Earnings Call: Q2 2020

Aug 13, 2020

Good morning, everyone. Thank you for joining our Q2 earnings call. I'm glad to be speaking with all of you. And most importantly, I think I hope that you are safe and well. Today, we will review our second quarter twenty twenty results. With me in this call is Sebastian, our CFO. In summary, as we had already indicated in our ad hoc release a few weeks ago, Q2 twenty twenty was a very strong quarter for Westwing. Based on an accelerated Home and Living e commerce adoption during the COVID-nineteen situation, we delivered very strong results. We delivered 91 of our revenue growth year over year and an increase of active customers to €1,200,000 We were very profitable with 13% adjusted EBITDA margin based on strong contribution margin in combination with scale effects. We generated significant free cash flow of €23,000,000 bringing our last twelve months free cash flow margin to a very strong 6%. We indeed saw a rapid acceleration of e commerce adoption and thus saw growth across all our customer cohorts, existing and new customers and across all countries. This new customer behavior we believe will be long term very beneficial for us as a secular shift to e commerce will further accelerate. With that Q2, we validated the target P and L that we have set for ourselves and we are demonstrating our unique opportunity to build a highly cash generating business. Our guidance remains as updated during our July ad hoc release. We now expect for full year 2020 a 25% to 35% revenue growth at 3% to 5% adjusted EBITDA margin, so very profitable and very strong growth. Let's dig in a few details. Specifically on the COVID-nineteen situation, our number one priority in these unprecedented times remains the health and safety of our customers, our teams and our partners. Our various warehouses and photo studios continue to operate with the highest hygiene standards and effective distancing measures, so our frontline workers can deliver at the highest level in a safe work environment. The majority of our office teams continue to work from home at excellent productivity levels. We have gradually started to reopen our offices to improve 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. When we look at our supply chains across the world, we see most of them already recovered or in the process of recovering. For instance, China and Europe are by now pretty much recovered, whereas India is still problematic. Freight routes are open again, which is good for speed and replenishment. At this point, I would also like to acknowledge the enormous performance that our frontline workers have been delivering to manage our elevated demand at heightened safety measures over several months by now. Their tireless work and dedication are impressive and very, very much appreciated. Thank you so much to all of you. Overall, as a summary, we continue to manage the special COVID-nineteen situation well with a focus on health and safety. Coming now to the details of our Q2 results. Due to the acceleration of online adoption, we delivered phenomenal GMV growth of 97% year over year to €128,000,000 of GMV in Q2 for our biggest quarter ever. This went in line with incredible active customer growth of 270,000 more active customers to nearly 1,200,000 active customers. This growth happened in all our countries, especially the development in our international segment was great, as for instance our Italian business had completed its turnaround in Q1 and has delivered strong growth in Q2 just like all our countries did. 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. One very positive aspect of this extraordinary growth was that it was driven by both our existing loyal customers and strong new customer acquisitions. It was a nice proof of both the loyalty of our customers, which drives our growth and profitability model and the effect of our organic marketing and the intensified marketing investments since middle of last year. To put it in perspective, in simplified terms, our growth was driven by circa 60 from customers registered before 2020 and circa 40% from customers registered in 2020. Or put differently, of the €128,000,000 of GMV in Q2, more than €100,000,000 was generated by customers who had signed up with us before 2020, and that's up from a total GMV of €65,000,000 in Q2 twenty nineteen. Moreover, and you can see that on the right hand side there, also the new customers we have won during these special times indicate strong repeat purchasing behavior as shown by those April 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 loyal Westwing customers who will contribute to future growth. To further highlight this point, despite the huge number of new GMV and new customers, our customers' loyalty drove growth and loyalty metrics remained very much intact in Q2. 80% of orders came from repeat customers in Q2. 79% of GMV came from mobile channels, including our industry leading apps, who our customers are very loyal to, and we continue to do 85% of our sales with customers who did more than 100 visits to us per year. That these loyalty KPIs remain so strong was driven by the fact that also existing customers showed an even stronger repeat behavior in Q2. It's the beauty of our business model and we continue to orient everything we do around loyalty as we have explained many times. Let me now give you some background on the implications of the recent acceleration of our business growth. In general, we never have and will not manage our business on a quarterly basis, yet this extraordinary quarter and the new size we are delivering requires us to ramp up selected growth investments to secure sustainable and ongoing strong performance. These selected growth investments are simply intensifying the existing strategic priorities, which we have funded for years by now and which have been the basis to our successful second quarter. So just to be clear, we're not doing new stuff here. This is acceleration of existing strategy. Number one, we are investing into marketing. Our marketing ratio went down to 5% at stable absolute marketing investments in Q2 due to operating leverage based on the growth. Here we have started to increase investments into our organic marketing team to provide our customers even more relevant content and inspiration on new channels, especially on social media. We have started new investments into international content, into app marketing, into new organic channels and our interior design service. With this, we aim to bring our marketing ratio back to 8% to 10% as it is our target. Second, we're investing into technology. We're a technology driven company from our very core and in order to provide our customers with state of the art experiences, we are further investing into our technology talent base and our platforms as this is the growth enabler for our whole business. Concretely, this goes into our daily themes and permanent assortment technology teams for sites and apps, our checkout and payment teams, our three d and augmented reality capability, our warehouse management system, our DevOps teams to push an ongoing move to the cloud, into security and into other technology areas. Third, we're investing into our operations. Q4 is pretty unclear, yet we need to plan our operations. Let me explain. On the one hand, we need to be prepared for super high growth in Q4, for instance, in case of further lockdowns, And then we need products and we need warehouse space to operate that, but we won't have much need for inventory space because we're actually bringing the products that we buy from suppliers into the customers' home really fast. On the other hand, we need to be prepared for an economic recession and the low growth scenario. And then we already have the products because we need to buy them now. Thank God it's bestseller products, so right of risk are not there, but we need warehouse space to store them. So consequently, we have seen that actual warehouse space is what we need to have, but incrementally and at low cost because maybe we do not need it. So we have planned incremental selective investments into our warehouse capacity in order to ensure that we can fulfill the increased demand during Q4 in any of the scenarios. This is expected to only have limited impact on contribution margin because we have found ways to do that for very little investments as usual by reserving, but not yet renting space, by renting adjacent halls to the warehouse, by flexibilizing our processes, etcetera. Fourth, we're investing into our own and private label. This is core of the core for us, and we have further increased our team to manage our supply chains better in a more complex world and further expand the range of categories that our Westwing collection covers. While we take all these investments to enable strong growth, we always keep aside on our profitability and cash profile to make sure we grow profitably. As mentioned before, our growth investments are aligned with our long term strategy. So to frame this, let me quickly give you a short recap on this strategy. While we are humbled and proud of our financial results in Q2, what was really, really significant to us was that Q2 made the opportunity in front of us very visible, that we are on track to build the successful company we envisioned when we continue to follow our long term strategy. So Q2 further increased our confidence into this long term strategy, which is: Westwing is in a pole position to leverage the ongoing and now accelerated shift of the Home and Living industry towards e commerce. Home and Living shopping works best when led by inspiration. Our unique combination of daily themes, permanent assortment, own and private label and organic marketing drives loyalty and profitable growth. Our platform and our operating model provide a great customer experience and are scalable at the same time. And last but not least, our target P and L of 10 plus percent adjusted EBITDA and 7% free cash flow was overachieved in Q2, partially due to operating scale or underinvestment depending on how you look at it. And yet, we have by now a 6% free cash flow margin for the last twelve months, which is one of the core metrics we look at to determine the health of the business. With that, I would like to hand over to Sebastian for the financial details. Yes. Thank you, Stefan. Good morning, everyone. Let me start with giving you my overall assessment of Q2 financials before we jump into the details. Overall, Q2 has been outstanding on every single financial metric. The basis of this success in Q2 was already laid down in H2 twenty nineteen and Q1 twenty twenty, where we heavily focused on improving economics. Based on that solid foundation, we experienced a sudden increase in demand and growth that Stefan described in detail, which then took stability to an outstanding level. I will now continue with some more detailed comments on our Q2 and expectations going forward. Let me start with our top line. In Q2, we achieved group revenues of €179,000,000 sorry, in H1, driven by strong customer momentum, as Stefan described in the first part of our presentation. This is a 50% year over year growth in H1, driven by the exceptional year over year growth of 91% in the second quarter. It is also very encouraging to see that our International segment was growing at very high levels, outperforming our DAF segment on growth with 96% year over year increase in Q2. We believe that we are on the right track with our International segment, confirming that the measures we took internationally start to pay off. Next to growth, also profitability has been outstanding in Q2, with Q2 adjusted EBITDA margin at 13.2%. This fully improved profitability was driven on the one hand by the increased size. The level shift in growth enabled us to realize significant operating leverage as our business stayed well as predicted in our long term target P and L. On the other hand, the basis to this successful quarter has been the improvements we took earlier this year and in the 2019 after the disappointing 2019. I will explain now in more detail by going down the P and L and give you some color on gross and contribution margins as well as our expenses. Gross margin improved by 5.2 percentage points year over year to an all time high of 48.6% based on ongoing retail margin discipline combination with slightly lower inventory related costs. This builds on the first quarter where we already were able to show a strong gross margin of almost 47%. These levels are the result of all the hard work we did in the last year of gross margin discipline, pricing and our private label share. Going further down in our P and L, we were also able to improve our fulfillment cost in Q2 by 4.9 percentage points. As a reminder, our fulfillment costs include our logistics, customer care and payment costs. A part of this significant improvement year over year is driven by baseline effects, as Q2 twenty nineteen was still negatively impacted by our extensive warehouse move. By now, we run a very efficient warehouse setup. Additionally, while logistics and customer care costs are largely variable, we also experienced operating leverage on these lines that comes with higher utilization. As a result of higher gross margin and improved fulfillment costs, we were able to improve our contribution margin significantly, reflected by an increase with Q2 twenty nineteen of 10.2 percentage points to now 28.7%. Compared to an already strong Q1, we have improved contribution margin by another 4.4 percentage points. Our marketing ratio decreased year over year by three percentage points to 5.4%, while absolute marketing costs at €5,900,000 increased compared to last year Q2, where we spent roughly €4,800,000 Compared to Q1, with a marketing spend of €6,400,000 we have spent slightly less in Q2. That was driven by us reducing the paid market spend in April and May as we were still cautious on how the business would develop. In the meantime, as we have seen how the business has developed, we are back at full spend levels. As discussed on several occasions, our marketing model, which is very organic, cannot be ramped up that quickly. Our organic marketing is very much people cost, and the hiring of talented creative people will take some time. As Stefan already mentioned, we will ramp up our marketing spend further so that we will return to our target market ratio of 8% to 10% soon. G and A costs, which primarily consist of salaries and wages, were another important driver of our improved profitability as the ratio decreased by 9.7 percentage points compared to Q2 twenty nineteen, demonstrating strong operating leverage. In absolute terms, we are at comparable levels to Q1. I think super important to highlight how well our G and A base did scale in this quarter. At the same time, we believe we still have very attractive business cases to invest in, and we will see G and A ratio increase again short term. The combination of the top line growth, strongly improved contribution margin and operating leverage resulted in strong bottom line results in Q2 as adjusted EBITDA improved by 21.7 percentage points to 13.2%. In absolute numbers, we had an adjusted EBITDA of €14,700,000 with negative minus €4,900,000 in the same quarter previous year. And just like the growth, the improvement in profitability was driven by both segments. The International segment, which has been challenging in terms of profitability for some time, now showed a positive 7.3% adjusted EBITDA margin in Q2, while the DAF segment realized a margin of 18.7%. Now moving to Q2 cash flows. As we operate a highly capital efficient business with a negative working capital, we didn't need to fund any net working capital to enable the strong growth. To the contrary, the strong growth released net working capital and provided further cash in the second quarter. By the end of Q2, the net working capital was negative €11,000,000 The lower net working capital compared to last year was mainly driven by more customer prepayments and trade payables, which typically both increase in our business when we grow. Furthermore, we had very low CapEx ratio. Our CapEx mostly capitalized internal software development. In Q2 twenty twenty, our CapEx ratio decreased by three percentage points to 1.7% of revenue. The decreasing ratio does not reflect a significant decrease in our absolute technology spending nor repurposing, but is purely the result of the higher revenues. As Stefan mentioned earlier, we will also further ramp up technology investments as these investments are the backbone of our growth and profitability. As a result of the strong profitability and partially supported by the described working capital effect, free cash flow for the second quarter improved by €32,000,000 year over year to now €23,000,000 in this quarter. The last twelve months free cash flow margin improved significantly and is now positive with 6%. The €23,000,000 free cash flow in Q2 was mainly driven by our adjusted EBITDA of €15,000,000 That means strong operational profitability that's translated into cash flows, plus the previously discussed net working capital effect. Based on this strong free cash flow generation, our net cash balance increased to €86,000,000 which was even €30,000,000 higher than the ending balance of 2019. This significantly bolstered balance sheet and the assurance it provides to us could not be highlighted enough. Now turning to guidance. I really wish I could tell you that we were able to give you more narrow range for what will happen in the 2020, but unfortunately, we recognize that the uncertainty remains extremely high in the current environment. Our 2020 guidance, which was published on July 16, was considerably higher than our previous guidance, reflecting the strong Q2 results. Yet this guidance also reflects an ongoing high volatility in our growth rates. July GMV growth, for instance, is still at exceptional levels of 4554%, sorry, growth year over year. It is also less elevated than our Q2 growth. This volatility in our current growth rates and the remaining uncertainty around the economic outlook consumer sentiment for the remainder of the year resulted in our guidance published on July 16, which we hereby reconfirm. We expect 25% to 35% revenue growth in Q2 and an adjusted EBITDA margin of 3% to 5%. While I cannot give any further guidance regarding 2020 at this point, I will try to offer some more insight in the spirit of transparency as you build your model for the remainder of the year and provide some additional notes how to think of our long term target P and after the recent Q2. Let me start with some insights for the second half of the year. Gross margins and contribution margins will probably decrease slightly compared to the exception in Q2, mainly as the described scale effects decrease again and we'll have seasonally weaker Q3. Contribution margin for H2 is therefore roughly expected at 25%, which is still very strong and lower end of our long term target. Our marketing ratio will gradually increase again and will be scaled back to our advised long term marketing ratio of 8% to 10% during the second half of the quarter. If we can reach that ratio exactly, will very much depend on how the top line develops going forward, but we are committed to increasing absolute marketing levels significantly. G and A, on the other hand, will be increased, but we will see no significant impact in absolute terms in the second half. Yet please keep in mind that the ratios will get worse in Q3 as the absolute revenues will decrease compared to the elevated second quarter. As a result, we expect to meet the guided 3% to 5% adjusted EBITA margin, while the two percentage point profitability range also depends on which end of our guided revenue growth range we will end up. Let me give you also some thoughts on our target P and L. I think the very positive aspect we take away from Q2 that's probably even more important than the result itself is that it validates the structure of our long term target P and L. We were able to show that we operate a highly scalable business with strong unit economics and strong ability generate high cash flows. Yet overachieving our target P and L in Q2 does not imply we will continue these profitability levels short to midterm. While we are already quite comfortable with our current distribution margin as we can use further own and private label share gains to compensate for freight cost increases and investments into customer experience, we believe we will need to increase our marketing ratio back to 8% attractive growth compared to the 5% marketing ratio we have seen in Q2. Furthermore, we will need to invest short to midterm in the G and A to drive revenue growth now that the market is there. To be very transparent and clear on G and A, we will still need a lot more sustained scale going forward to meet the target P and L level sustainably. So midterm, we expect to see lower EBITDA margin compared to the extraordinary Q2 levels that will still allow us to be cash breakeven to then long term increase EBITDA margin towards our target P and L again, especially due to the operating leverage we will gain on G and A. Regarding our free cash flow, we expect to remain our strong cash conversion profile at slightly negative to neutral working capital and with low CapEx. Obviously, we will see seasonal quarterly fluctuations. For long term modeling, you can assume delta of roughly three percentage points between adjusted EBITDA and free cash flow. I would like to end with noting that we have very limited visibility what the near future will bring. But regardless of the scenario, I am very confident that Westwing is now position. We are very focused on executing our strategy every day and to achieve our financial targets. We have fixed our execution issues of the past, now delivering very strong contribution margins. We have a significant net cash position, which gives us the ability to remain long term focused in these uncertain times. And we have now shown that with scale, we can build a very profitable and cash generating business. With that, I would like to turn the call to Stefan before we take your questions. Thank you, Sebastian. Before we go into Q and A, a quick summary on Westwing. We are sitting on this huge opportunity to lead the shift to online in a €100,000,000,000 plus market in just the countries we're in. And in the last twelve months, it was clearly demonstrated that the shift is now happening faster, which we intend to capitalize on. We now have 1,200,000 active customers with a business model focused on loyalty that is unparalleled. We are able to grow our own and private label products of our Westwing collection where we sell gorgeous bestsellers at good prices and for us fantastic margins to our loyal customer base. We have a very strong cash profile, not only with the existing net cash of EUR 86,000,000 and a negative net working capital, but also a low CapEx ratio. Most importantly for investors, we have an attractive target P and L, which during the last quarter we could validate, 10 plus percent adjusted EBITDA margin and strong cash conversion, which was validated with a 6% free cash flow margin in the last twelve months. With that, we're happy to take your questions. Operator, could you please operate that? We will now take our first question from Graham Rabic from Berenberg. Good morning, everyone. Thanks for taking my questions today. I have three, please. Just firstly, on the risks of recession in the near term. How have your core customers historically responded to periods of economic down turn or periods of high unemployment? I know there's a lot of uncertainty. Is there anything that gives you confidence that the West Wing consumer can be more resilient? I think at the IPO, you talked of generally having a more affluent consumer, which may be a little bit more insulated. And then second one, on Instagram, it looks like from adding up the followers across your local Instagram pages that you're nearly at 5,000,000 followers now, which is quite impressive for the size of your business. That correct? And I think from memory, you're around 3,000,000 a year ago. So it drives your Instagram following is up 70% year on year and is four to five times bigger than your active customer base. So it does look like a big opportunity for you there. So what are you doing specifically to improve the conversion of those Instagram followers into loyal customers? And then lastly, on Italy, it had been a headwind for you last year as you just repositioned that business. Just want to get an update on that market. I assume given the exceptional growth and strong profitability, you've delivered in international, does sort of show that the issues of Italy and some of the other challenging markets such as France are now behind you? Thank you, Graham. I will cover all those three questions. Let me start with the risk of recession, which I'm not going to comment on how big that risk is. I'm going to only comment on the part of what we think about how our customers will behave. So indeed, we have a slightly affluent customer base, not that much. We are what we would call mass teach, so premium for the masses, where customers feel they can buy something that feels luxurious, but at the same time is affordable. Nevertheless, we're slightly affluent in the tilting of the customer base. So we think, yes, it's resilient. But what gives us most confidence is the following. Number one, we are in contact with our customers daily with the newsletter, as you mentioned, with social media. I think even in a recession, we can retain customers if simply just by sending newsletters to them and keeping them engaged. Number two, the Daily Themes business model operates with very attractive discounts in a no inventory model. So we assume and we have not seen that a lot in the past because there was not a big recession in Europe in the last nine years when we operated. But in Brazil, where we used to operate, we saw when the recession hit, there's also opportunities where you get from suppliers better deals, where the kind of discount business model becomes a bit more attractive and why we operate that as an inspiration focused model, the price part becomes a really good driver of value. And at the same time also our mass teach affordable price points give us confidence that customers would stay. Nevertheless, I think we would be affected. We would be more affected in the furniture part of our business because furniture is a cyclical or more cyclical spending part than decoration or lighting, etcetera. The good thing is for us, furniture is around 30% to 40% share of our business. So I think the impact would be quite limited, but we're preparing for that and need to see how we can operate that. So that's my comment on that. Number two, Instagram, you're right, we're at almost 5,000,000 followers. In June, we were at 4,500,000, which is more than 100% year over year growth according to our calculations. And as you say, that's a huge opportunity. We are in contact with those customers over the feed, over the Stories, the newly launched Reels feature, which is like a TikTok clone within Instagram. We also were on day one already active based on our TikTok channel. So we see continued strong opportunities there. What do we do to bring those people more over to register with Westwing and then become customers over time? Number one, just staying in contact with them in an engaging way and making shootings and contents that are reflective of the offering that we do, that's a big part. So that's also part of our investments that we have just announced, which we are doing is a lot into content production. So producing more of the offering that we do in pictures, in videos and imagery and bringing that online, that's a big part. Because when they see that product on Instagram, right, and they know and we can say, okay, it's also purchasable right now, then they will go over. Whereas still today, have a mix of general products or general mood pictures when a lot of products are purchasable. So over time, we will invest more into this and hopefully over time have mostly content there that is immediate purchasable. I think that will drive a lot. Number two, we're doing things like secret sales with for the Instagram follower base that you can only access when you come from Instagram to us. We're doing things like pushing back and forth our Instagram content also within the daily themes content. So there's a lot of things that we do. It's not direct, right? Instagram, no matter how you think about it, is not a channel where you at least we directly sell because we're not using the Instagram e commerce store, but we always want people to go over to our site or our apps and then stay there. We're also working on a few tech features to bring the content that we push on Instagram also over to our site and then cross post. But that's more of kind of leveraging the people that we already have on the site also back into our Instagram channel, because overall, it's also a way to stay in contact with customers daily outside of the daily newsletter which we send. So overall, lots of things there to do and the followership continues to increase a lot and engagement is quite good as well. And during COVID, it was actually even better. And we did a lot of special content like work from home content, our team members who are at home produce content to engage with our customers how to use products at home, how to cook, how to bake, how to decorate your apartment, how to decorate your terrace, how to decorate things that are relevant in such a special situation. So I think for that, Instagram is also great. Question three was on Italy. Indeed, we had already announced in Q4 and then for Q1 that we felt that the turnaround that the Italian business had done was successful and on good track. And we have now seen that completely. So Italy is back as a normal country, actually grew very fast in the special COVID situation. The team performed really well. It's a profitability driver as well. So it's quite good. We still have a few issues in our international countries. They were not visible in Q2, to be honest, because everybody grew super well. We still have we're not happy with our logistics setup in France because as you remember last year, we centralized France and we still need to optimize that logistics setup further. We're not happy yet with some of the execution quality in some of our businesses there. But as always, it's an ongoing process and the international countries are, let's say, following Germany with a one to two year well, has a one to two year lead. And so we will continue to work on international countries. But as you can see from the results, as a kind of business problem, I think it's I wouldn't say solved, but it's much better than in the past and we're confident that we will continue to generate internationally. Does that answer the questions? Yes. That's very clear. And just a very last one. I mean you've given us the GMV growth for July, 54%. It's 65% in the July. So it sort of feels like maybe the exit rate was maybe towards 45%. I mean, what is it doing in the first few weeks of August? Because it was as expected that momentum is going to decelerate. I'm just trying to get a sense of the speed of that deceleration going into August. I think we have not seen a further deceleration. Also weekly, especially kind of week by week results in our business model, I think we explained that in detail during the IPO, are not so easy to operate because when we do a really interesting campaign in the daily themes model and then last year that was in July and then it's now in August, then just weekly growth rates can fluctuate quite a lot. So we're not looking in detail at that. We would say that kind of we stick to our guidance and at the upper end of that guidance, it's still a slight deceleration. And at the lower end of that guidance, it's a strong deceleration. And honestly, like even if I wanted to, I could not tell you more going forward. I could give you the exact August numbers, but we've decided not to publish that because we don't want to give kind of week by week updates simply knowing that our business is not operated on a week by week basis like year over year growth rates reliably. That's not how it works. I would like the answer to that, too. Yes. No, that's very clear. Thanks for that. And yes, good luck for Q3. Thank you, Graham. We will now take our next question from Christian Salas from HNA. Yes. Good morning, everyone. Thanks for taking my questions. I've got two ones. First of all, on your fulfillment capacity, so far, I think you didn't have any capacity constraints. So could you please share with us what would be the maximum level per quarter sales level per quarter you could reach with the current setup? And secondly, did you have any change in the assortment mix between furniture, so larger items and smaller items in Q2 due to COVID? Thank you. Thank you. So just in terms of kind of first what we're doing in terms of capacity increase and then where we will end up to, right? So we will add selective warehouse capacity to serve the peak demand in Q4. And we might also need to increase our operations management teams, but these investments overall will be insignificant, as we said. And at the same time, we will need to add more stock in accordance with the higher demand. We will actually have to decide this already now. And it will be mostly focused on best sellers and our own private label stock. So we will only add those SKUs, which had a good turnover. In terms of kind of numbers what we can deliver, our estimation of our operations team and our finance team and our own and private label team is that we would be able to operate even up to 80% to 100% year over year growth for Q4 with those investments, which are very small, simply because we can flexibilize, we can go to more shifts, we can spread out certain operations. While we obviously do not expect that this happens, but maybe there's a second lockdown, etcetera. So we're preparing for something where we could deliver up to 80% to 100% growth. The interesting thing is that capacity issues are still might also happen in case growth is very low simply because we now already decided to add those best sellers and then we need warehouse space. So with enabling that growth of up to 80% to 100% year over year for Q4, we at the same time enable also a scenario where we grow zero year over year, which also we don't expect, but for which we are ready. So I think we are able with our and the good thing about our business model is that in the end, there's not a lot of automation because in Home and Living that doesn't make sense. It's basically the warehouses is warehouse space. It's run by our own software. And we have a great team that can train the new people as we need them, which we have proven in Q2. So we're quite confident then for Q4 with those little investments that we had to do, are quite set up for any range between 0100% year over year growth. And still none of this will be super easy, but I think our teams are experts who can deliver that. And then shift in portfolio mix, we haven't really seen a lot there. I mean, have seen obviously home office purchase a little bit more. So in the subcategories, we did see some shifts. So outdoor was really a growth driver because people, I guess, were more at home for and wanted to instead of going to vacation, make sure that their balcony, their terraces are nice. We had more home office furniture sold, but not a lot of like category shift. So people continue to buy very similar categories than before. So nothing for us. I know in fashion, there was a lot that happened there. For us, at least at Westwing, we didn't see that, not to a significant degree. We will now take our next question from Volgo Bosso from Bader Bank. Congratulations on the excellent figures. Three questions, would like also start with the trading update. July GMV growth 54%. Does that mean sales around 48 percent to 49% to get a sales comparison here? Second question, you stated to invest in marketing in the second half. What is your preferred marketing tool which provides the best ROEs for you? So what is your experience and where you want to invest going forward in regard to marketing tools? And finally, third question, given the closure of the stationary stores, do you see an increasing demand from home and living brands to use Westwing as an online distribution channel? And do you have an improved access to, yeah, new and well known brands? Could you provide perhaps some examples which brands are now available for you, which haven't been available for you, whereas pre crisis? So is there any momentum visible in that regard to become more attractive from the consumer's point of view because, brands are more and more relevant? I will answer questions two and three, and then Sebastian will take question one. In terms of marketing, so where do we invest? Where do we see the best ROI? In general, our focus is on organic marketing, which we define as anything that's related to content and not paying for performance. So our biggest channels right now and actually, we continue to believe these are the best ones, are Instagram and Facebook, very clearly for us with the followership that we have there with the ability to reach customers with the ability of multiple content formats like in Instagram, it's the feed, it's the stories, it's the reels, it's Instagram TV. To reach customers is by far the most attractive for us because we can with the content that we produce, which we can also leverage in a daily theme, reach ever more people who at ever more usage, basically leverage that asset ever better. So the ROIs on that are really strong. The second thing we like a lot of investing is refer a friend, meaning customers who refer their friends who are not yet Westwing customers. There's a bonus for both sides in Germany. We're experiment with that. So I think it's EUR30 for both sides. So if you invite someone and that person makes their first purchase, you get a €30 voucher. That person for the first purchase also gets a €30 voucher. And the interesting thing, we can leverage that also with content and tell stories around that and really make sure that the loyal customers that we have also spread the love around. So that's the second big channel. Third is public relations. So just traditional in a way, but now more for online media relationships with journalists, with lifestyle media. So that is something that we invest in. Events, not so much anymore, obviously, right now. Let's see when that comes back. But we're in touch with our journalist relationships all the time. And then we're also investing into new channels. So YouTube is something that we like a lot. We have historically not pushed a lot. Now we push a lot more. YouTube is good. I think TikTok is really interesting. Not even if at some point TikTok were not available in Europe, the content that you produce for TikTok, we can immediately use also for the new reels feature in Instagram, which gave us great advantage when it launched because we were one of the first brands that actually had a lot of TikTok content that we can just transport over to Instagram. So that's something that we also invest into. And we're also on the we're always on the lookout for new platforms like Pinterest is something that's relatively interesting, but still relatively small in Europe. We hope at some point it explodes. So there's a lot. The organic game is like surfing waves of consumer interest, right? And at some point, there will be the next Instagram and at some point, there will be the next Facebook. And we intend to be on all of those platforms in all content formats with our great engaging content. So that's the answer to that, mostly continued focus on organic marketing. The third question was store closures and do we see brands approaching us more. We did see that to some degree. And that's good because a lot of brands are now understanding they need to go online and very interesting way for them to push online without establishing their own infrastructure or testing things. So we do see that. It's not a massive effect, to be honest. We think the effect is more mid to long term as we now engage with more brands. That's also why I would not like to share now specific brand examples. But some of the brands that are historically were hard to get also bigger companies that now are open to discussing, but they're also not fast truders, to be fair. So we had a few brands that we already closed, and that's really good. And but we expect that this kind of the bell has rang for every brand to understand, okay, we need to go online and better now than later. So we are having more deep discussions with our existing brand partners of more interesting relationships. So it's a continuation really. It's not a level shift. And Sebastian for question one? Just to answer your question one, I think in the long run, GMV growth should, like, very much equal the revenue growth, but there are two factors impacting that. One is timing. So GMV basically is recorded at the at the point of the order while the revenue is recorded at the delivery of the order. So there could be timing effects. Can be in both directions, actually, depending whether how the timing actually of the shipping happens. And there's another effect that's the return rate. So basically, revenues are net of returns, while the GMV, obviously is not. So if return rates structurally change, there's also an impact both. I think for the future, I would not assume. So I would, like in the long run, and also for modeling, assume GMV equaling to revenue growth going forward. But obviously, then the reality will tell us that there are some differences due to the two mentioned effects, but nothing to I would spend time modeling actually. Okay. Thank you, and all the best for Thank you. Thank you. Thank you. We will now take our next question from Matthew Garland from Citi. Hi, guys. Thank you for taking my questions. I have three questions. The first one was just around competitive dynamics. Are you seeing obviously, you're increasing your marketing ratio back to more normal levels. Are you seeing kind of competitors doing the same across some of your markets? And then second of all to that, do you kind of see any significant difference in terms of the pricing of your items? I know you're more private label based, but is there a significant difference, I guess, overall in terms of the pricing that you have versus some of those competitors? Second of all, in terms of, obviously, the development of medium term sales growth, how are you thinking about that over the next couple of years? Do you expect kind of an acceleration back to very strong sales growth over the next couple of years? Or do you expect, obviously, for the very difficult comps this year for there to be quite a sharp deceleration next year? Or how should we think about that? And then finally, in terms of the customer dynamics, have you seen any notable kind of differences in customer behavior between either international or Thank you. You, Matthew. I will answer all those three questions. In terms of competitive dynamics, in marketing ratio increases or something, we don't actually see a lot there because we hardly do paid performance marketing. So what happens on organic is pretty distinct from each other because we're not bidding against each other like on paid performance marketing. So that's probably a question to ask the others. We don't see competitive intensity in general increasing or changing. We expect that over time as the market now moves more online, we expect that that will happen at some point. For now, it's pretty similar to in the past. And we see obviously our competitors also growing strongly and delivering good numbers. So I think the market is developing well and that's good I think for all of us. And over time, if we, at some point, which we currently don't foresee, get more into paid performance marketing and significantly increase our budgets there, then we would see competitive intensity in a more granular level. But for organic channels, I think, one, we are the clear leader there and very differently positioned than all the others and really doing more there and really have focused the battlefield there for us, right? But right now in that battle, there's not that much from the others. They focus a lot on paid, which they are doing very well. So no answer on that, think really, unfortunately. And number two, do we see different what's the difference in pricing compared to our competitors? We hardly have a huge product overlap simply because we're increasing our West Wing collection a lot. And when we have similar products, then we typically price to the market, but not beating everyone, but being somewhere in the middle because our customers are very loyal and we're able to convince them that the West Wing experience is more important than a direct price competition. In the Daily Themes business model, we're beating competitors just by default most of the time that's the business model and we arrange with the suppliers there. So I think generally our price levels would be in line with what competitors have, if so slightly higher, probably not as price competitive. Because also in paid performance marketing, which our competitors do more, it's more important to have the perfect price. For us in organic, it's more important to have the match between the consumer expectation and the inspiration and how we sell to them. Second question, long term growth, medium term growth. I think e commerce adoption of the Home and Living category definitely accelerated due to COVID-nineteen. And we've talked a lot about I mean, we founded the company more than nine years ago with the belief that Home and Living e commerce adoptions on the cusp and it was kind of disappointing to see that the market in Home and Living just was slower. And it's natural that it's slower because customers in general are older, the products are harder to operate, etcetera. So there's some barriers to adoption, but it feels like the customers broke through a lot of those barriers in the last few months. And we believe that on this S curve of a penetration curve, we believe that customer behavior has changed structurally and we will also benefit from that long term. But it's not clear to us what the new normal is. So volatility in our growth rate remains pretty high and our outlook continues to be quite uncertain. So mid to long term, we set ourselves the ambition to grow 20% above online market growth. This also has not changed based on the latest developments, but I think as long as the COVID situation in some shape or form continues, there will be low visibility on what the exact growth rate there is. Number three, customer dynamics. And do we see any different behaviors between our international, our DACH markets or any other different customer behaviors? Not really. So the cohorts are really similar in their shape and form. We do see and that's always been the case that monetization is kind of almost on a per capita income ranking, right? So we have the highest monetization per customer in Switzerland and then Germany and then the lowest is I think might be Czech or Slovakia, I'm not sure. But those have been trends forever and nothing really has changed in COVID. We see that our loyal customers ordered more, we got more new customers. And so there's no insight really, which we think is good for us, because it means that the business model continues to operate just as it did before, just customers are more ready to shift their spend into online, because what we saw in the market is obviously that home and living spend in overall has not been faring that well during the COVID situation. It's just that people have shifted their offline spend into online. And that's the interesting thing. If you have a market where the online penetration is something like 5% to 6%, and then the market goes down by 30%, the total market, but a lot of customers shift, the online market can just double without even the overall market being growing. So that's something that we're clearly seeing that customers are shifting their share of wallet more to online like it's been happening in other industries in the recent decade. And we hope that, that continues. We believe it will continue because customers are now used to it. But again, visibility is low. I hope that answers it. Yes. That's great. Thank you. Thank you, Matthew. So it appears there are no further questions at this time. I'd like to turn the conference back to you for any additional or closing remarks. Thank you very much. Thank you for attending. I think we covered it. You, of course, can reach out to us individually if you have more questions or more follow ups. With that, I hope you stay healthy and speak to you soon. Thank you very much. Bye bye.