Dear ladies and gentlemen, welcome to the Mister Spex Q2 2022 conference call. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions via the telephone lines. If any participant has difficulties hearing the conference, please press the star key followed by zero on your telephone for operator assistance. May I now hand you over to Dirk Graber, who will lead you through this conference. Please go ahead.
Welcome for the intro. Welcome to this Q2 and H1 result presentation of Mister Spex. My name is Dirk Graber, Founder and Co-CEO, and with me, Mirko Caspar, my Co-CEO of Mister Spex.
Hello.
When we look at the results of Q2 and H1, I think we need to put them into the right perspective. The market currently is a very challenging environment, and it's getting tougher for all players, including Mister Spex. We see our business performing well despite all these headwinds, but we also expected more than the existing growth that we've seen. What we've done to improve our profitability is to put an efficiency program into place to substantially increase our profitability. We are very well convinced that our business model is very good positioned in the future, and we look at a few of these things in the next slides. When we take a closer look at the market, we see the following trends.
First of all, consumer sentiment or consumer confidence in the German market started already weak into the year at a quite low score between -seven, -nine according to GfK. It also became even weaker during Q2 and now looking at August and September numbers, even at all-time lows versus the whole period until 1991 backwards. Why is that the case? One of the main drivers is that at the moment most of consumers just realized how much the energy costs are impacting their I would say available income and also then consumer spend in our view. What we also see is that consumers are trading downwards in terms of frames so looking at more affordable private labels.
We see the optical market in Germany shrinking year-over-year in the period of March to June this year. That's the last available data. When we look now at our development, despite all these headwinds, we've been able to grow year-over-year in the second quarter by 9%. Prescription glasses grew 2% versus last year, and the growth was driven by a very strong sunglasses business. Please keep in mind that part of our sunglasses, around 25% of sales, are prescription sunglasses, which are not just a fashion product, but also a medical product for consumers. Contact lenses also saw a good lift up because of increased travel and back-to-office trends in the market.
Our segment split between Germany and the international markets. What you can see is what we already mentioned in the results presentation for the first quarter in May. We started to focus in May, June, to allocate more of our marketing budget to the German segment. Why did we do that? We did it because here we have a very well-established brand, and with less marketing spends in terms of more performance-oriented marketing, we can achieve, I would say, higher profitability in the short term, while not investing in long-term brand building activities in international markets at the moment, given the low consumer sentiment. I think what is worth mentioning is that we've seen very strong like-for-like growth for our retail stores in the second quarter, around 30%-40%.
These include all cohorts of 2016- 2020, where we have real like-for-like data. We opened as planned seven new stores in the second quarter in Germany and another one in Sweden, so opening a total of eight stores in the second quarter. When we now look at adjusted EBITDA, we improved the adjusted EBITDA from the first quarter to the second quarter by more than EUR 5 million. Coming from EUR 61 million in revenue, a gross profit margin of close to 47%, which was mainly impacted negatively by the product mix. As I just said, prescription glasses growing 2%, while the other two categories grew over proportionally above 10% in the second quarter.
Maybe keep in mind where we're coming from in Q1 to illustrate here the operational leverage Mister Spex already has. Right. Q1 was EUR 47 million, and now it's EUR 61 million. The delta of EUR 14 million led to an increase in adjusted EBITDA of over EUR 5 million. That's an incremental EBITDA margin of the EUR 14 million additional revenue of around 36%. I think that's important to understand, and also our future actions, which we'll talk about, to understand why growth is also an important driver for profitability, especially operational leverage for Mister Spex. Where did the growth come from? It came from more active customers at Mister Spex ordering more, so a higher number of orders. While due to the product mix, the average order value stayed constant versus last year's second quarter.
Now, as we already expected and also told you in the Q1 results call, we knew Q1 would be the toughest quarter, given a very strong like-for-like comp last year, which was the highest growth rate that we've seen for over five years in Q1 2021. Therefore, 6% was the result for Q1. We increased the growth rate to 9% in the second quarter. Now in the third quarter, we're seeing for July and August combined a growth rate of around 20% for our business. Which is a significant uplift, which we basically anticipated in terms of trend, but we expected even more than that.
One driver for the strong result in the third quarter so far is also, to be fair, a very strong sunglasses season due to, I would say, perfect summer in terms of weather. Nevertheless, we've been more cautious for the full year, especially the second half of 2022, and therefore, because then the product mix is heavily depending on prescription glasses and contact lenses. Now let's look at the reasons why we took down our guidance and why we are more cautious for the full year of 2022. By far the biggest risk that we see is the deterioration of consumer sentiment, which at the moment is at the lowest point, as we just talked about.
We don't have basically a clear view when this will be over and this will return to positive, but we are convinced that this will take a few months to then turn around. Therefore, this is leading to postponement of prescription glasses and also switching to more affordable prescription glasses in terms of private label, which reduces AOV and also then puts a little bit of pressure on the revenue side. We also don't know where COVID is gonna head into in this winter season and which restrictions may come that also might risk our top-line growth, especially in retail. On the cost side, it's the unfavorable product mix. The cost and wage inflation, which everybody faces in the market, the same we do.
We also, especially when markets are challenged in terms of growth, very often the market is, I would say, covered by a lot of aggressive campaigns. This is something in total which led to our reduction of our full year guidance. Overall, we believe that we are in a very, let's say, strong position in terms of market opportunity for the midterm. We've shown in the second quarter how big the operational leverage already is at Mister Spex in terms of adding new revenue and leading to substantial incremental profitability.
Keep in mind, with our business model, we on the one hand always acquire the next generation of eyewear buyers, the today 20- 30 year-olds, and at the same time now with our omnichannel model, being able to address the 40- 60 year-olds progressive customers, more and more, and we will also talk about it in a second. As already mentioned, we've been more cautious for the outlook, for the full year. We expect for the full year a revenue growth of 7%-12% and an adjusted EBITDA margin for 2022 of -6% to -3%, for the full year.
Okay. To improve the profitability and our operational leverage, we have established a performance program that we call Lean for Leverage. It basically focuses on three main pillars. The first one is to concentrate on the core, because that's where we can leverage our assets the most, and that means countries like-for-like growth in retail and our customer experience online. The second pillar is that we optimize the pricing, the product mix, the marketing mix more to increase the margin. The third pillar is also that we will become leaner for more operational leverage, especially when it comes to G&A. Let's take it one by one and look at the individual pillars. The first one, the concentration on the core where we leverage the assets that we have already created.
Number one is that we focus on the core countries where we can leverage the brand equity that we have built the most. The second thing is that if you look at our 63 stores, we see there is an incredible like for like growth opportunity, and we saw 30%-40% like for like growth of those store cohorts already in the first half. We don't think that's the end of it, so we can leverage what we've built there as well. That also means that we will adapt the store rollout speed to the current market conditions, right? We don't want to roll out too many stores into that environment. While we do feel comfortable that we probably will roll out 10-20 and we have good locations for those, we will not stretch it any further.
The second thing is that we see retail productivity and profitability opportunities. One is just if you look at the last month, I mean, we had 20% sick rates, more due to the pandemic in several weeks, and obviously that hits the productivity of a store quite significantly. We have relatively new stores and new store teams, so we've seen that through training, assortment optimization, et cetera, we can improve the profitability of the existing store network significantly. Well, last but not least, we will further develop the customer experience based on the data assets and the Tribe technology that we have acquired. We do see conversion rate improvements and reduced return rates, and we will push that further by building on that strategy and capability.
The next pillar is that we will focus even more on optimizing the price, the mix, and the margin. We've already started price increases in the first half of the year. Why do we believe we can continue to do so? Well, our bold offer of giving a high-quality lens for free for every frame allows us to optimize the margins around that bold offer that still stands unique in the market. The second thing is, while we have seen increased discount activity in the market, we have to remember we have 70% of existing customers, and we can target them really smartly and that's what we will focus on to reduce the overall discount level. The second thing is our focus on the high-value segments.
According to our strategy, we wanted to improve, and we will continue to do so, the share of multifocal prescription glasses, which are the most profitable segment in the market. We are already at 26%-28%, depending on the quarter, which is a significant growth in share. The second thing is we see the most pressure in the market in the mid part. People are moving to private label, but we have the most fashionable assortment in the market. On the other hand, there's one group that is pretty much untouched by the market conditions, which is the luxury and independent segment.
We have seen 25% growth in the first half of the year in our Boutique segment, and we will continue to push those three, multifocal, private label, and Boutique where we are unique. Last but not least, we would rather leverage the brand equity that we have built than focusing on building new brand equity in international markets. We will focus on performance marketing, leverage our brand equity. The other thing is the targeted marketing measures that we have that either localize marketing to drive profitable segments to stores, or they have targeted and segmented offers, in the performance marketing channels and in the CRM channels, and that's what we will focus on to drive the overall margin.
All right. The third pillar is focusing on costs. Here we see first HR cost, where we are reducing our overhead HR costs across all the functions to really decrease the HR cost in % of revenue of our overhead team. We also focus on a higher flexibilization of our retail store staff to first of all be able to have a lower minimum staffing, but on the other hand, being there when the customer is there in terms of Fridays and Saturdays where we have typically the highest traffic numbers. We also cut significantly a number of open positions that we are now reducing our overall HR budget.
In terms of other costs, we're taking out freelance costs, which are always good to speed up certain projects. On the other hand, we have paused some of these projects and delaying them to wait until we see pick up in consumer sentiment and in growth rate before we start investing again in certain projects. We also gonna go rigorously through all our other overhead costs to substantially reduce them in Q4, and we will do that in further detail during our budgeting process until the end of the year. That also implies that we will reduce CapEx costs for 2023.
Now looking at the impact of this program, it is really helping us to substantially improve our profitability, and it will put us into an even stronger position once the market is picking up again.
We are a high growth disruptive business. We will see a number of tech products and features coming to the market at Mister Spex over the next months, helping us to really build an even stronger USP in the market. That's all despite a lot of challenges that the entire market, including us, is seeing. We remain very confident that we have a compelling midterm opportunity at Mister Spex to take more and more market share. Just if you compare basically our growth versus the market over the last years has been always significantly higher, and we've gained a substantial market share during that time.
We will basically focus on becoming even clearer in terms of our brand promise to the consumer, especially in these times with a very attractive offering at the entry price level, offering prescription lenses with all frames for free. We're very confident that we, after the market basically is picking up again, will also be able to meet our medium-term strategy and execute on that, including meeting our financial targets. So thank you, everybody, for listening. Now let's move to Q&A.
Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial zero two to cancel your question. If you're using speaker equipment today, please lift your handset before making your selection. One moment, please, for the first question. The first question is coming from Cédric Rossi at Bryan, Garnier & Co. Your line is now open.
Yes. Good morning, Dirk and Mirko. I have two questions. The first one is regarding the consumer behavior. I understand the industry-wide trend that prescription is underperforming versus contact lenses and sunglasses. I think it's a bit counterintuitive because over the past crisis, it was the opposite that was happening. Do you see any structural change in the consumer behavior because due to the current crisis we are witnessing? Or do you think that we could go back to normal once the situation normalize? The second part of the question is, I'm happy to learn that you are growing through the past two months.
Is it also driven by private labels? In other words, this focus on private labels. Is it mainly driven by new customers or also from your existing customer base? In other words, are you seeing any signs of a trading down, for instance? My second question is regarding the international expansion. I understand that you really want to focus on the DACH region. You know, does it imply that you will probably pause the store openings in the Nordics, for instance, and plan not to open a new market in 2023 beyond Switzerland? Thank you.
Yeah. Hi, Cédric. I mean, it's hard to say how pent-up demand will develop. Everyone expected pent-up demand to come, and then we had the war, and we had inflation, and we had less affordable income. I think those are very, very good reasons why pent-up demand has actually been shifted further out. I would still have the confidence that it will come when markets normalize, because it always has, and I don't see any reason why it shouldn't. In terms of the structure of the demand, we have seen two trends. One is people have been actually trading down a little bit on frames, and that may mean the trend to private label. We've also seen that 25% growth in our Boutique efforts where we have those independent and luxury brands.
That segment has remained relatively unaffected and is almost growing according to our plans. You know, the 25%+ growth. We do see through our focus on private label and boutique that prescription glasses growth is picking up in the third quarter, especially in those two segments. We expect that to go up, but below previous levels that we expected for this year. If markets come back to normal, we don't see any reason why the consumer demand should not. In terms of international expansion, yes, we will roll out Switzerland, and that is one of our core markets, and it will see at least the first step into omnichannel.
We see that the latest store that we launched in Sweden is actually
Relatively strong store. We haven't made up our mind fully where to place the 10-20 stores next year. We will wait and see a little bit. Highly likely that they will be in the existing countries, and less likely that we will go into a new country. We will decide the minute we see the markets get back to normal, we will decide on any new country to enter or not with omnichannel.
Okay. Thank you.
You're welcome.
Again, the reminder, if you have a question for our speakers, please dial zero one now on your telephone to enter the queue. The next question is coming from Albrecht von Witzleben at von Witzleben Asset Management. Your line is now open.
Yeah. Thank you for taking my question. I couldn't find in your presentation anything on net cash or net debt at the present time. If you could give us the level again, and the question then would be on cash drain. Looking into the future, where do you see your net debt or your net cash bottoming? When do you expect to be net cash positive again?
Yeah. With a positive cash balance at the end of Q2 of EUR 157 million. At July it was EUR 151. We at the moment see a total negative cash flow for this year of around EUR 35 million. That was in line with expectation. Ending the year probably around EUR 135 million-EUR 140 million in cash available. We are working basically on reducing the cash drain significantly over the next months, especially in 2023. And also reduce the time to free cash flow positive, which was initially planned for 2026, as we communicated before, and to shorten that period substantially.
So far, it's probably too early to say what is the plan, since we are still in budgeting for 2023 at the moment and the following years. By November or December this year, we have a much clearer picture going forward with all the measures we are taking.
Okay, thanks.
There are currently no further questions on the telephone conference.
Okay.
Okay. No new questions coming in. I guess we can give back to the speakers for closing remarks.
Thank you, everybody, for taking the time to attend this earnings call for Q2, and also for your questions. Please don't hesitate if you have follow-up questions to reach out to us over the next weeks. Thank you.
Thank you so much.
Bye-bye.
Yeah. Ladies and gentlemen, this conference has been concluded. You may disconnect.