Westwing Group Se

Good morning everyone and thanks for joining our Q1 2023 results call. My name is Andreas Hörning, I'm the CEO of West Wing and today we will review our Q1 2023 results, reiterate the outlook for 2023 and close with a Q&A. Let's get started with a summary of our Q1 financial results. Firstly, Top line in Q1 was still impacted by baseline effects from the previous year and continued low consumer confidence, which resulted in minus 8% year-over-year Group GMB growth to €118 million total GMB. However, let's keep the bigger picture in mind. Q1 2023 revenue is up by 67% versus Q1 2019, showcasing the difference in scale the company gained over the past years. Secondly, In our last earnings call, I emphasized that 2023 will be all about returning to financial stability. And in Q1 2023, we clearly delivered on this. Costs across marketing, G&A, and CapEx were already down by 29 million euros on an annualized basis versus the committed 30 million euros of gross savings. The commitment is against the Q1 2022 baseline. Thirdly, Based on those cost savings, in combination with strong margins, we generated 5 million adjusted EBITDA euros or 4.9% margin in Q1 2023. Moreover, free cash flow improved significantly by 27 million euros versus the previous year, amounting to positive 10 million euros in Q1 2023. This was also driven by our successful network in capital management. Networking capital was at a negative 5 million euros per end of Q1 2023, a very strong improvement of 30 million euros versus the peak of Q2 2022. Fourthly, in terms of outlook, we continue to act in a highly uncertain macro environment, so top-line forecasting remains challenging. Yet, we remain very confident about the structural return to full-year profitability in 2023, so that overall we confirm our full-year guidance. With that, I will move on with a more detailed discussion of our Q1 2023 results. Starting with top line. In Q1, our Group GME stood at 118 million euros, which represents an 8% decline year-over-year. This is primarily due to baseline effects from the previous year, which was stronger compared to the rest of the year, as this period was not yet fully impacted by war and inflation. In addition to that, we still face a continued low consumer sentiment due to ongoing economic challenges and uncertainty. This difficult market environment is also reflected in our active customer base. We ended Q1 2023 with 1.3 million active customers. However, as I mentioned already, in this volatile environment, it's important to keep looking at the bigger picture when interpreting the top line results. Based on GMB, we are now 55% larger than in Q1 2019. Let me emphasize West Wing is now in a significantly stronger position than it was in 2019. Moving on to our revenue performance in Q1 2023, which was very much in line with GMB development. In total, we achieved a revenue of 103 million euros, resulting in a decline of 7% year over year. Our DAF and international segments showed similar growth trends, with DAF representing 54% of the group, and international representing 46% in Q1. Let me now move on to some details of our P&L starting with an update on our cost saving initiatives. I'm pleased to report that we are delivering as planned on our significant cost saving targets. Overall costs were already down by 29 million euros on an annualized basis versus Q1 2022. So we're fully on track to generate the committed 30 million euros of gross savings per year compared to the baseline. The savings in marketing were already achieved through roughly equal parts of personal cost savings and reduced performance marketing expenditures. The G&A and CapEx savings are also driven by headcount reduction supported by operational efficiencies across the organization. Let's take a closer look at our income statement. Our gross margin improved by 1.6 percentage points year-over-year to a very strong margin of 50.3% in Q1 2023. We continue to be able to compensate for overstock and inflationary effects with a higher Western Collection share, and we see now the full impact of last year's price increases, which we introduced to compensate for cost inflation. Also, our fulfillment ratio improved compared to last year. Despite an overall lower top line and hence slightly less scale, we were able to lower the fulfillment ratio by one percentage point. This was mainly achieved through continued efficiency gains in our warehouses, and increasing carrier competition, which paid off in our P&L. These effects combined led to a very strong contribution margin of 27.9%, up by 2.6 percentage points compared to the same pre-period last year. We are pleased with this improvement as it demonstrates the structural profitability level of our business model, in particular with a high margin Western collection at the forefront of our next growth phase. Let's move further down the P&L. As discussed just now, we made significant progress introducing our marketing and DNA costs, resulting in an improvement of 1.4 and 1.5 percentage points respectively versus the previous year. This brings us bottom line to a strongly improved adjusted EBITDA margin of 4.9% in Q1 2023, an improvement of 6.5 percentage points versus the previous year. These results confirm that we have taken the right decisions in reaction to our 2022 results, and we are confident about our structural return to full-year profitability. I also want to take this opportunity to commend our entire team, which has worked tremendously over the past quarters to enable this turnaround on profitability. I'm very proud of what we have achieved and excited about our journey ahead. Just like on top line, it also helps our PML lines to zoom out for a moment in order to understand the structural improvements we've achieved since 2019, underpinning that we are now in a significantly stronger position On gross margin, we improved significantly by 7.9 percentage points versus 2019, which is mainly driven by the continued expansion of our Western Collection. Such an improvement of gross margin in our extremely competitive retail market is extraordinary and showcases the competitive advantage we have built with our Western Collection. The gross margin improvement, in addition to scale and efficiency in our fulfillment operations, results in an improvement of 9.3 percentage points on contribution margin. Hence, we have strongly evolved our business model in terms of unit economics since 2019. Based on this strong improvement on contribution margin and scale effects in G&A, we improved our adjusted EBITDA margin by 11.2 percentage points compared to 2019. And yet, we still have huge potential in terms of profitability. Our targeted adjusted EBITDA margin is 10% to 15%, and we are very confident to deliver on this in the long run. Let's look at absolute numbers. We delivered a strong Q1 2023 with a profit of 5 million euros on adjusted EBITDA.

When we look at profitability across our two segments, we see that DACH is ahead of International.

DACH delivered a strongly profitable Q1 with an adjusted EBITDA of 9%, while International was breakeven again with 0.3% margin. Moving on to networking capital development. Based on a continued reduction of overstock improvements on trade payables and the introduction of trade financing solution, I'm happy to report that we return to negative net working capital per end of Q1 2023. This is a huge improvement of 13 million euros versus the peak of Q2 2022, and we expect to maintain these healthy net working capital levels going forward. Of course, there will be some seasonal fluctuation, especially in Q2 and Q3 this year, but structurally we have already returned to negative to break even net working capital. Based on operating profits and successful net working capital management in Q1, we generated 10 million euros of free cash flow in Q1 2023. This is a huge improvement of 27 million versus last year and shows how well we can convert our profits into positive cash flows. In terms of our balance sheet, we continue to have a very healthy cash balance of 80 million euros. With that, we are able to steer the company with a long-term perspective as the opportunities to come are massive. Let me now reiterate our outlook for 2023. In terms of top line, we are still in a highly uncertain macro environment and see quite some volatility on growth rates. However, we continue to expect to attend to growth in the second half of the year, mainly because we see a weaker 2022 baseline for the second half of the year. Therefore, we confirm our revenue guidance of 390 to 440 million euros for 2023. In terms of profitability, we confirm our commitment to return to adjusted EBITDA profitability for the full year 2023 and our adjusted EBITDA guidance of 4 to 13 million at 1 to 3% adjusted EBITDA margin. Please do keep in mind that our business is very seasonal. So the second and third quarter will be weaker from a profitability and cash perspective before we move to the seasonally important fourth quarter. Based on this guidance, we also continue to expect to return to a positive free cash flow on a full year basis, especially since we will continue to reduce our inventory levels throughout 2023. Yet please note that free cash flow is not part of our official capital market guidance. With that, I'm closing my update on our Q1 2023 results with a quick summary of our investment highlights before we move to Q&A. The opportunity ahead of us is massive. The European home and living market has a size of €130 billion and is still very early in e-commerce, which provides exciting growth momentum based on dynamic online adoption for years to come. Customer loyalty is at the core of our business. We create superior loyalty based on our differentiating and inspirational core. As a result, we achieve best-in-class repeat order shares of more than 80%. Our Western Collection then perfectly leverages the loyalty to our love brand at about 10 percentage points margin upside, and our strategic target is to bring Western Collection shares to greater than 50% of GME. As of Q1 2023, it is already at 46%. We were at our Western Collection that perfectly leverages the loyalty of our love brand at the 10% market margins upside and our strategic target is to bring our Western Collection shares to greater than 50% of GMV. As of Q1 2023, it is already at 46%. We have a strong cash profile. Our strong balance sheet provides us with ample liquidity and strategic optionality to navigate through the current challenging market environment. And lastly, based on this highly profitable consumer love brand strategy, We have an attractive long-term profitability target of 10% to 15% adjusted at its EA. With that, I'm now happy to take your questions. I'm joined by our interim CFO, Max Schmid, in case of more detailed questions regarding our financial results.