Mavi Giyim Sanayi ve Ticaret A.S. (MAVI) Earnings Call Transcript & Summary

Hello, dear analysts and investors. Welcome to Mavi webcast regarding the financial results of the second quarter of 2024. Our CEO, Cüneyt Yavuz, will be presenting the results. It will be followed by a Q&A session. [Operator Instructions] I will leave the floor to Cüneyt Yavuz.

Thank you, Duygu. Hello, everyone. Welcome to our webcast regarding the financial results for the second quarter of 2024. As you all know, pursuant to the Capital Markets Board of Turkey, our financial statements are prepared in accordance with IAS 29 inflationary accounting provisions. And this presentation reflects the company's audited financial information, including inflationary accounting. To enable investors and analysts to conduct a full-fledged analysis, supplementary historical information for selected key performance indicators are also provided. Please note that such supplementary information is made available only for information purposes and are not audited. I would like to start with a few words on the trading environment and its effects on the second quarter. Recall that in the first quarter, positive consumer demand trends largely continued from 2023, driven by a substantial wage increase in January. By mid-June, when we reported on the first quarter, we had observed an initial normalization in consumer behavior. Following the [ Eid ] holiday and the government's announcement of no minimum wage increase for the latter half of the year, consumer demand experienced a noticeable decline, affecting sales performance across various industries in Turkey. The impact on our sales was also more significant than initially anticipated. However, as we have consistently communicated to our investment community, Mavi remains exceptionally well positioned to navigate these macroeconomic challenges. With our robust brand strategy, continuous communication and dynamic product and pricing positioning, we achieved 200 basis points improvement in gross margins year-over-year in the second quarter. We reported a second quarter EBITDA of TRY 1.2 billion and a net income of TRY 468 million. Our flexible supply chain and [Technical Difficulty] capabilities -- sorry for that. Our flexible supply chain and effective planning capabilities have ensured that our inventory levels remain optimal. Furthermore, Efficient working capital management enabled us to generate over TRY 1.3 billion in operational cash flow during this challenging quarter. In Turkey, retail operations demonstrate resilience with a 1.8% increase in volumes on a high base. We acquired 359,000 new customers in the second quarter, in line with our annual goal of 1.3 million new customer acquisition. Online sales growth in Turkiye was driven by mavi.com, which effectively offset the weaker performance in marketplaces, resulting in a 4% volume increase for the quarter. We attribute this success to our superior marketing and CRM efforts, including personalized approaches, brand partnerships, strong communications and data-driven methodologies that cater to diverse customer needs. Conversely, international sales were notably weak this quarter, contracting 12% year-over-year in constant currency terms. North America was the sole market delivering growth, while Russia also faces macroeconomic challenges, and Europe is experiencing significant structural changes. Let's start with the key highlights of the quarter and go to Slide 5. Our consolidated sales reached TRY 16.399 billion in half 1 2024, growing 6% year-on-year. Specifically, Turkiye retail sales grew 11% and Turkiye online sales grew 10% in the period. EBITDA realized TRY 3.371 billion, resulting with an EBITDA margin of 20.6%. Our net income, growing 30% year-on-year, realized TRY 1.519 billion with 9.3% net income margin. With a cash conversion rate of 99% in the first half of the year, our net cash position as of period end is TRY 4.9 billion. In line with our extended targets to reach 1.3 million customers annually, we acquired 768,000 new customers in the first half of 2024. Recall that as of this year, because of customers' frequency and volume increasing significantly, we are following and reporting on the active customers that have shopped with us in the last 1 year instead of 2 years. With this approach, Turkiye active [ cartridge ] card members, who shopped with us in the last 12 months, is 5.7 million as of -- at the end of July. Let's now move on to Slide 7 to review our channel performance. All channels in Turkiye were impacted by the slowdown in consumer demand in the second quarter but showed resilience. Turkiye retail sales grew 1.8% in volume and contracted 2% in real TL terms when applying inflation accounting. Likewise, Turkiye online sales grew 4% in volume and was down 3.5% in real lira terms. As of the first half of the year, Turkiye retail sales is up 11%, online sales is up 10% and wholesale sales is up 4% year-on-year. International revenue declined by nearly 12% in constant currency during the second quarter, leading to a 7.5% contraction for the half of the year -- first half of the year. This decrease was primarily driven by macroeconomic demand weakness across most of our international markets, the cessation of operations by some wholesale customers and transitionary issues in online marketplace sales operations in Europe. It is worth highlighting that our U.S. business continues to deliver positive results. As outlined in our first quarter webcast, 2024 will serve as a foundational year focused on structural enhancements within our international operations. We are actively developing the strategic road map for our North America operations while continuing to invest in talent and infrastructure. Simultaneously, we are addressing structural challenges in Europe, focusing on management restructuring, warehouse enhancements and the SAP transformation. We anticipate that these initiatives will begin delivering positive outcomes from next year onwards. Looking into our Turkiye retail business in more detail, in the first half of this year, we opened 6 stores and expanded square meter of 6 stores in Turkiye. This implies a 6% increase in square meter year-over-year, which will be supporting our sales targets in the coming months. We are now operating 342 stores with an average size of 524 square meters as of end of July. On Slide 10, let's elaborate on the like-for-like stores performance. In the second quarter, as a result of the weak trading environment, like-for-like sales contracted 4.4% in TRY terms and was down 1% in volume. Reflecting effectively pricing and increased units per transaction, basket size grew 1.4% in -- I mean, what I should say is that translates it's into 73.5% in nominal terms in quarter 2. In the first half, like-for-like sales grew 6.6% in value and 10.5% in volume. Let's now move on to Slide 11 to review category-based developments in Turkiye retail. As of first half, reflecting the performance of our spring/summer 2024 season, all categories grew in value and volume. Denim sales growth is seasonally limited at 4% and is balanced with the growth in non-denim bottoms category, which grew 33% year-on-year. Our knits business, constituting of T-shirts, sweatshirt and jersey offerings; grew 9%, shirts grew 15%, accessories grew 12% and jackets grew 16% in real terms adjusted for inflation. Going forward to review our online sales performance, let's move on to Page 13. As of the first half, our global online sales, including the wholesale business partners, constitute 10.1% of total consolidated revenue. Online sales in Turkiye consists of only direct-to-consumer channels and grew 10%, driven by around 20% of Marvi.com. Online sales constitute 8% of total sales in Turkiye. International online contracted 7% in the first half. On a positive note, mavi.com is still the most resilient channel here with 3% decline in sales year-on-year. Online business makes up 28.9% of total international sales. At Mavi, we remain committed to enhancing our omnichannel capabilities and elevating the Mavi shopping experience for consumers. We will continue investing in CRM and data analytics to drive omnichannel growth, ensuring that our online business remains a positive contributor to margins. I am also pleased to share some exciting news about our online operations. We have launched our MENA online stores, mena.mavi.com, serving 5 countries, UAE, Bahrain, Saudi Arabia, Qatar and Kuwait; with fulfillment from our Turkiye warehouse. Although it is still in the early stages, the initial results are encouraging, and we look forward to providing more updates in the coming quarters. Now let's move on to review our consolidated financial results. Looking at our gross margin performance on Slide 15. Despite the slowing economy weighing on sales performance, with the right product price positioning and an efficient sourcing model, our gross margin improved 200 basis points and realized 51% in the second quarter. There is 170 basis points negative impact of inflation adjustments due to higher inflation this quarter versus same quarter last year and 210 basis points positive impact of increased imputed interest rates. In the first half of the year, our gross margin realized at 51.8%, improving 430 basis points year-on-year. Now to review our EBITDA performance. In Q2 2024, gross margin improvements were offset by a 440 basis point deterioration in the operating expense-to-sales ratio, primarily driven by employee costs and logistics expenses, both of which reflected significant wage increases exceeding 100% year-on-year. Consequently, our EBITDA declined by 260 points in Q2, landing at 16.4%. For the first 6 months, our IAS29 EBITDA margin stands at 20.6%. EBITDA margins without inflation accounting and without IFRS 16 adjustments are presented for information purposes. It is important to note that EBITDA margin without IAS 29 adjustments are still slightly above our guidance as our first half results. On Slide 17, we look into our net income margin performance. Our net income in the second quarter is TRY 468 million which is 34% lower than the same quarter last year. The impact of inflation accounting on net income is higher in Q2 compared to both last year and last quarter due to higher inflation rates, and hence, the significant monetary loss arising from the balance sheet. Without IAS 29 inflationary accounting, our net income margin in the quarter would be 13% with an earnings growth of 49%. Our net income in the first half of the year is TRY 1.519 billion, growing 30% year-on-year, with a net income margin of 9.3%. On Slide 18, we will review our operational cash flow and working capital performance. Thanks to our dynamic and flexible supply chain management, coupled with effective planning capabilities, our inventory remains at very healthy levels, consisting entirely of fresh, current and upcoming season products. Working capital has been efficiently managed, representing 3.5% of sales over the last 12 months. In the first half of 2024, Mavi generated over TRY 3.3 billion in operational cash, which is an impressive 99% cash conversion rate. Now let's move on to Slide 19. In the first half of 2024, we invested TRY 507 million in capital expenditures, resulting in a CapEx-to-sales ratio of 3.1%. These expenditures were primarily focused on store openings and expansions as well as digital investments and R&D. The CapEx related to our new headquarters has not yet included in these figures despite a significant. Despite the significant dividend payment in the second quarter, our strong operational cash generation has allowed us to reach a net cash position of TRY 4.9 million as of the end of July. As always, the foreign currency debt reflected in our consolidated report pertains solely to our subsidiaries. which borrow in their respective local currencies, thereby eliminating currency risk. We maintain our policy of holding no foreign exchange exposure on our balance sheet. On Slide 20, a short note on the guidance for the year and trading update for the third quarter. We anticipate that macroeconomic pressures will persist into the second half of the year. However, we believe our strong brand position, resilient business model and solid balance sheet will enable us to navigate these challenges and emerge even stronger as we have in the past. As a team, we remain committed to sustaining our profitable growth trajectory over the long term. At this stage, Mavi management aims to remain within our initial guidance range. As of mid-Q3, the consumer demand trends have shown reliability and is not easily predictable. The quarter commenced with weaker performance in August, marked by a year-over-year decline in sales volumes. IAS 29-excluded nominal figures show 53% growth in Turkiye retail and 63% growth in Turkiye online sales. In the first 15 days of September, the trend is doing slightly better than the last couple of months, delivering growth in volumes, delivering 57% sales growth in Turkiye retail and 64% sales growth in Turkiye online. With this final note, I am now ready to take any questions you may have. Thank you very much.

Okay. We already have questions on the platform. [indiscernible] have the first question.

[indiscernible]. My question is about this. I actually want to confirm what I think. We see a decline in the EBITDA, thinking the reason is being slower in the revenue top line part. But we see remaining still gross margin. So the OpEx is remaining still, so the revenue is getting declined. So it makes sense to have a lower EBITDA. But my question is your volume and number of material sales remain still, according to your numbers in the presentation. So I think there should be a decline in the prices. But also, we don't see a decline in the gross margin. So can we link it to the decline in the cotton prices so that your COGS are getting declined as well in the gross margin side? Is my question clear or should I...

Yes. I'll try to shoot off about how we see and how we read the numbers. And this is not -- clearly, we can re-elaborate what I think is happening. As you just mentioned, what is happening is, we have started seeing post [indiscernible] period, a slowdown in consumer traffic and also spending appetite to spend, especially a kick-in started when people realized that there was not going to be a minimum wage adjustment. So that had -- I think from a consumer perspective, we have witnessed a sort of adjustment period in terms of "how do I plan and how do I behave and continue to shop" as a behavior. To this extent, we are sort of relatively above water, I think, performing very well, strong balance sheet, although some amount of traffic and shopping appetite has come down, as we mentioned. Then, it came in a little or stronger than what we have expected in terms of what we were guiding or feeling would happen. But if I look at the overall industry adjacencies, other food condiments another fast-moving consumer goods. I think as always, you will recall that as Mavi, we consider ourselves quite resilient. And we observed that we are remaining, vis-a-vis the market, more resilient than ever. Now what has happened is overall top line growth has come down vis-a-vis what we have expected. And then we had constant OpEx costs. So as a ratio, that chart that we have been spending or have planned to spend has remained fixed. And therefore, mostly speaking, the EBITDA margin has been squeezed due to this. Now looking forward down the road -- also let me say a few words on COGS. COGS is already factored in. We don't see necessarily a lot of folks that are coming in terms of cotton price ups and downs, especially for this period of time. It would not -- that would not be correct to say. Generally speaking, how we manage our COGS is through the product mix. So if you look at -- on the one hand, we have denim, we have outerwear, we have accessory products, we have non-denim bottoms, T-shirts, shorts, et cetera. And we are -- in terms of our COGS management and product mix management and the product mix we have, we do our best to make sure and we have actually have done a very good job of playing with our product mix to maintain and even improve our gross margins, which have been the positive side. And in terms of competition, this sort of well management of COGS gives us a great enabling margin of error -- or power to deal with competitive pricing and promotion and sentiments that might take place in the, let's say, retail environment. Now moving from here into the next couple of months, quarter 3, quarter 4 and the following quarter, next year; we still have a lot of -- although some of the costs are fixed, we do have a lot of retail-related costs, which are more flexible. Meaning, we have staffing, which is more part time, which is in and out, et cetera, which we can adjust and use as a buffer; to mitigate some of the operational cost. That's one thing. The second thing is we also have, as one can imagine, as any company has; certain costs that we can cut along the line. So as Mavi, in terms of our team, people staffing, we are not looking into any opportunities or opportunities when it comes to overheads, but we are looking into every single opportunity where costs can be deferred, payments can be deferred and certain activities can be canceled. So I think quarter 3, quarter 4, some of those actions that we have already taken will start to kick in, in terms of -- in an effort to protect our bottom line EBITDA margin. Again, having said that, I'll give a little even extra flavor. For quarter 3, quarter 4, not many industry has done it, but we have, as Mavi both for the field staff and for the HQ staff; have now [ 25% ] salary increase. So we have been proactive in protecting our employees. And trusting on our strong balance sheet, we value our employee satisfaction and retention of employees in these difficult times. This will have a positive impact. For this, we will have initially a negative impact, but will have a more positive impact on quarter 1. While many of the companies who have not done minimum salary wage adaptations, they will have to deal with a higher ramp-up, whereas as Mavi on a base -- if you look at it from a base perspective, we will be looking into a less salary hike-up, which will also help us transition into a very high base Q1 we had. Because we are already -- as you know, we are trying to be consistently a well-managed company, and we are also looking at quarter 3, quarter 4 and the first quarter of next year, so that we are consistently delivering results that are not moving up and down, left and right, with big margins to the best that we can deal with. So of course, externalities -- interest rates, economic ups and downs, which are externalities, which we'll deal with separately. I don't know if -- it's a bit -- maybe a bit more information that you asked for. But if this helps you, I'll stop it at that. If not, please do ask a few questions. I'll leave it to you.

That's really helpful. One more follow-up then. If there is a salary increase in the HQ, what compensates the OpEx? Because OpEx seems to be constant. There has to be something diminished in replace of personnel costs.

In this one, you look at the first half results, the salary increase has not been factored in because the salary increase -- as you know, our quarter is a little skewed, so the salary increases is in payments [ into ] next quarter, which is the quarter 3. So that's why I was giving you a heads up of what is to come. So I'm trying to do a forward thinking for you guys because you like to sort of project out what's happening. So I just wanted to give you a heads up that we have done a salary adjustment effective August. These are being paid out, which in July was the end of our quarter 2. And it will be continued until all the way to the end of January. And this February is when we do the salary adjustment in the Mavi terms for headquarters. The field team, of course, we'll follow in line with the government's decision on how they impact on January the minimum wages. But my whole point is we have done 25%. And let's say, if the decision comes through to do 30%, 35%, 40% minimum wage adjustment, our increase over the current base will only be 5%, 10% vis-a-vis doing a jump -- one jump of 40% on Q1 2024. So that's the sort of heads up I was trying to give you guys.

I missed the time part, sorry.

It's clear. I also mix it up sometimes because our quarter can be sometimes confusing. And I'm also following others reporting their quarterly results. So it's not only you.

[indiscernible] you can go ahead.

My question is related to July figures in particular. As we see in your previous trading updates, we saw [ 74% ] in May and 120% in the first 12 days of June. So it was the trading update ahead of this quarter. And did anything happen in specific to July so that your growth declined to 60%, 65% levels in the -- I guess, in the domestic market? That's my first question. And related to that, do you see any major change on the consumer behavior recently? Or for the future, do you have any sign of postponing the spending, et cetera?

Overall, if you look at how we closed July with around, again, another -- on average, roughly 65% growth at the point when we were reporting the quarter 1 results for you guys, it was just after the Bairam period -- it was just before the Bairam period, which was pre-Bairam, a lot of positive shopping that was going on. So it was a hyped-up period. So if you do a like-for-like, like pre-Bairam, post-Bairam and you do an average, it became normalized. I think what we have seen overall in terms of consumer sentiment, as I mentioned in my presentation of -- as we were talking a while ago, post-Bairam and with the non increase of minimum wage, the sort of the economy or the shopping behavior slowed down a little faster than what we had anticipated for. Coming back to your question, with regards to do we see any consumer behavior trends, if you look at our customers and if you look at our stores and store clusters, we clustered down typically into A, B, C kind of store customers and depending on location and customer base. We see more of the -- as one would expect, we see more of the impact being helped by C customers, so the lower-income areas have been impacted more, whereas the A, B categories of stores and consumers are still continuing with the trend of normal Mavi shopping. C customers typically constitute about 35%, 40% of our sales. So we would have to, and we will, of course, and that's why we still want to maintain our guidance for the rest of the year. We are very quickly adjusting product offering, campaign and product availabilities for the C customers, considering their disposable income. As you know, we always start with the consumer in mind first, and we start with the mentality of understanding their capability to shop and come to Mavi and make sure that they feel that their money is worth taking at Mavi. And I think if you look at our balance sheet and positioning, we have that opportunity to continue to make offers and good-positioning offers for this customer base. It is still going to be a challenge because as we all know, the second half of the year is also "a more expensive" part of the year with schools opening, heating bills coming in and inflation continuing and disposable income, therefore, coming under a lot more pressure. Having said -- I mean, this is a reality, it's not new, it's a like-for-like base. So we will deal with that. And we will, as always, make sure that Mavi is -- whether it's a growing market or maintaining market, stable market that we continue to gain market share. And regardless of the total market, we maintain our strong trusted best place to shop, best-experience, best-products, best-quality mentality. So we will not do anything crazy, meaning that we won't go and do crazy stuff in terms of doing crazy markdowns or vice versa. We will not do crazy in terms of pricing things up because there is inflation. We haven't done it this way or that way. We will continue to be closely monitoring the consumer behavior. We are buying into a lot of Ipsos data, which comes in quarterly. We are working with other market research entities to understand the consumer behavior. We're actually ramping up as we did in COVID area. We are ramping up our consumer communication. You will see, starting this quarter, a lot of rackets, billboards, TV advertising, both with [indiscernible] and [indiscernible]. We are working with also digital platforms to focus on, again, customer groups that might be interested to buy more of the Mavi and make sure that we have a fair fight, let's say, fair attitude in terms of making sure that consumer when they come to shop, they come to shop with Mavi. But again, short as it is, beyond the -- what would I -- what you would have expected, which is the lower end of the consumer spectrum, generally speaking, the other A, B socioeconomic group, which we classify as our solid shoppers, they are still there, they're coming and buying Mavi products. As fall/winter kicks in, more of the jackets and heavy wear products will kick in, which will also probably help us in terms of growing the revenue. We started September, I gave you some numbers in terms of the quarter 3. But if you look at product categories, denim sales are really solid. We are very happy with how the denim sales are going through, which is always a good indicator because denims are typically the more pricey ticket items that we are offering and consumers are still coming and positively buying more of the Mavi jeans, which is very happy news for us all.

And another question is about the international revenue side. We see [ 27% ] decline in inflation-based numbers, real numbers. Excluding the inflation impact, what was the rate of decline in the FX rates -- FX base? What was the decline? And maybe you elaborate further on that. It's a small portion. But still, I wonder what was real in the FX terms and the reasoning behind that?

So I just was gathering the numbers for you. Sorry for that. Now when I look at what's happening in Europe, in Europe -- let me go one by one. In Russia, things have slowed down a bit, similar to [ Turkiye ], it's a very small portion of our -- business have slowed down. So it's more than 20% slowdown, is what we are observing in the Russian market. In Europe, there is a bit of a structural adjustment, in the sense that we had a lot of e-comm business, which was taking place via Zalando, which was seeing direct wholesale versus direct-to-consumer sales, which we are recalibrating. So that is sort of up and down in the adjustment period, which should normally kick in and normalize starting next year. We are also in Germany, as we speak, as I mentioned in my presentation, we are in the midst of an ERP change. So hopefully, we'll move on to SAP, which will also streamline and improve our EBS sales, which are linked up to the key department stores. And hopefully, we want to -- we hope and we look forward to seeing more of our [ most ] sales, which is never out of stock that is going up, which in this interim period, there is some, let's say, more externality, some of it caused by us that is disrupting some of the numbers. When you look at U.S., it is more in the -- so Europe is also down around 20% through this adjustment. But then when you look at U.S., it's more like plus 5%, 6%. So net-net, it comes down to a minus when you add it all up.

In overall -- in total, actually overall because they're all in different currencies. But if you look at -- if you want to look at it in dollar terms, it's minus 14, by the way. The next question is on [indiscernible].

My question is about stock levels. The stock level has increased about TRY 1 billion in the second quarter compared to the first quarter. Is it because of weak demand? Or are you preferring to keep higher stock? Can you explain it, please? Also, I have one more question. It's about whether -- in the first 15 days of September, it was really -- the temperature was really high compared to averages. Is it postponing your fall season demand? My question is...

Two pieces. One on the inventory side. I think one part of the increase -- I mean, generally speaking, as I mentioned in my presentation, personally, inventory is number one KPI that I follow. So -- and the last thing I want to do is make sure that we have a deterioration in terms of our inventory and working -- therefore, our working capital negative impact. There is an increase, but it's mostly because of new product for the quarter 3, new season fall/winter coming into our warehouses that is bumping up the inventory levels. But if I look at -- having said that, if I look at the total inventory coverage, freshness, leftovers one season to another, we are in very good shape. And I think I keep reiterating this, the fact that more than 80% of what we produce is being produced in Turkey and the relationship with the manufacturers, the speed with which we can bring things into on to shelf and slow things, start things is phenomenally well and well run. Therefore, I would read that 1 billion increase more as a part of their -- for next season preparation and products coming in for fall/winter like jackets, outerwear, et cetera. When it comes to weather -- but there's always an element of what we sell. It is true, like believe it or not, when it rains, you sell rain jackets. When it's cold, you sell sweaters. And when it's snowing, you sell jackets and outerwear. So the weather does impact. But generally speaking, in my experience, these things wash out in the end. There is an overall tendency of global warming that is coming up. So we have to factor that in. And to that end, I think the critical thing over the last 5, 6 years, especially on Mavi side, has been the management of outerwear and jackets, how we -- how many we order and how many we sell? So the rest, like t-shirts, sweatshirts, jeans; are quite [ seasonless ]. They do slow down and pick up speed. Once weather gets cold today, for instance, a bit of a cold -- more cloudy today, and we will automatically see the benefit of that. So I worry more about the jackets. And typically, over the last 4 or 5 years, I think we have learned to sell what we buy and be -- in a way, in a positive sense; to be out of stock at the end of the season, especially when it comes to the seasonal products like winter products. So that will be my worry, but that worry is not -- at this point in time, I don't have any worries. Products are coming in on time. Our planning -- based on last many years of performance and future performance, we are prepared to deal with what we will sell. And inventory, maybe at the end of the year, might be up 1, 2 days, but it's not going to be significantly deteriorating vis-a-vis the prior years. By the way, tomorrow, we are having one of the biggest supply days in our history. So we will have more than 400 people attending our conference, where I would say, calculating at the back of the envelope, that's about 20% of Turkish textile industry will be under one roof, where we will celebrate the 30-plus years of Mavi's collaboration and talk about the future plans. And I'm really happy to say that every single supplier that has joined our Board, whether it's the new ones that have joined us -- or just -- or the 1 year or those that have been working with us more than 30 years, and there are quite a few of those; will be under one roof talking about the future and the challenges we have. So it's another testament of Mavi's strength, not only from a consumer point of view, but it is also a testament with our business partners to plan for the future and the challenging times that are ahead of us and ahead of them, so we can listen to each other under one roof, one big family, supporting our brand and supporting our company. And I think it will be one-of-a-kind confidence which hopefully -- Duygu, remind me to say a few words at the end of quarter 3 about how that went, and we are really excited to be holding this conference.

Also, I have one more question. It's a lot Turkish lira gaining against the other currencies, dollar and euro. And are you expecting competition from the foreign companies if this trend continues? Because there is inflation in dollar terms and euro terms in Turkey. Is it -- will it change the view after -- in terms of market share?

This is a pendulum movement. I mean in my 16 years with Mavi it moves left and right. Sometimes for us, the bigger challenge comes from de facto [indiscernible], the local big players. And sometimes, as you mentioned, the competition comes from H&M, Zara, Mango and other imported goods because of the Turkish currency swings from up to down. We are, on a constant and weekly basis, for an SKU basis -- on an SKU-level basis; tracking and monitoring the pricing position of Mavi products vis-a-vis more than 20-plus competitors. And we believe with the stronger gross margin position we have, the manufacturing capabilities and the product mix management capabilities and choosing to make certain products or not to make certain products, we will be able to manage and deal with importing competitors. But your point is very valid. Over the next -- probably at this rate, next 9 months, not only for Mavi, for all local players; importing brands like Zara or H&M will have an advantage. And we, as the local payers have to adapt to that. But this, in no way, necessarily changes our outlook or activity because this is for us business as usual to a certain extent because there are times when we benefit and there are times when we lose. This will be a transition for the next, I think, 6, 9 months that we will have to deal with. And I think we have the capabilities and the tools to deal with it.

You are next [indiscernible]. Go ahead, please.

I hope you hear me well. In your presentation, you generally mentioned the outlook for the coming quarter. Thanks for that, first of all. Consistently, you are providing that. And when I look into the numbers, it seems that in August and -- since the beginning of August, which means half of the third quarter, somewhere around 60% revenue growth on a year-on-year basis in nominal terms. Is it possible to give a little bit more color regarding details of that? For example, how the back-to-school period start in terms of the quantities, volumes and also the transaction? So if you divide this 60% into detail, how much comes from price, how much comes from tickets, how much comes from quantities? This is my first question. I have other question after your answer. It will be a very short one.

Overall, for the August -- I mean, first of all, I should put it this way, since the beginning of quarter end and actually, since July, one week to another has been quite unpredictable. So there have been weeks within -- like over the last 16, 17, 18 weeks, where we had a very good week and then a very slow week. Some of it weather related, some of it may be product related, some of it sentiment related in terms of people looking at dollar price, inflation price, holidays, what's happening externally, et cetera. If you look at the August numbers, I mean, I can promise -- I can share with you two points. One, again, as I mentioned just a few minutes ago, we see a bit of weakness on the lower end, like the C outlet areas, but we are in the midst to prepare products and product mix that will cater to that customer in our stores over the next couple of months. So I think I can ameliorate some of the gap that is coming there, as I also mentioned there. But A, B customer base and the back-to-school, when it comes especially kids coming in buying the blue jeans and buying the school-related products; I've been quite happy. And the volume was, if I'm not mistaken, roughly 4% or 5% above last year. So we had a positive volume growth, which is always great to see, especially in these challenging times. So that's the amount of information I can give at this point in time. We have -- post-Bairam period, I've been at Mavi sort of managing the business literally every week, gathering together, looking at competition, pricing, product we have, campaigns we have, channels that are performing and being more vigilant than we normally are. I mean we have -- typically, are busy bees, but we have extremely sort of elevated our vigilance. And also, as I also mentioned that we are not doing anything silly, but we are also looking into every single expense-related stuff when it comes to money being spent to get the biggest return. Like today, we were having a big meeting, for instance, with Meta team to discuss in terms of customer segments and to find like new customers, how do we use influencers better, et cetera. So not -- just to give you a sentiment, not in a mindset of defensive, on the contrary, to find that extra customer who's out there shopping, spending money and to make sure that they find what they're looking for at Mavi. So -- and this will continue, and it's getting tougher. But we believe in terms of our attitude, our look for the future is always [ sell ] side up, how do we make the most of what we have. And we have a great plan, [ trade ] contingency of Mavi brand supporters, customers, consumers, suppliers and keep the business checking down.

The second one. You said, you find here quarterly a 25% wage increase. And then if you do that and after this increase, what is the total wage increase that you have done since the beginning of the year? And is it like a base wage increase or just like fringe benefits that you provided the second 25%? You increase the base...

We -- at the beginning of the year, we started with a 50%-55% salary increase. And then we did another 25% salary increase starting August. So it's not a fringe benefit. It's end-of-the-month salary increase that people get.

Okay. So just one short wage increase, starting -- will affect the third quarter?

Coming to third quarter into the positive pockets of our employees and also have an OpEx hit. Some of it will be managed and offset by the already actions we took during quarter 2. And I do believe if -- I might be mistaken, but maybe you can give some color, Duygu. Quarter 3, OpEx actually should come down in absolute terms vis-a-vis quarter 2 despite the salary increase.

Well, OpEx-to-sales ratio...

Not ratio, but I'm talking about the absolute...

The ratio will continue to be lower than last year, but not as we just -- what you saw in...

So this 25% sales should not intimidate you in terms of an OpEx bump. So I think we've taken the right measures to make sure that we deservedly can hand out the salary increase.

And also, you mentioned when the time comes in January, after this 25%, are you able to -- if like below the...

Yes, we do this -- I think the good news is when we do this 25%, this is on the side when the minimum wage comes in, let's say, if there is 35%, we will have to do only 10%. So base perspective, some companies [ or other ] companies have managed this. Some companies, in [ May ] and January, have all of a sudden 30%, 40%, 50%, depending on the minimum wage; impact on their balance sheet, whereas our ladder of jump will be lower, and a lot of the OpEx will be in the base. This upfront salary adjustment is also a great tool for us to tighten our belts in other areas and to see how we will manage the rest of the coming quarters in the right way. So I find it a win-win proposition for all of us. And the [indiscernible].

We also have some questions coming from the text screen. A1 Capital. Mustafa says, does the winter and autumn season delays puts pressure on finances? When do you think inflation-accounting factors will end?

There is talk about inflation-accounting factors will end. That's not for me to say at this point in time, I cannot comment on that. We talk about the seasonality and ups and downs of sales. I think overall, weather is an important factor. But in terms of our performance, I think that's part of the challenge we will deal with, and I worry less about that.

Our next question is from Mihkel. Why is the employee cost increasing so much as there was a second minimum wage hike?

There were not a second -- there wasn't an employee cost increase, but as a percentage going up because the top line growth slowed down. So that's probably what you're referring to. But we did talk a lot about how this will play out, how it played out and it will continue to play out all the way to spring/summer 2025.

Mihkel, we did -- last year second half, we did 35% employee wage increase. And then January, we did 55% more. So if you look in year-over-year for the first half of this year compared to first half of last year, this was in Mavi, but overall in Turkiye; impacted all other costs such as [indiscernible] logistics, everyone with twice wage hikes, which were high. But that's the general case in Turkiye that's year-over-year. Employee costs are much higher than top line inflation right now. Another question from Erkan Edincik. Based on our observations, the economic slowdown is becoming more pronounced. If you decide to revise your guidance for 2024, how do you plan to communicate this? Will it be done in the third quarter results or beforehand?

At this point in time, as Mavi -- as Mavi management team, we would like to maintain and stick to our guidance as it clears a lot of uncertainty, and we're almost within that. And what we are hoping that when it comes to quarter 3, we will be in a position to guide you in terms of where we are heading to. So that's the regular communication that we do at every single quarterly meeting. We give you an update if there is an update needed. So that's our current plan, is that we do -- when we come together, when we finish the quarter, the third quarter that we will share with how we are tracking to finish the year and then our outlook for the next year.

Probably a similar question from Alper Akalin. Given the company's unchanged full year '24 profitability guidance, despite contracting margins and wage hikes, could you explain if there has been any noticeable signs of improved profitability in August and September that will make you reach profitability targets?

I mean I shared the numbers, the top line growth and where we're heading, as well as OpEx. And you see where our number is and you see where our guidance is. So that also gives you an indication of the rest of the coming months, we think, will play out.

Yes, you have your hand again? Do you have another questio, [ Alper ]? So maybe he left it up. There is one more question, I think, on the text screen. Are you considering a shift towards younger faces for Mavi's advertising campaigns? Personally, I believe that Kivanç Tatlitug now appeals more to middle-aged consumers rather than the younger generation.

This is a very good question, this is something every season we track, the value of our faces and celebrities. The great thing about Kivanç is, yes, he is, right now, our middle-aged man, he is no longer the 20-something guy he used to be. But overall, he's adding a lot of value to us. So he's bringing a lot of premium look for us. So we will welcome to Mavi -- I mean Kivanç remains our face for the company, and we will be capitalizing on Kivanç's popularity. And all the research we do right now puts Kivanç well ahead of any other celebrity across Turkey, in terms of our male celebrity. So right -- in line with what is right for the Kivanç, we are -- as you might be aware, we've added, as you know, along the way, our [ Pro ] line, [ Black ] lines with Kivanç. And most recently, we have added our [ Edition ] line with Kivanç. So we will use Kivanç to bring in more premiumness in line with Mavi and in line with Kivanç's equities. And [ Serenay ], of course, will be the new young aspirational women fashion-forward lady for us. Net-net, you have to understand that beyond these two very strong celebrities, we are using tons of influencers in TikTok, Instagram, Facebook, et cetera, to subsegment and target audiences that are in line with that audience. So it is a 360 effort. The question is I have added one, but don't worry, we are really doing all the research, no matter what the celebrities, whether it's [indiscernible] or whether who the influencer is, that they fit the Mavi way of doing business. Thanks for that feedback.

Do we have any other questions?

At this point, I would like to thank each and everyone of you for joining us in this podcast. We look forward to coming in with pretty good numbers in the end of quarter 3. In the meantime, seems like in this challenging times, I wish you all the best in whatever you're doing and that we deliver happy, healthy days. And as always, stay in touch, we are here. Whenever and wherever you feel like you need more information, we will be as transparent and as sharing as we can be in terms of how our business is tracking. And thank you all for attending once again. Bye-bye.