice's investor conference call for the second quarter of fiscal year 2023. With me today is our CEO, Michael Klieger. Before we begin, we would 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 are under no duty to update forward-looking statements. In addition, we will refer to certain financial measures not reported in accordance with IFRS on this call. You can find reconciliations of these non-IFRS financial measures in our earnings press release, which is available on our investor relations website at investors.mytresa.com. I will now turn the call over to Michael. Thank you, Martin. Also from my side, a very warm welcome to all of you, and thank you for joining our call today. We will today comment on the results and performance of our second quarter of fiscal year 2023. Overall, we are pleased with our results. Our business has shown once more excellent financial strength and resilience despite significant macroeconomic headwinds. MyTheresa grew its top line in the second quarter and delivered strong profitability. Our results are even more reassuring given the performance we see with many of our peers and the broader consumer sector. High inflation, the prospect of a recession, The continued war in the Ukraine and the dramatic return of the COVID pandemic in China were just some of the negative factors dampening consumer sentiment in the second quarter. MyTheresa was able to distance itself somewhat from these significant macroeconomic challenges due to our unique focus on the high-end wardrobe building customers our highly adaptive business model built on cost variability, and our excellence in operational execution. These qualities make us confident to deliver against our communicated targets for full fiscal year 2023, despite ongoing economic and geopolitical uncertainties. Let me summarize three key characteristics of our business as evidence in the second quarter of fiscal year 2023 so that you can fully appreciate the strengths and resilience of MyTheresa. First, our focus on the high-end wardrobe building customer and thus also on truly luxury brands make us far less exposed to the aspirational luxury customer who is greatly impacted by negative sentiment at the moment. This is clearly supported by our customer KPIs and our continued success with money can't buy experiences for top customers in the second quarter. Second, we have built a very resilient and agile business model. We are global, active across many luxury categories, uniquely focused on full price selling, and we have a high share of cost variability. Therefore, we can deliver strong profitability even at times of slower growth. Third, a key success factor for MyTheresa has always been the operational excellence in the business. We consistently achieve high quality levels of service and creative productions. This can be seen in the high customer satisfaction and loyalty we enjoy, as well as the continually growing trust-based relationships we have with luxury brand partners, that support us with exclusives and capsules. Let me now comment in more detail on those three key qualities of the MyTheresa business. First, let's look at the success with high-end wardrobe building customers in the second quarter. We grew our gross merchandise value, GMV, by plus 7.8% compared to Q2 of fiscal year 2022. On a two-year basis, we grew our GMV by plus 36.1% compared to Q2 of fiscal year 2021. This solid growth in the second quarter sets us apart from other digital platforms in the same period. It is driven by the clear focus on the true high-end water building luxury customers and not the aspirational occasional luxury shop. The latter are and will be impacted significantly by an economic downturn while the true luxury customer is more resilient. In the second quarter of fiscal year 2023, our top customer base grew by plus 25.3% compared to Q2 of fiscal year 2022, while the total number of customers grew by plus 8.8%. It is evident that the occasional aspirational customer shopped less in this quarter compared to Q2 of fiscal year 2022. The holiday season is typically an important moment for aspirational customers. This is also visible in the repurchase rate of customers acquired nine months ago, which dropped in December compared to the repurchase rates in December 2021. Please see our investor presentation for more details on the cohort repurchase rates. It is noteworthy to mention that the average spend per top customer grew by plus 1.8% in the second quarter of fiscal year 2023, and the average spent for all customers grew by plus 1.9%. It shows our focus on the quality of customers and not simply the pure number of them. To engage and serve our high-end customers, we partnered again with many leading luxury brands to create true money-can't-buy experiences for our top customers. Luxury brands are more and more interested to partner with us in clienteling activities given the increasing importance of top customers in today's environment. Examples for these in the second quarter include a party in Paris to celebrate the launch of a capsule with Balmain in attendance of the creative director Olivier Rostand, the highly visible launch of the Pucci FUSAD collection with a multi-day experience in St. Moritz in attendance of the creative director Camille Micheli, as well as a private dinner for our top customers at the home of Diego de la Valle, chairman of the TOTS Group. Please see our investor presentation for more details on our top customer activations in the second quarter of fiscal year 2023. Our unique ability to excite and engage with true high-end luxury customers and build long-lasting relationships with them provides us with a very sustainable and growing revenue driver, even in a challenging macroeconomic environment. We have increased our top customer base by plus 111% since Q2 of fiscal year 2020. Second, let's look on the resilient and agile MyTheresa business model. In the second quarter of fiscal year 2023, we experienced slower growth in Europe with plus 3.7% compared to Q2 of fiscal year 2022 and saw a contraction in mainland China by minus 32.3% in GMV compared to Q2 of fiscal year 2022, both clearly driven by macro factors. In the United States, which continues to be one of our key growth markets, we achieved again and an above-average GMV growth was plus 12.7% compared to Q2 of fiscal year 2022. The share of the United States of our total GMV increased to 16.9% in the second quarter of fiscal year 2023. We drove this growth with a strong lineup of customer and brand events across the United States. One highlight was the cocktail event at the Saga restaurant in New York City with the creative directors of Oscar de la Renta in celebration of an exclusive capsule launch. Please see our investor presentation for more details on our events in the United States in the second quarter of fiscal year 2023. In terms of categories, we saw solid growth in women's clothing, kids' wear, as well as our recently launched life category featuring home and lifestyle products. These are incidentally categories that have a high top customer share of revenues, while bags and sneakers showed much slower growth as they typically attract more aspirational customers looking for investment pieces. As in the previous quarters, we achieved our GMV growth with a continued focus on full price selling. Our average LTM order value increased by plus 4.3% in the second quarter of fiscal year 2023 compared to fiscal year 2022, underlining the focus on the true luxury assortment. Our customer acquisition costs increased by plus 15.5% in the second quarter, but this has to be seen in the context of a much higher quality of new customers with predicted higher lifetime value. Due to our disciplined cost management and the high cost variability, we kept all cost ratios within our budgeted ranges, despite slower growth. Martin will talk in a few minutes about how all this translated into strong bottom-line results for the second quarter of fiscal year 2023. Third, let's look at a key strength of my Teresa, the operational excellence. A key indicator for this is customer satisfaction, which reached a very high level as measured internally with a net promoter score of 79.5% in the second quarter of fiscal year 2023. This is only achievable with a very high consistency and quality across all functions and, in particular, warehouse operations, customer care, and technology service. All this drives the almost 100% revenue retention of newly acquired customer cohorts as of year two of the relationship with us. Our very high quality and creative campaign and digital asset production is also visible in the flawless and impactful execution of brand campaigns. We partnered once more like no other platform with many leading luxury brands for exclusive capsule launches or pre-launches of collections. We produced impactful digital content and campaigns that attracted our unique high-value multi-brand customer. Our focus on high-end customer engagement is ultimately a key driver for luxury brands to continually partner with us. Examples for exclusive brand collaborations from the second quarter include the exclusive launch of the Loro Piana Cocooning collection, the first Dolce & Gabbana ski collection exclusively available at MyTeresa, exclusive capsule collections only available at MyTeresa from Etro, Christian Louboutin, Kate, and Oscar de la Renta, as well as an immersive shoppable video created by MyTeresa to celebrate exclusive styles of Montclair Grenoble, and featuring professional skills. Please see our investor presentation for more details on brand collaborations. With all the above, it should come as no surprise that we are pleased with our performance in the second quarter of fiscal year 2023, despite macroeconomic headwinds. We believe that our results demonstrate the fundamental strengths and consistency of our business model delivering profitable growth. We see ourselves as one of the few winners in the clearly consolidating luxury e-commerce space. And now, I hand over to Martin to discuss the financial results in detail. Thank you, Michael. I will now review the financial results for the second quarter of fiscal year 2023, ended December 31st, 2022, and will provide additional details on some of the previously mentioned factors influencing our performance. Unless otherwise stated, all numbers refer to Euro. As Michael already indicated, given the difficult macroeconomic headwinds and tough comparisons to last year's Q2, we are pleased with our plus 7.8% top-line growth in the quarter and plus 13.7% in H1 of fiscal year 23. Even in this unprecedented macroeconomic situation, MyTheresa proved again its resilience and profitability in the quarter with a 9.3% adjusted EBITDA margin, 7.9% adjusted operating income or EBIT margin, and 5.8% adjusted net income margin. Let's look at the numbers in more detail. And as this is an unprecedented microeconomic situation, also gives some guidance for the second half of the full fiscal year, ending in June 2023. Please bear in mind that we will not be doing this on a regular basis. In the second quarter of our fiscal year 2023, ended December 31st, 2022, GMV was at $215.9 million. growing at 7.8% compared to the prior year quarter at $200.2 million. At constant currency, the growth was at plus 5%. This growth was on top of a high growth comparable in Q2 of the last fiscal year at plus 26%. The solid growth achieved in this quarter was above most industry peers. but still showed a temporary slowdown, as Michael explained, especially in December, compared to the growth rates that you're used to seeing at Mitresa. Given the mentioned macroeconomic headwinds, our focus has been on the continued successful expansion of our top customer base, as well as the acquisition of new high-potential customers. we were able to grow the number of our top customers by 25.3% in the quarter, in addition to a GMV increase per top customer of 1.8%. This is in line with our impressive results in the previous quarters. In H1 of fiscal year 23, we grew our top customers by 26.2% and GMV per top customer by 1.2%. In Q2 of fiscal year 23, our total active customer base grew by 8.8%, with a GMV increase per all customers of 1.9%. In H1 of fiscal year 23, our total active customer base grew by 9.6%, with a GMV increase for all customers of 4.3%. On a LTM December basis, we had 814,000 total active customers. We view the slowdown in December as temporary, driven by aspirational customers, as Michael explained. The economic news in regard to inflation, energy supplies, and GDP growth has started to improve. We are already seeing that the luxury customer is coming back the earliest. our GMV growth quarter to date is very strong and align what we have seen in Q1 of this fiscal year. In addition, given the lower comes of the quarterly growth rates during the last fiscal year of plus 13% in Q3 and plus 18% in Q4, we are confident in our ability to achieve our GMV guidance at the lower end of the given range for the full fiscal year. This would imply a growth in H2 of fiscal year 23 of about plus 17% to 19%. On a two-year basis, this translates into growth in H2 of about plus 36% to 38% compared to 45% growth achieved in the just finished H1 of fiscal year 23. And this growth expectation for H2 No extraordinary geographical pickup is built in. It reflects an improving macroeconomic environment that is already visible throughout the regions, including China. Also, for the medium and long term, we have no doubt about the success of the MITREESA positioning and business model, and therefore confirm our communicated medium to long term target of GMV growth rates above 20%. During the second quarter of this fiscal year, net sales increased by 1.3%, 190.1 million. As in preceding quarters, net sales reporting is impacted by trends transitioning to our curated platform model. During the second quarter of fiscal year 23, we had seven brands operating under the curated platform model. In Q2 of the previous fiscal year, we already had six brands under CPM, but five just started in the quarter with early sales of the spring-summer 22 season. Therefore, the CPM impact of the sales of these five brands in Q2 of the preceding year was limited to early sales of spring-summer 22. The growth gap between GMV growth and net sales growth due to brands transitioning to the CPM, is narrowing as expected. In Q1 of this fiscal year, the growth gap was 1,000 basis points, and in this Q2, it was 650 basis points. We expect the growth rates of net sales in the remaining quarters of the fiscal year to be much closer to the GMV growth rates. fiscally at 24 and beyond growth rates will align even further we know around 100 to 300 basis points as stated before the difference in growth rates between gmb and net sales is purely a one-time financial accounting effect as for the cpm brands we book the platform fee as net sales 12 months after the full transition of those brands this one-time effect will be over and net sales will grow in line with GMB again. The curated platform model offers special financial characteristics to MyTresa. It enables a stronger top-line growth due to in-season replenishment, and overall yields a similar profit profile for MyTresa. In addition, inventory risk stays with the brands as they maintain ownership of the inventory, And MyTheresa has a much better cash cycle as we only pay the brand once the customer has paid us. We achieved the 8% GMB growth ahead of industry peers in the quarter despite negative growth in China and weaker growth throughout most regions, especially in Europe. But with the sales pick up in January and February, we already see promising customer developments in all regions. including Europe and China. Our net sales share outside Europe increased from 41% in Q2 fiscal year 22 to 45% in Q2 fiscal year 23 towards a more diversified global customer base. The gross profit margin in Q2 was at a strong 54.8%, an increase of 140 basis points compared to 53.4% in the prior year period. The improvement is based on increasing share of CPM with a positive margin effect of 190 basis points. Our operative gross profit margin decreased by 50 basis points as the promotional intensity in Q2 of the last fiscal year had been extremely low and is now at more normalized levels. For the next two quarters, we expect this operative cross-margin slippage to be much lower in light of the margin levels we had in H2 of the preceding fiscal year. For the full fiscal year, we maintain our gross profit guidance at the low end of the communicated range. The continued strong gross profit margin also reflects the unique and high quality of our customer cohorts and thus our industry leading ability to achieve a high full price sales trend. Despite the lower top line growth in the quarter, our inventory levels as of December 22 are only up by 26% compared to December 21, fully on budget level. More than 80% of inventory is related to the current and the upcoming season, and will enable us to grow at the targeted level in the upcoming months. The share of older seasons is at a record low. In addition, please bear in mind that for our CPM business, there is no inventory risk for us, as the brand owns the inventory until it is sold. We expect the CPM share of GMV for this fiscal year to be around 20%. In sum, inventory levels are where we want to have them, and we stay true to our strategy, offering the best merchandise at targeted price levels for a high-value customer base. Shipping and payment costs increased by 10.9% to $28.3 million, as compared to $25.5 million in the prior year quarter. the shipping and payment cost ratio in relation to GMV increased by 40 basis points from 12.7% in the previous fiscal year quarter to 13.1%. The 40 basis points higher cost ratio is due to stronger growth outside of Europe. As a result of implemented changes in our payment and custom setup, we expect to mostly offset these cost increases and therefore achieve stability in the cost ratios in the upcoming quarters compared to last year's quarters. The shipping and payment cost ratios in the remaining quarters of the last fiscal year were between 13.5% to 14%. We continue to invest in acquiring high-quality new customers in Q2. we acquired a solid number of 120,000 new customers in the quarter. We deliberately maintained our marketing budget on target despite higher cash as we captured market share among top customers. During the second quarter, marketing expenses increased to 28.8 million compared to 23.8 million in the quarter of the previous year. As a percentage of GMB, marketing expenses grew from 11.9% in Q2 of fiscal year 22 to 13.3% in Q2 of fiscal year 23. The marketing cost ratio in Q2 of the last fiscal year was exceptionally low as we could not execute all marketing activities planned due to the pandemic. In the last full fiscal year, we had a marketing cost ratio of 12.9% of GMV. We expect to achieve approximately this level also in fiscal year 23. One driver of our stable marketing cost ratio, despite strong new customer growth, is also our excellent existing customer performance with increasing GMV per total customer, plus 4.3%. in H1 of fiscal year 23. Adjusted selling general and administrative expenses grew by 4.1 million to 27.6 million in the second quarter of fiscal year 23. Adjusted SG&A expenses as percent of GMB increased by 100 basis points from 11.8% to 12.8% compared to the prior year quarter. The increase of the cost ratio is due to higher personal costs, especially in logistics, as well as higher energy costs. The adjusted SG&E cost ratio in the quarter at 12.8% has been coming down from around 13 to 14% in the two preceding quarters. The increase in personal costs is fully aligned with our budget, and we will continue to manage those cost pressures throughout fiscal year 23. or H2 of fiscal year 23, we expect the adjusted SG&A cost ratio to stay below 30% of GMB. We will continue to invest in the quality of our personnel to position the company for growth, and we will make no compromise in our service excellence. This will be key to sustain our medium and long-term growth strategy capturing market share, thus fortifying our leadership position. In the second quarter of fiscal 2023, we achieved an adjusted EBITDA of $17.7 million despite significant macroeconomic challenges. The adjusted EBITDA margin was at a strong 9.3%, which is an industry-leading performance, and it shows the strength and the resilience of our unique and profitable business model. The adjusted EBITDA margin in last year's Q2 had been exceptionally high at 15.4%, mostly due to exceptionally low marketing expenses due to COVID and lower adjusted SG&A expenses. In H1 of the current fiscal year, 23, We achieved an adjusted EBITDA margin of 8.3%, and in H2, we expect a higher profitability. As mentioned before, the current Q3 already shows signs of improvement, and Q4 is expected to be strong on top and bottom line. In the last full fiscal year, we achieved an adjusted EBITDA margin of 9.6%. This fiscal year, we confirm our adjusted EBITDA margin guidance at the lower end of our communicated range for the full fiscal year. Depreciation and amortization expenses in Q2 slightly increased to 2.8 million or 1.3% of GMB as compared to 2.3 million or 1.1% of GMB in the prior year quarter. The resilience of our proven business model, even in times with macro headwinds, is again apparent also on operating and net income level. In Q2 of this fiscal year, MyTheresa reported an adjusted operating income, or adjusted EBIT, of $14.9 million at a 7.9% margin and an adjusted net income of $11 million at a 5.8% adjusted net income margin. We target to continuously deliver profitable growth, which is clearly visible in our focused business model. Also, as a reminder, we run a highly efficient capital-light model with an adjusted return on capital employed at 28% in fiscal year 22.

Moving to the cash flow statement, during the six months