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

Hello, everyone. Welcome to Mavi's Second Quarter 2026 Earnings Webcast. Our CEO, Cuneyt Yavuz will present the second quarter and first half results, followed by a Q&A session. Please note that this webcast is being recorded. We kindly ask you to review the disclaimer and take into consideration the forward-looking statements included in the presentation accordingly. [Operator Instructions] I will now leave the floor to Cuneyt Yavuz.

Thank you, Duygu. Hello. Thank you all for joining us in this webcast regarding the financial results of quarter 2, 2026. I would like to start with an overview of the trading environment and our performance in the quarter. The operating environment remains challenging, particularly in Turkiye. Persistent high inflation continues to weigh on purchasing power and consumer demand. While competition across the apparel market is ongoing. Against this backdrop, we remain focused on the areas within our control and continue our execution with discipline and confidence. Our right product, right price and premium quality strategy, supported by our flexible supply chain and effective planning continues to deliver good results. Strong brand execution, continuous customer engagement and dynamic product and price positioning has supported further improvement in our gross margin. At the same time, disciplined inventory and working capital management enabled us to generate more than TRY 2 billion in operational cash flow, preserving our robust balance sheet and financial flexibility. Profit before tax more than doubled year-on-year, increasing by 117%. Turning to Turkey, our strong market positioning and continued investments in the brand supported volume performance in a softer consumer demand environment. Total retail sales volumes increased by 7.3% year-on-year. The online channel in Turkey remains highly competitive, with elevated promotional activity, particularly on marketplace platforms. While this puts pressure on online revenue growth figure, sales volumes are holding strong with 8% year-on-year growth in the quarter. Our international operations, driven by U.S. retail growth also maintained positive momentum with sales increasing by 3% in constant currency. In the quarter, the United States delivered 24% year-on-year revenue growth. This year marks Mavi's 35th anniversary. An important milestone for a brand that has grown from Turkey into an international lifestyle brand while staying true to its denim roots. We lead the Turkish jeans market ranked among the top 3 brands in overall apparel markets and remain the destination for casual wear. Our focus on denim innovation and fit variety further strengthens Mavi's top-of-mind leader position in jeans. Always looking ahead, we continue to invest behind this brand strength. We maintain an always on communication with our customers and have further elevated our marketing and brand investments this year. Together with our strong standing brand ambassadors, Kivanç Tatlitug and Serenay Sarikaya, we continue to strengthen Mavi's premium brand image and communicate the stories behind our iconic jeans and brand identity. We are also deepening our connection with younger generations. This year, Zeynep Sönmez and Kenan Yildiz joined the Mavi team of celebrities. Both are exceptional young athletes who represent the energy ambition and authenticity we associate with Mavi and our inspiring role models for the next generation. Finally, our commitment to long-term value creation continues to gain recognition both in Turkey and internationally. In the first half, Mavi was named a most honored company in the Extel EMEA survey for the third consecutive year. We ranked fourth among 400 companies in Forbes Turkiye Best Employee Survey and became the first and only apparel brand from Turkiye to be included in the S&P Global Sustainability Yearbook 2026. We were also included in the FTSE4Good Index Series in recognition of our environmental, social and governance performance. These recognitions reflect the strength of Mavi not only in terms of financial and operational performance, but also as a brand, an employer and a responsible company. Overall, I believe our first half performance demonstrates the resilience of our business in a challenging operational environment. We continue to improve gross margin, generate cash and maintain a strong balance sheet while investing in our brands, our customers and the capabilities that will support Mavi's long-term growth. With this introduction, let's quickly review our results for the first half 2026. Consolidated revenue declined 1.1% year-on-year and realized at TRY 25.832 billion. Turkey retail sales was flat, while Turkey online sales declined by 2.9% in the first half of 2026. Our EBITDA for the period is TRY 4.679 billion resulting in 18.1% EBITDA margin. We recorded TRY 807 million net income in the first half of the year with 682,000 new customer acquisitions in the first 6 months of 2026, the number of active loyalty card members now stands at 6.2 million. Moving on to review our channel performance on Slide 7. Despite all the challenging conditions weighing on consumer demand, total Turkey sales grew 0.4% in the second quarter resulting in a 0.5% contraction in the first half. Within that, retail sales performance was most resilient, staying flat year-on-year, while wholesale contracted 1.5% and e-com contracted 2.9%. Total international revenue constituting 9% of total consolidated sales was down 7.4% year-on-year, in inflation-adjusted Turkish lira terms but grew 1.4% in constant currency in the first half of 2026. The U.S. business recorded 18% growth in U.S. dollar terms in the first half of 2026. Looking into our Turkiye retail business in more detail. We remain committed to strengthening our physical presence in Turkey through disciplined return-focused investments. New stores opened over the past 2 years are delivering positive contributions while expansions and renovations are driving improvements across key store KPIs and enhancing the overall customer experience. Our retail development plans for 2026 are ambitious with a significant part of the pipeline scheduled for the second half of the year. As of the end of July, we are on track with our 4 new store openings, 4 closures, 7 expansions and 14 store upgrades. To bring you fully up to date, as of today, we have completed 7 new store openings, 5 closures, 7 expansions and 19 renovations and upgrades, demonstrating the strong pace of execution since quarter end. Let's briefly elaborate on the like-for-like store performance on the next page. In the second quarter, like-for-like sales increased by 31.3% in nominal terms, corresponding to a 0.6% decline in real Turkish lira terms. Our category mix and pricing strategy supported gross profitability while preserving market share. The underlying like-for-like dynamics reflect this approach with the average basket down 3.9%, offset by a 3.5% increase number of -- in the number of transactions. Importantly, like-for-like sales volumes increased by 5.8% in quarter 2, bringing first half volume growth to 2.5%. Including the contribution from new square meters, total Turkey retail volumes grew by 7.3% in the quarter and 4% in the first half. Now let's move on to Slide 11 to review category-based development in Turkiye retail. In the second quarter, we recorded volume growth across all categories. The variation we see in the first half category performance therefore, largely reflects the dynamics the of the first quarter. Denim performed broadly in line with the overall business with first half sales down 2% year-on-year, mainly due to a slightly weaker performance of denim shorts and tops, while jeans remained relatively resilient. [ Kids ] were significantly affected by unfavorable weather conditions in the first quarter, the category recovered in quarter 2, posting 2.3% real growth, bringing the first half decline to 4%. Jackets were down 8% in the first half, largely reflecting a strong comparable base. Given the seasonality of this category, we believe full year performance will provide a more meaningful indication of the underlying trend. Our non-denim categories maintained the positive momentum with accessories and non-denim bottoms both growing 8% in real terms. This performance supports our category diversification strategy while contributing positively to profitability and new customer acquisition. It also demonstrates the benefits of our largest store format which provide greater space and visibility to showcase a broader product offering. Now let's go forward to review our online sales performance on Page 13. Global online sales, including sales generated through our wholesale partners online channels, represented 10% of consolidated revenues in the first half of 2026. In Turkey with 5.7 million active Mavi app users mavi.com continued to outperform other online channels. Revenue declined 0.6% on mavi.com compared to a 5.5% decline on marketplace platforms. Turkey online business accounted for 7.8% of total Turkey sales during the first half of the year. International online sales declined by 6.6% in inflation-adjusted real terms. Primarily due to a significant contraction in the wholesale channel. International mavi.com continued to perform well, delivering 1.7% growth in real Turkish lira terms and 13% growth in constant currency. Overall, online sales represents 33.9% of total international revenues. Now let's move on to review our consolidated financial results. Against the backdrop of heightened global economic uncertainty and the continued challenging demand environment in Turkiye. We are pleased to have improved our underlying gross margin by 160 basis points in the second quarter and 190 basis points in the first half. This performance reflects the strength of our product planning capabilities, our flexible and agile sourcing model and the effectiveness of our pricing and category management strategies. Reported gross margin reached 53.1%, where lowering due to the interest impact was mostly offset by lower inflation accounting impact. Moving on to Slide 16 to review our EBITDA performance. We generated TRY 2.65 billion of EBITDA in the second quarter growing 4% year-on-year, while EBITDA margin also improved 70 basis points, realizing at 16.4%. The 200 basis points increase in the OpEx to sales ratio was mainly offset by higher gross margin. Let's look into our net income margin performance, given better operational profitability and lower financial expenses in the second quarter, our profit before tax grew 117% to TRY 505 million. As we have discussed in previous quarters, Inflation accounting has a disproportionate impact on asset-light companies with strong equity positions, such as Mavi. With inflation accounting no longer applied to statutory financial since the end of 2025. This impact is now reflected more prominently through the effective tax rate. In the second quarter, our effective tax rate is 53% compared to 6% in the prior year. This resulted in TRY 239 million of net income in Q2 2026, growing 9% year-on-year and corresponding to a net margin of 1.9%. Net income for the first half of the year realized at TRY 870 million with 3.1% margin. On Slide 18, we will review our operational cash flow and working capital performance. We continue to efficiently managing inventory and working capital, ensuring operational agility. I'm pleased to share that our consolidated inventory levels remain at a very healthy territory being 7% lower than same period last year and comprises mostly of fresh fall/winter season products. Having said that, I would like to highlight one point for the coming periods. As our square meter expansion strategy results in a growing number of larger store formats, the business will naturally require somewhat higher inventory levels to support the broader selling space and product offering. This is a planned evolution of our inventory needs designed to improve product availability and support sales productivity across our expanded store network. Therefore, in the coming quarters, we cautiously plan to see Mavi operating with slightly higher inventory levels as these investments progressively come on stream. Moving on to the next slide. In the first half of 2026, we invested TRY 1.325 billion in capital expenditure. Resulting in a CapEx to sales ratio of 5.1%. Turkey retail investments, including store openings, expansions, renovations accounted for 55% of total capital expenditures. Approximately 22% was related to investments in our U.S. retail operations while 11% was allocated to R&D and 8% to digital initiatives. As always, the foreign currency debt reflected in our consolidated financial statements relates exclusively to our international subsidiaries, which borrow in their respective local currencies. As a result, these borrowings do not create a material foreign exchange risk at the consolidated level. Given our first half performance and the higher inflationary trajectory in Turkey compared to expectations at the beginning of the year, we are revising our full year top line guidance. At this stage, we expect to close 2026 with consolidated revenue ranging from flat to a low single-digit decline in real terms. Under IAS 29 inflation accounting. Our retail investment plans and EBITDA margin guidance remain unchanged. I would also like to share some early observations on our third quarter trading, August marks the end of summer season and is typically characterized by elevated promotional activity across the industry. As such, we view the month as less representative of underlying new season performance. During August, Turkiye's retail sales grew by 25% in nominal terms, while online sales increased by 30%. The first 2 weeks of September delivered 24% nominal growth in Turkey retail sales with the back-to-school season beginning to gain momentum toward the end of the period. In the second week alone, retail sales grew by 42% providing an encouraging early indication of back-to-school trading. Looking ahead, our focus is on navigating the current environment with discipline without compromising Mavi's long-term potential. We will keep investing in our brand customer experience and retail network with the ambition to strengthen market share, build deeper customer relationships and translate these investments into sustainable profitable growth. Before ending my presentation, I have one final important announcement to make. Our Board of Directors has decided to initiate a second phase of share buyback transactions. The objective is to protect the interest of all our stakeholders, support some price information and share price stability and contribute to long-term shareholder value through the cancellation of the purchase, repurchase shares following its completion. The program will have a maximum duration of 1 year with TRY 1 billion of allocated funds. I would also like to highlight 2 important points regarding the execution of the program, particularly to provide clarity around how investors should interpret our daily buyback activity. First, under capital markets regulations, our buyback orders are placed as passive orders. This means we do not actively chase the market price. Whether an order is executed depends on market conditions and trading activity at the relevant price levels. Please make note that on certain days, orders may be only partially filled and on the others, there may be no execution at all. Second, Mavi applies a 14-day no purchase period ahead of each financial result announcement. We do not conduct any share buyback transactions during this period. This is a clear internal rule that we apply consistently around our financial reporting challenges. Taken together, these execution principles mean that buyback activity will not necessarily be linear or evenly distributed throughout the program. We will execute the program within the announced framework and applicable regulations while maintaining our disciplined approach to capital allocation. At this point, I'm more than happy to take any questions you may have. Thank you for joining and being with us in this presentation.

[Operator Instructions] Our first question comes from [indiscernible].

Congratulations for the results. I have a couple of questions. The first one is on the U.S. sites. As I see the business is growing, but how much of the CapEx went there? And what's the U.S. contribution to consolidated EBITDA right now? When do you expect it to become meaningfully profitable? And the second one is on Turkey stores. Most of 215 net openings seem to be left for the second half. how confident are you in hitting that? And what size should we expect for the new stores? I'm talking about actually average selling space per store. And the third one is on margins. Gross margin was up about 240 bps despite weaker real pricing and higher personnel costs. And how much of that would you attribute to product mix? Could you more elaborate that? That's my question.

I'm just checking the numbers. I mean of our total CapEx approximately, as I just mentioned, 22% was related to investments in our U.S. retail operations. So you can figure that out versus the TRY 1.325 billion that we have invested. About 1/5 of that has already been directed towards the U.S. operations. In U.S. within a couple of months, we will have reached the initial target number of stores that we wanted to open in the U.S. There are I think 2 more stores that are being built as we speak. If I'm not mistaken, one is in Denmark and the other is in Florida, in Jacksonville. And that will bring us to between -- depending on how you count to stores because we have also stores, 2 stores relating to Rokin Industries should bring us to around 15 dedicated Mavi stores in total 17 stores in the U.S. In terms of how the business -- it is, of course, as we open up new stores, it is definitely positively contributing to our top line growth. In terms of net contribution to EBITDA, et cetera. There is still time to go. We are now mostly in an investment stage. And when it comes to the international markets, at this point, the Board of Directors chooses to sort of continue to report at the international business as one consolidated numbers. I think over the course of the next couple of quarters, once we review how the U.S. business is going, then I will be in a position to separately start reporting for the investment community as we are making a conscious effort in terms of growing our U.S. business to give you more flavor in terms of what we are doing there. But at this point, if you are doing any calculations or guidance from me, I don't expect a positive contribution because we are in an investment mindset opening new stores, where we are taking some hits in terms of store contributions and the ramp-up period and more to come and it's really, really, really early days to definitely be in a position to guide you this way or that way in terms of when and how things will play out. In terms of store openings and space for the rest of the year in Turkey, we are confident we believe we will hit our guidance and maybe potentially even have some positive surprises. Looking at our pipeline and expansion plans and refurbishments, actually, we have more stores than what we are suggesting here that we could potentially handle. But as you know, there can be always some delays and cancellations. So we maintain our current guidance and we think these numbers are achievable. In terms of the space, at this current base, if you're doing any calculations estimates, calculating around 1,000 square meters for each and every new store or square meter growth directionally would be right. Some of them will be 800, 900 square meters depending on the location, and there will be others that will be 1,200, 1,300 square meters. But an average indicator of 1,000 square meters is the right methodology to follow. That's what I'm using in terms of category and product planning. In terms of gross margin, I think Mavi is doing a great job in terms of gross margin. Definitely product mix has a positive impact. But you will all recall that all the categories as well as all the channels, meaning e-com to retail have a similar contribution and business model within Mavi. Meaning our denim business is profitable, just as well as our T-shirts are profitable, just as well as our non-denim bottoms and are profitable. Therefore, consumer tendencies, trend tendencies or migrations or growth for that matter, in any one direction is a positive -- has generally speaking, a relative neutral impact. We have been growing our Kids business. We have been growing our Accessories business and we have been growing our non-denim bottoms business. I'm also happy to say generally, these categories are potentially even 1 or 2 points higher in terms of gross margin vis-a-vis, let's say, outerwear, which is in terms of total gross profit as a greater sum. But as a margin, they typically have a lower contribution because of its more competitive nature and a higher ticket item. Therefore, moving into fall/winter, typically, we will have more, of course, outerwear coming in, especially in winter, which typically makes the fall/winter a little more challenging for us when it comes to gross margin management. And what we tried to do through the season is capitalized on our outerwear categories outside of outerwear like non-denim bottoms, shirts, kids, accessories to sweeten that mix so that we can maintain. And as we always try to do, hopefully, even come out with better-than-expected gross margin improvement. Just we are -- not just as we are on this, I think the overall challenge for Mavi, and I'm giving this as an extra comment and introduction, is, I think, typical for many of the Turkish companies where I think we are in a blessed situation, where we don't -- we have a very strong working capital and balance sheet. We don't have debt, and we're able to generate cash. This is something we want to continue. On the other hand, of course, pressures in terms of energy pricing, overheads and OpEx-related costs are still on our momentum. And as you know, the inflationary targets that we started the year with in terms of the middle -- midterm targets of the Central Bank and the government are falling short of expectations. And we were hoping that we will have better numbers, but now the inflation seems to be 5% to 10% higher than what was expected primarily due to regional conflicts and energy prices. And as many companies, we are more struggling or under more pressure when it comes to OpEx management and the cost increasing in that front. But I'm confident with the productivity of my team, technology, AI, intelligence and also the disciplined approach where we are putting our money. I'm also -- this is my job, it's something that I have to deal with. But down the road, I think this is something we will come out on top and be one of the better companies that manages its pressures coming that are hitting the bottom line of the company. I hope that covers some of the questions that, hopefully, you asked.