Welcome to the Sosandar Interim Results webinar. All attendees are in listen-only mode, and at the end of the presentation, there will be the opportunity to ask questions. At any stage during the webinar, use the Q&A button to type your question. This webinar's been recorded. I now hand over to Julie Lavington and Ali Hall, Joint CEOs, and Steve Dilks, CFO. Julie, over to you.
Thank you, Tamsin. Hello, everyone, and thank you very much for joining us today. So first of all, just to run through what we're going to be covering in the presentation. We're going to start off with the highlights of half one and the highlights of the outlook to year-end. We know that you're all really keen to hear about the stores, so we're going to cover that first in the presentation. Steve will then move on to go through the details of the financials for half one. Ali and I will talk about product and our expansion into new areas through licensing, including our homewares licensing agreement with Next. And then following the conclusion, it's over to you for questions. So the highlights of half one. A year ago, we talked to you about embarking on opening our own physical retail stores in the U.K.
Today, we've successfully opened four. All are trading well and are also proving to be a fantastic marketing vehicle for both new and existing customers. We're already seeing a halo effect on our online sales in the areas where the stores are located. We're going to go into more detail on that further on in the presentation. Across the business, all the building blocks to drive long-term sustained profitability have been put in place. We've focused on improving gross margin by reducing price promotions through our own website. And thus, we've improved the underlying profitability of the business. And that's what we're reporting today for both half one and as we look forward into half two. In half one, margin has increased by 700 basis points from 55.4% last year to 62% this year.
We've also delivered a significant positive swing in PBT of GBP 0.7 million, despite a managed reduction in revenue. Our cash position remains strong at GBP 7 million, and we'll roll out our store program from our existing cash reserves.
Moving on to our post-period trading and our outlook for H2. The key message is that we remain on track to meet FY full-year expectations for FY25. In October and November, our gross margin has continued to strengthen, improving to 64% for Q3 to date, compared with an already strong 62.2% in the first half of the year. As a result, we have continued to deliver a significant positive swing in PBT compared with the previous year. From a revenue perspective, the improving comparative to last year that we saw in the latter part of H1 has continued into October and November, where our revenue is on par with the previous year. This represents a significant positive swing, whilst also delivering the substantial improvement in gross margin. Our strong performance is across all sales channels.
Our balance sheet remains robust, with a cash balance as of today of GBP 7 million, which includes the execution of four stores' worth of CapEx. We have signed our first licensing agreement with Next, which we will come on to talk about in more detail. So in summary, we are on track to meet our full-year expectations for the current financial year. And the medium term remains clear to carry on with what we are doing, driving margin and increasing scale through our multi-channel strategy, which will deliver a PBT of at least 10%, which will be GBP 10 million based on a revenue of GBP 100 million.
In the last 10 weeks, we've opened four stores. I'm going to talk to you about how well they're going and what we've learned so far. Even after just a few short weeks, we've already seen the positive impact that having physical stores will have on the business going forward. We have to tell you that the reaction to stores from customers has been absolutely phenomenal. They're loving everything about them. They like being able to touch and feel the clothes and try them on and the upmarket but welcoming ambiance. Our social media response has been unlike anything we've ever experienced before. Customers feel really passionate about getting a store in their local area.
The four stores that we've opened are in Chelmsford in Essex, Marlow in Buckinghamshire, Metrocentre in Gateshead just outside Newcastle, and Cardiff City Centre. Last time we spoke to you, we talked about the fact that stores would become a marketing vehicle for the business. We've seen that play out immediately. We've opened the doors, and the customers have flooded in. Footfall is around 2,000-2,500 customers each week in each store, which compares well with what we know of competitor data at this stage of opening. This proves to us that targeting high footfall, affluent areas where our customers over-index, whether that's in a shopping center or in a market town, has been the right decision. All stores so far are in the region of 1,500 sq ft of trading.
We're stocking all of our product categories from coats to dresses to footwear to knitwear with around 170-200 styles per store.
It goes without saying that customers who have shopped online with us before and live in the local area are now shopping both in store and online. So we are able to get a greater share of their wallet. However, with 20 million women in the 35-plus age demographic in the U.K., one of the key objectives for the stores was to attract women who will never have shopped with us before as they walk past. That's exactly what we've seen happen. Really positively, 65% of people who bought from us in the stores are brand new customers, which is exactly what we wanted. Stores are a phenomenal acquisition tool. They are a permanent 24/7 marketing vehicle for the brand, giving us powerful personal face-to-face interaction with our customers. The marketing power of stores frees us up from the ongoing level of marketing investment that online-only businesses require.
This enables us to build a more profitable brand as the store portfolio grows.
One of the key objectives from opening our own stores was also to increase customer spend online because of the halo effect that stores have. In the eight weeks pre and post-opening stores, we've already seen a clear uplift in both traffic and revenue online in the areas where the stores have opened. The yellow bars on this graph represent the areas where stores have opened, and the blue bars represent the national average on our own website. So you can see how much bigger the uplift is in areas where stores have opened, and that's after only eight weeks. The significance of this really can't be underestimated. It demonstrates how stores and online will work hand in hand to maximize sales across every channel. So as the number of stores increases, this is where we can truly maximize the potential of this halo effect.
Other key things that we found in the 10 weeks since we've been open. We've been operating at a really strong margin as we're trading at full price, exactly as we said we would, with prices aligned in store and online. Returns are minimal, at less than 10% compared with about 50% online because customers try a product before they buy. Both footfall and sales are good all week, peaking on the Saturday. In terms of product, there are nuances across the stores in terms of what's selling. For example, we're finding that the mix of party wear is higher in the cities like Cardiff and Metrocentre, and everyday wear is higher in Marlow. So we see opportunities to keep increasing the conversion as we learn about the best way to range each individual store.
As you can see, we're really pleased with our execution of the stores and how they've started.
Moving on to the financials for the first half of our financial year. Before I talk through the numbers in detail, I wanted to summarize what our focus has been over the last 12 months. The number one objective has been to increase gross margin and therefore profitability through the rebaselining of our financial model. This focus reflects the strategic decision we took in the second half of last year to reduce price promotion activity on Sosandar.com outside of the major scheduled sale events and only undertake selective marketing campaigns. This focus on driving margin has been fundamental as we started the transition to becoming a true multi-channel retailer and commenced our store rollout program.
The higher margin is driven by selling the majority of product on Sosandar.com at full RRP, which is what we've always done very successfully through all of our third-party partners, where we are frequently a top-selling brand. As a result, we have seen our gross margin improving since the second half of last year. This graph shows how significant the increase in margin has been. Our margin in H1 FY25 is 62.2%, which is an increase of nearly 700 basis points compared with H1 FY24. This increase follows the step-up in margin that we started to deliver in the second half of last year. The primary driver for the increase is the reduction in price promotional activity on our own website. In addition, albeit to a much smaller extent, we have improved our intake margin, which in part includes the benefit from sterling strengthening against the dollar.
We've shown you this chart previously, but now we've updated it to include the second quarter of FY25. This shows the significance of the focus on full-price sales on our own website, where in H1 FY25, we have reduced the level of price promotional activity by 85% compared to the previous year. It is this reduction and focus on full-price sales that has delivered such a significant step-up in our overall gross margin to 62.2% for the first half of the year. Moving on to the numbers in more detail for H1 FY25, here are the pivotal KPIs for the period. We had a significant improvement in profitability, halving the loss before tax to GBP 0.7 million compared with a loss of GBP 1.3 million in H1 FY24. As I've said, our gross margin increased by nearly 700 basis points from 55.4% to 62.2%.
The substantial improvement in PBT has been delivered despite the managed reduction in revenue to GBP 16.2 million compared with GBP 22.2 million last year. This reduction reflects the continued transition away from the price promotional activity outside of those major scheduled sale events, and finally, our cash balance remains strong at GBP 7 million at the end of September, which includes self-funding the CapEx requirements needed for our first four retail stores. Looking at the financial statements in more detail, starting with the income statement, this shows that substantial reduction in the loss in H1 25 compared with the previous year, where the loss has halved to GBP 0.7 million from GBP 1.3 million. In addition, the gross margin improvement of nearly 700 basis points, and in addition to that, our total operating costs, including depreciation, reduced by 21% to GBP 10.7 million. There are two primary drivers for this reduction.
Firstly, our fulfillment costs are GBP 1 million lower, which is the cost of our warehousing operation, including pick, pack, and the cost of delivering orders to our customers. The rebasing of our financial model and running our business substantially more efficiently is leading to more profit on each order being sold at RRP on our own website. In addition, we've been more selective with our marketing activities as we've focused our resources on opening our first physical retail stores. Moving on to the balance sheet, which remains robust. Net assets have increased to GBP 17.7 million, with a cash balance of GBP 7 million as at September 24. The ongoing strong cash balance has allowed us to self-fund the store rollout program. Inventory has reduced as planned, reducing from GBP 14 million to GBP 12.2 million at the end of September.
This managed reduction reflects the rebasing of the financial model with regard to revenue, while also allowing us to focus on product range, supplemented with carryover lines from the prior year. Payables has reduced from GBP 9.2 million to GBP 7.7 million, which also reflects less stock being purchased, plus the earlier timing of payments to stock suppliers as we have landed items earlier in the season to ensure that we have a full range of product ready to launch our retail stores with. The shape of our balance sheet is changing as we now have more investment in fixed assets as we roll out our multi-channel strategy and also have a more substantial right-of-use asset, which reflects the lifetime cost of our retail leases being reported as per IFRS 16. Lastly, here is the cash flow statement for H1 25.
The store rollout program is being funded from existing cash resources, with each store to date costing in the region of GBP 250,000, which is in line with the estimate that we have advised previously. We anticipate that our cash balance will be neutral in H2, so we expect to report a cash balance as at March 25 in the region of GBP 7 million as we continue to fund our future stores from existing resources.
So now to take a look at our product and how we can expand into other product categories through licensing. We know our customers, affluent women in the 35-plus demographic, and we know what products resonate with them. The evidence of this is that every single product category we've gone into has been successful on our own site, now in stores, and also we are one of the top-selling brands with all 10 of our third-party partners. Those product categories cover everything from casual to occasion wear, workwear to holiday wear. At least a million women open their wardrobe every day, and a Sosandar product will be inside. As our brand gets more well-known, our celebrity endorsements are ever-increasing, with some celebrities wearing us every week. We know our product can sell well, not just in the U.K., but overseas too.
We are already selling in Australia, the Middle East, and Ireland from a standing start a year ago. While there are still lots of opportunities to keep growing in all of our women's wear categories, our customer demographic also spends significantly in other adjacent categories outside of fashion. Moving into other categories enables us to successfully tap into a bigger share of our customer's wallet. And the benefit of doing this through licensing means there is minimal risk to us as a business. The brand equity that we've built up with Sosandar over the last eight years gives both us and our licensing partners the confidence that we can sell customers in our demographic products in categories that have a synergy with fashion.
Using a brand licensing partnership to do this means we can enter new product categories with no capital expenditure from us, minimal risk, and minimal additional resource, and deliver pure profit to the bottom line. The first of these licensing partnerships is a homeware range in conjunction with Next. The partnership came about following on from the success of the Sosandar brand on their site. As you know, we're one of the top-selling women's wear brands on Next. Next felt that our affluent 35-plus customer would also buy into a Sosandar homeware brand. We bring to the partnership the Sosandar brand name, our understanding of our customer demographic, our design vision, and ability to spot a gap in the market, and Next brings years of homeware expertise and sourcing and buying power in this area, as well as providing one of the biggest platforms for homeware sales in the U.K.
The initial collection is 50 pieces focusing on the living room, including sofas, chairs, sideboards, lighting, and textiles such as cushions and rugs. It will launch in September next year. It'll be sold online exclusively at Next alongside their other third-party homeware brands, as we do with our clothes. Everything will be warehoused at Next. They're responsible for all purchases of stock and will be paid a license fee for every product sold.
The opportunity ahead of us is very significant in terms of scale. In the U.K. alone, the fashion market is valued at GBP 65 billion a year, 60% of this being transacted in store and 40% of it online. Moving to become a multi-channel retailer gives us the opportunity to gain share in the entirety of this market.
So growing our business through our own website, through ongoing rollout of our own physical stores, with the next phase in the pipeline for next year, as well as through our third-party partners, both in the U.K. and internationally. All the building blocks are in place to grow from a position of great strength, having rebased our business model to operate at higher margins selling at full RRP. We're on track to meet full-year expectations with a clear path to becoming a business of substantial scale with at least 10% PBT. That's the end of the presentation from us, so we'll hand over to you now for questions.
Great. Thank you very much. So if you have a question, click on the Q&A button and type your question in. And the first question is, you've previously announced you have a 60 billion addressable market, but revenues have reduced. When do you expect to start seeing revenue growth again?
The reduction that we've seen over the near term, of course, has been one that's to a degree managed as we've focused on growing the margin and rebasing as we've spoken about today. What's really positive, though, to report in the underlying data is what we've said in relation to the latter part of H1 moving into October and November, being on a par with the prior year. And so now we're ready to start to see growth as we go over the next 12 months, which is exactly what we would expect to do.
Not only because we know that we've got stores coming into the mix as well, but also because that rebasing is starting to mature and we're starting to see lots of new customers coming to Sosandar, which will fuel the opportunity to grow the overall revenue line in the way that I know the numbers that are in the public domain from Singer for next year demonstrate.
Great. Thank you very much. And a follow-on, really. What's the store opening pipeline for 2025? And could you update as to revenue run rate and store profitability?
Open pipeline. So yeah, in terms of the pipeline of stores, we have got other stores in the mix ready to open in next year. And we also plan to start a rollout. So we did say when we last spoke to you that we could operationally do 10 stores a year, but obviously that will depend on the availability of the stores. We won't open a store unless it's in the exact right location in the right town and with the right adjacencies. So the only thing that stops us in terms of a number is whether that availability is there for the right stores, because operationally we can open at least 10 a year.
Great. Thank you.
In terms of the question about revenue and profitability of each store, I'm going to apologize. We're not going to disclose today how much revenue or profit we're making from each individual store in a similar way that we don't talk about the individual revenue streams from Next, M&S, or any other third party. What we would say, though, is that what we've delivered so far, albeit over a relatively short window, we're really pleased with how all of the stores are performing. And as we said in the presentation, there are nuances to each location about what sells. But overall, we've been really pleased both with our execution and the early read on the financial benefits that each of the locations will deliver.
Not only the store in its own right, but also the benefit that the store is starting to play in the wider sense in how new customers are coming to the brand and how they are starting to transact more freely online as well from the locations where we've opened a store, where we've got a greater brand presence.
Great. Thank you very much. And can you put your finger on what's driving revenue back up strongly after the big drop in half one?
I think the main underlying reason is that customers are becoming accustomed to paying full RRP. So we've never seen any actual price resistance as such because we sell at full RRP with all our third-party partners and always have done. But operating as a pure-play business, we've built and grown our business as pure-play businesses do, using voucher codes really very much as a marketing mechanic. So there is a degree with customers who've grown up with a pure-play business being used to just waiting for those voucher codes to come. And so that's been a period of transition that we've had to go through while our customers get used to and accustomed to not waiting because basically voucher codes are not going to arrive.
So we started to see that really begin to play out, I would say, as we went into September this year, because once we got to September, we started to really see what we'd really gone through a whole year by then of quite significantly reducing price promotions. So it's really all natural customer behavior of them no longer waiting and just paying full RRP.
Great. Thank you very much. And you did cover this, but just to go into a little more detail, could you explain the reasons for the fall in administration costs from GBP 13.342 million to GBP 10.748?
Yeah, there were two primary elements to that. So firstly, fulfillment. So fulfillment, when we use that language, is the cost of our warehousing operation. So the pick and pack and dispatch costs of running the warehouse. And secondly, postage, which is the cost of delivering orders to consumers and handling returns as well when they come back. There are two reasons why fulfillment has reduced. Firstly, our scale is lower, so naturally we've got a volume-led reduction in the cost. But secondly, we're running our operation much more efficiently from a fulfillment cost perspective because in order to generate the revenue that we are doing, we need to move less units both outbound and back on returns because for every item we're selling, we're selling it at a higher price, which means that the operation is much more efficient. So one metric that we focused on is gross margin.
But if we go down to look at the whole of the P&L in terms of the change we're making, including fulfilment, it's a much more efficient business model for us to operate on because every order at the PBT level or contribution level is much more profitable. The second element as to why operations and costs have reduced is marketing. So we've been much more selective in terms of the activity that we've done through the first half of the year. So in the past, typically our marketing investment has included brochures and TV that we've done much less of. And the reason for that is twofold. Firstly, we wanted to reinvest the resources that we have into opening our stores. And secondly, we wanted to reduce the variables that were at play in our model.
The reason for that is that we need to be able to get a really good understanding about what an individual store brings to our business. So by reducing the number of variables at play at any one point in time, it allows us to fully understand the impact while removing other variables at play. If you have lots of other variables in play, you don't actually know definitively what that store is delivering for us. So just by creating a baseline that is just standard, who's buying, and then layering on top of store, we're able to assess the numbers that were presented today in terms of the uplift in customer sessions and so forth without other things in the mix.
Great. Thank you very much. So we're clearer on store expansion and licensing, but what are your plans to grow the core market of online sales?
So, I think that probably goes back to what we said a couple of questions ago, is that we're beginning to see customer behavior now very much change with customers no longer waiting for the voucher codes to come. So naturally, we are seeing sales start to, in terms of year on year, really start to level off. So naturally, we have confidence that we will start to see an uplift in sales again because it's really quite substantial, the difference we've seen from half one to half two in terms of how customers are behaving and how we're performing year on year. Secondly, as we open more stores, as we've demonstrated, each individual store is driving online sales in the local area. And we're seeing a quite marked difference in how footfall and revenue is faring in that area versus the national average.
As the number of stores grow, that will also have an impact on online sales.
Great. Thank you very much. And how do your metrics such as average order value differ in store as against online?
For me to take that. Interesting metrics in store versus online. One of the key differences between online and in store is return rates. Online, as you'll all be aware, return rates are usually 45%-50%, whereas in store, they're less than 10%. The initial order value online is higher because people tend to order more items and they then try them on at home and send the things back that they don't want. Whereas in store, the initial order value is slightly lower because they've already done the trying on. As a net order value, it's actually higher in store because they're not returning the items.
Great. Thank you very much. And have you felt the impact of the budget? And does the increase in national insurance contributions affect your store rollout plans?
I'll go to the heart of that question, which is the second element. No, it doesn't. Has no bearing on the yes/no decision at all. And the reason for that is not because it's not an important change that came in the budget, but of much more importance are all the other variables that are much more significant about whether we would choose to do a store rollout or an individual location or not. And that'll be about the location, what we believe the revenue is, what the adjacencies are. And of course, the cost to the business is going to be a little bit higher, but it's not to the extent of being a yes/no decision on whether we go ahead with a particular location.
Thank you very much. And given the considerable addressable market within your current sector, is it wise to spread management efforts into homeware at this stage? And what's the rationale?
So the rationale for moving into adjacent areas is, we see potential growth area outside of fashion. And it's an area that we can move into with minimal management time, absolutely no financial risk whatsoever to the business, and pure profit. It's also a well-trodden path for other successful fashion retailers to move into licensing. So we see no downside at all in testing other areas as a licensing partnership.
Great. Thank you very much. And what other licensing deals are in the pipeline? What other products could you put your name to?
I think homeware is a natural extension of fashion, but there are other fashion adjacencies that aren't clothing that we can explore. We do have several in the pipeline, but at this point, we don't want to say exactly what they are, but we will do further down the line.
Great. Thank you very much and can I ask how long you had ambitions to move into physical alongside online? Is it something that had been planned or at least considered for some time?
I think we've always said, "Never say never to physical retail stores." We started this business as a pure-play business, but the premise of the business was always about selling clothes that were unique and different and building a brand that targeted the 35-plus affluent woman. And the opportunity when we started this business eight years ago, the easiest way to enter the market at that point was online only. And that's obviously how we built the business and then worked with third parties to do so. I think really we started to think about it seriously last year when we spoke to the market about this because we saw customer behavior really changing. So post-COVID, there was a distinct appetite we saw from consumers to start shopping in store again. And what we really saw with women was a desire to shop both online and in store.
And the way to build a really, really good, profitable women's fashion wear brand was to offer customers an ability to buy wherever they wanted to buy. And only being online had started to become a very narrow way to access the market. And so we did what we've always done, which is basically follow the customer. You have to understand your customer, understand how she's shopping. And so we saw that opportunity. So it made complete sense to us that we needed to follow what customers wanted to do.
Great. Thank you very much. And is Sosandar evaluating Asian or European expansion?
We're always looking at everywhere, I would say. So we constantly have conversations with partners internationally. We do sell everywhere on our own website. Pretty much every country in the world that it's possible to sell to, we sell to on our own website. So yes, it is a possibility. Nothing concrete at the moment. We are selling in the Middle East on VogaCloset. That's the only concrete. It's quite a small test. It's a dropship test. But yeah, other conversations are always ongoing.
Great. Thank you very much. And that's all we've got time for now. Julie, do you have any closing remarks?
Just to say thank you all very much again for joining us today. Thank you for your questions, and we'll see you again in the coming months.
Many thanks, Julie, Ali, and Steve, and to everyone listening, you'll now be taken to a web page to give feedback on today's presentation. If you can't complete it now, you'll receive a follow-up email. We'd be really grateful if you could take a few minutes to complete. Many thanks for joining. This is the end of the webinar.