Welcome to the Sosandar full year 2024 results webinar. All attendees are in listen-only mode, and we'll take questions at the end of the presentation. At any point, you can submit a question via the Q&A button. This webinar is being recorded. I now hand over to Ali Hall and Julie Lavington, co-CEOs, and Steve Dilks, CFO. Ali, over to you.
Thank you. Good afternoon, everyone. Today, we're going to review the results for FY 2024. However, the main focus of the presentation is to look at our journey to increasing profitability and realizing the full potential of the brand. So to take you through the agenda for today, we'll take a moment to look at where we are now as a brand. Steve will cover financial results and Q1 trading update, which leads us into our focus on profitability. Within this, we're going to look at margin, scale, opening stores, and how stores will enhance margin and expanding the brand further.
Hello, everyone. So just to kick off, I'm just going to summarize the key points that we're going to be covering in the presentation today. We've built a fantastic brand from scratch to achieve well over GBP 40 million of turnover, selling through multiple channels. We focused on building and growing scale to achieve that success. We're now at a scale where we can focus fully on realizing the profit, profit potential of the business. We made the strategic decision in half two of last year to significantly reduce price promotions, and this proved highly successful in terms of driving margin and profitability. Then, in Q1 of this financial year, we've reduced price promotional activity even further, and that has driven an even stronger uplift in margin of 670 basis points, achieving a margin of 63.4%.
Yes, revenue has been impacted in Q1, as you would expect from that reduction in price promotion, but by prioritizing margin and profitability rather than revenue, we've had a huge positive swing in PBT. So therefore, it's clear that the right course of action in order to drive sustainable profit is to continue with this focus on margin for the rest of the year, reducing price promotional activity to the same extent that we've reduced it in Q1. We realize it's very early in the year to be adjusting year-end revenue assumptions, but we think it's better to take that decision now, be clear on that decision with shareholders, so that we can fully focus on margin and profitability. We predict that revenue will be on a par year on year, but margin will be significantly improved.
We'll generate the same revenue this year as last year, but with a significant increase in profit to GBP 1 million, rather than the small loss we achieved last year. In future, revenue will grow again, but at a higher margin, delivering greater profit. We're also very excited to share with you today where we are with our imminent launch of our first shops in Chelmsford and Marlow. We'll demonstrate how our strong cash position will enable us to execute our store rollout program from cash flow, and we'll also show that not only will shops be profitable in their own right, but they'll have a compounding effect on all our other channels.
When we launched Sosandar, we recognized a demographic of underserved customers in the 30-plus age group, and we've built a very successful brand addressing this demographic. This morning, over 1 million women opened their wardrobe and had a Sosandar garment inside. We've had over GBP 250 million in sales to date, so we've learned everything about our customer. You can see on this chart that we've sought to build a brand by reaching customers in whatever way they want to shop, taking a measured approach to expanding our channels. To take you back over our journey, we launched in 2016 and built the entire business on our own website, sosandar.com.
We were then approached by Next and Marks and Spencer, who are obviously the two biggest retailers of womenswear in the U.K., and we began selling through them in 2020. We're now a top-selling brand with both of these. We then added more successful concession partners, for example, Freemans, and then added a wholesale arm to the business, too, which included nine Sainsbury's stores. Last year, we successfully launched internationally through Global-e and took on our first international third party in Australia, and we are now imminently about to launch our own stores in the U.K.
All our success has happened because we produce brilliant products in all categories, for all occasions, and for all women's body shapes. Our product sells wherever we put it, and this is evidenced by the fact that we're a top seller with all of our third-party partners, the biggest of these being Next. There are hundreds of brands being sold through the Next website, and we are the number one contemporary womenswear brand. On Next, in a like-for-like environment, we already outsell other established womenswear brands who have large store estates that we will be next to when we launch on the high street. Further evidence of how much our product is in demand is our launch with THE ICONIC in Australia.
We'll achieve substantial sales in the first year with The Iconic in a market where Sosandar was completely unknown and without us having to spend any money at all on marketing. So what we're highlighting here is that it's our product is what brings us the success, and wherever we place it, it just sells.
Moving on to the financial results for FY 2024 and starting with some of our KPIs. As Julie has said, from mid-year, we have prioritized gross margin and full price sales on our own website. This has resulted in our gross margin for FY 2024, for Sosandar as a whole, increasing by 140 basis points, from 56.2%- 57.6%. With regards to the performance of our own website in the year, the number of visits to the site was flat at just over 15 million. The impact of reducing price promotions is shown in conversion, which reduced from 4.1%- 3.4%, which is because we have not encouraged the customer to purchase with as regular or deep promotions. Average order value as a result, was higher, increasing by GBP 5 year-on-year.
Overall, we have delivered a robust financial performance for FY 2024, with revenue increasing by 9% to GBP 46.3 million. Our margin increased by a hundred and forty basis points in the year, and most notably, our margin increased by four hundred and twenty basis points in H2 compared to H1, where our margin was 59.6%. We are reporting a full year loss before tax of GBP 0.3 million, which, while down compared with the previous year, includes a substantial positive upswing in H2, where our profit before tax was GBP 1 million, compared with a loss in H1 of GBP 1.3 million. A large contributing element of the increase in overheads is due to commissions retained by our concession partners, who performed really well in the year. In addition, we have the resource in place to deliver our strategic goals in FY 2025.
In terms of the balance sheet, the key takeaway is that our cash position is strong, with a balance at March 31, 2024, of GBP 8.3 million. We were cash generative in H2, increasing the balance by GBP 1.3 million in the six-month period. Inventory in the year reduced by GBP 1.5 million, which was as expected and reflects the reduced stock requirement to fulfill orders at full price compared when using regular promotions. In addition, payables are lower due to a lower stock intake requirement for spring 2025 and lower returns provisions due to the timing of actual refunds being quicker compared to last year. Intangibles include the development and launch of the Sosandar app and the new ERP, which will be implemented and go live in the first half of the calendar year 2025. Here is our cash flow statement for the year.
Our strong cash balance of GBP 8.3 million will allow us to self-fund the store rollout, with each store anticipated to cost, on average, GBP 250,000 in CapEx and an additional GBP 50,000 in stock. We anticipate our cash balance will be flat in FY 2025, so a balance of GBP 8.3 million at March 31, 2025, inclusive of the investment in the store rollout program. Moving on to the new financial year and our performance in Q1 FY 2025 for the April to June period. We've delivered a substantial improvement in profitability in the first quarter, with an upswing of GBP 0.6 million, moving from a GBP 0.8 million loss last year to a GBP 0.2 million loss this year.
This substantial improvement reflects the further improvement in gross margin, which increased by nearly 7 percentage points to 63.4%. This improvement reflects our continued focus on margin through selling at full price on our own website. Cash has remained flat at GBP 8.3 million, following the paying of the majority of our spring/summer stock. Net revenue reduced to GBP 8.2 million from GBP 11.4 million in the quarter. However, it is the significant step up in margin and upswing in profitability that is our number one priority. In addition, we do expect to return to revenue growth in future years after a year of rebaselining our customers' expectations.
The rest of the presentation will look at how we're going to increase profitability and realize the full potential of the brand. We're going to look at how we're going to achieve our medium-term goal of reaching at least 10% PBT and GBP 100 million+ revenue. There are four key areas of focus: gross margin, increasing scale at greater margin, opening stores, and the compounding effect opening stores will have on all other channels, other opportunities opening up to us now we are a multi-channel brand. High margin is the most fundamental way to reach profitability. Our margin has always been strong, even as an early-stage business, but we always knew there was opportunity to drive it further when we had enough scale.
Scale has allowed us to focus on full price sales and reduce promotions, and the margin improvements made so far are entirely down to focusing on this.
We made the strategic decision in half two of last year to significantly reduce price promotions, and this proved highly successful in terms of driving margin and profitability. Price promotions prior to this had played a significant part in growing our business from scratch, which is entirely normal for a pure play business. As a result of this decision, we made significant margin gains in half two, FY 2024. The execution of the strategy has been possible because the business and database is at a size that we can generate profit even with temporarily suppressed demand. We shouldn't forget that demand is still strong, and we still have very good conversion rates. As we retrain our customers to expect fewer price promotions, we will begin to grow again and at a higher margin.
... Our product range is very strong, and we are confident that we can continue selling at full RRP, as we already sell at full RRP through all our third-party partners. So what this graph shows is the gross margin by year, and you can see that uplift in FY 2024. Then in Q1 of this year, that's April, May, and June, you can see this massive step up again in margin by 670 basis points to 63.4%, and that's like-for-like with Q1 of last year. The only thing that has driven this is the reduction in price promotion. There have been no increases in RRPs. This graph shows just how significant that drop in price promotion has been.
So you can see here how we started reducing in Q2 of last year, and then reduced further in Q3 and Q4, which delivered the step up for us in margin in half two, and then significantly, how those price promotions have decreased in Q1 of this year, where the reduction is 80% compared to the previous year.
Why is margin so important? This graph illustrates a bridge from the GBP 1 million PBT forecast in FY 2025 to an indicative GBP 10 million PBT in the future. Growing revenue at the current gross margin, say, on average, 61%, coupled with economies of scale that come from having a bigger top line, will add roughly GBP 3 million in additional profit. However, the single largest factor in increasing our PBT will be growing the gross margin further. This will deliver GBP 6 million, growing the margin by six percentage points to 67%, assuming GBP 100 million of revenue. It's for this reason that we are so focused on improving the gross margin on our own website through reducing price promotions. Of course, the three elements on this graph do not work independently. Growing scale enables us to buy cheaper, which will further improve the margin.
This graph clearly illustrates the route to delivering greater profitability in the coming years.
The short-term leveling of revenue is directly linked to focusing on full price sales and rebasing customer behavior. Revenue will grow again, but at a higher margin, as our product is good and wanted by the customer. What will increase further scale is the addition of stores and the compounding effect of that on other channels.
So these charts give an indication of that growth. We've grown a brand online from scratch to well over GBP 40 million of sales, which is an incredibly difficult thing to do. Our online business will grow organically again. The only reason it's not growing now is because we've reduced the price promotions, which is temporarily reducing the demand. Then, as we open stores, not only will we create a new incremental revenue stream, but these stores will also have a compounding effect on the revenue of the rest of the business. What we mean by a compounding effect is that when you open a store in an area, your online sales across all channels go up in that area. Our third-party partners are hugely positive about us opening stores because they know the positive effect that stores will have on online sales.
Next have told us that when a brand opens a shop in an area, the online sales of that brand on Next increase in that area. This compounding effect of shops influences both the recruitment of new customers and driving repeat business. Customers are recruited through stores at no cost, so it allows us to accelerate customer recruitment without spending more money on marketing, which in turn contributes to profitability. In addition, repeat customers shop more frequently because there are more opportunities to engage with the brand.
You will have seen this slide before, which shows some successful peer group brands. You may not know these businesses so well, as they are not PLCs, but they are three of our peer group. They are multi-channel brands that already have a significant presence on the high street, as well as selling through their own websites. What ties them all together, in addition to being multi-channel, is that their margin is strong, they have scale, and they do not do any form of significant marketing, as this is done by their shops being located in the right spot of each town. As a result, they are all delivering in excess of 10% PBT. We've done the hardest work, which is to build a GBP 40 million-plus business from nothing. We are online only. The opportunity is clearly substantial to replicate the financial performance of these three brands.
So now we're going to go into some detail about the opening of our first stores. 60% of fashion sales are made in stores, so at the moment, Sosandar is only accessing 40% of the market. Opening stores gives us access to the whole of our demographic, no matter where they are shopping for clothes. We carried out a survey with our own customers, which reinforces the data that we have in terms of how much women want to shop in store and how important both in-store and online are. Based on a sample of 3,000 of our customers, we found they want to shop very much equally online and in store, and we think they would be representative of this demographic as a whole.
They like the convenience of shopping online, but they like to touch and feel the product in store and the social aspect of shopping in store. Shopping is entertainment for women. Even better, 97% said they would spend more money with Sosandar if we had our own stores. So it's not a case of shopping in store or online, women want to shop in both.... Stores add to the whole convenience of shopping online. You can click and collect in store. You can return online purchases in store. You can order sizes in store that might not be available. And finally, when women buy Sosandar products in store, they try them on, so returns are very low.
Most importantly, stores themselves will increase our profitability for three key reasons. Each store will add incremental sales, and therefore increase scale, which will in turn drive profit, and that scale will be at the higher margins that we are already beginning to realize. In addition, intake margin will also increase because we will be buying deeper, which will drive our gross margins even further. The other benefit of stores is that they're a permanent way of acquiring customers at no cost. So when a shop opens in an area, a significant number of people who walk past that shop will never have shopped with Sosandar. The purpose of us going into the locations we're going into with high footfall and the right demographic, is that shops attract people to go in by the mere fact of just being there.
A new women's clothing store coming to a town is an exciting event, so Sosandar opening in Chelmsford and Marlow is a big deal, and we will already have created a buzz before we open the doors. Both Chelmsford and Marlow are very busy high streets, full of our type of customers, and we will recruit customers walking past that will come in for the Sosandar experience.
Shops are a recruitment vehicle for customers, as well as being profitable in their own right. To add some detail around the stores that we will be opening, this slide provides some of the key financial elements. We are looking at a store size in the region of 1,500 sq ft, lease length of typically 5 years with a midterm break. The capital requirement for shop fitting will be, on average, GBP 250,000, with up to 6 months rent-free being available from the landlord. In addition, there will be 50 Ks worth of stock at any point in time. For our Tier one locations, the total property cost, which includes rent and rates, will be in the region of GBP 150,000.
The anticipated revenue per store will be between GBP 750,000 and GBP 1 million , with some tier one stores being greater. Each store is expected to be profitable in its own right, with a 20% direct contribution. In addition, shops are brilliant for recruiting new customers, and they will become our primary marketing vehicle, which in turn will drive greater profitability.
In terms of store locations, we're targeting areas where our customers over-index, so that's primarily affluent market towns, city centers, and some shopping centers. The key criteria is also the positioning of the store in that town. We're targeting high footfall areas where we are adjacent to other upmarket brands, such as Mint Velvet and The White Company. We have 50 potential areas. We are ready and able to open in the region of about 10 stores a year, but the speed at which these will open will be governed by us finding the right shops, in the right location, at the right price. The first two locations are Chelmsford in Essex and Marlow in Buckinghamshire. Both of these fulfill all of our criteria, and we found shops located in absolutely prime locations. So our first store will be positioned in Bond Street in Chelmsford.
The image on the left shows how currently it looks as it's being fitted out. The large poster is filling the entire front of the shop and announcing that Sosandar is coming very soon. The image on the right is a mock-up of the outside of the store. We'll have a large LED video screen in the window showing multiple moving images of a range of our product, so a bit like a TV advertisement shown permanently in the window. These will be able to be changed as frequently as we wished and operated from head office. All research shows that video screens have a huge impact on drawing customers into store, and they elevate the brand experience. They are a more modern experience than mannequins that now are beginning to look very old-fashioned.
So the color palette for the outside of the store will be a combination of black and white, and in each case, adapted to the aesthetic of the town and the street. So you can see here that the Chelmsford store is primarily black with a white logo. And then the next slide shows a mock-up of the front of the Marlow store, where it's more predominantly white than black and fits the more traditional feel of the Marlow high street.
So to give you a flavor of the inside of the store, it's very contemporary, modern, and upmarket, with a neutral color palette to allow the color to come from the clothes. We will also use video screens inside the store to display outfits and increase conversion. We will also have a denim lounge, because denim is a real USP for Sosandar against our peer group. It's one of our top-selling categories with both Next and M&S and on our own site.
As the equity of the Sosandar brand grows, the opportunities being presented to us are also ever-expanding. We are having a number of early-stage conversations with many different third-party partners. So in the same way that other third-party partners that we currently work with came to us because they were very interested in working with Sosandar, there are many, many other companies interested in working with us. We've got companies interested in licensing our brand in areas like homewares and home fragrance, among other things. This is a very interesting area for us because brand licensing is a straight profit. We've also got interest from many other third-party partners, and we're talking to many people, both internationally and in the U.K., so department stores, for example.
We've also got interest from franchise partners internationally, but first, we will need to establish our own stores in the U.K., so this is a much more long-term ambition. We've also seen that the interest we've received has increased significantly as we've announced that we're opening stores, as it has increased the brand equity, and Sosandar is being seen in a completely different light.
We are on the brink of unlocking the full potential of the brand. We are creating a virtuous circle of becoming a multi-channel retailer, where each channel feeds into each other and the whole is greater than the sum of the parts. The brand is in a really strong place. We've made huge strides in terms of margin and profitability, as we've said we would, and the revenue will grow at a higher margin, delivering greater profitability. Stores are about to launch. These will not only bring profitability in their own right, but will have a compounding effect of the profitability of all our channels. We are one step closer to achieving our 10% PBT target.
So just to conclude, before we hand over to you for questions, we are at a really exciting, pivotal moment for the brand. In September, we're going to open our first physical stores. We're successfully growing our margin, which is going to bring us increased profit. The next bit is going to be even more exciting than the last eight years have been. So that's the end of the presentation, and we'd love to hand over to you now for questions.
Tremendous. Thank you very much indeed. We've got quite a few questions. What gross margin are you ultimately targeting, and over what time?
So our expectation is that our gross margin will be somewhere between 65% and 70%. Over time, there are two primary facets to that. Firstly, is what we've been doing recently, which is reducing price promotional activity, and therefore, delivering margins closer to that of selling at full RRP as it stands. The second element is the circular benefit of driving scale. Stores will deliver scale, which in turn will give us the benefit of buying cheaper for the stock that we purchase, which will come in future years as we grow that scale significantly. The expectation of, let's say, 67.5% is very much realistic, and that's why we think we could even push that towards 70% in the coming years as well.
Great. Thank you very much. The revenue for current year Quarter One has dropped heavily compared to the prior year. Can you talk through the factors? Was it just higher price, or were there other factors, like the economy or the weather?
So the only thing driving that is the reduction in price promotions. As you can see on the graph that we showed earlier, an 80% reduction in price promotions year-on-year is really very, very substantial, and that's the corresponding increase that we've achieved in margin of 7 percentage points. That one has directly influenced the other, and it's also directly influenced the revenue. Nothing else material is at play in influencing the revenue.
Great. Thank you very much. Why are you no longer trading with The Bay in Canada?
So we went live with The Bay. We shipped stock over to Canada, and we were only a week or two into our trading, and The Bay have had some kind of technical issues with the provider of their marketplace website, and this went on for quite a number of weeks. We don't really know what the issue is with The Bay, but something to do with their marketplace not working. So we took the very speedy decision to stop working with them because the marketplace wasn't up and running, so we're bringing our stock back. The beauty of working with third-party partners is there's very little investment, there's very little at risk in the beginning, so we've been able to very quickly make a decision to end that relationship without it having any material cost to us.
Great. Thank you very much. What were the reasons for the considerable delay behind the store opening program? You said previously that you envisaged the first stores to open in spring 2024.
I think, really, we were ready to open stores in spring. We can... We have the capacity to open up to about 10 stores a year. However, it's exactly like that, buying a house. Things are out of your control, and the main thing for us is we were never going to compromise on getting the right site in the right place. So we have to make sure we have the right place and then the right property on the right bit of the street. We're never gonna be down a side alleyway or an alley or a secondary street. So making sure those locations were absolutely right was the first thing, and then when we did find locations, things like a tenant being there delayed the process, et cetera. So there wasn't any problems. We were ready to go in spring, but we were not gonna compromise.
Great. Thank you very much. And how many stores are assumed in your GBP 100 million revenue projection?
We've identified 50 locations in the U.K. where we can locate stores that are towns or cities where our customers already reside, where they index well or over-index against population, and also by mapping that against our peer group as well, to see where they're located. There's many factors involved in that in assessing where we could be. So 50 locations, which are factored into our aspiration for what the U.K. could look like with Sosandar on most high streets in our country.
Great, thank you very much. The questioner thinks your forecast of GBP 50,000 stock holding per shop and a revenue of GBP 750,000-GBP 1 million per store is rather, as I say, optimistic. What do you think makes that possible?
I think when we quote those numbers, we recognize a lot of information that we've gathered over time, and that includes understanding revenue that's generated by some of our peer group brands and locations. The numbers quoted on the slide represent tier one locations that we can open in order to match against the property cost that would be incurred in those tier one locations of GBP 150,000. The same point would apply to the CapEx of GBP 250,000. If we extrapolate to all 50 locations, we fully envisage that both the CapEx that we will incur in secondary locations, if you want to call them that, will be lower. The revenue that we will also do might be a touch lower, but so will the cost to service that location.
Property cost will be a lot less as well. So there will be a balance. The most important thing when we appraise a store from a financial perspective is that we believe that the revenue in that location, borne out of a series of due diligence steps that we're going through, warrants going into that town or that location in town. The focus for stage one of our rollout program is to focus in on what we are referring to as Tier one locations.
So those are the locations that will have the highest footfall, the highest prominence of where our customers reside, so they might be larger towns, they might be cities in some cases, and that's where our priority is, because it's that that will create brand awareness more quickly, and then we will fill in with secondary locations that support the main conurbation where people live.
Great. Thank you very much. There seems a delicate balance between revenue holding up and increasing profitability. Have you included the full cost of running shops, including the background admin costs, such as audit, et cetera?
Yes, we have. So all costs have been included, both the direct costs of running an individual store, as well as the back office support, for example, audit, but also central team support that is needed in finance, merchandising, retail operations and the like. All of those costs are factored into our forecast projections.
Great. Thank you. Are you being sufficiently cautious with the number of stores you're planning on opening, given that sales volumes have dropped a lot at the higher price points?
I think we're being realistic with the number of stores that we're planning to open. So we've said that we can physically open probably up to 10 a year, and we've said all along that we would. So this side of Christmas, we plan to open, obviously, the two we've announced, and there is a small number of other stores that are in advanced legal stages. And the only thing that really will stand in our way is just finding the right stores in the right locations. But I think we've been very realistic in what we're physically able to do with the resource that we have.
Great. Thank you very much. Do you have a management structure in place for the stores?
In terms of the actual stores themselves, yes, we do. We, in, in the two stores that we've got, we've got a manager, a deputy manager, and then also staff below them. In terms of the actual head office, we do. We recruited a head of retail and a head of retail operations, but also across our teams, all of our senior team have actually worked both in store and online, as have their teams below them as well. So what we're going to make sure is that we're not running the business with shops over there and online over there. Basically, we are combining the teams across the two.
Great. Thank you very much. Can you comment on the approach to security in the stores and what allowance you've made for shrinkage?
We have made an allowance for shrinkage, yes. In the initial stores, there will be CCTV, and there'll be security at the door as well, to hopefully minimize the risk. Obviously, it's something that's been very prevalent in the public domain more recently, but we'll be doing everything, you know, reasonably possible to make sure that we minimize it. But there is an allowance within our financial projections for stock loss, effectively.
Great. Thank you very much. And, a question, follow-up question on The Bay. Can I ask why you didn't give The Bay more time to sort out their problems?
We've given them about three months. I think that was plenty before we actually parted company with them, so we didn't, it couldn't go on any longer than that with a marketplace being down. There's just something not... We don't know what the problem is, and we have gone right to the very top of The Bay and not had any satisfactory explanation as to why the marketplace is not operating.
Great. Thank you very much indeed. That's the end of questions. Julie, do you have any closing remarks?
Just to say thank you all very much for joining us today, and we very much look forward to updating you again later in the year.
Tremendous. Many thanks, Julie, Ali, and Steve. To everyone listening, you'll now be taken to a webpage to give feedback on today's presentation. If you can't complete it now, you'll get a follow-up email. We would be really grateful if you could take a few minutes to complete. Many thanks for joining. This is the end.