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

Thank you, everyone, for joining us here at the Bank of America Consumer Conference in Miami. I'm very pleased to have Martin Beer with us from Mytheresa, CFO, with me on stage. Last time we were together was actually at our European Consumer Conference in Paris in November, and you were pitching to me at the time, the very strong investment thesis for Mytheresa. I was wondering for the investors in the room, if you wouldn't mind kind of repitching them the equity story and the investment thesis of the company and the stock from here.

Yes. Thanks, [ Ashley ]. Happy to do so. I mean let's start with the numbers. And maybe I don't know exactly what I pitched last time with you, but let's start with the numbers on the equity story. And the equity story is if you relate the share price potential and Mytheresa is one of the stocks that has a very high potential for an increase in the share price. So end of next month, we will hopefully close the acquisition and move from EUR 1 billion company to a EUR 3 billion company. And with that, we will obviously target the 8% adjusted EBITDA margin medium term that we have. And then you can do the math by yourself. The EBITDA will be EUR 240 million with applying a certain growth multiple for obviously, a growth company as Mytheresa, you come to a market cap over EUR 3 billion. And if you relate that to the market cap of today at around EUR 800 million, there you clearly see a tripling of the share price in the market cap. And I think this was what I indicated the last time we saw each other. And it's driven by more the fundamentals, and that's why the equity story and the growth story did not change. If you look at the core business, that is Mytheresa, we see an ever-increasing brand support from the luxury brands doing close cooperations with us, exclusive money can buy experiences, co-sponsored events, every quarter for the last quarters. We have an increasing number and caliber of brands that want to do collaborations with Mytheresa and increasing the digital visibility towards our customers. And also on the customer side, very strong improvement, not only you -- last quarter, we reported a plus 12% top line growth. But if you look at the customer KPIs, they all look very healthy, increasing GMV per top customer, increasing GMV for all customers, underlying increasing AOV and also improving the profitability level. And especially in the current situation, that is quite remarkable, also driven by a much healthier state of the luxury industry with less excess inventory in the market, less promotional intensity and a lot -- and you saw that in the press, a lot of struggling competitors that help us clearly position us as a clear winner. And this is a core Mytheresa element. And obviously, with the acquisition of YOOX NET-A-PORTER as a combined group being the #1 global player in this online multi-brand luxury, we clearly see also for the combined group to embark on this route for 8% adjusted EBITDA profitability in the medium term. And that's why not only for the numbers it adds up, but also from the underlying trends and drivers that keep fueling the Mytheresa success story.

Thank you for those opening remarks. Perfect intro to the story. Maybe if we could take a little bit of a step back. Obviously, your fourth quarter results, very solid relative to what we saw elsewhere in the industry. I think if we look at the listed luxury companies, they were growing revenues in that fourth quarter around 2%. And as you rightly point out, Mytheresa delivering double-digit growth in that period. If we look at what's happened since the fourth quarter. I think that on a lot of the data that we track, there is kind of no real indication that the industry is seeing sequential improvement from here, actually, in fact, a little bit of a softening coming through in the first quarter versus fourth quarter momentum. Can you talk to kind of how you're seeing the industry dynamics play out in this early part of the year?

I mean the industry dynamics, as I just mentioned, is much healthier than before. So clearly, if you look at the promotional intensity, if you look at customer sentiment, especially on the high-end side, on the top customer side, which Mytheresa clearly is focusing on very strong. And you mentioned the 2% on average. Obviously, we all see a high polarization on the brand side. So there are some brands that are struggling. And there are, on the other side, also some brands that are growing double-digit growth. So this polarization on the brand side obviously helps somebody like Mytheresa, who is kind of an ETF and luxury. So we can balance the brand portfolio, working together on the women's side with about 250 brands and also delivering into 130 countries. So we can grow in regions that are now set up for growth much more than other regions where it's more difficult and also focus on brands that are really performing well and can increase our performance as well. Yes, Q4 was a great quarter also for Mytheresa, 12% top line growth; first half of the fiscal year, 10% growth. And we see a continuation of those trends. I mean, obviously, the quarter, January, February, March is our third fiscal year quarter is always a bit weaker than the preceding quarter and the quarter after, so Q2 and Q4, which are usually stronger quarters because they are more having a fully delivered season and focus on full price. That's why those quarters are stronger. But the overall advantage in the industry and also for a player like Mytheresa is in the focus on the top customer side. The top customer side, which is less affected by a weakening or a softer customer sentiment, has a higher resilience in really fulfilling their needs of having attractive luxury shopping, wanting to position themselves there. So overall, very, very strong and a much healthier state of the industry than 1 year or 2 years ago.

And you obviously made the differential between the performance of the top customers versus the rest. I was wondering if there's anything to call out from like a regional or a nationality perspective that you also see within the demand dynamics?

It's -- the share of top customers and standard customers for Mytheresa worldwide is very similar. So it's not because we're a European-based company that the share of top customers to standard customers is significantly different in Europe versus the U.S. or rest of world. But obviously, there are differences in the growth between the regions. There are regions where due to several reasons, for example, Germany, with the election, uncertainty was a bit weaker in the last quarters; and other regions, obviously, Middle East, U.S., Canada, Singapore are very strong. So the overall growth can be leveraged through different regions and our focus on top customers really plays out.

And you mentioned before the health of the industry is better than what it has been previously. But can you talk a little bit more about the level of promotional activity that exists at Mytheresa and also the level of promotional activity that you're seeing within the luxury industry more broadly?

That's exactly, what I call, the better state of the industry because with having less excess inventory in the market, there's also less need or willingness to embark on heavy promotional activities by competitors, by other retailers or by the brands themselves. So we clearly see a return to stronger [ full ] price, also enabling sell-through rates for all those seasons. And that plays then or is a key ingredient of our healthier state of the industry. So the excess inventory levels balancing out and you see that the players are in a much better state today.

So it's fair to say that the inventory in the channel is cleaner than it has been...

Yes, exactly.

Just taking a bit of a step back, can you remember us what differentiates Mytheresa from your competitors? And what makes it the go-to platform for curated luxury?

Yes. I mean the key differentiation of Mytheresa is that we always stay true to really focusing on the high end, on really true luxury. With the focus of the brands, some competitors have 500 brands, other have 800 brands. We really focus on the true luxury brands and also the -- a top customer that is a wardrobe building customer that does not save money for a bag buy every 2 years, but it's really a wardrobe building customer, right, focusing on ready-to-wear and that enables the customer to come 10, 15 times per year and spending significant amounts on ready-to-wear. And this is a key and unique focus of Mytheresa with our ready-to-wear share significantly above 50% and then -- and have a customer, a very strong loyal top customer that comes back and back with a high retention without requiring additional promotions or additional marketing spend.

I guess as a follow-up, can you just explain us a little bit maybe the differences in business models between Mytheresa on the one hand and NET-A-PORTER on the other hand, obviously, considering the upcoming acquisition?

I mean NET-A-PORTER is our biggest competitor. So from a positioning, it is very similar to Mytheresa on the curated luxury. So not a marketplace, but really catering to top customers, focusing on top customers. But obviously -- and this is then even better felt for the focused customers. The go-to-market strategy is a bit different. In nuances, Mytheresa has a higher share of really established, well-known luxury brands. NET-A-PORTER also has a share of up-and-coming new brands, has also more content-driven go-to-market strategy on their platform. So overall, it is very comparable. But if you really compare why a customer shops at Mytheresa or why they shop at NET-A-PORTER, they will clearly explain the differences that the NET-A-PORTER is -- has a different tonality, has a different go-to-market strategy than Mytheresa. And that's why also in the upcoming acquisition, we, after closing, want to keep the storefront separate. We want to keep the NET-A-PORTER DNA of having a comparable business model, but complementary as well. So really keeping the storefronts separate also with separate buying teams and on the marketing side, but in the back end on IT and operations then graft the synergies and optimize the overall go-to-market strategy.

Fantastic. And then can you just explain a little bit what the secret is behind Mytheresa's high customer loyalty? How do you nurture loyalty in a competitive market?

I mean the -- it starts with everything that we do in our business model. So the core essence of why a top customer comes to Mytheresa is also our curated edit. So it is our brand selection and our product selection that they find on the website. So there's a high emotional attachment of our top customers to the brand, to what we do. This is the core essence. And that's why, especially the top customers that are a wardrobe building ready-to-wear focused customers want to see and have access to this merchandise. And with our close brand relationships that even more every quarter and every month do collaborations with us on exclusives and capsules that enables the customer to, every week, discover something new, something exclusive on our website. And therefore, fuels this curated edit on the website. And therefore, for a top customer, it is a great discovery on the Mytheresa website. And don't forget, Mytheresa is not a transactional platform, it is really an emotional attachment that the customers have with Mytheresa. It is an inspiration-driven buy. It is more an event-driven buy, not so much a focused targeted buy where I exactly know the product and want to shop for the best price. This is not why -- what the customer comes to Mytheresa. And therefore, with the core essence on the product side is a key ingredient. The second key ingredient is the operational excellence. We are the best operator in the industry, highest Net Promoter Score. And those, especially the top customers, demand excellent service. And they look at that speed of delivery and quality of delivery. And we get a lot of positive feedback on the speed and quality of the delivery. And they are obviously, as you said, this is the secret sauce of Mytheresa to have built and continue to build this loyal top customer base, which is highly profitable and which comes back with a high degree of loyalty with low level of promotional -- promotions and low level of marketing. And that's why we have customers who shop with us 2 years or longer, we have 100% net sales retention. So every year, I build an existing customer cohort on top, which is -- which expands my very loyal top customer base. Right now, 4% of my customers make 40% of revenues. At the IPO, I think 4 years ago, it was 3% and 32%. So increasing top customer share that also isolates me a bit from the current aspirational customer weakness and the overall market sentiment. And that clearly differentiates us from the competition to have such a continuous focus on this top customer and such a track record of delivering to it. So the DNA of Mytheresa was always this. There was never a hockey stick. It was always highly profitable business and a strong focus on this top customer.

I guess, just as a follow-up on this and to finish up the business model discussion, how long does it take you to make a customer profitable from scratch? And what's the average cost per customer or for customer acquisition?

I mean the -- when we look at the LTV over CAC analysis and look at the different customer cohort performance, the customer is in the first year profitable. And obviously, the pure customer acquisition cost is per se not a KPI because you always have to relate it to the quality of the customer, and therefore, the implicit or expected lifetime value that this customer will bring. So obviously, we -- with optimizing our bidding algorithm and looking at acquiring top customers, we obviously focus more and more of acquiring the high potential customers, high potential customer that obviously have then the highest LTV over CAC. And usually, after 2 years, it's clear that this customer is a top customer, not because they get richer or they develop, but it's -- they experience the Mytheresa platform. They really love the service. They love every aspect and then they shift sale towards Mytheresa.

We might pause there to see if there are any questions from the room.

So many hand raises.

Otherwise, I can follow up with a question on my side. I was just wondering, over the last couple of years, one of the key stories that existed in the online arena has been this idea of like shift from wholesale to e-concession. I was wondering where are we in that journey? And if you still see a lot of the brands that you work with continuing to kind of prioritize the desire to have e-concessions over sell wholesale. If you can remind us what percentage of your revenues or profit comes from that concession model rather than wholesale? And also how do the economics look today and if they've evolved at all?

Yes. No, happy to speak to that. Well, first of all, our curated platform model that we also engage with the brands is not a concession model per se because the -- for the customer, all the positive ingredients of the wholesale model and all of the Mytheresa go-to-market strategy stay the same. So even though I'm -- Mytheresa is not the financial owner of the product, Mytheresa still selects, still curates, still decides which product to put on the platform. So it's not the brand, it is us. And the brand delivers, so to say, the seasonal selection, the seasonal buy to our warehouse. So it's also not a drop shipment model. And that enables us to fully own and fully manage the value chain to the customer and deliver the seamless customer experience that is the key element of the Mytheresa go-to-market strategy. And that, therefore, for the customer, it is completely not visible or not felt whether this product is a wholesale product or whether this product is a curated platform model product. But the curated platform model, as we hook up our IT with the supply chain IT of the brand has additional benefits also for Mytheresa on having in-season replenishment. So every week, we get an in-season replenishment of products that are -- that we run out of certain size, color or style. And that also helps on boosting sale with that brand. Obviously, it's a different cash cycle. We don't buy the inventory. We pay the brand when the customer pays us. So it's a model, but yes, the benefit for the brand is that the brand keeps owning, be the financial owner of the inventory and clearly the decision-maker on all pricing. So it is a different logic than the wholesale model. And at the end of the season, I -- everything that I don't sell, I send back to the brand, except for the carryover styles. So on all the overall and you asked that profitability level on the absolute adjusted EBITDA profit pool, it is very comparable for us. So we are agnostic and we are able to work and collaborate with brands either way, whether they prefer the wholesale model or the curated platform model. And from what I said and the difference in the cash flow and also the inventory risk as the curated platform model, the brand keeps on having the inventory risk. It depends on the brand, the willingness also to participate in that model. And so it is not a model that is for every brand, and we can only reflect on what our current discussions with the brands are. And that's why I always said we will engage with 1 or 2 brands per year more where a brand shifts from the wholesale model to the curated platform model, but it will never be a major driver of the business model. So never a major change. At the beginning, I said this share will never be above 30%, and it is significantly lower than 30%. But the brands that are on this platform in this model are very happy. They called out that it really works well for them. But again, it is also -- has to play also for the brand's appetite. It's not for every brand to engage in that model. For us, as it is very -- has very comparable profitability levels and has no difference for the customer, it is not a key factor for us to drive the performance or the business model. It is more or less a way, an alternative to engage with the brands and to work with them and be able to offer both models to the brands.

Okay. So if I understand correctly, then it's more the discretion of the brands in which model they would have a preference to [indiscernible] as opposed to something that Mytheresa is?

Exactly. No, it has to work both ways. But obviously, there are certain limits on IT capacity at brands willingness to engage in that model along the key ingredients. So yes, I mean, I think it's -- Mytheresa obviously wants to be able to offer both models to the brands, which is good. And therefore, then you have to see where there is common interest in pursuing this model.

We have a question.

Can you please provide any color on performance of different categories like apparel versus shoes and leather goods, and ideally in the U.S. versus Europe?

Yes. Happy to do so. I mean the Mytheresa -- first, I think it's always important to know that we are the player with the biggest ready-to-wear share. So ready-to-wear share is over 55%. So really strong focus for us on ready-to-wear, and that speaks and enables the -- to cater to the wardrobe building customer that comes back and obviously needs more ready-to-wear. And then we also have, obviously, shoes and then bags and accessories to a lower degree. And performance of those categories is very similar right now. It is more related to the brand. Some brands, they perform very well, clearly reflecting the polarization in the brand portfolio. And obviously, the -- for example, on the shoe side, I mean, the sneaker trend was never so big at Mytheresa and right now is also not so important. I mean we increased the menswear business a lot, and there, obviously, shoes play a different role. Bags also, yes, some significant highlights on the brand side. There are some high-performing bags and it keeps on being a great adjacent category. But the core focus of Mytheresa is on the ready-to-wear side. And this is worldwide. So the category performance is very similar if you look at U.S. versus Asia versus Europe.

Maybe I'll finish with one final question from my side. Just a question on tariffs and how tariffs will potentially impact the Mytheresa business. I think it's a hot topic that's kind of played out the whole way through the conference today, and I'm sure will tomorrow as well. So if you can just help us understand what would the implication -- or what is the implication today for you? And what would the implication be if we continue to see tariffs in the future?

Definitely a high level of uncertainty on the tariff side. The positive thing to call out on the tariff side is that we are operating in the luxury market where the price elasticity is very low. So the recommended retail price by the brands is always a price that reflects all tariffs because those brands are predominantly produced in Europe, France and Italy. And therefore, an increase in tariff is expected to be then reflected in the price levels in the respective markets. And as we consider in our pricing, oftentimes the level of the recommended retail price, then this would then also lead to an adjustment of our pricing, so -- and pricing increase in that respect. So it's a special situation. But overall, I mean, tariffs are never good, yes.

And a follow-up on this. Do you think the U.S. consumer is resilient enough to absorb incremental price increases even if they're related to tariffs, considering where pricing has gone to in luxury over the last couple of years? Do you think there's still more to push?

That's exactly difficult to say. You're completely right that in the last years, prices on the luxury side have increased significantly, different by -- there are differences in the brands. So some brands have a bit overplayed it. And there's always this big discussion on whether the prices are -- the price increases have been justified or not and what to deal with it right now. And yes, I mean, if there are tariff increases, the customer still has to reflect on those prices and see whether they are still willing to engage. And there are also Mytheresa's focus on top customers with the lowest price elasticity, lowest level of price elasticity, obviously, is the best protected from those tariffs. But we obviously have to see how tariffs and the degree of tariffs play out. But I think the focus on the top customers is the best way to be positioned there.

Okay. Perfect. Well, thank you so much for your time. We really appreciate you being here with us in Miami today.

Thank you.

Thanks, Martin.

Thank you.