Hello, ladies and gentlemen. Welcome to the Westwing Group SE full- year 2022 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. Let me now turn the floor over to your host, Andreas Hoerning, CEO of the Westwing Group SE.
Thanks, Alice. Good morning, everyone, and thank you for joining us. Today, we will review our full- year 2022 and Q4 results alongside the outlook for 2023. Joining me on this call is our CFO, Sebastian Säuberlich. With that, let's get to the agenda for today. It's business updates, financial updates, and Q&A at the end. Starting with our business update, what will we be covering? First, we will recap the Q4 2022 results. I will provide some more details on how we managed to end the year on a positive note in terms of profitability and cash flow. Second, I will provide an outlook on 2023 and how we plan to navigate through these uncertain times with a clear focus on financial stability.
I'm pleased to report that we have made significant progress on our ESG strategy and have been rated as an ESG industry leader in 2022. I will share some highlights of our progress later on. I will provide a brief strategic update on two important topics which drive us here at Westwing. Our One Westwing initiative and the continued growth of our high margin Westwing Collection. Let's now start with our Q4 results. Overall, the last quarter was still dominated by difficult market environment across home and living and e-commerce industries. We had a decent Black Friday week and holiday season. Overall, we were down by 14% year-over-year on GMV in Q4 2020 and 2022. This difficult market environment is also reflected in our active customer base. We ended the year with 1.3 million active customers.
However, in this volatile environment, it's important to look at the bigger picture when interpreting the top-line results for 2022. Despite an unprecedented low consumer sentiment in 2022, we remain significantly larger compared to our pre-pandemic baseline of 2019. We were able to retain a large portion of GMV gained in the past two years and can report a compound annual growth rate of 13% versus Q4 2019. Let me emphasize that Westwing is now in a significantly stronger position compared to 2019. Let's now have a look at profitability and cash flow. In 2022, we acted decisively to mitigate adverse developments on profitability and cash flow due to the inflationary environment and a significantly lower than expected top line. Let me explain this in some more detail.
We successfully protected our unit economics with several initiatives, increasing our high-margin Westwing Collection share, increasing retail prices, introducing further shipping fees, and achieving fulfillment efficiencies. On costs, we implemented EUR 30 million of annualized savings versus our Q1 2022 baseline. We increasingly also see this in our P&L and cash flow statements materializing. We reduced net working capital by EUR 22 million versus the peak of Q2 2022. We were able to sell off millions of overstock while keeping our margins stable. Last but not least, we maintained a very strong cash position of EUR 76 million. As a result of these measures, due to the intact seasonal uplift in Q4 2022, we were able to return to profitability and positive cash flow in the fourth quarter.
Overall, we achieved EUR 4 million in adjusted EBITDA profitability and EUR 12 million of free cash flow in Q4 2022. Let me move on to the outlook for 2023. In terms of top line, 2023 continues to be adversely affected by a difficult market environment, and we do not expect a significant improvement of this situation for the first half of the year. We are currently trading on a Q1 quarter-to-date GMV of -8% versus the previous year. While the current trading is certainly not great, we are carefully optimistic for the second half of 2023 and expect to return to growth in H2. On the one hand, we will compare versus a much weaker baseline in the second half and on the other hand, it seems consumer sentiment has at least stabilized.
This leads us to our revenue guidance of EUR 390 million- EUR 414 million with a respective growth guidance of -9% to +2% versus 2022. Within this top-line guidance, we are fully committed to return to adjusted EBITDA profitability. We will remain disciplined on margins and costs while reaping the full benefit from all P&L measures we have implemented in 2022. In terms of adjusted EBITDA, we are guiding for EUR +4 million to EUR 13 million at +1% to +3% adjusted EBITDA margin. These targets will also enable us to return to a positive free cash flow, especially since we will continue to reduce our inventory level throughout 2023. Please note that free cash flow is not part of the official capital market guidance.
2023 will be about returning to financial stability in a very uncertain environment, yet at the same time, this also sets the basis to work towards our long-term target P&L again. Accordingly, we reiterate our long-term target to achieve 10%-15% adjusted EBITDA margin while maintaining a strong cash conversion of those profits. Let me provide some indication on outlook on how we plan to achieve our 2023 profitability guidance and long-term target P&L in some more detail. Starting with 2023. In terms of contribution margin, we expect to remain at least at the level of 2022. We will compensate for inflationary cost increases mainly with a higher Westwing Collection share, fulfillment efficiencies, and supplier price negotiations. We're also benefiting from lower sea freight container costs. Our marketing ratio will remain roughly flat versus 2022.
Our G&A ratio will decrease significantly as the full benefit of our saving initiatives will materialize in 2023. Our long-term P&L target of 10%-15% adjusted EBITDA will be mainly achieved via two drivers. We will be able to further expand our contribution margin to 30%-32% as we continue to expand our high margin Westwing Collection and to achieve scale effects on our logistics costs. The second major driver will be operating leverage on our G&A costs. We have proven the scalability of our platform in 2020 and 2021. Going forward, we will be able to grow revenues without larger G&A investments, which will result in continuously decreasing G&A ratio. To conclude, I'm absolutely confident that we have taken the necessary steps to manage Westwing through these uncertain times with financial stability.
Once markets normalize again, we will be able to showcase the full profitability potential of Westwing, meaning strong profits and cash flows. With that, I will close on the financial outlook and move to the strategic topics. Here at Westwing, we are convinced that there are sustainable way to live beautifully. To enable our customers to do so, we continue to embed sustainability deeply into our operating model. Let me share some highlights of 2022. More than 95% of our non-EU Westwing Collection suppliers have been audited on social aspects in 2022. We increased the use of FSC certified wood in our Westwing Collection from 8%- 60%. We committed to the Science Based Targets initiative to help limit global warming to 1.5 degrees Celsius.
Our efforts and progress have been acknowledged by established ESG rating agencies such as MSCI, which has rated us with a triple A, confirming our position as an industry leader on ESG topics. However, we know that our sustainability journey has just begun. We will continue to improve and strive towards true sustainability across our operations. For more details on our progress and strategic targets, I highly recommend our Annual Sustainability Report, which we have also published today. Coming to a short update on our One Westwing initiative. As a reminder, this program aims to create a seamless customer experience across our business models, making our websites more convenient and attractive for customers. Following the successful pilot launch in the Dutch market, we have now rolled out the new webpage layout and unified domain to all our markets.
We are closely monitoring the impact on traffic conversion of GMV, and so far the results have been very promising. Our next steps include merging the shop and club apps, consolidating the back-end technology of club and shop, and optimizing our marketing and traffic drivers to maximize the GMV uplift we expect from One Westwing. Overall, we're making excellent progress with this initiative and are excited about its potential to create a much stronger foundation for our business and better customer experience. Lastly, I'm delighted to report that our high-margin Westwing Collection continued to grow, accounting for 44% of the group's GMV in Q4 2022, which marks a 7% point increase from the previous year. With that, we are well on track to achieve our 50% share target. We are continuing to introduce unique products and campaigns that have received fantastic feedback from our customers.
For example, we recently launched the Icons campaign for the Westwing Collection, featuring ten exquisite products co-created with ten international celebrity talent. On the right-hand side, you can see some impressions of the beautiful output from this campaign. With that, I hand over to Sebastian to present Westwing's financial results for the full- year 2022 and Q4 2022 in more detail. Over to you, Sebastian.
Yeah. Thank you, Andreas. Good morning, everyone. Thank you for joining us today to review our 2022 financials. I'm pleased to report that we have met our updated guidance for the year. Our revenue came in at EUR 431 million, which is right in the middle of our guided range. Additionally, our adjusted EBITDA was - EUR 4 million, which is in the upper half of our guided range. This is a strong indication that our business is performing well and we are making progress towards achieving our goals. In the following slides, I will provide a detailed overview of our financial performance. Moving on to our revenue performance for the year. We achieved a total revenue of EUR 431 million.
While this represents an 18% decline compared to 2022, it's important to note that this was largely driven by lower consumer sentiment and that compared to our pre-COVID baseline of EUR 267 million in 2019, we have achieved a remarkable 17% compound annual growth. This indicates that our business has grown significantly, driven by overall e-commerce adoption. Both our DACH and International segments have shown similar growth trends as the overall group, with DACH representing 56% of the group and international representing 44% for the year 2022. In the fourth quarter of the year, we achieved a revenue of EUR 128 million for the group. This represented a 14% decline year-over-year or a 13% CAGR compared to 2019. Let's take a closer look at our income statement. Starting with Q4.
Our gross margin declined by 0.3 percentage points to 47.3%, despite a significantly more competitive market environment and high levels of overstock in the industry as well for us. We were able to compensate for those overstock and inflationary effects with a higher Westwing Collection share and by passing through cost increases via price increases. We also saw an increase in our fulfillment ratio to negative 21.1% or a 1.1% point increase from Q4, 2021. This was driven by lower utilization of our now expanded fulfillment infrastructure, which is actually capable of delivering significantly more volume than we have done in this fourth quarter. At the same time, we are fighting against cost inflation from our last mile carriers and inflationary wage increases in our warehouses by improving warehouse efficiency and also increasing the competition between the carriers.
These effects combined led to a decline of our contribution margin by 1.5% points to 26.1%, which we are still quite happy with given the external environment we are facing. Moving down the P&L. Our marketing ratio shows a significant reduction of 2.4% points to only 7.1% in Q4, as we have reduced our marketing fixed cost and adopted our spending levels to the current ROIs. Our G&A ratio is up significantly by 6.4% points, driven by lower scale and a cost base in 2022 that anticipated a much larger top line. We had some one-off in our other results that is included here as well.
As discussed in our last call intensively, we have corrected our cost base in H2 2022, and we'll see significant cost improvements starting in Q1 2023. Overall, we have generated a positive adjusted EBITDA of 3.3% for the fourth quarter. Now let's take a closer look at our full- year income statement. Our gross margin for the full- year was 48.1%, which is significantly lower than the previous year, but still again, significantly better than our pre-pandemic levels in 2019. Our fulfillment ratio increased to 22.7% by 2.2% points versus 2021, primarily due to the lower utilization as described earlier for Q4. As a result, our contribution margin decreased by 3.3% points compared to 2021.
On a positive note, we were able to lower our marketing ratio to 9.1 of sales by adjusting our spending from Q2 onwards. Our G&A ratio increased significantly to 21.4% in 2022 due to the investments made in 2021, anticipating a much larger top line that did not materialize. This results in significant cost deleverage. Overall, these factors led to a decline of 8.7% points in our adjusted EBITDA compared to the previous year, driven in large part by the SG&A investments combined with a lower top line, resulting in a significant fixed cost deleverage. Let's quickly look at absolute numbers. On a positive side, we delivered a strong Q4 with a profit of EUR 4 million on adjusted EBITDA level.
On the other hand, for the full- year 2022, our EBITDA was negative at - EUR 4 million. When we look at profitability across our two segments, we see that DACH is continuously ahead of International. DACH delivered a profitable 2022 with an adjusted EBITDA of 3.3%, while International was at negative -5.9%. The main reasons for lower International profitability are significantly less scale in G&A, higher fulfillment costs given the distance from our central warehouse in Poland, and to some degree, lower gross margins, partially driven by lower Westwing Collection share and lower price levels in our southern European markets. Moving on to our cash development. The main drivers for our cash next to our P&L profitability are our net working capital and CapEx.
We have achieved a slight improvement in our net working capital compared to the end of 2021, with it standing at EUR 3 million or 0.6% of last 12 months revenue. Compared to the peaks we have seen in the past three quarters, this is a significant improvement. We have achieved our targets that we have set ourselves for the end of 2023 already now. Also please be assured we will not stop here but further optimize our working capital going forward. Our CapEx ratio for 2022 stands at 3.2%, which is in line with previous years. We have invested EUR 14 million in CapEx, with the majority being used for intangibles by capitalizing our tech efforts.
As discussed in earlier calls, we expect significantly lower CapEx for 2023 in absolute terms as some of our cost reduction we did will only materialize in the intangible CapEx. Let me share some details on the working capital development. I'm very pleased to report that we have successfully reduced our net working capital back to healthy levels, resulting in freeing up more than EUR 20 million of cash compared to the peak as of Q2. This was achieved through decisive net working capital management, which included a clear focus on selling existing stocks with limited margin impact and reordering quite conservatively. Additionally, lower order volumes with our suppliers as well as successful renegotiations of payment terms resulted in significantly reduced supplier prepayments.
Furthermore, we introduced a trade financing solution with an impact of EUR 8 million for the end of the year, enabling us to pay our suppliers fast to generate early payment discounts while protecting our liquidity. We are extremely proud of the development achieved by our teams over the last few months and are very confident that our fast and decisive actions in response to the new environment will continue to yield positive results for our company. In Q4, we generated a robust free cash flow of EUR 12 million, contributing to a strong ending cash balance of EUR 76 million for the year. When factoring in our remaining facilities, we have a total liquidity of EUR 91 million available as the end of Q4. This healthy cash balance gives us the ability to continue to steer the company with a long-term perspective.
As you probably all know, I conclude my tenure as CEO as of tomorrow. I would like to express my gratitude for your trust and support during my time at this remarkable company. It has been an honor to serve and work with all of you, as well as our talented and dedicated team. As I step down, I want to assure you that I remain a shareholder and believe strongly in the opportunities ahead for this company. I'm confident that under the leadership of our CEO, Andreas, with a strong team in place, the company will continue to navigate the challenges ahead and emerge even stronger. With that, let me hand over to Andreas for a quick summary and our Q&A.
Thank you, Sebastian. I also want to take this opportunity to thank you in the name of the company for 8.5 years with Westwing, thereof the last three as Group CFO. You steered this company through challenging times, protecting its financial health. It was a pleasure to work with you. We wish you all the best for your upcoming endeavors. Now, before we move to Q&A, a quick summary of our investment highlights. one, the opportunity ahead of us is massive. The European home and living market has a size of EUR 130 billion and is still very early in e-commerce, which provides exciting growth momentum based on dynamic online adoption for years to come. Two, customer loyalty is at the core of our business. We create superior loyalty based on our differentiating and inspirational core.
We achieve best-in-class repeat order shares of more than 80%. Three, our Westwing Collection perfectly leverages the loyalty to our loved brand at about 10 percentage points margin upside. Our strategic target is to bring Westwing Collection share to greater than 50% of GMV. As of Q4 2022, it is already at 44% asset. Four, w e have a strong cash profile. Our strong balance sheet provides us with ample liquidity and strategic optionality to navigate through the current market environment. Five. Lastly, based on this highly profitable consumer loved brand strategy, we have an attractive long-term profitability target of 10%-15% adjusted EBITDA. With that, Sebastian and I are now happy to take your questions.
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, press nine and the Star key again. Please press nine and the Star key to ask a question. Please press nine and the Star key on your telephone keypad if you want to ask a question. If you would like to cancel your question, please press nine and the Star key again. There's a first question from Volker Bosse. The floor is yours.
Hello, gentlemen. Volker Bosse speaking, Baader Bank. First of all the best for you, Sebastian, and all your plans. Thanks for all the support you provided me. With that, I would like to come to the question. The first question would be on the CapEx for 2023. What are the CapEx guidance? Also regarding net working capital, do you expect to return to negative net working capital in 2023 again? I was impressed that you stated within margin of 1%- 3% on EBITDA level, you have come close to a positive free cash flow. Perhaps you can give more color on that. Second question would be on price increases to compensate or partly compensate higher cost inflationary trends.
How much roughly did you increase prices in 2022, and what is expected in the regards for 2023? Last but least, the third questions, how do you see the overall brand's appetite to team up with you to use Westwing as a distribution channel? How does that impact your promotional brand sales to generate growth going forward? How important is that to achieve your targets? For example, today I've seen an electronic toothbrush from Oral-B on offer, which is naturally not direct home and living. Of course, I can see the link, but how do you see that evolving, and how important is that for your future growth? Thanks.
Thanks a lot, Volker. Sebastian will be taking your question on CapEx and net working capital for this year, and I will then comment on price increases and brands.
Yes. Yeah. Hi, Volker. Thanks for your questions. Yeah, I think on CapEx, as we said, we significantly reduced here, so I would expect a number roughly around EUR 10 million for 2023. EUR 4 million-EUR 5 million less than we have seen last year. Also depending a bit on some special topics we might still do, but I think that's kind of the rough indication you should expect. Net working capital, I think we're gonna improve further in terms of that we're gonna reduce inventory further, so we're gonna free up some cash deck.
We might also reduce the level of reverse factoring or accounts payable we have. I would calculate with a slightly negative to neutral net working capital for the end of 2023. As you said, altogether that should bring us for this year at least to a positive free cash flow. Depending on profitability, maybe also a total cash flow at the end.
On Volker, on your questions on price increases. Last year in 2022, roughly price increase around 10%, a bit more on Westwing Collection than on third-party products. Because on third-party products, there's obviously also a bigger comparison on the market side. That was roughly what we did last year.
For this year, to be honest, we will follow market environment. Obviously, that is one of the, that is the most important driver for cost increases, so we don't know how that will be playing out yet exactly. That's the question on price increase. The last question of yours was on the importance of brands, and you mentioned the example of today's campaign that we have. First of all, the importance is high, very high. We work with lots of home and living brands. That's not only important for our club business but also for our Shop business. That is, that's important to highlight. That's not a discrepancy to the importance of the Westwing Collection.
Because when you look at home and living, there's a large range of categories that are actually not really dominated by brands, design brands. There are some that are. Especially in those categories, design brands play an important role. That's also important for our customers. In those categories, those brands are also very important for us. It's not a discrepancy versus the 50% Westwing Collection share gain. Lastly, the example that you mentioned on the campaign that we have online today, the example of Oral-B. We've always actually had categories that are adjacent to home and living. Actually, this is also something that you use only at home or when you're traveling.
We always had these kind of adjacent categories, especially when it's also products that you use in your home. There's no change in our strategy in that regard.
Yeah. Thank you. If I may, follow- up, a question would be on your most recent initiatives, let's put it that way. I would like to ask about the performance of the physical store in Hamburg. How is the, here is the experience, in the context of your expectations and also the, your own delivery services, how does that evolving? Question would be, how does that progress, and do you plan to expand these activities in regards to own deliveries as well as own physical stores? Thanks.
Thanks, Volker, for those two additional questions. Overall, I can say that we are very, we act carefully on expansion of topics in general because the environment is still in a situation where you wouldn't make big moves. Let me comment on the Hamburg store. We are very pleased with the initial feedback that we've received from our customers on the store and the overall performance of it. We're currently fine-tuning and optimizing the commercial model for it. We will also meet the commercial targets that we have set ourselves. I'm very confident about that. Currently, we have no specific plan to open more stores, but I also wouldn't rule out that we will do that in the future, because at the moment it looks very promising.
We will update on this once the time is right. So much on the Hamburg store and on the question on the Westwing Delivery Service. We are at the moment active in three cities in Germany. That's Munich, Hamburg, and Berlin. We continue to see great customer experience on this service of ours with an NPS of actually over 90. We're pretty happy about that. We have no specific plans at the moment to continue the expansion. Obviously, this is something that's an ongoing discussion, and we will update happily throughout the year if new developments come up.
Well, NPS of above 90 is really strong. Yeah, thanks for that update and all the best. Thank you.
Thank you, Volker.
Thank you, Volker.
If you would like to ask a question, please press nine and the Star key on your telephone keypad. We have the next question from Ludovic de Mot. Yeah. Floor is yours.
Hello. Yes, thank you very much for presenting the results. I'd be very interested to see how much of the destocking has already taken place.
Second question is, out of your existing asset base, how much sales potential can you reach? Do you have to do a lot more extra CapEx to basically bump your sales back over towards EUR 500 million ? The third question I have is really with regards to the new commercial director or marketing chief, the ex Henkel man. What are the plans? What are his plans? How does he see the business evolve over time?
Ludovic, thanks a lot for your questions. Sebastian Säuberlich will be taking the one on destocking and on CapEx, and I will comment on our CMO. Yeah.
Thank you.
Yeah. Thank you for your question. I think destocking, yes, I think we did. A significant part of that happened over Q4, we still expect I would say something like EUR 5 million-EUR 10 million of further destocking over 2023 as being one of the main drivers of further reducing our net working capital and also like, yeah, we're partially replacing also some of the destocking with more healthier stock again. That's why the full net effect will only be this EUR 5 million-EUR 10 million, gross probably will be more. In terms of sales potential, I think.
I mean, as you've seen, we have last year in last two years ago, 2021, we have shipped more than EUR 500 million of sales from a lower or a smaller infrastructure than we have now. We opened a big warehouse in 2022, enabling us to deliver significantly more than we did in 2021. As a rule of thumb, I would say with the current infrastructure, we could ship roughly twice the revenue that we currently have. A quick comment on that, we're closing one smaller warehouse over the course of this year to kind of use the remaining fixed costs better, this will not, like, stop us from growth.
It's also one of the process we can easily outsource again to a third party or another warehouse in case that is needed. Currently, as you can see in our high fulfillment ratio, we rather have overcapacity, and we are happy for every kind of utilization of that.
Thank you, Sebastian. Think all well. Good luck also for the future to you.
Thank you.
Mm-hmm.
Ludovic, on your last question, referring to our new CMO. Rik Strubel, ex Henkel and Unilever, Rick started on the 1st of January, and our strategy in marketing is basically to continue the main aspects of it and push that to the next level. What is that? That's actually to build on our brand, our love brand that we have been developing over the past 12 years, and that's our key asset, and that's what Rick and the team also continuing to build with new levers, with new ideas, fresh ideas, to push that forward because that's basically the basis of everything.
That's the basis of our loyalty, that's the basis of our margin upsides that we can reap that supports then also the Westwing Collection being so successful with our customers. It's mainly the brand, and Rik is an experienced brand builder, and that's the profile that we were looking for. Connected to that, it's also continuing what we have been doing with a big focus on social media and organic content. That's what we do best. We have, for instance, over 9 million followers on Instagram across Europe, which is, for the size of our business, is very high, and we will continue to build upon that and build our customer base in that sense. That's what Rik's mission is.
To what extent do the founders still have a big impact on the collection itself? Just as a follow-up. Sorry.
Yeah. No. Our Founder and Chief Creative Officer, Delia Lachance, if you're referring to her...
Yeah.
She has been back from parental leave since September last year, and she's very active, working together with Rik, myself in building the brand, building the business, et cetera, et cetera. As you probably know from the past, these creative, this creative leadership is directly connected to what I said beforehand, so it's at the core of what we do.
Do you expect a sort of a further expansion in terms of the number of products you'd sell? I don't know whether you sell paints and things like that are coming alongside the furniture that you do or, I don't know, just.
Yeah.
Just new ideas. I don't know. Mm-hmm.
We will remain forever home and living, right? home and living.
Mm-hmm.
Is very broad. Even the example that the Volker with an answer with the question from earlier on posed, that's also home and living. We remain in that area, so we're not gonna go into non-home and living with a big time. The number of products, in general, we remain a curated place for home and living. As opposed to some other players out there that had millions of SKUs on their site, we remain a curated place with curated daily sales that we have in our club model and a curated permanent assortment that we have in our shop.
Now, when you look at the Westwing Collection specifically, we're actually still expanding that in terms of breadth because home and living is very broad and you start with one category and you add categories in. We are still not present in all the home and living categories with our Westwing Collection.
Mm.
We will not go into maybe some where third-party brands are very strong, but there's still room for expansion. Yes, we are still expanding our product portfolio in the Westwing Collection, for instance.
Thank you very much.
You're welcome, Ludovic.
Bye-bye.
Thanks.
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