Kidding aside, MYTE is a bit different in that it's mainly 1p (not a platform) and they take inventory risk. That has pros/cons. On the pro side, brands are more willing to work with them since they are incentivized to drive full price sales. The con is that they take inventory risk.
I think there is a reason for the business to exist. Many MYTE customers value the convenience and curation provided by the company.
The key takeaway, though, is that MYTE is one of the last standing players in an industry that looks a lot healthier, just as the cycle for luxury starts to turn for the better.
Hi CSC, Really interesting write-up and appreciate your detailed work here. To me it seems like a major assumption to assume Days of Inventory at YNAP could decrease from 343 to 260 in such a short space of time. I accept that the two companies are now more alligned together than YNAP was when a subsidiary of Richemont but this still seems a stretch to me especially over the next 12 months. Have you made this assumption based off anything in particular here that I could be missing? It seems a large part of the WC benefit (~100m Euro odd) is being attributed to this occurring so just trying to get a better understanding here as to how realistic this truly is? The 560m Euro cash being provided by Richemont could more or less be blown through within 2 years here if we don't get any major WC benefits or see meaningful sales growth, so doesn't the thesis fall apart here if your assumed WC benefits don't occur over the next 12-24 months? I understand that you may argue no it doesn't because the EV/Sales valuation is still wildly too low but if management cannot steer the YNAP ship in the right direction then why should/would the market re-rate this as it continues to heavily bleed cash?
Thanks for the comments, JJ. They are appreciated.
On the days of inventory, Mytheresa has been aiming to get to 260 days for their own inventory, which should release ~40m EUR of cash (assuming 10% topline growth). I assume they would take a look at YNAP and try to get to a similar level. When I ran the numbers, I assumed YNAP would also grow topline by 10%, so if they don't, this will release even more cash.
So, the last figures suggested a loss of ~174m of EBIT. If you assume DA=CAPEX (roughly), then that would be the cash loss (roughly). You also have to combine it with MYTE earnings/cashflow, which will help offset the loss (>40m in EBITDA in FY25). Add some some working capital benefit... although this will only be good for the first year, but also helps offset some of the cash burn. So to me the ~555m (+15m in cash now) looks to provide a good deal of wiggle room despite the cash losses.
I do think the valuation is too low here, even if you assume they will burn all the cash, as you point out. I think the re-rating could start when mgmt gives out more details regarding the combined financial model. There's no clarity at all right now. So just getting a sense of YNAP financials, and potentially synergies, etc, could go a long way.
I am struggling to get comfortable with the built-in assumption that just because Mytheresa has been aiming to get their inventory days down to 260 - which they haven't done yet - that this translates to them executing 260 days for YNAP. This is because a) they haven't even done 260 days yet for Mytheresa and b) YNAP is made up of a completely different set of brands that by default they are less familar with at this point in time as they look to integrate it into their own biz. That's not to say that I'm completely wrong here and that they integrate a lot quicker than I am expecting.
Despite my lack of being comfortable with the aforementioned dynamic, I do agree with you here that there is the potential for this to rerate purely off the back of management unveiling their synergistic plans for the combined entity - especially given the lowly vaulation we see today - and could go a long way as you say. I need to do more digging on this.
Good analysis, thanks. Anyone think that upside gap b/w $4 and 5 is likely to get filled at some point? Maybe if Harris wins and markets sell off like there's no tomorrow?
1. How is this better than failed Farfetch?
2. I think Luxury is less not an online business. I'll re-read this.
I mean, it's still around, so that's a plus.
Kidding aside, MYTE is a bit different in that it's mainly 1p (not a platform) and they take inventory risk. That has pros/cons. On the pro side, brands are more willing to work with them since they are incentivized to drive full price sales. The con is that they take inventory risk.
I think there is a reason for the business to exist. Many MYTE customers value the convenience and curation provided by the company.
The key takeaway, though, is that MYTE is one of the last standing players in an industry that looks a lot healthier, just as the cycle for luxury starts to turn for the better.
Thank you :)
No problem!
Hi CSC, Really interesting write-up and appreciate your detailed work here. To me it seems like a major assumption to assume Days of Inventory at YNAP could decrease from 343 to 260 in such a short space of time. I accept that the two companies are now more alligned together than YNAP was when a subsidiary of Richemont but this still seems a stretch to me especially over the next 12 months. Have you made this assumption based off anything in particular here that I could be missing? It seems a large part of the WC benefit (~100m Euro odd) is being attributed to this occurring so just trying to get a better understanding here as to how realistic this truly is? The 560m Euro cash being provided by Richemont could more or less be blown through within 2 years here if we don't get any major WC benefits or see meaningful sales growth, so doesn't the thesis fall apart here if your assumed WC benefits don't occur over the next 12-24 months? I understand that you may argue no it doesn't because the EV/Sales valuation is still wildly too low but if management cannot steer the YNAP ship in the right direction then why should/would the market re-rate this as it continues to heavily bleed cash?
Thanks for the comments, JJ. They are appreciated.
On the days of inventory, Mytheresa has been aiming to get to 260 days for their own inventory, which should release ~40m EUR of cash (assuming 10% topline growth). I assume they would take a look at YNAP and try to get to a similar level. When I ran the numbers, I assumed YNAP would also grow topline by 10%, so if they don't, this will release even more cash.
So, the last figures suggested a loss of ~174m of EBIT. If you assume DA=CAPEX (roughly), then that would be the cash loss (roughly). You also have to combine it with MYTE earnings/cashflow, which will help offset the loss (>40m in EBITDA in FY25). Add some some working capital benefit... although this will only be good for the first year, but also helps offset some of the cash burn. So to me the ~555m (+15m in cash now) looks to provide a good deal of wiggle room despite the cash losses.
I do think the valuation is too low here, even if you assume they will burn all the cash, as you point out. I think the re-rating could start when mgmt gives out more details regarding the combined financial model. There's no clarity at all right now. So just getting a sense of YNAP financials, and potentially synergies, etc, could go a long way.
Thanks for your responses CSC.
I am struggling to get comfortable with the built-in assumption that just because Mytheresa has been aiming to get their inventory days down to 260 - which they haven't done yet - that this translates to them executing 260 days for YNAP. This is because a) they haven't even done 260 days yet for Mytheresa and b) YNAP is made up of a completely different set of brands that by default they are less familar with at this point in time as they look to integrate it into their own biz. That's not to say that I'm completely wrong here and that they integrate a lot quicker than I am expecting.
Despite my lack of being comfortable with the aforementioned dynamic, I do agree with you here that there is the potential for this to rerate purely off the back of management unveiling their synergistic plans for the combined entity - especially given the lowly vaulation we see today - and could go a long way as you say. I need to do more digging on this.
Thanks again for the idea.
No problem. Appreciate your thoughts as well!
Never realized that I needed $1,000 jeans. Sheltered life.
Good analysis, thanks. Anyone think that upside gap b/w $4 and 5 is likely to get filled at some point? Maybe if Harris wins and markets sell off like there's no tomorrow?
Thanks! I mean, it would be super cheap if it went back to that area...