Westwing Group Se

Good morning, everyone, and thank you for joining us for our earnings call on the second quarter of 2025. 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 our business for the second quarter of 2025, after which Sebastian will share 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 the current state of West Wing. In Q2, we continued to improve profitability significantly despite a negative top line that developed in line with our expectations. Our GMV declined by 3.6% year-over-year due to a more premium and smaller product assortment according to our strategy. We do, however, see a positive development in current trading. June GMB grew slightly and this upward trend is strengthening. Hence, we continue to expect a positive second half of 2025. Despite negative scale effects, we improved our adjusted EBITDA by 61% to 6 million euros at an EBITDA margin of 6.3%. This marks an increase of 2.6 percentage points year over year. Free cash flow was negative at minus 5 million euros in Q2, and we ended the second quarter with a net cash position of 50 million euros. For the full year 2025, we expect free cash flow to be double-digit positive. Strategically, we are well on track with the implementation of our three-step value creation plan. Our private label product brand, the West Wing Collection, grew 19% year-over-year, which resulted in an all-time high GMB share of 65%. As part of our geographic expansion, we already launched eight new countries this year, and we continued our store expansion with a recent opening of two standalone stores, one in Munich and one in Berlin. The operational progress is fully in line with our targets, and we can also confirm our financial guidance for 2025, as well as our ambition for 2026, which is the return to a high single to double digit growth at further improved profitability. As always, let's have a look at our three step value creation plan, which we initiated in 2022. In terms of levers, we successfully completed the first two phases, the turnaround and strategy update phase, and the building of a scalable platform phase. 2025 marks the transition year for us, where we are focusing on the key growth levers of the third phase in order to be able to scale with operating leverage. As in the last earnings call, let me now briefly guide you through our progress across the key levers of the third phase of our plan, beginning with the latest developments of the Western Collection, then moving on to how we are strengthening our market share in existing geographies, pushing the premium positioning of our brand, and finally, the progress we've made in terms of international expansion. So, starting with the Western Collection. The Western Collection is our gorgeous, sustainable private label product brand, and we continue to be very pleased with its performance. It again delivered strong growth of 19% year-over-year, resulting in an all-time high GMV share of 65%. 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 Western Collection and the Best Set Party Design Brand. 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 are well on track to open seven offline stores. In our last earnings call, we told you that in April we opened a store-in-store at the prestigious department store Printemps in Paris. This marked our first store expansion outside of Germany. Since then, we successfully opened two more standalone stores located in Munich and Berlin. Looking ahead, we will open a standalone store in Cologne and a store-in-store each in Düsseldorf and Copenhagen in the current third quarter of 2025. Before I share an update on our geographic expansion, let me show you some impressions of our new standalone stores in Munich and Berlin. In Munich, which you see on the left, we opened the doors to our West Wing warm-up store. This is more than just a pop-up. It's a warm-up for what's to come. That is, our first permanent West Wing store in Munich, set to open next year in the heart of the city. In the meantime, our warm up store already offers design lovers the chance to experience our brand and products in real life. Munich plays a key role for us as a brand, not only because of its strong demographics and retail relevance, but also because the Western journey started here. As many of our central teams are located in Munich, we generate customer experience learnings even faster than before. On top, We are also very proud to now have a permanent standalone store in Berlin. You can see some impressions on the right-hand side of the slide. It is located on the iconic Kurfürstendamm, bringing West Wing to life in the heart of Berlin. Overall, offline stores help us to further strengthen brand presence and positioning. And by providing a holistic shopping experience across the multi-touch customer journey, West Wing will also gain market share. In home and living, many customers can learn 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. Next topic. In order to further increase our premium brand positioning, we launched an exclusive collaboration with the visionary artist and designer, Harry Nourios, who is the creative director and founder of Crosby Studios based in Paris. The public was able to discover this exclusive collection at a showroom in Paris for two weeks in June, and we received an impressive media response on the collaboration. On the next slide, you can see some impressions of our showroom. The exclusive collection combines Harry Norris' experimental design approach with West Wing's curated aesthetic and passion for inspiring design-led living. It features a curated selection of pieces across furniture, textiles, decor and tabletop that is available as a limited edition to our customers. Overall, this collaboration reflects our broader goal of creating emotionally resonant experiences and redefining what beautiful living means today and tomorrow. Let's move on from gaining market share in existing geographies and increasing our premium brand positioning to entering new markets. At the beginning of the year, we announced our plan to open 5 to 10 new countries in 2025. We've already expanded to 8 new countries so far. Luxembourg, Denmark, Sweden, Croatia, Finland, Slovenia and very recently Norway and Hungary. At the moment, we are preparing for two more country launches this year, Romania and Greece. As outlined in our last call, 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 artificial intelligence, onboarding of last mile delivery providers, local influencer marketing, and performance marketing with attractive returns within a few months. Therefore, in the midterm, we aim to be present in approximately all European countries. 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 Westring. Let me start with details on our top line. Our GMV declined 4% year over year, while revenue was at minus 6% year over year, with the changes to our product assortment being the key driver for this development. The difference in GMV and revenue development is due to a sales event at the end of June, which meant that some orders were delivered in July and therefore were not recognized as revenue in Q2. As Andreas mentioned in the beginning, we see a positive development in current trading and June GMB grew slightly and this upward trend strengthened in July. This underpins our confidence that top line performance will improve in the second half of the year. Now let me also briefly comment on Q2 top line development on segment level. DACH segments saw a revenue decline of 9%, the international segments revenue declined by 2%. There are three major reasons for this difference in top-line development. Firstly, we began introducing a largely global and more premium product assortment and related restructuring of our local business functions in the international segment as early as Q2 2024, while the DACH segment remained unchanged during that period. As a result, last year's baseline for DACH is stronger than that of the international segment, which is one reason for the difference in year-over-year development. Secondly, the international segment benefited from additional revenue generated by our geographic expansion with six new countries launched in the first half of 2025. And thirdly, overall market demand in the DACH segment seemed to be weaker than in the international segment, especially in April and May. Now let me continue with an overview of our profitability development. In Q2, we improved our adjusted EBITDA by 2 million euros to 6 million euros, which represents an increase of 61%. To show profitability development on an unadjusted basis after DNA, we also included the EBIT development on the right side of the slide. It is also clearly positive at 2 million euros and showed an even greater increase of 5 million euros year over year. The higher increase compared to adjusted EBITDA is primarily driven by lower DNA expenses as old technology assets have been fully depreciated with a successful go-live of our SaaS-based tech platform at the end of 2024. And we were also able to reduce lease payments. Let us now take a look at our P&L margins and focus on the development in the second quarter of 2025, which you can see here on the right-hand side. I am pleased to report that we improved our P&L margin structure in almost all areas, leading to a strong improvement in adjusted EBITDA margin by 2.6 percentage points year-over-year to 6.3%. Our gross margin improved by 2.1 percentage points year-over-year, mainly due to strong West Wing collection share gains. The fulfillment ratio improved by 0.9 percentage points year-over-year, leading to an increase in contribution margin of 2.9 percentage points in Q2 to 33.5%, a really strong result. Regarding contribution margin, I would like to highlight that the corresponding contribution profit per order continued to increase significantly by 40% year-over-year. Our marketing ratio increased by 0.6 percentage points year-over-year to minus 13.2%. Reasons for the increase include investments into country expansion as well as brand and store investments. Our G&A ratio, which also includes other results, improved by 1.5 percentage points to minus 18%, reflecting the positive effects from our 2024 complexity reduction measures. This led to an adjusted EBIT margin of 2.3% in Q2, up 3.8 percentage points year over year. D&A decreased by 1.2 percentage points year over year, primarily driven by the full depreciation of legacy tech assets, which I mentioned on the previous slide. Overall, our Q2 adjusted EBITDA margin improved by 2.6 percentage points year over year to 6.3%. I want to highlight that we realized these improvements despite the decline in revenue, which means that we overcompensated for negative scale effects. While our adjusted EBITDA is our main profitability KPI, I also want to mention our net result. With a positive net result of 2 million euros in the second quarter and now three positive quarters in a row, we are proving that our company is turning to real profitability. As expected, the adjustments made in Q2 were minor. An overview of these adjustments, as well as the unadjusted consolidated income statements, can be found in the appendix to this presentation and in our financial half-year report. Let's move on to profitability on segment level. In Q2, which is displayed on the right side of the slide, we saw a strong improvement in adjusted EBITDA margin in both segments. In the DAH segment, adjusted EBITDA margin improved by 2.1 percentage points year-over-year to 6.5%. The international segment improved its adjusted EBITDA margin by 3.6 percentage points year-over-year to 6.1%. The improvement in profitability reflects the successful implementation of our three-step value creation plan across both segments. Those of you who listened to our last earnings call or saw our Q1 2025 results presentation might remember our chart that showed the positive development of our adjusted EBITDA margin since 2022, with an improvement of 10 percentage points since we started our three-step value creation plan. Today, I would like to highlight another metric that clearly shows the tangible and very positive outcome of our business transformation. This is the development of earnings per share on a last-first-month basis. We show earnings per share both on an adjusted and unadjusted basis. Adjustments include the reported adjustments of restructuring expenses as well as impact from share-based payment obligations. The chart shows a clearly positive trend since Q2 2024. In Q2 2025, we were able to report for the first time outside of peak COVID times positive earnings per share on an unadjusted last 12-month basis. In addition to three consecutive quarters of positive net results, The impact of our substantial share buyback at the end of 2024 is also clearly visible. As a remark, the average number of shares in circulation, which is displayed on this slide, is the number of issued shares minus our treasury shares. 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 our value creation plan. That's exactly what we are delivering. Let us now move from profitability to our balance sheet and take a look at our networking capital. By the end of Q2, networking capital was at 5 million euros. The year-over-year increase was mainly driven by the reduction in trade tables following the inventory increase, especially for new product launches during the first half of the year that we already mentioned in our last earnings call. Inventory is expected to decline towards the end of the year, positively impacting both networking capital and cash flow. As a result, we anticipate networking capital to return to a negative territory in the second half of 2025. On the next slide, you see CapEx and CapEx ratio for the first half of the year compared to the same period in 2024. CapEx year over year remained flat at 4 million euros. However, when comparing the first half of 2025 with the first half of 2024, we see a shift between investments into property, plant and equipment and intangible assets. This is mainly due to the fact that we were investing in several new stores in the first half of 2025 with only one store opening in the same period of 2024. At the same time, we were able to reduce capex for internally developed tech assets as we moved to our SaaS-based tech platform. With capex of 4 million euros in the first half of 2025, which equals a capex ratio of 2% of revenue, we kept capex at a very healthy level. 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 50 million euros at the end of June, which is 7 million euros less compared to the end of March. Overall, free cash flow was at minus 5 million euros in Q2, with approximately 2 million euros related to the exercise of employee stock options and an impact of minus 8 million euros from changes in net working capital, which I mentioned earlier. With the lease payments of 3 million euros, we had a negative free cash flow after lease payments of minus 7 million euros. Our balance sheet remains strong with no debt other than the IRF 16 lease obligations. As Andreas mentioned earlier, we are confident to enable double-digit free cash flow for the full year 2025, driven by both profitability and networking capital. Given our seasonality, Q4 is expected to be the strongest quarter. On the next slide, I'll comment on the financial guidance for 2025, which we published at the end of March. Our performance in the second quarter and first half of 2025 in terms of both revenue and profitability is fully in line with our guidance. In terms of top line, we had, as expected, headwinds from our changes in the product assortment. These negative effects are expected to ease towards the end of 2025. We already saw a slight growth in June and this upward trend strengthened in July. In terms of profitability, we expect a typical seasonal development in 2025 with peaks in Q1 and Q4. Please also keep in mind that the first half of the year has seen only minor ramp up costs for expansion. Related ramp up costs will increase as we open additional stores and scale up the new countries in the second half. To summarize, we are well on track to deliver on our 2025 guidance in terms of revenue and profitability, and also in terms of a clearly positive double-digit free cash flow. This brings me to our midterm outlook, which was shared for the first time in our full-year 2024 earnings call. I want to highlight again that our ambition is to return to significant growth in 2026 by continuously improving profitability. Significant growth means a high single to double digit growth rate, driven by expansion initiatives, and the anticipated easing of negative impacts from the product assortment changes 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 goal of driving sustained improvements in profitability and cash flow. Combined with our return to meaningful growth, this positions us to unlock 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 our 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. 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.