Operator: Your next question comes from the line of Kunal Madhukar of UBS. Your line is open.
Kunal Madhukar: Hi. Thanks for taking my question. A quick one on the rest of the year. Wanted to understand, and maybe into fiscal ‘24, wanted to understand what your purchases are likely to be, because sales would be constrained by your strategy of being full price, being brand friendly. So if sales remains low, help me understand how we should think about inventory trends for fiscal ‘24 and how the purchase strategy kind of plays into that.
Michael Kliger: Martin, do you want to respond? Martin? Otherwise, I do.
Martin Beer: Sorry, yeah. Sorry, I was on mute. Sorry about that. Obviously, happy to answer, Kunal. I mean, as stated last quarter, we have looked early at fall/winter ‘23 purchase commitments and adjusted where appropriate. I mean, right now, over 90% of fall/winter ‘23 has already been delivered. So we have a clear view on fall/winter deliveries and the — I talked about that, the Spring/Summer ‘24 purchase commitments have been adjusted even stronger. And we also expect that from other players that they had reduced their Spring/Summer ‘24 purchase commitment significantly. And that is why we expect the promotional pressure in ‘24 to be significantly lower. And as I called out, yes, our days inventory outstanding are elevated at 302 days instead of our targeted 260 days.
And we are managing to achieve that number again in the medium term. And we are very confident that this will enable us to pursue and remain constant focused on our strategy, as Michael called out, full price driven and attracting and retaining the right customer cohorts.
Kunal Madhukar: Great, thanks. And then as we look at the growth in the second half, and you called out top line growth in the 600 to 800 bips incremental over H2 of ‘23. So each, we get the 1Q, and 2Q the comp is so much easier. You should naturally see some acceleration from Q1 levels. But the comps in the second half are slightly tougher. What gives you the visibility or the confidence to be able to kind of talk about 600 to 800 bips growth acceleration versus…
Martin Beer: Yeah, Kunal. Happy to answer that. The 600 basis points to 800 basis points growth acceleration was in relation to H1. So it was not that I’m targeting to surpass the H2 fiscal year ‘23 growth in H2 fiscal year ‘24, but if I look at H1 of fiscal year ‘24, and then obviously during the course of fiscal year ‘24, then obviously the top line growth will accelerate, so H2 compared to H1 over the prior year period. And that is, you can solve that equation, especially looking at our past performance. We are a double-digit growth company. What is holding us back is the current and in our perspective, short term with a short term focus, the effects that have a short term focus driven by access inventory in the market that is especially focused on calendar year ‘23 and then ’24 — calendar year ‘24 starting with January, it will have a different perspective on the inventory in addition to the benefits of the two infrastructure topics that we completed and are now ramping up and will have full benefits in H2, fiscal year ‘24.
Kunal Madhukar: Got it. Thank you so much.
Martin Beer: Thank you.
Operator: Your next question comes from the line of Blake Anderson of Jefferies. Your line is open.
Blake Anderson: Hi. Good morning. I wanted to ask on gross margin, apologies, if I missed it, but did you say how much margin expansion or contraction you’re anticipating for gross margin next year? And then if you could talk about the gross margin expectations in Q1 as well, and maybe the trajectory, just looking for a little bit more color on that line item?
Martin Beer: Yeah, I’m happy to do so. Gross profit overall and I — in length talked about the gross margin definition and the influence obviously on the denominator, I mean on the gross on the GMV versus net sales effect, so gross margin may differ. But the overall logic of the gross profit of the absolute gross profit is that we guide that the gross profit growth — absolute gross public growth is fully in line with our top line growth. This is the first and utmost important topic. And in Q1, if I guide towards a marginally negative EBITDA. EBITDA is always very much driven in our business model by the gross profit margin, so to say, or the absolute gross profit. So also in Q1, we expect a gross profit margin slippage that will lead to that marginally negative EBITDA.
So gross profit is then in line with top line growth and deviations throughout the quarters that I called out just now. So it will fluctuate given also the seasonality of what I said about Q1 and Q3 being lower and Q2 and Q4 being stronger also on the gross profit margin side and the adjusted EBITDA margin.
Blake Anderson: Got it. And are you guiding an all-by region? Just wondering, how much you expect the U.S. region to — the momentum there to continue next year, how that might be factored into your GMV expectations?
Martin Beer: We’re not guiding on certain regions, but we don’t anticipate any dramatic changes. I mean, so as Michael called out, the U.S. will continue and has been in the last quarters and years a top growth region. China being spotty and a bit unclear how that will come back to normal levels. We are strong in Europe and we’ll also see and target there double-digit growth rates. So the overall logic that we’ve seen in Q4 in fiscal year ‘23 is expected to continue more or less. Right now, the U.S. is very strong, but on the overall we don’t see an immediate shift in what we have been seeing in the last quarters.
Operator: Your next question comes from a line of Abhinav Sinha of Societe Generale. Your line is open.
Abhinav Sinha: Yeah. Hi. Thanks for taking my question. Just one thing on the gross profit and on the inventory. So on the gross profit, you said that by calendar 1H ‘24, you expect the promotional activity to subsidize. So why do you guide a stable margin and not an expansion? So that’s the first one. And second is on the inventory, I see that it was a more than EUR100 million drag on your cash flow. So how should we look at the inventory for 2024? So will it be back to the normal EUR250 million to EUR300 million level or any color on that will be very helpful. Thanks.
Martin Beer: Yeah. Hi, Abhinav. Happy to take that. Can you hear me?
Abhinav Sinha: Yeah.
Martin Beer: Yeah. Okay, sorry. On the inventory side, yes, I mean, we are being mindful of managing our inventory levels, not driven by short-term cash focus, but really thinking about attracting or retaining the right customer cohorts, thinking about brand relationships, but also obviously preventing undue inventory aging. And that implies that this will not change dramatically short-term. So we have elevated inventory levels, best measured in inventory days outstanding, 302 days, and we’ll have to come back 260 days. We also called out that the inventory level that you point to is elevated because of early deliveries. So that will leverage out to the end of the season, but also that the prior year was obviously influenced by merchandise buyback programs and a unique stock reduction.
