Lanvin Group Holdings Ltd (LANV) 2024 Q4 法說會逐字稿

Thank you for joining us, and welcome to the Lanvin Group's fiscal year 2023 revenue results conference call. (Operator Instructions) Please note this event is being recorded and now please take a moment to review the disclaimers during this presentation. The company will be making certain forward-looking statements, including but not limited to the future performance and the industry outlook. Forward-looking statements are inherently subject to risks, uncertainties and other factors, and they are not guarantees of performance.

For today's presentation, I would like to introduce Eric Chan, the CEO of Lanvin Group, and David Chan, Executive President and CFO of Lanvin Group.

With that, I would now like to turn it over to Eric to start the presentation.

Thank you all for joining us today. I'm Eric Chan, the CEO of Lanvin Group. I would like to take a minute to introduce our brands. Lanvin is a leader in French fashion with a rich heritage dating back over a century. Wolford is the premier in iconic skinwear combining manufacturing technology with luxury. Sergio Rossi is a trendsetter in design and leverages it's manufacturing capabilities to develop the well, renowned shoes and accessories. St. John is the definition of American luxury and is continually redefining the category to meet the needs of an evolving global and sophisticated consumer.

Finally, Caruso is the embodiment of Italian style and manufacturing. It is PLS in the sophisticated more than adequates. Lanvin Group continues to improve its financial results and drive operational initiative highlighted prior to our public offering. While you may already know our brands, I want to introduce them to you because the characterizations of these brands have not changed. I want to emphasize these because it is a testament to the investments and ingenuity of our brands and our management teams. 2023 was a year of macro economic headwinds and global challenges. Lanvin Group showed tremendous resonance and continued on this growth trajectory.

2023 was also a year that our group and our brand proved that activity to manage adversity through adverse market condition and execute their strategy. A softening second half. So the luxury fashion industry in the position, it has not been in quite some time. Therefore, I am pleased to report that Lanvin Group managed to maintain growth for the year. And I'm confident in our management's ability to continue to build upon the foundation and we have built on our path to profitability. Our revenue for the full year 2023 land at EUR426 million, a 1% increase versus 2022. And as we continue to implement the growth and operational initiatives. We remain optimistic for 2024 and beyond. With that, I would like to turn it over to our Executive President, David Chan, to go through some of the brand level details.

Thank you, Eric. Thank you all for joining us today. I'm David Chan, Executive President and CFO of Lanvin Group. I will be providing you with some more details on Lanvin Group's revenue results and look forward to additional discussion regarding our performance.

First of all, I wanted to touch on some key highlights. The group grew its revenue again in 2023. We did see a decrease in revenue from the first half to second half of the year, which align with a general softening of the macroeconomics. EMEA accounted for 47% of revenue, 47% of revenues in 2023. North America accounted for 35% and APAC contributed 18%. Europe show a small decline year over year, while North America showed a small increase. APAC, as a region grew 8% with Greater China growing approximately the same amount. On a channel basis, the group saw a slight decrease in DTC and wholesale for the year. The group continues to execute strategic initiatives, including refining it's wholesale network, rationalizing its store footprint, expanding e-commerce. We made significant progress on all three fronts in 2023.

Notably, e-commerce grew by 3%. Additionally, we reduced our DOS base by 12 stores, yet maintain flat like-for-like revenue growth. Overall, despite increasingly softening condition in the second half of 2023, the group maintained its growth trend. Furthermore, we achieved these results by managing and creative transition at our flagship brand Lanvin. I credit our brand management teams for their resilience and ingenuity and our Group team for sustained support throughout 2023.

Looking forward to 2024, we much like the market anticipate macroeconomic uncertainty.

However, I believe our growth will be driven by regional opportunities that we will capitalize on, including a softer than expected landing for the US economy, the growing Middle East market, and market share expansion throughout the APAC region. 2023 was a transitional year in many respects. We refined our distribution channels, we continued to improve our operations and cost structure, and we established our creative direction at our flagship brand.

I believe we build a foundation for the next five years. We expect continued progress for all our brands with three of our brands tracking towards adjusted EBITDA breakeven in 2024, and we anticipate a growth rate which achieved cash flow breakeven by 2025.

Now I'd like to discuss the brand level results. Lanvin generated revenues of EUR112 million in 2023 compared to 220 million in 2022, representing a decline of 7%, while the brand finished the first half with revenue down 11%, a stronger second half, resulting in overall any decline of 7%. Furthermore, the second half revenue improved despite softening market conditions. 2023 was a transitional year for the brand with a change in creative direction. During the year, Lanvin established Lab as well as a dedicated leather goods and assessed routine.

Successful campaigns and product launches, including a first Lanvin capsule in November, provided a boost in the second half and the window to see what is to come with the completion of the creative transition. Wholesale revenue declined by 23%, driven by challenges for wholesalers and a softening retail market combined with a lower orders as wholesaler work-down excesses inventory purchased from overall market in 2022. The DTC channel decreased at a more moderate 5%, with e-commerce remained flat. EMEA, Lanvin's largest geographic region, saw a decline of 16%, while North America was relatively flat. The APAC region showed a growth of 5%. For 2024, with a new Artistic Director in place, the brand will look to expand regionally, in particular, the North America and the Middle East as well. It has as well has continued expansion of its product categories and assortment breadth to further drive demographic expansion and with emphasis on higher-margin leather goods and accessories.

Moving onto Wolford, in 2023, the brand continues expansion of a leisure wear and leggings further diversifying its product mix. For the full year 2023, Wolford revenue grew 1% from $126 million for 2022 to EUR127 million. APAC saw growth of 32% with Greater China being the largest contributor. EMEA saw a slight decline while North America grew 2% on a constant currency basis. Wholesale revenue increased by 12%, benefiting from the direction of Nao Takekoshi, Artistic Director, who joined Wolford in 2023 and the acquisition of new wholesale clients. 2024's focus will be on continued optimization of Wolford's retail network, digital expansion, and profit development.

One thing I'd like to highlight is that the highly anticipated W.O.W. leggings will be installed this quarter. Now I'd like to discuss Sergio Rossi. 2023 revenue decreased by 4% to EUR60 million compared to EUR62 million in 2022. Regionally, the brand experienced 10% growth in Greater China, driven by a focus on the DTC channel and marketing around it as well as capitalizing on post pandemic momentum. Additionally, the focus on DTC drove like-for-like revenue to increase by 6% for it's store network. Overall, wholesale revenue decreased by 12%, mainly driven by lower third-party production activity. But as a sign of strength in APAC region, Japan wholesale revenue increased 13%. 2023 highlights includes the successful relaunch of iconic Mermaid collection and the continued popularity of the core sr1 product offering, which became a point of increasing emphasis for the brand throughout the year. 2024 priorities will be to focus on channel development, including boosting DTC and further revitalizing e-commerce channels, while continuing to reset the brand DNA and strengthen its unique market position. Additional focus will be on further streamlining supply chain and industrial efficiency and tailoring product capsules to accelerate the brand's speed to market.

Moving on to St. John, St. John's 2023 revenue were EUR90 million compared to EUR86 million for the full year 2022, representing a growth of 5%. St. John continued to build it's DTC channel and revenue grew by 7%. Furthermore, the e-commerce channel, which was an area of focus, grew by 15%. Wholesale remained flat as the brand continues to refine its wholesale partnerships. Regionally, North America maintained a growth of 3% and APAC grew with Greater China growing 39%. In EMEA, a relatively small market for St. John revenue also increased. The company spent 2023 refining and expanding its product mix, which resulted in growth and increased brand awareness. The brand also successfully optimized it's retail experience, which drove growth for the brand in all its regions. St. John posted 13% growth on a like-for-like basis for store footprint.

Furthermore, key collaboration with Karla Welch and Shonda Rhimes provided brand heat and attract new clients and a broader demographic. St. John's 2024 priorities include further diversifying product offerings and improving its e-commerce experience as well as re-alignment on its global supply chain to improve operating efficiency. Finally, I'd like to discuss Caruso's results. Caruso had a strong growth in with 2023 revenue coming in at about EUR40 million compared to EUR31 million for the full year 2022, representing a growth of 30%. The brand has nearly doubled its revenue in two years. Thanks to thanks to its people, elegance approach to high end tailoring and its unmatched quality and price ratio. Caruso's revenue were mainly driven by its B2B Maison's business, which grew by double digit, benefiting from a strong client base as well as acquisition of additional marquee clients. The growth was made possible by the expansion of the company's production capacity with important addition to a specialized workforce. Regionally, EMEA cruises core market grew by 46%. And North America revenue decreased due to a softer demand from OEM clients. In 2024, the brand expects to see a further growth by market share gains by enhancing Maison measure services and focusing on the orders.

With that, I'd like to turn it back to Eric for final remarks.

Thank you, David. I would like to highlight some key takeaways from 2023. First, our success in 2023 was in part due to our effort to drive the brand heat. Not only did we have a tremendously successful first, long-term net capture with (inaudible), the Grammy award-winning artist beyond what Lanvin's onshore. Lanvin's iconic ballerina flats were re-launched and were a smash hit. Wolford's campaign of Greystone, which was well received. St. John's collaboration with Karla Welch provide a significant uplift and numerous media will talk about the resurgence of the brands, and I could go on my on and on.

Second is our emphasize on the DTC channel to yield solid results for e-commerce as well as the store level like-for-like revenue as well as additionally, we remained vigilant on our path to profitability. I believe we have built the foundation for our brand and our group for the next five years and there is significant operational leverage that we can capitalize on by increasing our scale.

So lastly, in 2023, we set the table for our future expansion by rationalizing our distribution channels. And we look for capitalize our growth areas, including North America and the Middle East. For 2024, the strategy remains the same, and our goal remains the same to achieve the profitability. We have completed our first year as a public company having take many of the necessary steps to pace our future. It has taken time and effort and we made great progress in 2023. But as any great customer knows, we still have work to do. So with that said, on behalf of the entire money management team, I would like to thank you for listening to this presentation, and we look forward to 2024 and the year after dragon. Thank you.

Thank you. We'll now begin the question-and-answer session. (Operator Instructions) Tracy Kogan with Citi.

Hey, thank you, everyone. My first question was on the Lanvin brand. I was just wondering if you could talk about the change in creative direction you on you made in the second half and how that improved results? When we might see the next Lanvin Lab and how we should think about the level of newness in 2024 in terms of new collections or new products relative to 2023? Thanks.

Sure. Maybe I could give you a little color from a number perspective and Eric feel free to chime in after. Thanks, Tracy, for the question so. If you can imagine, we actually did quite a bit of a, I would say, steps after the credit-risk transition in the second half or was it first half of 2023. I'm not -- but we obviously, highlighted to all the investor about the future collection of -- future collaboration for Lanvin Lab, but also don't forget, we also have the shoe, Surgeon before that and we have a ballerina launch before that. And then we have a full winter kind of presentation in Paris, was very successful. So almost every month or every other month, we have some newness coming to the market.

So as we expect that sort of momentum is going to come, keep going into 2024, especially if you look at the future, the drop, I think we are dividing into like multiple drops for the future collaboration. There was a very small drop into those kind of the Q4 timeframe. But we do see -- we do expect Q1 will be a major drop to drop three into the market, and that will also have some pretty exciting I would say, collaboration activity happening in in the second half of 2024. So maybe Eric can comment on the other creative collaboration as well.

I mean, this is Eric. We are going to appoint the Artistic Director for region. I mean, along that direction on what the new artistic director, we are bringing back the elegance of the Lanvin brand, and we will approach the minutes of the brand. I mean, in terms of the ready-to-wear and at the same time, we also developed very attractive and very popular leather goods and accessories. And of course, I mean, for the shoes and then which used to be -- I mean, cups, we have very strong performance for the cups in the past years but and then we could continue to develop the shoes. So in terms of the Lanvin Lab, we will continue to launch new collaborations after the future. The Lanvin Lab is very much for us as a collaboration project for capsules. And then the main collection remains with the artistic director, which we're going to announce very soon.

Thank you. And where did you end the year at the Lanvin brand, where accessories and small leather goods as a percent of sales in 2023, say, versus the prior year?

Tracy, we haven't really disclosed that right now, but I think we probably will make some disclosure when we hit the annual reports in April.

Thank you, guys.

Thank you, Tracy.

Oliver Shan, TD Cowen.

Hey, Eric and David. We were curious about your thoughts on what's happening in China in terms of traffic and or mainland consumption relative to tourism? And also what your outlook incorporates in terms of what you're seeing there? And also wholesale have been a tougher channel in general, the wholesale network.

And what should we be focused on? Has it been worse than you expected or in line? And then the US, it sounded like you're encouraged yet cautiously optimistic on the softer landing prospects. What are you seeing in the US market as well? That would all be helpful. Thank you.

Maybe I can also give you a little bit more on the financial perspective. I thank you again, Oliver, it's good to hear your voice again. So the Greater China market definitely has some softness, I would say, in the second half of -- especially in second half of 2023. I think this is no surprise, not only for our brands but for a lot of other brands. But we did find a way I think we grew about 8%, we think -- when we think about Greater China I know there's a lot of macro and it is what we answered before. There's a lot of macro headwinds kind of coming or into 2023.

That's probably going to go into 2020 for a little bit. We don't really have that level of exposure to these headline risk. Because, again, if you look at a brand of Lanvin, I mean, what do we do? And that's on 2023, we have only 36 stores, 35 stores. We were barely just hitting the Tier 1 city in China. So we do see just given us a pure size of the company or the brand, we still have a lot of runway to do for China. But for Greater China, I think now becomes -- to become the area that I think we have to react with speed that we can ability -- we have very quickly the trends because the trends are changing, allow us to really capitalize what is going to be very hard in the next couple of quarters.

So maybe Eric can give his take as well on the Asia opportunities.

So quick to China, I mean, I think, we already explained that we have been experiencing some headwinds. But in overall, in terms of the midterm and long term, we're still optimistic towards the Chinese economy. And we are actually seeing on maybe, of course, we cannot make it for certain, but I mean we are all seeing that maybe, a improvement from the second half of this year.

In terms of the whole Asia, we are seeing, I mean, the Japan market and also to Southeast Asia is improving a lot. And it is also on our brands and the increase in Lanvin brand, the Wolford, Sergio Rossi, we are started penetrating into these market, particularly Sergio Rossi entries performing further well in the Japan market. If you look at in [India], in terms of the Middle East, we also see there's opportunity over there because that is also why Lanvin, we have opened our first store in Riyadh, in Saudi Arabia in December last year. So actually, we've seen that, despite there's macroeconomic headwinds, and now, of course, to the global market, we still see opportunities.

And as a result of market entry, we can still penetrate. So in terms of the 2024, that's why we are still optimistic to watch the growth and also the brand expansion. In terms of channels, other than brick and mortar stores entering, we invest a lot to develop our online channels and omni-channels as well. So the online business will be also one of our highlights in this year as well. Thank you, Oliver Shang.

Thank you, Eric. And then Oliver, just kind of going back to your other question about North American wholesale, I think we are -- we definitely see a little softness on wholesale channel. I think there's a lot of restructuring going on in the wholesale market, particularly in North America, but we do see, very similar to China, I think our scale is pretty small.

We're able to, I would say, maintained North American growth about relatively flat, right? If it's like 1.4%-ish, 1.5%-ish as a group. And then if we look at dissect that into brands for North America, we are still relatively flat, what it does for Lanvin. And so I think we just have to find it for wholesalers. I think they are also finding ways to attract traffic into their stores and then what we need to work with in 2024, in just finding ways to have different kind of products very specific to the wholesale market to work with them, how do we boost to kind of sell to our efficiencies. So that's kind of how we feel. We still do like North America. We still have a pretty good eye on that market.

Thank you. On the brands, specifically, a timeless newness and elevation has been a theme at Lanvin and what are your thoughts in terms of pricing and inventory management? What should we know about as you're thinking about your strategy and creative direction as well as the product assortment and how that may impact overall pricing? Walford has been a very resilient and important brand as well.

Was curious on the product outlook and which products may be the material drivers for continued innovation at Wolford. And then St. John's is clearly iconic. Just a question on how you're viewing the St. John's customer particularly interested in and what your thoughts are balancing new, younger customers relative to keeping your existing? Thank you.

Eric, you want me to take that, real quick?

Yes. You go ahead. I'll answer that again.

Yeah, sure. I think in terms of pricing and then versus in our inventory strategy, I think we are trying to do a be a little bit more and we kind of have a better management into an inventory, if you can see a shift in terms of our inventory accessories versus ready-to-wear as a whole, especially for brand Lanvin, we have shifted quite significantly for the past a couple of years. So the focus, like Eric mentioned, is going to be focusing on accessories in the future what is a shoe wear as well as in leather goods. So that will not only help on kind of the pricing strategy that we have and also the inventory management. But we don't see there will be a significant deviation in terms of our pricing strategy like rest of the brands. We obviously don't -- we don't follow kind of what we have are very closely with our competitors and then I think, Lanvin in particular, right in the range of that being a luxury peer group. So I think our pricing strategy is going to be very, very consistent.

For Wolford, as I mentioned in the transcript, the biggest focus this year is going to be the W.O.W. leggings, right. If you haven't seen it, I think the first quarter drop for the legging, but that was a complete reshape and restructure of the Wolford, EMEA, I would say, a holstery business to a legging business. This is something we're very excited to see in 2024. St. John customers, you can see just from the e-commerce growth, we were able to grow 15% and then our revenues to able to grow in the same kind of almost a single market for St. John.

We're not getting much younger customer, I would say, but we're definitely getting a different set of demographic for the St. John customer, especially bringing back that iconic wear like, you have now a complete set of, I would say several wear with that, but that's not only tailored to kind of evening. We have a day wear, we have a basically whole package. So that's kind of the way that we attract. Even St. John is predominantly a ready-to-wear company, but that's how we're able to attract a different demographic which we see in the numbers quite a bit. Eric, do you have a -- please feel free to chime in.

Yes. In terms of the pricing strategies, we put a lot of effort into delivering the value for money. So we definitely believe to remain the quality. We make the best possible products for our customers, but at the same time to be able to maintain the value for money. So it is always our intention to keep what the customer to get what -- the best value what they get. So we have no intention to increasing the price continuously on. But at the same time, we maintain the best quality out of that.

And in terms of the John pricing, we're also trying to minimize the pricing gap. Between regionals and you don't -- again to give the best value for money for a different part of the work in terms of the assortment and it goes into different regions, there's a different demand. For example, the domestic was actually the best sellers in the Asian market, in particular in the China market or in the Southeast Asia market. So we've seen that actually we were delivering very strong products to cater for the regional demands.

In terms of St. John, we are actually driving on first strong products that is human's power. So we believe actually to develop products in that direction actually automate, I mean to be able to attract that customer, but also at the same time for the customer, who are looking for the best wear, and the best design, and the best pricing.

Thank you.

Thank you. Best regards.

Thank you.

[Leeway] Hu, CICC.

Thank you, Eric and David. This Leeway from CICC. To me, it is very good results already that you have earned in this challenging environment. So I have two questions. The first one is if we look at the performance by brand, relatively St. John and Caruso has outperformed. I'm just wondering to what extent is the success due to the back-to-office demand for formal wear and to what extent is more idiosyncratic on something we have done differently for St. John and Caruso? So that's my first question, and I'll ask the second one later.

Okay. Eric, you want to take this one?

Yeah. I think St. John is in a different market, have been using St. John. At the moment, most of our business are much focused in the North America market.

St. John, actually, I have already built a very strong foundation and phasing of both our (inaudible) market. This year, actually, we are also fine-tuning the design. And also, of course, at the same time, we have upgraded, uplifted structure in terms of the cost structure as well. So we believe actually St. John achieve a good result for 2023. Caruso, I'm very encouraged, because it has very strong results in terms of the quality. That's why we are able to produce some of the best menswear in the market. And not only to see the market, the Caruso brand itself, but it also to the 2B market, I mean, which we have a strong clienteles, a strong portfolio of clients that are trading that we are able to produce on the suits, the quality of the suite for them and those suits are selling for a while. And that's why we have a very stable orders coming from these clients. So we'll see whether there's any compliment from them.

(multiple speakers).

Leeway, you have a question?

Yeah. Could you hear me?

Yes.

Perfect. Thank you. So my second question is on the margin. As many of your peers caution that the cost to compete in the industry has increased significantly, it is more expensive to have the best store location and there's more competition on the events front and also on the spending. So I wonder how that industrial line pressure would impact our path to profitability?

So does it mean that it will be more conservative or are we going to do something differently to still meet the timeline for EBITDA and also for the cash positive? Thank you.

Yeah, thank you. Thank you, Leeway for the question. I think yes, I think to some extent it is more costly to compete in the market that's happening year over year. But as we have -- I think our model is, given our size and the history of our company, I think we have really built a model that to continue rationalizing our stores, right? So if you think about in 2023, we think we have a net change of 12 stores that we have, we are actually reducing from year over year. So especially for Wolford, we have a lot of stores for Wolford. But just given the brand is trying to elevate, it's kind of a presence. So the store needs to be also elevated.

So for us, it's more looking at not so much on how much rent or kind of per square foot we're trying to compete with the market really is the unit economics makes sense at a location. So we're rather trying to rationalizing our storefront. If you look at our DTC kind of revenue, we actually have a positive kind of momentum, even with a net change of store counts. So that's something we are pretty proud of and we'll continue to do that. We've done that in first half and would have done that in the second half in 2022. I think, we, in the next, I'll say, so on, we will continue to do that. And then on the as long as we feel like we have introduced the white space, right, square footage and we are able to get the right unit economics. Then I think our pathway to profitability, you know, is very much in line, right? We still, I think, we mentioned we are trying to get to cash breakeven by 2024 or 2025. So that's what we're tracking very nicely.

Thank you very much, David and Eric, best of luck.

Thank you.

Thank you.

Thank you for attending today's presentation. Our Q&A session is concluded to get a lot of time. Thank you. You may now disconnect.