Lanvin Group - Q4 2023

Transcript

Moderator (participant)

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, future performance and 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, David Chan, Executive President and CFO of Lanvin Group, Siddhartha Shukla, Deputy CEO 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.

Eric Chan (CEO)

Thank you for joining us today. I'm Eric Chan, the CEO of Lanvin Group. Since joining the group in 2023, I've had the chance to meet some extraordinary people. I've always said the managers drive companies, and their teams drive results. I'm 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 EUR 426 million compared to EUR 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 EUR 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 restore brand heat with targeted marketing campaigns, powerful collaborations, and effective service offering. We believe luxury fashion is not just a product but an experience, a 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 stirred those emotions 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 U.S. digital platform. Over the past few months, I have visited many of our new locations.

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 Middle East Lanvin boutique in Riyadh could not have come at a better time with the brand heat that has been generating throughout the Lanvin product launch and Lanvin app. The region actually shares the love of our brands that I do, and I feel there 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 boutiques in the Middle East in 2024. Moreover, as David will discuss later, in 2023, we continue to leverage our strategic policy ecosystem. We have partnered with the best-in-class operations of distribution, retail, product development, and material sourcing around the world.

We continue to seek new strategy partners to develop our ecosystem and improve our product offerings and service. All of these facets drove our financial results. As you will hear, our financial performance continued to improve in 2023. I was most impressed by our resilience during the challenging 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 would like to turn it over to our CFO, David Chan, to go through some of our details.

David Chan (Executive President and CFO)

Thank you, Eric. 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 a synergetic platform that each of the brands contributes to and benefit from. We have also built a backbone of the group, a shared service that benefits all our brands.

Most importantly, we've put together a resilient group of managers and team members that 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 fabric 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 four and five 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 conditions grew steadily worse. Additionally, we showed a strong growth in the APAC region, with nearly 8% growth and Greater China growing by 9%. One of the key pieces of our D2C channel, e-commerce, posted a gain of 3%, with the group leveraging this U.S. digital platform, an indication that our digital strategy is paying off. Furthermore, we continue to improve our retail footprint and 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 first Middle East boutique in Riyadh.

We were extremely excited to open our first location in the region and have plans to open additional boutiques for all our brands in 2024. Another key achievement in 2023 was the reacquisition of Lanvin brand's Japan license and trademarks. The strength of Lanvin in Japan is a testament to the power and 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 and 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.

With that, I'd like to turn to page 12 and introduce Siddhartha Shukla, the Deputy CEO of Lanvin brand, and discuss some of Lanvin's highlights.

Siddhartha Shukla (Deputy CEO)

Thank you, David. For Lanvin, 2023 was indeed a fruitful year of continued transition, with a persistent focus on long-term brand and business building. After several years of 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 softened top line versus 2022 at -7 points, the company delivered operational efficiencies through a calculated rationalization of expense levels, improved gross margin at +8 points versus the previous year through a favorable channel product mix, and a focus on full-price selling, all of which substantially improved Lanvin's contribution profit. In April, as part of a new merchandising strategy, the house announced a creative reorganization to be powered by a singular vision framed by the rich heritage of France's oldest couture house and our founder Jeanne Lanvin's concept of le chic ultime, the ultimate chic. Alongside the foundational 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. A still nascent 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 flat, 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's outsized brand equity and far-reaching influence.

The second edition 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 concerns 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. With that, I will turn it back to David.

David Chan (Executive President and CFO)

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.

Silvia Azzali (CEO)

Thank you, David. I am Silvia Azzali, the CEO of Wolford, and I'm 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 EUR 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 conditions and executing strategic initiatives with precision. 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 climate until November, which significantly delayed the start of the full season that in Wolford represents more than 60% of our sales. Because of all of that, Wolford achieved a modest 1% 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 customers. The Asia-Pacific region reported an impressive 32% growth, while the EMEA region faced macroeconomic challenges. Contrary to wholesale, retail faced pressure, with an overall decline by 3%.

As said, the second semester's sales were soft, as impacted by unexpected adverse weather conditions and tension in the Gulf area, which dampened sentiments among European and American consumers. Despite these challenges, we are pleased to highlight successful new openings, including IFC in Hong Kong, a pop-up store in East Hampton, and the refurbishment of Bal Harbour Miami, Frankfurt Airport, and Milan. These flagship stores now showcase our new store concept, Wolford Lounge, designed 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, Wolford celebrated several significant achievements that reinforced our brand presence and resonance in the market. Our campaign with Grace Jones in February, successful partnership with No.

21 and Jonathan Simkhai, and the launch of our new website in November, all contributed to bolstering our digital footprint and enhancing the customer experience. Digital sales maintained a stable 19%, showcasing the resilience of our brand. 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 heritage costs, resulting in a reduction of operating expenses by EUR 9.6 million, while continuing to invest in strategic assets like omnichannel, people, and store renovation. Looking ahead, we remain optimistic about the future. With a solid foundation in place achieved in 2023, we are poised for continued success in 2024 and beyond. Thank you for your time.

With that, I'd like to turn it back to David.

David Chan (Executive President and CFO)

All right. Thank you, Silvia. I'm pleased with the steady growth and progress Wolford has made in 2023. The new leggings are truly one of a kind and represent what Wolford 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.

Andy Lew (CEO)

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. While 2023 started strong, many global businesses hit headwinds in the back half of the year. We are proud to 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 standards, which our clients not only deserve but can only expect from us. We continue to refine our wholesale partnerships, such as Nordstrom, pivoting our relationship to an alternative style where we control inventory, 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, perfect to pair with our more classic pieces. Within its first full year, the collection has grown to 23% of our overall business. We've since added evening and additional colorways to expand that category. Our retail team saw 10 of our top wardrobe stylists sell over $1 million each. Of that, four were over $2 million. This aspect of clientele is a big focus as we opened four new boutiques in 2023, with additional relocations ahead. Our Own Your Power campaign was a first for us in creating a powerful message focused on digital and streaming by partnering with Hollywood's Shonda Rhimes. We were able to not only work with an existing client but a true St.

St. John 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 helped drive sales. Collaborations such as our recent Edie Parker at St. John handbag capsule are important ways to further diversify our product offerings through price points and categories. We purposely cut the launch event instead of focusing on a digital campaign shoot on actress Leighton Meester 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 these features to improve the online experience. Not only does this benefit St. John, this provides a synergistic platform for all of Lanvin Group in its e-commerce and distribution in North America. Having been with St.

John, a part of the Lanvin Group since 2021, I can tell you we haven't had a significant e-commerce presence in North America. The development of our U.S. digital platform is a big help for not only St. John but also for the group. We now have an efficient way to centralize logistics and improve customer experience, which helps all of our brands in the long run. We are also thrilled to be reestablishing new flagships in key U.S. cities: Madison Avenue in New York, Brighton Way in Beverly Hills, and Post Street in San Francisco. These are major shopping destinations, which add to our retail footprint. We are working regionally to build philanthropic partners and a community around our boutiques. These events and alignments have been key to engage current, new, and last 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 confident women to look and feel their best through luxurious style, thoughtful 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.

Moderator (participant)

We will now begin the question-and-answer session. To ask a question, please press star then one on your touch-tone phone. If you're using your speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Tracy Kogan from Citi. Please go ahead.

Tracy Kogan (VP)

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.

David Chan (Executive President and CFO)

Hello? Pardon me. I've joined.

Tracy Kogan (VP)

Hello?

Moderator (participant)

David and Eric sliding back in.

David Chan (Executive President and CFO)

Oh, hi. Oh, sorry, Tracy. I got dropped off, so we're actually not done. I have maybe another maybe 10 minutes for the reports. So maybe hold off on the Q&A section just for a little bit. Sorry about that. Okay. So thanks, Andy, for introducing St. John. So I'd like to move to Sergio Rossi. As Sergio Rossi, 2023 was also a transformation year with the hiring of a new CEO, Helen Wright, to lead the effort at the iconic brand. In addition to new leadership, the brand expanded its customer demographic by revitalizing its brand image and with strong product launches that included the iconic Mermaid and SI ROSSI collections. The brand also initiated new events to enhance customer engagement and grow brand awareness and targeted 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 revenue growth was up over 6%. Additionally, Sergio Rossi's white label offering, which is its third-party production business, remained a focus of the brand's industrial facility. In 2023, with the intention of making it an increasing piece of the revenue mix, during 2023, the brand began to strategically emphasize and enhance its white label business to promote year-round capacity utilization, improve 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 break-even for the first year by driving strong results in its Maison business, improving its service offerings and made-to-measure business through the expansion of its production capabilities and specialized teams, and improving its supply chain strategy in a period of offering scarcity in the men's sportswear industry. Additionally, the brand launches its e-commerce business, a first to Caruso. These changes that Caruso has implemented are significant and provide an extremely strong foundation for the brand's growth and profitability in the years ahead. Moving ahead, with 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 are confident our strategy will lead to continued growth and profitability. In 2024, our strategy will remain the same, focusing on improving and expanding scales and profitability.

We plan to approach the market 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 four brands achieved Adjusted EBITDA break-even in 2023, and we expect two additional brands to achieve that goal in 2024. Taking tactical steps allows Caruso to expand its production capability to capture additional market shares and drive for profitability. We will continue to take the same approach with all our brands. Furthermore, we plan to focus on the 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 that help us with a variety of our business facade, from productions 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 the bigger picture of what our brands and our platform can be, and we will continue to align our strategies to achieve balanced success in brand growth and profitability. Now, I'd like to touch on some of the details of our financial results. Starting on page 20, as I mentioned, we continue to drive growth year over year without compounding any 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 APAC. I mentioned earlier that we opened our first Lanvin boutique in Riyadh.

This is just the beginning of our expansion into the region, and we have plans to add additional Lanvin Group doors 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 is 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 thriving over the past two decades, and they were very pleased to be able to reacquire the license and trademarks.

We now have the ability to further drive development and growth in Japan, and we're excited for the opportunities that are available in-country. Moving to page 22, we continue to pursue growth in our DTC channel through retail expansion and growth in e-commerce. We have taken 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 the blueprints for our boutiques moving forward.

This requires additional rationalization of network, and we'll see on page 23 that we further reduce our footprint in the process of culling the fleet to prepare it for our expansion strategy. While rationalization of network is an 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 DTC 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 landing at 59% for the year, or EUR 251 million, up from EUR 238 million at a 56% margin in 2022.

This was driven by a combination of changes in our product mix and balance of accessory versus ready-to-wear, and changes in our distribution channel mix. In 2023, the group continues its efforts 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 EUR 13 million to EUR 24 million at a margin of 6%. You can see that this is the focus on our variable margin has yielded the desired result, with nearly all the gross profit and the contribution profit gains falling into the Adjusted EBITDA line.

Adjusted EBITDA continued to improve in 2023 with a margin improvement of nearly 200 basis points. Furthermore, as I mentioned earlier, Caruso achieved break-even Adjusted EBITDA in 2023, and two additional brands are expected to achieve Adjusted EBITDA break-even in 2024.

While the group has focused on right-sizing 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 for our future and are optimistic for continued improvement in 2024. Now, I'd like to highlight some of the brand-level financials, starting with Lanvin. The brand underwent a creative transition in 2023 in the face of a softening global luxury market. However, as the market conditions worsened, management was able to improve its sales trend in the second half through successful product launches and marketing campaigns. The brand landed at a revenue decrease of 7% for the year and an improvement of 11% from the 11% decrease in the first half of 2023. Most of the decrease came from the wholesale channel, with wholesale facing difficulties industry-wide. Lanvin shows its resilience with the ability to improve its gross profit margins significantly from 50% to 58% by enhancing its product mix and heavier emphasis on accessories, as well as better full-price sell-through.

Gross profit increased by EUR 4 million in 2023, and as you can see, most of that dropped to the contribution profit line. Moving to Wolford. Since Silvia provided details on financial results, I'd like to only point out a few additional highlights. Wolford has had the most significant change to its retail footprint with the introduction of the new legging and continued emphasis on athleisure product being the future of the brand. The Wolford name is synonymous with 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 uptake in both of these product lines has improved the quality of our revenue and profitability, which makes us confident that we will make the right strategic decision.

Next, I'd like to discuss the financial results for Sergio Rossi. Revenue decreased by 4% to EUR 60 million due to a decrease in white label third-party production sales, which the brand includes in its wholesale revenue. Conversely, the DTC growth grew with the Sergio Rossi brand increasing revenues, in particular in APAC, leveraging the brand's post-pandemic momentum and by improving its marketing efforts. The brand saw growth in Greater China as well as double-digit growth in Japanese wholesale accounts. Sergio Rossi improved its gross profit margin and contribution margin, and its brand revitalization marketing efforts and product launches in 2023 contributed to higher margin sell-through. The brand still has room to improve by streamlining its supply chain and production efficiency, with a key focus on accelerating its speed to market with its product.

As I mentioned, starting in 2023, efforts were made to enhance and emphasize Sergio Rossi's white label business, and this will be an important facade of the brand going forward. Moving on to St. John, as Andy mentioned earlier, significant progress was made by the brand in 2023. From operational efficiencies to marketing improvements, the brand drove 5% growth to land at EUR 90 million for 2023. DTC revenue grew 7%, and more impressively, the brand saw e-commerce growth by 14% with the use of the group's digital U.S. platform. We view St. John as 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 63% in 2023. Additionally, the refining of these 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 offering scarcity in its market for men's sportswear. Revenue increased significantly by 30% to EUR 40 million in 2023, further improving its growth trend from 2022, which was also an impressive 25%. Gross profit was up by EUR 4 million to EUR 11 million from EUR 7 million and a margin of 28%, and contribution profit margin improved significantly, as well as going from 18% to 24%. Caruso drove this impressive improvement through its Maison 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.

Eric Chan (CEO)

Thank you, David. To close our results call, I would like to highlight some of the key takeaways. First, in 2023, we entered a challenging macroeconomic environment. We expect the headwind will persist in 2024. However, the resilience that our brands and our teams showed in driving our financial results in 2023 is a testament to our resources and also to the strength of our brands. Second, there is 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. 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 in 2023, and we are collectively on a journey, and I'm very optimistic about our future. Thank you.

Moderator (participant)

We will now begin the question and answer session. To ask a question, you may press star one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Tracy Kogan from Citi. Please go ahead.

Tracy Kogan (VP)

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.

David Chan (Executive President and CFO)

Yeah, I can. Thank you, Tracy, for the question. Hi. I think our business is like a lot of other brands, I would say, in the macroeconomic. In 2023, I think we landed pretty resilient results, but in Q1, we do see a, I would say, a general kind of softness in the market, including some of our brands. So I think that's why I mentioned a little bit in our script, all our brands are really just to have to reshift some of the strategy, whether it's creating products or marketing that is more tailor-made to this particular kind of macroeconomics that we're facing, so to attract and entice a certain audience. So maybe I don't know if Eric or maybe even the more representative brands for Lanvin, because we saw a kind of trend coming for the broader luxury market in the second half of 2023.

That's why we shifted our strategies 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 the collaboration we did in the second half of the year, which continued into 2024. Sid, you want to take this a little bit?

Siddhartha Shukla (Deputy CEO)

Sure. Sure. Yeah. I mean, I think what I would say is that fully aligned with what you've said, but I'd say despite that, we remain very optimistic that we have a year ahead where some of our key initiatives are going to bring share that we know exists, 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 in leather goods where we've seen, despite the global environment, a remarkable resilience and even on a regional basis, very promising signs of growth in leather goods.

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.

Tracy Kogan (VP)

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

David Chan (Executive President and CFO)

Yes. Sid, you want to take that? It's probably easier.

Siddhartha Shukla (Deputy CEO)

Sure. Sure. So two parts to 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 will 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 a 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 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 affinities that the brand absolutely owns to 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, 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.

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.

Tracy Kogan (VP)

Great. Thank you, Sid. 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 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.

David Chan (Executive President and CFO)

Yeah, I think we still want to keep it pretty consistent, I think, at this single-digit % of sales. I think a lot of the effort that you see will be still coming from rationalization. What you see towards the end of 2023, kind of we have a net loss of stores because we'll continue to see that. And then, as mentioned before, a lot of these actions will be seen in Wolford because we are seeing a Wolford, especially with the success of these leisurewear and leggings. We're moving more and more. We need a bigger kind of a different type of storefront to introduce Wolford to our customers.

Tracy Kogan (VP)

Got it. Thank you, guys. Good luck.

David Chan (Executive President and CFO)

Thank you, Tracy.

Moderator (participant)

Again, if you have a question, please press star one. Our next question comes from Doug Lane from WaterTower Research. Please go ahead.

Doug Lane (Managing Director of Consumer)

Yes. Hi. Hello, everybody. Just want 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 break-even on EBITDA margin? And maybe if you could discuss a few key initiatives underway to get there.

David Chan (Executive President and CFO)

Thank you, Doug, for the question. We do. I think we are, if you follow us a couple of years ago, we were aiming for an Adjusted EBITDA break-even by 2024. However, there is a delay, I would say. Now, we are really looking for a cash break-even at a group-wide level by 2025. And the reason being is really we didn't foresee a kind of macroeconomic kind of headwinds starting in the second half of 2023. So that's one way to look at this. And then in terms of the kind of where the key initiatives that you mentioned, I mean, obviously, if you see our product mix as a group level, okay, if you talk about Lanvin, it's 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 focused on this category. So that means you can see that this is the group strategy and initiative to really drive that higher gross profit margin by having less seasonal products and less ready-to-wear related to products to improve the inventory turns, the OTB, and the merchandising strategy. And then that second part of the initiative 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, I would say, the dot-com business that we control. And these channels will yield better gross profit margin in general.

So it has a little bit more inventory pressure. However, we do believe in the mid to long term, it's better for the brands.

Doug Lane (Managing Director of Consumer)

Okay. That makes sense.

David Chan (Executive President and CFO)

Then yeah. Sorry, Doug, maybe one last thing. Not just to focus on the margin and top line, obviously, we have a couple of these factors with the macroeconomics. The group has, in Silvia's speech or even Andy's speech, you will sense each brand is still doing their job in terms of making sure the cash efficiency and operating cost efficiency is 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 our cost. So these two kind of main overarching theses will yield, we believe, in a we do it the right way, will yield positive EBITDA and positive cash flow in the next 18 months.

Doug Lane (Managing Director of Consumer)

Okay. That's very helpful. So it sounds like looking at the recent trends, the marketing and selling expenses have sort of settled into this 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 we should continue to see the leverage on the cost front?

David Chan (Executive President and CFO)

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

Doug Lane (Managing Director of Consumer)

Okay. That's helpful. Thanks, David.

David Chan (Executive President and CFO)

Thank you.

Moderator (participant)

There are no more questions in the queue. This concludes our question-and-answer session, and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.