Westwing Group Se

Good morning, everyone, and thank you for joining us for our earnings call on the first quarter of 2025. My name is Andreas Hörning. I'm the CEO of West Wing, hosting the call together with Sebastian Westrich, our CFO. Looking at today's agenda, I will begin by providing key updates on our business for Q1 2025, after which Sebastian will share the details of West Wing's financial performance. After our investment highlight summary, we'll be happy to take your questions. Let's take a look at the current state of West Wing. Overall in Q1, even without scale effects, we improved our profitability significantly. Our revenue declined by 1% year-over-year due to shifts in our product assortment. We improved our adjusted EBITDA margin by 3 percentage points to 8%, delivering 9 million euros in Q1. Free cash flow was negative at minus 9 million euros, primarily due to a seasonal increase in inventory. Our net working capital remained negative at minus 2 million euros at the end of Q1. The overall development is fully in line with our guidance that we published in March and which we confirmed today. Strategically, we are well on track with the implementation of our three-step value creation plan Most recently, we successfully launched Sweden in April and continued our store expansion with the opening of a new store-in-store at Printemps in Paris. As always, let's have a look at our three-step value creation plan, which we initiated in 2022. We're happy to report that we successfully completed the first two phases, the turnaround and strategy update phase and the building of a scalable platform. Before we move to the levers of the third phase, let's briefly stop here to see how the levers of the first two phases impacted profitability. What you see on this slide is the adjusted EBITDA in absolute terms and the margin of the first quarters of the past years. We've excluded the two years impacted by Corona 2020 and 2021. On the left-hand side, you see the pre-COVID figures. The second bar from the left shows Q1 2022, just before we started implementing our three-step value creation plan. On the far right, you see Q1 2025. Within the roughly three years of our value creation plan, we've improved adjusted EBITDA from minus 2 million to plus 9 million, or from minus 1.5% to plus 8.5% of revenue, a 10 percentage point increase in absence of scale effects from top line. We believe this is the strongest testament to the success of our strategy and its implementation so far. We promised we would solve for profitability first and at the same time build the foundation for significant growth and further margin increase in the third phase of the value creation plan which we will look at on the next slides. As during the last earnings call, I will briefly guide you through our progress on the levers of the third phase, beginning with the latest developments on the Western Collection, followed by how we will continue to grow our share in existing markets, our brand positioning, and finally, our expansion strategies. So starting with the Western Collection. The West Wing Collection is our gorgeous, sustainable private label product brand, and we continue to be very pleased with its performance. Its share of overall GMV grew further by 11 percentage points year over year, to an all-time high of 62% in Q1 2025. 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. 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, Westin Collection, and the best third-party design brands, we still have significant room for improvement on both sides. As outlined in our last earnings call, besides improvements in product assortment, we see offline store expansion as a lever for share gains in existing markets. For 2025, we have set the target of opening a mid-single digit number of offline stores, and we are well on track. In our last earnings call, we reported that in March we had opened a new store in Leipzig. Since then, we successfully opened a store-in-store at Printemps in Paris. This marks our first store expansion outside of Germany. Looking forward, lease agreements for Munich, Berlin and Cologne have already been signed. Before I share an update on our geographic expansion, let me show you some impressions of our new store-in-store at Printemps. Our store-in-store in Paris is located at the prestigious Printemps Haussmann. Printemps is known for its artistic and architectural heritage. It stands as one of France's leading retail destinations for lifestyle, Fashion, Luxury and Beauty. With its iconic architecture and curated brand selection, Pantone offers the ideal setting to showcase our West Wing collection to a refined clientele in a prestigious international market. And that's what offline stores at West Wing are about. They help us to further strengthen brand presence and positioning. And by providing a holistic shopping experience across the multi-touch customer journey, Western will also gain market share. In home and living, many customers combine online and offline experiences in their journey, especially for large furniture purchases, the latter mostly for the touch and feel, and simply because basket sizes in furniture are often very large and require many touch points for conversion. Let's move on from gaining market share in existing geographies to entering new ones. In the full year 2025, Westlink will launch online sites and apps in 5 to 10 new countries, and in the mid-term, we aim to be present in approximately all European countries. We've already expanded to three new countries so far this year, Luxembourg, Denmark, and just last week to Sweden. On the slide, you can see a list of countries we are preparing for short-term expansion, several of them to still come in 2025. As outlined in our earnings call in March, geographic expansion allows us to offer our existing global product assortment to customers in the corresponding market segment for design lovers in other countries. This means selling more of the same products. All continental European countries follow the same logic with low marginal costs of serving them. translations supported by AI, onboarding of last month delivery providers, local influencer marketing, and performance marketing with attractive returns within a few months. We're looking forward to the next launches. I now hand over to Sebastian for details on our financial performance.

Thank you, Andreas, and good morning, everyone. I'm Sebastian Westrich, the CFO of Westring. Let me start with details on our top line. Our revenue declined 1% year-over-year. As expected and communicated in our previous earnings call, the first quarter so far seen the biggest negative top-line impact from the switch to a mostly global and more premium product assortment. In addition, consumer sentiment remained dampened. At segment level, revenue was at plus 1% year-over-year in the DACH segment and minus 4% in the international segment. The difference in segment performance was mainly caused by the changes in the assortment, which had a bigger impact on the international segment. Please note that GMB development in Q1 2025 was at minus 5% year over year. The smaller decline in revenue compared to GMB in the first quarter of 2025 was primarily driven by favorable timing effects from orders placed back in 2024 that were now shipped in Q1. This positive timing effect on revenue is limited to the first quarter of 2025. Let us now take a look at our P&L. Andreas shared with you earlier the development of our adjusted EBITDA margin since the start of our three-step value creation plan, which is why we also included Q1 2022 on this slide. This serves as a reference and shows the main levers of our improvements. I will start with commenting on our Q1 2025 performance compared to the previous year, and then add some comments on our development since Q1 2022. In Q1 2025, we were able to improve all ratios across the P&L compared to the previous year. Both gross margin and fulfillment ratio slightly improved year over year, leading to an increase in contribution margin of 0.4 percentage points. Our strong West Wing collection share gains contributed well, but were partially offset by effects like higher container costs. Our marketing ratio improved by 0.9 percentage points year over year to minus 11.8% in Q1 2025. This development was to a large extent driven by reduced investments into brand awareness in Germany compared to last year. Our G&A ratio, which also includes other results, improved by 3 percentage points to minus 15.5% in Q1 2025. This is a significant improvement year-over-year, showing the positive effects from our 2024 complexity reduction measures. This led to an adjusted EBIT margin of 4.9% in Q1 2025, a remarkable improvement of 4.3 percentage points year-over-year. DNA in the first quarter of 2025 decreased by 1.6 percentage points. This was primarily due to the fact that old technology assets had been fully depreciated with the successful go-live of our SaaS-based tech platform. Overall, our Q1 adjusted EBITDA margin improved by 2.7 percentage points year-over-year to 8.5%. Adjustments in Q1 were minor and included three main effects. Firstly, an adjustment of €0.4 million related to the non-cash related reclassification of sub-lease income as stated in our annual report 2024. Secondly, €0.4 million for subsequent restructuring expenses in connection with our complexity reduction measures of 2024. And thirdly, we had adjustments of 1.9 million euros for share-based payment obligations, primarily driven by a fair value adjustment through the related liability, reflecting the development of the company's share price. An overview of our adjustments, as well as unadjusted consolidated income statements, can be found in the appendix to this presentation and in our financial report for Q1. While our adjusted EBITDA is our main profitability KPI, I also want to mention our net result. With a positive net result of 2.5 million euros in the first quarter of 2025, we are proving that our company is finally turning to real profitability. Now let's compare our 8.5% adjusted EBITDA margin of Q1 2025 with adjusted EBITDA margin of Q1 2022 shortly before we kicked off the transformation. It is an impressive improvement of 10 percentage points within three years in a period of challenging market conditions. We can see two main levers for the turnaround. The first lever is the massive increase in contribution margin of seven percentage points based on the strong improvements in unit economics as we grew our West Wing collection business. This improvement clearly allows us to invest more into marketing compared to Q1 2022 as a premium design brand. The second lever is the significant improvement in G&A ratio of almost five percentage points and absence of any scale effect so far. To me, this is strong evidence of the success of our strategy and the excellent work our teams have done over the past three years. Let's move on to profitability on segment level. In Q1, we saw a strong improvement in adjusted EBITDA margin in both segments. In the DAS segment, adjusted EBITDA margin improved by 3.7 percentage points to 9.4%. This is the best result our company achieved so far outside of peak COVID times. The international segment also improved its profitability. With an improvement of 1.3 percentage points, the adjusted EBITDA margin was at 7.4% in Q1 2025. The improvement in profitability shows the positive effects of our three-step value creation plan in both segments. The stronger improvement in the DACH segment compared to the international segment was driven by the reduced investment into brand awareness in Germany compared to last year. Let us now move from the P&L to our balance sheet and take a look at our net working capital. By the end of Q1 2025, net working capital remained negative at minus 2 million euros. The year over year increase was mainly driven by inventory build up as well as positive timing effects which we saw in the previous year. Let me comment on the inventory increase. Net inventories increased by 19 million euros year-over-year. The increase was driven by two main effects. Firstly, our inventory levels beginning of 2024 were still quite low after the successful reduction of overstock from COVID times. Secondly, we had several timing effects in the first quarter of 2025 as we introduced a significant number of new West Wing collection items early in the year, pre-pond order placements to minimize availability impacts of Chinese New Year, and secured stock for important Western Collection sales days, which took place earlier this year compared to last year. And we also improved overall availability year over year. While we aim to maintain good availability, inventory will decrease towards the end of the year due to the timing effects mentioned before, with a positive impact on networking capital. On the next slide, you can see CapEx compared to 2024. CapEx year-over-year decreased by €3 million. However, when comparing Q1 2025 with Q1 2024, it should be noted that in 2024 there was a temporary positive impact on CapEx of €3 million from the change in a warehouse equipment lease. This effect was reversed in Q2 2024. We reported this in the respective periods. With capex of 2 million euros in Q1 2025, which equals a capex ratio of 2% of revenue, we kept capex at a very healthy level. One important difference for this was that we reduced investment in internally developed software, which we reduced by more than 40% year over year. This is a result of our complexity reduction and the migration to our new tech platform. Let us now take a look at our net cash position. In terms of net cash, we are pleased to report a strong net cash balance sheet position of 57 million euros at the end of March, which is 12 million euros less compared to the end of 2024. The decrease in our net cash position was mainly due to the increase in inventories, which I explained earlier. We also had a small impact of approximately 2 million euros in restructuring expenses related to our complexity reduction initiative. These were recognized in Q4 2024, but the associated cash outflows occurred in Q1 2025. Overall, free cash flow was at minus 9 million euros in Q1 2025. These payments amounted to 3 million euros. This led to a negative free cash flow after these payments of minus 12 million euros. Our balance sheet remains strong with no debt other than IFRS 16 lease obligations. On the next slide, I'll comment on the financial guidance for 2025, which we published at the end of March in our last earnings call. Our Q1 performance in terms of both revenue and profitability is in line with our guidance for 2025. In terms of top line, we had, as expected, headwinds from our changes in the assortment, but saw also positive timing effects from 2024 orders in Q1 2025, which we won't see in Q2 2025. The negative effects from the change In terms of profitability, we expect a typical seasonal development in 2025 with peaks in Q1 and Q4. Please also keep in mind that Q1 2025 has seen only minor ramp-up costs for our expansion. Related ramp-up costs will increase as we open additional stores and launch new countries during the year. To summarize, we are well on track to deliver on our guidance in terms of revenue and profitability, but also in terms of a clearly positive double-digit free cash flow. This brings me to our midterm outlook, which was shared in our last earnings call. I want to highlight again that our ambition is to return to significant growth in 2026 while continuously improving profitability. Significant growth means a high single to double digit growth rate driven by expansion measures and bottoming out of the negative effects of changes in the product assortment towards the end of 2025. In terms of profitability, we expect scale effects as we grow, as well as positive effects from our improving product assortment. We remain focused on executing our three-step value creation plan with a clear objective of driving continued improvements in profitability and cash flow, unlocking the full value potential of West Wing. With that, I'm handing over to Andreas to conclude our presentation with our investment highlights.

Thank you, Sebastian. Let me briefly recap the investment 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 are developing the super brand in design 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 in the midterm to 10% plus adjusted FTA with a continued strong cash conversion. Sebastian and I are now happy to take your questions.