Morning, ladies and gentlemen, and a warm welcome to the Westwing Group SE H1 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. Please note that it is only possible to state questions verbally in the conference call, so please dial in if you wish to raise a question. The combination to state a question and to enter the queue is nine 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 Hoerning.
Good morning, everyone, and thank you for joining us for our earnings call on the second quarter of 2025. 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 our business for the second quarter of 2025, after which Sebastian will share the details of Westwing's financial performance. After our investment highlights summary, we will be happy to take your questions. Let's take a look at the current state of Westwing. In Q2, we continued to improve profitability significantly despite a negative top line that developed in line with our expectations. Our GMV declined by 3.6% year-over-year due to a more premium and smaller product assortment according to our strategy. We do, however, see a positive development in current trading.
June GMV grew slightly, and this upward trend is strengthening. Hence, we continue to expect a positive second half of 2025. Despite negative scale effects, we improved our adjusted EBITDA by 61% to EUR 6 million at an EBITDA margin of 6.3%. This marks an increase of 2.6 percentage points year-over-year. Free cash flow was negative at EUR -5 million in Q2, and we ended the second quarter with a net cash position of EUR 15 million. For the full year 2025, we expect free cash flow to be double-digit positive. Strategically, we are well on track with the implementation of our three-step value creation plan. Our private label product brand, the Westwing Collection, grew 19% year-over-year, which resulted in an all-time high GMV share of 65%.
As part of our geographic expansion, we already launched eight new countries this year, and we continued our store expansion with the recent opening of two standalone stores, one in Munich and one in Berlin. The operational progress is fully in line with our targets, and we can also confirm our financial guidance for 2025, as well as our ambition for 2026, which is the return to a high single to double-digit growth at further improved profitability. As always, let's have a look at our three-step value creation plan, which we initiated in 2022. In terms of levers, we successfully completed the first two phases: the turnaround and strategy update phase, and the building of a scalable platform phase. 2025 marks a transition year for us, where we are focusing on the key growth levers of the third phase in order to be able to scale with operating leverage.
As in the last earnings call, let me now briefly guide you through our progress across the key levers of the third phase of our plan, beginning with the latest developments of the Westwing Collection, then moving on to how we are strengthening our market share in existing geographies, pushing the premium positioning of our brand, and finally, the progress we've made in terms of international expansion. 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. It again delivered strong growth of 19% year-over-year, resulting in an all-time high GMV share of 65%. 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 are well on track to open seven offline stores. In our last earnings call, we told you that in April, we opened a store-in-store at the prestigious department store Printemps in Paris. This marked our first store expansion outside of Germany. Since then, we successfully opened two more standalone stores located in Munich and Berlin.
Looking ahead, we will open a standalone store in Cologne and a store-in-store each in Düsseldorf and Copenhagen in the current third quarter of 2025. Before I share an update on our geographic expansion, let me show you some impressions of our new standalone stores in Munich and Berlin. In Munich, which you see on the left, we opened the doors to our Westwing warm-up store. This is more than just a pop-up. It's a warm-up for what's to come. That is, our first permanent Westwing store in Munich set to open next year in the heart of the city. In the meantime, our warm-up store already offers design lovers the chance to experience our brand and products in real life. Munich plays a key role for us as a brand, not only because of its strong demographics and retail relevance, but also because the Westwing journey started here.
As many of our central teams are located in Munich, we generate customer experience learnings even faster than before. On top, we are also very proud to now have a permanent standalone store in Berlin. You can see some impressions on the right-hand side of the slide. It is located on the iconic Kurfürstendamm, bringing Westwing to life in the heart of Berlin. Overall, offline stores 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. Next topic.
In order to further increase our premium brand positioning, we launched an exclusive collaboration with the visionary artist and designer Harry Nuriev, who is the Creative Director and founder of Crosby Studios based in Paris. The public was able to discover this exclusive collection at a showroom in Paris for two weeks in June, and we received an impressive media response on the collaboration. On the next slide, you can see some impressions of our showroom. The exclusive collection combines Harry Nourius's experimental design approach with Westwing's curated aesthetic and passion for inspiring design-led living. It features a curated selection of pieces across furniture, textiles, decor, and tabletop that is available as a limited edition to our customers. Overall, this collaboration reflects our broader goal of creating emotionally resonant experiences and redefining what beautiful living means today and tomorrow.
Let's move on from gaining market share in existing geographies and increasing our premium brand positioning to entering new markets. At the beginning of the year, we announced our plan to open five to ten new countries in 2025. We've already expanded to eight new countries so far: Luxembourg, Denmark, Sweden, Croatia, Finland, Slovenia, and very recently, Norway and Hungary. At the moment, we are preparing for two more country launches this year: Romania and Greece. As outlined in our last earnings call, 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 artificial intelligence, onboarding of last-mile delivery providers, local influencer marketing, and performance marketing with attractive returns within a few months. Therefore, in the midterm, we aim to be present in approximately all European countries. I now hand over to Sebastian for details on our financial performance.
Thank you, Andreas, and good morning, everyone. I am Sebastian Westrich, the CFO of Westwing. Let me start with details on our top line. Our GMV declined 4% year-over-year, while revenue was at -6% year-over-year, with the changes to our product assortment being the key driver for this development. The difference in GMV and revenue development is due to a sales event at the end of June, which meant that some orders were delivered in July and therefore were not recognized as revenue in Q2. As Andreas mentioned in the beginning, we see a positive development in current trading, and June GMV grew slightly, and this upward trend strengthened in July. This underpins our confidence that top-line performance will improve in the second half of the year. Now, let me also briefly comment on Q2 top-line development on segment level.
DACH segments saw a revenue decline of 9%, the international segment's revenue declined by 2%. There are three major reasons for this difference in top-line development. Firstly, we began introducing a largely global and more premium product assortment and related restructuring of our local business functions in the international segment as early as Q2 2024, while the DACH segment remained unchanged during that period. As a result, last year's baseline for DACH is stronger than that of the international segment, which is one reason for the difference in year-over-year development. Secondly, the international segment benefited from additional revenue generated by our geographic expansion, with six new countries launched in the first half of 2025. Thirdly, overall market demand in the DACH segment seemed to be weaker than in the international segment, especially in April and May. Now, let me continue with an overview of our profitability development.
In Q2, we improved our adjusted EBITDA by EUR 2 million-EUR 6 million, which represents an increase of 61%. To show profitability development on an unadjusted basis after D&A, we also included the EBITDA development on the right side of the slide. It is also clearly positive at EUR 2 million and showed an even greater increase of EUR 5 million year-over-year. The higher increase compared to adjusted EBITDA is primarily driven by lower D&A expenses as all technology assets have been fully depreciated with a successful go-live of our SaaS-based tech platform at the end of 2024, and we were also able to reduce lease payments. Let us now take a look at our P&L margins and focus on the development in the second quarter of 2025, which you can see here on the right-hand side.
I am pleased to report that we improved our P&L margin structure in almost all areas, leading to a strong improvement in adjusted EBITDA margin by 2.6 percentage points year-over-year to 6.3%. Our gross margin improved by 2.1 percentage points year-over-year, mainly due to strong Westwing Collection share gains. The fulfillment ratio improved by 0.9 percentage points year-over-year, leading to an increase in contribution margin of 2.9 percentage points in Q2 to 33.5%, a really strong result. Regarding contribution margin, I would like to highlight that the corresponding contribution profit per order continued to increase significantly by 40% year-over-year. Our marketing ratio increased by 0.6 percentage points year-over-year to minus 13.2%. Reasons for the increase include investments into country expansion, as well as brand and store investments.
Our G&A ratio, which also includes other results, improved by 1.5 percentage points to minus 18%, reflecting the positive effects from our 2024 complexity reduction measures. This led to an adjusted EBITDA margin of 2.3% in Q2, up 3.8 percentage points year-over-year. D&A decreased by 1.2 percentage points year-over-year, primarily driven by the full depreciation of legacy tech assets, which I mentioned on the previous slide. Overall, our Q2 adjusted EBITDA margin improved by 2.6 percentage points year-over-year to 6.3%. I want to highlight that we realized these improvements despite the decline in revenue, which means that we overcompensated for negative scale effects. 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 million in the second quarter and now three positive quarters in a row, we are proving that our company is turning to real profitability. As expected, the adjustments made in Q2 were minor. An overview of these adjustments, as well as the unadjusted consolidated income statements, can be found in the appendix to this presentation and in our financial half-year report. Let's move on to profitability on segment level. In Q2, which is displayed on the right side of the slide, we saw a strong improvement in adjusted EBITDA margin in both segments. In the DACH segment, adjusted EBITDA margin improved by 2.1 percentage points year-over-year to 6.5%. The international segment improved its adjusted EBITDA margin by 3.6% year-over-year to 6.1%. The improvement in profitability reflects the successful implementation of our three-step value creation plan across both segments.
Those of you who listened to our last earnings call or saw our Q1 2025 results presentation might remember our chart that showed the positive development of our adjusted EBITDA margin since 2022, with an improvement of 10% since we started our three-step value creation plan. Today, I would like to highlight another metric that clearly shows the tangible and very positive outcome of our business transformation. This is the development of earnings per share on a last 12-month basis. We show earnings per share both on an adjusted and unadjusted basis. Adjustments include the reported adjustments of restructuring expenses, as well as impact from share-based payment obligations. The chart shows a clearly positive trend since Q2 2024. In Q2 2025, we were able to report for the first time outside of peak COVID times positive earnings per share on an unadjusted last 12-month basis.
In addition to three consecutive quarters of positive net results, the impact of our substantial share buyback at the end of 2024 is also clearly visible. As a remark, the average number of shares in circulation, which is displayed on this slide, is the number of issued shares minus our treasury shares. 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 our value creation plan. That's exactly what we are delivering. Let us now move from profitability to our balance sheet and take a look at our net working capital. By the end of Q2, net working capital was at EUR 5 million.
The year-over-year increase was mainly driven by the reduction in trade payables following the inventory increase, especially for new product launches during the first half of the year that we already mentioned in our last earnings call. Inventory is expected to decline towards the end of the year, positively impacting both net working capital and cash flow. As a result, we anticipate net working capital to return to negative territory in the second half of 2025. On the next slide, you see CapEx and CapEx ratio for the first half of the year compared to the same period in 2024. CapEx year-over-year remained flat at EUR 4 million. However, when comparing the first half of 2025 with the first half of 2024, we see a shift between investments into property, plant, and equipment, and intangible assets.
This is mainly due to the fact that we were investing in several new stores in the first half of 2025, with only one store opening in the same period of 2024. At the same time, we were able to reduce CapEx for internally developed tech assets as we moved to our SaaS-based tech platform. With CapEx of EUR 4 million in the first half of 2025, which equals a CapEx ratio of 2% of revenue, we kept CapEx at a very healthy level. 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 50 million at the end of June, which is EUR 7 million less compared to the end of March.
Overall, free cash flow was at EUR -5 million in Q2, with approximately €2 million related to the exercise of employee stock options and an impact of EUR -8 million from changes in net working capital, which I mentioned earlier. With the lease payments of EUR 3 million, we had a negative free cash flow after lease payments of EUR -7 million. Our balance sheet remains strong with no debt other than the IFRS 16 lease obligations. As Andreas mentioned earlier, we are confident to enable double-digit free cash flow for the full year 2025, driven by both profitability and net working capital. Given our seasonality, Q4 is expected to be the strongest quarter. On the next slide, I'll comment on the financial guidance for 2025, which we published at the end of March.
Our performance in the second quarter and first half of 2025, in terms of both revenue and profitability, is fully in line with our guidance. In terms of top line, we had, as expected, headwinds from our changes in the product assortment. These negative effects are expected to ease towards the end of 2025. We already saw a slight drop in June, and this upward trend strengthened in July. In terms of profitability, we expect a typical seasonal development in 2025 with peaks in Q1 and Q4. Please also keep in mind that the first half of the year has seen only minor ramp-up costs for expansion. Related ramp-up costs will increase as we open additional stores and scale up the new countries in the second half.
To summarize, we are well on track to deliver on our 2025 guidance in terms of revenue and profitability, and also in terms of a clearly positive double-digit free cash flow. This brings me to our midterm outlook, which was shared for the first time in our full year 2024 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 our expansion initiatives and the anticipated easing of negative impacts from the product assortment changes 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 goal of driving sustained improvement in profitability and cash flow.
Combined with our return to meaningful growth, this positions us to unlock 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 our 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 a 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%+ 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 are dialed into the conference call, please press 9 and the star key to raise a question. I repeat, the combination is nine and star. There are a couple of questions incoming already. The first question is from Volker Bosse of Baader Bank. One moment, please. Over to you, please. Go ahead.
Yeah, hello, good morning everybody. Here's Volker speaking from Baader Bank. First, congratulations to the great earnings improvements. However, my question is more on the sales trend. I mean, in the DACH region, as well as in active customers, there was even a sharper decline in the second quarter than the first quarter, although the German online market was quite healthy up according to BEVH figures. Could you explain why you guided for a decline in sales and customers, but why there was even an acceleration in decline in Q2 versus Q1? That would be my first question. The second question, you had some openings already. Munich is still too early, but Leipzig, Stuttgart, you are some weeks, some months live now. Are there any initial learnings from the store openings which influence your openings which are to come? The third question would be on current trading.
You said something about July, and that makes you positive on the second half. Perhaps for clarification, what drives your confidence to improve sales in the second half? What did you say on July again, please? Thanks.
Thank you, Volker, for your question, and thank you for your feedback on the performance. Sebastian will be taking your questions on the sales in DACH and active customers, as well as on the current trading. Before I hand over to him, let me briefly comment on your question on store openings because you were asking about the learnings from the recent store openings. The learnings, to be honest, so far are simply that customers actually really enjoy this additional offering that we provide to them because interacting with our brand physically in the stores, experiencing the products, this is something that we continue to see that it delights our customers. In terms of numbers, it is too early at this point in time to really comment on this.
The openings of this year, they actually will provide over the next, let's say, 6 to 12 to 18 months for real learnings for us. It is on a slightly higher scale than what we had beforehand with only Hamburg and Stuttgart. Over the next 6 to 12 to 18 months, we will really generate learnings from this, and we will also report on the learnings in our earnings calls as we have them, and then we share them with you.
Sorry to follow up on that. You said customers are delighted. Why do you say so? Do you see there's more website traffic than in the catchment area of the store? Do you have this granularity to track the awareness success of customers in the area? Why do you say so? It's just, yeah, please.
Yes, we also track all sorts of numbers on store sales. Obviously, the ones that are placed in the store that we generate directly there, also the ones that are generated via scanning of QR codes. We also track the sales in the catchment area. In the very short term, let's say a few weeks, it is very difficult to really single out the effect of a store opening in a catchment area. There are so many other effects. For instance, the weather has a very strong effect on sales, online sales. We saw this over the past few weeks. We actually had bad weather in Germany, and now it's improving. You can see these things in online sales. It is very difficult to single this out on a basis of a few weeks.
What we have seen in the past and continue to see is a general uplift in the catchment area for the cities where we actually have stores. Hamburg and Stuttgart, this has been since the beginning, has been prominent. This is an additional source of confidence for us that stores make sense and that customers actually react very positively to that. That is the brand effect, if you like, of the stores. On the new ones, it's too early to tell also on that, but we will report on it as soon as the numbers show that we actually have meaningful results there.
Thank you.
With that, I'm handing over to Sebastian for DACH stock and current trading.
Hi Volker, thanks for your questions. The first on the sales trend in DACH and overall active customer development. Maybe first starting with the active customer development. The trend that we see is due to the same reasons that we shared during the last earnings call. As we started to change our product assortment last year, moving to a mostly global, more premium, also smaller product assortment, we do not target certain customer groups anymore. This is why the number of active customers declines. As we rolled out the changes in the assortment, starting in Q2 2024 with Italy and Spain, and later moving on to CEE, and then also making changes to the remaining countries, you see this trend continuing so far. This, of course, also has or leads to the negative implications on top line that we are also commenting on our calls.
As I look on the DACH segment, as I mentioned already during the earnings call, the baseline 2024 for DACH was quite strong as we did not have any changes to the product assortment back then. While the international segment already faced some changes, and we also restructured our local business in Italy and Spain at that time. The baseline for the DACH segment in Q2 is stronger compared to international. Your comment on the overall market development, e-commerce market development in Germany, actually, we do not really see this. We see that competitors also report negative revenue development for the German market in home and living. We know that market searches in Germany have declined significantly in Q2. It is also a clear sign that at least the home and living sector did not pick up in Q2.
That is why we actually expect that weaker consumer sentiment had also an additional negative impact on our DACH segment performance in Q2 year-over-year. This would be my answer to your first question, Volker. Do we have any additional questions on this? Otherwise, I would continue with the current trading. No, please go on to current trading. Thank you very much. With regard to the question on current trading and what makes us confident, as mentioned, we see an upward trend since June. July also was growing. We expect that towards the end of the year, the negative impact from our changes in the assortment will ease. Growth year-over-year becomes easier. Andreas reported on our expansion measures, both meaning share gains in existing markets, but also the expansion to new geographies.
The impact of our expansion measures will become bigger in the second half of the year. Overall, we expect that with our strategy, this will be a recovery of top line in the second half. Recovery of top line of the second half means the minus is getting smaller, so to say, or do you expect it to turn into positive sales growth territories again? We expect that in the second half of the year, we should get into a positive territory. Our guidance is minus 4% to plus 2%. We do not expect at the moment a super, super strong second half of the year. We are aligned with guidance, and we expect that this will lead to positive development in the second half.
Okay, understood. Very well. Thank you very much, and all the best. Thanks.
Thank you, Volker.
Thank you very much. The next question is from Henry Wendisch of NuWays. Over to you.
Hi, this is Henry from NuWays, and thanks for taking my question. First of all, congrats on the very strong margin improvement. It's nice to see sort of that if you even with declining sales, operating leverage can still be pursued or performed. This is quite an astonishing thing to see here. This brings me directly to my question regarding maybe more on a global level, your free cash flow. You say you're enabling double-digit positive free cash flow for this year, and with growth kicking in next year, we have operating leverage more, and then also very high, or probably higher positive free cash flows in 2026. This brings us to a sort of sweet and sour situation because I kind of find it hard to find options for you to what to do with the free cash flow.
In my view, yeah, debt repayment is not an issue, obviously. The buyback, you are at 10% old shares. You cannot do buyback dividends. I don't see this coming as well, giving the negative retained earnings still. CapEx is not something that is in your business model, something you need to do. Maybe how can we think of what you're going to do with free cash flows in the future if you're now returning to free cash flows on a higher level?
Thank you, Henry. Thanks for the feedback. Handing over to Sebastian for your question on free cash flow in the future and what to do with it.
Hi, Henry. Thanks for your question. It's, of course, an important question and, of course, also an important topic for us. It's a bit early to comment already on this, but we have to also come up with a good strategy for capital allocation going forward. We will comment on this later in time.
Okay, thanks. That's finished already from my side. I think operational wise is all clear.
Thank you, Henry.
Thank you very much. At the moment, there are no further questions in the queue. Last call, please press nine and star if you wish to raise a question. A couple more moments. There is a question from Benedikt Olesch of WertArt. Over to you, Benedikt.
Yes, hello. Also from my side, very nice results. Thank you so much. Maybe you can also expand on the geographic expansion a little bit more. Where do you see the cost increases coming from in the second half of the year? What are you seeing at the moment from these expansions? I mean, it's already a little bit early, but do you have any recognitions from these expansions into new markets that you've seen? Thank you.
Thanks a lot, Benedikt. Thanks for the feedback. Handing over to Sebastian.
Hi, Benedict. Thanks for your question. With regard to the cost related to our geographic expansion, the main cost relates to marketing expenses. As we always said, we will have a very lean approach to country expansion. That means marketing expenses will be the main driver. As you enter a market, typically, marketing efficiency is lower compared to mature markets as you have to build up a customer base there. That's the main cost related to market expansion. There is a minor cost related to it in other areas, but marketing is the most important cost associated with this. In terms of first results, we are really happy so far with the development, both in terms of the operational setup and the speed in which we are able to enter new markets. We are now in August, and we have brought eight countries live this year.
I think this is really a great achievement of our team here at Westwing. The first indications from the top-line development of new countries are also in line with our expectations, promising. We think that we are very well on track with our geographic expansion.
Okay, thank you very much.
Thanks, Benedict.
Thank you. Next, we have a follow-up from Volker Bosse of Baader Bank. Please, Volker, over to you.
Hello, here's Volker from Baader Bank again. As we have some time, obviously, I would come up with another question on your decent international portfolio. I mean, you are shy to break out single countries. However, are there any highlights, low lights, worth to mention? Especially Italy and Spain, where you have run through quite sharp restructuring with shutting down headquarters, streamlining assortments. Has the negative effect of this restructuring bottomed out or annualized? How do you see sales trend after you have done all these measures, which, of course, not helped the international business in the past? How is it going in the moment? Thanks.
Thank you, Volker, for the question. Very relevant one. Obviously, this is something that we needed to plan and understand in order to also come up with the top-line expectation of the first half versus the second half of this year. Specifically on Italy and Spain, which you are asking about. We do see that the expectation has much improved. It is actually, the changes that we made to a global assortment, the restructuring of the countries, also the offices and warehouses, this took place mainly in Q2 last year. That's why when you now look at a year-over-year basis on the results in Italy and Spain, it actually turned around kind of over the last one, two months, especially in Italy, where we actually see promising results now.
This is clearly the bottoming out or ending of the baseline effects from this restructuring and the move to a global product assortment. In Spain, we also see this to a bit lesser extent because assortment and positioning in Spain was a bit stronger even than in Italy. That's why in Spain we don't see the full recovery yet, but it's the same trajectory or the same demand. Does that answer your question, Volker?
Yeah, absolutely. That's encouraging signs. Perfect. Thank you.
Yeah, indeed. Yeah.
Thank you very much. Is there no more questions in the queue? I'm handing the floor back over to Andreas Hoerning.
Yeah, thank you. As we haven't received any additional questions, we are ending today's earnings call. Thank you for joining.