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

Okay. Great. It's Matt Boss, retailing here at JPMorgan. I'm really happy to be joined by Michael Kliger, CEO of Mytheresa for today's fireside chat. Just on background, Mytheresa is a leading luxury multi-brand digital platform, shipping today to over 130 countries worldwide with over EUR 900 million GMV, and since 2019 has grown at a CAGR of nearly 20%. So maybe with that, I'll kick it over to Michael for some opening remarks, and then we'll progress with the fireside.

Thank you, Matt, and very happy to be here. I think it's a very interesting moment in the luxury sector, anyone that followed over the last 18 months, there was a constant news flow. And for me, looking at our business, but also looking at the sector, it feels like we are following perfect textbook of what happens after boom and a sudden slowdown, which the luxury sector enlarge had experienced. And we clearly hit the trough last year. And with that consolidation is happening. We are participating actively in the consolidation with some of the big players in the U.S. are consolidating also on the brand side. And so I think we are getting into a healthier and more disciplined step from which to grow again. Our numbers have turned as of the new fiscal year. We always started in summer. We have grown again. We are profitable again. We are on the trend to improved numbers. And so it's a really pivotal moment in the industry, and quite exciting also in the insight.

Well, I wanted to jump right on the pivotal moment. I mean there's clearly a lot of consolidation, a lot of fragmentation right now in the luxury landscape. What does that mean for Mytheresa? How does that position you?

I mean I think in luxury, there is a sense of scale that is different from many other industries. Scale per se, is not offering all the big advantages that it does under more capacity driven. But what it is, is relevance. Relevance is really an asset in this industry. And on the expected completion of our acquisition of YOOX NET-A-PORTER, we will be the most relevant digital luxury player in the world, largest global reach, you talked about, we shipped to 135 markets. We have a huge customer base in Europe, but with the acquisition of YNAP huge customer base in the U.S. We have a strong business in Southeast Asia. We carry all the major luxury brands, and we are seen as the most luxurious digital player. And that puts us into a very strong spot from where to grow, from where to partner even more, it is retail. It all depends on execution, but we feel very comfortable based on the consolidation that we've seen that we are -- will be operating in more healthier industry, let's call it that.

And maybe with that, as we think about the customer cohort that you're catering to, what are you seeing with new customer acquisition? And maybe just overall health of that high-net-worth clients, what are you seeing globally?

I mean right now, the last quarters have been clearly characterized and you saw in our numbers is the top is super healthy. I mean the average spend of our top customers, which account for close to 40% in the last quarter grew by 17%. So big spenders that spend already last year grew again per capita by 17%. The acquisition of new clients is where it is slower. We are acquiring a ton of new customers, but we are not growing the number of new customers constantly, which we did in the more boom time. And I think as we move into the next phase, those extremes will normalize. So you won't see 17% growth per top customer every quarter, we're normalizing it to 5% to 8%, but you will see new customers, new cohorts coming in. And I always say, growing the customer file is very important, but it's most important the quality. If they don't come back, so it's the repurchase rates. And we always put out the repurchase rates in our investor presentation because that's where you can gauge. I can pump up the file, but it won't be very economical if that's onetime visitors, onetime shoppers.

Right. And on quality of sales. What does the channel look like today across luxury. From an inventory perspective, I think you talked about an inflection, but it seems like it wasn't just top line, it seems like it was also from a profitability perspective.

Definitely. The sharp slowdown of demand in '23, the outcome was clear too much inventory in the market, brands, retailers that drives promotions, that drives down full price selling and whatever you lose on the margin trickles down to the bottom line. And so 12 months later, if I compare the situation of fall winter '24 to fall winter '23, less promotions, high or full price, how our gross margin has increased again in the last quarter, we'll continue to do so in the next coming quarters. And that now on the positive side, also trickles down and that drives the profitability. We are back in the black with this new fiscal year that also will continue. And what you see in our numbers is also a reflection of the total industry.

Michael, are you seeing anything interesting in terms of maybe changing customer behaviors, whether it's here in the U.S. or in Europe? I know here in the U.S., our economists have projected nearly 60 trillion of wealth creation since 2019. So as you said, high income consumers seems like they're in a very good place. But any changes whether it's handbags, accessories, ready-to-wear, just maybe across categories that you thought were more relevant or maybe changing even as more recent as the holiday?

Yes. I mean I think one big part of the luxury slowdown is, of course, what happens with the Chinese consumer. We are not as exposed as some of the brands to that. So our strong big markets are in North America, largest market for us today and Europe. And what we have seen has an ongoing and still continuing trend is our luxury consumers spend more and more on luxury experiences. The vacation sector, if you go into the big market reports, luxury hospitality is the one growing sector by large. And therefore, I think the boom times were very much characterized by single product success. The Balenciaga Triple S, everyone wanted it. It's more now connected to lifestyles to occasions. We started in November, our Vacation Shop cruise. We went into the activewear Edit. We went into skiwear and again, this is Gucci activewear, Gucci ski Edit. Moncler Grenoble is really tied to all these experiences, activities that our customer base is going after. And therefore, I mean, we are present in China. The success we have in ski Edit, there are 25 million skiers in China. It's very few people that the sheer size of the country, of course, it's a booming spare time activity in China ski.

Yes. Maybe even if we take a step back, as we think about the market share opportunity and a fragmented landscape. What would you say makes Mytheresa different? I know the service element is a big part of it. The curated model is another part. But just maybe for those more new to the model. Maybe just what do you think differentiates the model overall?

I mean we have, from the starting point to find our core customer as the wardrobe building big spending shopper, which has different components in it already. High share ready-to-wear is a big characteristic. Over 50% of our business is ready to wear. That drives the desire of newness but that drives also recurring customers because what you bought and ready-to-wear last season, you want something new. Whereas businesses that are more on the accessory on the bag side, you need new customers coming in because once you have the Andiamo, the Hop, the successful bag styles from Bottega, and I can name many more, you don't need another one. Some people do need another one, but it's not as big. So that's one part. Then really focusing on the high end. I mean, we have consistently grown our AOV over the last quarters. And again, there is margin is a big driver of profitability, but then unit economics. So if you have more valuable products, more valuable orders, all the costs tied to packaging, shipping all these transactional costs, of course, are percentage-wise going down. And so this customer is our core customer, and they want newness. They want special, they want money can buy experiences. That's our sort of glue for the loyalty for the stickiness. And you saw some examples in our video. I mean, we invited 40 of our best customers for a 2-day experience on the Christina O yacht, the original yacht from [indiscernible] or we invited. We will start in 2 weeks' time, our pop-up in Aspen with Bemelmans, an invitation-only pop-up of the Bemelmans Bar, first time they ever left the Carlyle in New York, and 40 people will be hosted every evening. That's also part of this audience that we are carrying. And I think this focus on a special segment on a lucrative segment, high return rate -- not return rates, repurchase rates, high AUV drove the success of Mytheresa in a nutshell, you could argue one of the very not only player that made money always on digital luxury.

And as we think about this potential inflection, both on the top and the bottom line, maybe just if you could elaborate on the strategic rationale behind why now from an acquisition perspective? What's the opportunity? And maybe I know you've outlined a 3-year playbook, but maybe just some of the highlights on that road map?

The fundamental logic of the acquisition is our belief that to be successful luxury, you need to be very precise, you need to have a clear personality as a shop, inspiration, curation. If that is true to take a bigger share of the market, you need different brands to take different corners of the market. You cannot with one brand to cover the whole market, that runs the risk of brand dilution. And within the YNAP company, you have NET-A-PORTER, you have MR PORTER, you have THE OUTNET, you have YOOX, brands that have been around for decades, pioneers of the luxury industry in our research still very strong brands, and that was the rationale. The rationale, of course, does require back-end restructuring, back-end integration will drive back and synergies. But the fundamental logic is if we can cover more of the market with highly profiled businesses, we can replicate the success of Mytheresa and not run the risk of dilution. And with the acquisition, which is expected to complete in the next 3 months, we will, from day one be a EUR 3 billion company with the addition of the YOOX NET-A-PORTER business. As I said, there's back-of-housework to be done, a massive task. I won't diminish that. We are buying a cash burning business. That's why part of the deal was a cash infusion from day one of EUR 555 million from the seller. But we are looking at a 5-year plan of creating a EUR 4 billion digital luxury business worldwide with an expected EBITDA of 8% and more. And we will have the largest and best customer file in digital luxury in the world. No one will even come close to that, and that comes back to my point about relevance.