Lanvin Group Holdings Limited (LANV) Earnings Call Transcript & Summary

Thank you for joining us, and welcome to the Lanvin Group's Fiscal Year 2023 Financial Results Conference Call. [Operator Instructions] 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 the industry outlook. Forward-looking statements are inherently subject to risks, uncertainties and other factors, and they are not guarantees of performance. For today's presentation, I would like to introduce Eric Chan, CEO of Lanvin Group; David Chan, Executive President and CFO of Lanvin Group; Siddhartha Shukla, Deputy CEO of Lanvin Brand; and Silvia Azzali, the CEO of Wolford; and Andy Lew, the CEO of St. John. With that, I would like to turn it over to Mr. Eric Chan to start the presentation.

Thank you for joining us today. I'm Eric Chan, the CEO of Lanvin Group. Since joining the group in 2023, I've had the chance to meet some extraordinary people. As always said, the managers drive companies, and their teams drives results. I'm thoroughly impressed by the effort of our managers and our teams to maintain the growth and continue to forge the path of profitability in a challenging market environment. For 2023, we contribute our trend of growth by achieving revenue of EUR 426 million compared to EUR 422 million for 2022, representing a growth of 1%. Our 3-year compound annual growth since 2020 was 24%, with all our brands maintaining double-digit growth over the 3-year period. Our gross profit for the year increased to EUR 251 million with our margin improved to 59% versus 56% in 2022. We continue to optimize our cost structure in 2023 with multiple initiatives and expect improving results throughout 2024. In 2023, our brand continued to raise awareness and restore brand heat with targeted marketing campaign, powerful collaborations and effective service offering. We believe luxury fashion is not just a product, but an experience in lifestyle, if you will. As such, we have focused on creating an ambience for our clients that goes beyond the point of sales to the experience of living with our brands. We stirred those emotions into our clients in 2023, and in parallel, we made significant progress in enhancing our delivery vehicle from improving our retail footprint to the kickoff of our U.S. digital platform. Over the past few months, I have visited many of our new location. With each visit, I find myself increasingly excited about the growth of our retail base, and the opportunities that exist to expand it. The opening of our first Middle East long-term project in Riyadh has come better -- a better time with the brand heat that has been generating throughout the Lanvin's product launch in North America. The regions actually share the love of our brands that I do, and I see there is much we can accomplish in the Middle East. Therefore, I am pleased to say that we are developing with another 2 of our brands to introduce new projects in the Middle East in 2024. Moreover, as David will discuss later, in 2023, we continue to leverage our strategic policy ecosystem. We have piloted with the best-in-class operations of distribution, retail, profit development and material sourcing around the world. We continue to seek new strategy partners to develop our ecosystem and improve our product offerings and service. All of these results drove our financial results. As you will hear, our financial performance continued to improve in 2023. I was most impressed by our resilience during the challenged year, we were able to adapt to changing market environments and changing trends. Although headwinds may persist in 2024, I'm confident in our ability to stay on track and to achieve our goals. With that, I would like to turn it over to our CFO, David Chan, to go through some of our details.

Thank you, Eric, and I'd like to thank everybody for joining us today. I'm David Chan, the Executive President and CFO of Lanvin Group. Before we get into the results, I want to make a few high-level points. I think back to the beginning of Lanvin Group and our journey and how far we have come, we sometimes forgets -- forgotten is that we have embarked this in 2018, we were starting a new platform with a distinctive concept of being an Asia-based global luxury group. We were, in essence, a start-up. Since 2018, we have put together a strong ecosystem and strategic partners with help -- that help us with production, distribution and development. Furthermore, we have built a synergetic platform that each of the brands contributes to and benefit from. We have also built a backbone of the group shared service that benefit all our brands. Most importantly, we've put together a resilient group of managers and team members that continued to deliver growth regardless of the challenges they face. In 2023, we continue to build our platform by delivering growth in challenging environment, transitioning the creative strategy at our flagship brand and further driving margin improvements. Throughout 2023, we continued to make changes and adding the elements necessary for each -- to reach profitability. Among our 2023 achievements, we established a fabric center that jointly created with our strategic partner, that is a world-class fabric development company. Additionally, we started the U.S. digital platform to enhance our e-commerce offering and logistics in North America for our brands. All that to say, when I review our group's 2023 achievements and results, it gave me confidence that we remain on track to reach our profitability goals. With that, I'd like to discuss Page 4 and 5 of our presentation. The group grew its revenue despite macroeconomic headwinds. The key highlight was the Lanvin brand's ability to improve its growth trend in the second half of 2023, while market conditions grew steadily worse. Additionally, we showed a strong growth in the APAC region with nearly 8% growth and Greater China growing by 9%. One of the key pieces of our DTC channel, e-commerce, posted a gain of 3%, with the group re-leveraging its U.S. digital platform, an indication that our digital strategy is paying off. Furthermore, we continue to improve our retail footprint and improve store productivity, putting a fleet of doors in the best position they have ever been in to facilitate our expansion strategy. As an example, another highlight in 2023 was the opening of Lanvin's first Middle East boutique in Riyadh. We were extremely excited to open our first location in the region and have plans to open additional boutiques for all our brands in 2024. Another key achievement in 2023 was the reacquisition of Lanvin brand's Japan license and trademarks. The strength of Lanvin in Japan is a testament to the power of value of the brand. We're excited for the opportunity to drive further development of Lanvin brands in Japan. Overall, the story of 2023 for Lanvin Group was about our persistent in delivering growth and improving profitability. The overall growth for the group and improvement in the quality of our revenue allow us to improve our margin, with gross profit margin improving by over 250 basis points, contribution profit margin improving by 255 basis points and adjusted EBITDA margin increasing by near 200 basis points. Our brands made significant progress in 2023. And with that, I'd like to turn to Page 12 and introduce Siddhartha Shukla, the Deputy CEO of Lanvin Brand and discuss some of Lanvin's highlights. Sid?

Thank you, David. For Lanvin, 2023 was indeed a fruitful year of continued transition with a persistent focus on long-term brand and business building. After several years of relative instability, concrete actions have been executed systematically from the inside of the organization out in establishing: first, a clear brand vision and business strategy; second, a strong infrastructure of talent to support development and innovation; and third, a diversified global business that has stabilized and is now poised for growth. In a market context where the global wholesale and digital multi-brand channels were quite strained and in contraction, the house was nonetheless able to improve its sales trend in the second half, as David mentioned, with targeted product and marketing campaigns executed via direct channels. Despite a softened top line versus 2022 at 7 points negative, the company delivered operational efficiencies through a calculated rationalization of expense levels, improved gross margin at plus 8 points versus the previous year through a favorable channel product mix, and a focus on full price selling, all of which substantially improve Lanvin's contribution profit. In April, as part of the new merchandising strategy, the house announced a creative reorganization to be powered by a singular vision, framed by the rich heritage of France's oldest couture house and our founder, Jeanne Lanvin concept of le chic ultime, the ultimate chic. Alongside the foundational men and women's ready-to-wear collections, 2 new vertical organizational structures were established: one fully dedicated to leather goods and accessories, and the other to the advent of Lanvin Lab. The final step in this holistic reorganization will come with the imminent appointment in the second quarter of 2024 of a new Artistic Director for the collections. It still means that leather goods and footwear business saw important progress driven by key product initiatives in the second half, notably such as the relaunch of the iconic ballerina flat, the Curb sneaker collaboration with The Surgeon and the Pencil Box campaign featuring global brand ambassador, Cheng Yi. All of these products have now firmly become Lanvin icons. The first addition of Lanvin Lab was successfully launched in the fourth quarter with the acclaimed Grammy-winning artist, Future. An experimental space for the cultural expression of the brand, Lanvin Lab has already proven to be a dynamic international platform, confirming Lanvin's outsized brand equity and far-reaching influence. The second edition of Lanvin Lab, a monumental public sculpture by the Austrian contemporary artist, Erwin Wurm, has just been launched in a 6-city tour across Mainland China. As concerns network expansion, the retail footprint saw a net increase of 5 new boutiques, including the brand's new concept flagship boutique on Madison Avenue in New York, and as David mentioned, its first freestanding boutique in the Middle East in Riyadh, Saudi Arabia. 2024 promises new openings in Cannes, Galeries Lafayette in Paris and the debut of digital marketplaces with select retail partners around the world. Thank you all for your time. And with that, I will turn it back to David.

Thank you. Lanvin accomplished a lot in 2023, and I'm eager to see what we can achieve in the coming 2024. Now I'd like to introduce Silvia Azzali to discuss Wolford.

Thank you, David. I am Silvia Azzali, the CEO of Wolford, and I'm happy to share the remarkable achievement of Wolford in the year 2023. Despite significant challenges, our commitment to improving profitability announced last August has yielded fruitful results, marking a pivotal moment in our journey. It means an improvement of more than EUR 10 million compared to 2022. This year marks the culmination of our significant restructuring efforts initiated in 2022 and underscores the dedication and resilience of our team in navigating turbulent market condition and executing strategic initiatives with precision. I am saying that because our journey to this significant improvement was not without its obstacle. We navigated through challenging market condition characterized by geopolitical tension and inflationary pressure, and last but not least, an extreme warm weather climate until November, which significantly delayed the start of the fall season, that in Wolford represents more than 60% of our sales. Because of all of that, Wolford achieved a modest 1% sales growth in 2023, following 3 consecutive years of double-digit growth. Particularly noteworthy was the double-digit increase of 11% in the wholesale revenue attributed to strategic collection alignment by our new Artistic Director, Nao Takekoshi, and the acquisition of significant new wholesale customer. The Asia Pacific region report an impressive 32% growth, while the EMEA region faced macroeconomic challenges. Contrary to wholesale, retail faced pressure with an overall decline by 3%. As said, the second semester sales were soft as impacted by unexpected adverse weather condition and tension in the Gulf area, which dampened sentiment among European and American consumers. Despite this challenge, we are pleased to highlight successful new openings, including IFC in Hong Kong, a pop-up store in East Hampton and the refurbishment of Bal Harbour, Miami, Frankfurt Airport and Milan. These flagship stores now showcase our new store concept, Wolford Lounge, designed by Nao Takekoshi, reinforcing our commitment to elevating the retail experience for our customers globally. Even though sales were soft in the second half of the year, we improved our profitability without only cutting costs. In 2023, Wolford celebrated several significant achievements that reinforced our brand presence and resonance in the market. Our campaign with Grace Jones in February, a successful partnership with Number 21 and Jonathan Simkhai, and the launch of our new website in November, all contributed to bolstering our digital footprint and announcing the customer experience. Digital sales maintained a stable 19%, showcasing the resilience of our brand. Last thing that makes me especially proud is the introduction of our revolutionary W.O.W leggings, further underscore our commitment to innovation, driving an impressive 137% growth in leggings compared to the previous year, and solely define our iconic, the W collection, as a cornerstone of our brand strategy. Through strategic restructuring efforts, we significantly reduced our heritage costs, resulting in a reduction of operating expenses by EUR 9.6 million, while continuing investing in strategic assets like omnichannel, people, store innovation. Looking ahead, we remain optimistic about the future. With a solid foundation in place achieved in 2023, we are poised for continued success in 2024 and beyond. Thank you for your time. And with that, I'd like to turn it back to David.

Thank you, Silvia. I'm pleased to -- pleased with the steady growth and process -- progress Wolford has made in 2023. The new leggings are truly one-of-a-kind and represent what Wolford is all about. At this point, I'd like to introduce Andy Lew, CEO of St. John, to discuss some of their 2023 achievements. Andy?

Thank you, David. I'm excited and eager to share our 2023 results, as well as mention some of what 2024 has in store for St. John. While 2023 started strong, many global businesses hit headwinds in the back half of the year. We are proud to have maintained DTC revenue growth for the fiscal year. The year was truly transformative as we updated our supply chain to improve operating efficiency. The transition continues to unfold smoothly as we focus on the high standard, which our clients not only deserve, but can only expect from us. We continue to refine our wholesale partnerships, such as Nordstrom, giving our relationship to an alternative style where we control inventory, allowing us to better showcase the breadth of our assortment and work with DSAs in each location. We are increasing this model in order to directly control our businesses. With our clients top of mind, we launched our Foundation collection at the very end of 2022, creating must-have essentials as the building blocks of one's wardrobe, perfectly pair with our more classic pieces. Within its first full year, the collection has grown to 23% of our overall business. We've since added evening and additional color ways to expand that category. Our retail team saw 10 of our top wardrobe stylists sell over $1 million each. Of that, 4 were over $2 million. This aspect of clientele is a big focus as we opened 4 new boutiques in 2023 with additional relocations ahead. Our OwnYourPower campaign was the first for us in creating a powerful message focused on digital and streaming by partnering with Hollywood's Shonda Rhimes. We are able to not only work with an existing client, but a true St. John fan to speak to you who we are today. Celebrity stylist and consultant, Karla Welch, has been an incredible collaborator with the team from shoots, designs, events and brand awareness that help drive sales. Collaborations such as our recent Edie Parker x St. John handbag, capsule are important ways to further diversify our product offerings through price points and categories. We purposefully cut the launch event instead of focusing on the digital campaign shoot on actress, Leighton Meester to bring in new demographic and create heat. As we look ahead, we are updating our e-commerce platform to Shopify to make us more agile on these features to improve the online experience. Not only does this benefit St. John, this provides a synergistic platform for all of Lanvin Group in its e-commerce and distribution in North America. Having been with St. John, a part of the Lanvin Group since 2021, I can tell you we haven't had a significant e-commerce presence in North America. The development of our U.S. digital platform is a big help for not only St. John, but also for the group. We now have an efficient way to centralize logistics and improve customer experience, which helps all of our brands in the long run. We are also thrilled to be reestablishing new flagships in key U.S. cities, Madison Avenue in New York, Brighton Way in Beverly Hills and Post Street in San Francisco. These are major shopping destinations, which adds to our retail preference. We are working recently to build philanthropic partners and community around our boutiques. These events and alignments have been key to engage current, new and lapsed clients. These efforts will strengthen our business in North America so that we can then focus on growing in the rest of the world and explore new partnerships. At St. John, we are committed to empowering confident women to look and feel their best through a luxurious style, thoughtful designs and unmatched quality. We feel lucky to have Lanvin Group behind us on this mission. Thank you, and I'll give the floor back to David.

[Operator Instructions] Our first question comes from Tracy Kogan from Citi.

I was wondering if you guys could talk about performance year-to-date in 2024 since we're so far into the year, and maybe kind of characterize that performance by region? And then I have a follow-up.

I'm sorry, Tracy, I got dropped off. So we're actually not done, I have maybe another -- maybe 10 minutes to pull the reports. So we will hold off on the Q&A session just for a little bit. Sorry about that. Okay. So thanks, Andy, for introducing St. John. So I'd like to move to Sergio Rossi. At Sergio Rossi, 2023 was also a transformation year with the hiring of a new CEO, Helen Wright, to lead the effort at the iconic brand. In addition to new leadership, the brand expanded its customer demographic by revitalizing its brand image, and with the strong product launches that included the iconic Mermaid and SI ROSSI collections. The brand also initiated new events to enhance customer engagement and grow brand awareness and target campaigns in key geographic regions. These efforts led to revenue growth of 70% in North America, a key region of growth for the brand. Additionally, e-commerce grew over 5%, and like-for-like growth, our revenue growth was up over 6%. Additionally, Sergio Rossi's white-label offering, which is its third-party production business, remain a focus of the brand's industrial facility. In 2023, with the intention of making it an increasing piece of the revenue mix during 2023, the brand began to strategically emphasize and enhance its white-label business to promote year-round capacity utilization, improve volume and productivity and take advantage of its unique production capabilities. Next, I'd like to discuss some of the achievements of Caruso in 2023. The brand had a strong year of growth and margin improvement. Caruso achieved a significant milestone of adjusted EBITDA breakeven for the first year by driving strong results in its Maisons business, improving its service offerings and made-to-measure business through the expansion of its production capabilities and specialized teams, and improving the supply chain strategy in a period of offer, scarcity in men's sportswear industry. Additionally, the brand launches an e-commerce business, a first to Caruso. These changes that Caruso has implemented are significant and provide extremely strong foundation for the brand's growth and profitability in the years ahead. Moving ahead with all our achievements in 2023 behind us, I'd like to highlight our outlook for 2024. We expect continued macroeconomic challenges this year, but we are confident our strategy will lead to continued growth and profitability. In 2024, our strategy will remain the same, focusing on improving and expanding scale and profitability. We plan to approach the market tactically to capture opportunities in the same fashion we did with each of our brands in 2023. With our methodical and tactical strategy, as I mentioned, one of our 4 brands achieved adjusted EBITDA breakeven in 2023, and we expect 2 additional brands achieve that goal in 2024. Taking tactical steps allow Caruso to expand its production capability, to capture additional market shares and drive profitability. We will continue to take the same approach with all our brands. Furthermore, we plan to focus on development of our strategic ecosystem. I've talked about our ecosystem a lot in the past and continue to emphasize it as a point of differentiation for Lanvin Group. We have strategic partners throughout the world that help us with a variety of business facade from productions to distribution. We plan to add more partners to facilitate regional growth, improve logistics and expand product categories in 2024. We're fully engaged in our near-term goals, but we are also looking at the bigger picture of what our brands and our platform can be, and we will continue to align our strategies to achieve balanced success in brand growth and profitability. Now I'd like to touch on some of the details of our financial results. Starting on Page 20. As I mentioned, we continue to drive growth year-over-year with our compound annual growth rate since 2020 at 24%. On the next page, you will see that we continue to strategically target regions where we want to emphasize our growth, including North America, the Middle East and APAC. I mentioned earlier that we opened our first Lanvin boutique in Riyadh. This is just the beginning of our expansion into the region, and we have plans to add additional Lanvin Group doors in the Middle East. Our brands have significant awareness in the region. And as I mentioned, we have plans to work with strategic partners to accelerate our footprint development. Furthermore, we view APAC and, in particular, Greater China as an opportunity to gain market share. The penetration rate of our brands are still small. And as evidenced in 2023, our near double-digit growth in Greater China was a testament to our ability to take market share. Another highlight for the region in 2023 was the reacquisition of Lanvin Japan license in March. Lanvin's business in Japan was thrived over the past 2 decades, and they were very pleased to able to -- we were very pleased to be able to reacquire the license and trademarks. We now have the ability to further drive development and growth in Japan, and we're excited for the opportunities that are available in country. Moving to Page 22. We continue to pursue growth in our DTC channel through a retail expansion and growth in e-commerce. We have taken a tactical approach to the wholesale channel as we view it as a staple of our distribution strategy, but one where we need to refine our partnerships given the challenges that the wholesale channel is facing industry-wide. The group revenue by channel was generally fair, but the group did have an increase in other revenue from the reacquisition of Lanvin's Japan license and associated royalty income. Next, I'd like to quickly touch on our retail footprint. With the changes in our product mix and product offerings in 2022 and '23, we have established a blueprint for our boutiques moving forward. This require additional rationalization of network, and we'll see on Page 23 that we further reduced our footprint in the process of cooling the fleet to prepare for our expansion strategy. While rationalization of network is ongoing process, one thing to note is that we began to expand Lanvin's footprint in 2023, with a total of 5 net new stores. One additional point I'd like to make is that while our total base of stores decreased by 12, we maintained our DTC channel revenue at a steady level, a testament to our improving unit economics. Moving on to Page 24. I'd like to discuss the group's improving profitability. We achieved record growth profit margin for the group landing at 59% for the year or EUR 251 million, up from EUR 238 million at 56% margin in 2022. This was driven by a combination of changes in our product mix and balance of accessory versus ready-to-wear, and changes in our distribution channel mix. In 2023, the group continues its effort to focus on margin-enhancing product categories as a basis for the future. Additionally, we continued efforts to efficiently manage variable costs, including selling and marketing. The group's contribution in profit nearly doubled from EUR 13 million to EUR 24 million at the margin of 6%. You can see that this is -- the focus on our variable margin has yielded the desired result with nearly all the gross profit and the contribution profit gains falling into the adjusted EBITDA line. Adjusted EBITDA continued to improve in 2023 with a margin improvement nearly 200 basis points. Furthermore, as I mentioned earlier, Caruso achieved breakeven adjusted EBITDA in January '23, and 2 additional brands are expected to achieve adjusted EBITDA breakeven in 2024. While the group has focused on rightsizing the cost structure, we are seeing our results increasingly improve from optimizing the product and channel mix. 2023's performance makes us confident that we're nearing the inflection point where we can focus more on expanding our scale to accelerate our path to profitability. Next, I'd like to touch on working capital efficiency on Page 26. As you can see, year after year we continue to improve our working capital efficiency. In 2023, for the first time, we had a cash conversion cycle of less than 100 days. Throughout this webcast I've emphasized our focus on profitability, but want to be clear that we view cash flow efficiency as an equally important objective. To recap, in 2023 we continued on path we outlined in 2018 with growth and significant improvements in profitability and cash flow efficiency. We continue to pave the wave of our future and are optimistic for continued improvement into 2024. Now I'd like to highlight some of the brand level financials, starting with Lanvin. The brand underwent a creative transition in 2023 in the face of softening global luxury market. However, as the market conditions worsened, management was able to improve its sales trend in the second half through our successful product launches and marketing campaigns. The brand landed at a revenue decrease of 7% of the year -- for the year, an improvement of 11% decrease in the first -- from an -- improvement from the 11% decrease in the first half of 2023. Most of the decrease came from the wholesale channel with wholesale facing difficulties industry-wide. Lanvin show its resilient with the ability to improve its gross profit margins significantly from 50% to 58% by enhancing its product mix and heavier emphasis on accessories, as well as better full price sell-through. Gross profit increased by EUR 4 million in 2023. And as you can see, most of that dropped to the contribution profit line. Moving to Wolford. Since Silvia provided details on financial results, I'd like to only point out a few additional highlights. Wolford has had the most significant change to its retail footprint with the introduction of the new legging and continued emphasis on a leisure product being the future of the brand. The Wolford name is synonymous to technology and product development. Returning to the strategy has proven successful. And with that change, we started modifying the merchandising blueprint in 2022, leading to the changes in Wolford's footprint. So far, the strong uptake in both of these product lines have improved the quality of our revenue and profitability, which makes us confident that we will make the right strategic decision. Next, I'd like to discuss the financial results for Sergio Rossi. Revenue decreased by 4% to EUR 60 million due to a decrease in white-label third-party production sales, which the brand includes as wholesale revenue. Conversely, the DTC growth accrued with Sergio Rossi brand, increasing revenues, in particular in APAC, leveraging brand's post-pandemic momentum and by improving its marketing efforts. The brand saw growth in Greater China as well as double-digit growth in Japan -- Japanese wholesale accounts. Sergio Rossi improved its gross profit margin and contribution margin and its brand revitalization, marketing efforts and product launches in January '23 contributed to higher margin sell-through. The brand still has room to improve by streamlining its supply chain and production efficiency with a key focus on accelerating its speed to market with its product. As I mentioned, starting in 2023, efforts were made to enhance and emphasize Sergio Rossi's white-label business, and this will be an important facade of the brand going forward. Moving on to St. John. As Andy mentioned earlier, significant progress was made by the brand in 2023. From operational efficiencies to marketing improvements, the brand drove 5% growth to land at EUR 90 million for 2023. DTC revenue grew 7% and more impressively, the brand saw e-commerce growth by 14% with a use of group's digital U.S. platform. We view St. John as a good test case for our U.S. digital platform, and I'm pleased to see such strong results. The DTC growth led to gross profit margin improving 63% in 2023. Additionally, the refining of this wholesale partnerships also contributed to better gross margin. Finally, I'd like to discuss Caruso. Caruso had an impressive 2023. The brand was able to improve its production efficiency and expand its production capability to take advantage of the offering scarcity in its market for men's sportswear. Revenue increased significantly by 30% to EUR 40 million in 2023, further improving its growth trend from 2022, which was also an impressive 25%. Gross profit was up by EUR 4 million to EUR 11 million from EUR 7 million and a margin of 28%. And contribution profit margin improved significantly as well as going from 18% to 24%. Caruso drove this impressive improvement through its Maisons business, which grew by double-digits. In 2023, the brand showed and the ground -- showed that the groundwork that has been laid to expand scale and improve operating efficiency and production capability yielded significant results. As such, Caruso also achieved breakeven adjusted EBITDA in 2023, a significant milestone. We anticipate continued growth in revenue and profitability as Caruso further develop its business and capture additional market share. At this point, I'd like to have Eric provide some final remarks.

Thank you, David. To close our results call, I would like to highlight some of the key takeaways. First, in 2023, we entered a challenging macroeconomy environment. We expect the headwind will persist in 2024. However, the resilience that our brands and our teams showed in driving our financial results in 2023 is a testament to our results and also to the strength of our brands. Second, there is a significant room to grow in many of our geographic regions. So we will continue to focus on balancing our regional growth to take advantage of opportunities at both our retail doors and online. Thirdly, we continue to drive profitability improvement through our organization and are able to show the fruits of our labor through our improving gross profit margins and our increasing contribution profit. Lastly, we are nearing an inflection point, and we have laid the groundwork for accelerating the footprint growth and market share gains. And now we have the ability to capitalize on the operating leverage we have built in our group to amplify our profitability. My team along with our brand managers remain resolute in our mission to grow our brands and to drive the profitability and cash flow efficiency. Lanvin Group and our brands have a provenance and heritage second to none, and I'm proud of what we have accomplished in 2023, and we are collectively on a journey, and I'm very optimistic about our future. Thank you.

[Operator Instructions] Our first question comes from Tracy Kogan from Citi.

I will ask the same question I asked earlier, which was, I was hoping you could give us a sense of how your business has trended year-to-date, and maybe talk about that regionally? And then I have a follow-up.

Yes, I can. Thank you, Tracy, for the question. And I think our business is like a lot of other brands, I would say, in the macroeconomic. We are -- in 2023, I think we landed pretty resilient results. But in Q1, we do see, I would say, a general kind of a softness in the market, including some of our brands, right? So I think this is -- that's why I mentioned a little bit in our script, we are -- all our brands are -- really just to have to re-shift some of the strategy, right, whether it's creating products or marketing, that is more tailor-made to this particular kind of macroeconomics that we were facing, so to attract, entice certain audience, right? So maybe -- I don't know if Eric or maybe even -- maybe the more represented brands for Lanvin, right, is that the very -- we saw a kind of a trend coming for the broader luxury market in the second half of 2023. That's why we shifted our strategies to some of the capsule and marketing. Maybe Sid, you can give a little bit more examples on this to Tracy's question, including some of the product launch or kind of the collaboration we did in the second half of the year, which continued into the 2024, right? Sid, do you want to take this a little bit?

Sure. Yes. I mean, I think what I would say is that this -- and fully aligned with what you've said, but I'd say despite that, we remain very optimistic, that we have a year ahead where some of our key initiatives are going to bring share that we know exists. And it's just about being more surgical in drilling into those opportunities. So particularly with the launch of Lanvin Lab last year, which continued into this year, as you mentioned, David, into Q1 and Q2, we see strong selling from that. As well as more of our core commodity icon businesses in the relaunch of women's formal shoes, or even in leather goods, where we've seen a remarkable -- despite the global environment, a remarkable resilience and even on a regional basis very promising signs of growth in leather goods. So I still feel very optimistic that we have opportunities on a channel and product level to unpack and that we'll be able to do that before the end of the year.

I think you just said that the Lanvin Lab, you had a second -- the second drop of the Lanvin Lab, and I'm wondering what you're seeing from that? And is Lanvin Lab, is that a higher-margin business because it's more fashion forward? Or how does that shake out overall on the margin side?

Yes. Sid, do you want to take that? It's probably easier.

Sure. So 2 parts to the question. Indeed, it was phased in 3 drops. And so the second and third drops took place in the first quarter of the year and will continue selling through the first quarter -- sorry, through the first quarter, and they will sell through the first half. The important thing about Lab is that there's not a single recipe to it. It's really about an acknowledgment of Lanvin being a cultural brand as much as it is a fashion brand. We see that throughout the marketplace. And Lab is a place for us to situate those projects and make sense of them. They certainly can provide very interesting sources of revenue, but they're not necessarily only about that. The second edition of Lanvin Lab, which I also mentioned, is an artistic project, which absolutely supports our business, but in a very different way and through an experience as opposed to an actual collection. Specifically on the first edition, Tracy, and as that was linked to a very renowned artist, it's true that it provided a nice source of additional revenue in the year, and also some cultural affinities that the brand absolutely owns to demographics beyond sort of the traditional sophisticated occasion where driven demographics that Lanvin is known for. And so we see that performing well notably because as the projects have a dynamism built into them, the first edition was with a musical artist who had just dropped an album, that has 3 songs trending in the top 10 on the Billboard charts. And that obviously is important to us because it drives a lot of heat and attention to what will be the second and third waves in stores now.

Great. My follow-up, David, is just on CapEx. It was up significantly this year, and I was just wondering what the drivers were? I mean, I know you have more -- you had more store openings this year. And so I wasn't sure if it was that or if there's more IT or all of the above? And then just wondering what you're targeting for CapEx for 2024?

Yes. I think we still want to keep it pretty consistent, I think, at the single-digit percentage of the sales. I think we -- a lot of the effort that you see will be still coming from rationalization. What you see in -- towards the end of 2023, kind of, we have a net loss of stores, right, because that will be -- we'll continue to see that. And then, as we mentioned before, a lot of these actions will be seen in Wolford because we are seeing a Wolford -- especially with the success of these leisure wear and legging, we're moving more and more -- we need a bigger kind of -- a different type of stores front to introduce Wolford to the customers.

[Operator Instructions] Our next question comes from Doug Lane from Water Tower Research.

Just want to stick on the margin trends here. They've been heading in the right direction pretty much across the board, which is good to see. I just wondered if, David, stepping back here, do you have a target for a group-wide breakeven on EBITDA margin? And maybe if you could discuss a few key initiatives underway to get there?

Thank you, Doug, for the question. We do -- I think we are -- if you follow us a couple of years ago, right, we were aiming for an EBITDA -- adjusted EBITDA breakeven by 2024. However, there is a delay, I would say. Now we are really looking for a cash breakeven at a group-wide level by 2025. And the reason being is really the -- we didn't foresee a kind of macroeconomic kind of headwinds starting in the second half of 2023. So that's one way to look at this. And then in terms of the -- kind of where the key initiatives that you mentioned, I mean, obviously, if you see our product mix for -- as group level, okay, if you talk about Lanvin, it's only, probably one of the few brands that we have is -- have accessory capabilities. However, we are focusing more and more on the accessory and leather good business. Especially when Siddhartha mentioned during his speech, we created this division particularly focused on this category. So that means you can see that this is the group's strategy and initiative to really to drive that higher gross profit margin by having less seasonal products and less ready-to-wear related to products to improve the inventory turns, the OTB and the merchandising strategy. And then that second part of the initiative will be -- is going to be the channels. We are very selective now. If you ask all the CEOs on the call, we've been very selective in terms of our wholesale partners. And then we are really focusing on the DTC model, especially our retail and, I would say, the dot-com business that we control. And these channels will yield better gross profit margin in general. So we -- it has a little bit more inventory pressure. However, we do believe in the mid- to long-term, it's better for the brand, right?

And then...

Sorry, Doug, one last thing. And then -- so not just to focus on the margin and top line. Obviously, this will -- we have a couple of these factors with the macroeconomics. The group has -- in Silvia's speech, or even Andy's speech, you will sense, each brand is still doing their job in terms of making sure the cash efficiency and operating cost efficiency still being rationalized. So on one hand, we are building our revenue and changing product and changing channel mix, but on the other hand, we're trying to rationalize the cost. So these 2 kind of main our overarching thesis will yield, we believe -- and we do it the right way, will yield positive EBITDA and positive cash flow in the next 18 months.

Okay. So it sounds like looking at the recent trends, the marketing and selling expenses have sort of settled in this low to mid-50% range, and it's really at the cost of goods and the G&A where the opportunities are. Is that where we should continue to see the leverage on the cost front?

Yes, I do believe so because unfortunately, we -- our brand is -- came out of our restructuring in 2018, right? We continue to invest in our brand. The easier way is to cut all the marketing and cut all the selling expenses and we become breakeven sooner. But I think that is pretty damaging for all the brand equity. So we continue -- you will continue to see our investment in the brand and marketing and selling expenses.

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