Westwing Group Se

Good morning, everyone, and thank you for joining us this morning. Today, I will present West Wing's Q1 2022 results. With our mission in mind to inspire and make every home a beautiful home, let's walk through the business highlights and financials for the first quarter of 2022. In terms of agenda for today, I will begin by providing key updates of our business operations, followed by details of West Wing's financial performance in Q1, and then we will move into Q&A. Let me begin with sharing a few words on the general market sentiment we are seeing and our trading performance over the past quarter. The pandemic presented several challenges and opportunities for our business. From a growth perspective, West Wing has delivered exceptional growth over the previous years and has established itself as a unique player in the home and living e-commerce market. Our brand positioning is strengthened. Our customer proposition is strong as an inspiration-based home and living player. Moving now out of the pandemic, the world is facing new challenges. Overall, especially in Europe, the war and humanitarian crisis in Ukraine has heavily contributed to an insecure demand environment, and consumer sentiment continues to be on a cautious level. Additionally, inflationary headwinds driven by rising energy prices have also had a cascading effect on consumer discretionary spending, and therefore also on the demand for our business. Additionally, post-COVID desires of consumers to travel has also had an impact. The combination of these events has developed into softer trading for first quarter of 2022, and we expect this trend to continue at least throughout the first half of the year. The investments we have taken in key areas of our business are important for our long-term success and growth. However, in such uncertain times, we need to and will carefully manage our contribution margins and general cost efficiency and are overall more cautious on longer-term investments. All of that in order to return to being clearly adjusted to ETA profitable again by the end of the year. Let's now take a look at the summary for Q1. Revenue for the first quarter of 2022 amounted to 111 million euros. which when compared to the very strong baseline from last year's COVID lockdown period was down by 20%. In addition to the baseline effect, trading was strongly impacted by a challenging demand environment with low consumer sentiment due to the reasons I mentioned earlier. Adjusted EBITDA for Q1 was minus 1.7 million euro at an adjusted EBITDA margin of minus 1.5%. The negative adjusted EBITDA result was driven by a lower top line alongside increased fulfillment costs and strategic growth investments we took into the areas of technology, marketing, and investment collection. Free cash flow for the period came to minus 17 million euro, mainly driven by a temporary increase of net working capital as inventories of our best seller products increased. I will later also share further details on our expectations for working capital this year in the financial section of our presentation. We continue to have a strong base of loyal active customers, which stands at 1.6 million for the last 12 months, which is down by 7% year over year. This drop in number of active customers reflects a similar trend to our top-line development of having a strong baseline from last year, in addition to overall lower customer acquisition due to a very difficult market environment. Our key strategic priority to increase West Wing collection share towards 50% of GMB thereby driving differentiation and margins up is well on track. And we improved the share to 37% in Q1, up 6 percentage points towards the same quarter last year. Lastly, based on the current developments, we now rather expect to meet the lower half of the full year guidance in terms of revenue and adjusted VTA. But as you know, the full year results are also very much driven by the seasonally strongest Q4 that still lies ahead of us. Let's now look at some more details for our business update. GMB for Q1 2022 was 128 million Euro against the very strong baseline from last year. On top of the strong baseline, demand for our business was also affected by the very difficult market conditions caused by a range of factors we discussed. At these extraordinary baseline effects from last year, Extraordinary baseline effects from LASI make it very difficult to interpret the year-over-year growth rate and determine the underlying structural growth. It's also valuable to look at the three-year compound annual growth rate of 19%, which we believe is a more accurate reflection of our structural growth over the past years. I would like to emphasize that the current market environment is indeed challenging and that we had originally planned for a stronger 2022. However, we are still absolutely convinced that our business model and customer proposition are intact and that once the market returns, we will continue to scale and expand our business further. The opportunity ahead of us remains massive and the current adverse market developments and volatility will be challenging, but certainly manageable on our way to building the company we envision. As these baseline effects are very important to understand when talking about Q1 2022 relative growth, let me provide some more details here. When looking deeper into the trends we are seeing and assuming historic seasonality, we expect to regain growth momentum in Q3 and Q4 of this year as we leave the extraordinary baseline effects from last year behind us. We have illustrated this effect in the chart below. Usually Q1 and Q4 are seasonally the strongest quarters as you see in 2019, the last year that was not affected by COVID. When we take the seasonal pattern of 2019 and apply it to our weak first quarter of 2022, we will get to slight growth in H2 2022 and therefore significantly surpass the size we were at before the pandemic began. So this shows how important it is to keep the baseline effects in mind when interpreting and forecasting growth in 2022. Our three-year CAGR that we internally look at a lot, as said before, is 19% for Q1 2022 versus Q1 2019. Let me now give you some more details on the development of our active customers. The number of total active customers declined by 7% year over year and stands at 1.6 million active customers as per the end of Q1. The total figure is up by 61% on a two-year basis, showcasing the exceptional growth in our customer base over the last two years. The decline in Q1 2022 is driven by the same drivers as our top line. On the one hand, we are facing a strong baseline from previous years, and on the other hand, the currently lower demand in home and living e-commerce impacts our churn as well as our new customer acquisition negatively. In terms of new customer acquisitions, it's important to note that although Q1 2022 is down versus previous year, it is still significantly above the levels of Q1 2020 and Q1 2019. So despite the current market weakness, we are able to maintain our ability to attract more new customers. On West Wing Collection, we continued the upward trajectory towards the 50% of GMV target share, of the high-margin West Wing Collection. In Q1 2022, we achieved a West Wing Collection share of Group GMB of 37%, which is up six percentage points, compared to the previous year. Our midterm target is to get this figure towards the 50%, which will be done through a combination of increased customer reach and awareness, as well as expansion into further product categories. And we are on track to expand into further categories with decoration and tableware next on our roadmap. Additionally, we remain focused on embedding sustainability into the Western Collection. And we are proud to feature certified and sustainable products in our range, which is set to expand over the coming months and years. Further details of our ESG strategy can be found on our website, where you may refer to our first-ever sustainability report published in March. In February this year, we also successfully opened a new warehouse in Poznań, Poland, further boosting our total shipping and storage capacity. The warehouse has a capacity of 80,000 square meters with the option to expand further and will be dedicated for storing and shipping our larger products. We believe the inclusion of this warehouse in our existing footprint of six warehouses is key to us enabling our strategic target of 1 billion euro revenue over the coming years. That concludes the business update section of our presentation. I will now take you through some further details of our financial results. Revenue for the first quarter of 2022 decreased by 20% year-over-year against the last year's extraordinary basis. The DAF segment generated revenues of €61 million, while the international segment generated revenues of €50 million. Here too, you can see the impact on year-over-year growth rates due to the extraordinary baseline. Let's take a closer look at our P&L for Q1. Our gross margin for Q1 2022 is 48.7, which is 1.9% less than the extreme strong Q1 2021. Gross margin was mainly impacted by higher costs related to sea freight. Fulfillment ratio for the period increased by 4 percentage points, which was in part due to higher inventory storage costs, as well as due to lower utilization of our now increased warehouse infrastructure. In addition, a generally higher inflationary pressure has resulted in a general cost rise in logistic and fulfillment-related services. Overall, the effect of our gross margin with rising fulfillment costs resulted in a contribution margin of 25.3% for Q1, which is down by roughly 6 percentage points compared to last year. In terms of marketing, we maintained our marketing expenses in line with our target range of 9% to 11% of sales. While we remain confident that these marketing investments are key to enabling Westminster's growth ambitions, we are keeping a watchful eye on cost efficiency and also reviewing our investment decisions continuously. Our taking long-term growth investments are also visible in our G&A ratio. In combination with the lower top line, we've increased the G&A ratio for the period by roughly 8 percentage points for this last year. A large portion of these increases are allocated to our costs associated with expansion of Western collections, as well as upgrades to our technology function, both fundamental to the health of our operating model. At the same time, given the lower top line, We are now shifting gears to being much more conservative and we will be also reviewing our investments. Overall, this brings us to an adjusted EBITDA margin of minus 1.5% for Q1. As highlighted in our guidance, profitability is expected to remain at lower levels for H1 and then improve in the second half of the year with our seasonally strongest quarter in Q4. When we look at the segments, I think it's a similar picture. So DAF continued to be profitable for the quarter, while international reported minus 7.5% adjusted VB margin for the same period. So the delta is fairly in line. Turning now to our cash flow in Q1, starting with our networking capital and net capex development. Our networking capital position at the end of Q1 2022 stood at positive 16 million euros. This increase is mainly driven by high inventory levels related to the lower top line and supply chain disruptions that required extensive inventory buffers to cover supply volatility. Fortunately, the obsolescent risk is rather low in our industry, so this is primarily a cash flow timing issue, not a structural issue. While we expect networking capital to remain significantly positive for the next two quarters, We are confident that these effects are temporary and that we will begin returning to our structurally negative net working capital position, gaining pace towards the end of this year. And in a moment, I will provide some more details on the expected working capital development on the next slide. Our capex ratio is 4.1% of revenue for Q1, representing a €3 million increase in capex spending with previous years. This increase is mainly driven by one-time investments into equipment for our recently opened warehouse and ongoing investments in our growing technology function, with its focus on the development of proprietary software. Coming now towards some details on our expectations for net working capital for the next quarters. As you can see, we are significantly in the positive territory with our structurally negative working capital positions maintained in previous years. Commenting now on our expectations for the individual elements for the working capital. Firstly, it is evident that the large part of this increase is due to significant increase in inventories. Currently, we are well equipped with inventory as we ordered significant inventory buffers due to the supply chain disruption. Additionally, the lower top line also has prevented us from selling this inventory off as quickly as we had originally planned. From Q4 onwards, we will reach a significantly reduced inventory level as we have already reduced our order levels and buffer levels. Additionally, we expect high sales for our seasonally strongest fourth quarter, so we expect to be able to sell a portion of this inventory, which in general has a very low obsolescence risk given the longer product life cycles in home and living. Inventory prepayments. This has actually reduced versus last year in part due to low level of purchase in new inventory as we were adequately equipped already. Similarly, we also expect a decrease in inventory prepayments towards the end of 2022 based on the lower purchase order volumes. For trade receivables, we foresee no significant change and for trade payables, this figure will go down in Q3 due to seasonal lower top line and hence lower purchases to be made. before increasing in the seasonally strong fourth quarter again. Contract liabilities, which consist mainly of customer prepayment, will also follow a similar pattern as driven by top line, decreasing over the next two quarters and then increasing again slightly towards the end of the year. The increase in working capital in combination with a slightly negative adjusted EBITDA results in a free cash flow of minus 17.1 million for Q1. Based on the combination of these effects, our net cash position, as you can find on the next slide, stands at a strong 79.3 million euro per the end of Q1, which provides us with reassuring strategic optionality in the current challenging landscape. Also to tie in what we just discussed on the profitability and networking capital outlook, based on our guidance on profitability and expected increase in inventory in the second and third quarter, we do not expect We do expect a lower net cash position by the end of Q2 and Q3. Before then, we'll increase again in the fourth quarter due to the significantly improving working capital and profitability of the business. With that, let me give you the outlook for the remainder of 2022. For the full year 2022, we guided revenue between €460 million and €540 million at a respective year-over-year growth rate between minus 12% to plus 3%. For adjusted EVDA, we guided an adjusted EVDA margin between minus 2% and 3%. Due to a constantly lower consumer sentiment observed across all segments over the last month, and basically no signs for immediate short-term improvement of the macro environment, we now expect to meet the lower half of our full year outlook in terms of revenue and profitability guidance. Before we now move to the Q&A session, a quick summary. on where we stand. So we processed 4 million orders within the last 12 months by serving 1.6 billion loyal active customers across our market. We realized revenues of 111 million in the first quarter and then adjusted the gain margin of minus 1.5%. The huge home and living market of 120 billion is still very early in e-commerce and we are size-wise still tiny compared to the huge opportunity in front of us. As we intend to lead the shift to online, in a 120-billion-euro market. Our business model focused on loyalty remains unparalleled, with 80% orders coming from repeat customers. We are strongly growing our West Wing collection share, where we sell gorgeous bestsellers at good prices and for us very attractive margins. We have an attractive target P&L approved during 2022. We have a very strong cash profile with a low capex ratio and usually a negative networking capital. To that, we should return over the next quarter. With that, I'm happy to take your questions.

Thank you. We will now begin our question and answer session. If you have a question for our speaker, please dial 01 on your telephone keyboard now to enter the queue. Once your name has been announced, you can ask a question. If your question is answered before it, if you're trying to speak, you can dial 02 to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. And the first question is coming from Volker Bosse at Baader Bank. Your line is now open.

Hello, gentlemen. Good morning. Volker Bosse, Baader Bank speaking. I would... like to start with what is your general view on the current situation? Did you already internally switch here, so to say, to crisis mode by cutting costs or by postponing projects? Or how do you look at this current situation and how did you react? I think You sound more cautious by saying the crisis will be at least until end of H1. So you showed us the hopes are on the second half, but how much confidence you have. Can you also give us a bit more insight on consumer trends? We saw that the average value per basket increased. How was it? and perhaps you can also share some observation regarding the regional trend. I mean, perhaps which countries stand out, some highlights, some lowlights to get a kind of flavor regarding the regional differences. And finally, we would be interested in sales minus 20% on group level. How was the difference in West Wing now and the daily themes? segment. Thank you.