Earnings Call: Q3 2020

Nov 10, 2020

Dear ladies and gentlemen, welcome to the Q3 2020 Earnings Call of Westwing Group AG. At our customers' request, this conference will May I now hand you over to Stefan Smaller, who will lead you through this conference. Please go ahead. Thank you. Good morning, everyone. Thank you for joining the Westwing Q3 earnings call. I'm glad to be speaking with all of you and hope that you are safe and well. Today, we will review our third quarter twenty twenty results. And with me in this call, I have Sebastian, our CFO. In summary, as we had already indicated in our ad hoc release a few weeks ago, Q3 twenty twenty was again a very strong quarter. Let me start with an overall description of what we currently see in the market and what it meant for Westwing in Q3. The overall, so the online as well as stationary retail home and living market has seen very strong demand over the last couple of months, resulting in market growth rates significantly above usual rates. The cocooning trend we currently experience and the preference as well as necessity of people to spend more time at home continues to drive the desire to create a homely and comfy environment at home, especially as consumers spend less on traveling, dining, and other categories. In addition to the overall strong market demand in home and living, we see an accelerated home and living e commerce adoption, which results in significantly higher growth rates for e commerce and home and living. While it is difficult to pinpoint the exact market growth rates based on what we see from our competition, our data, and the market data we receive, we assume that Westwing is currently participating strongly in that accelerated online move and is gaining share in our markets. The strong market growth is also visible with our suppliers and their factories, which run at high capacity utilization. Some even struggle to fulfill the current demand level. There's no growth restriction for us now, yet it does require us to ever more increase our efforts to provide a strong product availability for our customers. In the end, we're in a good position as our overall market is growing, our specific e commerce market is growing, and we are fully capable of leveraging that growth into market share gains and strong profitability based on our attractive business model. Let me now give you a few more details what this overall strong market demand in combination with an accelerated e commerce adoption meant for Westwind and how it resulted in overall very strong q three results. We delivered 66% of revenue growth year over year in QC and see this trend continuing with a very strong start into Q4 in which we see slightly accelerating growth within the first week of the quarter first weeks of the quarter. In Q3, we were very profitable with 11% adjusted EBITDA margin based on strong contribution margin in combination with scale effects. We generated free cash flow of €7,000,000 and that happened in our seasonally weaker summer quarter. These strong results continue to be driven both by strong new customer acquisition, and those new customers continue to indicate a strong repeat purchase behavior as well as our existing customers who have shown higher engagement and repurchase rates. These results have been very encouraging for all of us. Yet given the escalating COVID situation in Europe, our focus remains on the health and safety of our customers, teams, partners. Additionally, we continue to proactively manage COVID related risks with our highest attention. In a minute, I will give you some more details on that. Our guidance remains as updated with our October ad hoc release. We now expect for full year 2020 a revenue of €415,000,000 to €440,000,000 and an adjusted EBITDA profitability of 37,000,000 to €48,000,000 So very profitable and very strong growth. Let's dig into a few details. Amid the escalating COVID situation in Europe, our number one priority in these unprecedented times remains the health and safety of our customers, teams, and partners. Customer safety is of utmost importance to us. To live up to this priority, we operate with wide ranging hygiene measures in warehousing and together with our freight carriers in delivery. Our various warehouses and photo studios continue to operate with highest hygiene standards and effective distancing measures so our frontline workers can deliver at the highest level in a safe work environment. At this point, I would also like to acknowledge once again the enormous performance that our frontline workers have been delivering to manage our growth at heightened safety measures for more than half a year by now. The tireless work and dedication are impressive and very much appreciated. Thank you so much to all of you. Most of our office teams continue to work from home at excellent productivity levels. We have our offices partially open to foster team cohesion for certain highly interactive meetings and for certain team members. Yet at the same time, we remain mostly working from home, which is working very well. While focusing on health and safety, we'll continue to manage the COVID related risks carefully and take all possible prevention measures. And let me give you some some details on the top three risks that we we believe, we have to manage. Number one, a potential forced warehouse closure, that could happen. We take comprehensive safety measures to minimize the risk of a temporary warehouse closure due to a COVID outbreak, and we don't see any indications, and we have no heightened numbers of infections in the warehouses yet. We wanna be clear there's a risk that remains. Number two, potential freight carrier capacity restrictions. This is general online shift that we're all experiencing. Freight carriers might face capacity constraints, especially in the coming weeks in the run up to Christmas. We are working with existing as well as newly onboarded carrier partners to mitigate these effects. Number three, a potential border closure, rigid border closures that could happen. We don't see any indication of that yet. If that happens, that would severely affect our supply and delivery processes as most of our processes are cross border. Again, we don't see any of the, these risks manifesting themselves right now, but they could. Overall, we continue to manage the special COVID situation well with a focus on health and safety, and we are mitigating the COVID related risk as good as possible. But we also need to acknowledge that some relevant risks remain and work closely on this topic. Coming now to the details of our q three results. Due to the acceleration of online adoption, we delivered very strong GMV growth of 59% year over year to €113,000,000 GMV in Q3. This went in line with incredible active customer growth of adding 358,000 active customers to overall 1,300,000 active customers. Keep in mind, we ended last year with less than 1,000,000 active customers, and now we're already at 1,300,000. And these are all customers that we can work with in our loyalty driven predictable business model. This growth happened in all our countries. Especially development in our international segment was very encouraging, further strengthening the progress made across the whole country portfolio. On the following pages, let me provide you with some more insights and drivers of our growth and the implications this accelerated online adoption has on our business. The very positive aspect of the strong growth continues to be that is driven by both our existing loyal customers and strong new customer acquisitions. On this slide, you have some data on our existing customers. Our loyal existing customers showed continued higher engagement and repurchase rates in q three, which we believe is a strong indication that customer behavior has changed fundamentally towards more e commerce. As a result, we were able to increase our overall GMV with older cohorts significantly. Here, shown are the 2,012 to 2,018 cohorts, which then express themselves by a 20% increase in yearly average order frequency, which now stands at 3.6 orders in the last twelve months versus three point zero orders in the same quarter of last year. All in all, the third quarter was again a great proof of our loyalty driven business model, which is at the core of Westwing and provides the basis to our profitability and growth strategy. Therefore, we will continue to focus on the loyalty of our customers by investing even more into great customer experience and inspiration. New customer metrics also remained very strong in Q3, as we were able to acquire 68% more new customers in Q3 compared to the same quarter of the previous year. We believe that also the ongoing strong new customer acquisition is another indicator for structural Moreover, the new customers we have won during the last six months continue to indicate strong repeat purchasing behavior already in the first weeks and months as shown by our q two, q three cohorts and the cumulative GMV generation in weeks after the first purchase, which are in line with 2018 and 2019 cohorts. Thus, we believe these new customers are likely to become also long term loyal West Wing customers who will contribute not only to this year but also to future years' growth. But not only the new customer acquisition developed very strongly, also the underlying new customer drivers have been going very well. For instance, our strongly growing organic audience here shown on Instagram. By now, we have more than 5,000,000 Instagram followers across Europe, and we're reaching more than 25,000,000 different people each week on Instagram only. So organic marketing continues to be really one of our core competencies, and we benefit from that, and we are further intensifying and investing into that. Let me now give you some more insights on the growth dynamics we have seen in q three and now in Q4. In Q3, growth rates stabilized on a very strong level after our extraordinary Q2, despite in Q3 lockdown measures had been eased and stationary shops opened again. For us, this is a clear indication that we're actually seeing a structural shift towards e commerce in the home and living market. Also, Q4 to date growth rate seem to confirm that hypothesis. Q4 growth accelerated compared to Q3, and we are confident so far that we will deliver a very strong Q4. Worth noting also that we, of course, have prepared our operational supply accordingly as we laid out in the last call. Having said that, we are on track to deliver our increased guidance for 2020 of $415,000,000 to €440,000,000 revenues, and we are on track to build a strong company based on the new scale we will achieve in 2020. With that, I would like to hand over to Sebastian for the financial details. Yeah. Thank you, Stefan. Good morning, everyone. Let me start with giving you my overall assessment of Q3 financials before we jump into the details of our results. Overall, Q3 has been very strong on every single financial metric. The basis of the success was once again very healthy contribution margin in combination with significant scale effects. We achieved again very strong profitability of 10.9 percentage adjusted EBITDA in Q3 twenty twenty, even though we ramped up our marketing investments back to the lower end of our target ratio. In Q3, we achieved group revenues of 99,000,000 Euro, driven by the strong customer momentum as Stefan described in the first part of our presentation. This was a 6066% year over year growth in Q3. For the first month for the first nine months of twenty twenty, we generated €277,000,000 revenues or 55% year over year growth. By the end of Q3, we had already more revenues than we generated in full 2019. Also, is very encouraging to see that our international segment was growing at attractive levels, outperforming our DAF segment on growth with a 75% year over year increase in Q3 versus 59% in the DAF region. This again confirms that we are on the right track with our international segment and our measures continue to pay off. Next to growth, also profitability has been very strong in Q3, with Q3 adjusted EBITDA margin at 10.9%. This strongly improved profitability was driven on the one hand by the increased size. The level shift in size enabled us again to realize significant operating leverage as our business continued to scale nicely. On the other hand, profitability was based on very strong unit economics reflected in our contribution margin. While we have achieved substantial and structural improvements in terms of our contribution margin, I also want to highlight that we benefited from some special effects here. Let me give you some more details on these developments as I move down the P and L lines. Starting with gross margin. Our gross margin improved by 4.9 percentage points year over year to an all time high of 49.2% in Q3. This increase was mainly based on a great retail margin discipline in combination with a strong own private label share. Yet, we also benefited from a special effect in Q3 as we have seen lower inventory related costs. Our inventory level was relatively low, and hence, we sold off inventory at a fast pace and high inventory turns. Hence, hardly had any aging write offs on our inventory. Going further down in our P and L, we were also able to improve our fulfillment cost in Q3 by 4.2 percentage points year over year. As a reminder, our fulfillment costs include our logistics, customer care and payment costs. Basis to this improvement is our very efficient warehouse setup that we run across Europe, where we also experienced operating leverage through higher utilization. Yet also on our fulfillment costs, we benefited from considerably lower return rates, which we expect at least partially in 2021. To give you an idea, in Q3, return rate was around three percentage points better compared to the same period previous year, which saves us significant costs. We estimate this effect to be around one to two percentage points on our fulfillment costs. As a result of the higher gross margins and low fulfillment costs, contribution margin improved significantly to 29.3%. An increase was Q3 twenty nineteen of 9.1 percentage points. Yet, as we discussed this past, this was partially driven by the special effects in gross margin and fulfillment costs. We assumed a structural contribution margin, excluding those special effects, at 26 to 27 percentage, I. E, two to three percentage points lower than reported. This would still imply a structural improvement of six to seven percentage points compared to Q3 last year. So, overall, we are very happy with our contribution margin and the improvements we have implemented. In terms of marketing, we have now ramped up marketing almost to the lower end of our target ratio of eight to 10% of revenues with Q3 twenty twenty at 7.8%. We believe and continue to believe this is needed to generate sustainable long term growth. G and A costs, which primarily consist of salaries and wages, were another important driver of our improved profitability. The G and A ratio decreased by seven percentage points compared to Q3 twenty nineteen, demonstrating strong operating leverage. I personally think it's super important to highlight how well our G and A basis did scale the last two quarters, as this realization of operating leverage was and is one of the key prerequisites to achieving our target P and L. At the same time, we believe we still have very attractive business cases to invest in and are prepared to slightly increase G and A ratio again in 2021, yet we will remain substantially below the levels of 2019. The combination of the top line growth, strongly improved contribution margins and operating leverage resulted in fantastic bottom line results in Q3. Adjusted EBITDA improved by 18 percentage points to 10.9%. In absolute terms, we had an adjusted EBITDA of €11,000,000 in Q3, whereas a negative €4,000,000 in Q3 twenty nineteen. Year to date, adjusted EBITDA margin was already at 8.8% or in absolute terms 24,000,000 Euro. Just like the growth, the improvement in profitability was driven by both segments. The international segment, which had been challenging in terms of profitability for some time, now showed a positive 4.4% adjusted EBITDA margin in Q3 twenty twenty, while the DAF segment still ahead and realized a margin of 16.4%. Now moving to our cash flows. As we operate a highly capital efficient business with a negative net working capital, we actually didn't need to fund any net working capital to to enable the strong growth. To the contrary, the strong growth released net working capital and provided further cash versus previous year. By the end of Q3, our net working capital was €11,000,000 negative. The lower net working capital compared to last year was mainly driven by higher customer prepayments and higher trade payables. Both typically increase while we grow. Furthermore, we had a very low CapEx ratio. Our CapEx is mostly capitalized internal software development. In Q3 twenty twenty, our CapEx ratio decreased by 2.5 percentage points to 1.9% of revenue versus previous year. The decrease does not reflect a significant change in our absolute technology spending nor a repurposing, but as a result of the higher revenues and the lower capitalization ratio versus previous year. As we have already discussed during the last quarterly presentation, we will further ramp up our technology investments as these are the backbone of our growth and profitability. Including these investments, you can expect us to spend maximum 3% of revenue and CapEx going forward. As a result of the strong profitability supported by the changes in net working capital, free cash flow for the first nine months of twenty twenty improved by 53,000,000 Euro year over year to now 23,000,000 Euro. Q3 was also very strong in terms of cash generation as we generated €7,000,000 of free cash flow despite Q3 usually being our weakest quarter in cash flow. Subsequently, also the last twelve month free cash flow margin improved significantly to now 9%. Based on the strong free cash flow generation of €23,000,000 in the last nine months, our net cash balance increased to €92,000,000 which is already €19,000,000 higher than the ending balance of 2019. This cash position and the assurance it provides to us in these uncertain times could not be highlighted enough. Before turning to our guidance, I want to highlight how proud we are that Westing has been able to scale so smoothly, adding tens of millions of euros in revenues over the last two quarters. And this is not by accident, but by the way we have focused on building a scalable business over the last years. On top and thanks to the efforts to improve our contribution margin significantly, around 30% of these additional revenues made it to our bottom line. For 2020, we are well on track to deliver our guidance that we have communicated on October 19. While top line remains volatile and Black Friday is still to come, the start in Q4, as Stefan mentioned, has been strong so far. Having said that, the full focus of our organization is now on delivering a great Q4 to our customers. 2020 so far has been also a very special year. On the one hand, it proved our business model, our ability to scale and hence our target P and L. On the other hand, there have been also some special effects. Therefore, we believe 2020 cannot serve as the baseline for the short term with regards to growth and profitability. In 02/2021, we will continue to pursue our long term growth strategy with which requires investments into areas that provide further growth. First, we want to increase marketing back to the eight to 10% of revenues on a full year basis to enable attractive growth going forward. We plan to do this through further investments into high ROI organic channels. Second, we need to invest into technology as the backbone of our business and growth enabler. And last but not least, we want to aggressively expand our own and private label business. This is a great investment for us long term due to the additional growth and profitability upside it provides. I know that most of you would like me to give you an accurate outlook for 2020 today, but honestly, at this point, we simply cannot do that. While we remain very confident and optimistic with regards to the long term potential of our market, the short term growth outlook remains volatile, and there's some uncertainty around 2021 development. This uncertainty comes with both risks and opportunities. What I can assure you, though, is that we will take a prudent approach in our 2021 planning and the way we manage the business going forward. At the same time, we also have to make sure to capture the opportunities that will be coming up. Hence, we will, a, stay flexible as we have been in 02/2020, b, continue to react fast to the changing market environment, and c, update you, our investors, and analysts transparently on how things are evolving. With that, I would like to turn the call back to Stefan before we take your questions. Thank you, Sebastian. Before we go into q and a, a quick summary on Westwing. 2020 so far has been a very successful year. We further increased our scale and reach. By now, we process an annualized 3,400,000 orders. We sell a product every two seconds. We're serving 1,300,000 loyal active customers in Europe. We will grow to $415,000,000 to €440,000,000 in revenue in 02/2020. And while doing so, we'll be generating 37,000,000 to €48,000,000 in adjusted EBITDA profitability, which is great and which validates the target P and L that we have set for ourselves and, at the same time, demonstrates our unique opportunity to build a highly cash generating business. And despite the growth we have generated, this size wise is still tiny compared to the huge opportunity in front of us as we intend to lead the shift online in our €100,000,000,000 plus market. It's truly day one, as, you know, one famous ecommerce founder always says. Our business model focused on loyalty remains unparalleled with 80% of orders from repeat customers. We are strongly growing our own and private label products of West Wing Collection, where we sell gorgeous bestsellers at good prices and, for us, fantastic margins. We have a very strong cash profile, not only with a growing net cash position of €20,000,000 and a negative net working capital, but also low CapEx ratio. And most importantly for shareholders, we have an attractive target p and l, which we will validate in 02/2020, 10 plus percent adjusted EBITDA margins and strong cash conversion. We even achieved 9% free cash flow margin in the last twelve months, something we are very focused on and proud of. We're looking very forward to the coming months and the next year. We're very positive on the overall outlook. At the same time, we remain cautious and prepared as we've always been. We are building West Wing as a long term winner, and our results give us confidence we are on the right path to inspire and make every home a beautiful home. With that, we are happy to take your questions. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial 0 and 1 on your telephone keypad now to enter the queue. Once the 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 02 to come to your question. If you are using speaker equipment today, please lift the handset before And the first question is from Baader Bank. Congratulations I on the great have four questions on my first, I would touch the international business, plus 58% in nine months, very strong performance. Which countries performed above average, so to say, and perhaps also below average to get a bit of granularity in regards to the international business? And the second question would be regarding your products, which has been the best performing product segments or even items in third quarter or in the nine months? Do you have any guidance here in that respect? And the third question would be on the performance of Westwing now. How is Westwing now performing the shoppable Westwing magazine, so to say? And last but not least is private label in the third quarter was one percentage point down year on year. So do you have a reason for that? And could you give us some background here for that? Sure. Thank you very much. I was going to take all those four questions. Mhmm. First, on international. Overall, it was very encouraging to see that our international segment was was growing at strong levels, even outperforming the DAAS segment. So as as Sebastian said, we're on the right track here, and and we we believe the measures that we did pay off. The countries are all kind of growing. On a country level, within the international segment, the majority of countries were growing circa the same pace as that segment, while a couple of countries showed even higher growth rates. In the end, we don't feel that this comparison is super relevant at these growth levels. Both segments have an extraordinary growth. And now looking for details below the surface, we don't actually think we'll give interesting insights. We don't do that internally because the growth hedges are so so fluctuating and volatile. Might have been improvements we implemented in the last years. International overall might have been some timing issues with lockdowns, might have been performance of the team, might have been just volatility. So I think we're we're not gonna give individual country details. Overall, we're super happy with q three growth in both segments. In terms of, the best performing product segment, it's it's really astounding. And it's the same situation as we explained the last call. We don't really see any outliers in terms of kind of products or specific ranges or specific price points or specific categories or anything that really specifically stands out. We believe that because customers are generally at home, some will decide, you know, I wanna cook more. Some will decide they wanna get more furniture. Some will decide they wanna redo a whole room. Some wanna have more decorations. Some wanna go outdoors a bit more to their balcony and do that. Some, you know, really, we we don't see anything in in the internal metrics where we track, like, category shares and brand shares and all kinds of shares. There's nothing that stands out. I mean, I could we wish to give you a sexy press story or or something, right, where, you know, this and this product stood out, but actually didn't happen. Like, it's really across the board, which we think structurally is quite quite good. Yep. Then West Westwing Now performance. Performance. West Westwing Wing Now Now has been performing as well as the daily themes and and the private label. West Wing Now is a permanent assortment. So we've seen strong growth in West Wing Now across the board in all categories. It's more furniture heavy than the daily themes, so that that stayed the same. And what we also saw is that kind of the interrelations where we cross and upsell the customers that we get through our daily themes model than in the permanent assortment, were converted well. And that leads us to private label, which is a big part of of Westwing now. And and there, actually, we did have, one effect that I could highlight. One is that in the end, it it remains one of our strategic priorities. Right? And and we stick to our long term target of increasing the share to 50%. But during the q two, q three level shift in demand, we also saw a huge demand for our Western collection, and and it came very sudden. And at the same time, we had disruptions in supply chains. So what we didn't have is all of those products to have sufficient stock levels that we wanted. And and so it slightly impacted the overall private label, share also of the group, because we basically substituted this with with third party, products for the very short term. The good thing in our business models when we have, like, those 5,000 suppliers, and and we can work with them very kind of flexibly, that helped us a lot to not have any customer impact, but it did have kind of a metrics impact in terms of private label share. We have recently improved the availability of our own private label product as we ramped up the team and and just to deal better with increased demand levels and and the complex supply chain right now. And our own private label share is already up by four percentage points, quarter over quarter, and we expect that the share will continue to increase in the coming months as kind of the supply chain disruptions are getting less. Overall, we're really proud of how flexible our business model works. Okay. Thank you very much. I think it's an encouraging sign that the growth was so broad based throughout all product segments as well as countries. So congratulations again. Perfect. All the best. Thank you. We agree. Thank you. And the next question is from Adam Cochrane, Citi. Your line is now open. Please go ahead. Good morning, guys. Couple of questions, from me. In terms of the the supply constraints that that that you just mentioned, is this something which has been worked through the the system now, not just for your your own own label products, but from your from your suppliers' perspective, is is this something that you see as being in the rearview mirror now? Then secondly, I saw that the average basket size was down, ever so slightly, 2% or so. And you're talking about freight, potential freight constraints. Is this something that you have to work hard on to to to manage? Obviously, you've got more and more baskets. It's not the actual basket size getting bigger, and potentially, the the the freight rates either, I presume, go up rather than are not available. How do you, manage the the the freight rates with pricing versus consumer paying for delivery? If you can just talk about those bits. And then finally, bigger picture, do you see the change in consumer behavior towards online, particularly in your category, as something that is very permanent in nature? So as we look at 2021, I I find it hard to believe that customers who've either found your brand and or other, online players will suddenly say, oh, I'm gonna go back to the way I shopped before. Just your views on that. Thanks. Sure. I will take, the questions on the on the supply constraints on the on the freight and the consumer behavior, and then, Sebastian will talk about the average basket size. So in terms of, supply constraints, so we actually took a decision in in February, March, when it was still insecure to add to our stock, and that helped us a lot. We started pretty early on building up that stock, especially on best sellers. So we're we're we're quite well prepared. Yet at the same time, what we see in the market is that suppliers and factories, some of them, are struggling to fill fulfill the demand within the usual time frames. And and that's actually, we think, not due to supply chain constraint constraints mostly. It's mostly because the overall demand for home and living products is elevated. And what we see from, you know, other companies in the market, both online as as well as offline, everybody is seeing the higher demand, the online players even more. And I think we're we're really taking share right now, yet the overall market is just growing. In our business model right now, there's no operational risk that we see. So because we can just work with you know, if one supplier calls out, we have 5,000 others to to to to kind of take care of of providing products for us. But we do see a bigger challenge overall to make sure that that we get the right products and that we make sure that these elevated levels are are working through the supply chain. So it's something that we continue to have to work through in the coming months as well as in the coming year where we believe, the market overall will will probably hold pretty strong. So we're prepared for that Right? We don't know. We don't have the kind of looking glass into the future, but right now, it looks like elevated demand across the board in home and living and something that's gonna be something to work on, not an operational challenge that we cannot solve, but something to work on. Then in terms of freight, so in in the end, all our freight providers are, you know, experiencing online growth. Online penetration in almost all consumer industries is increasing, and so is the demand for carrier services. And, accordingly, we also expect price pressure from carriers as the carriers don't have unlimited capacity. And and we we actually strongly encourage our carrier partners to increase capacity to deal with increased demand, talking to lots of carriers to make sure we get the best deal in this market. We have seen some price increase in the past, and I've seen some surcharges during the seasonally strong q four. There might be a similar behavior from carriers this year, although our teams will work very hard against that. Overall, we try to work hard against any increase by rebalancing the volume between carriers and optimal carrier selection too. But in the end, will we pass this on to consumers if it happens? No. This is not something that kind of it's not gonna be substantial in the sense of that it that it changes the overall profitability of the company. It will slightly and as Sebastian said, we we we have buffer in our contribution margins versus what we wanna do as as target p and l, so we don't expect that this will have a material impact. It's something that, operationally, we have to deal with, and we're more worried about capacity constraints there. Right? Then and and Sebastian will talk about what what this means for AOV or how we think about that. And then in terms of is customer behavior permanent, that's that's that's the we we believe to some degree. Yes. All we can see is that the the customers behave exactly like customers of the past. We believe that the the home and living online market is now going through an acceleration of kind of the s curve, and we're now in a steeper phase of the s curve. And every kind of vertical in in ecommerce has been at that phase, books, in the late nineties, early two thousands, electronics in the mid two thousands, fashion in the early two tens. And and there's a phase where just consumers are saying, okay. And if this feels like it's ready for prime time, I'm ready to to shop a lot there. And then once they do, there's typically no market in retail, no vertical, where once you reach a certain ecommerce penetration, then it goes it goes downwards again. It's it's the convenience of ecommerce is too strong. The the customers have learned that stuff actually arrives at their door. It they don't have to go to stores. And on top now, we have this effect that whenever a vaccination or whatever comes at some point, there's insecurity, and people just don't wanna go outside. And even before, the pandemic, we always said, like, why do you wanna go one hour outside of the city to walk hours through a big store where you can do that from the comfort of your home on beautiful pages, and then it's gonna be delivered to your door in a convenient way. So we believe a lot of that will be long term. The growth rate that we see, that's not long term. We don't think that the growth rate that we've seen this year is something that we will see next year, but we think on the terms of level and growing from there, we think there's there's potential there. Sebastian, you wanna talk about the AOVs, average order baskets? Yes. Absolutely. So so so I think there are two two ways to answer this. I think, first of all, what does drive this change, and is this something we worry about? I think, first of all, the change was previous year is is is tiny, as you said, and it's mainly driven by mixed effects. So our international segment that grew now stronger in q three, on average, has a has a slightly smaller average basket size than the DAF segment. That's also driven as those countries partially have lower purchasing power. And, also, logistics costs in those countries are cheaper. So I think the average on profit the impact on profitability if it stayed within a segment is negligible. So overall, we're not worried about that. Then from a strategic point of view, I think how we look at that, it's not a number we try to manage up because we actually believe that that order frequency is kind of a key measurement and the key key key topic for our loyal customers. So, basically, we want actually to have customers order a lot because the loyalty is is so important and increases the customer lifetime value in the long run much much more than, like, doing one big order at a time. So that's why we actually we look at the KPI, but we don't try to manage it up even though it would be good for for profitability and unit economics, but we believe the bigger impact on on loyalty is if customers do frequent orders, we don't wanna kind of hardly manage them into bigger basket sizes like we could do by increasing shipping fees or, like, other limits from where we ship on for free, but that's nothing we wanna do. So it's something we observe but has two sides, and and we currently believe the loyalty is the is the more important one. That's great. Thank you. Appreciate it. And the next question is from Christian Dallis, Haugen, Alphazen. Your line is now open. Please go ahead. Yes. Good morning, everyone. I have two questions left, please. So first of all, could you please quantify on a little bit on Q4 revenue? So how much is really depending on the Christmas business, on the holiday season? Maybe, yes, how much revenue is generated in the last four weeks before Christmas? And then secondly, could you also talk a little bit about your expectations regarding free cash flow in Q4? That would also be helpful. I think both are for you, Sebastian. Yes. Hi, Christian. Let me try to answer them. Think, first of all, q four is is, of course, very dependent on, I think, this the weeks from Black Friday, usually one of the last weekends in November, to then kind of the weeks till, like, let's say, one week before Christmas. Because from then on, we can't deliver or we can't make the the delivery promise before Christmas anymore. So kind of that is kind of the the the interesting time. In terms of of revenues, I think, usually, what we do on a on a on a weekend of, like, Friday or something is kind of, I would say, like, I don't know, factor four to five of of an average day in the quarter. So, basically, you can imagine how how much this drives to to to the q four revenues. So I think we're we're running well now, but I think kind of the the answer how q four will look like, can give you when Black Friday and the Christmas heavy season is over, so very late into the quarter. Regarding free cash flow, I think that the most important driver, of course, is profitability. There, I think, from the guidance we gave, you can derive an adjusted EBITDA for Q4. And then the next big step is actually working capital developments. There, we would also expect a significant improvement versus q four last year. And and I think that we would then result in in a in a very positive cash flow for q four with out now giving you a number. Okay. Thank you. And there are currently no further questions. So as a reminder, if you would like to ask a question, please press 0 and one on your telephone keypad now. And we haven't received any further questions at this point, so I hand back to the speakers for closing remarks. Thank you. Hey, everyone. Thank you for attending. We're excited about where we are. We're focused on health and safety at the same time and and and take a very measured approach to business. We're very focused intensely right now on delivering a great q four and then going into a super exciting 02/2021, and we look forward to speaking you again at our next earnings call. Thank you very much. Have a good day, and stay safe and healthy. Bye bye. Thank you. Bye bye. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.