Good morning, ladies and gentlemen, and welcome to the Westwing Group conference call regarding H1 2024 earnings call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. The Q&A session will only take place by telephone. Let me now turn the floor over to your host and CEO, Mr. Hoerning.
Good morning, everyone, and thank you for joining us for our earnings call on the second quarter of 2024. My name is Andreas Hoerning. I'm the CEO of Westwing. I'm hosting the call together with Sebastian Westrich, our CFO. Looking at today's agenda, I will begin by providing key updates on the business, followed by Sebastian, who will be presenting the details of Westwing's financial performance.
After our investment highlight summary, we will be happy to take your questions. Let's take a look at Westwing's current state and the key achievements in a good second quarter of 2024. We were able to increase our GMV by 5% and our revenue by 4% year-over-year in a still very challenging market. Adjusted EBITDA amounted to EUR 4 million or 4% of revenue.
This result was driven by an improved contribution margin and sustained investments in brand awareness. Our free cash flow of the second quarter amounted to EUR -7 million. It was negative due to timing of payments and seasonal inventory effects. Our net cash position at the end of quarter amounted to EUR 72 million. Beyond current financials, we made good progress on our three-step plan to unlock Westwing's full value potentials.
Firstly, we completed the switch to a mostly global product assortment and the related reorganizations in Italy and Spain. As a next step, we will now roll this out to Central and Eastern Europe. Secondly, the migration from our proprietary technology ecosystem to a mostly software-as-a-service or SaaS-based platform reached important milestones. The new platform was successfully launched in Portugal and the Netherlands.
Thirdly, we further increased our Westwing Collection share to an all-time high of 53% of Group GMV in the second quarter. Fourthly, we continued to strengthen our premium brand positioning and are preparing the expansion to more new countries next year. Beyond that, we also made progress in achieving our ambitious sustainability targets, for example, by increasing the share of sustainable products and packaging further for our Westwing Collection.
Last but not least, the overall development is fully in line with our guidance that we published in March and which we confirm today. In our full year 2023 earnings call, we presented our three-step plan to unlock the full value potential. We are currently in the second stage, building a lean and scalable platform.
I will now provide an update on the levers we're working on: complexity reduction, Westwing Collection share increase, One Westwing commercial model, stronger premium brand positioning, and country expansion. Let me start with a follow-up on measures we announced in our full year 2023 earnings call, and that you can see on the current slide, including already announced information on impact in 2024 and return on investment on the right-hand side.
I'll get back to this in a minute. The move to a largely software-as-a-service or SaaS-based technology platform, with the aim of less complexity and completing the One Westwing commercial model, is progressing as planned. We reached important milestones over the past months. We went live in the first two countries, Portugal and the Netherlands, and we're able to prove the concept of the new platform.
We are in the process of migrating all other existing country web shops over the next quarters. Next, the consolidation of our logistics center footprint is complete, with the closure of regional warehouses in Italy, Spain and Poland. All countries are now being served from our European logistics center in Poland. Lastly, the switch to a mostly global product assortment and the related restructuring of the Italian and Spanish corporate functions was also completed.
These measures reduced the complexity of our setup massively and support our premium brand positioning. Please note that, as explained in our last earnings calls, the switch to a mostly global product assortment in Italy and Spain has a short to mid-term detrimental top-line impact. We already saw the effect in the first half of 2024 and expect it to continue for the remainder of the year.
The reason for this is an inevitable loss of some of our existing customers in both markets as we concentrate on our core customer segment, design lovers, with our mostly global and more premium assortment and brand positioning. Overall, we are very happy with the progress we have made so far. We will now use the momentum and continue with the next step of complexity reduction that also supports the completion of our One Westwing commercial model and a stronger premium brand positioning.
Based on the learnings and experiences we made during the restructuring in Italy and Spain, we will introduce a mostly global product assortment also in Central and Eastern Europe. In addition, we double down on our efforts to strengthen our premium brand positioning with the premiumization of our product assortment on a global level. This means that less premium and lower-margin products will be phased out....
Both measures will likely have a negative top-line impact in the short to medium term, but will strengthen the positioning of Westwing. The expected overall top-line impact of all complexity reduction measures remains in line with the previously communicated range of a low to mid-single digit percentage of full-year 2024 group revenue, with the main impact expected in the second half of the year.
Both measures, the switch to a mostly global product offering in CEE and the premiumization of our global product assortment, include a restructuring of related business functions in Poland and also in our headquarters in Munich, which will result in G&A cost savings. Despite the increased scale of the restructuring, we do not expect to utilize the full restructuring budget of EUR 10-15 million that we estimated in March.
Our latest forecast of total one-off cash costs for all initiated complexity reduction measures is EUR 10-12 million in 2024. The additional complexity reduction measures are part of step 2 in our 3-step plan to unlock the full value potential of Westwing. They require us to sacrifice top line in 2024, and also 2025, that no longer matches our positioning, but they will make us stronger mid- to long-term, allowing us to concentrate on our target audience, design lovers, and ultimately maximize profitability and cash generation.
Let's have a look at some other measures we are taking to build a scalable platform. Q2 2024 was again a quarter in which we were very pleased with the performance of our Westwing Collection, which is our gorgeous, sustainable, private label product brand.
Its share of group GMV grew further by 7 percentage points year-over-year, to an all-time high of 53%. This strong development supports our top line as well as profitability, since the products are very desirable and they allow us to achieve a higher contribution margin compared to third-party products.
One caveat to the aforementioned, we didn't see the full effect of the share increase in the gross margin in Q2, due to current price pressure on third-party products and an increase in container prices. We don't expect third-party prices to go down further, but in any case, we concentrate on increasing our Westwing Collection share further to improve gross margin.
The next update concerns our levers, brand positioning and country expansion. As mentioned a few minutes ago, we successfully launched our webshop in Portugal, which was Westwing's first new market entry since the year 2014.
The launch served as a pilot for our new, mostly SaaS-based technology platform, and also serves as a pilot for launching more new country websites in 2025 to leverage our business model internationally. The new technology platform also comes with a newly designed website and app, tailor-made for design lovers.
On the current slide, you can see the Dutch website of ours, which was well received by our customers when we introduced it two weeks ago. This new design brings us another step closer to becoming Europe's leading premium one-stop destination in home and living.
Also serving the efforts to strengthen our premium brand positioning was our collaboration we did in Q2. During the European Soccer Championship in Germany, we showcased the house of Ilkay Gündoğan and his wife. Ilkay Gündoğan is the captain of the German national football team.
The collaboration was a great opportunity for us to capture the zeitgeist of the dynamic atmosphere and attract new customer segments. Overall, the collaboration was received very positively across social media, with a massive 40 million impressions result. Let me give you an update on another topic that sits at the core of our strategic development: sustainability. On products, we increased the use of sustainable materials.
For the Westwing Collection, 60% of products now feature our We Care label, meaning the products and/or their input materials are made according to referenceable and credible sustainability standards. 76% of our packaging material is based on recycled contents as of today. We also improved on sourcing and social responsibility throughout our supply chain. We now have 82% of our European Westwing Collection suppliers assessed for social aspects.
Beyond products, packaging, and social responsibility, we will continue to work towards achieving our long-term carbon emission reduction targets that were validated by the Science Based Targets Initiative, SBTI. I now hand over to Sebastian for details on our financial performance.
Thank you, Andreas, and good morning, everyone. I'm Sebastian Westrich, the CFO of Westwing. Let me start with details on our top line. We achieved a revenue growth of 4% and a GMV growth of 5% in the second quarter of the year. Given the continued weak consumer sentiment across Europe, the still weak home and living market, and the negative impact on top line from the reorganizations in Italy and Spain that Andreas mentioned before, we are very pleased with this result.
If we now take a closer look at the revenue development by segments, you can see that the DACH segment grew by 8%, clearly outperforming the market. On the other hand, the international segment showed a slight revenue decline of -1% year-over-year.... The weaker growth compared to the DACH segment is caused by Italy and Spain.
In both markets, we can see the negative top-line impact from our complexity reduction measures and the switch to a mostly global product assortment. This is necessary for step two of our three-step plan, aiming at building a lean and scalable platform and a clear premium brand positioning. Please note that all other countries of the international segment are growing. Looking at our P&L, we see improvements across most of the P&L lines.
In Q2, our gross margin increased by 0.4 percentage points compared to the previous year. This development was driven by strong Westwing Collection share gains, but as Andreas already mentioned, the positive margin effect of the Westwing Collection share increase was partially offset by current pricing pressure on third-party products, as well as increased container prices on the spot market. As a result, we achieved a gross margin of 50.6%.
We were also able to improve our fulfillment ratio by 1.4 percentage points in Q2 2024, compared to the previous year, mainly due to efficiency gains, but also due to an improvement in freight ratio. All this led to a significant year-over-year improvement in contribution margin of 1.8 percentage points in the second quarter of 2024. We are very proud of this development as it proves the strength of our commercial model.
Moving down the P&L, you can see that our marketing ratio increased by 3.2 percentage points in the second quarter of 2024 compared to the previous year. This was mainly driven by continued investment in our brand awareness and premium brand positioning in Germany. Looking further down, we made slight improvements in our G&A ratio, which also includes other results. The ratio improved by 0.2 percentage points.
It is worth mentioning that G&A ratio includes a negative effect of -0.6 percentage points from our complexity reduction measure of moving to a mostly software-as-a-service-based technology platform. As a consequence, we had to shorten the lifetime of our in-house developed tech assets, which leads to temporarily higher G&A. This effect will remain until the end of the year.
This is also the driver for the increase in G&A compared to 2023. Across fulfillment, marketing, and G&A, a total of 0.8 percentage points in G&A is driven by the shortened useful life of internally developed tech assets. All this led to an adjusted EBITDA margin of 3.7% in Q2 2024, a decrease of -0.07 percentage points year-over-year. This development is fully in line with our expectation and our 2024 guidance.
Please note that in Q2 2024, we had one-time restructuring expenses of EUR 0.5 million related to our complexity reduction measures. Due to their non-recurring nature, we adjusted those expenses in our management P&L. The development of adjustments over time, as well as the unadjusted EBITDA, EBIT, and earnings before tax, can be found in the appendix to this presentation.
Looking at the profitability of our segments, we are pleased to report a positive adjusted EBITDA margin for both segments in Q2 2024. However, the DACH segment profitability declined year-over-year. The reason for this is that our brand awareness investment was focused on Germany, our biggest market. Therefore, the full brand investment was allocated to this segment.
The 2.1 percentage point improvement in the international segment in Q2 was mainly driven by a strong increase in Westwing Collection share, achieving an adjusted EBITDA margin of 2.5% in the second quarter of the year, despite slight top-line declines. Let us now take a look at our net working capital. By the end of Q2 2024, net working capital remained clearly negative at -EUR 11 million.
This is an improvement of EUR 6 million year-over-year, mainly driven by increased trade payables and decreased prepayments on inventories. As previous year's numbers include trade financing of EUR 7 million, the like-for-like improvement compared to 2023 amounted to EUR 13 million.
It is also true, however, that net working capital increased quarter-over-quarter this year, with a negative impact on free cash flow of -EUR 8 million in Q2 2024. There are two main reasons for this. The first is a EUR 7 million decrease in payables compared to Q1 2024, which was impacted by timing effects from Q1, and which we already pointed out in the last earnings call, as well as a typical seasonal development.
The second reason is a seasonal increase in inventory of EUR 2 million compared to Q1. If you compare this year's net working capital and inventory development with 2023, please keep in mind that throughout 2023, we were reducing excess inventory and did not see a typical seasonal net working capital development.
This is also why we expect increasing inventory levels towards Q3 to prepare for the strong Q4 season and to optimize stock inbounding capacities in our logistics center. On the next slide, you can see CapEx and CapEx ratio for the first half of the year compared to the previous year. To explain the CapEx development to you in the best possible way, let me briefly repeat our comments on the CapEx ratio in the first quarter of 2024.
In the Q1 earnings call, we showed a spike in CapEx as percentage of revenue, up from 1.9% in Q1 2023 to 4.9% in Q1 2024. This increase was due to a change in the lease for some of the equipment in our logistics center as we restructured the lease for the warehouse.
This led to CapEx of EUR 3 million for equipment that was previously leased. In Q2 2024, we successfully reversed this effect with EUR 3 million cash inflow, as we resumed the lease of the warehouse equipment. Looking at the CapEx ratio for the first half of 2024, this effect is fully offset, and the CapEx ratio, expressed as a percentage of revenue, is well in line with last year at around 2%. Free cash flow in the second quarter of 2024 was -EUR 7 million.
This development was mainly driven by the change in net working capital, which accounted for -EUR 8 million in Q2, and which I explained on the second last slide with the two main drivers of timing and seasonality.
Additional effects on free cash flow in Q2 were -EUR 3 million for restructuring expenses as part of the complexity reduction measures, as well as the previously mentioned +EUR 3 million from the resumed sale and lease back of warehouse assets. Free cash flow for the first six months of 2024 was -EUR 3 million. This is EUR 13 million.
This is EUR 13 million lower than last year. This change was mainly due to the net loss for the period, the prepayment, the payments for restructuring costs, and changes in working capital. The latter was mainly due to the seasonal buildup of inventories in 2024, while the change in net working capital in the comparative period in 2023 benefited from the reduction of excess inventories.
As mentioned in our previous calls, we expect free cash flow for the full year 2024 to be breakeven, considering all one-off cash costs for the complexity reduction measures. We are pleased to report a strong net cash balance sheet position of EUR 72 million per end of June, which is EUR 3 million above previous year's level.
This gives the company strong downside protection, as well as strategic optionality and confidence to focus on our long-term strategy in a still challenging market. In addition to the already explained free cash flow of -EUR 7 million, we had lease payments of EUR 3 million, mainly for offices and warehouses, which are shown in the financing cash flow according to IFRS standards.
On the last slide of the financial update, I will comment on the financial guidance for 2024, which we published at the end of March and which we confirm today. In terms of top line, we had a successful first half of 2024, with a 5% revenue growth year-over-year. However, we remain cautious regarding top line development in the second half of the year, and currently do not expect that our growth rates can be maintained at these levels.
The two main reasons are, first, the weak economic outlook, with business and consumer indicators deteriorating again after initial signs of improvement, also driven by ongoing risks from the war in the Ukraine and the conflict in Middle East.
And second, the impact of switching from local to global and towards a more premium assortment in many countries, which we expect to be stronger in the second half of the year. This is why we are keeping our guidance for top line at -3% to +4% growth for the full year of 2024. In terms of profitability, the development so far has been in line with our guidance, which is why we also confirm it for the full year.
As a reminder, our business is seasonal in the sense that Q1 and Q4 typically produce the strongest results, both on top line and on profitability. Overall, I second what Andreas said earlier: We are well on track with our three-step plan to unlock the full value potential of Westwing, not only in terms of strategy and operations, but also in terms of financials.
Our focus in 2024 and 2025 is to build a less complex and much leaner platform that will enable us to scale with operating leverage. While the complexity reduction and premiumization will negatively impact top-line growth in the short term, we'll benefit from it in the mid to long term.
As communicated in previous earnings calls, our long-term target is to build a highly successful business with an adjusted EBITDA margin of 10%-15% and strong cash conversion. With that, I'm handing over to Andreas to conclude our presentation with our investment highlights.
Thank you, Sebastian. Let me briefly recap the investment highlights. First, we have a unique, relevant customer value proposition through the specific assortment and the way we serve our customers. Second, the market potential is huge, especially in our existing geographies, but also beyond.
Third, we have a strong brand with high loyalty and true potential to grow further. Fourth, we have high and increasing margins, as well as operating leverage while we scale. Fifth, we have a great balance sheet with a strong cash position and no debt, strong net working capital, and low CapEx.
All of this will lead us to 10%-15% adjusted EBITDA, with a continued strong cash conversion. Sebastian and I are now happy to take your questions. Ladies and gentlemen, if you would like to ask a question, please press nine followed by the star key on your telephone keypad.
... If you wish to cancel or withdraw your question, please press nine followed by the star key again. So please press star now to stay to ask your question. Thank you. Ladies and gentlemen, if you have any additional questions, please press nine followed by the star key now. Thank you. At the moment, there seems to be no questions. Now I received a question from Mark Schussler from NuWays.
Yeah, thanks a lot for taking my question. I was just curious to hear a little bit more about your marketing investments, especially your investments in brand awareness in the DACH region, and sort of what's your strategy going forward above and beyond next quarter, maybe even into the next year? As I think the marketing investments were quite elevated this quarter as well. But, yeah, maybe you could just give a little bit of color on that. Thanks.
Thank you, Mark, for your question. This is Andreas speaking. So, question on marketing investments. So far, we're actually very happy with the investments we have made into brand awareness. And we see a positive impact on the brand awareness, so in the numbers that we measure and brand perception, which are metrics that we review regularly.
So these are metrics like, customers are asked, "Is this brand viewed as a premium brand, et cetera?" So it also helps our positioning. You asked about how the marketing ratio will develop, and I would say it is likely to assume that our marketing ratio in the second half of the year will be on a similar level as in the first half of the year.
Q3 might even be a little bit elevated due to the seasonally lower top line and the timing effect. Brand investments to kick off Christmas and Black Friday season might already start in September, but top line would then only show in the fourth quarter. Does that answer your question, Mark?
Yeah, perfect. Thanks a lot.
Thank you.