MYTE - MYT Netherlands Sees Higher Inventory Levels As Consumer Confidence Drops

2023-10-09 12:20:29 ET

Summary

• MYT Netherlands Parent B.V. aka Mytheresa has reported increased revenue but missed earnings estimates in its FQ4 2023 financial results.
• The company operates the luxury fashion e-commerce website Mytheresa and has seen strength in the US market.
• However, recent consumer confidence measures have dropped, and inventory levels have been excessive; my outlook in the near term is to Sell.

A Quick Take On MYT Netherlands

MYT Netherlands Parent B.V. (MYTE) aka Mytheresa reported its FQ4 2023 financial results on September 14, 2023, beating revenue and missing consensus earnings estimates.

The firm operates the e-commerce website Mytheresa, which sells luxury fashion items to consumers worldwide.

I previously wrote about MYTE with a Hold outlook.

The firm saw calendar Q2 strength in the U.S., but recent consumer confidence measures have been dropping substantially and the company's inventory levels have been excessive.

My outlook on MYTE in the near term is to Sell.

Mytheresa Overview And Market

Germany-based Mytheresa offers site visitors a curated selection of luxury fashion brands that it carries on its e-commerce website.

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

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

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

According to a 2023 market research report from Fortune Business Insights, the global luxury goods market was an estimated $273 billion in 2022 and is expected to reach $392 billion by 2030.

This growth, if achieved, would represent a compound annual growth rate of 4.7% from 2023 to 2030.

The chart below shows the historical and projected future growth trajectory for the luxury goods market in the Asia Pacific region:

Major competitive or other industry participants include:

• Online multi-brand retailers and marketplaces

• Farfetch Limited ( FTCH )

• Luxury brands selling direct to consumers

• Luxury multi-brand stores.

Mytheresa's Recent Financial Trends

Total revenue by quarter has begun to grow again on a sequential and YoY basis; Operating income by quarter has also moved higher in the most recent quarter.

Gross profit margin by quarter has trended lower recently; Selling and G&A expenses as a percentage of total revenue by quarter have also moved lower in recent quarters.

Earnings per share (Diluted) have trended lower and further into negative territory:

(All data in the above charts is GAAP.)

In the past 12 months, MYTE's stock price has fallen 74.86% vs. that of Farfetch's drop of 78.84%:

For balance sheet results, the firm ended the quarter with $32.9 million in cash and equivalents and no debt.

Over the trailing twelve months, free cash used was $84.9 million, during which capital expenditures were $24.8 million. The company paid $32.7 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For Mytheresa

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:

(Source - Seeking Alpha.)

Sentiment Analysis

The chart below was constructed using a word count function from the firm's most recent earnings call transcript.

The results indicate the company is suffering from significant macroeconomic pressures in an uncertain and challenging environment.

Analysts asked leadership about recent growth trends, inventory management and the impact of 'aspirational customers' on average order value [AOV].

Management responded that it is seeing growth in the U.S. due to its targeting of high-net-worth individuals and events in major cities.

Inventory is managed more on medium-term considerations rather than short-term fluctuations.

The company has seen an increase in AOV (Average Order Value) and doesn't expect a major return of aspirational customers in fiscal 2024.

Commentary On Mytheresa

In its last earnings call (Source - Seeking Alpha ), covering FQ4 2023's results, management's prepared remarks highlighted beating expectations for FQ4 and full-year fiscal 2023.

The firm saw "high double-digit GMV [Gross Merchandise Value] growth in the United States, [and] achieved double-digit growth in Mainland China."

However, the current environment is challenging, especially due to a "slowdown of aspirational customer spend, [and] increased promotional intensity" by competitors.

Total revenue for FQ4 2023 rose by an impressive 21.3% year-over-year, while gross profit margin dropped by 5.2%, a worrying result.

Selling and G&A expenses as a percentage of revenue dropped by 5.0% YoY and operating income more than doubled to $5.7 million for the quarter.

The company's financial position is questionable, with some cash, and no debt, but high use of cash limiting the firm's runway and ability to invest in major initiatives.

However, MYTE does have a EUR60 million revolving credit facility available, should it need to access it.

Looking ahead, management is guiding the full fiscal year 2024 GMV and net sales growth of around 10.5% at the midpoint of the range.

Leadership remains focused on selling to the high-end at full price and being brand-friendly.

In the past twelve months, the firm's EV/Sales valuation multiple has dropped by over 70%, as the chart from Seeking Alpha shows below:

A potential upside catalyst to the stock could include a slow grind upward in revenue despite macroeconomic pressures.

However, the firm's days inventory outstanding ((DIO)) is at 302 days versus its target of 260, indicating poor sell-through.

As of September 26, 2023, The Conference Board's most recent gauge of U.S. consumer confidence fell to 103.0, continuing its downward trend in recent months, as the chart shows below:

Given recent worsening consumer confidence results, I'm not optimistic about the company's growth outlook.

My outlook on MYT Netherlands Parent B.V. in the near term is to Sell.

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