LuxExperience B.V. (LUXE) Earnings Call Transcript & Summary

Hi. Good morning, everyone. Thank you very much for being here. My name is Geoffroy De Mendez. I'm part of the European consumer discretionary research team at Bank of America, based in London. Super happy to be here for the second day of the Consumer Conference in Miami. Right now, we're going to have a 40-minute discussion with Martin Beer, who is the Chief Financial Officer at Mytheresa. The format is going to be a fireside chat session. If at the end of the first 35 minutes, anybody has a question in the room, we can also ask some questions. But most of the 40 minutes will be between Michael -- Martin and myself. So look, first, I wanted to make sure that everybody is up to speed in the room on Mytheresa. So maybe we can spend 5, 10 minutes with Martin explaining the positioning of Mytheresa. What exactly they do? History and reasons for IPO? And then we can deep dive a little bit more into recent trends.

Perfect. Happy to do so. Thanks, Geoffroy, for the invite. Good to be here and explain a bit more about the Mytheresa positioning in the luxury market because it's a very differentiated position. We are a curated luxury online platform, and that is different to just pure aggregation. So we're not the Amazon of fashion but have a clear point of view. So we are a curated platform operator that operates a selected key number of brands on our website, very high-end. And with that positioning, we differentiate ourselves. We attract a high net worth individuals coming to our platform that focuses exactly on that assortment that comes to us because they don't want to look at 3,000 dresses but have a clear point of view and want to see, okay, it's 11:00 p.m., 12 p.m., so want to see -- I want to treat myself, I want to be inspired. It is more event-driven search logic, and they want us to do the work and say, "What should I look at?" And this is a multi-brand customer. And that multi-brand customer is and doesn't have the time to go to physical retail stores and focus on carpets and Prosecco. And also doesn't have the time and hesitant to go through all the brand.com websites. So gucci.com, valentino.com, prada.com, dolce, that's too much work. So -- and that is the reason why Mytheresa and why we offer that differentiated positioning. So not just being a pure aggregator, but having a clear point of view, attracting this multi-brand, high net worth individual. And that is also the reason on the brand side, why then brands work together with us and increasingly do so, giving us exclusives and capsules and certain marketing initiatives because they want to have digital visibility to that customer -- for that customer focus. Because the more and more brands actually are embracing the online world, having D2C, having a brand.com, the more they understand that they're not so much attracting this multi-brand customer. And that's why they -- in addition to continuing to focus on the D2C strategy, want to have digital visibility to that multi-brand customer and therefore, partnering with a wholesale partner that brings something to the party, adds value to them than just being a pure marketplace. Because the marketplace attracts the same as the brand.com, more a customer that really knows what she wants, more specific product focus. I know I want this product, and therefore, I go price shopping. And with Mytheresa, it is more event driven. It's more inspirational. And therefore, this is very important to understand this true luxury orientation, this focus of Mytheresa, attracting a certain multi-brand, high net worth individual and filling the void of brand.com. And we've seen that in the last quarters that the number and caliber of our brand collaborations really increased. So the brand really embraced that and produced exclusive and capsules because they want us to be successful in speaking to and attracting that multi-brand customer. And this is key to understand the Mytheresa positioning. It's different also to a marketplace. And with that focus and that coming more to the P&L and the logic on the business model, this customer focus helps us to attract and retain that certain customer. And that customer cohort performance translates into profitability because we have a -- almost 100% net sales retention for a customer that had been shopping -- has been shopping from Mytheresa for 2 years and longer. And that strong customer core performance, this customer loyalty coming back without any or costs or promotional incentive is the key ingredients of the Mytheresa profitability. I mean, obviously, also the high AOV. Now at EUR 640. It helps on the profitability, on logistics and payment and all other aspects. And that customer focus also coming for the curation aspect. So the customer is not really looking for promotional or for getting the best deal, they look for exclusive, the specific Mytheresa brand selection. And that also translates into gross profit margin stability. And then the whole business model is very variable P&L, low capital intensity, low CapEx. And therefore, we have always been profitable. And if I look at the peers, it's not common to be profitable and to grow profitably. So we have been growing strong before the pandemic, during the pandemic and after the pandemic. So in the last 5 years, I have a CAGR of 25%. And with that unique focus, with that stability, and that was also the reason for the IPO to also give a signal on this different -- on this specific growth path. And basically after being separated from Neiman Marcus, unlock this new era of growth for Mytheresa. And so far, it has really paid off. I mean we have an increasing number and quality of brands that want to intensify the work together with us. They see -- obviously, they want to focus on D2C. They want to strengthen that, but they know this is not 100% of the story. So they want to partner and will partner with -- on the wholesale side. But on that angle, they want to focus on a partner that really brings something to the party, that add specific value. And this is the multi-brand customer that doesn't have the time to go through all the brand.com websites. And this is the Mytheresa positioning, and this is key to understand. And if you put it in the overall market perspective, I mean the luxury market is a good place to be in, especially in the situation now. I mean it's growing 5%, 7%, 9%, the overall market. You see that in the recent reports of all the luxury brands, the willingness of people for luxury, the attractiveness on high net worth individuals, to -- for luxury products is very high and we are operating in the online part of it. So in addition to the overall market growth, you always have to think of the online luxury market share. And this has been increasing, and I think Bain-Altagamma now says it's about 20%, 25%. It will go in '25 -- yearly 25% to 30%, 35%. And an increasing share of online -- on the online share of the luxury market, yields that I have a tailwind from the market. So my market is growing 12%, 15% per year. And in that -- with that unique positioning, I'm well positioned in the overall luxury market, and that helps me weather very short-term topics that we've seen in the last quarters and might also and affect in 2023.

Okay. Very clear introduction, Martin. So a few things you've touched on that could be helpful to focus a bit more. So we talked about luxury market being a structurally growing one and the share of online growing within that luxury market. There is somewhat of a trend that we are seeing, which is luxury brands and luxury groups are trying to sort of focus on their direct-to-consumer channels. You guys at Mytheresa, being a multi-brand environment, how do you make sure that you remain relevant for luxury brands to work with you and make sure that you have the right brands, the right products, the right supply? I think you've launched the CPM model, which is more of an e-concession model for luxury brands online. So it would be helpful to deep dive a little bit into that to understand how you differentiate yourself from the competition and make sure you're relevant for luxury brands to work with?

Yes. Yes, of course. The key ingredient is what I said earlier. You have to be relevant because you bring a different customer. So the key focus of what we are doing is not adding revenue. The key of what we do is grow our active customer base with this multi-brand customer that adds value from a view of a D2C brand. So it's a different type of customer. But nevertheless, you can take Gucci as an example. They have a designer change -- switch. So if they have a new tonality, they want to also get that voice, the different direction to a different or a broader group of customers that maybe have not shopped with Gucci before or not so highly attracted to Gucci. And therefore, you always have to focus. And we are doing this on adding value to the brands. And this is key. It's not just helping them sell bags, but it's more on -- especially on the ready-to-wear aspect because, I mean, we are much focused on ready-to-wear, now at 45% share. And this is a wardrobe building customer. It's not an aspirational customer that saves up money to buy a bag every 2, 3 years. It's really a wardrobe building customer that spends [ 20,000 ] with us, comes 10, 15x per year. This is what we are in for. And so the -- with that focus and with the close collaboration of brands that produce exclusives for us, exclusive capsule, I mean, Gucci produces a 40-piece capsule for menswear. That's a lot of work. I mean why would they do this? It's a big company. We are a very small company, because they see value in working together with us, in speaking to that multi-brand customer. And this is so key. And that has yielded in -- that we have never lost a brand. And we are highly attractive and with an increasing attractiveness to all other brands. And if you listen in to their earnings call, they really call out Mytheresa as their preferred wholesale partner and this is key. And the CPM model, what was also a model that was developed together with larger brands coming out of the pandemic and seeing that there is a lot of merchandise in the market and seeing that the brands did not want to have such a broad distribution and being unclear on where the merchandise would end up. And from us, so basically it was a kind of a mutual engagement. For us, we wanted to also ensure in-season replenishment because luxury industry still works very traditional. You order it and 9, 12 months later, it gets produced and then it gets delivered. And a lot of brands work that way, that they just produce what is ordered. And with that -- with bigger brands, with each season replenishment it enables us to, to not run out of certain styles and colors and sizes and have a weekly feed from the brands on the merchandise side. And the CPM is not -- in certain ways, it's not really comparable to an e-concession because we still curate. We still select what we want to have on the brands. So we don't outsource it, the physical areas -- physical space or parts of the website and let the brand decide, no, because that would ruin our proposition for the customer in our curated offering and our decision to curate. And so we order. We "buy from the customer." We get the merchandise delivered in our warehouse. So it's not a drop shipment model. For us, we have the merchandise in our warehouse that enables us to have a clear end-to-end delivery and have the value proposition that we do end-to-end. And we have the highest Net Promoter Score in the industry, over 80%. Because we really focus on execution. And especially with this high net worth individual, they're very demanding. You have to have a really end-to-end service excellence and that enables that for us. So it's still from a customer point of view, there's no difference in wholesale or curated platform model, which is key. And the brands accept that, that it's different to a kind of a typical e-concession model. But nevertheless, the curate platform model, as you said, is a -- the inventory ownership remains with the brands. So I don't pay for it. They bear the financial risk on the inventory, inventory aging. And also, it's a different cash cycle. So that's why it's for brands that really want to focus on transparency, on the inventory and the responsibility on pricing. And therefore, it's more focused on bigger brands that we have hooked up IT. It's an IT integration, supply chain integration to enable the in-season replenishment. And the brand needs full transparency on their side on merchandise. They have to have a retail network to ship merchandise around and to make that overall partnership work. And it works very well. And the brands that are on it and they [indiscernible].

How many brands do you have in there?

We have now 7.

Yes.

Seven brands on the curate platform model. And I said in the medium term, 3, 4 years, we'll have about 12 brands.

How many brands do you sell in total at Mytheresa, on the website?

For womenswear, we have 250 brands. And so it is for specific group of brands that really focus on inventory transparency and pricing responsibility and have all the capabilities in one. The good thing for Mytheresa is that we are able -- and some competitors are not, that we are able to offer both models for the brands in the corporation. And the CPM share this year will be around 20% midterm. With the 12 brands, it will be not more than 30%, 35%. I call that out to make it clear that Mytheresa will predominantly work in wholesale model. We can do everything that differentiates Mytheresa and ensures the Mytheresa positioning in the market, also in the wholesale model. And we have proven in the last 5 years operating -- that we are able to operate a wholesale model with a stability in the gross profit margin and managing that risk on the balance sheet. Because we focus on a very specific type of customers, we really -- everybody in Mytheresa knows who this customer is and who we should buy for and execute. And therefore, it's a great addition, the curate platform model, to enhance the Mytheresa business model, to be able to work with those big brands that really want it and to have benefits on the Mytheresa inventory risk side and on the cash cycle.

Okay. Maybe switching gears a little bit from business model to more what you saw in the past. Well, basically in the past year, it would be interesting to hear your thoughts on -- we've seen the e-commerce sector being under a lot of pressure for a number of reasons, probably one being off-line regaining share against online after the pandemic. The other reason being consumer pressures here and there. So just curious to hear what Mytheresa saw exactly, if maybe your consumer -- your customers were more protected? And if online luxury was doing better than the other subsegments of online? And then maybe after that, we can talk about what you saw more recently. I'm sure it would be interesting to people in the room to hear latest trends that you're seeing in the business.

Yes. As I said, we were growing 25% before the pandemic. In the pandemic, really focused on online, and we grew 35%. Then with the reopening and as we are global, we saw that, that the reopening was also a net positive effect for us because with reopening, with back to physical stores, there was also more events. There was more occasions for dressing up and -- especially for a ready-to-wear supplier, that was also positive. And so we saw in regions that we -- that opened up, we also saw that we continue to grow with 20%, 25% again. So it was really the back-to-stores did not impact us as much as probably other e-commerce retailers. Coming back to who is the Mytheresa customer, I mean, she's a women shopping at 11:00 p.m., looking at our new arrivals section. So she doesn't want to spend the day on Fifth Avenue or [indiscernible] to go from store to store. It's not our customer. It's really event driven. It's -- she looks on efficiency. She wants to order right away. She wants to have a great selection and proposal. And with that view, the pandemic was kind of a fast forward for that customer, coming from off-line to experiencing the online, and then embracing the online. Because everything she does is online anyhow. So why is that not also online? And we see that. We see that also in the growth of top customers, even in the critical last quarters -- in the last 2 quarters, the top customer number grew by 25%. So it's really that customer that knows and values luxury online shopping. Let me see. I mean last year, 2022, with us, 55% Europe. German operator was also affected by Ukraine war, which is -- was very close. And a lot of people on the political scene were affected by that. We saw that in the calendar Q1 and Q2. And then the energy crisis together with that, and you have also an unprecedented topic in addition to all the topics that are global on inflation and recession and interest rates, but to a much lesser degree. So Mytheresa, with that unique positioning, has always been growing before, during, after the pandemic. And last year was more in that positioning, a bit special on the Ukraine war and the energy crisis, in addition to other macro effects that have a bit of a softener impact on that special customer group.

Okay. Maybe some comments on the last quarter, which I think the revenue growth was a little bit below your historical trends. I think you mentioned 2 elements that were detrimental to the performance, one being the aspirational customer. The other one being high promotional activity, not necessarily for Mytheresa, but for the rest of the industry. So I would be curious to hear your thoughts on if that's the right interpretation? And also, how are you expecting these 2 headwinds to develop in 2023?

Yes. I mean before we talk on Q2, I mean, so our Q2, which is October, November, December, the overall -- we should have -- bear in mind that the growth of Mytheresa is very strong and is profitable even in those quarters, and that's unique. I mean -- so you talk about the October, November, December quarter, we achieved growth. All our competitors did not grow 8%. July to December, 14%. And in that quarter, with a growth of 8%, we achieved an EBITDA margin of 9%. So very strong, and that shows also that with a maybe lower top line growth, due to our business model, we were still -- we're still able to generate profits, 9% EBITDA margin. And from July to December, 8.8% EBITDA margin. So strong growth profitability. Q2 -- so like October, November, December, 8% growth. Exactly, as you said, different what we are used to or what you are used to seeing at Mytheresa with 20-plus-percent growth. And that was due to a -- exactly, as you said, an aspirational customer that was, especially in December, a bit hesitant on also shopping luxury. And this is a customer that is more the intermittent customer, not our top customer, more bags and shoes. It's also a clear link of those categories to the aspirational customer that more like buys a bag every 2 years. And we've seen that. So basically, a lower growth coming from hesitancy on the aspirational customer. We also, in October, November, December, saw a strong growth of top customers, 25%. We had, together with that, an increasing GMV for all customer and for top customer, the AOV increasing in that quarter. So it's a mix and only 8% because of the aspirational customer being more hesitant that could be on overall macro, that we've seen in other customer -- industry customer segments. And also as you called it out, a bit of a high promotional environment, especially in December, especially in the U.S. We didn't see that in other parts of Europe, but in the U.S., there were certain players that were highly promotional in that field, and that could also have an effect. But overall, still 8% growth in that unprecedented for the whole industry. Difficult quarter, especially for their peers and still being profitable. I think this is key to underline.

And did you see somewhat of an improvement or normalization as you headed into more recent weeks after the month of December? Or is it still -- this is still challenging on these 2 fronts?

In the earnings call, I also made that clear to give a perspective, in mid-February, how the quarter, January, February, March, is evolving. And we saw an improvement of the situation. Saw a clear growth, more in the 20s, 20% growth. January, February, with a comeback also from all customer groups, top customers, mid-tier customer, aspirational customer that are also necessary for us to achieve a certain growth level. So we saw comeback of that strong growth. We have to see how that evolves. It's also driven from a regional perspective, 55% is Europe. Europe, October, November, December was very weak, very negative customer sentiment, especially on the energy prices, inflation and the war. And we clearly see that also now stronger growth in Europe and China. I mean, we're not so exposed to China. China is a small part of it. But the abrupt reversal, as you all know, on the Zero-COVID strategy in November, December was -- clearly, I mean, there was no package being able to deliver. It wasn't clear -- I mean everybody got infected and nobody ever will find out how many people died. It's a -- it was a very special situation in China. But now also in January and February, we see a slow bounce back of that region, already single-digit growth rates compared to prior year. So also from a regional perspective, a driver of a kind of a normalization of our growth rates that we see in the quarter, January, February, March.

And regarding the inventories in the industry, who knows what's going to happen this time, but you've been in that business for a long time. In the past when you've had sort of inventory gluts, how long does it take for things to clear out before we see a healthier, competitive environment and levels of discounting?

I mean it's unclear how oversupplied the competitors are. We are -- so it's really tough to say. I mean, tough to see. In this quarter, we don't see the intensity of promotions that we saw in October, November, December. So it's a different situation. How much inventory still needs to be cleared from our competitors, it's unclear. It's open that I think.

Maybe one question. We've seen, again, as I was saying, a challenging 18 months for e-commerce. And we've seen competitors joining forces, not to name them, Farfetch and YNAP. Just wanted to hear your thoughts on what it implies for Mytheresa seeing the already 2 biggest players in the online luxury industry turning into 1?Is that an increased challenge for you? Or is the positioning of Mytheresa being so different, they're making things maybe easier than you would fear?

I mean it's unclear how they will turn out. I mean, Farfetch clearly has a different customer. If we always ask our customers, "So, where do you shop?" Farfetch is usually number 5 or 6 on the list. So it's not a direct competitor. And from my understanding, also what I hear is that Farfetch also wants to more focus on being the tech enabler in the back rather than operating a marketplace. And a marketplace is different to a curated offer. That's why attracting different customer groups. YNAP, in the last 3 years, has suffered in the market. Has had -- has faced, even in the strong COVID years, decreasing -- I mean, decreasing growth. I mean it was not growing in a lot of regions. So from a competitive point of view, it was -- I mean, in the last 3 years, we took market share and we built on our strength in the market. And now with them somehow getting together, it's still unclear how it will evolve. I think they said, they called it out that 2023 will focus on antitrust regulations. And then they will want to do, I think, a re-platforming. They will also take 1, 2 years with unclear positioning of YNAP and unclear how the brands will look at that and see that. So with the different markets focus and with the not so high strength of those competitors and not growing, it's -- I feel very confident on the Mytheresa positioning.

Okay. And just generally, in the competitive environment, we're seeing lots of companies or most companies in your space don't really generate profits. Do you think it's an area of further consolidation in the industry? And what would be the role of Mytheresa, if Mytheresa wants to play a role if there is any consolidation or further consolidation in the online luxury space?

I mean Mytheresa as a player is still small, and that really, I mean, big industry -- especially in the online world. And there's so many growth avenues for Mytheresa itself. And the success that Mytheresa shows and the strength, the focus will be, very disciplined focus on execution and on the business model, we're very comfortable in continuing that growth path. You're right that we hear and see that competitors are struggling. And it is unclear how the industry will evolve with those competitors struggling. I mean, there's always different setups with those competitors. And we'll have to see. But I think the role of Mytheresa will be, and we will continue to focus on Mytheresa and growing Mytheresa and coming back when those macro effects lessen, coming back from Mytheresa of 20%, 25% growth rates, and that's doubling the company every 3, 3.5 years, which is an attractive value proposition.

Okay. Maybe last question to come back on the more short-term element and how you're going to finish the year for fiscal year 2023, which ends in June. You've kept your guidance. I think you've guided for Mytheresa to reach the bottom end of the guidance, which still implies, especially on the margin side, quite a good performance for the second half. Can you explain how you think you can reach this? And in the event where things are more difficult than you had expected, is there any lever you can action? We've seen the industry, lots of companies reducing headcounts, reducing costs, introducing minimum order values, these types of things. So what could Mytheresa do if you need to be a bit more aggressive on the cost side?

I mean the -- the first answer is that Mytheresa, I mean, is profitable because we manage very diligently every cost line, every profit line we have. So we have proven it's not a given, this profitability, especially if you compare to peers. So every day, we focus on all the cost lines and see how can we reap efficiencies and how can we improve our perspective there. In the first half, we had a 8% EBITDA margin. To achieve the guidance, we need 9% EBITDA margin in the second half. So we'll have to see how it plays out, but it's clear, achievable and what we saw in Q2 and also with 9% and also in January and February, with improvements and the initiatives that we plan, we're confident on the lower end of this guidance. But obviously, we will continue to look at all the cost lines. But from my perspective today, there's no need for layoffs or any sort. We will grow the Mytheresa employees to ensure and not risk the midterm growth path. So we need them. We need to grow, as we see we are growing for the lower end of the guidance, we will grow the -- we will grow GMV from January to June, about 18%. And therefore, we need people to manage that growth. Obviously, we look very diligently in every department. When we do logistics, all ourselves, customer care and with the number of customers, with the number of -- with an increase in GMV, we need more people there. And so we can rather adjust the growth of certain departments, but there's no in and out, no crazy layoffs that Mytheresa can react to. We're running a very variable business model. That's why we've always been profitable, and we'll continue to stay profitable. So the key ingredients for success in the future for Mytheresa is to stay true to that path and how we operate it and not risk it on a short -- on a narrow, short-term view on profitability in certain cost lines.

Okay. Well, thank you very much, Martin. It's 10 seconds before the end of the 40 minutes. So thank you again for joining us today and that's the end of the session, everybody. Thank you.

Thank you.