Good morning, ladies and gentlemen, and welcome to the Westwing Group SE financial year 2025 earnings call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. It is only possible to state question orally 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 and star on your telephone keypad. Please keep in mind that we can only accept questions from participants who provided their full names and the company information in 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 full year 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 full year 2025. After which Sebastian will share the details of Westwing's financial performance. We will then walk you through a financial recap of the first two phases of our three-step value creation plan and share what we will focus on in 2026. Sebastian will then present how strategy and current expectations translate into our guidance for 2026. After our investment highlight summary, we will be happy to take your questions. Let's take a look at Westwing's key achievements of 2025.
We were able to increase our adjusted EBITDA by 84% year-over-year, reaching EUR 44 million at an adjusted EBITDA margin of 9.8%. Revenue increased by 1.1% year-over-year. GMV growth was slightly stronger at +2% year-over-year. Free cash flow more than doubled year-over-year to EUR 34 million, with a net cash position of EUR 92 million at the end of 2025. Free cash flow after leases amounted to EUR 23 million, representing an increase of EUR 25 million compared to 2024. Net working capital stood at -EUR 9 million at the end of 2025. Beyond financials, we again made good progress on our three-step plan to unlock Westwing's full value potential by completing phase II and entering phase III.
Measures included the completed switch to a mostly global or premium smaller product assortment, which led to negative top-line effects, the launch of our website and app in 10 new countries, the opening of seven new stores, the 17% year-over-year growth of our Westwing Collection business, and the strengthening of our premium brand positioning. Last but not least, we made good progress in all our sustainability focus areas. Specifically, we reinforced our climate targets and social standards with suppliers and expanded the sustainability offer within the Westwing Collection. Further details on our progress can be found in our CSRD statement and will also be included in our annual sustainability report to be published on the 1st of April. Let's now take a quick look at our 2025 financial performance compared to our guidance.
We kept our promises and delivered both in terms of revenue and adjusted EBITDA. With a strong top line in the fourth quarter, we reached the upper half of our full year revenue guidance with a growth of 1.1%. Guidance was -4% to +2%. In terms of profitability, we significantly exceeded our initial target of EUR 25 million-EUR 35 million at a corresponding adjusted EBITDA margin of 6%-8%. We closed the year with an adjusted EBITDA of EUR 44 million, as just said, representing an adjusted EBITDA margin of almost 10%. This performance generated free cash flow of EUR 34 million, according to the IFRS definition, and EUR 23 million of free cash flow after lease payments. This demonstrates the strong cash conversion of our business.
Overall, these results highlight the positive financial effects of the company's successful business transformation over the past three years, which we are going to explain in more detail in the recap section. As always, let's have a quick look at our three-step value creation plan, which we initiated in 2022. 2025 marked a year of transition for us as we completed the second phase of building a scalable platform. We also entered the third phase, where we began to focus on key growth levers to be able to scale with operating leverage from 2026 onwards. More on that in a few minutes. First, I hand over to Sebastian for details on our financial performance of 2025.
Thank you, Andreas Hoerning, and good morning, everyone. I'm Sebastian Westrich, the CFO of Westwing. Let me start with details on our top line. We achieved revenue growth of 1% for the full year 2025 and 7% for the fourth quarter of the year, despite a dampening effect on top line due to the changes in product assortment. As communicated in our trading update, the fourth quarter was largely driven by the strong Black Week sales event and a strong year-end. Thanks to high productivity and smooth operations in our logistics center, we were able to successfully ship and deliver a significant share of peak orders. While growth in the DACH segment throughout 2025 was impacted by the changes in product assortment, the international segment already showed a nice revenue growth rate of 15% in the fourth quarter, driven by the positive country expansion effects.
Looking at our P&L, we see improvements across all P&L lines in the fourth quarter, as well as full year 2025. These are the strongest results in Westwing's history, excluding the exceptional COVID-driven peak in 2020, both in terms of relative margins as well as absolute profits. Our 2025 adjusted EBITDA increased by EUR 20 million to EUR 44 million. That's plus 84% year-over-year. This was mainly driven by our performance in the fourth quarter, in which more than doubled our adjusted EBITDA year-over-year. In the following, I will walk you through our P&L line by line, starting always with comments on our performance in the fourth quarter. Let us start with a closer look at our gross margin. In Q4, we increased our gross margin year-over-year by 3.7 percentage points to 54.3%.
In addition to the positive effect from a higher Westwing Collection share, we benefited from lower sea freight costs. Furthermore, the strong growth in Q4 reduced the impact of reach-based inventory depreciation while increasing volume-related discounts. For the full year 2025, we realized a gross margin increase of 2.1 percentage points. The fulfillment ratio improved by 0.4 percentage points for both Q4 and the full year. This improvement was mainly due to an increased average order value, which typically is beneficial for fulfillment cost ratio as well as efficiency gains in our warehouse. These improvements overcompensated negative effects from country expansion, which include lower line haul utilization rates during ramp up as well as longer line haul distances.
The improvement in gross margin and fulfillment ratio led to an increase in contribution margin of 4.1 percentage points in Q4 and of 2.6 percentage points for the full year. We are very pleased with these significant margin gains. Moving down the P&L, our marketing ratio improved significantly in Q4, declining by 2.1 percentage points year over year. The ratio also showed a clear improvement on a full year basis. While we had and still have higher marketing investments for the new countries, the ratio in Q4 was positively impacted by the very strong Black Week sales event, which came with large scale effects and high marketing efficiency. In addition, we spent less on brand-related investments compared to the fourth quarter of 2024.
Our G&A ratio, which also includes other results, decreased in line with the trend of previous quarters by more than 2 percentage points, both in Q4 and for the full year 2025. This reflects the efficiency gains of our 2024 complexity reduction measures and demonstrates that we have built a truly scalable platform. Overall, this led to an adjusted EBIT margin of 13.2% in Q4, up 8.5 percentage points year-over-year. Full year adjusted EBIT is up by 5.6 percentage points, reaching a 6.5% adjusted EBIT margin. G&A ratio slightly decreased in Q4 as we had less G&A for internally developed tech assets, given the switch to a mostly SaaS-based platform.
For the full year, 2025, G&A decreased year-over-year also due to the full-year impact from our 2024 complexity reduction measures, including office and warehouse closures, which were implemented in the first half of 2024. Please note that both G&A and D&A include cost increases from our 2025 store expansion, which will also lead to full-year effects in 2026. Let us now finish the P&L review with comments on our adjusted EBITDA margin. In Q4, the adjusted EBITDA margin improved by 8.1 percentage points year-over-year to 15.8%. Our full-year adjusted EBITDA margin improved by 4.4 percentage points year-over-year to 9.8%.
We are very pleased with this result as it reflects the significant effort we have put into transforming our business and allows us to see now the true potential of the company more clearly. To provide you with a full picture, let me also comment quickly on the adjustments to our EBITDA for the full year 2025 and our net result. In total, we adjusted restructuring expenses of EUR 2.3 million and EUR 7.8 million related to share-based payments. Only EUR 0.8 million were cash effective. The majority of the adjustments related to revaluation effects of outstanding stock options as a result of the significant share price increase in 2025.
Our unadjusted consolidated income statement for 2025 shows earnings before tax of EUR 80 million, up by EUR 23 million year-over-year, and earnings after tax of EUR 29 million, up by EUR 34 million. Also really strong results. The higher increase in net income of about EUR 11 million year-over-year compared to the increase in earnings before tax is driven by a positive impact from deferred tax assets. Let's now move on to profitability on segment level. We significantly improved profitability both in terms of absolute numbers as well as in terms of adjusted EBITDA margin in both segments. I want to highlight and comment on two aspects. First is the strong increase in adjusted EBITDA across both segments. For the full year, 2025, adjusted EBITDA nearly doubled in the international segment and increased by around 70% in the DACH segment.
The second aspect is the 15.5% adjusted EBITDA margin that we achieved in Q4 in both the DACH and the international segment. The similarly high margins in both segments reflect the successful execution of phase II of our three-step value creation plan focused on building a scalable platform. Compared to 2024, we now operate a centralized and scalable platform combined with a largely global, more premium and more focused product assortment. As a result, margins across both segments are converging with only minor differences in gross margin and fulfillment ratios between countries, which largely offset each other at segment level. While both segments benefit from the same platform and assortment, the profitability impact of expansion initiatives differs. In the DACH segment, our 2025 expansion focused on store openings with ramp-up investments in personnel, operating expenses, and lease costs affecting both G&A and D&A.
In contrast, expansion in the international segment is primarily driven by entry into new countries where ramp-up investments are more heavily weighted towards marketing, leveraging our existing platforms. While the expansion effects did not cause a major difference between the two segments in Q4, they may lead to differences in coming quarters depending on the timing and scale of investments. We are very pleased with the progress on segment level which clearly demonstrates that the levers of our three-step value creation plan are delivering the intended results. Let us now take a look at our net working capital and our net inventory. By the end of 2025, net working capital remained clearly negative at -EUR 9 million. Also, our net working capital increased slightly year-over-year. Our net inventory levels decreased compared to 2024, despite a 17% year-over-year growth in the more inventory-intensive Westwing Collection.
This is a result of our ongoing initiatives to improve inventory management and a stronger than expected Q4 top line. On the next slide, you see CapEx and CapEx ratio for the full year 2025 compared to 2024. Despite investing about EUR 2 million for store openings in 2025, our overall CapEx decreased by EUR 2 million year-over-year with a CapEx ratio of 1.9% of revenue in full year 2025. The decrease in CapEx is attributed to the decline in our investments into intangible assets as we transition to a software as a service-based technology platform. We expect our CapEx ratio to benefit from scale effects as we grow our top line. In other words, without major investments such as additional store openings, the CapEx ratio should gradually decline with increasing revenue as we operate a CapEx-light business model. Moving on to net cash.
We are pleased to report a strong net cash balance sheet position of EUR 92 million at the end of December, EUR 23 million above previous year's levels. This increase includes a negative cash out of EUR 4 million for stock option settlements. Free cash flow was at EUR 35 million in 2025, which takes into account the negative effects from the above-mentioned stock option payouts. In 2025, we had lease payments of EUR 11 million for offices, our logistics center, as well as our stores, which are shown in the financing cash flow according to IFRS standards. This led to a free cash flow after these payments of EUR 23 million. Also important to mention is that we maintain a strong balance sheet with no debt other than the IFRS 16 lease obligations and IFRS 2 liabilities from cash settled stock option programs.
Please note that the net cash position of EUR 92 million at the end of 2025 is slightly below the unaudited number that was published in our trading update in January. The reason for this is a reclassification within current assets from cash and equivalents to receivables from payment service providers. With EUR 92 million of cash, a CapEx light business model, and a completed turnaround, disciplined capital allocation becomes increasingly important. We are clearly committed to maximizing shareholder returns beyond operational performance, guided by five key principles. First, we maintain a strong balance sheet to navigate a volatile macro environment and preserve strategic flexibility. Second, we invest selectively in opportunities that offer attractive returns. Third, we actively manage dilution from outstanding stock options. This includes forcing the exercise of legacy programs without an end date of former employees at relatively low share price levels with settlement in cash.
Further details on our progress can be found in the appendix to this presentation. Fourth, we retain an appropriate level of treasury shares to hedge dilution and cash risk from remaining stock option programs. Fifth, we return success capital to shareholders through share buybacks and earnings per share accretive share cancellations. So far, we've demonstrated strong execution against these principles. Between 2022 and 2025, we invested more than EUR 15 million in approximately 1.8 million treasury shares. In early February, we canceled about 1.3 million treasury shares and announced a new share buyback program of up to EUR 8 million or up to 700,000 shares running until the end of July, 2026. So far, we have repurchased around 150,000 shares for approximately EUR 2.4 million.
In addition, we reduced outstanding stock options by about 15% from 2023 until the end of last year. On the right-hand side of the chart, you can see the development for our weighted average shares outstanding since 2022, reflecting the impact of our share buyback programs. Together with our operational improvements, this supports continued growth in earnings per share, which we will present to you in the recap section. Over to you, Andreas.
Thank you, Sebastian. This next section, I will recap the first two phases of our three-step value creation plan and outline our priorities for 2026. Let me start with the recap. Now, with the completion of phase II in 2025, the financial impact of our strategic transformation is fully visible, and that is what I would like to highlight today. The first phase of our three-step value creation plan spanned from mid-2022 to the end of 2023 and included the turnaround of the company as well as its transition to the OneWestwing commercial model with a stronger premium brand positioning. The second phase started in 2024 with a focus on building a lean and scalable platform and was completed mid-2025. Core of this phase was complexity reduction, leading to significant cost decreases, efficiency gains, and scalability.
Given the scale of change required to achieve these strategic and operational milestones, it is clear that we planned and executed a true transformation. However, we did not set out to deliver a transformation for its own sake or for short-term gains. We defined a long-term value creation plan. Value creation needs to be reflected in a significantly improved financial performance. Let's now take a look at how this transformation strengthened our financial model. What you see here is a P&L comparison of full year 2022 and full year 2025. The takeaway is obvious. Our new commercial models plus the complexity reduction fundamentally changed our P&L. Let us go through the P&L line by line and look at key changes. First is gross margin. Compared to 2022, we improved it by almost 6 percentage points.
The reason for the improvement is simple. We changed what we sell. I'll share details on this in a minute. Next is the fulfillment ratio, up by 3.3 percentage points compared to 2022. This ratio also benefited from the assortment changes, which led to increased average order values. In addition, we centralized our logistics operations, closed warehouses, and realized efficiency gains across freight and warehouse operations. Gross margin and fulfillment ratio together amounted to a contribution margin of 34.5% in 2025, an increase of 9.2 percentage points compared to 2022. Let's move on to our marketing ratio. It increased by 3 percentage points compared to 2022. There are three major reasons for this improvement. Firstly, the investments into premium brand positioning. Secondly, we now operate a full funnel marketing model with higher spend on conversion in the lower funnel.
Thirdly, in 2025, we invested into the ramp-up of 11 new countries, which mainly requires marketing investments to build awareness and a customer base. The next P&L line shows our G&A ratio, including other results. It improved by 5.5 percentage points to 15.9%. I'll share details on this topic in a separate slide. It is important to note that we reduced the G&A ratio in absence of meaningful scale effects and while we invested into store expansion. This brings us to adjusted EBIT margin, up 11.6 percentage points since 2022 in just three years. Moving further down, we see additional improvements in D&A ratio as we reduce D&A on internally developed technology assets, as Sebastian just said, and lease through our complexity reduction measures. It also includes lease costs to our new stores.
As a result, we improved our adjusted EBITDA margin in 2025 compared to 2022 by almost 11 percentage points. The numbers clearly show that the business we run today is structurally very profitable and attractive. Let me show you two slides on the topics we changed what we sell and G&A costs. While absolute top line did not change much since 2022, we changed what we sell to a very large extent. The left-hand side of the slide shows the GMV of our Westwing Collection business and of our third-party assortment over time. In 2022, the dominant business model at Westwing was the shopping club, which primarily offered third-party products at a high discount. The new commercial model, which we introduced in 2023, changed this. It put the shop and our high-margin Westwing Collection to the forefront, and our marketing activities were adjusted accordingly.
In 2024, we accelerated the transition with the introduction of a mostly global, more premium, and smaller product assortment through the reduction of non-premium third-party, the end to localized assortment, and the go live of new third-party design brands. The change in what we sell is reflected in the compound annual growth rate of the Westwing Collection versus the assortment of third-party suppliers. While our Westwing Collection grew at a CAGR of 18%, the third-party GMV declined by 13% on average per year. It is important to mention that while our third-party GMV overall is shrinking, the premium or design brand part is growing fast. Below the chart, you can see that the change also led to a lot less discounting of products versus the original selling price or recommended retail price.
The GMV share that came with a discount of 10% or less was only 34% in 2022, and we almost doubled that share to 64% in 2025. In other words, today, we make close to 2/3 of our top line on full price or close to full price, up to 10% off, while that ratio was only 1/3 in 2022. Let's now briefly talk about the G&A ratio improvement. In 2022, after the COVID bubble in e-commerce got burst, Westwing had unsustainable levels of personnel and related costs. We chose our new commercial model also with the aim of being able to run it with a reasonable team size. What you can see on the chart is that we are able to run our business now with roughly half the team size of 2022, with more or less the same top line.
Our new commercial model allowed us to consolidate activities and centralize business functions, including the closure of several offices. It also allowed us to switch from a proprietary in-house developed tech stack to a SaaS-based technology platform. All of that was, as you can imagine, very painful for our teams as we had to part ways with lots of valued colleagues. It was inevitable if we wanted to provide Westwing with a future. Last but not least, the new model allows us to now scale with operating leverage, adding to the increase in personnel costs. We so far added roughly 80 positions for our expansion efforts, mainly for our newly opened stores. This is already included in the numbers you see on the chart. Putting everything together again and switching from percentage of revenue to absolute numbers, the next slide offers another view on the outcome of our transformation.
The improvement in absolute adjusted EBITDA from 2022 to 2025 by P&L lines. In just three years, we improved our adjusted EBITDA by EUR 48 million. As one of our analysts recently stated, "A textbook turnaround." I want to use this opportunity for a shout-out to the entire Westwing team, as this is the result of lots of hard work and, as we say over here, doing business creatively. Our turnaround is also reflected in our earnings per share, which you can see on the following slide. The dark green bars show unadjusted earnings per share. The light green bars show earnings per share on an adjusted basis. Adjustments include changes in fair value of employee stock option programs, as well as restructuring expenses. The earnings per share are calculated by dividing the respective earnings by the weighted average number of shares in circulation.
This means outstanding shares after deducting treasury shares. The large improvement of 2025 stems primarily from the very profitable fourth quarter, as well as positive impacts from deferred tax assets following the successful turnaround that Sebastian mentioned beforehand. In addition, our tender offer at the end of 2024 to buy back shares had a very positive impact on earnings per share for 2025. Now that we've seen the financial impact of our transformation, let me turn to our key focus areas for 2026. The phase we've been in since mid-2025 is step 3 of our value creation plan, scaling with operating leverage. In simple terms, this means driving growth while continuing to deliver strong profitability, even against rather weak consumer sentiment and other short-term negative macro impacts.
Let's see why we believe we can achieve this in 2026 by looking at the development of the Westwing Collection, potential market share gains in existing geographies, and country expansion efforts. As you can see on this slide, cost discipline is another lever of the third phase. As it is embedded in everything we do, I will not address it separately. Let's have a quick look at our Westwing Collection lever. The Westwing Collection is our gorgeous, sustainable, private label product brand, which supports both 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. In the full year 2025, we reached an all-time high GMV of EUR 321 million, representing a group GMV share of 63%.
Looking ahead to 2026, we expect to continue scaling the Westwing Collection supported by three main levers. Firstly, new product launches across both existing and new home and living categories, which unlock additional sales potential. Secondly, our store and country expansion, which will make our products accessible to even more design lovers. Thirdly, our investments into brand awareness and positioning, which are typically centered around the Westwing Collection, such as the recent Wolke Sofa campaign. At the same time, when looking at GMV share of the Westwing Collection, we expect the pace of share gains to be moderate compared to previous years. There are three main reasons for this. First, third-party GMV is expected to stabilize in 2026. The active reduction in this part of the assortment contributed heavily to the increase in Westwing Collection share in the past.
Second, we're driving growth in a particular segment of third-party assortment, the design brands, which are growing fast at the moment, also because of the onboarding of new ones. Third, just recently, we've seen a trading down of customers from larger items to smaller items. As the Westwing Collection is the strongest in large furniture, this is impacting Westwing Collection share at the moment. Sebastian will elaborate a bit more on what we see in a few minutes. While these three drivers are significant, we continue to see clear top-line growth potential across both the key assortment areas of ours, Westwing Collection and third-party design brands. Besides growth in our premium product assortment, we see offline store expansion as a lever for share gains in existing markets. Let me start with a quick recap of the strategic rationale behind our stores.
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. Our stores allow us to provide such a holistic shopping experience across the multi-touch customer journey. In addition, offline stores help us to further strengthen our brand presence and positioning through a real-life brand experience. This is why we believe in stores as a lever for share gains in existing markets. While we opened seven new stores in 2025, we plan to add only one additional store in Frankfurt in 2026. In addition, we will relocate the Munich warm-up store to its permanent location in the heart of the city, which allows for even stronger physical presence.
The main reason for the slower expansion pace in 2026 is that we want to focus on operational excellence and improved customer experience across our expanded store portfolio before moving into potential next phase of store openings. So fa r, we are very pleased with the development of our stores. However, given the relatively short time since most of the openings, it is still too early to draw real conclusions. Let's move on from gaining market share in existing geographies to entering new markets. One month ago, we reached a major milestone by entering the United Kingdom, representing our largest expansion so far. We're doubling down on this market entry as we speak. Nearly our full product assortment and all our premium services are available to the customer.
The latter includes our design service, tailored B2B solutions, and our Westwing Delivery Service, with a small number of Westwing branded trucks visible across the London area. To drive new customer acquisition, we have a full funnel marketing activation in place across both paid and organic channels. Given the significantly larger market potential of the U.K. compared to the countries we entered in 2025, we expect a higher level of marketing investment compared to 25 as we ramp up our U.K. business. Once we've built sufficient visibility on demand patterns, we will store bestsellers and U.K.-specific products, for example, lighting with a local electrical plugs, in a U.K.-based warehouse to further enhance customer experience and delivery efficiency. This warehouse will be operated by a third-party logistics partner, ensuring flexibility as we scale the business and supporting future top-line growth in the U.K.
U.K. returns are already being handled by this partner today. With this latest development, we're excited to see the impact that the U.K. market might have on our growth and brand trajectory. In 2026, we will not only drive growth in the United Kingdom, but also across our other expansion countries. In 2024 and 2025, we launched a total of 11 countries, and we've already seen the early signs of success from these expansion initiatives. For instance, nearly all of the 11 countries have either already reached full payback or are on track to deliver full payback within the first 12 months of operations. This underlines the strength of our expansion playbook, delivering short payback periods through a lean and scalable setup. Besides payback time, we are also pleased with top-line contributions from our 11 expansion countries.
In Q4, our customers in these countries collectively accounted for 6% of our total GMV, and we expect this share to increase further over the next quarters. To continue to drive growth in 2026, we plan to invest up to EUR 10 million in marketing in our expansion countries, with a significant part allocated to the U.K. Key initiatives are scheduled for the second half of 2026, including brand investments. The overall investment size will depend on expected return on investment and the overall development of the group over the next months. In previous calls, we mentioned that we aim to be present in approximately all European countries in the midterm. As the remaining non-served countries are significantly smaller than the U.K., we will focus our efforts in 2026 on the U.K. and the 2024, 2025 expansion countries.
We might open a few smaller additional ones, such as the Baltics. In summary, through our Westwing Collection, offline stores, and country expansion efforts, we are well positioned to drive growth in 2026 while still delivering high profitability. That being said, there may be temporary headwinds from the ongoing conflict in the Middle East, which could impact our top line and profitability in the near term. Sebastian will comment on this as part of our financial outlook in the next section. Sebastian, over to you.
Thank you, Andreas. Before sharing our financial outlook with you, let me first provide you with information on current trading and key assumptions on 2026, including already visible and expected impact from the recent escalation of the conflict in the Middle East. I will start with current trading. This slide shows the GMV development year-over-year since Q1 2025 by quarter. The first two quarters of 2025 were impacted by the assortment changes and did not yet see a relevant top-line contribution from expansion measures. This is why growth rates were negative. In the second half of 2025, the effects from the assortment changes bottomed out and expansion impact increased, with Q4 2025 showing a strong GMV growth of 9%. Q1 2026 started even better, with a forecasted year-over-year GMV growth of about 12%.
However, we haven't returned to sustained structural growth yet. To put this into context, it is important to understand the key drivers behind our recent performance. Growth in both Q4 2025 and Q1 2026 was significantly supported by highly successful mega sales events. In Q4, the Black Week sales event exceeded our growth target significantly. Similarly, our January sales event delivered very strong year-over-year growth, significantly lifting the overall performance of the quarter. Outside of these events, underlying trends were more moderate. GMV growth in February was still solid at around 7%, but following the escalation of the conflict in the Middle East, we observed a slowdown in March, likely reflecting much weaker consumer sentiment. As a result, while we delivered a strong Q4 and an even stronger start to Q1, the current growth rate cannot be seen as the new baseline.
Looking ahead, we expect growth to normalize at a lower level in Q2. Performance in the second half of the year will largely depend on the development of the geopolitical situation and its impact on consumer demand. Let us now take a closer look at our assumptions for 2026. Starting with country expansion, we are very pleased with the progress so far. The early launch in the U.K. in February provides additional upside potential, and we expect country expansion to be our most important growth driver in 2026. When it comes to share gains in existing markets, a key focus area for us, the picture is more mixed. While the January sales event was extremely successful, growth moderated afterwards, and the macroeconomic environment remains very challenging alongside increasing competition.
Importantly, consumer sentiment in Germany, our largest market, had already weakened in February even before the escalation of the conflict in the Middle East. Data from research institutes shows declining willingness to spend and a further increase in savings rates, reaching their highest level since 28. Other indicators point in a similar direction. The Ifo Business Climate Index, for example, was released this week and reported the steepest decline in business expectations of the construction sector since March 2022. At a European level, the European Commission's March flash estimate also showed a sharp decline in consumer confidence, reaching its lowest level since October 2023. In a recent McKinsey consumer survey from the beginning of March identified home and living as one of the categories in which people are most likely to reduce spending over the next three months.
Against this backdrop, we currently expect a negative short-term impact on our top line in Q2. Visibility beyond Q2 remains limited given uncertainties around energy prices and supply dynamics. On the positive side, we saw growth in active customers and a solid increase in order volumes in Q1. This indicates continued demand, albeit at a lower average ticket sizes. As commented with regards to current trading in Q1, our GMV is growing in February and March, despite significantly worsened consumer sentiment. Turning to our assortment, we expect the Westwing Collection to continue growing, although at a lower pace in terms of GMV share gains as the tailwind from prior assortment changes normalizes. Andreas just commented on this. This effect is already visible in Q1. At the same time, we are seeing encouraging momentum in our third-party premium brands.
From a profitability perspective, we already saw headwinds in Q1 driven by weaker consumer sentiment. Average order values declined, indicating some degree of trading down, which weighs on gross margin and unit economics. In addition, we are seeing signs of pricing pressure from increasing competition. We also see first signs of cost pressure from logistics with increasing freight rates driven by higher fuel prices, including rising bunker adjustment factors for sea freight. Looking at the full year, we expect the headwinds observed in Q1 to continue into Q2. Beyond that visibility remains limited given the very uncertain macro environment. Another important factor for profitability is our U.K. expansion. We are confident in its long-term return potential and therefore plan to invest meaningfully into customer acquisition and brand. Given the size of the opportunity, ramp-up investments are expected to be higher than in our 2025 expansion initiatives.
To summarize, we had a very strong start to the year, supported by a successful January sales event, and we remain confident in delivering growth in 2026, driven by our proven growth levers. At the same time, we have seen February and March trading at lower levels, with negative impact from the conflict in the Middle East expected to weigh on our top line, particularly in the second quarter. Most importantly, we remain confident in delivering strong profitability overall, although we expect some margin and cost pressure, especially in the first half of the year, due to the current macroeconomic environment. Based on these assumptions, we have defined the guidance for 2026 as follows. We expect revenue in the range of EUR 470 million-EUR 495 million, corresponding to a growth of 5%-10%.
We set a wider range to reflect the high uncertainties around the macroeconomic situation, which are captured in the lower end of the range. The lower end of the guidance assumes no further recovery following a dip in Q2. At the same time, we still see a chance for an improvement in consumer sentiment during the second quarter, which would support performance towards the upper end of our guidance. This assumes a return to growth across both segments over the remainder of the year. This outlook is consistent with the ambition outlined last year, including a return to a high single-digit to double-digit growth in 2026. It is important to note that our 2026 ambition was defined at the beginning of last year based on the assumption of a relatively weak but stable macroeconomic environment.
This did not factor in the recent developments in the Middle East and the resulting further decline in macro conditions. With regards to profitability, we expect adjusted EBITDA in the range of EUR 36 million-EUR 48 million, with a midpoint at EUR 42 million. Again, this guidance reflects potential risks from the conflict in the Middle East, which is why I have adopted a wider guidance range. I've already commented on expecting margin and cost effects on the previous slide, which are expected to impact our profitability compared to 2025. The guidance also assumes continued investments in our expansion levers where we see a potential of attractive returns. We believe it is the right approach to leverage our strong financial position and invest through the cycle in a period of temporary market headwinds.
At the same time, a recovery in consumer sentiment could offer upside potential, supporting adjusted EBITDA towards the upper end of the guidance range with the margins approaching 10%. In terms of cash, we expect continued strong operational cash conversion from adjusted EBITDA, broadly in line with 2025. Let me add here a note on potential cash outflows from stock option exercises, which are included in our IFRS free cash flow. As shown in our cash bridge earlier in this call, cash settlements of stock options amount to approximately EUR 4 million in 2025. Depending on exercise levels and share price development, this figure could exceed EUR 10 million in 2026.
This means that if a similar amount of cash was converted in 2026 as in 2025, free cash flow could be significantly lower based solely on the higher cash outflow from stock option exercises. Stock option exercises will be driven by our active management of dilution and cash risk from legacy programs as well as ordinary exercises. Let me conclude now with some final remarks on our outlook. While our outlook reflects the current trading environment and early signs of inflationary pressure following the escalation of the conflict in the Middle East, it does not assume a scenario of a prolonged conflict or a severe energy crisis, including potential energy supply disruptions and significantly increased inflation. Given the high level of uncertainty, we also are not providing a specific outlook beyond 2026.
At the same time, I would like to emphasize that our underlying performance remains unchanged. We continue to see achievable growth in the high single-digit to double-digit % range for our business model, alongside further improvements in profitability and strong cash conversion. We remain focused on executing the growth levers of the third phase of our three-step value creation plan while navigating the current environment with discipline and foresight and maintaining a clear focus on long-term shareholder value creation. With that, I hand back to Andreas to conclude with our key investment highlights.
Thank you, Sebastian. Let's briefly recap the investment highlights. First, we have a unique, relevant customer value proposition through the specific assortment and the way we serve our customers. Second, the market potential is huge in our existing geographies as well as beyond. Third, we are developing the super brand in design with high loyalty and true potential to grow further. Fourth, we have high and increasing margins as well as operating leverage while we scale. Fifth, we have a great balance sheet with a strong cash position and no debt, strong net working capital and low CapEx. All of this will lead us in the midterm to 10%+ adjusted EBITDA and a continued strong cash conversion, which also allows us to continue investing through the cycle, as Sebastian just mentioned, even in the presence of temporary headwinds from the ongoing conflict in the Middle East.
Sebastian and I are now happy to take your questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press nine and the star key on your telephone keypad. If you would like to cancel your question, please press three and the star key. Please press nine and the star key if you would like to ask a question. I will repeat it again. Please press nine and the star key if you would like to ask a question. We have the first question from Volker Bosse from Baader Bank. The floor is yours.
Yeah. Hello, gentlemen. Volker Bosse from Baader Bank. Congratulations on the great improvements and thanks also for the detailed current trading indications which you already presented. I would have three questions. I would like to start with the expansion into new country. Is it also fair to assume, and is it also baked into your guidance that you expect a return to sustainable customer growth in 2026 and the years further? Yeah, first also on the KPI customer growth, how do you look at that? The second would be on the store expansion. You provided all the details, but how does it play into the expansion of the own delivery service or the interior design services, and how are your plans on that? How did that develop?
I know you had some pilots here in Munich, for example, in that regard for these two services. What is here the outcome and the further planning also for other locations and cities? The third one, I was impressed to see that inventory is down despite the expansion country-wise and store-wise. Perhaps more detail, how was it achievable. As I would have expected inventories to go up. Yeah, would be great to have some clarification on the secrets here. Thank you.
Thank you so much, Volker, for your questions. I'll take the one on store expansion and the services, and then I'll hand over to Sebastian for the questions on customer growth and inventory regarding expansion. On the store expansion you asked, given that we now have more stores, nine in total, how does that play into or how does that work together with our own delivery service, you ask, and our Westwing Design Service, interior design service. On the delivery service, while there is obviously, the delivery service is actually our Westwing branded service that delivers large furniture in the major European cities. We started off in Munich to deliver to our customers sofas and beds, etc., with an own delivery fleet.
We expanded that first to other major German cities and then beyond Germany. We're also present, for example, as we said, in London now, present in Paris, in Warsaw, in Vienna, for example. While the delivery service does support the store also in managing supply, it is largely independent of the stores. This service operates in cities where we don't have stores. The main rationale behind this delivery service is the improved customer experience. This is not an efficiency lever. This is a customer experience lever. Because last mile experience, especially for the delivery of large furniture, can be quite tedious for customers.
Given our premium brand positioning, we believe that we need to offer a superior service where we can and where it makes economic sense versus what we typically see in the market. That's the Westwing Delivery Service. The second one you referred to was the Westwing Design Service. What our team in the Westwing Design Service does is to provide our customers with customized designs for their homes. It can be a full house, a full apartment. It can also be individual rooms where we create close to realistic models of what a room or a house could look like fully furnished with Westwing products. This service has been increasing and has been growing very nicely.
This one is more closely connected to the stores, and that was your question, because we offer in the stores not just regular consultation through our sales assistant, but we also offer the Westwing Design Service in nearly all of our stores. We have a separate room there in the stores where you can come, you can book an appointment, and you can sit down there with a Westwing Design Service colleague of ours and go through the changes that you would like to do to your interior in your house. We also offer this design service online. This is how we started before we had stores. This is a nice complimentary service for the customers that would like to do this offline, sitting face-to-face with a Westwing interior designer. They can do this also in the stores.
This is obviously supporting the growth not only of the design service but also of the stores. This is actually one of the strong levers that we see over the next years also for the top line growth in our stores. It's a wonderful combination. Westwing Delivery Service is only kind of a support on the supply chain. Westwing Design Service is closely interlinked with our stores. Does that answer your question on stores and delivery service and design service, Volker?
Yeah. Thank you. It's good to hear that you already expanded this.
Yes
... delivery service so massively that I was not aware of that. Thanks.
Yeah.
It's also in cities where you have no stores yet.
Yes.
Right?
Yes.
Okay.
That's right. That's right.
In seven cities available. Okay, cool.
Maybe a last comment on the expansion of the design service. We launched this first in Germany, and we now are expanding into more countries. As we mentioned, we also already have the design service live in the U.K. We are also bringing it live, for instance, in Poland, also in local language and in a few other countries in English. This is also expanding while we speak.
Good. Thank you.
With that being said, let me hand over to Sebastian for the other two questions of yours, Volker.
Thank you.
Hi, Volker. Thanks for your questions. I will start with your first question on the development of active customers. Let's first recap on the reasons for the decline in active customers over the past quarter. This was driven by the assortment changes, which were implemented first in the international segment and then followed by the DACH segment. That's why we saw this decline in active customers. The good thing is that you already can see in our Q4 numbers that the active customers grew quarter-over-quarter by 3%.
Yep. Mm-hmm
There is already a positive trend. We see also a positive trend in Q1, even with a year-over-year increase. If you look at our midpoint guidance with about 7.5% growth, we assume that this is then also driven by some increase in active customers throughout the year. I hope this answers the questions. Overall, we are confident that the negative effects bottom out and as we return to growth in 2026.
Thank you.
Second question was on inventory levels and how we managed to achieve the inventory levels at the year-end. I think there are two main aspects. First aspect that, of course, we are continuously looking for measures to improve inventory management in terms of optimizing supply streams, optimizing demand forecasting. This is one driver. Another very important driver in Q4, of course, also was the very strong top line in Q4, and there we sold more than expected, and this also drives down inventory levels, of course. Even without such strong top line, we would have been very pleased with our inventory levels at the year-end.
If I may add, because you, Volker, I think you asked the question also in the context of expansion. The expansion in continental Europe, what we did in 2024, 2025, this actually improves inventory trends because we sell the exact same products in all of those markets, and we increase top line with the same assortment. In the U.K., it's slightly different. The majority of the assortment is also the same as in continental Europe, but you have some specific U.K.-specific regulation. For instance, lighting needs the electric plugs for the U.K. Then also, when it comes to upholstered furniture, there's certain regulations on, for instance, foam and fabrics on fire retardancy. There we actually slightly change the products, and then have U.K.-specific products that we at the moment serve from our central warehouse and will be serving from our U.K. warehouse once that ramps up.
Understood. Thank you. Thank you very much and all the best, especially for your journey into U.K. Thank you.
Thanks, Volker.
Thank you.
Thank you. If you would like to ask a question please press nine and the star key on your telephone keypad. We have one more question from Michael Heider from Berenberg Bank. The floor is yours.
Yes. Hi, good morning. Thank you also from my side for this very detailed presentation. There's very few questions left. I have two and one you already touched upon on your last answer, but specifically on inventory in the U.K. What is the timeline for the opening of the dedicated warehouse? That would be the first question. Maybe can you also quantify what the net working capital or inventory impact of U.K.-specific inventory will have, yeah, in figures maybe. Second question, just like technicality. You had a very nice tax refund in 2025. What do you expect for 2026? Thanks.
Thank you so much, Michael, for your questions. I'll take the one on inventory in the U.K. and then hand over to Sebastian for the tax question. You asked about the warehouse in the U.K., when it goes live. Our partner in the U.K. is already handling customer returns. That means that if a customer purchased a product today on the westwing.co.uk website, and if, which happens not very often, but obviously sometimes if they return a product, then this product does not go all the way back to our central warehouse in Poland, but it remains within the U.K., and then can be resold from there. The full implementation of the U.K. warehouse happens in July.
That is when we also start outbound shipping from the U.K. warehouse. That means we will then start to store locally bestsellers and the U.K.-specific products that I just mentioned. Those we will store their bestsellers increasingly over time as we gather data. We start that in July. The last point that you asked there was what is roughly the increase in inventory that we expect from this U.K. warehouse. For this year, we have an expectation of a very slight increase of our inventory. I mean, our inventory December 2025 was roughly in total in our Polish central warehouse EUR 45 million. The U.K. warehouse will likely add about EUR 1-2 million from July to December.
We don't have any numbers yet on beyond 2026. That obviously depends on the development of the top line in the U.K. and also the product mix in the U.K. We believe that while this adds slightly on net working capital, we will be able to achieve higher growth and better profitability with this because we will be able to offer customers shorter delivery times on the products that are stored in the U.K. We also have the possibility to reduce logistics costs. For instance, when we ship products directly from our suppliers to the U.K. warehouse, then we obviously skip the central warehouse, which comes with reduced handling costs and line haul costs. That's the rationale of the U.K. warehouse. It's very flexible.
It's handled by our partner, so that's why we can ramp it up and down as we need to, and we can provide more visibility on inventory, obviously, in the following earnings calls, whenever we see updates on this. That being said, Michael, I'll hand over to Sebastian for the question on tax, what is expected for 2026. I think that was the question.
Yes. Hi, Michael, thanks for the question. I think this is related to the impact from the deferred tax asset. Is this correct?
Yeah, correctly. Yeah.
Yeah. We had to account for the deferred tax asset, as we now had a really profitable result in the Westwing GmbH, and this ends our history of losses. According to IAS 12, we then have to account for the deferred tax asset, which shows the amount of tax loss utilization that we expect going forward. For 2026, this means that this, the deferred tax asset, the positive input would increase. If our outlook for the Westwing GmbH improves, then there would be a write-up. If the outlook decreases, then there could also be an impairment of the deferred tax asset.
That being said, the impact in 2025 was a significant one-off impact, as now for the first time we accounted for it, and going forward, it will only be minor changes depending on the outlook of the Westwing GmbH, where our operating business sits in. It's a 100% subsidiary of the Westwing Group SE.
Is there any cash tax or taxes that are really cash and paid?
Yeah. In Germany, we have the business minimum taxation on our profits. This remains. But of course, we always try to optimize the utilization of our existing tax loss carry-forwards across our group entities.
All right. Thanks a lot.
Help us with a attractive tax shield.
Yeah. Yeah. Perfect. Thanks. Very clear.
Thank you. The next question comes from Christian Sandherr from Nuways AG. The floor is yours.
Hi, guys. I also have three questions remaining. Maybe first one on the topic of discounting. You mentioned all these challenges when it comes to consumer sentiment. How much would you be willing to sacrifice margin for the sake of growth? This is one question. Second one, kind of related: Do you see different behavior between older customer cohorts and newer ones? The third one on your stores. You are only opening one new one in 2026. Is it fair to assume that after the recent country launches that you are considering opening additional stores in those rather newer countries beyond after 2026, of course?
Thank you so much, Christian, for your questions. I will maybe start with the last question on the stores. You asked about whether we will be opening new stores also in new countries and what the pace might be. As we said, for this year, we are only opening one new city, and that's Frankfurt. And that's because of the reason that we mentioned. We do believe. At the moment, we are confident about the store business, and we do believe that it drives value for Westwing through the value that it drives for our customers and the customer journey. We have not got any specific plans on opening X cities or in these or in specific countries yet.
I think it's probably realistic to assume that if we decide to open more stores from 2027 onwards, possibly, we look for what the opportunity is in a specific city, and that is derived mostly from the online sales that we already have in the city, because that means that the brand awareness is the highest and typically, that also means that the upside is the highest. That makes it more realistic that we open new stores in our larger existing countries before going into new countries.
That being said, there might, of course, be individual opportunities where we see, hey, we've got great traction in a certain country or city, and there's a good opportunity in terms of real estate, because that is a major bottleneck for opening new stores. We might actually also open a new store in a relatively new country. There's no specific plan yet, but we'll keep you updated on this. You asked about discounting and the current consumer environment, and you asked how much we would be ready to sacrifice margin for the sake of growth. The short answer is, not much beyond what we announced today.
What we basically follow is, in our existing countries, in our larger countries that we've been running for a longer period of time, we are rather cautious with marketing investments, because consumer sentiment simply is not there. Of course, we always try to find pockets of growth that could be store-related. It could be in a specific marketing channel. Overall, we don't believe that we will increase marketing significantly in existing countries, nor would we engage in significantly higher discounting. To a certain extent, probably yes. Let's take into account that the margins are already under pressure through changes in average order value and also cost increases, such as in diesel prices.
If we then add more discounting to it, that would put the margins truly under pressure. Of course, I can't say what the market will look like over the next few months and how consumer sentiment will develop, but we will typically stay away from larger discountings. That's the plan. When it comes to the new markets, it's not so much a question of discounting, it's more a question of marketing invest. There we are actually bullish. We want to invest. We see the traction, and here it's a question of really delivering on growth. I hope that answers the question.
Yes, it does.
I'll hand over to Sebastian for the question on the cohorts, older cohorts versus newer cohorts. I assume that the question was directed towards what we see in behavior, etc.
Yeah, exactly.
Okay. Hi, Christian, and thanks for your question. I would refer to what Andreas already mentioned when he talked about the recap of our business transformation and the changes in the assortment, where we showed that in the past, Westwing ran a shopping club-focused business model and changed in the commercial model to a more premium assortment. This led, as we have already mentioned, to a churn in customers, and this churn in customers was predominantly driven by customers that in the past used to shop in our shopping club being used to high discounts. As we have shown, we changed our offering there, offering much more premium products, less discounted. Some of our existing customers in the past churned. They didn't like the new offers.
There will be a big overlap between the customers that used to shop in the past and the customers that still shop today that like our new positioning. There will be also customers that we only are able to attract because of our new positioning. If you look at our customer related KPIs, I would like to highlight the average order value development alongside our commercial model change, increased significantly during the last quarters, so showing that customers are paying much more on average for their purchases. This gives some indications that customers are spending more, and also the new customers are directly or to the most extent acquired with our new model, so being used to a premium our premium positioning and searching for those products.
I hope this explains a little bit what we see there. We think that there is some change in positioning, with an overlap, between the two business models, and we see customer-facing KPIs changing accordingly.
Yeah, perfect. Thanks so much.
Thank you. If you would like to ask a question please press nine and star key on your telephone keypad. At the moment, there are no further questions. Okay, I think we have no more questions, so back to you.
Thank you. As we haven't received additional questions, we're ending today's earnings call. Thank you for joining, and goodbye.