Earnings Season Recap #24

This week's edition features recaps from Moncler, highlighting their continued growth, Apple's record high service sales, margin improvements for MercadoLibre, and the positive start of the year for HelloFresh.

Developing a stronger Stone Island, continued growth in Asia, and the biggest brand event in Moncler’s history.

Revenue +23%
Moncler +28%
*Asia +50%
*EMEA +36
*Americas +14%
*DTC 83%
*Wholesale +17%
Stone Island +5%
*Asia +19%
*EMEA +72%
*Americas +9%
*DTC 32%
*Wholesale +68%

-> The biggest brand event in Moncler’s history: I would like to start our call today commenting on the art of Genius, an unprecedented event, which took place on February 20 in London that marked the evolution of Moncler Genius from a universe of collaborations with fashion designers into a real platform for corporation across different industries, including the world of art, design, entertainment, music, sports and culture. These extraordinary events at Olympia London have seen the physical participation of over 12,000 people, and it became the biggest brand event in Moncler's history from the point of view of brand reach and engagement, beating the recent record set by the 70th anniversary with results that have surpassed any expectation. That evening, we presented collections from Alicia Keys, Pharrell Williams, RocNation by JayZ, Salehe Bembury, Palm Angels, FRGMNT, Mercedes-Benz, adidas Originals and Rick Owens. All these collections are being launched and will be launched over the coming months through both spring/summer and fall/winter 2023. – Elena Mariani, Investor Relations Director (00:37)

-> Very strong performance in Asia: Asia, which, as you know, includes APAC, Korea and Japan, generated over EUR 300 million in the first 3 months of the year, contributing to 50% of total revenues. The region rose by 32%, boosted by a strong demand from Chinese customers, also supported by the lifting of COVID restrictions, but not only both Japan and Korea continued to register a very strong performance. EMEA was up 29% and contributed for 36% of Moncler revenues, driven by strong demand, both from local customers and tourists, particularly coming from the U.S. and Korea. And local consumption in this region continued to grow at a double-digit pace. – Elena Mariani, Investor Relations Director (05:05)

-> More on Asia: Asia overall did very well in the first quarter. Talking about China, China did extremely well. I mean just to remind you what happened in the last quarter of last year. I remember that the beginning of October was very strong, and then there was a 1.5 month lockdown in China. And then at the beginning of December, business started to recover very nicely in December. And this January, honestly, there was some kind of a rebound with a very strong Chinese New Year in the weeks before and after the new year, China was up double digit. February also was very strong. March also very, very strong. Also helped by the fact that from mid-March last year until the end of May, you may remember, China was in lockdown. So I mean, from mid-March, including April, I mean, China is doing very well. It's up triple digit, but the base of comparison with last year is not, of course, meaningful because last year, there was a lockdown. Something important, some color to add about China is that I mean, the release of the strict COVID policy allowed the business in China to recover very, very, very well. – Luciano Santel, Chief Corporate & Supply Officer (11:17)

-> Focusing on building a stronger company and not on a few extra points of margin: I mean, our target, our priority, as I said, I mean, and you know very well, is not how to increase our operating margins, but how to make our brand both stronger and stronger. So having said that, we have a target in mind, we have an ambition in mind, which is to touch or to barely touch the 30% operating margin. And this is still in our mind so you may be right. But I mean, it's more important for us as a management team to keep investing in the brand, in the organization to make this company stronger and stronger than to achieve 1 or 2 points higher operating margin. So for the time being, honestly, our position is still the same. I told you, and I said this in the market in the past, 30% is a very good target that we have still in mind. We don't even think of doing more or better. – Luciano Santel, Chief Corporate & Supply Officer (16:12)

-> Developing their brands: We spend our day fixing problems and not celebrating success. I think that something important to remind everyone is that 10 years ago, Moncler was not such a brilliant brand as it is right now, not celebrating such greater results of the first quarter. There were lights and shade in Moncler as there are lights and shade in Stone Island now for several different reasons. First of all, I mean, when we decided to implement that acquisition was an acquisition of a brand, okay? I mean we didn't look at the results, of course, we did. But I mean our first priority was the value of the brand and the potential of that brand, okay? And of course, we decided immediately that the first priority was to develop, to build a strong DTC strategy. And so this is what we did there, and I would say, successfully because we have internalized the business in Korea, in Japan, in again, the DTC business in U.K., not yet the wholesale business. That will be internalized next year. Not yet the China business, that would be internalized next year. And in parallel, we implemented. I mean, we put at the help of Stone Island, the retail -- the stronger retail know-how that we have developed over the years. And we have implemented the same we did in the past. With Moncler, the Retail Excellence project in Stone Island and the rationale under the leadership of Robert -- Roberto Eggs. And I think that the results -- the DTC results over the first 2 quarters, are quite good. – Luciano Santel, Chief Corporate & Supply Officer (25:42)

-> New experienced CEO at Stone Island: 1 year ago. We saw, we realized the need of having a new leadership for Stone Island with all the responsibility and the capability to drive the business and the brand and the brand first. So that's why we decided to get in touch and at the end to hire Robert Triefus. I mean I think you know his CV. I mean, he has spent the last 15 years in Gucci, contributing to the strong brand success of Gucci before in Armani. And so he is bringing his strong know-how and experience in the brand strategy, which is something that's really important because, again, we have, in our hands, a beautiful brand with a beautiful -- with a great potential. Of course, now we have to increase the voice of that brand, the audience of that brand and the relevancy of that brand. So that's why, I mean, we rely on the capability and the strong experience of Robert Triefus. – Luciano Santel, Chief Corporate & Supply Officer (29:58)

-> A majority of the business is driven by locals but tourism is growing very nicely: Business in Europe over the past 2 years have been driven mostly, mostly by local customer business, and this is very important, a very nice to remind everyone because I mean that business has been developed over the year, thanks to a very strong, I mean, culture of building relations with our customers and building our customer base. Having said that, the contribution of tourism outside the region is growing. You may remember that since last year, the weight and the contribution of American customers was quite important. They still contribute significantly to our business in Europe on the top of the Americas. We started seeing Korean customers coming from that region. And again, still to a smaller extent, also Chinese customers. So business is still a majority driven by locals, but the business coming from tourism outside the region is growing very, very nicely. – Luciano Santel, Chief Corporate & Supply Officer (54:52)

All time record high for services and iPhone sales, cash position, capital return programme, and outlook.

Revenue -2.5%
*iPhone +1.5%
*Mac -31%
*iPad -13%
*Wearables, Home & Acc. -1%
*Services +5.5%
EBIT -5.5%
*margin 30% (31%)
EPS 0%

-> All-time record high for services and iPhone sales: Today, we're reporting revenue of $94.8 billion for the March quarter, which was better than our expectations. We set an all-time record for services and a March quarter record for iPhone. We were particularly pleased with the performance we saw in emerging markets and achieved all-time records in Mexico, Indonesia, the Philippines, Saudi Arabia, Turkey and the U.A.E. as well as a number of March quarter records, including in Brazil, Malaysia and India. This result is a testament, first and foremost, to our teams around the world who are engaged every day in the work of bringing new innovations to life. It speaks to the incredible power of Apple products and services to enrich people's lives in indispensable ways. And whether it's in the design lab in Cupertino or in one of the brand-new retail stores in India, I am constantly inspired by the way our people come together to make a real difference in the world. During the March quarter, we continued to face foreign exchange headwinds, which had an impact of more than 500 basis points as well as ongoing challenges related to the macroeconomic environment. Revenue was down 3% year-over-year as a result. While on a constant currency basis, we grew in total and in the vast majority of the markets we track. – Timothy Cook, CEO (01:37)

-> Apple now has over 975 paid subscriptions across its service offerings: We achieved all-time revenue records across App Store, Apple Music, iCloud and payment services. And now with more than 975 million paid subscriptions, we're reaching even more people with our lineup of services. Apple TV+ continues to draw praise from customers and reviewers alike. During the past quarter, fans tuned in to incredible new series like Shrinking and The Big Door Prize and got to welcome Ted Lasso back into their homes for a third season. Movies like Tetris are captivating viewers with many more to come, including Martin Scorsese's Killers of the Flower Moon later this year. Three years since its launch, Apple TV+ programming has been celebrated across the globe with over 1,450 nominations and more than 350 wins. Recently, we were thrilled to cheer on The Boy, the Mole, the Fox and the Horse, which won an Academy Award for best animated short film. The first season of our historic 10-year partnership with Major League Soccer is well underway. With MLS Season Pass, we've created the ultimate destination for soccer fans, offering subscribers the ability to watch every match with no blackouts. – Timothy Cook, CEO (06:37)

-> Apple Pay Later and Apple Card Savings: In March, we also launched Apple Pay Later. Designed with users' privacy and financial health in mind, Apple Pay Later allows users to split purchases into multiple payments with no interest or fees. And last month, we introduced Apple Card Savings accounts to give users even more value out of their daily cash Apple Card benefit. At Apple, our customers are at the center of everything we do. Nowhere is that more evident than retail, where our teams are dedicated to sharing the best of Apple with our customers. And we're constantly innovating to deliver exceptional experiences and meet our customers where they are. In the U.S., we launched Shop with a Specialist over Video, a new way for customers to learn about iPhone and find the one that's just right for them. And as I noted earlier, in a milestone for Apple, we just opened our first 2 Apple stores in India, in Mumbai and Delhi. – Timothy Cook, CEO (08:42)

-> Margin development across segments: Company gross margin was 44.3%, up 130 basis points from last quarter, driven by cost savings and favorable mix shift towards Services, partially offset by leverage. Products gross margin was 36.7%, decreasing 30 basis points sequentially due to seasonal loss of leverage and mix, partially offset by favorable costs. Services gross margin was 71%, up 20 basis points sequentially. Operating expenses of $13.7 billion were at the low end of the guidance range we provided at the beginning of the quarter and continued to decelerate from the December quarter. We are closely managing our spend by remaining focused on long-term growth with continued investment in innovation and product development. Net income was $24.2 billion. Diluted earnings per share were $1.52, unchanged versus last year, and we generated very strong operating cash flow of $28.6 billion. – Luca Maestri, CFO (14:20)

-> Growing across every major product category and geographic segment: Despite these records, as we saw in recent quarters, certain services offerings such as digital advertising and mobile gaming continue to be affected by the current macroeconomic environment. Stepping back, however, the continued growth in Services is the reflection of our ecosystem strength and the positive momentum we're seeing across several key metrics. First, our growing installed base of over 2 billion active devices represents a great foundation for future expansion of our ecosystem. We continue to grow across every major product category and geographic segment, thanks to very high levels of customer loyalty and satisfaction. Second, we saw increased customer engagement with our services during the quarter. Both our transacting accounts and paid accounts grew double digits year-over-year, each setting a new all-time record. Third, paid subscriptions showed strong growth. We now have more than 975 million paid subscriptions across the services on our platform, up 150 million during the last 12 months and nearly double the number of paid subscriptions we had only 3 years ago. And finally, we continue to improve the breadth and the quality of our current services offerings from new content on Apple TV+ to great new features available in Apple Pay and Apple Music, which we believe our customers will love. – Luca Maestri, CFO (18:30)

-> Cash position and capital return program: We ended the quarter with over $166 billion in cash and marketable securities. We repaid $2.3 billion in maturing debt and increased commercial paper by about $300 million, leaving us with total debt of $110 billion. Net cash was $57 billion at the end of the quarter. During the March quarter, we returned over $23 billion to shareholders, including $3.7 billion in dividends and equivalents and $19.1 billion through open market repurchases of 129 million Apple shares. Given the continued confidence we have in our business now and into the future, today, our Board has authorized an additional $90 billion for share repurchases as we maintain our goal of getting to net cash neutral over time. We're also raising our dividend by 4% to $0.24 a share, and we continue to plan for annual increases in the dividend going forward. – Luca Maestri, CFO (21:05)

-> Outlook: As we move ahead into the June quarter, I'd like to review our outlook, which includes the types of forward-looking information that Suhasini referred to at the beginning of the call. We expect our June quarter year-over-year revenue performance to be similar to the March quarter, assuming that the macroeconomic outlook does not worsen from what we are projecting today for the current quarter. Foreign exchange will continue to be a headwind, and we expect a negative year-over-year impact of nearly 4 percentage points. For Services, we expect our June quarter year-over-year revenue growth to be similar to the March quarter while continuing to face macroeconomic headwinds in areas such as digital advertising and mobile gaming. We expect gross margin to be between 44% and 44.5%. We expect OpEx to be between $13.6 billion and $13.8 billion. We expect OI&E to be around negative $250 million, excluding any potential impact from the mark-to-market of minority investments and our tax rate to be around 16%. Finally, reflecting the dividend increase I mentioned earlier, today, our Board of Directors has declared a cash dividend of $0.24 per share of common stock payable on May 18, 2023, to shareholders of record as of May 15, 2023. – Luca Maestri, CFO (21:17)

Margin improvements for 1P, growth turnaround in some end markets, the rise of ads, and the CapEx trajectory.

GMV +43%
Revenue +58%
*Commerce +54%
*Fintech +64%
TPV +96% 
*On Platform +48%
*Off Platform +121%
Unique Active Users +25%
Items Sold +16%
Credit Portfolio +26%
EBIT +188%
*margin 11.2 (6.2)

-> Margin improvements and expected growth acceleration for 1P: I think as we signaled over the past few quarters, we had slowed down the first-party business, in large part because we had grown it initially very fast and there was a significant amount of internal operations that we wanted to be able to fix, which would allow us to then reaccelerate that business with a healthy margin structure and much better internal operations. What you're beginning to see now are the initial phases of that turnaround. So we feel a lot more confident in how that business is being run. We're beginning to see margin improvements across different product lines in 1P, and hence, you're seeing some of the acceleration. And going forward, if we continue to see these positive trends, you should continue to see the 1P business accelerating growth going forward, which should give us some interesting benefits across the categories where 1P can be an important competitive factor. On your point of investing even more aggressively to consolidate market share, I think if you look at our 1P results and you look at certain things like marketing spend, certain couponing efforts, investment behind the logistics network, you will see that we did lean into the market, especially in Brazil, where there is more market share up for grabs short term. – Pedro Arnt, CFO (11:51)

-> Striving first and foremost for market share gains: The return on those investments was a very strong acceleration in top line, which actually meant that margin-wise, it was contributed from a dollar perspective. We do feel that we are investing more aggressively to try to more rapidly strengthen our leadership position, and we do see that reflected in market share numbers. Investing even more probably gets us into areas where the return on those incremental investments don't make as much sense thinking long term. I think we continue to manage the P&L in an aggressive way, striving, first and foremost, for market share gains and above-market growth but, at the same time, understanding that, at the scale we have, we want that incremental market share to come in a way that's profitable. And that continues to be the way that we're managing those incremental investments across different markets. – Pedro Arnt, CFO (13:32)

-> Growth turnaround for some end markets: I think we continue to see a very attractive midterm opportunity in the end markets Chile, Colombia, Peru. Chile has some very tough comps based on macro issues in the previous years. A lot of money was put into consumer pockets that went enlarged into consumption. And so that means that the rate of acceleration in Chile has been significantly down and even negative over the last few quarters. And we're beginning to see that beginning to turn around. GMV growth was already slightly positive this quarter and revenue growth rebounded and was much more positive than in previous quarters. So we're confident that Chile should continue that turnaround and that improvement. Chile, not so long ago, was one of our fastest-growing markets throughout the pandemic. And so we think that once the comp issues are behind us, there's a lot of potential from that market. Peru is still quite small for us, we are increasing our customer acquisition and marketing spend there this year versus prior years. – Pedro Arnt, CFO (16:43)

-> Advertising keeps growing fast with high margins: The business continues to grow very nicely. It grew at 62% year-on-year, which is very much in line with the growth rate over the past 3 quarters. This is dollar growth. So momentum is still quite strong. GMV did accelerate this quarter versus prior quarter. So that makes it a tougher comp for the ad business given that we're dividing revenue by GMV on the penetration metric. If GMV growth had been similar to prior quarter, we would have had a 10 basis point increase Q-on-Q in advertising penetration or something along those lines. And then potentially, bear in mind that Q1 is also seasonally less of a season for advertisers to invest as aggressively as in Q4. So the rollover on a sequential basis from Q4 to Q1 is not necessarily one where we should see significant penetration gains. And then finally, a lot of the technology that's being launched over the last few quarters, as we've been saying, potentially takes some time before it gets fully adopted by advertisers. And so the next few quarters, we would expect to see increases once again in penetration given that we'd like to see advertising revenues outpacing GMV growth. Finally, if you look at the year-on-year penetration gains, to strip out seasonality, those continue to be quite, quite encouraging. – Pedro Arnt, CFO (23:12)

-> Beginning to see improvement for credit conditions: I think there is a growing number of credit products out there that could affect credit. So I think we're not giving any kind of directionality on where we think the interest margin after losses might trend. We'll report those back to you guys on a quarter-per-quarter basis. Because as we begin to see, as Osvaldo was just saying, an improvement in credit conditions, in the credit cycle, that potentially encourages us to start opening the spigot again in originations. And even within customer segments, we could see lower margin segments that, when you risk-adjust, are actually very attractive to move into and will generate incremental dollars from credit but won't necessarily be incremental in terms of IMAL. So we'll keep you guys posted as this moves forward. I think the books are still very, very young. And you could see potential volatility in margin structures because of segment and product mix shifts that might occur going forward. – Pedro Arnt, CFO (26:10)

-> Negative EBIT margin for 1P but a large long-term opportunity: So the 1P business has been improving its margin structure across pretty much all categories but continues to have a lower margin than the rest of our businesses. To be more precise, it continues to be negative in terms of EBIT margin. So growth in the 1P business now should be instrumental in strengthening categories where we under-index; in having a better selection for our consumers, which are all long-term positive; it should help us continue to gain scale within 1P purchasing and logistics, which should continue to improve the margins within 1P until eventually it's turning positive. But short term, they're detrimental on margins. In terms of take rate, it's the opposite story, obviously. There, we book the full revenue base, and so it's a catalyst of accelerating revenue and improving take rates. But again, all in, we believe 1P is going to be critical for long-term success in certain specific categories. And so we think that it's very positive news that we're beginning to pick that business up again in terms of growth rates given that we feel more comfortable about the user experience and the margin trajectory that we will be able to deliver going forward in our 1P operation. – Pedro Arnt, CFO (32:55)

-> Items per order: Items per order has had a very gradual trend up as fulfillment penetration continues to grow and as we get better at co-locating inventory, but the numbers have not been significant or material. It's been very, very slightly steeping up and to the right. So I think as we continue to grow fulfillment penetration, and like I said, we exited Q1 on a record high for Brazil, hopefully, that allows to drive that number up. We're also going to be innovating significantly on network design on certain options for consumers at checkout that will allow them to bundle purchases into single deliveries or bundle greater numbers of delivery slots, which should also help us drive up items per order, lower cost and to be able to give some of those cost improvements back to the consumers who select that slower option. In terms of greater category trial as a consequence of offering better return options, I'll need to be in debt with you on the answer to that. We do see an improved return experience, and we do see increases in returns on the part of consumers, which are helping our NPS, but I haven't seen the data that allows us to cross reference that to incremental category growth. So I don't know the answer to your question. – Pedro Arnt, CFO (36:21)

-> CapEx trajectory and market share gains across categories: There were certain investments in logistics that we initially had budgeted for the first quarter that had been pushed back into the second, third and fourth quarter. So there is an element of phasing to that slowdown in CapEx. Our CapEx trajectory also will be somewhat volatile as new warehouses and new nodes come into play in different markets at different times, depending on the specific network rollouts across the multiple geographies where we're scaling out MELI Logistics. But specifically, Q1 did have phasing elements and the shipping-related CapEx came in quite low, below $50 million for the quarter. On market share gains, they've been consistent across multiple categories. I do think that, as we said, those share gains, in part, are because we leaned into the specific change in market structure and the relative balance sheet weakness of certain market participants. So a lot of that is coming from share that's being given up by other players, but it was fairly distributed across all categories. So when we look at per category market share, we're seeing ourselves as market share gainers across most categories. – Pedro Arnt, CFO (39:03)

On track with full year guidance after a decent start and a strong sequential growth. Meaningful decrease in fulfillment expenses and improved pricing power.

Revenue +5.3%
Active customers -4.8%
Number of orders -5.1%
Orders per customers -%
Meals -3.1%
Average order value +11.1%
AEBITDA -33%
*margin 3.3% (5.2)

-> Tough comparable for H1 2023: Over the course of last year and also the last quarter, we've dealt with a rapidly changing macroeconomic environment, in which the team overall had showed great adaptability. If you remember, last year in Q1, Omicron wave still ramp as through the world. Google recorded the higher search volumes for COVID and different governments were actually mandating stay at home orders. And all these things contributed to a really outsized first quarter in Q1 2022 and has provided a tough benchmark year-over-year for the first half of 2023. We don't want to lemon spill too much as these macro effects, I think, impact all businesses around the world. We rather want to focus on the things that we actually can control, and that's also the message that we have given to our teams and rallied our troops around all year long. Consequently, over the course of the last 12 months, we've made very significant progress in a number of different areas. We've massively strengthened our leadership levels, we have built a state-of-the-art fresh food fulfillment center network second to none, we have enhanced our customer proposition to previously unseen levels, and we've also scaled both RTE and are prototyping a number of other promising direct-to-consumer verticals as we speak. – Dominik Richter, Group CEO (00:22)

-> Period highlights and pricing power: We achieved a new record high net revenue quarter, growing 3.3% in constant currency to EUR 2.02 billion, the first time we beat the EUR 2 billion mark. We grew our average order value by about 9% year-over-year to EUR 61.2, a result of measured price increases, more mills per basket and a positive mix shift to higher-value brands. We delivered more value to customers, and they are happy to pay a little more for that. Order rates stabilized at the same high levels that we've seen during the COVID pandemic at 4 orders per active customer per quarter, a significant step-up to pre-COVID times and evidence that customers are finding a lot of value in our product offering. Importantly, our exercise to scrutinize all of our cost line items yielded good results with contribution margin expanding once again to 26.3%, that's a 1.1 point improvement compared to Q1 2022. – Dominik Richter, Group CEO (02:13)

-> Expanding global footprint: All of 2022 and also in the first quarter of 2023, we have scrutinized all of our cost line items hard to identify additional savings and optimization potential. More often than not, we've been successful and managed to mitigate a lot of the inflation-driven cost factor increases through either by the productivity or smaller buying decisions. And while it's incredibly important to do that, in times like these, it's also when the foundations for future earnings and revenue growth are being late. And that is why we have continued to invest into the customer proposition throughout the whole cycle in order to be able to attract new audiences to HelloFresh and make our current active customers happier. So as an example, over the course of last year, we have continued to roll out HelloFresh market to 3 new geographies with additional geographies launching in the second half of 2023. We have materially decreased our food waste per euro revenue significantly, thereby improving our sustainability profile and sustainability perception for consumers. And we have massively increased the number of recipe options for our customers. – Dominik Richter, Group CEO (03:55)

-> Factor and ready-to-eat: Outside of our core meal kit market and our HelloFresh market proposition, we've put the whole weights of our direct-to-consumer competencies behind the rollout of Factor in the U.S. This has propelled us to become the largest direct-to-consumer ready meal provider in the US over the course of only 2 years. The whole category is still very much in the state of market penetration, where meal kits were in 2016 or 2017 with incredible growth potential going forward. What's important to notice that scaling in RTE business is way more complex than the meal kits business given investments needed to cook great meals at scale. As we complete the build-out of our Arizona facility in the next couple of months, we will unlock a lot of additional capacity for Factor U.S., allowing us to grow to a multiple of our current revenue run rate in then existing facility footprint. As a matter of fact, at the moment, we're maxed out since early January and cannot fulfill a lot of the demand we're seeing in the marketplace. But this should, on the other hand, provide a nice growth tailwind for the second half of the year as we work through opening up that facility. While Factor already meets the bar in many respects and can create a lot of demand from consumers, there's still a lot of room to grow the proposition, very much analogous to what we did in meal kits over time. – Dominik Richter, Group CEO (06:07)

-> Strong sequential growth: In the first quarter of 2023, we delivered 278 million meals. That's a sequential increase of about 13% versus Q4 2022. Year-over-year, our meals are down by 3%, driven by a 5% decline in active customers. Active customers did increase though by 14% sequentially, and we've added 1 million net new customers in the first quarter. Both our International segment and our North America segment contributed to that growth and showed good sequential active customer growth rates. While the sequential increase was according to plan, we did not reached the levels previously seen in Q1 2022, a period that was still heavily impacted by stay at home orders and people working from home. On a positive note, our average order rate stabilized at much higher levels than pre-COVID, averaging 4 orders per active customer per quarter, in line with last year's order rate. We've also seen customers adding more meals to their baskets, which has helped drive up AOV. Speaking of AOV, average order values saw a strong growth in the first quarter, up about 9% from last year. For our North America segment, we increased AOV by about 9.5% in constant currency, while our international segment showed a 6.9% AOV increase. – Dominik Richter, Group CEO (08:30)

-> Procurement expenses: Our procurement expenses as a percentage of revenue have increased by 1.4 percentage points year-on-year in the first quarter. Now this is driven by a number of factors. Firstly, year-on-year inflation. The meaningful year-on-year inflation has a certain impact on our procurement expenses, even though we continue to manage mitigating the effect well through measures that we have discussed before. Secondly and importantly, an increased contribution of ready-to-eat to our overall business mix. Keep in mind that new production costs and associated labor are for our ready-to-eat business included in our procurement expenses or better in -- better called COGS. However, fulfillment expenses on the other hand, for ready-to-eat are typically lower. So you will see the flip side of that, when we talk about our fulfillment expenses. Thirdly, what Dominik just discussed, so our customers ordering more meals per order, ordering more surcharge offerings and add-on offerings from HelloFresh market, especially those last 2 points, whilst they're impacting relative procurement expenses. We also increased AOV and have lower incremental fulfillment expenses associated with them. We are, therefore, net accretive to contribution margin, both relative and in absolute terms. For Q2, by the way, you should expect procurement expenses as a percentage of revenue to go down slightly sequentially, i.e., our gross margin in Q2 is expected to expand mildly sequentially versus Q2. – Christian Gartner, CFO (12:20)

-> Fulfillment expenses: We have very meaningfully decreased our fulfillment expenses year-on-year by 2.4 percentage points. This is really the continuation of the strong improvement that you've seen from us since mid last year, especially our North America segment continues to contribute significantly to this positive trend. As we had discussed in detail at our Capital Markets Day last month, we see meaningful potential to further reduce our relative fulfillment expenses from here by: one, increasing the majority of our fulfillment center network, through optimizing our fulfillment center footprint and through process standardization; and secondly, by ramping up the use of technology and automation. Besides the like-for-like ongoing improvement, you see here also the flip side of what I just discussed with respect to our procurement expenses, i.e. the impact of a higher share of ready-to-eat, more meals per order, more surcharge and add-on take up, which means lower relative fulfillment expenses. Now taking both together, so the trends that we discussed in procurement as well as in our fulfillment expenses means for our contribution margin that we have successfully expanded our contribution margin by 1 percentage points to 26.3%. – Christian Gartner, CFO (14:12)

-> Marketing expenses: From a marketing perspective, we are now back to our normal seasonality profile, i.e., a seasonally high growth marketing spend in Q1, which drives a substantial sequential increase in active customers. We grew active customers by 1 million from 7.1 million in Q4 2022 to 8.1 million in Q1 2023. As a percentage of revenue, marketing expenses were just above 20%, i.e. very much in line with the indicative guidance provided in our last earnings call in early March, about 8 weeks ago. Now while in Q1, marketing as percentage of revenue was still around about 3 percentage points higher than in the comparative period last year. Given Q1 2022 was still impacted by Omicron effects, we expect in Q2, marketing expenses as a percentage of revenue, still a bit higher than last year, but much closer. – Christian Gartner, CFO (16:30)

-> On track to reach full year guidance: We had an overall decent start. So far, things are very much in line with plan and really across our whole P&L in terms of orders, customers, revenue and EBITDA. We are therefore on track with respect to the full year guidance provided on our earnings call about 8 weeks ago, where we were targeting for the full year 2% to 10% constant currency revenue growth and EBITDA of EUR 460 million to EUR 540 million. Now with respect to Q2, it's obviously still relatively early in the quarter. So far, account trading mostly consists of the seasonally slower Easter weeks. So with that caveat in mind, we indicatively expect for Q2 2023 active customers of approximately EUR 7.7 million and year-on-year constant currency revenue growth of 1% to 2% and then as we've discussed before, against easier comps in H2, reacceleration of top line thereafter. – Christian Gartner, CFO (18:40)

-> Cash flow, CapEx, and financial position: Let me now finish our presentation with a quick review of our cash flow in Q1. Cash flow from operations amounted to EUR 112 million, as usual, supported in that quarter by seasonal cash inflow from working capital. Our cash outflow from investing activities primarily consists of 2 elements: firstly, around about EUR 95 million of CapEx as flagged a few times before of the approximately EUR 350 million, EUR 360 million CapEx we are planning to spend this year. We will invest a fair amount of this in the first 7 to 8 months of the year. Specifically in Q1, we have made good progress on the ready-to-eat facility for Factor in the U.S. We finished the build-out of our ready-to-eat production facility for Youfoodz in Australia. We largely finalized the build-out of our French fulfillment center and also made good progress on the execution of our overall CapEx plan and other geos. EUR 95 million CapEx is the biggest piece of this. And the second 1 is EUR 35 million for the acquisition earn-out of Factor. This represents now the final payment to form a Factor shareholders, i.e., there's no more cash outflow in this regard in the future. This means we maintained our cash balance at a strong EUR 467 million, our balance sheet remains largely unlevered, and there were no changes to our liquidity resources during the quarter. – Christian Gartner, CFO (19:45)