Mavi Giyim Sanayi ve Ticaret AS
IST:MAVI.E
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Mavi Giyim Sanayi ve Ticaret AS
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Ladies and gentlemen, welcome to Mavi Webcast for Third Quarter 2021 Financial Results. Our CEO, Cüneyt Yavuz, I will be presenting the results followed by Q&A session. Please note that this presentation is being recorded. [Operator Instructions] Now I will leave the floor to Cüneyt Yavuz. .
Thank you, Duygu. Hello, everyone. Welcome to our webcast for the financial results of the third quarter of 2021, ending October 31, 2021. I'm very happy to announce another strong quarter with solid results. Mavi company continues to demonstrate its strength in the face of major external challenges, especially in Turkey.
As always, I would like to provide a short business overview on the key developments and the trading environment of the quarter. As you all know, in Q3 2021, pandemic-related restrictions were largely lifted across the countries we operate in. In Turkey, we are operating in normal trading hours since the beginning of June with very strong demand for Mavi products. In Q3, our Turkey business grew 73% year-on-year on top of a strong base. Recall that Q3 last year was the only quarter we delivered sales growth.
The customer traffic in our retail stores is already above pre-pandemic levels on a comparable basis. Meanwhile, conversion rates, units per transaction and the average basket size are all higher compared to the same period of 2019. This is an important indication that the brick-and-mortar retail business is here to stay and will continue to be our key trading and growing channel. Our international markets have also been operating under normal trading hours in the quarter. International sales grew 29% in TL terms and 11% on a constant currency basis on a strong base, mainly driven by the performance of North America business. In addition to the comeback of the retail business, online sales growth remained strong globally, driven both by mavi.com business and marketplace performance.
Revenue share of all digital channels year-to-date is 11% in Turkey and 15% globally. With controlled expense management and increasing revenue stream, OpEx to sales ratio improved 180 basis points in Q3 2021 and 625 basis points in 9 months 2021 year-over-year. I will reiterate that our main pillars for continued success, our dynamic supply chain management, efficient product planning and inventory management. Our best-in-class marketing communication is an indispensable enabler for our fast recovery and successful results. In line with our old and new strategy, we continue to invest in our brand with product innovations focused on sustainability, make a difference through collaborative collections and offer new reasons for our customers to choose Mavi.
Moving on to Slide 3 with our key highlights for the quarter. In order to mark the performance against pre-COVID levels throughout the presentation, we include platforms comparisons against same period 2019. Our consolidated sales in the first 9 months of 2021 realized at TRY 3,191,000,000, growing 82% versus same period last year and 49% same period 2019. Turkey retail sales grew 89%, and Turkey online grew 122% year-on-year.
Our EBITDA growing 150% realized TRY 750 million, resulting in an EBITDA margin of 23.5% as of 9 months 2021. We delivered our highest ever quarterly earnings beat in quarter 2, and as a result, our net income for the first 9 months amounted to TRY 301 million. Strong sales performance led to high operational cash generation resulted with our balance sheet net cash position of TRY 369 million, strengthening our management commitment to stay a net cash company. The total number of mono brands go globally, including franchisees, reached 453.
Let's now move to Slide 4 to review our channel performance. Total revenue grew 64% in the third quarter on a relatively stronger base compared to last year and 68% compared to same quarter 2019. As stated earlier, alongside the brick-and-mortar retail business rebounding, our e-commerce channels continue to perform very strong throughout the quarter, growing 86% in Q3 and 102% in 9 months, global e-commerce sales share in total revenue stands at 12%. In the third quarter in which the operations continued uninterruptedly on normal trading hours traffic in our stores exceeded 3 pandemic levels and the strong demand for Mavi products continued. While we continue to benefit from the preference towards casual wear, we also make sure to provide the consumers with reasons to shop at Mavi and remain their brand offshore.
As a result, our sales in Turkey grew 73% in Q3 compared to last year and 67% compared to same quarter 2019. Our e-commerce business in Turkey, which constitutes of mavi.com and marketplaces grew 112% in the third quarter and 122% in the 9 months of 2021 on top of a very strong base. Recall that international operations had a significant recovery period in quarter 3 last year. Therefore, with a more normalized growth rate of 29% in the third quarter, international sales in 9 months performed 73% growth compared to 2020 and 55% growth compared to 2019 in Turkish lira terms.
In constant currency terms, total international sales grew 44% in 9 months. With the recovery of the brick-and-mortar business, total revenue consists of 61% retail, 27% wholesale and 12% in e-commerce as of 9 months 2021. 82% of consolidated revenues is coming from Turkey. On Slide 5, we start to focus on Turkey retail business. We opened 8 new stores and closed 3 stores and expanded 6 stores in Turkey in the 9 months of 2021. As of October end, we have 325 own operated stores, totaling close to 163,000 square meters of selling space in Turkey, with an average store sales of 500 square meters.
On Slide 6, let's elaborate on the same-store performance in Q3 2021. We have a strong same-store sales comparison for quarter 3 as all our stores in Turkey were fully opened both this year and last year. With traffic increasing 69% versus 2020 and surpassing pre-COVID 2019 level by 6% in Q3, same-store sales have grown 75.2%. The number of transactions increased 43.8% and basket size grew 21.8% versus same quarter last year. It is important to note that same-store sales in Q3 is 58% higher than quarter 3 of 2019, with both conversion rates and unit transaction still realizing above pre-pandemic levels.
Moving on to Slide 7 to review category-based developments in Turkey retail. Our dealing category, which now constitutes 42% of total retail sales in Turkey grew 79% in 9 months 2020 month. As consumer shopping behavior is changing towards more casual stars, we continuously enrich our product range to respond to this demand. As expanding our T-shirts, sweat shirts and Jersey offerings, continue to result in robust sales performance in its category. As of 9 months, our Niss business grew 101% year-on-year and constituted 27% of our retail sales in Turkey.
Capitalizing on the same time, another significant category is nonbearing bottoms, growing 175% in 9 months and bringing incremental revenue non-denim bottoms now make up 6% of our total retail sales. Accessories contributing significantly to our women's business grew 84% in 9 months 2021. Our fall winter jackets collection received great response from our consumers and printed a 115% growth this year, reaching 7% of our total Turkey retail sales. Shorts are also on a relative comeback, growing 62% year-on-year.
On Slide 8, let's review our online sales performance. On this slide, we review the total loan line sales of Mavi, including the sales to third-party digital platforms to which we wholesale. In addition to our direct-to-consumer online sales made up of mavi.com and marketplaces that are reported under e-commerce channel. Including the wholesale e-com, our total online sales grew 77% globally and reached TRY 467 million, constituting 14.6% of total revenue in 9 months of 2021. The evidence move from wholesale e-comm to direct-to-consumer channels globally provides us with more control over our offerings and has a positive contribution on profitability. Online sales in Turkey grew 122%, driven by 80% growth of mavi.com and 168% growth of marketplace operations and now constitute close to 11% of total sales in Turkey.
International online business growth is primarily driven by our own platform, mavi.com, which grew 74% in 9 months 2021. 32.5% of total international sales are through online channels. We continuously invest in digital systems, logistic operations and on our CRM platforms. Mavi is achieving its fair share in this changing and growing online environment. We believe that the consumers acquired during the pandemic period are here to stay and that this strong sales momentum will not reverse. The ongoing shift towards e-commerce is good news for Mavi business, given that our online business is a positive margin contributor with a full price strategy across all categories.
Let's move on to review our margin performance on the next few slides. On Slide 9, gross margin is and will continue to be a key focus. Our teams have been working rigorously to plan for the right product, right price, right calendar and managing in-season inventory with a very flexible and dynamic manner to ensure optimal sales. I am truly proud to got the results of the software. With the strong demand for our fall/winter collection launched in quarter 3, we were able to preserve our gross margins despite cost pressures, realizing at 51.2% in the first 9 months of the year, gross margins improved 110 basis points versus last year and 160 basis points versus same period of 2019, normalized with current interest rates and one-offs.
On Slide 10, similar to last quarter, but only stronger, our EBITDA margin improved significantly as surpassed pre-COVID 2019 levels in the third quarter. Including IFRS 16, total EBITDA for the 9 months amounted to TRY 750 million, growing 150% and resulting in 23.5% EBITDA margin. Consequently, we are reporting another quarter with record earnings. Our net income of TRY 162 million in the third quarter amounted to TRY 301 million net income for the 9 months of 2021, significantly higher than pre-pandemic 2019 levels. Net income margin is 12.0% in quarter 3 and 9.4% in 9 months of 2021.
On Slide 11, we look into our operational cash flow and working capital performance. The strong operation platform led to TRY 625 million of operational cash flow generation as of 9 months. Very effective inventory management coordinated across our teams is an integral part of the success. As of the end of October 2021, the margin level in number of pieces is 21% lower than same period last year, comprising mainly of new seasoned products. Consequently, our working capital as a percentage of revenues is at 12.3%, far better than both same period last year and the end of May.
Let's now move on to next slide, Slide 12. We have invested TRY 95.4 million in capital expansion in the 9 months of 2021, resulting in a CapEx to sales ratio of 3%. In addition to store openings and expansions, we have been investing predominantly on IT projects and digital projects. To give you an update, our ERP transformation for SAP is largely completed and has been live since the beginning of third quarter. Along with the strong operational cash generation within the year, we are now at a net cash position of TRY 369 million as of end of October 2021, excluding the IFRS 16 adjustments.
21% of our total consolidated debt belongs to our subsidiaries, all borrowing in their respective local currencies and hence, does not pose a currency risk. We continue to hold no foreign exchange position in our balance sheet. And finally, on Slide 13, we would like to provide our updated outlook for the financial year. Driven by the strength of our brands and the strong third quarter results, we are increasing our full year outlook despite certain external challenges that our industry continues to face, with the assumption that all stores in all regions they opened for the rest of 3 years.
We now expect to close the year with 80% to 85% consolidated sales growth compared to financial 2020.
[Audio Gap]
increased our EBITDA margin target by 50 basis points to 20.5% to 21%, including IFRS 16. Having provided the full year expectations. As always, I would like to provide some insight on the current trading environment as of date. We continue to experience similar strong demand environment in quarter 4, as of today. Turkey retail same-store sales increased 71% and Turkey on line sales increased 100% year-on-year in November. Thank you very much.
[Operator Instructions] [indiscernible] is our first question.
Thank you for the presentation. Cüneyt, most of the retailers, including your competitors introduced significant interim price hikes in the past couple of weeks. So what's been your response so far?
There are predominantly what we observe in the marketplace is, especially those companies and brands that have international pricing are really pass to adapt, as you mentioned, to their global pricing strategies. So if they believe a certain item is item 19 years old globally, and there has been a certain devaluation, as you know, in Turkish liras, they have been really equipped to adapt and maintain those price hikes. As Mavi, across the years, not just this interim external economic change, but historically, what we are focused on is maintaining a transitionary approach in terms of pricing and consumer purchasing power behavior.
Therefore, from a risk perspective, our pricing strategy is geared towards remaining very competitive, making sure that we have the optimum inventory, the maximum [indiscernible] with minimum markdowns which actually, as you can see in quarter 3 and also the beginning of quarter 4, we are able to deliver.
So while we maintain operational costs in a very disciplined way, we are also making sure that our pricing strategy is not hard, especially capitalizing on minimizing markdown ratios that we are giving out, handing out with our relative competitive price positioning due to external price increases that certain competitors are taking place. So for us, not just now, but for the next 6, 8 months that are ahead of us, there will be a very diligent way of observing where our margins are, where the consumer is and then take necessary pricing adjustments along the way. And as you can see from our inventory levels, we have really, really, really come down in terms of making sure and turning the company over the last 2 years to be a very agile and just-in-time brand, capitalizing on production in Turkey.
And we are, at this point in time, very much aligned with our manufacturing base. speed to shelf is there, all the product we have is stress. Therefore, when we have such high turnover with such great cash conversion rates, we are able to take pricing on an ongoing basis but not necessarily on a like a broad knee-jerk reaction within a given day or month by going really up at one go. So our approach is going to be -- we will remain competitive, see where the consumer purchasing power is, capitalize on Turkey's speed to shelf, use our financial power and our strong relationship with our sourcing business partners to minimize the external pricing pressures to the consumer along the way. So as you -- again, one more time I know I'm going a little deeper, but these are typical questions that are popping up. Therefore, I'm trying to give a more expanded perspective. The other thing is, as you -- as we are all aware, as you're aware, in terms of how our cycle works predominantly, our product, planning, purchasing, cost bases, et cetera, for all the way through April/May is more or less within our control. Therefore, as things externally move up and down, Mavi is less affected with what is happening with exchange rates, interest rates or the competitive pricing right.
So we think I've been saying this since the beginning of this year, and I continue my position. I think Mavi will be very competitive in terms of pricing, but also true to its origin, the quality, the innovation, the product offering. While maintaining certain margin challenges, we think we can be able to offset some of those challenges through better markdown management, better OpEx management and even higher product terms to generate an absolute increased gross profit in the coming months. So a short question, a long answer, but thank you for bringing this up.
Our next question is [indiscernible]. Was it answer? .
Thank you for the presentation. My question is about the current environments. When we look at our channel [indiscernible], we see that the pricing environment is highly strict and nobody really can make a planning for the following year. I would like to understand your perspective about the following year, assuming that the currency levels will stay at the current levels or a little bit lower. How do you see the dynamics on your side? And in November, we see 71% growth. Could you give more details about the traffic side and the pricing sites in that front? And again, for the following year, do you think the cost increases will lead you to some price increases or how do you see the consumption side for the following year?
I'll start from the very latter part of your question. Traffic is really solid and up in November. So we are extremely pleased how the consumer is responding. Our basket size in transaction is up. So what you -- what I had reported for quarter 3 in the month of November is maintaining that momentum. In terms of pricing and basket size, the roughly around 20% basket size increase, again, is holding true for November. So basket size does not necessarily mean that's the price we have taken. But it is also a reflection of what sort of year-on-year pricing -- price increases that overall Mavi might have gone to. So it's an indicator.
Moving down the line for next year. I will reiterate what I just said a few minutes ago, we will be very diligent in terms of how the minimum wage changes, how the inflationary pressures continue, how the disposable income of the Turkish consumer evolves and take our time in terms of deciding vis-a-vis competition because we do also follow a certain metrics vis-a-vis competitors in terms of where we want to be in terms of brand positioning and also from a business model perspective, where we -- once we build the pricing structure in the right way so that we have the top line gross margin or initial markups versus the EBITDA margin protected. So it will be fluid dynamic. But the good news, what I'm trying to give you guys as a plan is that the inventory stretch the turners really fast, and our supply chain machine is not broken.
It's working really nice. So our strategic partners and business manufacturing business partners and Mabi is very much aligned. So we have been preparing, I would say, through the year in terms of cost fabric, finished goods and non-finished goods as well as capacity to make sure that we capture the increasing demand towards Mavi to get and come across some consumer with nice and new products. So capitalizing on Turkish textile environment and the strength we have with our manufacturing partners, we believe we'll be really fast, agile and adaptive in terms of maintaining the good results you see here.
Clearly, there will be a cost increase. And if you're asking me in terms of direction, it's really not easy to say, but we will definitely be taking a continue to take price increases. But we will do it in sync with the market dynamics. And even I would say, to a certain extent, we will be in a more competitive position vis-a-vis especially the imported brands. So I remain quite confident in terms of what more we can sell. One other point to add on in terms of our industry and consumer behavior, I think the consumers are out there and as a brand with a discretionary product. It is a product I've gone -- I've been heading up Mavi for 14 years almost.
And through this year, we've had many ups and downs. But in terms of consumer traffic and purchasing willingness, I've seen very little waiver. So I'm really confident despite a lot of the negative economic sentiment in terms of people's willingness and appetite to come in and buy a pair of jeans and T-shirts will be strong. And even if there are certain segments that are hit to a certain extent, Mavi with its competitive situation and the nationwide coverage will be capturing a lot of market share to at least maintain some of the headwinds that might be happening in the market.
So from a volume price Consumer franchise growth, new product innovation, the Mavi factories or the team here in our office is very busy. And in terms of volume and deal growth and franchise growth and market share growth, we are internally planning for a very strong 2022 spring/summer. So we are not wavered or discouraged by what is happening externally in terms of economic uncertainties that are out there, which we have to do with your right. But I think if any company is prepared to deal with it, it will be us in the industry or one of us, one of them definitely will be us. I don't want to say we will be the one, but we will be one of the few that will deliver good results, continue to give good results in the coming months or so.
Thank you very much. And by the way, I am your loyal customer of Mavi. I look at my outfit Denim my short their boats avian the products, just a quick not -- You need to be happy with the product. So I look at myself and say for my shirt and my denim Mavi, I'm happy with that.
Thank you very much. I mean that's the biggest compliment I can get. What I say to everybody is, if you have any problems, call me immediately. If you're happy, spread the good news. So we are here to give the best service. And just building on what we just said, our #1 priority through this is never, never to go back on quality. So we would have great products. And what you buy today as a happy shirt or a happy pay of genes. Hopefully, next year, we will be even delivering better quality, better design, better innovation in terms of what we're doing. And as you know, we're also through this all, investing a lot in terms of sustainability, let me take a minute there, that more and more of what we produce and how we produce is going in the right way and becoming more green.
So not only are we growing our business, but also we are growing it in a significantly more earth-friendly way, which is another point that makes me really proud. Anyway, I can get excited than [indiscernible], so if there are any other questions, let's get back to business.
[Operator Instructions]
I have a question out of the third quarter context, but when you're going through the presentation, just the share of Lumme, I mean, caught my attention. I think it's low compared to your competitors. I don't know the exact figures of your competitors, but it seems to be that it's 2% maybe just common sense, but it's low. I mean is it an area of potential growth or I don't know or are you concerned about this phenomenon I just wanted your view about?
Well, those of you who might have listened to me talk about the women's category, so it's a good opportunity to reiterate our acquisition first and foremost. Let me start by saying that our share of this category in this quarter has grown. So we are actually really happy in terms of the direction it's going, building on what you just said, actually, women's category is one of the growth opportunities and areas we do try to go after. This is also an area where there is the biggest competition. So there are a lot of brands who are competing to women's category.
And having a [indiscernible], is on itself makes it a little more muscular than other brands. So where we are in terms of who we are, casual wear and denim [indiscernible] casual wear. As you will recall, we are now Turkey's second-largest menswear company. So we used to be before the pandemic, and we are now in a position of #2. And we are growing really nicely. So on the one hand, there is still a lot of opportunity and ground we can capture in terms of men's growth. but we have a very strong position, and we will strive and continue to grow that. And at the same time, if we are able to and we want to be able to expand our categories and appeal for women and grow with women.
That is a definite growth opportunity growth area for us. If you look at big urban areas and AA+ shopping malls, actually, as the store size increases, the percentage of women's share in typical stores goes in favor of women. So if you go to see a pastor for instance, or palladium store or Marmara Forum store, our share of women goes automatically above 50%. But then there are those stores where which is more in east of Turkey, where we become more male-dominated [indiscernible] dominated. So it is a journey. It is not a concern. On the contrary, it's an upside opportunity.
And I think over the last, I would say, 3 seasons, we are in the right track of capturing a percentage point, a percentage point more within Mavi's realm to continue to grow on moments. And actually, that is why historically, where we had one celebrity only and one celebration season communication. Now we have 2 celebrities, [indiscernible] and we use them both twice within the season. And [indiscernible] as more of the new feminine on female and collection mindset. So hopefully, not only [indiscernible], but she is, of course, ambassador, but also with a bunch of influences, we are doing our best to go beyond where we stand in terms of women's wear.
But again, to be fair, there are other brands with biggest square meters where there is a bigger offer in terms of dresses and other items, which they are known for. So it is a journey that we will go through. But I'm really confident that across the years, inch by inch or point by point, our share will become more balanced, those of men's and women's.
[Operator Instructions] It seems that we don't have any more questions. Thank you all for attending. We are always here. If you have any follow-up questions, please [indiscernible] me on Investor Relations. Take care. .
Thank you, Duygu. Thank you, everybody. I wish you all a happy, healthy new year and look forward to seeing you at the end of this year or beginning of next year with our great fiscal year results and, hopefully, a good start to a next year. All my best, all our best from Mavi. Take care.