Good morning, dear ladies and gentlemen, and a warm welcome to the Westwing Group SE Q1 2025 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. It is only possible to state questions in the conference call, so please dial in if you wish to raise a question. The combination to state a question is nine and star on your telephone keypad. Please keep in mind that we can only accept questions from participants who provided their full names and their company information within the registration process. Now, dear ladies and gentlemen, let me turn the floor over to your host, Andreas Hernig .
Good morning, everyone, and thank you for joining us for our earnings call on the first quarter of 2025. My name is Andreas Hernig . 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 our business for Q1 2025, after which Sebastian will share the details of Westwing's financial performance. After our investment highlight summary, we'll be happy to take your questions.
Let's take a look at the current state of Westwing. Overall, in Q1, even without scale effects, we improved our profitability significantly. Our revenue declined by 1% year- over- year due to shifts in our product assortment. We improved our adjusted EBITDA margin by 3 percentage points to 8%, delivering EUR 9 million in Q1. Free cash flow was negative at minus EUR 9 million, primarily due to a seasonal increase in inventories.
Our net working capital remained negative at minus EUR 2 million at the end of Q1. The overall development is fully in line with our guidance that we published in March and which we confirm today. Strategically, we are well on track with the implementation of our three-step value creation plan. Most recently, we successfully launched Sweden in April and continued our store expansion with the opening of a new store-in-store at Panton in Paris. As always, let's have a look at our three-step value creation plan, which we initiated in 2022. We're happy to report that we successfully completed the first two phases: the turnaround and strategy update phase, and the building of a scalable platform. Before we move to the levers of the third phase, let's briefly stop here to see how the levers of the first two phases impacted profitability.
What you see on this slide is the adjusted EBITDA in absolute terms and the margin of the first quarters of the past years. We've excluded the two years impacted by Corona, 2020 and 2021. On the left-hand side, you see the pre-COVID figures. The second bar from the left shows Q1 2022, just before we started implementing our three-step value creation plan. On the far right, you see Q1 2025. Within the roughly three years of our value creation plan, we've improved adjusted EBITDA from minus 2 million to plus 9 million, or from minus 1.5% to plus 8.5% of revenue, a 10 percentage point increase in absence of scale effects from top line.
We believe this is the strongest testament to the success of our strategy and its implementation so far. We promised we would solve for profitability first and at the same time build the foundation for significant growth and further margin increase in the third phase of the value creation plan, which we will look at on the next slides.
As during the last earnings call, I will briefly guide you through our progress on the levers of the third phase, beginning with the latest developments on the Westwing Collection, followed by how we will continue to grow our share in existing markets, our brand positioning, and finally, our expansion strategy.
Starting with the Westwing Collection. The Westwing Collection is our gorgeous sustainable private label product brand, and we continue to be very pleased with its performance. Its share of overall GMV grew further by 11 percentage points year-over-year to an all-time high of 62% in Q1 2025. 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. As we build Europe's premium one-stop destination for home and living, we're creating a unique product assortment for design lovers. Consisting of our own brand, Westwing Collection, and the best third-party design brands, we still have significant room for improvement on both sides.
As outlined in our last earnings call, besides improvements in product assortment, we see offline store expansion as a lever for share gains in existing markets. For 2025, we have set the target of opening a mid-single-digit number of offline stores, and we are well on track. In our last earnings call, we reported that in March we had opened a new store in Leipzig. Since then, we successfully opened a store-in-store at Pantone in Paris. This marks our first store expansion outside of Germany.
Looking forward, lease agreements for Munich, Berlin, and Cologne have already been signed. Before I share an update on our geographic expansion, let me show you some impressions of our new store-in-store at Pantone. Our store-in-store in Paris is located at the prestigious Pantone Haussmann. Pantone is known for its artistic and architectural heritage. It stands as one of France's leading retail destinations for lifestyle, fashion, luxury, and beauty. With its iconic architecture and curated brand selection, Pantone offers the ideal setting to showcase our Westwing Collection to a refined clientele in a prestigious international market. That is what offline stores at Westwing are about. They help us to further strengthen brand presence and positioning.
By providing a holistic shopping experience across the multi-touch customer journey, Westwing will also gain market share. In home and living, many customers combine online and offline experiences in their journey, especially for large furniture purchases. The latter mostly for the touch and feel, and simply because basket sizes in furniture are often very large and require many touch points for conversion.
Let's move on from gaining market share in existing geographies to entering new ones. In the full year 2025, Westwing will launch online sites and apps in five to 10 new countries, and in the midterm, we aim to be present in approximately all European countries. We've already expanded to three new countries so far this year: Luxembourg, Denmark, and just last week to Sweden. On the slide, you can see a list of countries we are preparing for short-term expansion, several of them to still come in 2025.
As outlined in our earnings call in March, geographic expansion allows us to offer our existing global product assortment to customers in the corresponding market segment for design lovers in other countries. This means selling more of the same products. All continental European countries follow the same logic with low marginal costs of serving them, translations supported by AI, onboarding of last-mile delivery providers, local influencer marketing, and performance marketing with attractive returns within a few months. We're looking forward to the next launches. 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. Our revenue declined 1% year-over-year. As expected and communicated in our previous earnings call, the first quarter so far has seen the biggest negative top line impact from the switch to a mostly global and more premium product assortment. In addition, consumer sentiment remained dampened. At segment level, revenue was at plus 1% year-over-year in the DACH segment and minus 4% in the international segment. The difference in segment performance was mainly caused by the changes in the assortment, which had a bigger impact on the international segment. Please note that GMV development in Q1 2025 was at minus 5% year-over-year.
The smaller decline in revenue compared to GMV in the first quarter of 2025 was primarily driven by favorable timing effects from orders placed back in 2024 that were now shipped in Q1. This positive timing effect on revenue is limited to the first quarter of 2025. Let us now take a look at our P&L. Andreas shared with you earlier the development of our adjusted EBITDA margin since the start of our three-step value creation plan, which is why we also included Q1 2022 on this slide. This serves as a reference and shows the main levers of our improvements. I will start with commenting on our Q1 2025 performance compared to the previous year and then add some comments on our development since Q1 2022.
In Q1 2025, we were able to improve all ratios across the P&L compared to the previous year. Both gross margin and fulfillment ratio slightly improved year-over-year, leading to an increase in contribution margin of 0.4 percentage points. Our strong Westwing Collection share gains contributed well but were partially offset by effects like higher container costs. Our marketing ratio improved by 0.9 percentage points year-over-year to -11.8% in Q1 2025. This development was to a large extent driven by reduced investments into brand awareness in Germany compared to last year. Our G&A ratio, which also includes other results, improved by 3 percentage points to -15.5% in Q1 2025. This is a significant improvement year-over-year, showing the positive effects from our 2024 complexity reduction measures.
This led to an adjusted EBIT margin of 4.9% in Q1 2025, a remarkable improvement of 4.3 percentage points year-over-year. G&A in the first quarter of 2025 decreased by 1.6 percentage points. This was primarily due to the fact that old technology assets had been fully depreciated with the successful go live of our SaaS-based tech platform. Overall, our Q1 adjusted EBITDA margin improved by 2.7 percentage points year-over-year to 8.5%. Adjustments in Q1 were minor and included three main effects. Firstly, an adjustment of EUR 0.4 million related to the non-cash related reclassification of sublease income, as stated in our annual report 2024.
Secondly, EUR 0.4 million for subsequent restructuring expenses in connection with our complexity reduction measures of 2024. Thirdly, we had adjustments of EUR 1.9 million for share-based payment obligations, primarily driven by a fair value adjustment through the related liability, reflecting the development of the company's share price. An overview of our adjustments, as well as unadjusted consolidated income statements, can be found in the appendix to this presentation and in our financial report for Q1.
While our adjusted EBITDA is our main profitability KPI, I also want to mention our net result. With a positive net result of EUR 2.5 million in the first quarter of 2025, we are proving that our company is finally turning to real profitability. Now let's compare our 8.5% adjusted EBITDA margin of Q1 2025 with adjusted EBITDA margin of Q1 2022, shortly before we kicked off the transformation. It is an impressive improvement of 10 percentage points within three years in a period of challenging market conditions. We can see two main levers for the turnaround. The first lever is the massive increase in contribution margin of 7 percentage points based on the strong improvements in unit economics as we grew our Westwing Collection business. This improvement clearly allows us to invest more into marketing compared to Q1 2022 as a premium design brand.
The second lever is the significant improvement in G&A ratio of almost 5 percentage points and absence of any scale effect so far. To me, this is strong evidence of the success of our strategy and the excellent work our teams have done over the past three years. Let's move on to profitability on segment level. In Q1, we saw strong improvement in adjusted EBITDA margin in both segments. In the DACH segment, adjusted EBITDA margin improved by 3.7 percentage points to 9.4%. This is the best result our company achieved so far outside of peak COVID times.
The international segment also improved its profitability. With an improvement of 1.3 percentage points, the adjusted EBITDA margin was at 7.4% in Q1 2025. The improvement in profitability shows the positive effects of our three-step value creation plan in both segments. The stronger improvement in the DACH segment compared to the international segment was driven by the reduced investment into brand awareness in Germany compared to last year.
Let us now move from the P&L to our balance sheet and take a look at our net working capital. By the end of Q1 2025, net working capital remained negative at minus EUR 2 million. The year-over-year increase was mainly driven by inventory build-up as well as positive timing effects, which we saw in the previous year. Let me comment on the inventory increase. Net inventories increased by EUR 19 million year-over-year. The increase was driven by two main effects. Firstly, our inventory levels beginning of 2024 were still quite low after the successful reduction of overstock from COVID times.
Secondly, we had several timing effects in the first quarter of 2025 as we introduced a significant number of new Westwing Collection items early in the year, preponed order placements to minimize availability impacts of Chinese New Year, and secured stock for important Westwing Collection sales days, which took place earlier this year compared to last year. We also improved overall availability year-over-year. While we aim to maintain good availability, inventory will decrease towards the end of the year due to the timing effects mentioned before, with a positive impact on net working capital.
On the next slide, you can see CapEx and CapEx ratio for the first quarter of 2025 compared to 2024. CapEx year-over-year decreased by EUR 3 million. However, when comparing Q1 2025 with Q1 2024, it should be noted that in 2024 there was a temporary positive impact on CapEx of EUR 3 million from the change in a warehouse equipment lease. This effect was reversed in Q2 2024. We reported this in the respective periods. With CapEx of EUR 2 million in Q1 2025, which equals a CapEx ratio of 2% of revenue, we kept CapEx at a very healthy level. One important lever for this was the reduced investment in internally developed software, which we reduced by more than 40% year-over-year. This is a result of our complexity reduction and the migration to our new tech platform.
Let us now take a look at our net cash position. In terms of net cash, we are pleased to report a strong net cash balance sheet position of EUR 57 million at the end of March, which is EUR 12 million less compared to the end of 2024. The decrease in our net cash position was mainly due to the increase in inventories, which I explained earlier. We also had a small impact of approximately EUR 2 million in restructuring expenses related to our complexity reduction initiatives. These were recognized in Q4 2024, but the associated cash outflows occurred in Q1 2025.
Overall, free cash flow was at minus EUR 9 million in Q1 2025. These payments amounted to EUR 3 million. This led to a negative free cash flow after these payments of minus EUR 12 million. Our balance sheet remains strong with no debt other than IFRS 16 lease obligations.
On the next slide, I'll comment on the financial guidance for 2025, which we published at the end of March in our last earnings call. Our Q1 performance in terms of both revenue and profitability is in line with our guidance for 2025. In terms of top line, we had, as expected, headwinds from our changes in the assortment, but saw also positive timing effects from 2024 orders in Q1 2025, which we won't see in Q2 2025. The negative effects from the changes in the product assortment are expected to bottom out towards the end of 2025.
In terms of profitability, we expect a typical seasonal development in 2025 with peaks in Q1 and Q4. Please also keep in mind that Q1 2025 has seen only minor ramp-up costs for our expansion. Related ramp-up costs will increase as we open additional stores and launch new countries during the year.
To summarize, we are well on track to deliver on our guidance in terms of revenue and profitability, but also in terms of a clearly positive double-digit free cash flow. This brings me to our midterm outlook, which was shared in our last earnings call. I want to highlight again that our ambition is to return to significant growth in 2026 while continuously improving profitability. Significant growth means a high single to double-digit growth rate driven by expansion measures and the bottoming out of the negative effects of changes in the product assortment towards the end of 2025.
In terms of profitability, we expect scale effects as we grow, as well as positive effects from our improving product assortment. We remain focused on executing our three-step value creation plan with a clear objective of driving continued improvements in profitability and cash flow, unlocking the full value potential of Westwing. 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 are developing the super brand in design 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 in the midterm to 10% plus adjusted EBITDA with a continued strong cash conversion. Sebastian and I are now happy to take your questions.
Thank you very much. Dear ladies and gentlemen, if you would like to state a question, please dial into the conference call and then press nine and the star key to enter the queue. Once your name has been announced, you can ask a question. I repeat, the combination to state a question is nine and the star key. One moment for the first question, please.
The first question comes from Volker Bosse of Baader Bank. Over to you. Hello, good morning. Yes, Volker Bosse from Baader Bank.
Thanks for taking my question and congratulations on the great earnings results. I would like to start with the first question on the overall consumer environment. Reading your press release and hearing your talk, is it right that you sound a bit more cautious on the overall consumer environment? I would have expected from the call we had earlier the year that second half you expect an improvement of the overall market situation. Now, you speak that you do not expect a rebound of consumer demand in total year 2025. If so, does that have any impact on your international expansion plans or your physical store expansion plans? That would be my first question, and then I have two more, but perhaps we go step by step. Thanks.
Good morning, Volker. Thank you for your question, for your first question. Super happy to take it. What's our view on overall consumer sentiment development, and what does it mean for expansion? You mentioned that we previously had said that the second half of 2025 would look brighter in terms of top line than the first one. We continue to believe that, but it's not related to consumer sentiment. Consumer sentiment, there's been in some countries maybe some slight improvements in consumer sentiment, but it's not a game changer, to be honest, what we've been seeing so far or what the data shows.
To be honest, we also have no, with all the uncertainties that we see in the political economic environment, we also can't base our forecast on any improvements that we expect for the second half in terms of consumer sentiment. Why we believe that for Westwing, the second half will be better than the first, and therefore that also then explains our guidance on top line. It's actually for two reasons. The first reason is that last year we changed our product assortment to a mostly global and more premium product assortment.
This has, as Sebastian also said beforehand, this effect that we, this is a negative effect on top line year-over-year right now that will bottom out towards the end of the year. The effect is the strongest in the first half and will be weaker in the second half, that negative effect. The second reason why we believe that the second half of 2025 will be better than the first for Westwing is that we are now expanding into new countries and opening new stores. Stores, new stores in new countries typically have a ramp-up, stores over actually several years, by the way, in countries typically as well. If you launch a country like Sweden, which we now did in May, you hardly don't see any top line in May, June, July, but then over the next quarter, it actually starts to become material also for the overall top line.
Those are the two reasons. The baseline effect from the change in product assortment and the expansion, those effects will kick in starting in the second half of this year and then, of course, become stronger in next year. That is why also we are much more bullish on next year. This is not linked to consumer sentiment, which then also answers the second part of this question of yours. Outlook on consumer sentiment has no impact on our expansion plans.
Yeah, crystal clear, well understood. Thanks for that clarification. I would come to the next question, and this would be related to the strong average order value increase. I think it was 28% or so out of my head. Could you give us here a bit of background and the drivers? I mean, 28% average order value increase is strong figures. What are the structural changes? I think that is not just a one-off. There are some structural drivers behind that. What are your thoughts on that? Thanks.
Volker, thank you for the second question of yours. Indeed, over the past two, three years, we have been seeing, on the one hand, a very strong increase in average order value or basket size. On the other hand, what you also see now, because of the past quarter and also in Q4, is a reduction in active customers.
We have less active customers, slightly less active customers, but a significantly higher basket size. The drivers behind this are actually the drivers that also push for profitability. The main driver is the change in product assortment towards the Westwing Collection because the Westwing Collection has typically higher purchasing prices because it is also more present in furniture than the other assortment that we have. That is the one reason.
The other reason is actually the shift generally towards a more premium and more global product assortment that we have been driving over the past one to two years. Especially last year, we did this big change in product assortment. That also led to smaller basket sizes, unprofitable orders actually not being placed anymore, while we actually shift our focus fully to profitable orders by customers. We have a slightly lower frequency in purchasing. We have a slightly lower active customer base, but the orders that are placed by this customer base are significantly more profitable than they used to be.
Yeah, that's understandable. I mean, the consumers order less tea lights and more sofas, so that's a product mix shift, which then leads to higher orders, I think. Great. That leads me to the last question. You already mentioned in your answer the Westwing Collection share is a phenomenal increase here with above 60% here in Q1. This is, of course, far beyond your midterm target of higher than 50%. Isn't it time to provide here a new guidance, so to say, a new target?
I mean, as you see also the underlying structural trend, which you just have mentioned, I mean, this indicates that potentially the Westwing Collection share will not drop again to around 50% or below 50% or so. I mean, isn't it time to give a new target also here in that regards?
Thank you, Volker, for the third question. It is true that we have not issued a new target after the 50% plus target that we issued. What is also true is that we do not believe that the Westwing Collection share will go below the 50% again. What we also believe is that we not only have potential to grow in the Westwing Collection, which you see now in the share gain, but we also have a lot of potential to grow in the other focus area of our product assortment, and that is third-party design brands.
What has been, so this part is also growing at the moment. What obviously is being pushed out is what I mentioned beforehand, and that is less premium and less profitable products. Typically, those products are rather white label or no-name products, while we are growing our brand product part, which is Westwing Collection branded or third-party design brands. This is our product assortment strategy. While I can understand that you would like to see a new midterm target at the moment because we are improving both of those areas, the third-party design brands and Westwing Collection, we are not issuing a new target.
Obviously, growing Westwing Collection share typically means also growing contribution margin, but you also see in Q1 2025 that it is not always a linear development because you have all sorts of other effects also in there, like for instance, changes in container prices and so forth. To answer your question very bluntly, we are not issuing a new target right now, but we also do not believe that the Westwing Collection share will actually go down significantly again.
Yeah, thank you. Thanks for your answers and your time. All the best. Thanks. I jump back into the queue. Thanks.
Thank you so much, Volker.
Thank you also from my side. At the moment, there are no further questions. A last reminder, please press nine, star now if you are dialed into the conference call and wish to state a question. The combination is nine and the star key. All right, there seem to be no further questions. With that, I am closing the Q&A session and handing the floor back over to Andreas Hernig.
As we have not received any additional questions, we are ending today's earnings call. Thank you for joining and goodbye.