Welcome to the Sosandar half year trading update. 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, type your question by clicking on the Q&A button. This webinar is being recorded. I now hand it over to Julie Lavington and Alison Hall, Co-CEOs, and Steve Dilks, CFO. Julie, over to you.
Good morning, everyone, and welcome to the call. As with previous trading update calls, today we'll be providing a short summary of the update, followed by a Q&A session ending at 9:30 A.M. We are very pleased to be reporting a strong performance for the first half of the financial year, trading in line with market expectations for full year growth. We've delivered continued revenue growth across all channels, resulting in revenue of GBP 20.9 million for the six months to the end of September, which is a 72% increase against the same period in the prior year. We've also achieved a substantial positive swing in profitability from a loss of GBP 1.1 million last year to a positive profit before tax figure of GBP 0.1 million for the six months to the thirtieth of September 2022.
Our well-planned approach, together with our distinctive product range and effective communication strategy, has enabled us to continue to deliver for our customers.
This strong performance that Julie has highlighted is testament to the relevance of our strategy, unique product offering, and ever-increasing brand awareness. Our broad product range with new styles available daily and highly effective marketing continues to drive strong growth with both new and repeat customers. At the time of our full year results in July, we stated that we plan to fast-track development in categories where we knew our customers would be likely to spend, specifically in occasion wear, beach and swim, and tailoring. Pleasingly, this has been extremely successful, with all identified lines meeting or exceeding expectations. Across the period, every single product category was in growth, with holiday and beachwear, formal tailoring, and party wear performing exceptionally well throughout summer and into September.
Trading on sosandar.com and through our concession partners has been very strong as a greater depth and breadth of stock made available across all product categories has resonated with consumers. Alongside this trading update, we are also excited to announce a new third-party partnership with JD Williams on a wholesale agreement basis. This will allow us to increase our reach among our core target demographic and deliver incremental revenue and PBT. We are pleased with the promising start that this partnership has made, and together with our other partners, M&S, Next, John Lewis, and The Very Group, we're very excited by the significant opportunities for further growth through this channel.
Given the current external landscape, we thought it would be useful to spend some time talking around the economic backdrop in which we're operating. We now have another set of very challenging circumstances to navigate. I think it's important to note that we've just gone through over two years of extremely challenging trading conditions during the pandemic, where consumers have had little actual need for clothing and have spent vast amounts of time at home, yet we've still thrived as a business throughout that time. Despite the challenging environment, we've once again been able to mitigate against the headwinds that we faced. We've continued to expand and diversify our supplier base, and we've also used our agility and detailed planning to manage the business effectively. We'll continue to take appropriate mitigating actions in response to the environment in which we're operating.
We expect consumers to become more selective about where they spend and also more demanding of those brands with which they spend. We are confident that Sosandar will continue to benefit from this shift in behavior as our fashion-forward, high-quality, unique product proposition clearly differentiates us from the rest of the sector. I'll now pass over to Steve to pick out some of the highlights in our financials.
Thank you, Julie, and good morning, everybody. Julie has said, we're very pleased to report a net revenue of GBP 20.9 million for the six-month period ending thirtieth of September 2022. A 72% increase against the same period in the prior year. We're proud of our performance, which has resulted in our second consecutive six-month period of positive PBT. Our PBT of GBP 0.1 million is a substantial positive swing versus the GBP 1.1 million loss we reported in H1 FY22. The financial highlights of the period are testament to the success of our strategy in accelerating sales growth by identifying and fast-tracking the development of key product lines. The number of orders increased by 43% year-on-year to 347,000, of which 81,000 were from new customers and 266,000 were repeat customer orders.
Our conversion rate increased to 4.5% from 3.9%. Average order frequency increased by 8% to 2.41 times per annum, and website visits were up 25% to over 7.7 million. Gross margin for the period was 54.4%, reflecting a more normal post-COVID trading period with a planned end-of-season sale in August. Our net cash position of GBP 4.2 million as of the 30th of September 2022 reflects our decision to get stock in early for the autumn/winter season to ensure that we can meet significant demand across all of our sales channels. A large proportion of this stock was also brought in by sea freight, which means that we take receipt of the stock a number of weeks earlier than we would have had we used air, and thus accelerates the use of our cash.
We're comfortable with the position that we have. On that note, I'll pass back to Julie for a quick overview of our current outlook.
Thank you, Steve. This has been a very positive six months for Sosandar, and we are delighted with the progress we've made, which is all down to the hard work and dedication of every member of our team. We've remained focused on executing our strategy, which has shown in our performance to date. There's no doubt that the current economic and political backdrop is bringing with it many challenges for businesses and consumers. What we can be confident in is our ability to continue to navigate tough times and to take mitigating actions as appropriate. We have a brilliant brand, highly differentiated product that's in demand across all our channels, and we have a great team who constantly execute our strategy well.
Despite the external environment, we've had a very strong start to October across all sales channels, with high demand across all our product categories, which gives us confidence as we go into the second half of the financial year. Now over to you. We'll be happy to take your questions.
Many thanks. The first question here is: I see that there are now over 1,000 Sosandar options on the Next site following the launch of Platform Plus. Do you still find that increasing options on third parties like Next creates a proportionate increase in sales, maintaining the very fast covers you've previously highlighted?
I'll take that question. Yes, we do. What we see is a direct correlation, as we've said before, between the amount of styles and the depth of styles that are available on third-party partners. What we are continuing to see is as we expand the range with all our partners, particularly with Next, obviously because we're now on Platform Plus, is we're seeing a corresponding increase in sales, which is great news.
Thank you very much. Please, could you elaborate on the net cash position and what the influence of earlier investment in stock and working capital is? Should we consider the reported position to be at a low point that quickly builds back up over the season?
Steve, over to you for that.
Yes, you can see that. If we look at what's changed over the last 12 months in our business and how that's impacted cash, we took the conscious decision over the last 12 months to increasingly use sea freight, particularly from China, in order to further improve our margin into the longer term, but also to significantly reduce the environmental impact of using air freight for the majority of our stock coming to the U.K. Our cash position at 13th of September is GBP 4.2 million. That is a low ebb in terms of our balance, and it represents the vast majority of stock for the autumn-winter season already being on our balance sheet and in receipt.
What we now start to see is minimal stock landing into the warehouse 'cause it's all already recognized, and then we start to benefit from the sales that we make through October, November and December.
Thank you very much indeed. Congratulations on another great quarter. I noticed, compared to the prices in the September catalog, that you put some prices up in mid-September on the main site, maybe a GBP 3-GBP 5 pound increase. For example, quite a few dresses rising from, say, GBP 69 to GBP 74 pounds. Could you give some color why you put through the price rises then? What effect it had, if any? As much as you feel comfortable talking about whether you expect further price rises going forward.
Sure. I'll start with that, and then, Ali or Steve, please, add. We are constantly looking at our price architecture and how much we charge for our products. Really, we saw an opportunity to drive prices a little bit higher for as we went into October because looking at our pricing compared to the market, it felt that we were probably underpriced, if anything, on our party wear. That gave us an opportunity to push prices, particularly on dresses. We've seen absolutely no resistance at all to price rises, which is the same that we've had in the past.
In the past, probably about a year ago, we pushed denim a little bit higher because we were seeing such strong sales in jeans, and we pushed those about GBP 5 higher at that particular point. Again, we saw no resistance at all at that point. It is really just an ongoing, constant monitoring of our pricing and where we sit in relation to the market.
Thank you. You'd expect potentially further price rises going forward?
I think it's just something that we constantly monitor and look at right across product categories.
Thank you very much. How do you see your two most recent third-party partnerships, Very and JD Williams, adding to your customer reach and profile?
Ali, do you want to take that?
Yeah, I mean both the The Very Group and JD Williams are performing really, really well. JD Williams is very recent, but we're already seeing a really good take-up from them. I think they've got a slightly different customer profile from the other third parties that we are with at the moment. For us, that creates another pool of customers that we didn't have access to before. It also makes sure that the brand is out there even further to different customers.
You know, we choose very carefully the partners that we take on board in the U.K. and later on internationally, and we make sure that we work with partners where we can see a big impact and also get, you know, close to a customer base that we haven't had access to. We're very pleased with both of those new partners and how they're performing.
Tremendous. Thank you very much. While you have an affluent customer, could you give us some color on Q2 return rates and into Q3? Is this rising as consumers maybe get more discerning with the cost of living concerns, et cetera?
I'll take that question. What we've seen, post-COVID, which I know we've reported on in the past, is we've seen returns rates normalize back to what they were prior to the pandemic. Since then, really over the last year, we've not seen any change at all in returns rates. They're very stable and the only thing that really changes as an average is it depends which product categories, the mix of the product categories that are selling in any given period, which slightly increases or decreases overall average returns rate. For example, in a period where knitwear or jersey would be strong because it's stretchy garments, they tend to return lower. We'll have slightly lower returns rates in months where those categories are particularly strong.
Very pleased with returns rates and very stable. No, nothing has changed at all in returns post the economic challenges that we are seeing externally.
Tremendous. Thank you very much. I understand the point about summer sale being planned this year being different to last year. However, I imagine that the change of sourcing towards more sea or road would be a huge positive factor. Is that benefit more weighed to the second half underpinning the margin percentage forecast from N+1 Singer, which expect gross margin percentage to be level on last year?
Steve, over to you for that.
It's one of many factors that plays out when we look at the margin projections for H2. Sea freight or China origin products in particular, which is more heavier garments like outerwear. Those are obviously the big benefits using sea freight versus any other method. There's a big benefit there, but there are other aspects that drive margin improvement into H2. We've touched on some price increases that were implemented in September that will bear fruit through the balance of the year. There are other actions that we're taking all of the time, around delivery methods, how we deliver product to customer, so on and so forth, that all are borne out in the projection into H2.
At the moment, there's no, we're not planning to do an end of season sale for the winter season in the way that we did for August. Of course that is always subject to change, but that's also factored into the projection into H2.
Thank you very much. Another question regarding times of delivery. Why does receiving by sea freight mean you get it weeks earlier than transport by air?
Steve, one for you as well, I think.
Generally speaking, when we buy products, we're buying on almost FOB terms. What that means is that we're taking legal title of goods in country of origin, which is very normal. It's then our responsibility to move the goods via our own freight forwarders. If we look at a typical shipment from China as an illustration, if that came by air, we would take receipt today, and it would arrive in a matter of days into our warehouse. The legal title is still in China. If we then use sea freight for that same garment, we're taking receipt onto our balance sheet, something like 60 days prior to the date, as if we brought it by air.
The handover date triggers the payment term, which means we're accelerating the use of our cash, but the trade-off against that is that we get the substantial benefit on margin as we move forward. It's a trade-off really between timing, use of cash, and then the benefit of margin that comes following when you start to sell the garments.
Great. Another question expanding on that. Could you explain a little more about the difference in cost of using sea freight versus air freight?
Mm-hmm.
The impact upon timelines for delivery to third parties?
Steve, for you as well.
Yeah. It's significant, but it's a quite hard question to answer really because it very much depends on what product categories we're talking about and also what kind of fill of a boat, a vessel, container or plane that you have. If we look at the extreme end of this spectrum, if you look at outerwear, padded coats for example, that are heavy, they're very expensive to transfer to the U.K. via an airplane for the obvious reason that they're bulky and heavy. They're much better to come via boat. They could cost anywhere from GBP 10-GBP 15 per unit by air, and compared to sea, maybe GBP 3-GBP 4. That's an illustration at the extreme end.
You wouldn't extrapolate that across all of our product categories, but it's to illustrate the point. The objective here isn't to move everything to sea freight. Sea freight is very prominent from China in particular 'cause of the distance and also the type of product that we purchase from China, which is typically heavier product with a longer lead time. If we're buying lighter product or product that's closer to home, maybe from Turkey, then the need to use sea freight isn't there because you can truck from Turkey within about two weeks total end-to-end, or lighter product out of India, for example, can still be air freighted really economically. It's about having the right strategy in place for different categories, different country of origins, so on and so forth.
Thank you very much. Congratulations on an excellent half one. We've witnessed considerable foreign exchange volatility in the period. Can you expand on how this has impacted Sosandar and any mitigations you're taking?
Steve, for you as well, I think.
Yeah. We've seen some impact from the weakening of sterling, although, of course, nicely, it's rebounded slightly over the last week or so, which is good. It's important to note we still have a really high proportion of product that we purchase is purchased in sterling, actually. Our exposure is almost mitigated straight away because we're negotiating PO prices in sterling in a majority of cases. However, we are exposed to movements in sterling to dollar and also to a lesser extent, sterling to euro. The mitigating actions around that are we've covered some of them already, which is about freight strategy, price architecture, the way we engage with our customers to do with delivery options, and there are other actions that we're always taking. It gives you a flavor of where we stand.
Thank you, Mandus. A related question. What trends are you seeing on cost of goods sold? I note that raw material prices like cotton and wool are materially lower than a year ago, which is good. However, sterling is weaker.
Steve, for you again as well, I think.
Yeah, obviously it depends on the category of product that we're purchasing. I think from our point of view, the other thing that we would always add to the equation in that question is scale. Scale brings opportunity overarching all of the above, which helps you either to mitigate increases where they exist or to buy better than maybe where you were previously because we're able to commit to larger volumes over the selling season. There's other variables at play here. Net-net, in some cases, there is a bit of upward pressure, but in other cases there's downward pressure as well. The other thing that we're doing on an ongoing basis is onboarding more suppliers, both for newer categories, but also to cross cost and to further reduce the risk profile of our supply chain.
We're able to cross-reference prices or cost prices that we get from an existing supplier with others and also to improve overall our supply chain because we can then pick and choose the best suppliers with the best lead times or the best prices to be able to balance all the variables that are at play.
Many thanks. Early autumn and party wear ranges have clearly performed really well. What is the pipeline like for new products and collections over the remainder of the season?
Ali, do you want to take that?
Yeah. I mean, in terms of product and how that's been forming in general, I'll just talk about that a little bit. I mean, the first six months of the year, we've seen really strong demand for smarter clothes in general. I think really as a reaction to post-COVID and everyone wearing casual clothes, so people returning to the office and going out on occasions. We've seen a massive demand for smarter clothes as well as a demand for beach and swim to go on holidays. Smart tailoring has been a really successful category for us as has our larger occasion wear party offer. All our categories, both formal and casual are in growth and all have loads of opportunity going forward. As we've moved into autumn, demand for knitwear, outerwear, and anything sequin has been really, really strong.
I think knitwear largely 'cause people wanna be cozy and warm and outerwear and also sequin when everyone's, you know. Even in COVID, we found that with sequins, we sold those well because women tend to buy clothes to cheer themselves up as well as a need for wearing. Trousers have made a massive comeback with flares being back in fashion. I think really for us going forward, even in difficult economic climate, the demand for our product, both on our own site and through third parties, is really, really strong, which is testament really to our own product range that we keep getting this high demand on all our channels.
I'll probably just add to that about the specific question about the pipeline of new product coming. It's our strategy to land brand new product daily. you know, right the way through the next six months you will see constant influx of new product landing because that's very much what inspires the customer to keep spending, to keep coming back to site and driving the extremely high conversion rates that we see.
Thank you very much. Could you elaborate on the customer profile of your new third-party partner, JD Williams? Will the range supplied reflect the more mature customer I understand JD have?
Shall I take that? I think what's interesting is that we find really across all our third-party partners that the best sellers that we have are also their best sellers. There are nuances with each of them, but generally. I think the reason for that is that we've spoken about in the past is the opportunity that we identified for Sosandar was about the ageless generation and about how women as they age in terms of the actual number of years, she's absolutely not changing how she wants to dress. The opportunity that we identified for Sosandar was that as women got into their forties, fifties, sixties and beyond, women no longer dress in that old-fashioned concept of dressing for your age.
Really, it doesn't really matter what age you are, our clothing is right for you. Actually, no, the product range that JD Williams has bought, even though they do have a slightly older demographic than would be on our own site. They've bought generally the product that are bestsellers for us on our own site and with our other third parties.
Thank you very much. What are your plans for international sales?
Ali, do you want to take that?
Yeah. We are considering international opportunities, and we're considering them both through our own site as a means and also through third parties. At the moment, nothing is imminent as there remains lots of opportunity for growth in the U.K. As we said, we've only just launched another third party in the U.K., and there's absolutely loads of opportunity within the partners that we've got as well. Opportunities to expand internationally are definitely there and to be executed really when the timing is right.
Thank you very much. That's all we've got time for. Julie, do you have any closing remarks?
Just to say thank you very much everyone for dialing into the call today, and we look forward to updating you again in early December with our full half year results.
Many thanks, Julie, Ali, and Steve, and to you all for joining. This is the end of the webinar.