Safilo Group S.p.A. (SFL) Earnings Call Transcript & Summary

Good afternoon, and welcome to Safilo Group's Full Year 2023 Financial Results. This call may contain forward-looking statements related to future events and operating, economic and financial results for the Safilo Group. Such forecasts, due to their nature, imply a component of risks and uncertainty, due to the fact that they depend on the occurrence of certain future events and developments. The actual results may, therefore, vary, even significantly to those announced in relation to a multitude of factors. Today's participants are Mr. Angelo Trocchia, Chief Executive Officer; Mr. Michele Melotti, Chief Financial Officer; and Ms. Barbara Ferrante, Director of Investor Relations. I will now pass the call over to Mr. Angelo Trocchia, Chief Executive Officer. Mr. Trocchia, you may begin, sir.

Thanks. Thanks very much. Good evening, everyone, and thank you for attending today's conference call on the Safilo's full year results. In a complex year last 2023, in which a pretty tense and unstable geopolitical and macroeconomic environment added to our direct challenges. It was particularly important to us to achieve a level of revenue and adjusted operating margin very close to the strong performance we recorded in 2022. More than that, the passion and constant dedication of Safilo people has allowed us to further strengthen our growth on all its main strategic pillars, from our brand portfolio to our supply chain to sustainability of the business model in the long term. During the year, we faced the undisputed challenge of our main market, North America, which after a weak end of 2022 continue to be affected by the prudent order attitude of customers in our main distribution channels plus an unfavorable sun season, which clearly did not help. Above all, we had to manage the expected decline of our business in the former GrandVision chain, a significant headwind for our European market, which we countered with great determination, by strengthening existing commercial relationship but also by establishing new partnerships. It was an incredible job by our teams, which allow us to close the year with the European market substantially in line with an extraordinary year like 2022, when Europe grew 12% over the previous year. This, I think, further demonstrated the resilience of our group and the value of the strategy that sees our clients as the focus of the entire company. 2023 was also characterized by exchange rate headwinds as the euro strengthened against the U.S. dollar and most of the other currencies and continued inflationary pressure, in particular on personnel costs. Our headwinds last year did not prevent us from addressing all our priorities, starting from the undoubtedly very difficult one of having to take another look at our industrial footprint in light of a brand portfolio that was no longer aligned with the know-how present in the historic Longarone plant. The project, to look for alternative solution, was complex and not without tension, but we believe that thanks to the active support of all the parties involved, we managed to reach the condition for the best possible outcome with the disposal of the production site, the full employment of all the workers, allowing in turn, for the preservation of the sector's existing know-how. 2023 was also an extraordinary year as the quality of the work carried out combined with the passion and constant dedication of Safilo people, allowed us to accelerate the consolidation of the licensed brand, with a series of early renewals, which involve both our core license from Kate Spade and Tommy Hilfiger to the icing on the cake coming in January this year with the early renewal of BOSS and HUGO, but also many other important brands like Fossil, Juicy Couture, [indiscernible], Moschino, Levi's and the renewal few days ago [indiscernible]. Last year, we also signed 2 new partnerships with Etro and Stuart Weitzman, which were added to what is today a rich and complementary license portfolio which provides us with an unprecedented visibility and business continuity of around 6 years. This is a very important achievement for us, which sits alongside the key projects, the pillar of our medium-term business plan, the solid and long-lasting growth of our home brands, an almost unique portfolio in the industry, which in 2023 grew to represent approximately 44% of our sales from 42% the year before, thus progressing on our medium term target to bringing it to represent over 50% of the group revenues. A project that was successfully executed during the year, thanks to the focused action plan, which will continue to the planned investment, allowing us to advance in the development and strengthening all our main home brands from Carrera and Polaroid, which continued to gain market share outside of the former GV chain to Blenders, our flagship brand in the online charter, which in 2023 returned to growth. And together with Smith, further progress in its direct-to-consumer channel, allowed the share of online channel to increase to 16% of our group revenue from approximately 15% in 2022. I look to 2023 as a very resilient year that, as said, close with the level of sales approaching 2022 when growing -- the growth was 12% compared to the prepandemic 2019. And if we look at our organic performance, also net of the business in the former GV chain, we grew also thanks to the positive exit to the year, with quarter 4 sales growth at constant exchange, which marked our best performer of 2023. At the operating level, the year was characterized by the significant improvement in gross margin. Also in this case, we were coming from the sizable improvement recorded in 2022 compared to the lowest level of roughly 50% in 2018. Last year, we invested the strong performance in those projects instrumental to the growth and solidity of the company in the long term, progressing with marketing investment to support our home brands and the new IT and digital system envisaging the business plan. We closed the year with an adjusted EBITDA margin just slightly below the 2022 level which was the best of the last 7 years. 2023 was above all, one in which we returned it to a positive cash generation, the first after many years, recording a positive free cash flow in each single quarter of the year with this leading to a lower net debt and a lower financial leverage. Let me stop here, and I leave it to Michele to go through the specific sales trend by geographical area and our economic and financial KPIs.

Thank you, Angelo, and good evening to all of you. Let me start from our top line. We closed the year with a total net sales of EUR 1,024.7 million, down 4.8% current exchange rates and 2.3% constant exchange rates compared to 2022. While our organic business, which represents the most significant indicator of our underlying performance, recorded a minor deviation of minus 1.3%, a level very close to the revenues recorded in the previous year despite the headwind represented by the well-known weakness of the North American market and by the decline of more than 60% of the business recorded in the former GrandVision chains following their integration into the EssilorLuxottica network. If we look at the performance of the business, also net of this latest effect, in 2023, the business grew by 1.7%, in particularly thanks to Carrera and Polaroid which made strong progress for the second consecutive year and Blenders, which was back to growth after the postpandemic normalization phase of sales in online channels. As far as our licensed brand are concerned, 2023 confirmed BOSS and Tommy Hilfiger's eyewear collection as a key point of reference in the industry. While among our most recent partnership, Carolina Herrera, which joined our license portfolio in 2022 and David Beckham launched for the very first time in eyewear in 2020, stood out for a double-digit growth and both have already become core brand for the group. As said, Q4 was a positive exit to the year with both North America and Europe back to growth. Net sales stood at EUR 239.6 million, down 2.4% at current exchange rates, but up 2% at constant exchange rates and 3.6% net of the former GrandVision chains. On our specific sales trend by geographical area. In 2023, revenues in North America amounted to EUR 452.9 million down 9% at current exchange rate, 6.4% at constant exchange rate and by a milder 3.7% at the organic level. The North America market started to more [indiscernible] weaken in Q4 2022 with customer in our traditional eyewear channels kicking off the new year with a prudent order attitude, with the greatest difficulties emerging during the second and third quarter of the year when also the sun season was not particularly favorable. As discussed during the year to suffer the most were the contemporary segment where our product offer is more Q2 and sunglasses due to the summer season, which was not particularly favorable. On the other hand, as far as our sports business was concerned, last year Smith's was penalized by the general significant destocking in the market of bike products following the strong growth during the pandemic year while it kept going nicely in its D2C channel, which today represent almost 40% of the brand's North America business. As highlighted by Angelo, in the United States, 2023 was a year of growth for Blenders, also following the successful collaboration launch in the last quarter with the American football icon, Coach Prime, and the visibility provided to the brand by the exclusive partnership with Oracle Red Bull Racing. And it was the growth of Blenders and Smith's in the respective D2C channel, which grow North America in positive territory in Q4, up 3% at constant exchange rates. If we just first look at the traditional channel of independent optician and chains, the eyewear business was more stable than in the previous quarter of the year, thanks to an easier comp base, while in Q4 net sales in physical store shops were affected by a weak start to the winter season. In Europe, Q4 sales were also back to positive performance, up 2.5% at constant exchange rates compared to the same quarter of 2022, while the progress net of the former GV chains accelerated from plus 1% in Q3 to roughly plus 6% in Q4. Very meaningful for us, Europe closed the year substantially in line with the strong growth sales recorded in 2022, precisely at minus 0.6% at constant exchange rate, while the organic performance also before the former GV chain stood to a growth of around 7%, achieved, thanks to the good progress recorded by the business in the main market of the area, in particular Italy and France, where the Group continued to enhance its commercial partnership and also thanks to state-of-the-art digital platform, namely You&Safilo. The year was also characterized by the continuous growth of more dynamic market of the region, in particular, Turkey, Hungary and Poland, where we have been investing in recent years through the creation of direct commercial operations. Moving to our emerging markets. '23 was a positive year for both Asia Pacific and the rest of the world, together reaching 15.6% of Group sales versus 14.3% they represented the year before. In the full year sales in Asia Pacific grew by 3.9% at current exchange rate and 9.1% at constant exchange rate. Also in the last quarter, plus 4.5% at constant exchange rates, thanks to the positive performance of the brands such as BOSS, Ports and Polaroid in China and Hong Kong, and the continuing strong development of Smith in both Australia and Japan. In the rest of world, revenues reached an important level of EUR 100 million, roughly 10% of our total business growing in the year by 3.9% at constant exchange rates, thanks to the meaningful double-digit growth posted in the year by India and the Middle Eastern market where, in particular, Carrera and Tommy Hilfiger, but also BOSS and David Beckham recorded significant progress, driving the upside. Last year was flattish in Latin America, mainly reflecting a difficult comp base for Brazil in Q4. The exit of the year was in fact mixed in the rest of the world, overall weakish at minus 6.6% at constant exchange rates, driven as said by more challenging quarterly dynamics in our second biggest Latin America market, while Middle East continued its growth trajectory. Turning to our economic performance. Our following comments refer to the adjusted results, excluding the cost incurred in the year for the nonrecurring activities, which were mainly related to the disposal of the Longarone plant, the fact at which partially fell also in Q4, as the deal was completed at the end of October. In Q4, we then booked nonrecurring cost for the termination of activities related to the exit of Jimmy Choo and for a write-down of some intangible assets related to Privé Revaux. The total of these nonrecurring costs were EUR 16 million at the gross profit level, EUR 29 million and EUR 42 million, respectively, at the EBITDA and EBIT level. Leaving these expenses aside, throughout the entire year, our just economic performance was characterized by 2 very distinctive dynamics. 2023 was certainly the year in which our gross margin nearly reached its all-time high, positive significant year-on-year improvement in each single quarter. This was a very meaningful achievement for us, reflecting some very clear drivers. In [indiscernible] and effective pricing policy implemented over the last 2 years with the main purpose of offsetting inflationary pressure, then we achieved higher efficiency in procurement activities, and we also benefited from the decline in transportation costs, which had most impacted the group in 2022. Q4 in particular, were also favored by a very positive channel mix, which reflected the positive performance we recorded in our direct-to-consumer business, as previously commented. In Q4, the adjusted gross margin was, in fact, the highest of the year, reaching 59.5% of sales, 280 basis points higher than the market achieved in Q4 2022, and bringing our full year gross margin close to the 59% level, precisely 58.7% of sales, 320 basis points higher than the 55.5% gross margin recorded in 2022. The other clear dynamic for us last year was the negative leverage on our operating expenses, which notwithstanding the top line increased by roughly 1.7% due to the high personnel costs following inflationary pressure and the peak of the investment in the group digital transformation and in the marketing activities that we intentionally continue to implement in order to execute the development of our home brands. More specifically, in Q4, it's the growth of our D2C business supported announcement of the gross margin. On the other hand, it drove a quite sizable increase of logistic costs to fulfill order deliveries. All in all, our adjusted EBITDA margin in Q4 stood at 6.9% or 40 basis points higher than in the same quarter of 2022. While 2023 adjusted EBITDA margin reached 9%, 40 bps of the peak we recorded in 2022, our highest of the last 7 years. Below the operating line, our full year group net results were burdened by the same 2 dynamics we have seen in the semiannual results, in particular, a pretty significant negative variation of explaining 90% of the decline compared to the year before due to the valuation of the put and call option of noncontrolling interest. As a reminder, while last year, we booked an income of EUR 31 million as a positive accounting effect resulting from the reduced liability on noncontrolling interest due to the revision of the related financial plan. This year, on the contrary, we booked a charge of around EUR 8 million in relation to the extension of the second and the third tranches of the put and call option in Blenders. In the year, we then recorded higher net financial charges from EUR 15.5 million to EUR 19.2 million mainly due to the increase in interest rates. All this brought our group adjusted net result to EUR 14 million from EUR 58.3 million in 2022. Concluding with our financial performance, thanks to a positive cash generation also in the fourth quarter equal to around EUR 30 million. We closed the year with a free cash flow of EUR 35.1 million before a EUR 6 million payment made in Q3 to exercise the first option on an additional 10% of Blender noncontrolling interest. This is our first free cash flow generation in many years. In 2023, cash flow from operating activities increased to EUR 47.7 million, thanks to EUR 21.5 million of cash generation at the working capital level, mainly driven by an effective management of inventories and a good cash collection, with the latter also supported by the performance of the direct-to-consumer business in Q4. The cash flow from investing activities was reported at EUR 2.7 million, and this is the result on one hand of EUR 13.3 million of capital expenditure, while on the other hand, of sales consideration for the disposal of the Longarone plant equal to approximately EUR 11 million. Let me add here that it's partially counterbalanced the total cash out of around EUR 16 million connected to the deal, which were mainly accounted for in the cash flow for operating activities before the change in working capital. As commented in the previous occasion, the total negative cash impact from the disposal of the Longarone amounted to around EUR 5 million. Finally, at the end of December, our Group net debt decreased to EUR 82.7 million, EUR 43.7 million pre-IFRS 16, corresponding to a financial leverage also pre-IFRIC SaaS of 0.5x. I stop here and I hand back to Angelo.

Thanks, Michele. I would like to conclude this presentation by highlighting that in 2023, our sustainability strategy also achieved another accomplishment through the presentation of our medium-term objectives, an official commitment, we took also in our Scope 1, 2 and 3 greenhouse gas reduction targets, which we decided to validate with the Science-Based Target initiative, receiving a positive response this February. This year, Safilo celebrate its first 90 years, an important anniversary, which will see us continuing to follow our inspiring principle, giving millions of people the possibility to see the world at its best every day. We look to the year with confidence, hoping that both our challenge and the opportunities arising from the continuous growth of our portfolio of home brands and core license will find their space in a more stable international scenario. We therefore continue to work, focused on our main objective, the growth and sustainability of our business in the long term. With this, I conclude the presentation and give back the line to the operator to open for Q&A.

[Operator Instructions] The first question is from Oriana Cardani of Intesa Sanpaolo.

The first one is on current trade. So can you give us an update on the trend that you see in this first 2 months of the year, with some details on what's happening in each region. And we know that March is the first significant month, but you can give us some impressions that you have regarding this beginning of March? And the second question is on the gross margin. So what is your expectation for the full year? And finally, we have a question on the price mix. What type of price/mix effect do you expect in 2024? And is there any difference between the first and the second part of the year?

Okay. Sorry, I have [indiscernible]. I will start with the current trading. As you were outlining, March is definitely the biggest month of the quarter and somehow represent the beginning of the season. But I mean, March is still a long way to finish. Said that, January and February, we see the European market, which continue to be positive. So we see somehow Europe which keeps going off the trend, which has been there the full 2023 and in quarter 4, where on the other side, North America was weakish in the physical eyewear store, where -- and -- but somehow in the -- when we read the American numbers, just need to remember the Jimmy Choo effect in the business in North America. So still, we don't see a significant rebound in North America, where on the other side, the sport has been suffering from a weak snow season in quarter 4. So somehow, let me say, we see a continuation of the sun trend from the trend that we have been reading in 2023, with only the remainder, as I said, that you need to keep into account always this Jimmy Choo effect that it will be the biggest effect is going to be in quarter 1, quarter 2, and then it will be easy in the rest of the year. So this is how our number should be. So it's not going to be a linear progression in the number that you will see in 2024.

Yes. Oriana, I'll take the other 2 questions. So on gross margin, I mean, clearly, our gross margin improvement this year is structural. I mean, driven by delivers that we have been describing in our presentation. So this year, the expectation is clearly to benefit from the greater efficiency of our industrial footprint, namely following the disposal of Longarone, as we commented before, this can give between 50, 100 basis points of improvement during the year. And of course, we continue also to have the pricing lever on our side to maintain a positive price mix effect. On the other hand, we also expect, especially in H1, a rise in inbound transport costs that should then ease eventually in the second half. We believe necessary to understand how these different topics will counterbalance each other, but definitely, the opportunity this year is to make some additional progress in our gross margin. On the question on price/mix, H1, H2, of course, we continue to see potentially a positive price/mix dynamics, of course, there will be some headwind and tailwind along the year. As we commented, I mean, Jimmy Choo will be a bit, let's say, on the negative side in H1 following the depletion of the inventory we currently have on hand. But on the other side, pricing will continue to be supportive, but no major difference other than this compared to -- I mean, between H1 and H2.

The next question is from Cedric Lecasble of Stifel.

I have actually -- I have 2. So first one on North America. Could you maybe update us on the weight of the sports category in North America after the stronger performance in '23? And maybe on the dynamics of the 2 buckets you have in North America between -- did the slow start for the season in Q4 translate into more sales in Q1 even if the overall snow season was poor. Did you see any -- should we expect an improvement -- sequential improvement because of this? And on the rest of the business, can you maybe tell us where your wholesale clients stand, especially on ordering, did they get rid of inventory? And when do you expect reordering from these clients? And the second one is on Europe. You mentioned and you said that GrandVision impact was offset through new partnerships. Could you maybe be a little more explicit on what you have achieved in '23? And should we expect an acceleration of these new relationships in '24?

Okay. I suggest that I will start from your last question and then I'll go to the other one. I mean, let's look to Europe. In Europe, let me say, we have been doing 3 things. First of all, improving dramatically the relationship with the customer. We have now our NPS score, we measure every year, the NPS score, which is the Net Promoter Score in Europe and we are now above 80%. So this is something that has been growing and keep growing up in the last 3 years. Obviously, this is independent of GV, but is a way to reinforce our relationship with all the optician. This is pillar #1. Pillar #2, without mentioning specific names, but you can imagine easily the name, with some of the top 3 French chain, we have been definitely enlarging our portfolio there in terms of shelf space and in terms of penetration in their distribution. In Germany, both in IPP and non-IPP, in some of the main German chains, again, I don't say the name, but I think you can imagine to whom I'm referring, we have definitely reinforced our presence with Carrera, with Polaroid, with BOSS, with Tommy. So definitely, mainly in the French area and the German area, on top of we have a great relationship with the companies, which have taken over some of the GV, ex GV chain, by share -- we've really reinforce our presence, and we have enlarged our share of shelves in -- for our -- all the main brand. So this is by share. And we see in 2023, and to be honest, we see the same trend in the beginning of 2024. So I would say that we will see the same trend in 2024 because it's really something structure on top of that our You&Safilo platform, I believe, really something which is becoming more and more unique and it's becoming really a competitive advantage toward the opticians. Just to take into account, today, we have more than 25,000 customer daily connected to our platform. So this is the answer on Europe. Second, there was the question on Smith, if I understood correctly, the line was not great, but Smith is a business which has different parts. We have been suffering -- in quarter 4 last year, we've been suffering on the snow bit because, as you know, the snow season in North America was really not there until beginning of the year. But on the other side, Smith, where we have done a big investment on the D2C, has been kept growing on the D2C for the full year and even growing faster in quarter 4. So Smith is in a very healthy position. From our numbers, we are gaining share. Hopefully, there are some headwinds, which is, one, has been the snow obviously. The other is bike where you now there is a huge promotion of stock in the market. But the brand is healthy. And if you take out the effect of the snow, we see that we are growing share there.

Just a small addition to get back to the specific question on the number. I mean sports more or less represents 30% of the total North America business and I lead to your answer on commenting on U.S...

On U.S. Here. I mean, first of all, let's start to say that the numbers included positive performance in quarter 4 in North America were mostly driven by strong D2C performance, both for Blenders and for Smith. Where in the physical eyewear channel, also if the comparison in quarter 4 was easier, we see that the performance were weakish. So these were quarter 4 and the first 2 months, again, to be honest, the real season hasn't started yet. In the first 2 months, we see a comparable trend with reference to North America.

Next question is from Cédric Rossi of Bryan Garnier.

Yes. So I have 3 questions. The first one is coming back on the rest of your home brand portfolio. Could you give us a sense of what you are expecting for Carrera and Polaroid, especially in Europe and in the U.S. So I've seen a strong reception of the Carrera, you showed during the [indiscernible]. So I was curious to have your view on what you are expecting for Carrera this year? My second -- my 2 other questions are on margins. So the first one is regarding the gross margin. So you had an impressive expansion in 2023. You have almost reached the 200 to 300 basis points you were guiding on during the Capital Market Day. So what kind of -- first of all, do you expect to increase a little bit this range going forward, now that you have divested Longarone? And the second question on the margins is regarding the labor inflation. And what kind of budget you are expecting in terms of labor inflation for '24?

Okay. I'll start with the question on Carrera and Polaroid. I mean, I'd just like to have remind it briefly. I mean these 2 brands are very different in terms of positioning and in terms also of priority and growth in terms of geography. So Polaroid U.S. is -- we are not fundamentally there. So Polaroid in terms of geography is Europe and is Asia, where Carrera is more Europe, North America, Latin America, not so much in India. So this is just, if you clarify on the geography. In terms of growth for 2024, to be honest, my position is that we will see a growth on Carrera. We see the first number are very positive for 3 reasons: one, Carrera now has the clear positioning; second, we have built -- we are building the sport leg with Carrera Ducati, which keeps going well. And now we have the women leg, as you know, you saw in the middle, we are launching Carrera Women. And the first results are really good. So if I look to 2024, I'd say that between Carrera and Polaroid, I would expect both brands will grow, but I will expect a higher growth on Carrera.

I will take the other 2 questions. So on gross margin, we have commented a bit before, the key drivers. Of course, looking forward, I would say, we have already reached a solid and sustainable level. But actually, we can further improve. I would consider a 60% gross margin as our ultimate fiscal target in the medium term. When it comes to labor inflation, I mean, definitely, labor inflation will continue to be a headwind also in 2024, but at a more moderate rate compared to what we have seen in 2023. And for sure, our pricing actions will again more than counterbalance an inflationary pressure that we might see along the way in 2024.

The next question is from Domenico Ghilotti of Equita.

I will address 3 topics: first, your capital intensity. So if I'm not wrong, so if I exclude the disposal of Longarone, we're running with something like EUR 13 million CapEx. I wonder if you stick to this number also for 2024. So if the range is really EUR 10 million to EUR 15 million. And the second question, I saw that inventories were significantly down at the end of the year. So a very good achievement. So in this new level and working capital in general, sustainable? And last question on the channel mix, online in particular. So do you expect online so you are commenting for sure on North America? And do you expect 2024 to be a growth year for online or you had some very specific contribution in the Q4 that was, say, not repeatable?

I will start with the last one. Obviously, we answered the question upside down, just to enjoy. Going on the D2C, I mean, the start of the year is positive. What we see the numbers, obviously, I mean, we are just at the beginning of the year. But to be honest, we see positive number. So I am expecting growth obviously not -- I mean, not at the rate that we are getting used for the last 2 years. But the first time both for Smith and Blenders are positive, obviously, we see a [ judge ] a little bit closer to the season. But the first [indiscernible] so I think that at a lower pace than compared to last year, but we expect that D2C will grow. And with -- largely with you question also to the IPP. I mean, we see the IPP in Europe, which are picking up compared to a difficult 2023. So overall, I think there should be growth there, obviously not at such high rate and pace as it has been in 2023. Michele?

Yes. On the other 2 questions, so capital interest is definitely also following the sale of Longarone. Our CapEx will continue to be more or less limited the demand that we have also seen in 2023. I would say a fair assumption for the medium term would be our CapEx around EUR 15 million. In terms of inventory, as we said, we have reached a pretty good level. We have been improving by more than EUR 20 million this year. I would say, if we look at inventory from -- I mean, from a coverage standpoint, from a business standpoint, it's fair to assume that we should be able to keep and to hold this -- I mean, these days on inventory also going forward. We have not done anything that is not structural this year in terms of initiatives to contain and control inventory.

Okay. If I may follow up also on -- so I saw a pickup in financial charges. You mentioned interest rates going up. So the run rate was more -- second half or more in the, say, EUR 10 million, EUR 11 million in the semester. So is it fair to assume that this is the run rate and the current rate?

Yes, correct. I mean, of course, in 2023 versus 2022, the increase is driven by higher interest rates. For next year, we do expect, let's say, first half very much comparable to the second half of 2023, while we should start seeing some material benefit in second half year, following potentially a reduction on the interest rates.

Okay. Last question really on reinvestment of the gross margin improvement. So I understood that you are seeing really some structural upside on gross margin. How much are you willing to reinvest into growth drivers?

I would say, then I will leave also to Angelo to comment on interest of marketing. In 2023, we have reached already a sufficient level to support the growth behind our own brand. So I don't expect in 2024 and 2025, to reinvest further, I mean, more than what we have invested already in 2023.

Yes, I'm fully on that. I think that we have the right amount of investment in marketing. The issue now is more to optimize what we have been investing because, as you know, we have accelerated our investment behind our home brand and behind the priority brands. So now I don't see that we need more money. We need to optimize, as we are doing, what we do with the money. But I don't see -- I think that the percentage is sufficient to keep to keep nurturing the growth.

[Operator Instructions] We have a follow-up question from Cedric Lecasble of Stifel.

Yes, if I may. On your absolute level of free cash flow in '23, which was effectively positive and nicely positive. Considering the moving parts, so -- would you agree to say that this level could be reproduced in '24 if we assume no buildup in inventory if we assume kind of stable CapEx, is there any reason as of the higher contribution from your operating profit to assume that free cash flow will be very different this year than last year?

Let's say, I mean, our medium-term business plan and this is a continuous improvement, of course, in our cash generation, especially in cash conversion. I mean, the results recorded in 2023, definitely has been absolutely structural in terms of key driver behind the free cash flow generation. I mean, the business did not grow in 2023, and this clearly limited our working capital needs. Of course, in the context of growing top line compared to 2023, we would expect some more absorption from net working capital level. But other than this, I would say, the results achieved in 2023, also net of the one-off effect we recorded should be a pretty good base as an assumption for 2024.

But did you expect to grow somewhat your profitability, with pricing offsetting wages and gross margin improving slightly from a high base or you might have some offsets between the 2?

Yes. That's the thing we will be in a -- I would say, the tailwind will more than offset and we are currently seeing in the total profit, Yes.

Gentlemen, there are no more questions registered at this time.

Okay. So thanks very much, thanks for your time. Thanks for your questions. Thank you very much. Bye-bye.

Thanks. Thanks very much. Bye-bye.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.