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

I don't know if you can hear us. Yes? Okay. Well, welcome, everyone, to the Global Consumer and Retail Conference. This is the 33rd edition. It's the first one for me. I've only been at Goldman Sachs for 1.5 months. I have been involved in luxury for the better part of the last 30 years, but I don't have coverage yet. Eventually, hopefully, I'll be covering European luxury out of London. I'm very happy today to welcome Martin Beer, who is the CFO of LuxExperience, formerly known as Mytheresa. But obviously, the group has expanded 1.5 years ago to take over other assets, selling luxury online and becoming according to some, the sort of last man standing in that approach. Just to start off, Martin, and thanks a lot for making it here.

I just was wondering if you could give us maybe your vision about where we are at in luxury today because I think from what I've started picking up, starting to speak to the companies that eventually I'll be picking up. I understand that the U.S. continues to compound quite nicely. South Korea is very strong. The rest of the markets seem relatively weak. So that's from a, I guess, a regional point of view. If you look at brands, seemingly Chanel is doing very well. Seemingly a lot of the jewelers, global jewelers, the likes of Tiffany, Cartier, et cetera, are doing very well, but the rest of the brands are relatively weak. I'm wondering what you're seeing? How -- what is your vision of the current state of luxury and maybe recent changes in consumer behavior? What are you experiencing at LuxExperience?

Thanks, Aaron. Good to be here, to see you and very big question. But obviously, it's the key question that everybody is looking at what is the state of the luxury consumer and what are the nuances? And maybe you can answer that from 2 angles. First angle is more the broader angle, the digital luxury. I mean we all have to bear in mind that the luxury market, EUR 400 billion, the digital part is the part that is growing. And if you take the Bain and Altagamma or whoever, the digital part is growing 8% to 10% CAGR per year. So as a digital player, we operate in a market that has a lot of tailwinds from the market, operating in a growing market. And that obviously is also -- you have to bear that in mind. That digital luxury is -- always has been the best growth opportunity on a more general level, especially if you look at brands that you also mentioned that rely on physical stores, be it in China or Middle East and obviously have to face certain acts. And the second topic is the second angle is the top customer, the top customer. So everybody is trying to grasp the K-shaped situation where brands succeed more that cater more to the higher end of the top customers and brands more lower have had less success. And the -- this top customer is really very demanding and it requires innovation. It's about emotions. It's about curation. And with that defines fashion and luxury as part of the lifestyle and therefore, is a much more resilient customer. And we see that also in our numbers. I mean, in the last quarters, you've seen that we, at Mytheresa, double-digit growth in the last quarters. And we -- because we've always focused on that top customer, that high-end customer. And if you look at more bigger brands, they are, to a certain degree, more backselling companies and therefore, have a more -- a much higher share of aspirational customers per definition. And with that top customer focus that enables us to continue to grow and to have a very resilient business model. As you mentioned in the last quarters, number of top customers increased double digit, very strong. Revenue per top customer increased. All the KPIs, AOV or with that top customer notion, higher full price share. And therefore, that is also kind of the logic or that results in why we have such a good and strong business model on the top customer side. So for us, it's a very stable, resilient top customer cohort and for us as a multi-brand player and that top customer is per definition, a multi-brand customer because you cannot just buy for 2 years now only Gucci. You usually don't do this. And that caters and that helps us as a multi-brand luxury player, and we are the #1 in the world and can therefore, sustain that positioning towards a top customer. And maybe that's what it's also -- and we can grow with the successful brands and can defocus descope more the unsuccessful brands. So we are in that ideal situation of being a multi-brand digital luxury player. And also from an investment perspective, and I think that's why you're all here. It's also, I think, a good space if you want to invest in the luxury industry, we are kind of a more actively managed customer -- luxury ETF brand, so to say, because we can balance the effects. And so for us, to answer your question a bit longer, the customer state is very differentiated. And we can talk about geographies. But on the top customer side, it's a very high resilience and it has always been. And you mentioned U.S. I mean we -- in the last quarters, we grew U.S. 20%, plus 20%, 25%, 30%. That shows you that also in addition to the top customer focus, we're a bit detached from an overall -- how does the overall luxury customer develops.

Right. So you've explained well how maybe the underlying trends in luxury are relatively muted, but your part of the business is growing 8% to 10% in aggregate. But you've seen quite a bit of change in your environment with -- I was mentioning your position as being the sort of last man standing. You've had a lot of changes, not just with the evolution of Saks.com and what is now called the Exemplar Group, which is actually with us today as well. But can you maybe explain how your ecosystem of multi-brand selling online of luxury has changed and now you can benefit from recent changes?

I mean the overall story of Mytheresa before LuxExperience was always intact, always double-digit growth and strong profitability with a focus on this high end of this top customer. And with that, we have 2 key ingredients that you need to have to be successful, which is a very high -- very loyal customer base, top customer that comes back, not just because of discounts or marketing efforts. And with that positioning, a very high AOV. I mean we have more than EUR 800 AOV, and that helps you on the unit economics, and that translates into a very profitable business model. On the overall market side, yes, you mentioned that we are now the undisputed #1 global multi-brand digital luxury player. And that helped, obviously, with Farfetch, Matches, SSENSE, LuisaViaRoma and also the new situation on Saks. That helped on the competition side as we see the brands really focus on us and want to grow with us as we cater to that multi-brand luxury customer with a lower view on discounts and with really understanding what the customer wants and have a very high-quality experience. We have the highest Net Promoter Score in the industry, over 80%. And this top customer, you always have to bear in mind is very demanding. If you not only look at curation, but also if you look at operational execution and quality.

Okay. So you talked about the compounding nature of growth in the U.S. I've always had this idea that the U.S. was a fast-growing market for luxury, but a quite expensive one. The cost of doing business seems to be pretty high here. But -- so I'm wondering if you can compare and contrast the future potential of the U.S. for your business relative to other regions. I think surprisingly, the Middle East was a highlight from last quarter. If you project the next few quarters, and I know you're publishing in 2 days, so I'm not asking you about now, but more long term, where do you see incremental growth coming from? And are there real differences in terms of economics if you're dealing with maybe some remote parts of Europe like going into Eastern Europe or into countries where maybe the brands don't have a physical presence and you can help them out or parts of Asia or if you can compare and contrast the potential, but also the economics of the different regions?

Yes. I mean to answer that question, I mean the overall economics, if you look at gross margin -- price levels, gross margin and then operational like shipping and payment costs and so on, is very comparable if you look at different parts of the world. And -- this is our key benefit. We deliver to 133 countries without having the need for a facility for logistics setup in that country. So we can always shift and balance also ETF, we can balance certain countries where we see, yes, there's great growth. And then looking at the geographies for us, you rightfully mentioned that U.S. has always been a strong growth market. And I think for the last 2 years, 3 years, always double-digit growth, independent of Ukraine, Iran, Middle East situations, U.S. has always been a top growth market and will stay for us a top growth market, double-digit CAGR. That is key for us. China is difficult, remains difficult for us as a mini part, thank God. But there are other growth spots in APAC. If you look at Singapore, Taiwan, Korea, you mentioned, very strong growth there. And Europe has always also been a growth story for us. And Europe is not Europe. As you know, there's so many complex countries. And so every quarter, if I look at the revenue performance by country, there's high dynamics. And right now, I mean, very strong growth Cyprus, Greece, Bulgaria, Romania, but also Italy, Spain, Portugal. You mentioned rightfully mentioned that a lot of them are like retail deserts. And therefore, we come into play and can serve at home being a digital player. And so for us, there's growth all over the world, especially if you look at the TAM, the market size and our market share, which is still tiny. We're still tiny. Also in the U.S., we're still tiny. And therefore, it's really good, balanced growth. As you know, the overall wealth in the world is increasing and luxury enthusiasts also in the world are increasing, which is good.

Right. I was wondering if we can talk a bit about categories. I might be under the influence a bit because I used to work at Cartier when I was young. But I've read quite a few articles around Mytheresa signing up a few jewelry brands. And I'm wondering where do you go with this? How do you assess the potential of that new category? And then obviously, beyond jewelry, do you have any obvious gaps in terms of product categories that you'd love to serve your target consumer with eventually?

Of course. I mean it all has to fit to the core Mytheresa and NET-A-PORTER, MR PORTER brand. But fine jewelry, obviously, is a key growth area for us. We have signed on a couple of high-caliber brands. And you saw from the -- and you mentioned earlier from the Richemont brands, I mean, fine jewelry or what should I -- there's a lot of brands that really perform well and that we want to grow with. So you're right, with us very much focused on the ready-to-wear section, less bags and accessories and shoes. We want to grow that segment significantly, and this is also a key growth driver. And on unit economics, it also helps with a high AOV, with a high price, it helps. So definitely more to hear from that, which brands we are getting on board. And fine jewelry is obviously catering exactly to our top customer cohorts that we want to focus on. We had at Mytheresa added menswear, MR PORTER, very strong, very successful. Kidswear, -- and obviously, on category side, you can think of all the luxury categories that, for example, LVMH has luxury experiences and so on to add to that. But it has to -- from an end-to-end perspective, has to work. It has to have a clear reason why now Mytheresa NET-A-PORTER is also selling that. And that cannot be an artificial add-on. So we really have to think about what to -- how to focus and how to go about that. But you're right, the overall growth perspective is very strong. The market is growing. We're increasing market share. Every month, we are gaining market share in the core segment that we have, womenswear and already with fine jewelry, menswear, kidswear, we have growth categories. We can grow geographical. So it's exactly. I mean, LuxExperience will continue to be a growth stock definitely.

Okay. You talked a lot about AOV, and I was wondering if you could dig a bit further to -- for me to understand, is AOV progressing because you're seeing consumers trade up within the purchases? Or are you seeing more a case of maybe higher units per order? How do you track AOV? And how do you think it develops in the future?

Yes. I mean you rightly mentioned, I mean, the last quarters, we reported very strong AOV growth, 7%, 12%, 13%, which is great, helps on the unit economics. And the key driver of the AOV growth is the shift of the customers. So as you've seen, we focus more and more on top customers. So the share of the top customers and the revenue share of top customers increases and they buy higher-priced items. So this is the core driver is not that every customer buys now higher-priced items, but it's a mix effect of if you have a higher share of top customers, then obviously, your AOV increases because with the higher share of top customers, also my full price share increases because the top customers are less discounts. So -- and obviously, if you have less discount, you have a higher full price. So top customer, higher full price share, more AIV, as we call it. And -- but we also see a bit more items per order. So on all fronts, it might come also with the lack of competition and different market environments. Again, we're happy. We can grow items per order. We can increase the higher-priced items, more tuned towards the top customers. Yes.

Okay. So I think naturally, as higher-end customers account for a bigger part of your business, you have a lower level of discount. But overall, I think there's been a sort of conscious decision to get rid of discount more than in the past. And I'm just wondering how do you balance that? Because what is the type of -- not necessarily for the very high-end consumers, but more for entry consumers. What is the trade-off between the traffic that you might generate by being discounting a bit more and keeping a very tight ship and being very disciplined. How do you -- because that's, I think, a recent evolution in the model that you've consciously decided to be less discount driven. Is there a lot of sensitivity?

I mean we've always -- I mean, everybody tries. I mean every PowerPoint slide, you always see, Yes, just get more top customers and do less discounts. So everybody obviously wants to follow that route. And Mytheresa and always has been on the route for top customers. Obviously, in the post-corona phase where every brand grew, the whole market grew, so everybody grows. And then obviously, the total customer -- number of total customers increased with us as well. But our focus on top customers, you mentioned the IPO earlier in '21, I think we reported 2.5%, 3% of our customers make 25%, 30% of our business of our revenues. That has increased significantly throughout the years, the last 6, 7 years, over now over 4% make over 40% of the revenue. So it has always been a top customer focus. But you're also right that the discount level in the industry has decreased significantly. And I think a lot of people still remember the '23 situation when there was too much inventory in the market. There was some disruption that caused everybody to have bad numbers and also led to the fallout of a lot of competitors that could not deal with that. That situation has completely changed. So the competitive situation, the market situation also from the brands themselves have changed significantly. So there's much less inventory in the market, much less need for discount or ability to discount. Even if you -- some local competitors are really aggressive and do minus 20%, minus 30%, they don't have the merchandise to do it. So the effect is much less felt. So compared to 2, 3 years ago, the situation of the industry, the situation of the market is much better on the discounting logic. And for us, it was never a logic should I discount a bit more to attract more customers? Because you saw also in the last quarter, our active customer base decreased a bit even because we -- our currency is the top customers, the top customer share. This is our KPI, not the overall total customers as is always a mix, aspirational customers, standard customers, top customers. So there's no change in strategy, no discipline, but '23 was a special situation. And from that, we had to really focus on or continue our focus on being well disciplined. And it's a self-reinforcing wheel because then also the brands look at us and say, this is a great partner because you really -- you understand and you care for protecting our brand equity. And you are a great partner because you also have those customers that we actually would love to talk to. We know it's a multi-brand customer. We know the customer doesn't go through all the stores, just doesn't have time. And therefore, you help us to have the digital visibility towards that customer. And therefore, the collaboration with the brands increased strongly over the last 3 years. Be it events, be it exclusives, be it early deliveries.

So they're more willing to...