Hi, good morning, everyone, and welcome to our Q1 2023 results call. The presentation will last approximately, 20 minutes, and we'll allow another 10-15 minutes for the Q&A. As usual, you can find the presentation online on Investor Relations website under Reports and Presentations. The speakers today are Dirk Graber and Mirko Caspar. That said, let me hand over to Dirk to begin today's call. Thank you.
Hello and welcome also from my side. Thank you for participating. Today, on the agenda, we have a quick, I would say, looking back at 15 years of optical retail industry in Mister Spex. We then give you an update on our strategic initiatives, especially the Lean 4 Leverage program, followed by a financial update for Q1 and our performance. Then, as Irina already indicated, we are moving to Q&A. Mirko will start with a 15-year review, basically, of the industry in Mister Spex, and then we will take it from there. Over to you, Mirko.
Thank you, Dirk, also welcome from my side. Well, as you may or may not know, it's our birthday. We have 15 years of Mister Spex, we think that's a good reason to look back 15 years. Let's start with the industry. We see two paradigmatic shifts. One is obviously prescription glasses have evolved from being a pure medical device and have become an accessory that not only defines how you see the world, but also how the world sees you. Well, the other thing is the possibilities of the digital solutions that have been used, also in optical, to accelerate the online segment to a level that the industry has not thought would have been possible. We believe that we were no small part in that, two paradigmatic shifts in the industry.
Let's quickly look at the last 15 years , Mister Spex. As you all know, we've been growing market share 15 years consecutively, 14 years of those with double-digit growth. We've not only reinvented or invented the online part of the business, we've also reinvented the optical retail. The first store in 2016 was already highly awarded due to the idea and the concept behind really integrated on and offline. We're really, really happy and proud that just in the year of our anniversary, we've got awarded again with Store of the Year from the German Trade Association for our newest version, the Boutique version in Cologne.
I didn't know myself, even, but there were more than 400 participants and concepts that have been evaluated by the German Trade Association. We're really proud that we for our Boutique environment could really add something again and made optical retail a little more exciting. Last but not least, and we mentioned it when we talked about the industry, the advances in face scanning technology and custom-made frames in recommendations, we've been really driving for 15 years. Now, looking at the strategic update, we'll quickly look at the consumer sentiment, what it does to optical, how we have performed, and then Dirk is gonna give you an update on the Lean 4 Leverage program.
Starting with consumers, you will highly likely have seen it. Consumer sentiment is still a variable, right? We're seeing it at 29%. It would have been a record high had we not had such low levels before, a record low had we not had such low levels before. What it also means is it is a trend that's improving. What did it do to optical? Well, in optical, we had a bit of pent-up demand. What you actually see is that, and we're zooming into Germany now here, for prescription glasses, that actually the market grew 5% in units in Germany in the months January and February, for which we have GfK data.
If you look at us, we were again able to outgrow the market with 7% unit growth in Germany in prescription in January and February. Leaning back, the core or one of the pillars of Lean 4 Leverage is that we want to also drive growth and profitability with capturing more value. We have increased prices, we have reduced discounts, et cetera. What did that do if you look at the value side of the business? If you look at January and February, like I said, for which we have data, the prescription market in Germany grew 6% in value. Due to our strategy, for the full quarter, we grew 21% in value in prescription. That clearly shows that our strategy, building on our strong brand equity to capture more value is working.
Over to Dirk, who's gonna tell you a little more about the other pillars of the Lean 4 Leverage.
Yeah. If we focus again on our three core pillars of Lean 4 Leverage, I think we made good progress also in Q1 in each of them. Let's first look at concentrating on the core. Our retail stores in Q1 again showed a very strong like-for-like growth 19%. I think it's notable that all store cohorts contribute basically to this like-for-like growth and did grow. The second thing which I want to point out, which also sticks out, basically probably in the presentation, is the improvement of the gross margin of 440 basis points in Q1. On the next slide, we're gonna have a more deep dive how we managed to achieve that. I think Mirko already mentioned we grew 21% in prescription glasses, Q1, in Germany.
At the same time, we reduced our marketing budget, or spend, by 320 basis points in percent of sales, which is remarkable, I think, in combination. Number four, that's more of a, I would say, notice to everybody. We did decide, quite opportunistically, to invest in contact lens inventory and stock up additional EUR 6.5 million. Why did we do that? You may ask, especially because contact lenses were reducing in Q1. I think it's a number of topics. The one is we want to stay competitive, and especially since our large or all contact lens suppliers announced significant price increases between 6%-9% in Q1, executed in Q1 as well.
We wanted to basically stay competitive in this transition period of the market. We also seen obviously a higher return of invested capital versus just the money in the bank. We only bought fast-moving contact lenses, which we can sell within 6 months. It is basically an opportunistic approach, but I think with a good return of capital , and which you will see basically over the next 2 quarters being sold off as well and getting to a normal level again. One more thing, that is more of an outlook to Q2. In April, we even refined our price positioning for our standard 1.5 single vision lens, which was for free so far.
I give you in two slides, basically an update what we've done with that standard lens. Maybe as the last two points we did already a few months ago, set up this transformation office to really help to put Lean 4 Leverage into the entire organization. We even now introduced the lean management philosophy with some external help, and I think with a good traction already over the last weeks and months that we've seen so far. That is the overview, and now let's go into the details, especially on the margin side first. 440 basis points versus Q1 last year and still 200 basis points versus Q1 2021, right? One driver was our continued focus to reduce discount rates.
Meaning we're doing lower, or we less campaigns with higher discounts. We focus on lower discounts or no discounts in our campaigns. On the other hand, we've been strong on pricing. We continued to push basically supplier price increases also to the market, and we actively managed basically lens prices again. Plus, what we've done is, we also looked at, I would say, marketing channels. Here, we basically focused on the marketing channels, which are less price sensitive. In the end, it led to significantly increased average order values for prescription glasses, plus 14% versus Q1 last year, and in sunglasses, even 16%.
It not only helps on the gross margin side, but also trickles down to contribution margin 2 or 3 because the variable costs are typically based on units and not on price. Therefore, this is a significant driver for our overall EBITDA improvement. Now let's have a look into our change in the standard lens prices. Historically, the standard free 1.5 lens was a significant part of our USP. As you know, we've grown the brand over the years. We significantly increased our brand awareness, but also our physical presence with now over 70 stores. What we also done is we focused more on independent luxury. Therefore, we decided to actively, basically increase the price from EUR 0 to EUR 19.95 in most of our markets. We've started that mid of April.
So far we've basically seen a good, I would say, transition in that pricing with no significant impact on volume. So far we are very happy, and everything is in line with our expectation. It should lead again to a small further improvement of our gross margin, especially in prescription glasses. Now let's look at the financial update. I think we'll show you a strong development in all key categories and also in our key region, Germany. Also , have a look at how we significantly improved our EBITDA margin in Q1. Now look at the having a look at the product segments.
What you see is the overall 6% in Q1 is driven by prescription glasses, which overall grew 19%, as Mirk o already mentioned, some pent-up demand, but on the other hand, obviously, a lot of new stores and I would say a good fraction of Mister Spex in the core market, Germany. Sunglasses, here we grew 6%. I would say we've seen quite poor weather conditions in Q1 2023 versus Q1 in 2022. All right? Therefore, we see a slower demand pick up so far until end of March. I think whether significantly improved in Q2.
We don't see a big risk so far for the entire year on sunglasses, therefore , we are okay with the result in Q1 here. In contact lenses, I already mentioned it, we've seen a negative development. Here , it's a deliberate decision for margin, where we said, "Okay, we want to improve our overall gross margin," therefore, we are not basically going actively in all marketing channels, especially the ones which are very price aggressive and price sensitive, where no money is to be made. The second driver here was the negative impact of the Norwegian and the Swedish krona in the market.
I think positive, on the other hand, again, in the prescription and sunglass segment, our focus on the higher value Boutique and segment, which comprises basically luxury and independent brands, especially, increased by 39%, our Own Brands by 13%. Overall, we added three new stores in Q1 and ending the quarter with 71. When we look at our segments in Germany, which was our focus again in Q1, it's part of the Lean 4 Leverage strategy. We grew 12%, adding three new stores, and so showing a good and resilient performance, and also an increase in growth rate versus Q1 last year. Internationally, we really focused our, I would say, energy resources management attention on the German market because the bang for the buck was just significantly higher.
Therefore, in combination with, I would say, the weak Norwegian krona and Swedish krona, we've seen a decline of 8% internationally. It doesn't mean that we don't believe in international markets in the long run, but in our aim to get to cash flow break-even faster than rather sooner than later, this is a deliberate decision also to focus on the German market. Now let's look at the overall financial performance in Q1. What you see, the significant improvement in EBITDA of 7% and adjusted EBITDA of 6.4% is driven by gross margin improvement. We're already seeing 440 basis points and the reduced marketing expense of 320 basis points.
Personnel expense is slightly increased, especially due to the 20 new stores on a year-over-year, I would say comparison basis, while operating expenses stayed more or less flat. All right. Having looked at that, we do also confirm our guidance for 2023. Q1 was in line with our expectation. We do expect net revenues for the full year to increase mid to high single digits. And also returning to a positive adjusted EBITDA margin again in the low single-digit margin percentage. What you can expect from Q2, we've seen basically another positive impact from the lens price change of the 1.5 single vision lens.
We opened three additional stores, and we will also see a pickup, seasonal pickup from sunglasses in the second quarter as normal. Therefore, the expected improvement in gross margin will be, I would say we expect an improvement, but not as high as in Q1. That's mainly driven by the product mix. Having said that, we're now moving to Q&A, and I hand over to Irina to moderate that.
Okay. If you would like to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. If you'd like to cancel your request, you can also do so by pressing star one one on your telephone keypad. A reminder that if you would like to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. Your first question comes from the line of Alexander from Jefferies. Your line is open. Please ask your question.
Good morning, Dirk and Mirko. A couple of points from my side. First, maybe a remark. I believe all analysts would appreciate if we could get the presentation before the call or even during the call. I just tried to download it. It's still not working. My first question is on your omnichannel business model. Could you share some light on how much revenue is contributed from the online side versus brick-and-mortar stores, and the difference you see in the growth rate there? Could you remind me again of your store target for this year, please? The second one is on your profitability guidance for 23. You're currently below kind of the full year guidance, but obviously against the toughest comp in Q1.
How should we think about in the following quarters, especially given the shift in sales mix? I mean, I assume gross margin in Q2 will be definitely lower. What will be the impact on profitability going into the second half? Thank you.
Okay. Thank you, Alexander, for the questions. First of all, I would say the omnichannel split online versus offline. Offline is obviously slightly improving versus in terms of share due to 20 stores. It's still online is the I would say significant, like the larger part of the business and significantly contributing to our revenue mix, right? Looking at, I would say the profitability improvement for the full year. Yeah. I mean, we do expect significant improvements also in the next quarters. When you look at basically last year, we started or we finished the year with an negative EBITDA of EUR 6.5 million.
We now basically already improved by roughly EUR 3 million our EBITDA versus last year. We do expect to improve in EBITDA on a quarterly basis as well for the full year. We will see step-by-step, basically, improvements towards our targets in terms of low single-digit EBITDA margin. That's, I think, in line with the expectation where we want to go. In terms of gross margin, you're right. We do expect obviously gross margin to be slightly lower in the second quarter. That's naturally because of the product mix. Again, we plan to improve gross margin versus last year, right? That is always... We want to see further improvements in the overall P&L structure for the next quarters to come.
Okay. That's very clear. Could you remind me again what you're baking in right now on the personal costs over wage inflation? What do you expect there? I think in the first quarter, we are now up 9% year-over-year. My second would be on your reporting structure, the other operating expenses. I mean, with the Lean 4 Leverage program, it would be, I think, highly beneficial if you could break out like marketing, fulfillment, other costs in the other operating expense, so we can basically see where the cost savings are coming from. Thank you.
On salary inflation, we have different parts basically of the business that we manage slightly different. We have obviously higher salary inflation on the I would say more lower end of the salary factors. Here, I would say in entry-level salaries, it's more like I would say 7%-10%, while on I would say higher salaries, the increase is more 3%-5%. On average, I would say that we're probably talking about a 6%-7% salary increase versus prior year. On the cost and the other operational topics, we understood that.
We will, I would say, consider that basically coming back in the Q2 reporting, and also make it sometimes easier to understand certain mechanics of P&L management and also in terms of Lean 4 Leverage impact. That's understood.
Okay. That's good. just a follow-up on the first one. I couldn't hear the number of new stores that you're planning. The 10-20 is still valid, or is there any change on the opening of new stores?
No, no. Sorry. maybe I had a that was a misunderstanding. We're planning up to 10 stores. We opened 6 now. We'll be opportunistic basically, for the remaining 4 up to 10 in the second half of the year. The focus is really.
Okay, thank you.
The focus is really on the existing store network and like-for-like performance of the entire organization. If there are opportunistic, I would say, stores available that we can open in interesting locations, which are promising, then we may add a few more, up to 10, for the entire year.
Okay. That's clear. Thank you.
Thank you very much. A reminder that if you would like to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. Next, we have a question from the line of Cédric Rossi from Bryan Garnier. Your line is open. Please ask your question.
Good morning, Dirk, Mirko , and Irina. Sorry for the background noise. I have three questions. The first one is regarding the prescription sales up 18%. Could you elaborate a little bit more on the growth by category, whether high-end or the entry price have outperformed or not, and whether it's Own Brands or private labels? The second one is regarding your pricing connections. It's reassuring to see no negative customer reaction so far. How do you attribute that? Is it because some of your peers have also increased prices, or is it also still your very good value for money positioning? My third question is to bounce back on the previous questions is, what kind of salary inflation have you budgeted for this year? Thank you.
Mirco, you wanna quickly give a few comments on, I would say, Boutique and private label development. Also , maybe on the pricing reactions of the consumers, and I'm happy then basically we'll take the rest.
Right. Of course, Dirk. PG growth again is overproportionally driven by Boutique. If you take PG and SG together, Boutique grew again 39%. It grew around a little slower in PG, but it definitely was the driving force. If you look at Own Brand, that is that is slightly losing a bit of share in the first quarter, but we have new SKUs coming in. We believe that private label is gonna be on a similar level as a share as last year, but Boutique is the driving force for growth. On the price increases, well, there's a few factors.
One is partly due to the growth of Boutique, we are also entering segments that are less price sensitive, that obviously allows for price increases with less negative reaction, number 1. Number 2, yes, the market has increased prices partly, what you have seen is that in the market, the, at least in Germany, value development and unit development, there was almost no gap in the market. The large gap came from us, we were able to over proportionally increase prices without consumers choosing then lower priced product or purchasing less. That effect I really attribute to 2 factors. One is the attractive and still unique positioning for those consumers who like to buy great glasses in an easy, approachable way.
We're still unique for that customer segment, and that is why increasing prices have allowed us to still outgrow the market in units. The other thing is really in the past, I think we had a fantastic value for money positioning, and we still have a great one even after the price increases that comes on top of the strong brand.
Okay. Maybe on the last question, salary increases or HR cost increases.
Maybe let's split it like that. We expect overall HR costs to increase by 10%, 6%, 7% of that 10% come from increased salaries, the remaining comes from the additional stores, especially. We try to reduce headcount in other departments; overall, we do expect a 10% increase.
Okay. You are killing , thank you.