Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Achieved the highest quarterly revenue in company history, driven by 19% revenue growth in constant currency.
- Strong performance in B2B business with 23% growth, indicating robust demand from wholesale partners.
- Digital business continues to perform well with double-digit growth and a 36% increase in membership year over year.
- Significant momentum in new product categories, particularly closed-toe silhouettes, which grew more than double the rate of the overall brand.
- Strong cash flow generation, with EUR281 million in operating cash flow and a net leverage ratio of 2.1x, on track to reach 2x by year-end.
Negative Points
- Gross profit margin down 220 basis points year over year, impacted by capacity expansion and shift in mix from D2C to B2B.
- Adjusted EBITDA margin down 140 basis points from the prior year, affected by temporary and one-time items.
- Ongoing capacity expansion causing a temporary margin drag of 150 basis points for the fiscal year.
- Some regions experienced weather-related impacts, particularly affecting DTC business during rainy weeks.
- Challenges in balancing inventory and meeting demand across different channels, leading to occasional stockouts.
Q & A Highlights
Q: Oliver, could you speak to how units in like-for-like ASP performed versus your expectations? The revenue shows strong customer demand, but can you help us understand the channel nuances?
A: Hi, Simeon. Our units sold were very strong, and like-for-like ASP was up. With a higher B2B mix, we hit our revenue growth expectations and saw improved margins. Our B2B business is very profitable, with higher EBITDA margins than our D2C business. We haven't seen any consumer spending softness; we are selling more units at higher ASP and continue to grow and take share.
Q: Erik, you ended the quarter with over EUR400 million in cash and generated EUR229 million of free cash flow. How should we think about the use of cash in the future?
A: Thanks, Laurent. The majority of large investments are behind us, and we will continue to reduce our leverage. Our goal is to have no debt, and we recently notified banks to pay down another $100 million. We will use free cash flow to reduce debt and invest in the business, including building out own shops and expanding factories if needed.
Q: Can you shed light on what you're seeing with your US consumer? How did trends progress in the quarter, and any color on quarter-to-date trends?
A: We see increasing consumer demand for the brand. Despite the challenging macro environment, consumers are making intentional purchases. Demand continues to escalate, and our sell-throughs and metrics in every wholesale partner are strong outliers compared to the overall market.
Q: Could you talk about your sell-through within the B2B business and compare that to how each region performed? Also, what are the traffic versus ticket trends within the Americas DTC channel?
A: We are a sell-through, not a sell-in company, and our sell-throughs were ahead of our actual sell-in percent, meaning our stock-to-sales ratios are very healthy. Traffic continues to be strong on our own direct-to-consumer website, and our membership was up 30% year-on-year. Those members tend to spend 25% more.
Q: Can you update us on the factory capacity? Is it a constraint on your ability to deliver units to the marketplace?
A: We are pleased with our capacity expansion so far and are still ramping up. We manage production closely and will not compromise on engineered distribution or scarcity. We expect a full year margin drag of 150 basis points due to capacity expansion, with better absorption in '25 and full absorption by Q3 '26.
Q: Could you elaborate on current demand trends for the brand globally and demand signals from your wholesale partners?
A: Demand is very strong globally, and we are confident in our order book for the next year. We had some weather issues affecting DTC business, but overall, demand is high, and consumers are happy with the brand. Our activations and presentations in wholesale doors have been well received, and we see strong growth ahead.
Q: Can you provide updated thoughts on pricing actions for the 2025 products and trends in other product adjacencies?
A: New product introductions have been encouraging across all categories. We introduced new sandals, clogs, and healthcare products, all met with strong responses. Our growth in leather has been twice the rate of synthetic products, and retailers are expanding assortments to meet demand.
Q: Can you talk about Europe, particularly with the wholesale transformation? What are you seeing with ASPs and consumer sensitivity to price increases?
A: We don't see any slowdown in consumer demand, and price sensitivity is minimal. The price increases we executed in '25 have had no impact. Demand is strong across all price points, and consumers are trading up with us.
Q: Can you give details on channel sales by geography, especially in the Americas?
A: We can't share this information, but our business model is unique, and we are more focused on meeting consumer demand wherever they are purchasing. Our B2B model is very healthy, and we maintain relative scarcity in the market.
Q: What is the percentage of scarcity you're currently running, and what is the swing between gross margin and SG&A by channel?
A: We don't have a finite measure of demand, but it's not close to being met. Regarding SG&A, we had a positive EBITDA effect of 30 bps according to our channel mix versus prior year, with a 100 bps negative effect on gross margin.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
