MYTE - MYT Netherlands Contends With Declining Revenue And Macro Headwinds

2023-03-09 18:10:43 ET

Summary

• MYT Netherlands Parent published its FQ2 2023 financial results recently.
• The firm operates a luxury apparel ecommerce platform for global brands and consumers.
• MYTE has produced declining revenue and faces myriad macroeconomic headwinds.
• I'm on Hold for MYTE in the near term until it can reignite revenue growth.

A Quick Take On MYT Netherlands

MYT Netherlands ( MYTE ) reported its FQ2 2023 financial results on February 23, 2022, missing revenue and EPS consensus estimates.

The firm operates the ecommerce website Mytheresa, selling luxury fashion items to consumers.

Absent a meaningful catalyst, I don’t see a case for buying MYTE at its current level of around $6.60.

Accordingly, I’m on Hold for MYTE in the near term.

MYTE Overview

Munich, Germany-based Mytheresa was founded to develop a curated selection of luxury fashion brands that it carries on its ecommerce website.

Management is headed by Chief Executive Officer Michael Kliger, who has been with the firm since 2015 and was previously VP International at eBay Enterprise and an Executive Director at Accenture.

Mytheresa also operates offline events in major cities. The firm provides personal shopping support for top customers.

The firm primarily markets its online website to high-income luxury consumers via online search engine optimization, advertising and word of mouth.

MYTE’s Market & Competition

According to a 2020 market research report by Bain & Company Luxury Goods Worldwide Market Study (Spring Update), the global market for luxury goods fell by an estimated 25% in Q1 2020 which could develop into a full-year contraction of 20% to 25%.

The report said 'there will be a recovery for the luxury market but the industry will be profoundly transformed...The coronavirus crisis will force the industry to think more creatively and innovate even faster to meet a host of new consumer demands and channel constraints.'

Notably for MYTE, online luxury has proven resilient versus retail-oriented merchants.

Also, the report estimates that 'recovery to 2019 levels will not occur until 2022 or 2023,' with growth resuming only gradually and depending on the major 'luxury player's strategic responses to the current crisis and their ability to transform the industry on behalf of the customer.'

Major competitive or other industry participants include:

• Online multi-brand retailers and marketplaces

• Farfetch ( FTCH )

• Luxury brands selling directly to consumers

• Luxury multi-brand stores

MYTE’s Recent Financial Results

• Total revenue by quarter has trended lower in recent quarters:

• Gross profit margin by quarter has trended higher in recent reporting periods:

• Selling, G&A expenses as a percentage of total revenue by quarter have trended higher more recently:

• Operating income by quarter has steadily fallen in recent quarters:

• Earnings per share (Diluted) have largely remained negative:

(All data in the above charts is GAAP)

In the past 12 months, MYTE’s stock price has fallen 47.4% vs. that of Farfetch’s drop of 65.2%, as the chart indicates below:

As to its FQ2 2023 financial results, total revenue dropped 4.7% year-over-year, while gross profit rose two percentage points.

SG&A expenses as a percentage of revenue rose slightly while operating income fell sequentially, as did earnings per share.

For the balance sheet, the company ended the quarter with $77.7 million in cash, equivalents and short-term investments and no debt.

Over the trailing twelve months, free cash used was $22.1 million, of which capital expenditures accounted for $24.9 million. The company paid a hefty $41.8 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For MYT Netherlands

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

As a reference, a relevant partial public comparable would be Farfetch; shown below is a comparison of their primary valuation metrics:

(Source - Seeking Alpha)

Future Prospects For MYT Netherlands

In its last earnings call (Source - Seeking Alpha), covering FQ2 2023’s results, management highlighted the negative macroeconomic environment in which it competes but said that its focus on the higher-end customer meant the company was able to produce better than peer results.

Going into a period that may feature a sharper slowdown may favor the company's approach in the quarters ahead, but that remains to be seen.

Management says that luxury brands are more interested in partnering with the firm as a result of the ‘increasing importance of top customers in today’s environment,’ as their purchasing behaviors are less affected by economic slowdowns.

The company has increased its top customer base by ‘111% since Q2 of fiscal year 2020.’

Looking ahead, management sees the luxury e-commerce space in a period of consolidation, so there may be M&A opportunities under consideration.

The company's financial position is in moderately good shape, with no debt but using significantly higher cash in its Capex efforts.

Regarding valuation, the market is valuing MYTE at a lower EV/Revenue multiple despite its higher growth rate.

Notably, both MYTE and FTCH stock charts have produced arguably similar trajectories over the past 12 months.

The primary risk to the company’s outlook would be a continuation of previous macroeconomic headwinds that has resulted in downward pressure on growth.

Absent a meaningful catalyst, I don’t see a case for buying MYTE at its current level of around $6.60.

Accordingly, I’m on Hold for MYTE in the near term.

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