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Luvu Brands, Inc. (LUVU) Q2 2023 Earnings Call Transcript

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Luvu Brands, Inc. (OTCQB:LUVU) Q2 2023 Earnings Conference Call February 21, 2023 11:00 AM ET

Company Participants

Alex Sannikov - Chief Financial Officer

Louis Friedman - Founder, President and Chief Executive Officer

Jordan Friedman - Sales Director

Conference Call Participants

Operator

Greetings, ladies and gentlemen, and invited to Luvu Brands, Inc. Fiscal Second Quarter 2023 Conference Call. At this time, each participants are successful a listen-only mode. A question-and-answer convention will travel nan general presentation. As a reminder, this convention telephone is being recorded.

It is now my pleasance to present Alex Sannikov, nan company's Chief Financial Officer. Mr. Sannikov, you whitethorn begin.

Alex Sannikov

Thank you, Tom, and convey you to everyone who has joined america coming for Luvu Brands' Fiscal Second Quarter Conference Call. Joining maine coming is Louis Friedman, our Founder, President and Chief Executive Officer; and Jordan Friedman, our Sales Director.

On Friday past week, we revenge our quarterly study connected Form 10-Q for nan 3 and six months ended December 31, 2022, and issued an net merchandise that highlighted nan company's 2nd 4th performance. There are a number of items that we look guardant to discussing pinch you this morning, including Luvu Brands' financial results for nan 3 and six months ended December 31, 2022, caller developments successful Luvu Brands' operational activities, arsenic good arsenic nan company's near-term plans for nan future. At nan conclusion of this call, we will beryllium answering questions during a little Q&A session.

Before we get started, I would for illustration to punctual you that immoderate of nan accusation discussed will see forward-looking statements regarding early events and our early financial performance. These see statements astir our early expectations, financial projections and our plans and prospects. Actual results whitethorn disagree materially from those group distant successful specified statements. For a chat of these risks and uncertainties, you should reappraisal nan company's filings pinch nan SEC, which includes Friday's property release.

You should not trust connected our forward-looking statements arsenic predictions of nan early events. All forward-looking statements that we make connected this telephone are based connected assumptions and beliefs arsenic of today, and we undertake nary responsibility to update them isolated from arsenic required by applicable law.

Our chat coming will see non-GAAP financial measures, including EBITDA and adjusted EBITDA. These non-GAAP measures should beryllium considered successful summation to, and not arsenic a substitute for aliases successful isolation from, our GAAP results. A reconciliation of nan astir straight comparable GAAP financial measures to specified non-GAAP financial measures has been provided arsenic supplemental financial accusation successful our property release.

Now pinch that completed, I'd for illustration to commencement nan telephone pinch a fewer words from Luvu Brands' Founder and CEO, Louis Friedman. Louis?

Louis Friedman

Thank you, Alex, and bully morning, everyone, and convey you for joining america connected Luvu Brands' 2nd 4th convention call.

Our institution is driven by productivity and innovation, coupled pinch bully design, sustainability and affordable value to value. Our occurrence comes from our balanced and diversified direct-to-consumer business, on pinch aggregate channels of wholesale growth, coupled pinch outstanding integer trading execution connected immoderate of nan largest websites connected nan Internet.

We delivered a beardown 4th successful what remains a highly move operating environment. We are pleased to study better-than-expected results and caller income records for fiscal 4th pinch nett gross of $8.1 cardinal versus $7.2 cardinal a twelvemonth agone and versus $5.7 cardinal successful nan 2nd 4th of fiscal 2021.

Despite wide discounting wrong wide marketplace websites, Amazon and nan pleasance products industry, we delivered 27.8% adjusted operating separator for nan 2nd quarter.

Looking ahead, we judge that our brands, our maturation strategy and merchandise improvement initiatives position america good to look powerfully complete time. As announced past quarter, we'll proceed to instrumentality continuous betterment initiatives, further automation designed to make worldly costs savings, streamlined workflows and operating costs. And while we activity to present accrued income successful this environment, we are besides laser-focused connected profitability and higher margins.

Thank you to nan team's difficult activity and I stay assured successful our expertise to proceed to execute past this vacation play and beyond.

At this point, I'll move nan position complete to Jordan, who will talk our integer wide marketplace attack to income and marque awareness.

Jordan Friedman

Thank you, Louis. Good morning, everyone.

This has been a really beardown and breathtaking first six months, and I'm elated pinch nan results truthful far. Our trading efforts are paying disconnected arsenic user request continues to increase, while our advertizing fund arsenic a percent of gross remains virtually unchanged.

Here astatine Luvu Brands, we person a vertically integrated instrumentality for integrated growth. With accordant innovative caller merchandise designs, accelerated prototyping, speedy to motorboat manufacturing, best-in-class in-house photography, superior video contented and an extended merchandise distribution network, each merchandise tin spell from caller creation sample to champion seller wrong a matter of weeks. For an overview of our collections, spot our catalogs now unrecorded connected nan Luvu Brands investor website.

For caller products and caller content, we flourish pinch immoderate transmission that allows america to edit and heighten their information and media contented directly, arsenic our rich | images, video and SEO-friendly merchandise transcript proceed to impressment customers and summation visibility. Our instrumentality for maturation continues to present results arsenic we are pushing caller photography, enhanced contented and innovative merchandise designs connected astir a regular basis. We've continued this inclination passim Q2 pinch caller breathtaking collections crossed aggregate brands.

In nan past six months, nan Liberator and Avana brands person worked good together to push Liberator designs to caller limits. While Avana income were technically down this quarter, nan Avana branding is besides utilized to thief accelerate Liberator maturation done [PG] (ph) rebranding, frankincense achieving distribution into much mainstream atmospheres, including furnishings sites. By utilizing mainstream contented and clever terminology, nan Avana branding was a ample logic for nan occurrence of Liberator this quarter, arsenic we were capable to get nan much mainstream assemblage successful income channels that were antecedently ne'er consenting to waste intersexual wellness products.

This upcoming quarter, Q3, 1 of our caller initiatives that we've been really enthusiastic about, is our caller Jaxx marque acquisition furnishings statement presented this week astatine nan [NAIS] (ph) show successful Las Vegas. We've greatly enhanced our offering and person importantly accelerated our expertise to turn successful nan acquisition and commercialized furnishings business. With innovative caller self-seating designs successful nan highest value hospitality-grade filled leathers, we're astatine a awesome spot for important maturation wrong a comparatively untapped marketplace for us. Our caller acquisition seating postulation has had a batch of affirmative consequence truthful acold from schoolhouse specialty, respective schoolhouse districts, each willing successful ample bulk orders.

Regarding our advertizing and distribution, we're continuing to adhd caller e-commerce stores and retailers, positive galore ample commercial, schoolhouse and hospitality clients. Regional furnishings chains proceed to beryllium much and much willing successful our Jaxx products for some online and in-store. For advertising, Google PPC, Amazon PPC, people ads, beardown email campaigns, retargeting and abandoned cart e-mails and advertizing successful galore societal media channels continues to salary off.

Constant monitoring, A/B testing, observant tract placement and usage of clever long-tail keywords support our advertizing initiatives converting astatine a precocious level. We besides proceed to capitalize connected being a made-in-America company. Wholesale partners and consumers regularly activity america retired and applaud our American-made commitment.

Overall, our maturation imaginable is stronger than ever. We recorded grounds profits this quarter, and we've delivered accordant profitability for complete 3 years now. This institution was undercapitalized from its inception, but pinch nan profitability we've achieved complete nan past 3 years, we tin yet put successful our semipermanent maturation successful ways that were ne'er imaginable before.

Now, I'll move this complete to Alex Sannikov, Luvu Brands' Chief Financial Officer, to summarize immoderate of nan financial highlights for nan fiscal 2nd 4th of 2023.

Alex Sannikov

Thank you, Jordan. I will concisely touch connected immoderate of nan financial highlights from nan fiscal 2nd 4th and first half ended December 31, 2022.

For nan first 2nd quarter, nett income accrued to $8.1 cardinal from $7.2 cardinal successful nan anterior twelvemonth 2nd quarter, an summation of 13.2%. Liberator income accrued 49% to $4.9 cardinal from $3.3 cardinal successful nan anterior year. Jaxx merchandise income decreased 11% to $2.1 cardinal compared to $2.3 million. And Avana merchandise income decreased 31% to $0.5 cardinal from $0.8 cardinal a twelvemonth ago.

For nan six months, nett income accrued to $16.2 cardinal from $13.5 million, an summation of 21%. Liberator income accrued 66% to $10 cardinal from $6 cardinal successful nan anterior year. Jaxx merchandise income decreased 8% to $3.9 cardinal compared to past fiscal year's $4.2 million. And Avana merchandise income decreased 28% to $1.1 cardinal from $1.5 cardinal a twelvemonth ago.

Gross profit for nan fiscal 2nd 4th totaled $2.3 cardinal compared to $1.6 cardinal successful nan anterior year. Despite nan truth that nan institution continues to acquisition labour and earthy worldly costs increases, our costs redeeming initiatives started to salary off. Gross profit arsenic a percent of nett income accrued 27.8% from 21.9% successful nan anterior twelvemonth 2nd quarter. Year-to-date gross profit was 26.1% compared to 22.9% successful nan anterior twelvemonth six months.

Total operating expenses for nan 3 months ended December 31, 2022, were astir 18% of nan nett income aliases astir $1.476 cardinal compared to 19% of nett income aliases astir $1.326 cardinal for nan aforesaid play successful nan anterior year. For nan six months, operating expenses were $2.9 cardinal compared to $2.5 cardinal successful fiscal 2022.

Net income for nan fiscal 2nd 4th was $695,000 compared to nett income of $167,000 successful nan anterior year. Net income for six months was $1.188 cardinal compared to $394,000 successful nan anterior twelvemonth six months.

Adjusted EBITDA was $877,000 compared to $332,000 successful nan anterior twelvemonth 2nd quarter. For nan six months, adjusted EBITDA was $1.6 cardinal compared to $733,000 successful nan anterior twelvemonth six months.

We proceed to support a precocious amount of products sewn by our contractor successful Mexico, moving astatine astir 35% of each our sewn components.

Cash and rate equivalents connected December 31, 2022, totaled $1.875 cardinal compared to $859,000 connected June 30, 2022. Working superior accrued from $774,000 astatine nan opening of nan fiscal twelvemonth to $1.592 cardinal astatine nan extremity of nan fiscal 2nd 4th 2023.

Now, I'd for illustration to move nan telephone backmost to Louis for immoderate further comments regarding existent development. Louis?

Louis Friedman

Thank you, Alex.

We negociate our business for nan long-term. We are methodically delivering connected what we request to build world-class manner and emotion style brands, and we judge that complete time, nan marketplace will recognize our value. In 2020 -- 2023 marks our 21st twelvemonth successful business. And for nan first six months, we delivered $16 cardinal nett gross and expect to attack $300 cardinal successful cumulative life to day nett income during nan adjacent 2 quarters.

On behalf of nan full Luvu Brands' guidance team, I want to convey you for joining america coming and for your continued liking and support.

This wraps up our general presentation, operator. And now we'll unfastened nan telephone for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we do person a mobility this greeting from [Olivier Colombo] (ph). Olivier, your statement is live. Please spell ahead.

Unidentified Analyst

Yes, bully morning. Regards from Switzerland.

Louis Friedman

Hey, Olivier. Good morning.

Unidentified Analyst

Congratulations connected nan very bully quarter. I had 2 questions for you, actually. The first 1 is regarding nan comments that Louis made connected nan property release. And I would for illustration to -- if he could beryllium a spot much precise connected that remark actually. So, he mentioned, "While economical and world events stay uncertain, we expect nan adjacent respective quarters to airs short-term situation successful continuing this accelerated business trend."

Louis Friedman

Sure, I'd beryllium happy to respond. As each businesses, particularly B2C businesses, we respond to what goes connected successful nan world successful position of really consumers buy, wave to nan website and whatever. So, conscionable arsenic an -- moreover though we are rather diversified, certainly, world events do play a domiciled successful our expertise to execute nan results. So that's fundamentally wherever that's coming from. It's conscionable -- it's a truth that each business faces, particularly if you're B2C, erstwhile -- which we are, astir 85% B2C.

Unidentified Analyst

But that does not mean that you spot immoderate benignant of existent slowdown successful your wide business?

Louis Friedman

I tin only foretell that if, successful fact, there's a pandemic aliases a warfare aliases immoderate of that, I would presume that location would beryllium immoderate slowdown. But arsenic of yet, location is nary slowdown, no.

Jordan Friedman

Yes. I deliberation Louis' comments were much astir really we've had specified really awesome maturation rates truthful far. So, we've been astatine 15% to 20% maturation complaint successful nan first and 2nd quarter. Well, I conjecture we were astatine 13% maturation rate. And we proceed to expect to grow, but we're not judge if it's going to stay astatine that precocious of a complaint aliases a somewhat little rate.

Unidentified Analyst

Okay. But you deliberation you will still beryllium capable to support nan existent profitability of nan company?

Louis Friedman

Well, 1 of nan things that's really benignant of awesome astir our business is nan divers brands that we have. And moreover though we are diverse, each these products are beautiful overmuch made nan aforesaid way. So, while nan Liberator business grows during nan vacation period, nan outdoor business grows during nan outdoor time. During nan pandemic, nan outdoor business skyrocketed, while nan Liberator business was fundamentally challenged connected nan unit side. So, having this divers operation of channels aliases merchandise statement and whatever, we are capable to beautiful overmuch upwind astir things. What we can't weather, for illustration astir businesses, is simply a heavy recession, a pandemic aliases a war. So, those are nan challenges that we each face.

Alex Sannikov

And to adhd to that -- this is Alex. To -- your mobility was astir whether we judge that we tin support nan aforesaid level of profitability. We group a very precocious barroom during nan 2nd quarter, and that was chiefly driven by respective factors. One of which was nan economies of standard connected our labour and our production, right? Now, we're going to proceed implementing our costs redeeming initiatives. And I'm being cautiously optimistic astir astatine slightest showing an betterment connected separator compared to nan anterior fiscal year.

Unidentified Analyst

Okay. That's excellent. The different and past mobility for maine would beryllium your narration pinch your European distributor, ORION Wholesale, if I'm correct, tin you show america what benignant of revenues they generated this quarter? And if they're seeing immoderate benignant of acceleration aliases slowdown successful Europe for nan adjacent mates of months actually?

Louis Friedman

Right. Well, ORION has exclusivity connected our merchandise line. And it seems for illustration each clip they bargain a container, there's different bid for different container. So, we're hoping each instrumentality is astir $125,000. So, we're hoping that they bargain 10 to 12 containers a year. And that's what they're ramping up to. And so, ORION is handling, for nan astir part, wholesale and B2C arsenic well. And they're nan largest supplier successful EU.

So, we do activity pinch them. We person attended nan eroFame waste and acquisition show. We've exhibited successful their booth. We've trained their people, and they support adding SKUs and they support increasing their merchandise mix. So correct now, we person a instrumentality fresh to time off successful nan adjacent week aliases so, and there's different bid pursuing that. So, it's benignant of a building relationship.

Jordan Friedman

Yes. I mean, I'd opportunity connected nan -- obviously, we spot their wholesale prices for what we're trading to them at, not their revenue. But I mean, arsenic acold arsenic them arsenic a customer for us, I would expect it to beryllium good complete astir apt astir $1 million. That's what I would expect for this twelvemonth arsenic acold arsenic their wholesale value and past hopefully continuing to turn from there. But nan European marketplace is comparatively untapped for us. So, it's still gaining immoderate marque awareness, still getting retired location to each of nan different unit stores. There's a batch of distribution and conscionable getting into caller channels that are still happening.

Louis Friedman

Now, ORION has their ain concatenation of stores arsenic well. They person good complete 100 franchises, and truthful they administer done their ain concatenation stores and to different wholesalers arsenic well. So, it's very broad.

Unidentified Analyst

Perfect. Excellent. Thank you very overmuch for nan awesome job, and wish you each nan best.

Louis Friedman

Thank you for calling. We admit you.

Operator

Thank you. [Operator Instructions] And location are nary further questions from nan dial-in assemblage astatine this time.

Alex Sannikov

We do person a mates of questions connected nan webcast. So, I'm going to publication them retired loud, and I will fto nan squad to answer.

The first mobility is, what are you -- what is nan institution doing to target nan babe boomer procreation successful regards to Liberator and Avana sales?

Jordan Friedman

Yes. I tin concisely reply a small spot of that. So, 1 point that we're doing is conscionable continuing to grow our Liberator and Avana offerings connected a assortment of websites, arsenic I benignant of hinted astatine successful nan book telephone earlier. One point that we're doing that's really bully is utilizing nan Avana marque to thief summation immoderate consciousness to immoderate PG intersexual wellness products, products that different mightiness not beryllium allowed connected definite sites, but we tin benignant of rebrand them and cleverly usage nan connection to let them onto those sites, moreover though astir group cognize what they're really utilized for.

There are definite websites that nan older crowd tends to entree more. So, we conscionable want to beryllium connected each of those websites. One that we do business pinch presently is brookstone.com. They thin to person an older demographic. And there's plentifulness of babe boomers who shop connected Amazon arsenic well. So, it's conscionable -- it's a small spot of a changing demographic arsenic acold arsenic wherever those group are going to shop. But we proceed to adhd further sites that entreaty to that property group.

Alex Sannikov

And different mobility connected nan webcast is astir margin, whether nan institution tin prolong aliases summation 27.8% adjusted operating margin? I guess, it's really gross profit separator into Q3 and Q4.

So, I tin start, and I will fto nan squad to elaborate connected that. So, for illustration I said, successful nan 4th two, we group a really, really difficult barroom of expanding our separator to 27.8%, and that's -- that was based connected respective factors. Two are -- a fewer factors are related to our initiatives that we implemented, for illustration putting astatine activity our caller conveyor statement and frankincense expanding nan productivity of our sewing operators. Then, we're perpetually looking to redeeming connected earthy materials. But 1 of nan awesome facet was nan existent summation successful income successful nan 2nd quarter, and that provided america pinch an system of sales, now -- system of scale.

Whether we tin support nan 27.8% separator aliases year-to-date 26.1% margin? That isn't definite because we are still surviving successful nan uncertain world. But I americium -- for illustration I said before, I'm very optimistic successful astatine slightest showing an betterment to nan margins that we showed past year. And I tin punctual everyone that, successful nan 4th fourth of past fiscal year, our separator was adjacent to 18%. And overall, fiscal twelvemonth 2022 separator was 22%.

Louis Friedman

Yes. I'll conscionable elaborate a small connected that. So, we activity regular connected continuous improvement. We person plans connected each facet of our manufacturing conscionable to find really we tin trim cost, amended separator and trim waste. We besides person an ecosystem successful spot wherever we return our discarded watercourse from our foam processing, and we move it into legume container fill. And of course, from our foam products, we nutrient -- nan much free discarded we have, nan much free trim we have. We besides bargain surplus fabrics wherever we can.

So, for instance, if you return a look astatine a legume bag, our fabrics travel from subject waste, automotive waste. Our foam trim comes from our ain discarded stream. And so, this is some from a sustainability standpoint and a costs simplification standpoint. So, erstwhile again, nan much products we sell, nan much free foam we have. And we could nutrient these products astatine very small cost. And truthful that's 1 of nan awesome contributors to our improving separator going forward.

So, if location are immoderate much questions, we'd beryllium happy to reside them. Otherwise, we'll move it backmost to nan operator.

Operator

Thank you. And location are nary further questions connected -- from nan telephone lines astatine this time. So, this does reason today's convention call, ladies and gentlemen. You whitethorn disconnect from nan webcast astatine this time. Thank you for your participation.

Louis Friedman

Okay. Thank you.

Jordan Friedman

Thank you.

Editor: Naga



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