David Allemann: Let me probably comment on exciting new products and also product strength. I mean, we already talked about the Cloudtilt and how the launch has shaped up in an incredible way, so we feel that can be a new blockbuster franchise in performance all day. And we also talked about the Cloudmonster franchise and how it’s now expanding with the Cloudmonster Hyper. But we’re really strongly focusing this year on performance in running. So the Cloudrunner too is still launching this spring. Then, we already mentioned the Cloudboom strike, Marc mentioned it, that’s going to launch in July. Another technology leap in our super shoe range, striking fast as the name says, and our Pinnacle marathon racing shoe, as now proved in the Barcelona marathon last weekend.
And then, we continue into August with the Cloudflyer 5 and the Cloudsurfer Next. The Cloudsurfer Next is truly exciting because it’s for a young audience, attractive entry point at $150 in our Cloudsurfer franchise and featuring our new CloudTec phase. So really focusing on performance and running. And as you remember also from the intro, it’s seven franchises that now contribute more than 5% to our range.
Martin Hoffmann: And then just on the repeat purchase. So what we see in E-com is very similar to our wholesale development. So On is growing based on more sales with existing customers and honest growing because of a strong gain of new customers. And what we are very encouraged about is that with our expansion of the product assortment and especially, bringing more silhouettes that speak to younger customer that’s something that we very clearly see in our new customer acquisition. So just looking at what is the share of customers that is below 34 years old, in 2021, that share was around 24%. Now in ’23 the share was already 29%. So 29% of the customers that we acquired newly in our DTC channel last year were 34 years and younger. So definitely in the right direction. And that’s then also reflected in the success and in the respective key accounts like Foot Locker and JD.
Operator: We have time for one more question and that question comes from the line of John Kernan from TD Cowen. Please go ahead.
John Kernan: Thanks for taking my question. Hey, Martin. Just got asked a few different ways, but how should we think about the magnitude of the FX result? It obviously created a big EPS headwind in fiscal ’23. I’m just curious. I think you said that there’s going to be some reversal in fiscal ’24. But just as we model both adjusted EBITDA and EPS, I think it’d be helpful if we had a little bit more color on the magnitude of the line item here.
Martin Hoffmann: Thanks for that one. So I can elaborate a little bit more on this. So, it’s very important to understand how we translate our foreign exchange balances into Swiss Francs. So, on the P&L, that’s based on an average rate. So it’s a moving average rate, whereas the balance sheet is always translated based on the quarter-end FX rate. So if we look into 2023, the Swiss Franc has gained in value against almost every currency in the world. So for us, U.S. dollar, Euro, British Pound, currencies from China and Japan, those are the ones that are important to our business. So if you take the dollar and Swiss Franc ratio, for example, then the dollar dropped from $0.96 to $0.91 in the course of 2023 and is sitting at around $0.88 today.
So this will — this has already driven an headwind in the P&L last year, and this is what we called out will continue to drive an impact in 2024. Now, if you look at the rate, then it really dropped again towards the end of December down to $0.84 and that was the rate that we had to use to convert our balance sheet and this has driven a meaningful ethics impact. It’s unrealized, but it has driven that. It’s also visible in our cash balance, it’s also visible in our inventory balance. I called out that our inventory items stayed flat, but if you look at the reported number, it actually came down 10%, which is the FX impact. Now, today, as I just mentioned, we are at $0.88. So there has already been a recovery from the $0.84 of the end of the year.
So that’s why we expect if the rate stays that we have some of the unrealized gains coming back and resulting in FX profit. But it’s only on that line versus the revenue and the gross profits. Those are impacted from the continued downward trend that we see on the — on this — on the U.S. dollar and other currencies over time. So, not super simple, but I try to shed some more light on that.
John Kernan: That’s helpful. And then maybe just one follow-up on the SG&A. Just based on the high end of guidance of the adjusted EBITDA margin guidance, it seems like you are expecting some SG&A leverage even with the shift to DTC. So maybe talked about the levers within the SG&A, the costs of the store expansion, and how should we think about the ability for more SG&A leverage going forward.
Martin Hoffmann: Yeah. So we continue to execute on our path to higher profitability levels. Our mid-term aspiration is 18% plus. So we invest in automation in the warehouses. So we expect in ’24, basically not an improvement yet, but we will lay the foundation to then see significant improvements in 2024. At the same time, we have economies of scale in many other parts of the business. So when it comes to administration, when it comes to the profitability of certain markets, like China, for example. More of our stores become more profitable and that’s helping the overall number. At the same time, we continue to invest. We continue to invest in retail store rollout, we continue to invest in building apparel in China, in other upcoming markets, in our tech capabilities, in sustainability.
And that’s why we feel that this 16% to 16.5% is exactly the right balance of investing in growth but at the same time, further increasing profitability. So we will manage that in the way we have done in the past. We are committed towards that number, but we will reinvest any additional gains that we have in order to fuel growth for the future.
John Kernan: Very helpful. Thank you.
Operator: Ladies and gentlemen, that does conclude today’s Q&A session. And with that, that does conclude today’s conference call. Thank you for your participation, and you may now disconnect.
