Lanvin Group Holdings Limited (LANV) Q4 2023 Earnings Report, Transcript and Summary

Thank you for joining us and welcome to the Lanvin Group's Fiscal Year 2023 Financial 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, CEO of Lanvin Group; and David Chan, Executive President and CFO of Lanvin Group. Siddhartha Shukla, Deputy Chief Executive Officer of Lanvin Brand and Silvia Azzali, the CEO of Wolford, and Andy Lew, the CEO of St. John. With that, I would like to turn it over to Mr. Eric Chan to start the presentation.

Thank you for joining us today. I'm Eric Chan, the CEO of Lanvin Group. Since joining the group in 2023, I have had a chance to meet some extraordinary people. As I've always said, the managers drive companies and their teams drive results and thoroughly, impressed by the effort of our managers and our teams to maintain the growth and continue to forge the path of profitability in a challenging market environment. For 2023, we contribute our trend of growth by achieving revenue of €426 million compared to €422 million for 2022, representing a growth of 1%. Our three-year compound annual growth since 2020 was 24% with all our brands maintaining double-digit growth over the three year period. Our gross profit for the year increased to €251 million with our margin improved to 59% versus 56% in 2022. We continue to optimize our cost structure in 2023 with multiple initiatives and expect improving results throughout 2024. In 2023, our brand continued to raise awareness and stocked brand heat with targeted marketing campaigns, powerful collaborations and effective service offering. We believe luxury fashion is not just a product but an experience in lifestyle if you will. As such, we have focused on creating an ambiance for our clients that goes beyond the point of sales to the experience of living with our brands. We state those emotion into our clients in 2023 and in parallel, we made significant progress in enhancing our delivery vehicle from improving our retail footprint to the kickoff of our US digital platform. Over the past few months, I have visited many of our new location. With each visit, I find myself increasingly excited about the growth of our retail base and the opportunities that exist to expand it. The opening of our first B2B long-time project in Reno, so a lot has come better -- a better time with the brand keeps that has been generating throughout the Lanvin’s for the launch and [indiscernible] The regions actually shared enough of our brands than I do and that is much we can accomplish in the Middle East. Therefore, I am pleased to say that we are developing with another two of our brands to introduce new projects in the Middle East in 2024. Moreover, as David will discuss later in 2023, we continue to leverage our strategic partnership ecosystem. We have piloted with the best-in-class operations of distribution retail, profit development and material sourcing around the world. We continue to seek new strategic partners to develop our ecosystem and improve our product offerings and service. All of these facades drove our financial results. As you will hear, our financial performance continued to improve in 2023, I was most impressed by our revenues during the Chinese New Year, we were able to adapt to changing market environments and changing trends. Although, headwinds may persist in 2024, I'm confident in our ability to stay on track and to achieve our goals. With that, I'd like to turn it over to our CFO, David Chan, to go through some of our details.

Thank you, Eric. And I'd like to thank everybody for joining us today. I’m David Chan, the Executive President and CFO of Lanvin Group. Before we get into the results, I want to make a few high-level points. I think back to the beginning of Lanvin group and our journey and how far we've come, what sometimes gets forgotten is that we have embarked this in 2018. We were starting a new platform with a distinctive concept of being an Asia-based global luxury group. We were in essence a startup. Since 2018, we have put together a strong ecosystem of strategic partners that help us with production, distribution and development. Furthermore, we have built an energetic platform that each of the brands contribute to and benefit from. We've also built a backbone of the Group, a shared service that benefit all our brands. Most importantly, we've put together a resilient group of managers and team members to continue to deliver growth regardless of the challenges they face. In 2023, we continue to build our platform by delivering growth in challenging environments, transitioning the creative strategy at our flagship brand and further driving margin improvements. Throughout 2023, we continue to make changes and add in the elements necessary to reach profitability. Among our 2023 achievements, we established a fabric center that jointly created with our strategic partner that is a world-class fiber development company. Additionally we started the U.S. digital platform to enhance our e-commerce offering and logistics in North America for our brands. All that to say, when I review our group's 2023 achievements and results it gave me confidence that we remain on track to reach our profitability goals. With that, I'd like to discuss Page 4 and 5 of our presentation. The group grew its revenue despite macroeconomic headwinds. A key highlight was the Lanvin brand's ability to improve its growth trend in the second half of 2023 while market condition grew steadily worse. Additionally, we showed a strong growth in APAC region with nearly 8% growth and Greater China growing by 9%. One of the key pieces of our DTC channel e-commerce posted a gain of 3% with the growth with group leveraging its U.S. digital platform an indication that our digital strategy is paying off. Furthermore we continue to improve our retail footprint improve store productivity putting our fleet of doors in the best position they have ever been in to facilitate our expansion strategy. As an example, another highlight in 2023 was the opening of Lanvin's middle -- first Middle East boutique in Riyadh. We are we were extremely excited to open our first location and region have plans to open additional boutiques for all our brands in 2024. Another key achievement in 2023 was the reacquisition of Lanvin's brands Japan license and trademarks. The strength of Lanvin in Japan is a testament to the power value of the brand. We're excited for the opportunity to drive further development of Lanvin Brands in Japan. Overall the story of 2023 for Lanvin Group was about our persistence in delivering growth and improving profitability. The overall growth for the Group an improvement in the quality of our revenue allow us to improve our margin, with gross profit margin improving by over 250 basis points contribution profit margin improving by 255 basis points and adjusted EBITDA margin increasing by near 200 basis points. Our brands made significant progress in 2023. And with that, I'd like to turn to Page 12 and introduce Siddhartha Shukla, the Deputy CEO of Lanvin Brand and discuss some of the Lanvin's highlights. Sid?

Thank you, David. For Lanvin 2023 was indeed a fruitful year continued transition with a persistent focus on long-term brand and business building. After several years relative instability. concrete actions have been executed systematically from the inside of the organization out in establishing, first, a clear brand vision and business strategy. Second, a strong infrastructure of talent to support development and innovation. And third, a diversified global business that has stabilized and is now poised for growth. In a market context where the global wholesale and digital multi-brand channels were quite strained and in contraction, the house was nonetheless able to improve its sales trend in the second half, as David mentioned, with targeted product and marketing campaigns executed via direct channels. Despite a softening top line versus 2020 to seven points negative, the company delivered operational efficiencies through a calculated rationalization of expense levels, improved gross margin at plus eight points versus the previous year due to a favorable channel product mix and a focus on full-price selling, all of which sequentially improved loan funds contribution profit. In April as part of the new merchandising strategy, the House announced a creative reorganization to be powered by singular vision framed by the rich heritage of France's oldest couture house and our founders and Lanvin contact of the [indiscernible] team the ultimate [indiscernible]. Alongside the foundation of men's and women's ready-to-wear collections, two new vertical organizational structures were established; one, fully dedicated to leather goods and accessories and the other to the advent of Lanvin Lab. The final step in this holistic reorganization will come with the imminent appointment in the second quarter of 2024 of a new artistic director for the collections. It still means that leather goods and footwear business saw important progress driven by key product initiatives in the second half notably such as the relaunch of the iconic ballerina flats, the curb sneaker collaboration with the surgeon and the pencil box campaign featuring global brand ambassador Cheng Yi. All of these products have now firmly become Lanvin icons. The first edition of Lanvin Lab was successfully launched in the fourth quarter with the acclaimed Grammy winning artist Future, an experimental space for the cultural expression of the brand, Lanvin Lab has already proven to be a dynamic international platform confirming Lanvin outside brand equity and far-reaching influence. The second addition of Lanvin Lab a monumental public sculpture by the Austrian contemporary artist, Erwin Wurm has just been launched in a six city tour across Mainland China. As concerned network expansion the retail footprint saw a net increase of five new boutiques including the brand's new concept flagship boutique on Madison Avenue in New York. And as David mentioned its first freestanding boutique in the Middle East in Riyadh, Saudi Arabia. 2024 promises new openings in Cannes, Galeries Lafayette in Paris and the debut of digital marketplaces with select retail partners around the world. Thank you all for your time. And with that I will turn it back to David.

Thank you. Lanvin accomplished a lot in 2023 and I'm eager to see what we can achieve in the coming 2024. Now I'd like to introduce Silvia Azzali to discuss Wolford.

Thank you, David. I am Silvia Azzali, the CEO of Wolford and I am happy to share the remarkable achievement of Wolford in the year 2023. Despite significant challenges, our commitment to improving profitability announced last August has yielded fruitful results marking a pivotal moment in our journey. It means an improvement of more than €10 million compared to 2022. This year marks the culmination of our significant restructuring efforts initiated in 2022 and underscores the dedication and resilience of our team in navigating turbulent market condition and executing strategic initiatives with precision. And I am saying that because our journey to this significant improvement was not without its obstacles. We navigated through challenging market conditions characterized by geopolitical tension and inflationary pressure. And last but not least an extreme warm weather [indiscernible] until November which significantly delayed the start of the fall season that for represents more than 60% of our sales. Because of all of that Wolford achieved a modest 1% same-store sales growth in 2023 following three consecutive years of double-digit growth. Particularly, noteworthy was the double digit increase of 11% in the wholesale revenue attributed to strategic collection alignment by our new Artistic Director, Nao Takekoshi and the acquisition of significant new wholesale customer. The Asia Pacific region report an impressive 32% growth, while the India region faced macroeconomic challenges. Contrary to wholesale, retail faced pressure with an overall lower overall decline by 3%. As say, the second semester sales were soft as impacted by unexpected adverse weather condition and tension in the growth area which dampened sentiment among European and American consumers. Despite this challenge, we are pleased to highlight successful new openings including IFC in Hong Kong and pop-up store in Istanbul and the refurbishment of Bal Harbour, Miami, Frankfurt Airport and Milan. These flagship stores now showcase our new store concept f W.O.W. for lounge signed by Nao Takekoshi reinforcing our commitment to elevating the retail experience for our customers globally. Even though sales were soft in the second half of the year, we improved our profitability without only cutting costs. In 2023, workforce celebrated several significant achievements that reinforced our brand presence and refinance in the market. Our company will grow starting February successful partnership with number 21 and John Thompson [indiscernible] and the launch of our new website in November, all contributed to bolstering our digital footprint and announcing the customer experience. Digital sales maintained a stable 19%, showcasing the resilience of our brands. Last thing that makes me especially proud is the introduction of our Revolutionary W.O.W. Leggings further underscored our commitment to innovation, driving an impressive 137% growth in Leggings compared to the previous year, and solidifying our iconic the W Collection as a cornerstone of our brand strategy. Through strategic restructuring efforts, we significantly reduced our [indiscernible] costs resulting in a reduction of operating expenses by €9.6 million, while continuing investing in strategic assets like omnichannel, people, store innovation. Looking ahead we remain optimistic about the future with a solid foundation in place achieve in 2023. We are poised for continued success in 2024 and beyond. Thank you for your time. And with that I'd like to turn it back to David.

All right. Thank you, Silvia. I'm pleased to – pleased with the steady growth and process – progress W.O.W has made in 2023. The new leggings are truly one-of-a-kind and represent a W.O.W for is all about. At this point, I'd like to introduce Andy Lew, the CEO of St. John to discuss some of their 2023 achievements. Andy?

Thank you, David. I'm excited and eager to share our 2023 results, as well as mention some of what 2024 has in-store for St. John's. While 2023 started strong many global businesses hit headwinds in the back half of the year. We are proud we have maintained DTC revenue growth for the fiscal year. The year was truly transformative, as we updated our supply chain to improve operating efficiency. The transition continues to unfold smoothly, as we focus on the highest standard, which our clients not only deserve but candidly expect from us. We continue to refine our wholesale partnerships such as [indiscernible] given our relationship to an alternative style where we control inventory align – allowing us to better showcase the breadth of our assortment and work with DSAs in each location. We are increasing this model in order to directly control our businesses. With our clients top of mind, we launched our foundation collection at the very end of 2022, creating must-have essentials as the building blocks of one's wardrobe, perfectly paired with our more classic pieces within its first full year [indiscernible] has grown to 23% of our overall business. We've since added [indiscernible] an additional color ways to expand that category. Our retail team saw 10 of our top or job stylists sell over 1 million each. Of that four were over $2 million. This aspect of clienteling is a big focus as we open four new boutiques in 2023, with additional relocations ahead. Our Own Your Power campaign was a first for us and creating a powerful message focused on digital and streaming by partnering with Hollywood's Shonda Rhimes. We're able to not only work with an existing client but choosing John fan to speak to who we are today. Celebrity stylist and consultant Karla Welch has been an incredible collaborator with the team from shoots, designs, events and brand awareness that help drive sales. Collaborations such as our recent Edie Parker at St. John handbag capsule important ways to further diversify our product offerings through price points and categories. We purposely cut the launch event instead of focusing on the digital campaign, shoot on actress lead serve to bring in new demographic and create heat. As we look ahead, we are updating our e-commerce platform to Shopify to make us more agile on the features to improve the online experience. Not only does this benefit St. John's, this provides a synergistic platform for all of Loveland Group in its e-commerce and distribution in North America. Having been with Saint John a part of the long bank group since 2021, I can tell you we haven't had a significant e-commerce presence in North America. The development of our US digital platform is a big help for not only Saint John, but also for the group. We now have an efficient way to centralize logistics improve customer experience which all of our brands -- which helps all of our brands in the long run. We are also thrilled to be reestablishing new flagships in key US cities Madison Avenue and New York, Brighton way in Beverly Hills and Post Street in San Francisco. These are major shopping destinations which adds to our retail footprint. We are working diligently to build philanthropic partners and a community around our boutiques. These events in alignments have been key to that engage current new and lapsed clients. These efforts will strengthen our business in North America, so that we can then focus on growing in the rest of the world and explore new partnerships. At St. John we are committed to empowering company women to look and feel the best through luxurious style, software designs and unmatched quality. We feel lucky to have Lanvin Group behind us on this mission. Thank you and I'll give the floor back to David.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Tracy Kogan from Citi. Please go ahead.

Hi, good morning. Thanks everybody. I was wondering if you guys could talk about performance year-to-date in 2024, since we're so far into the year and maybe kind of characterize that performance by region. And then I have a follow-up. Thanks.

Hello. Pardon me. I joined about Dave and Eric signed back in.

Sorry, Tracy, we -- I got dropped off. So we actually now done that's maybe another maybe 10 minutes to for the reports. So maybe hold off on the Q&A session. Just put a little bit. Sorry, about that. Okay. So thanks Andy for introducing John. So I'd like to move to Sergio Rossi, as Sergio Rossi 2023 was also a transformational year with the hiring of a new CEO, Helen Wright to lead effort at the iconic brand. In addition to new leadership, the brand expanded its customer demographic by revitalizing its brand image and with a strong product launches that included the iconic Mermaid and Steve Rossi collections. The brand also initiated new events to enhance customer engagement and grow brand awareness and target campaigns in key geographic regions. These efforts led to revenue growth of 70% in North America, a key region of growth for the brand. Additionally, e-commerce grew over 5% and like-for-like growth by revenue growth was up over 6%. Additionally, Sergio Rossi's white label offering which is that its third-party production business remain a focus of the brand's industrial facilities. In 2023, with the intention of making it an increasing piece of the revenue mix, during 2023, the brand began to strategically emphasize and enhances white label business to promote year round capacity utilization, improved volume and productivity and take advantage of its unique production capabilities. Next, I'd like to discuss some of the achievements of Caruso in 2023. The brand had a strong year of growth and margin improvement. Caruso achieved a significant milestone of adjusted EBITDA breakeven for the 1st year by driving strong results in its Mizone business improving its service offerings and Made to Measure business through the expansion of its production capabilities and specialized teams and improving supply chain strategy in a period of offer scarcity in a men's sportswear industry. Additionally, the brand launches the e-commerce business of first to Caruso. These changes that Caruso has implemented a significant and provide extremely strong foundation for the brand's growth and profitability in the years ahead. Moving ahead without all our achievements in 2023 behind us, I'd like to highlight our outlook for 2024. We expect continued macroeconomic challenges this year, but we're confident our strategy will lead to continued growth and profitability in 2024 our strategy will remain the same focusing on improving and expanding scales as profitability. We plan to approach the market to tactically to capture opportunities in the same fashion we did with each of our brands in 2023 with our methodical and tactical strategy. As I mentioned, one of our core brands achieved adjusted EBITDA breakeven in 2023 and we expect two additional brands achieved that goal in 2024. Taking tactical steps allow Karusel to expand its production capability to capture additional market shares and drive profitability. We will continue to take the same approach with all our brands. Furthermore, we plan to focus on development of our strategic ecosystem. I've talked about our ecosystem a lot in the past and continue to emphasize it as a point of differentiation for Lanvin Group. We have strategic partners throughout the world to help us with variety of business facade from production to distribution we plan to add more partners to facilitate regional growth, improve logistics, and expand product categories in 2024. We're fully engaged in our near-term goals, but we are also looking at bigger picture of what our brands and our platform can be and will continue to align our strategies to achieve balanced SaaS and brand growth and profitability. Now, I'd like to touch on some of details of our financial results, starting on Page 20. As I mentioned, we continue to drive growth year-over-year with our compound growth annual growth rate since 2020 at 24%. On the next page, you will see that we continue to strategically target regions where we want to emphasize our growth including North America, the Middle East, and Asia. I mentioned earlier that we opened our first Lanvin boutique in Rio. This is just the beginning of our expansion into the region and we have plans to add additional Lanvin door in the Middle East. Our brands have significant awareness in the region. And as I mentioned, we have plans to work with strategic partners to accelerate our footprint development. Furthermore, we view APAC and in particular Greater China as an opportunity to gain market share. The penetration rate of our brands are still small. And as evidenced in 2023, our near double-digit growth in Greater China was a testament to our ability to take market share. Another highlight for the region in 2023 was the reacquisition of Lanvin Japan license in March. Lanvin's business in Japan was twice over the past two decades and they were very pleased to able to -- we were very pleased to be able to reacquire license and trademarks. We now have the ability to further drive development and growth in Japan and we're excited for opportunities that are available in country. Moving to Page 22, we continue to pursue growth in our D2C channel through retail expansion and growth in e-commerce. We have taking a tactical approach to the wholesale channel as we view it as a staple of our distribution strategy, but one where we need to refine our partnerships given the challenges that the wholesale channel is facing industry-wide. The group revenue by channel was generally flat, but the group did have an increase in other revenue from the reacquisition of Lanvin's Japan license and associated royalty income. Next, I'd like to quickly touch on our retail footprint. With the changes in our product mix and product offerings in 2022 and 2023, we have established a blueprints for our boutiques moving forward. This require additional the rationalization of network and we'll see on Page 23 that we further reduce our footprint in a process of cooling the fleet of prepare about -- to prepare to expansion strategy. While rationalization of network is ongoing process, one thing to note is that we began to expand Lanvin's footprint in 2023 with a total of five net new stores. One additional point I'd like to make is that while our total base of stores decreased by 12, we maintain our D2C's channel revenue at a steady level, a testament to our improving unit economics. Moving on to Page 24, I'd like to discuss the group's improving profitability. We achieved record gross profit margin for the group lending and 59% for the year for €281 million, up from €238 million at 56% margin in 2022. This was driven by a combination of changes in our product mix and balance of accessories versus ready-to-wear and changes in our distribution channel mix. In 2023, the group continues effort to focus on margin-enhancing product categories as a basis for the future. Additionally, with continued efforts to efficiently manage variable costs, including selling and marketing, the group's contribution profit nearly doubled from €13 million to €24 million at the margin of 6%. You can see that this is to focus on our variable margin that has yielded the desired result with nearly all the gross profit and contribution profit gains falling due to the adjusted EBITDA line. Adjusted EBITDA continued to improve in 2023, with a margin improvement nearly 200 basis points. Furthermore, as I mentioned earlier, Caruso achieved breakeven adjusted EBITDA in Q1 2023 and two additional brands are expected to achieve adjusted EBITDA breakeven in 2024. While the Group has focused on rightsizing the cost structure, we are seeing our results increasingly improve from optimizing the product and channel mix. 2023's performance makes us confident that we're nearing the inflection point, where we can focus more on expanding our scale, to accelerate our path to profitability. Next, I'd like to touch on working capital efficiency on page 26. As you can see, year-after-year, we continue to improve our working capital efficiency. In 2023, for the first time, we had a cash conversion cycle of less than 100 days. Throughout this webcast, I've emphasized our focus on profitability, but want to be clear that we view cash flow efficiency as an equally important objective. To recap in 2023, we continued on the path we outlined in 2018, with growth and significant improvements in profitability and cash flow efficiency. We continue to pave the way of our future and are optimistic for continued improvement into 2024. Now, I'd like to highlight some of the brand-level financials, starting with LANVIN. Brand underwent a creative transition in 2023, in the face of a softening Global Luxury market. However, as the market condition worsened management was able to improve its sales trend in the second half, through our successful product launches and marketing campaigns. The brand landed at a revenue decrease of 7% of the year -- for the year, an improvement of 11% decrease in the first from a -- from an improvement from the 11% decrease in the first half of 2022. Most of the decrease came from the Wholesale channel with Wholesale facing difficulties Industry-wide. Lanvin showed its Brazilian, with the ability to improve its gross profit margins significantly from 50% to 58% by enhancing its product mix and heavy emphasis on accessories, as well as better full price sell-through. Gross profit increased by €4 million in 2023, and as you can see, most of that drop to the contribution profit line. Moving to Wolford. Since Silvia provided details on financial result, I'd like to only point out a few additional highlights. Wolford has had the most significant change to its retail footprint with introduction of the new legging and continued emphasis on a leisure product being the future of the brand. The Wolford name is sum of Phenomenal Technology and Product Development. Returning to the strategy has proven successful. And with that change, we started modifying the merchandising blueprint in 2022, leading to the changes in Wolford's footprint. So far, the strong uptakes in both of these product lines have improved the quality of our revenue and profitability which makes us confident that we will make the right strategic decisions. Next, I'd like to discuss the financial results for Sergio Rossi. Revenue decreased by 4% to €60 million, due to a decrease in white-label third-party protection sales which the brand includes as wholesale revenue. Conversely, the DTC growth grew with Sergio Rossi brand increasing revenues. In particular, in APAC, leveraging brands post-pandemic momentum and by improving its marketing efforts, the brand saw growth in Greater China as well as double-digit growth in Japan, Japanese wholesale accounts. Sergio Rossi, improve its gross profit margin and contribution margin. And its brand revitalization marketing efforts and product launches in Jan 2023, contributed to higher margin sell-through. The brands do have room to improve by streamlining the supply chain and production efficiency with a key focus on accelerating its speed-to-market with this product. As I mentioned, starting in 2023, efforts were made to enhance and emphasize Sergio Rossi in white-label business. And this will be an important façade of the brand going forward. Moving on to St. John, as Andy mentioned earlier, significant progress was made by the brand in 2023. From operation no efficiencies-to-marketing improvements, the brand drove 5% growth land at €90 million for 2023. DTC revenue grew 7%. And more impressively, the brand saw e-commerce growth by 14% with a use of the group's digital U.S. platform. We do think John is a good test case for our U.S. digital platform. And I'm pleased to see such strong results. The DTC growth led to gross profit margin improving 62% in 2023. Additionally, the refining of this wholesale partnerships also contributed to better gross margin. Finally, I'd like to discuss Caruso, Caruso had an impressive 2023. The brand was able to improve its production efficiency and expand its production capability to take advantage of the advantage of the offering scarcity in the market. For men's sportswear revenue increased significantly by 30% to €40 million in 2023, further improving its growth trend from 2022, which was also impressive 25%. Gross profit was up by €4 million to €11 million from €7 million and a margin of 28%. And contribution profit margin improved significantly as well as going from 18% to 24%. Caruso this impressive improvement through its Maisons business, which grew by double digits. In 2023, the brand showed that the groundwork that has been laid to expand scale and improve operating efficiency and production capability yielded significant results. As such, Caruso also achieved break-even, adjusted EBITDA in 2023, a significant milestone. We anticipate continued growth in revenue and profitability as Caruso further develops its business and captures additional market share. At this point, I'd like to have Eric provide some final remarks.

Thank you, David. To close our result call, I would like to highlight some of the key takeaways. First, in 2023, we enter a challenging macro economy environment. We expect the headwind will persist in 2024. However, the resonance that our brands and our teams showed in driving our financial results in 2023 is a testament to our resource and also to the strength of our brands. Second, there is a significant room to grow in many of our geographic regions, so we will continue to focus on balancing our regional growth to take advantage of opportunities at both our retail doors and online. Thirdly, we continue to drive profitability improvement throughout our organization and are able to show the fruits of our labor through our improving gross profit margins and our increase in contribution profits. Lastly, we are nearing an inflection point, and we have laid the groundwork for accelerating the footprint growth and market share gains. And now we have the ability to capitalize on the operating leverage we have built in our group to amplify our profitability. My team, along with our brand managers, remains resolute in our mission to grow our brand and to drive the profitability and cash flow efficiency. Lanvin Group and our brand have a provenance and heritage second to none. And I'm proud of what we have accomplished until 2023, and we are collectively on a journey, and I'm very optimistic about our future. Thank you.

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

Hey, thanks, guys. I will ask the same question I asked earlier, which was I was hoping you could give us a sense of how your business has trended year to date and maybe talk about that regionally. And then I have a follow-up. Thanks.

Yeah, I can. Thank you, Tracy, for the question. Hi. And I think our business is like a lot of other brands. I would say in the macroeconomic, we are, you know, in 2023, I think we landed pretty resilient results. But in Q1, we do see a, I would say, a general kind of a softness in the market, including some of our brands, right? So I think that's why I mentioned a little bit in our script, we are -- all our brands are really just to have to re-shift some of the strategy, right, whether it is, you know, creating products or marketing that is more tailor-made to this particular kind of macroeconomics that we were facing. So to attract, entice certain audience, right? So maybe I don't know if Eric or maybe even the more representative brands for Lambon, right, is that the very -- we saw a kind of a trend coming for the broader luxury market in the second half of 2023. That's why, we've shifted our strategy to some of the capsule and marketing maybe Sid, can give a little bit more examples on this to Tracy's question including some of the product launch or kind of collaboration we did in the second half of the year which continued into the 2024. Right. Sid, you want to you want to take this a little bit.

It's -- first -- sure. Yes. I mean I think what I would say is that just -- fully aligned with what you've said, but I say despite that we remain very optimistic, that we have a year of hard work, some of our key initiatives are going to bring share that we know exist and it's just about being more surgical and drilling into those opportunities. So particularly, with the launch of Lanvin Lab last year which continued into this year as you mentioned David, into Q1 and Q2, we see strong selling from that. As well as more of our core commodity icon businesses in the relaunch of women's formal shoes or even then leather goods where we've seen a remarkable -- despite the global environment, a remarkable resilience and even on a regional basis, very promising signs of growth in leather goods. So, I still feel very optimistic that we have opportunities on a channel and product level to unpack and that we'll be able to do that before the end of the year.

I think you just said that the Lanvin Lab, you had a second – the second drop of the Lanvin Lab and I'm wondering what you're seeing from that. And is Lanvin Lab is – is that a higher margin business because it's more fashion-forward? Or how does that -- how does that shake out overall on the margin side?

Yes. Sid, do you want to take that

Probably, sure. And so two parts of the question. Indeed, it was phased in three drops. And so the second and third drops took place in the first quarter of the year, and we'll continue selling through the first quarter, sorry, through the first quarter and they will still sell through the first half. The important thing about Lab is that, there's not a single recipe to it. It's really about an acknowledgment of Lanvin being a cultural brand as much as it is a fashion brand. We see that throughout the marketplace, and lab is in place for us to situate those projects and make sense of them. They certainly can provide very interesting sources of revenue, but they're not necessarily only about that. The second the second edition, of Lanvin Lab, which I also mentioned is an artistic project, which absolutely supports our business, but in a very different way and through an experience as opposed to an actual collection. Specifically on the first edition, Tracy and as that was linked to a very renowned artist, it's true that it provided a nice source of additional revenue in the year and also some cultural affinity is that the brand absolutely owns, two demographics beyond sort of the traditional; sophisticated occasion wear driven demographics that Lanvin is known for. And so, we see that performing well notably, because as the projects have a dynamism built into them this project -- the first edition was with a musical artist, who has just dropped an album that has three songs trending in the top 10 on the billboard charts. And that obviously, is important to us because it drives a lot of heat and attention to what will be the second and third waves in stores now.

Great. Thank you

Thank you, Sid.

My follow-up -- My follow up David is just on CapEx. It was up significantly this year and I was just wondering, what the drivers were. I mean I know you have more, you had more store openings this year and so I wasn't sure if it was that or if there's more IT or all of the above? And then just wondering, what you're targeting for CapEx for 2024. Thanks a lot?

Yes. I think we still want to keep it pretty consistent. I think at the single digit percentage of the sales, I think -- a lot of the effort that you see will be still coming from rationalization. What you see in -- towards the end of 2023 kind of, we have a net loss of stores, right? That will be -- we will -- we'll continue to see that. And then as I mentioned before, a lot of these action will be seen in Wolford, because we are -- we are seeing a Wolford especially with the success of these leisure wear and the legging, we're moving more and more biggest kind of a different type of stores front to introduce Wolford to our customers.

Got it. Thank you guys. Good luck.

Thank you. Tracy.

[Operator Instructions] Our next question comes from Doug Lane from Water Tower Research. Please go ahead.

Yes, hi. Hello everybody. Just wanted to stick on the margin trends here. They've been heading in the right direction pretty much across the board, which is good to see. I just wondered if David stepping back here. Do you have a target for a group-wide breakeven on EBITDA margin, and maybe if you could discuss a few key initiatives underway to get there?

Thank you Doug for the question. We do know. I think we are, if you follow us a couple of years ago. We were we're aiming for adjusted EBITDA breakeven by 2024. However there is a delay I would say now we are re-looking for a cash breakeven at a group level by 2025 and the reason being is really we didn't foresee a macro economic headwind starting in the second half of 2023. So that's one way to look at this. And then in terms of the where the key initiatives that you mentioned, I mean obviously if you see our product mix for at the group level. Okay. If you talk about Longmont [ph] is only probably one of the few brands that we have accessory capabilities. However, we are focusing more and more on the accessory and leather goods business, especially when Siddhartha mentioned during his speech, we created this division particularly focus on this category. So that means you can see that this group -- the group strategy and initiative to really to drive the higher gross profit margin by having less seasonal products and less ready-to-wear, ready-related products to improve the inventory turns, the OTB and the merchandising strategy. And then the second part of the initiative would be is going to be the channels. We are very selective now, if you ask all the CEOs on the call we've been very selective in terms of our wholesale partners, and then we are really focusing on the D2C model, especially our retail and obviously the dot-com business that we control. And these channels will yield better gross profit margin in general. So we have a little bit more inventory pressure. However, we do believe in the mid to long-term better for the brands.

Okay. And then…

Yeah. Sorry Doug, one last thing, and then -- so not just to focus on the margin and top line. Obviously this will -- we have a couple of these factors with the macroeconomics. The group has -- in Silvia’s speech or even Andy speech, you will sense each brand is still doing their job in terms of making sure the cash efficiency and operating cost efficiency still being rationalized. So on one hand, we are building our revenue and changing product and changing channel mix. But on the other hand we're trying to rationalize the cost. So these two kind of main overarching thesis’s will yield we believe, and we do the right way will yield our positive EBITDA and positive cash flow in the next 18 months.

Okay. That's very helpful. So, it sounds like looking at the recent trends, the marketing and selling expenses have settled into low to mid 50% range, and it's really at the cost of goods and the G&A where the opportunities are, is that where w should continue to see deleverage on the cost front?

Yeah, I do believe so, because unfortunately our brand came out of our restructuring in 2018. We continue to invest in our brand. The easier way is to cut all marketing, and cut all the selling expenses and we become breakeven sooner. But I think that is pretty damaging for all the brand equity. So you will continue to see our investment in the brand marketing and selling expenses.

Okay. That's helpful. Thanks Dave.

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