Cettire Limited (CTT) Earnings Call Transcript & Summary

Good morning, everyone, and thanks for joining today's full year FY '25 results call for Cettire. My name is Sam Wells from NWR. And I'm pleased to have joining me from the company today Cettire's Founder and Chief Executive Officer, Dean Mintz; as well as Chief Financial Officer, Tim Hume. Both Dean and Tim will spend some time reviewing the results released to the ASX this morning, including some notable financial and operational highlights throughout the year. Following their comments, we will have some time for questions at the end of the call. We will take written submitted questions via the Q&A function at the bottom of your screen, and we'll endeavor to get to all questions asked in some cases, combining questions on the same or similar topic. Thank you, and I'll now pass it over to Dean.

Thanks, Sam. Good morning, everyone, and thank you for joining Cettire's FY '25 results briefing. Before we begin, I'd like to remind you of the disclaimer statement in our ASX results presentation. That disclaimer also applies to this investor call. I'm joined today by our CFO, Tim Hume, and together, we'll take you through the company's results for the year. FY '25 was a year of disciplined execution. Our focus was on profitable growth with a clear bias towards profit in what remained a tough luxury market. In an environment of softer global demand and heightened promotional activity, Cettire delivered gross revenue and sales revenue of $975 million and $742 million, respectively, broadly in line with the prior year. From a profitability perspective, adjusted EBITDA was essentially breakeven and delivered margin was 16.1% of sales. Net cash closed at $37 million, and importantly, we remain debt-free. We had 657,000 active customers with 68% of revenue from repeat purchases, and our average order value rose to $820. This reflects the continued loyalty of our existing customers. These results reflect our steadfast strategy to prioritize profitability, maintain cash and strengthen customer loyalty. Turning to Slide 4. Throughout the year, we focused on the core fundamentals of our business to grow market share in a softer market while remaining self-funding. The global luxury sector contracted about 2% in 2024, the first fall in 15 years outside of COVID, and another small decline is expected this year. However, we are seeing some early signs of stabilization. We drove greater engagement with our existing customers and delivered 10% year-on-year growth in revenue and increased average order value from repeat customers. Our continued efforts in growing our supply chain saw us end FY '25 with record available inventory levels. Emerging markets were a standout in FY '25, now representing over 37% of group revenue. Part of this shift was driven by outsized growth in Asia and the Middle East, and we further lent into the opportunity in the Middle East through our launch in Kuwait and Bahrain. We have also invested in capability by strengthening our engineering, commercial and marketing teams and continuing board renewal. We finished the year with 657,000 active customers. New customer adds slowed reflecting lower marketing spend, but we deliberately chose quality over volume focusing on conversion and engagement. That strategy paid off with repeat customers drove 68% of sales and their spending increased. Lifetime value continues to rise, underpinned by both frequency and basket size. This loyalty is a crucial driver of sustainable growth. Turning to Slide 7. This is a chart we have continued to use as it clearly demonstrates the benefits of customer loyalty with their growing share of wallet year-on-year. We cut marketing spend by 22% year-on-year. Paid acquisition dropped to 7.1% of sales, well below historical levels. While this meant fewer new customers, acquisition costs were lower and traffic quality improved. To stay relevant, we drove targeted promotions. While this strategy did impact delivered margin, it ensured we remain somewhat competitive in a highly promotional environment. We continue to drive greater diversity across our revenue base. The localization strategy delivered greater geographic diversity, which saw revenue from emerging markets grow 32%, taking their share to 37% of total revenue, while established markets grew 2%. Our largest market, the U.S., has been declining as a percentage of total revenue, looking at the entirety of FY '25, the U.S. was around half of the revenue base, but this decreased to around 40% in May and June. This reflects the significant short-term disruptions caused by the Liberation Day tariff changes. Our supply chain with hundreds of suppliers continue to grow strongly over the last 12 months. Engagement levels remain very high as inventory holders and luxury brands seek new routes to market in a weaker demand environment. To support our strategy, we continue to invest in our commercial team to execute our increased level of pipeline opportunities that includes luxury brands and third-party inventory holders. Pleasingly, we exited FY '25 with record levels of available inventory and year-on-year growth in published products by 35%. I'll now hand over to Tim.

Thanks, Dean, and good morning, everybody. Sales revenue was $742 million, broadly stable on the prior year. Delivered margin was 16.1%, reflecting heavy promotions and higher fulfillment costs from a stronger euro. Marketing investment fell 22% year-on-year, in line with our focus on profitability with paid acquisition representing 7.1% of sales revenue and a continued modest brand investment of $6.7 million. Profitability was also impacted by a realized foreign exchange loss of $5.5 million, predominantly felt in the second half. Adjusted EBITDA was $0.3 million, essentially breakeven. Moving to the balance sheet. Closing cash was $37 million, and we continue to have 0 financial debt. While operating cash flow reflected our reduced profitability, and the working capital impact of a lower monthly revenue run rate into the year-end, our focus on profitability and attractive working capital cycle continues to support sustainable cash generation. Importantly, we continue to invest in our technology platform to develop further capability and reinforce our competitive advantage. You will note in the financial statements that we have decided to conservatively reclassify a portion of our VAT receivable to noncurrent, reflecting the latest view of the Italian government's refund timetable. As there have been questions regarding Cettire's sustainable cash generation, I wanted to take a moment to reiterate the foundations of our business model, particularly that provide resilience in challenging periods. We have an uncompromising strategy to remain self-funded with 0 financial debt. We have a capital-light business model with low fixed cost structure and a high degree of automation. We have very adaptable operating settings, flexible in delivering profitable revenue growth through the cycle. And we have a balance sheet and cash generation that gives us flexibility to adapt to market challenges and opportunities. These foundations have been in place since day 1 and will continue to underpin everything we do in the future. Moving on to the outlook and trading update. This year has started off reasonably well year-to-date with gross revenues up low single digits percent and emerging markets up double digits percent. July, which is a seasonally quiet month, delivered positive adjusted EBITDA and we have seen trading momentum improve throughout July and August. However, in the short term, there continues to be uncertainty within the global luxury market with performance varying significantly across geographies. Our largest market, the U.S., has exhibited volatility throughout calendar year 2025, in particular, in the June quarter. Year-on-year growth rates in the U.S. have materially improved in July and August month to date. However, the changes to the U.S. de minimis rules, effective from the 29th of August, as in today, could result in significant market disruption, and it is uncertain whether the improving trends Cettire has experienced in the U.S. throughout July and August will continue. Looking forward, our priorities are to grow our customer base, balance profitability and growth while staying self-funded and embed the enhancements we made throughout the year. I'll now hand you back to Dean.

Thanks, Tim. Before we conclude, I'd like to give you a snapshot of what is happening across the global luxury market. As I said earlier, in CY 2024, the personal luxury goods market declined 2%, which was the first contraction in 15 years, excluding COVID. That slowdown was driven by macroeconomic headwinds, shifting customer preferences and a deteriorating value proposition. According to Bain, the outlook for the rest of '25 will continue to be challenging, but the long-term fundamentals of the sector remain robust. In closing, we have a large loyal customer base that continues to grow in value. We have access to 1 of the world's largest online inventories of luxury goods. We have a capital-light self-funded model built for profitable growth, and we have the ability to continue to invest in our proprietary technology stack and exceptional team. With these foundations, Cettire is well positioned to navigate near-term challenges and deliver long-term profitable growth. On that note, I'll hand back to Sam.

Great. Thanks very much, Dean and Tim. Just as a reminder, the audience can post written submitted questions via the Q&A function at the bottom of your screen. There are a few questions. Just firstly, on de minimis, the rule changes going through today, what exactly are you doing to mitigate this?

Sure, I'll take that one, Tim. I think there's a couple of things to note. We're going to remain very nimble and respond to the changes, which have been quite rapid over the past few months. We anticipate to pass through the relevant duties as price increases to the customers. And that's what we'll be doing as an initial step.

Great. And just on inventory. What specific achievements in supply chain engagement led to the record inventory at the FY '25 exit? And how are discussions with brands directly given the operating environment you discussed?

I think our commercial team has been expanding over the past year, and we've developed considerably more strength in that area. I think at the same time, given where the state of the market is and the challenges the whole supply chain is dealing with, we can really see that all members of the supply chain are looking to leverage Cettire if they can. And we've had a lot of traction directly with many of the biggest luxury brand owners.

Great. Your cash balance at the end of August -- sorry, your cash balance at the end of the year was $37 million. Any update on where it stands today or the sort of general outlook on cash?

Thanks, Sam, I'll take that one. Look, we haven't disclosed cash balance as of today. But I think as we flagged over time, we have a degree of seasonality in our business. And so cash tends to ramp from where we are in the year up until December when we've been through the peak sale period. And then we have a secondary peak around the May and June time frame. So I think this year, I would not expect that to be much different compared to what we've seen historically from a seasonality perspective. But I think the other important things for investors to note here are that -- we've seen a strong revenue performance sequentially through July and August off the back of a very challenging Q4, and the business is trading profitably at the moment.

Great. And just a follow-up on that. There has been some speculation around capital raising. Any comments you'd like to make there?

Well, look, I think we have a capital-light business, have a lean cost, fixed cost structure. We're operating profitably, as I said, and we have no plans to raise equity.

Okay. Great. And there's a couple of questions just on the logistics headlines around shipments and Australia post-shipments from Europe stopping. Is there any mitigation strategy in that regard?

We have no disruptions. We have no disruptions, and we have multiple freight carriers if we need to leverage off that.

Okay. Great. What has changed in the process with the Italian VAT refunds that you've had to make the noncurrent reclassification for?

Nothing has changed per se. I think this is purely down to timing. And just to recap, we have significant input VAT receivables in the business. This relates to product purchases and service purchases that we make in Europe. And the Italian government process, a lot of our business is in Italy. The Italian government process for refunds can be prolonged. In some cases, it can take 6 to 12 months to receive a refund of VAT. So I think we're simply trying to be conservative here in classifying a portion of that receivable as noncurrent.