Westwing Group Se

Good morning, everyone, and thank you for joining us for our earnings call on the first quarter of 2024. My name is Andreas Hörning. I'm the CEO of West Wing. I'm hosting the call together with Sebastian Westrich, our CFO. Looking at today's agenda, I will begin by providing key updates on the business, followed by Sebastian, who will be presenting the details of West Wing's financial performance. After our investment highlight summary, we will be happy to take your questions. Let's take a look at West Wing's current state and the key achievements in a strong first quarter of 2024. We were able to increase our top line by 6% year over year in the midst of a still declining market. This positive development was also driven by a growing number of active customers, which, for the first time since the end of the pandemic, saw a positive year-over-year growth of 2%. Besides top line, we were also able to improve our contribution margin significantly year-over-year. It increased by 4 percentage points to 32%. Worth mentioning is also our marketing ratio. As we continue to invest into our brand in Germany, our marketing ratio increased by 4 percentage points year-over-year to 13%. This all led to an adjusted EBITDA of 6 million euros or 6% of revenue and a free cash flow of €4 million. The development is fully in line with our guidance that we published in March. Our net cash position end of quarter amounted to €82 million. Beyond current financials, we are also well on track with our transformation to build a scalable platform and a strong brand. We further increased our Western Collection share to an all-time high of 51% of Group GMV and strengthened our premium brand positioning, for example, with an installation at Milan Design Week. Let's briefly put our Q1 top line into perspective by looking at market development. As you can see on the left-hand side, the German online home and living market declined by 4% year-over-year in the first quarter of 2024. We clearly outperformed this market development. Our DACH segment achieved an 8% revenue growth. That's 12 percentage points better than market. We believe that our growth in a weak market proves that we are right on track with our one Western commercial model and the positioning of our brand. An important indicator worth highlighting is the number of active customers. In Q1, after two consecutive quarters with quarter-over-quarter growth, the number of active customers grew for the first time since the end of the pandemic year-over-year, albeit slightly. In the last earnings call, we presented our three-step plan to unlock West Wing's full value potential. We are currently in the second stage, building a lean, scalable platform. Let me give you a quick update on the levers we're working on. Firstly, our complexity reduction efforts are well on track. The switch to a technology stack based largely on software as a service, or SaaS, is progressing as planned. The consolidation of our logistics center footprint is well on track and we have started to reroute the flow of goods via our central logistics center in Poland. The restructuring of the Italian and Spanish corporate functions and the switch to a mostly global product assortment in those countries is also on track. We are currently finalizing the handovers to our central functions. Please note that, as explained in our last earnings call, The switch to a mostly global product assortment in Italy and Spain will very likely have a short- to mid-term detrimental top-line impact, which will also be felt on group level for the remainder of the year. Secondly, the completion of the One West Wing commercial model is on plan. This is linked to the switch of the technology stack. Thirdly and fourthly, we're making good progress on the Western Collection share increase and our premium brand positioning. I will be sharing some details on the next slides. We are very pleased with the performance of our Western Collection, which is our gorgeous, sustainable private label product brand. Its share of Group GMB grew further by five percentage points year over year to an all-time high of 51% in Q1 2024. This strong development supports our top line as well as profitability since the products are very desirable and they allow us to achieve a higher contribution margin compared to third-party products. A few years ago, we set a long-term target to reach 50% Western Collection share of Group GMV. Now that we've surpassed this mark, the question arises whether there will be a new higher target. We will grow the Western Collection further but likely at a slower pace and, at least for now, without a new long-term target. As we build Europe's premium one-stop destination for home and living, we're creating a unique product assortment for design lovers consisting of our own brand Western Collection and the best third-party design brands. We still have significant room for improvement on both sides. Regarding our efforts to strengthen our premium brand positioning, let me highlight an event that took place in April. A few weeks ago, we celebrated our debut at what is arguably the most influential design fair globally. It was our very first appearance at Milan Design Week and a real highlight for us as we invited design lovers to experience LIVED BEAUTIFUL with all their senses in our exhibition. Why did we choose to exhibit in Milan? If I had to name a star on the design calendar, it's definitely Salone del Mobile. The fair is an international hub for the latest trends and innovations, but also a display of heritage in furniture and design. For us, it was a great opportunity to showcase our carefully crafted Western collection in an exciting installation to design lovers from around the world. For this occasion, we designed our new Wolke sofa in a special Tuori Salone edition which you can see on the left hand of the slide. The installation also included a sneak peek into our collaboration with a famous fabric house, Dedar Milano. The product drop, which will launch later this year, consists of a range of seating furniture and cushions with extraordinary colors, exquisite patterns, and excellent fabrics. Overall, our Milan Design Week appearance was received very positively by partners, the public, press and across social media. I now hand over to Sebastian for details on our financial performance.

Thank you Andreas and good morning everyone. I am Sebastian Westrich, the CFO of Westrich. Let me start with details on our top line. As you know, we achieved a top line increase of 6% in the first quarter of the year. Given the weak whole and living market that Andreas mentioned at the beginning, the top line increase indicates market share gains and therefore marks a really strong start into the year 2024. If we now take a closer look at the revenue development by segments, you can see that both segments continue to grow. The DACH segment growth of 8% year-over-year is the strongest year-over-year growth rate for a quarter of the DACH segment since 2021. This might also be driven by our brand awareness investments. On the other hand, the international segment grew by 3% year over year. The weaker growth compared to the DACH segment is mainly caused by Italy and Spain, where we already see negative top-line impact of the complexity reduction and the global shared offering. All other countries of the international segment showed growth rates even above those of DACH. This is in line with our expectations. Looking at our management P&L, we see improvements across almost all P&L lines. In Q1 2024, our gross margin increased by 1.8 percentage points compared to the previous year. As a result, we achieved a gross margin well above 50%. The key driver is the higher share of our West Wing collection, which comes with better margins. We were also able to improve our fulfillment ratio by 2.1 percentage points Q1 over Q1, mainly due to efficiency gains. All this led to a significant year over year improvement in contribution margin of 3.9 percentage points in Q1 2024. We are very proud of this development as it proves the strength of our commercial model. Moving down the management P&L, you can see that our marketing ratio increased by 3.8 percentage points in the first quarter of 2024. This was mainly driven by continued investments into our brand in our biggest market, Germany. Looking further down, we made slight improvements in our G&A ratio, which also includes other results. The ratio improved by 0.1 percentage points. The positive effect of a stable G&A cost base at a growing top line displayed despite inflationary impact was partially offset in Q1 2024 by lower other results compared to the previous year. DNA increased compared to 2023 due to our complexity reduction measure of moving to a mostly software-as-a-service or SaaS-based technology solution. As a consequence, we had to shorten the lifetime of our in-house developed tech assets, which leads to higher DNA. DNA will remain on a higher level until the end of this year. All this contributed to an improvement in our adjusted EBITDA margin year over year by 0.9 percentage points in Q1 2024, leading to 5.8% adjusted EBITDA margin. This development is fully in line with our 2024 guidance as Q1 and Q4 are typically seasonally strongest quarters. Please note that in Q1 2024, we had one-time restructuring expenses of 2.7 million euros related to our complexity reduction measures, mainly for severance payments. Due to their non-recurring nature, we excluded those expenses from our management P&L. Looking at the profitability of our segments, we are pleased to report a clearly positive adjusted EBITDA margin for both segments in Q1 2024. However, the DACH segment profitability declined year over year. The reason for this is that our brand awareness investments are focused on Germany, our biggest market. Therefore, the full brand investment was allocated to this segment. The international segment successfully caught up with our DAH segment, achieving 6.1% adjusted EBITDA margin in the first quarter of the year, despite the rather low top line growth. The strongest driver for the improved adjusted EBITDA margin in the international segment is an increase in the West Wing collection share. Let's have a look at our networking capital end of Q1. It improved by 13 million euros compared to Q1 2023 and was negative at minus 18 million euros. This is a really good result and was driven by two main factors. Firstly, as shown on the right side of the chart, our inventory levels improved by 5 million euros in Q1 2024 compared to the previous year's quarter. The reduction of excess inventory from the covered period is now more or less completed. We are very pleased with the overall performance and the improvements we have achieved. And it is worth noting that we have improved our gross margin as we have reduced our inventory levels over the last quarters. Over the next quarters, we expect to return to a typical seasonal pattern with an increase in inventories towards the fourth quarter, our peak selling season. The second main driver for the improvement in networking capital besides lower inventories was an increase in trade payables. Looking at the year-over-year development of networking capital, it should be noted that this year, the Easter holidays fell right at the end of the first quarter, which had a favorable impact on the networking capital position as of 31st of March. In 2023, the end of March was a normal working day. Let's now look at CapEx development. The capex ratio increased from 1.9% in Q1 2023 to 4.9% in Q1 2024. This spike is due to a change of the lease for parts of our logistics center equipment. We used to be sub-tenants in one of our logistics centers and subleased the warehouse, including its equipment, such as our pig tower from our sublease provider. We changed the lease contract and are now direct tenants of the landlord. This changed the contract for our warehouse equipment as well. In order to set up this new contract, we had to take over the equipment from the previous sub-police provider. You see the effect in our balance sheet as of 31st of March, which amounts to 3 million euros. Most likely, this effect will be reversed in Q2 as we want to continue the lease of the warehouse equipment. Excluding this effect, our capex ratio would be 2% of revenue in line with previous year's level. Turning to free cash flow, we achieved a positive free cash flow of €4 million in the first quarter of 2024. This is €6 million less compared to Q1 2023, which is mainly driven by higher investing cash flows. The increase in investing cash flows is mainly due to the aforementioned changes in the warehouse lease contract. This resulted in the previously mentioned capex of €3 million, as well as a rental deposit of €1 million. We are preparing to reverse both effects with a positive impact on free cash flow in Q2 2024. Looking at our net cash, you can see that we maintained our strong net cash balance sheet position of 82 million euros with zero debt at the end of March 2024. This strong net cash position provides us with a strong downside protection as well as strategic optionality and confidence to focus on our long-term strategy in a still challenging market. On the last slide of the financial update, I'll comment on the financial guidance for 2024, which we published at the end of March in our last earnings call. So far, we believe we are in line with our guidance. In terms of top line, we had a promising start into 2024 with our GMV growth a year-over-year of 6% in Q1 2024. Top line losses in Italy and Spain which we expect to be between 1 and 3% of Group Revenue in 2074, are expected to materialize during the remainder of the year. This is connected to the switch from a local to a mostly global offering in those countries that we explained in the last earnings call. Our expectation in terms of overall markets remains restrained, given the low visibility of the future market development and with consumer spending not picking up so far. However, first underlying macro indicators are starting to recover at low levels. In terms of profitability, we are in line with our guidance for the full year 2024 and expect a typical seasonal development with peaks in Q1 and Q4. To summarize, we are well on track with our transformation to a less complex platform, enabling us to scale with operating leverage. We continue to grow in a rather weak market, We continue to improve our contribution margin with our Western collection and efficiency gains. And we are improving our adjusted EBITDA margin while investing into our brand. We strongly believe in the potential of our business. And with that, I'm handing over to Andreas to conclude our presentation with our investment highlights.

Thank you, Sebastian. So as Sebastian said, let me briefly recap the highlights. First, we have a unique, relevant customer value proposition through the specific assortment and the way we serve our customers. Second, the market potential is huge, especially in our existing geographies, but also beyond. Third, we have a strong brand with high loyalty and true potential to grow further. Fourth, we have high and increasing margins as well as operating leverage while we scale. Fifth, we have a great balance sheet with a strong cash position and no debt, strong networking capital and low CapEx. All of this will lead us to 10% to 15% adjusted EBTA with a continued strong cash conversion. Sebastian and I are now happy to take your questions.