Lanvin Group Holdings Limited (NYSE:LANV) 2023 Sales/ Trading Statement Call February 21, 2024 8:00 AM ET

Company Participants

Eric Chan - Chief Executive Officer

David Chan - Executive President & Chief Financial Officer,

Conference Call Participants

Tracy Kogan - Citi

Oliver Chen - TD Cowen

Liwei Hou - CICC

Operator

Thank you for joining us, and welcome to the Lanvin Group's Fiscal year 2023 Revenue Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.

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.

Eric Chan

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. Wolford is a leader in French fashion with a very rich heritage dating back over a century. Wolford is the pioneer in iconic skin wear, combining manufacturing technology with luxury. Sergio Rossi is a trendsetter in design and leverages its manufacturing capabilities to develop the well-renowned shoes and also accessories. St. John is the definition of American luxury and is continually will be defining the category to meet the leaps of an evolving global and sophisticated consumer. Finally, Caruso is the embodiment of Italian style and manufacturing. It is peerless in a sophisticated modern etiquettes.

Lanvin Group continues to improve its financial results and drive operational initiatives outlined prior to our public offering. While you may already know our brands, I want to reintroduce them to you because the characterizations of these brands have not changed. I want to emphasize this because it is a testament to the residents and in general of our brands and our management teams.

2023 was a year of macroeconomic headwinds and global challenges. Lanvin Group showed tremendous resonance and continue on its growth trajectory. 2023 was also a year that our group and our bank proved their ability to manage adversity through adverse market conditions and execute their strategy.

A softening second half saw the luxury fashion industry in a 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 lands at €426 million, a 1% increase versus 2020, 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.

David Chan

Thank you, Eric. Thank you all for joining us today. I'm David Chan, the Executive President and CFO of Lanvin Group. I'll 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 the second half of the year, which aligned with the general softening of the macroeconomics. EMEA accounted for 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 show 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 D2C and wholesale for the year. The group continues to execute strategic initiatives, including refining its wholesale network, rationalizing its store for print and 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 maintained a 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 a 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 lending 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 which achieves cash flow breakeven by 2025.

Now I'd like to discuss the brand-level results. Lanvin generated revenues of €112 million in 2023, compared to €120 million in 2022, representing a decline of 7%. While the brand finished the first half with revenue down 11%, a stronger second half resulted in an overall annual 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 the Lanvin Lab, as well as a dedicated letter goods and accessory team. Multiple campaigns and product launches, including the first Lanvin Lab capsule in November, provided a boost in the second half and a window to see what is to come with the completion of the creative transition.

Wholesale revenue declined by 23%, driven by challenges for wholesalers in a softening retail market, combined with the lower orders as wholesalers worked out excessive inventory purchased from overall market in 2022. The D2C 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 artist director in place, the brand will look to expand regionally, in particular the North America and the Middle East as well as continued its expansion of its product categories and assortment breadth to further drive demographic expansion and with emphasis on higher-margin letter goods and accessories.

Moving on to Wolford. In 2023, the brand continued its 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 €127 million. APAC saw a 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 now, Nao Takekoshi, the Artistic Director would join Wolford in 2023 and the acquisition of new wholesale clients.

2024 focus will be on continued optimization of Wolford's retail network, digital expansion and profit development. One thing I'd like to highlight as an aside is the highly anticipated W.O.W. leggings will be in store this quarter.

Now, I'd like to discuss Sergio Rossi. 2023 revenue decreased by 4% to €60 million compared to €62 million in 2022. Regionally, the brand experienced 10% growth in Greater China, driven by a focus on the D2C channel and marketing around it as well as then capitalizing on post-pandemic momentum. Additionally, the focus on D2C drove like-for-like revenue to increase by 6% for its store network.

Overall, wholesale revenue decreased by 12%, mainly driven by lower third-party production activity. But as a sign of strength in the APAC region, Japan wholesale revenue increased 13%. 2023 highlights include a successful re-launch 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 a year.

2024 priorities will be to focus on channel development, including boosting D2C and further revitalizing eCommerce 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 €90 million compared to €86 million for the full year 2022, representing a growth of 5%. St. John continued to build its D2C channel and revenue grew by 7%. Furthermore, the eCommerce 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 at 39%. In EMEA, a relatively small market for St. John, revenue increased. The company spent 2023 refining and expanding its product mix, which resulted in growth and increased brand awareness. The brand also successfully optimized its retail experience, which drove growth for the brand in all its regions. St. John posted 13% growth on a like-for-like basis for a store footprint. Furthermore, key collaboration with Karla Welch and Shonda Rhimes, provide brand heat and attract new clients and a broader demographic.

St. John's 2024 priorities include further diversifying product offerings and improving its eCommerce experience as well as realignment 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 €40 million compared to €31 million for the full year 2022, representing a growth of 30%. The brand has nearly doubled its revenue in two years, thanks to its playful elegance approach to high-end tailoring and its unmatched quality and price ratio.

Caruso's revenue were mainly driven by its B2B Maisons business, which grew by double-digits, 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, Caruso's core market grew by 46% and North America revenue decreased due to the soft demand from OEM clients. In 2024, the brand expects to see a further growth by market share gains by enhancing made-to-measure services and focusing on reorders.

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

Eric Chan

Thank you, David. I would like to highlight some key takeaways from 2023. First, our success in 2023 was in part due to our efforts to drive the brand heat. Not only did we have a tremendously successful products long-term net capsules with Future, who is the Grammy award-winning artist, beyond toward the long-term mature, long-terms are coming whether in a [indiscernible] we launch and was a smart heat

Wolford campaign of Greystones [ph] was well received. St. John's collaboration with [indiscernible] significant uplift and numerous media OLED wrote about the resurgence of the brand and [indiscernible] on and on.

Second is our advertise on the DTC channel yield solid results for e-commerce as well as the store level like-for-like revenue. The third is additionally, we remained vigilant on our traffic profitability. I believe we have built the foundation for our brands and our group for the next five years, and there is significant operational message 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 to 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 corporate our first year as a public company, having taken many of the necessary steps to pave 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 management team, I would like to thank you for listening to this presentation, and we look forward to 2024 and the year after drag. Thank you.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Tracy Kogan with Citi.

Tracy Kogan

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 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

David Chan

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, I would say, steps after the credit transition in the second half or would say, first half of 2023.

We obviously highlighted to all investors about the future collaboration for the Lanvin Lab. But also, don't forget, we also have the shoe surgeon before that, and we have the 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 -- go -- keep going into 2024, especially if you look at the future, the drop, I think we're dividing into like multiple drops for the future collaboration.

There was a very small drop into the kind of a Q4 timeframe. But we do see -- we do expect Q1 will be a major drop two and drop three into the market, and that will also have some pretty exciting, I would say, collaboration activity happening in the second half of 2024. So, maybe Eric can comment on the other creative direction as well.

Tracy Kogan

Thank you.

Eric Chan

Yes. I mean, Tracy it's Eric. We are going to appoint the Artistic Director very soon and we're going to announced that very soon. With the new Artistic Director, we believe actually we are bringing back the elegance of the Longmont [ph] brand.

We will approach the newness of the brand, I mean, in terms of the ready-to-wear. But at the same time, we also become a very attractive and very popular leather goods and accessories. And of course, I mean, for the shoe, I mean, which used to be among the clubs, we have very strong performance for the clubs in the past years, and then we would continue to develop the shoes.

So, in terms of the Lanvin Lab, I mean, we will continue to launch new collaborations after the future. But the Lanvin Lab is very much for us is a collaboration project for cap shoes. And then the main collection remains, I mean, with the Artistic Director, which whom we're going to announce very soon.

Tracy Kogan

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

David Chan

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.

Tracy Kogan

Got it. Thank you guys.

David Chan

Thank you, Tracy.

Operator

Our next question comes from Oliver Chen with TD Cowen. Please proceed.

Oliver Chen

Hi 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?

Also, wholesale has been a tougher channel in general, the wholesale network. What should we be focused on? Has it been worse than you expected or in line? And then the U.S., it sounded like you're encouraged yet cautiously optimistic on the softer landing prospects. What are you seeing in the U.S. market as well? That would all be helpful. Thank you.

David Chan

Maybe I can also give you a little bit more on the financial perspective. Thank you, again, Oliver. It's good to hear a voice again. So the Greater China market, that definitely has some softness, I would say, in the second half of -- especially in the second half of 2023. I think this is not a 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. This is where we answered before. There's a lot of macro headwinds kind of coming or in 2023, that probably going to go into 2024 a little bit. We don't really have that level of exposure to these headline risk because, again, if you look at a brand Lanvin, I mean, what do we do in 2023, we have only 36 stores, 35 stores. We're 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 a -- to become the area that I think we have to react with speed that we can ability very quickly to trends, because the trends are changing allow us to really capitalize what is going to be very hot in the next couple of quarters. So maybe Eric can give his take as well on the Asia opportunities.

Eric Chan

For the Greater China, I mean, I think Dave already explained that. I mean, as we have been experiencing some headwinds. But in overall, in terms of the mid-term and long-term, we're still optimistic towards the China economy. And we're actually seeing the -- then maybe, of course, I mean we cannot make it for certain, but I mean we are all seeing there may be an improvement from the second half of this year.

In terms of the whole Asia, actually, we're seeing, I mean, the Japan market and also the Southeast Asia is improving a lot. And this is also our brands, I mean, including Lanvin, the Wolford, Sergio Rossi actually, we start penetrating into these markets, particularly Sergio Rossi actually is performing further well in the Japan market.

If you look at in EMEA in terms of the Middle East, I mean, we also see there's opportunity over there. That's just also why Lanvin, we have opened our first store in Riyadh [ph] in Saudi Arabia in December last year. So actually, we're seeing that, I mean, despite -- I mean there's a macro economy headwinds, I mean, across the global market. We still see opportunities. And as a sort of market actually, we can still penetrate. So I mean in terms of the 2024, it's why we are still optimistic towards the growth and also the brand expansion.

In terms of the channels, I mean, other than brick-and-mortar stores, actually, we invest a lot to develop our online channels and omni-channels as well. So I mean the online business will be also one of our highlights in this year as well. Thank you, Oliver.

David Chan

Yes. Okay. Thank you, Eric. And then, Oliver, just kind of going back to your other question about North American and wholesale. I think we are -- we definitely see a little bit of softness on the 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, maintain North America growth about relatively flat, right, like 14%-ish, 1.5%-ish as a group. And then if you look at dissect that into brands for North America, we are still relatively flat, whether it's more for Olam. So I think we just have to find 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, just finding ways to have different kind of products very specific to the wholesale market to work with them, how do we boost kind of sell-through and efficiencies. So that's kind of how we feel. We still feel like North America, we still have a pretty good eye on that market.

Oliver Chen

Thank you. On the brand specifically, timelessness and elevation has been a theme at London. What are your thoughts in terms of pricing and inventory management? What should we know about as you're thinking about strategy and creative direction, as well as the product assortment and how that might impact overall pricing? Wolford has been a very resilient and important brand as well. I 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 what your thoughts are balancing new younger customers relative to keeping your existing? Thank you.

David Chan

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

Eric Chan

Yes. I mean

David Chan

Yes. I mean, yes, you got a sustenance...

Eric Chan

Yes, sure.

David Chan

Yes, I think in terms of pricing and then Oliver [ph] we and the inventory strategy, I think we're trying to do be a little bit more -- kind of have a better management in terms of inventory. If you can now see a shift in terms of our inventory accessories versus ready-to-wear as a whole, especially for a brand on long gown [ph], we have shifted quite significantly for the past couple of years. So the focus, like Eric mentioned, is going to be focusing on accessories in the future when it's shoewear as well as a letter 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 -- we don't -- we follow we can follow very closely with our competitors. And then we -- I think long gown in particular, is right in the range of that being that luxury peer group. So I think our pricing strategy is going to be very, very consistent.

For Wolford, as I mentioned in the transcript, we -- the biggest focus this year is going to be the wow leggings, right? If you haven't seen it, I think the first quarter drop for the leading, that was a complete reshape and restructure of the Wolford DNA, right, from a, I would say, hosiery business to a legging business. This is something we are very excited to see in 2024. St. John customers, just you can see just from the e-commerce growth, we grew able to grow 15% and then our revenue is still 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, iconic where like you have -- now we have a complete set of, I would say, silverware that that's not only tailored to kind of an evening, we have a day where 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 different kinds of demographic, which we see in the numbers quite a bit.

And Eric, do you have a please full to chime in?

Eric Chan

Yeah, I mean in terms of the pricing strategies, I mean we put a lot of effort in delivering the value for money. So we definitely need to remain the quality. We make the best possible products for our customers but at the same time to maintain the value for money. So it is always our intention to keep what the customer, I mean to get what they -- I mean, the best value out of what they get. So I mean, we have no intention to increasing the price continuously, but at the same time we maintain the best quality out of them.

And in terms of the dual pricing, we also trying to minimize the pricing gap, I mean, between regions to, I mean, to -- again, to give the best value for money for different parts of the world. In terms of the assortment, I mean, because in different regions there's a different demand. I mean for example, the leather goods actually are the best sellers in the Asian market, particularly in the China market or in the Southeast Asian market. So we've seen that actually we were delivering very strong products that are catered for the regional demands.

In terms of the St. John, I mean, St. John we are actually thriving a very strong product that is for the woman's power. So we believe actually to develop the products in that direction actually automate, I mean, we will be able to attract young customers, but also at the same time the -- I mean, for the customer, I mean, who are looking for the best leisure-wear and the best design and at the best pricing. So thank you, Oliver.

Oliver Chen

Thank you. Best regards.

David Chan

Thank you.

Operator

Our next question comes from Liwei Hou with CICC.

Liwei Hou

Thank you, Eric and David. And this is Liwei from CICC. To me, it is very good results already, very hard-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 was wondering to what extent is the success due to the back-to-office demand for formal wear and to what extent is more idiosyncratic, something we have done differently for St. John and Caruso? So that's my first question. And I'll ask the second one later.

David Chan

Okay. Eric, do you want to take this one?

Eric Chan

Yeah. I think we -- I mean, because St. John is in a very different market, I mean it's in not drawn at the moment, most of our business are so much focused in the North America market. And St. John actually have already built a very strong foundation and phase in terms of the brand as well as in the American market. This year, actually, we also fine tuning the design. And also, of course, at the same time, we have upgraded, uplifted team structure. I mean, in terms of the cost structure as well. So we believe, actually, St. John actually achieve a very good result, I mean, for 2023.

Caruso, actually, I mean, again, Caruso has also built a very strong reputation in terms of their quality, but we are able to produce some of the best suits and menswear, I mean, in the market and actually, not only for -- to see the markets, the Caruso brand itself, but it also to B2B market, I mean, which we have strong clientele. We have a very strong portfolio of clients that actually -- that we are able to produce the quality of the suits – the quality of the suits for them, and those suits are selling very well, and that's why we have a very stable orders, I mean, from these clients. So let see whether there's any supplement from market.

Liwei Hou

Got it. Thank you very much, Eric.

Eric Chan

You have second question?

Liwei Hou

Yes, yes. Could you hear me?

Eric Chan

Yes.

Liwei Hou

Okay. Thank you. So my second question is on the margin. As many of your peers have cautioned that the cost to compete in the industry has increased significantly. It's more expensive to have the best store location and there's more competition on the events from – and also in IT spending. So I wonder how that industry-wide pressure would impact our path to profitability. So does it mean there will be more time uncertainties? Or are we going to do something differently to still meet the timeline for EBITDA and also to the cash positive? Thank you.

David Chan

Yes. Thank you, Liwei, for the question. I think, yes, I think to a certain extent, it is a -- 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 then 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, I think we have a net change of 12 stores that we will 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, 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 were trying to compete with the market really is the unit economics makes sense at the location. So, we're either trying to rationalizing the store front.

If you look at our D2C kind of revenue, we actually have a positive kind of momentum even with the net change of store counts, right? So, that's something we are pretty proud of, and we continue to do that. We've done that in the first half and we have done that in second half in 2022.

I think we in the next, I'd say, months or so on, we will continue to do that. And then as long as we feel like we have the right space, right square footage, and we're able to get the right unit economics, then I think our pathway to profitability is very much in line, right? We still -- I think we mentioned, we are trying to get to cash breakeven by 2025. So, that's what we're tracking very nicely, right?

Liwei Hou

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

David Chan

Thank you.

Eric Chan

Thank you.

Operator

Thank you for attending today's presentation. Our Q&A session is concluded through the allotted [ph] time. Thank you. You may now disconnect.

David Chan

Thank you.

Eric Chan

Thanks.