Mavi Giyim Sanayi ve Ticaret AS
IST:MAVI.E
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Mavi Giyim Sanayi ve Ticaret AS
Earnings Call Analysis
Q3-2024 Analysis
Mavi Giyim Sanayi ve Ticaret AS
Mavi has achieved remarkable growth, with consolidated sales reaching TRY 14,189 million in the first nine months of 2023, marking a 94% year-on-year increase. Retail sales in Turkiye saw a 100% growth while online sales surged by 104% in the same period. In the third quarter, Turkiye's online sales alone grew by an impressive 119%. The demand in Turkiye contributed to a sizable 67% of total revenue, while international sales recorded 7% constant currency growth despite slow growth in Europe which was countered by a stronger North American performance.
Mavi's commitment to offering diverse, high-quality products at great value has paid off, resulting in a 300 basis point improvement in gross margin this quarter. The EBITDA climbed to TRY 3,561 million, with a robust EBITDA margin of 25.1%, and the net income surged by 88% to reach TRY 2,170 million. The brand managed to improve its gross margin to 56.4% in the third quarter and achieved a net income margin of 15.3% in the first nine months of the year.
Mavi's customer acquisition efforts proved fruitful with 970,000 new customers added year-to-date in 2023. Total loyalty card members in Turkiye have reached 6.6 million. The company is now operating 465 monobrand stores globally and expects to add a net total of 8 new store openings by the end of the year.
The brand's e-commerce sector continues to thrive, with a 9.4% contribution to the total consolidated revenue from direct-to-consumer online channels, and overall online sales representing 10.7% of the total. The international online segment improved in the third quarter by 49% year-to-date, led by Mavi.com. Omnichannel initiatives have shown positive results, and the brand plans to further invest in data analytics and customer relationship management to support this growth.
Mavi's product range expansion has been successful with denim sales growing by 98%, constituting 39% of total retail sales in Turkiye. The knitwear segment likewise grew by 98%, while non-denim bottoms, shirts, accessories, and jackets also showed significant growth. The brand achieved a 16.5% volume growth in the number of pieces sold during the first nine months of 2023.
The company has strategically increased inventory levels by 80% year-over-year in terms of cost and 22% in the number of pieces to meet demand. Capital expenditures reached TRY 344 million, maintaining a conservative CapEx to sales ratio of 2.4%. The net cash position improved to TRY 2,170 million, reflecting strong operational cash flows. Following this performance, Mavi has revised its sales growth and EBITDA margin guidance for 2023 upwards, now expecting a top-line growth of over 85% and an EBITDA margin of 20% plus/minus 0.5%, excluding IFRS 16 influences, or 23.5% plus/minus 0.5% including IFRS 16.
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Ladies and gentlemen, welcome to Mavi Webcast Regarding the Financial Results for the Third Quarter of 2023. Our CEO, Cuneyt Yavuz, will be presenting the results followed by a Q&A session. We would like to inform you that this presentation is being recorded, and we kindly ask you to keep your microphones muted throughout the presentation.Now I will leave the floor to Cuneyt Yavuz.
Thank you, Duygu. Hello, everyone. Thank you for joining our webcast for the financial results of the third quarter of 2023. We are here with you today with another set of very successful results. And for this, first, I would like to thank my team for their dedication and hard work. I believe with these results, we are once again proving that Mavi's success is based on best-in-class brand strategy that gains the consumers' utmost trust and love, which then translates into loyalty for the brand, repeat purchases and sustainable financial success. We have been continuously elevating our brand investments, offering newness and increasing product variety to give our customers more and more reasons to come and shop with us.On the other hand, thanks to our great sourcing capability that enables to keep product cost increases under control, we are able to deliver our customers the Mavi quality that they are used to with a great value at the right price. Hence, with the margin base normalizing in the third quarter, we achieved 300 basis points improvement in gross margin this quarter. Through effective cost management, supported by strong sales performance, we also delivered 130 basis points improvement in OpEx to sales ratio in the third quarter despite the significant minimum wage hike and inflation in Turkiye. We continued to generate cash from operations. And our net cash position increased to TRY 2,170 million.In Turkiye, thanks to the increasing consumer demand for Mavi and our product variety which enables us to respond to this level of demand, we captured strong volume growth in all categories and continue to increase our market share in both men's and women's. Online sales in Turkiye also grew at a significant 119% in quarter 3, mainly driven by mavi.com performance. International sales recorded 7% constant currency growth in the third quarter. North America sales performance noticeably picked up compared to the last quarter and helped offset the continued slowness in Europe. We are happy to report that international margins turned to improvements as of third quarter. Online is the best performing channel in international markets with growth mainly driven by direct-to-consumer channels, mavi.com and marketplaces.Before going into details, I would like to make a special note regarding [Indiscernible] most special collection ever. In October, we celebrated the centennial of our Republic with great pride and joy. With the Mavi 100 collection, which we designed to honor the 100th anniversary of the Republic of Turkiye, we redefined the inspiration we took from the rich history of denim through the lens of contemporary premium elements. Each item in the Mavi100 collection reflected our dedication to using innovative and sustainable techniques and materials.Now let's take a look at the key highlights of the year, year-to-date results and move on to Slide 5. With 80% growth in the third quarter, our consolidated sales reached TRY 14,189 million in the 9 months of 2023, growing 94% year-on-year. Turkiye retail sales grew 100% and Turkiye online sales grew 104% year-to-date. Our EBITDA realized TRY 3,561 million, resulting in a strong EBITDA margin of 25.1%. Our net income grew 88% and reached TRY 2,170 million. With the effective brand strategy and increasing traffic in Turkiye, customer acquisition was very strong at 970,000 new customers year-to-date 2023. Turkiye active loyalty card members reached 6.6 million. We are now operating 465 monobrand stores globally.Moving on to review our channel performance. As of the first 9 months of 2023, total revenue consists of 67% retail, 24% wholesale and 9% e-commerce sales. With the continued robust performance, 87% of total consolidated revenue was generated in Turkiye. The inflationary environment in Turkiye continued to drive demand. And as Mavi, we make sure we have the newness, the variety and the right price to respond to this demand and remain consumers' brand of choice. Our sales in Turkiye grew 86% in the third quarter on top of a very strong base with retail growing 84% and online growing 119%. In the 9 months to 31st of October, total sales growth in Turkiye was 104%. Total international revenue in constant currency grew 7% in the third quarter and 8% in the 9 months. Online is the strongest channel internationally.Let's look into our Turkiye retail business in more detail. In Turkiye, we opened 8 stores, closed 5 stores and expanded 4 stores in the first 9 months of the year. And we are now operating 332 own-operated stores across 172,000 square meters of selling space with an average store size of 518 square meters. I would like to reiterate that growing retail is always at the heart of our business strategy and that the slowdown of store openings in the recent years due to availability of new space supply given the economic conditions. We will continue to expand current stores in square meters, grow our product offering, while constantly taking new actions to make sure that consumers have a great shopping experience.On Slide 10, let's elaborate on the like-for-like store performance. Traffic growth was slightly more moderate in the third quarter, mainly impacted by lower tourist figures versus same period last year and the start of the war in the Middle East for a few days. Overall, in 9 months, the 10% increase in traffic on top of high base displays continued strong consumer demand. Like-for-like sales grew 102% in the first 9 months of the year, driven by 73% basket size growth and 16.4% transaction growth. The basket size growth was enabled not only by the dynamic pricing strategy, but also the newness driven by right product mix. As Mavi management, we always review the success of our growth figures with actual volume growth in number of pieces sold, especially in these days of high inflation. We are happy to report that 16.5% volume growth was achieved in 9 months 2023 in line with management's sustainable growth targets.Moving on to Slide 11 to review category-based developments in Turkiye retail. We continue to trace strong growth across all our product categories, both in price and volume. As of 9 months, denim sales grew 98% and now constitutes 39% of total Turkiye retail sales. We are constantly enriching our product range, especially in casual lifestyle categories. Knits business constituting of t-shirt, sweatshirt and jersey offerings grew 98% year-on-year and make-up 28% of our retail sales. Non-denim bottoms grew 137%, now constituting 8% of sales. Shirts grew 103% and accessories grew 89%. Jackets is one of our 4 key focus categories in the recent quarters. Due to weather being warmed in the third quarter, the growth appears weaker as of 9 months. But the category is actually still on a strong momentum and is on track to catch up by the end of the year.Going forward to review our online sales performance on Page 13. In the first 9 months of 2023, our direct-to-consumer e-commerce sales share in total consolidated revenue is 9.4%, whereas including the wholesale e-com, total online sales is 10.7% of total consolidated revenue. Online sales in Turkiye consists of only direct-to-consumer channels and grew 104% as of 9 months driven by the strong 107% growth of mavi.com. Mavi platforms or marketplace platforms generally depends on the platform's own marketing strategy, which resulted in 86% growth in the first 9 months of the year. Online sales now constitute 7.8% of total sales in Turkiye.International online business performance improved in the third quarter compared to second quarter and brought the 9 months growth to 49%. Mavi.com, again, is the main driver with 57% growth year-to-date. Online makes up close to 30% of total international sales. With brick and mortar retail continues performing strong, especially in a Turkiye context, omnichannel capabilities are essential for future growth and in improving the shopping experience for consumers. We are seeing very positive results from our omnichannel initiatives, driving incremental sales. Mavi will continue to invest in data analytics and CRM projects that support omnichannel growth and make sure online business continues to be a positive contributor to our margins.Let's move on to review our consolidated financial results. We view our gross margin performance on Slide 15. We have been guiding that the extraordinary strong base for gross margins would normalize as of third quarter, and it did. In Turkiye, continued strong demand was captured with variety, newness and the right product price positioning. On the other hand, we have been using our strong balance sheet position and our well planned sourcing capabilities to keep product cost increases as controlled as possible. Our international margins also turned to a positive momentum as of third quarter. All these factors led to 300 basis points improvement in gross margins in real terms when adjusted for increasing interest rate impact. Gross margin realized 56.4% in the third quarter and stands at a strong 53.2% as of 9 months 2023.Moving on to Slide 16 to review our EBITDA and bottom line performance. The significant OpEx inflation in the third quarter was once again leveraged by the strong top-line growth and effective cost management. We continued to deliver improvements in [ rent ] to sales ratios in Turkiye retail business. Despite the challenging macro environment, our OpEx to sales ratio improved 130 basis points in quarter 3 and 140 basis points year-to-date. As a result, our EBITDA, excluding the IFRS 16 adjustments, grew 131% year-on-year in quarter 3, resulting with an EBITDA margin of 25.8%, improving 570 basis points.EBITDA margin, including IFRS 16, realized 29% in the third quarter, reaching the highest ever third quarter EBITDA margin and resulted with 25.1% EBITDA margin in the 9 months to -- 9 months of 2023. The increase in net financial expenses is limited due to our strong balance sheet, and hence, the operational platform is mostly reflected to our bottom-line. Our net income in the third quarter is a record high TRY 1.36 billion, bringing the net income for 9 months to TRY 2,175 million with a net income margin of 15.3%.On Slide 17 we look into our operational cash flow and working capital performance. Operational cash flow margin in 9 months 2023 is 47% due to increasing working capital requirements because of strategic actions taken to mitigate product cost pressures such as cash payments to manufacturers, early booking of capacity and advanced payments for raw materials. This is also reflected on the working capital per sales ratio, which increased to 11.5% as of the end of October. We expect these heightened levels to continue for another year or so as we will continue to use our cash position in similar purchasing strategies.The 80% year-over-year increase in inventory level at the end of October is largely driven by 57% cost -- product consideration in Turkiye inventory year-on-year. Inventory in a number of pieces in Turkiye is only 22% higher compared to same time last year and is in line with sales growth and demand expectations. Inventory, as always, comprises of all fresh and seasonal products.Moving on to the next slide, Slide 18. We spent TRY 344 million in capital expenditures in the first 9 months of the year, resulting in a CapEx to sales ratio of 2.4%. On the retail side, we had store openings, expansions and some new store concept transformations taking place. There will be more to come in the last 3 months of the year, and we expect to reach our guided net 8 store openings. Apart from retail, we have been investing predominantly on IT projects, digital investments and R&D.Our strong operational performance led to strong operational cash generation in the quarter. And despite the cash deployed to working capital, our net cash position increased, reaching TRY 2,170 million as of the end of quarter 3. As always, all of the foreign currency that you see on our consolidated reports belong to our subsidiaries, all borrowing in their respective local currencies, and hence, does not pose a currency risk. We continue our approach of holding no foreign exchange position in our balance sheet. On the other hand, average cost of debt increased significantly in quarter 3 to a blended rate of 38.2%. It is worth noting, however, that we are also getting a rational rate on our cash deposits. We will have paid back most of our bank loans by the end of this year.With this very successful performance of the third quarter, we are once again revising our 2023 year and sales growth and EBITDA margin guidance upwards. From the previously increased 80% plus growth, we now foresee a top-line growth of above 85%. We are increasing our EBITDA margin targets by another 100 basis points. So we now expect EBITDA, excluding IFRS 16, to be 20% plus/minus 0.5% and EBITDA margin including IFRS 16 to be 23.5% plus or minus 0.5%.As always, to provide some insight on the current trading environment in Turkiye as of date, I'll share a few figures. With the weather getting colder in November, our winter collection started receiving strong demand from consumers. Turkiye retail sales increased 103% in November and 125% in the first days of December. Online sales in Turkiye grew 102% in November and 109% in the first 10 days of December.With this final positive note, I'm happy to take any questions you may have. Thank you very much.
[Operator Instructions]
So thank you, everyone. Thank you for joining us for this presentation. At any point now or later in the day or during the coming days, if you have any questions, our IR Head, Duygu, is more than happy to take any questions you might have. And we would all from the Mavi family, from the bottom of our hearts would like to wish you all a very happy new year and hope to see you with even greater and better results with our quarter 4 ending in March. Take care and be safe. Bye, bye.Just as we were leaving, we got a question about Russia. So our Russia business, as you may recall from our previous meetings, is doing pretty well and performing pretty well, but our approach on our Russia business is to maintain the business. So we are not on a mindset of expansion. The stores we have are still open and functioning very well, and we have a 15% like-for-like growth. The EBITDA is positive. And Russia overall constitutes around 2% of our total sales. Thank you.