Good morning, everyone, thank you for joining us for our Q2 2023 earnings call. My name is Andreas Hoerning. I'm the CEO of Westwing. Joining me on this call is our new CFO, Sebastian Westrich, who joined Westwing at the beginning of the month. Looking at today's agenda, after I guide you through our general business update, Sebastian will present the details of Westwing's Q2 financial performance. We'll be happy to take your questions. Let's take a look at the overall state of Westwing. Firstly, despite an ongoing challenging market environment, we were able to stabilize our top line in terms of GMV and active customers. We continue to expect to return to sustainable growth in the second half of 2023. Secondly, I'm pleased to announce that the second quarter of 2023 marks our third profitable quarter in a row.
Our free cash flow performance was EUR 13 million better than last year. Thirdly, we continue to make very good progress with our strategic initiatives. Our high-margin Westwing Collection reached a group GMV share of 46% in Q2 2023, and our One Westwing initiative has again reached important milestones in line with plan. Fourthly, we confirm our 2023 guidance and currently expect to achieve revenue and adjusted EBITDA in the upper half of the guidance. Our Q2 results have again confirmed that we are on the right track. Let's proceed with a closer look at our Q2 top line. The second quarter of 2023 was still characterized by a difficult market environment. We successfully stabilized our top line, achieving a GMV of EUR 109 million, or 0% year-over-year growth.
This also represents an increase of almost 70% compared to the pre-pandemic 2019 baseline. We were also able to stabilize the number of our active customers. As this KPI is calculated based on a last 12 months logic, we compare quarter-over-quarter development. In Q2 2023, the number of active customers amounted to 1.3 million, which is basically stable compared to the previous quarter, Q1 2023. Overall, our top line is developing well in a difficult market environment. We expect to return to sustainable growth in the second half of 2023. An important top-line KPI that I would like to highlight is our GMV per active customer. This KPI reflects how much each of our active customers purchased from us on average in the past 12 months.
It is a great testament to our business model that we achieved +8% year-over-year in GMV per active customer in Q2. This substantial increase in share of wallet with our customers is driven by our love brand strategy and the subsequent loyalty of our customers, a strong focus on exciting offerings with our Westwing Collection and our shop, and generally a great customer experience. Let's now look at profitability and cash flow. As mentioned beforehand, Q2 2023 marks the 3rd profitable quarter in a row. Returning to financial stability and profitability was a clear priority of ours for 2023. We are delivering on this commitment. We achieved an adjusted EBITDA of +EUR 4 million, with an adjusted EBITDA margin of 4.4% in Q2, which marks an improvement of EUR 7 million year-over-year.
The improvement in profitability was accomplished through substantially better unit economics and the successful implementation of cost-saving initiatives across G&A, marketing, and CapEx. The improvement in unit economics was driven by a positive development of the high-margin Westwing Collection and continued efficiency gains and fulfillment. In terms of cost savings, the measures that we initiated last year were successfully completed in the first half of 2023. It is important to note that we will continue to act cost-consciously going forward. On cash, we continued to successfully manage down overstock and maintained a negative net working capital. The improvement in net working capital, combined with the operating profit, resulted in strongly improved free cash flow and a strong cash position of EUR 76 million at end of Q2.
In light of these positive results, I also want to emphasize that this is only the beginning of our upcoming phase of profitable growth. Our strong contribution margins, in combination with the proven scalability of our business, will enable a target P&L of 10%-15% adjusted EBITDA in the long run. While we are pleased with our performance in the second quarter, especially considering the challenging market conditions, we will continue to strive for further improvements in profitability. With regards to unit economics, I just stated that we are continuing to increase the share of our own collection versus the total business. I'm delighted to report that our high-margin Westwing Collection accounted for 46% of the group's GMV in Q2, which marks an 8 percentage point increase versus Q2 2022.
With that, we are well on track to achieve our long-term 50% plus share target. In order to get there, we're putting our Westwing Collection at the forefront of our next growth phase through further assortment expansion and greater visibility across all channels. One example of this enhanced visibility are exclusive Westwing Collection events. On the right-hand side of the slide, you can see some impressions of the launch of our new lounge chair called Fleur. I'm extremely proud of the quality that we have reached with these events. We consistently receive great feedback from our customers and influencers, and we generate massive reach across many channels for our Westwing Collection. Lastly, a brief update on One Westwing. As a reminder, this strategic initiative aims at creating a seamless customer experience across our business models, shop and club, making our websites more convenient and attractive for customers.
Following the successful test phase and rollout of the new web page layout with a unified domain for all our markets, we've now started the rollout of our merged apps. We are already live with our merged Android and iOS apps in one country, and the rollout will happen within the next few weeks. Further steps includes merging the cart and checkout for our customers and consolidating the back-end technology of shop and club, as well as optimizing our traffic and other marketing drivers. Overall, it is great to see the pace at which the team is driving this important change, and we are excited about the potential of One Westwing to create a much stronger foundation for our business. With that, I hand over to our CFO, Sebastian, for more details on our financial results.
Thanks a lot, Andreas, and hello from my side to everyone. My name is Sebastian Westrich, and I'm the new CFO of Westwing. I joined Westwing last week. I have had a great start with a fantastic team. I'm very pleased to be able to speak to you today and present our Q2 2023 results. Before we take a closer look at the results of the second quarter of 2023, let me briefly introduce myself. I have now more than 10 years experience working in the e-commerce industry, mostly in finance-related leadership and CFO positions. Before joining Westwing, I spent three years as CFO of the e-commerce division of Hubert Burda Media, and was also CFO of Cyberport, a large multi-channel consumer electronics retailer.
During my career, I've seen many different business models at different stages of maturity, both online and offline channels, as well as B2C and B2B customers. However, there has always been a strong focus on B2C e-commerce. With my experience and passion for e-commerce, I will contribute to the successful development of the company with a clear focus on effective financial management and driving Westwing's growth and profitability. I'm super excited to start working with Andreas and the entire team, as I strongly believe in Westwing's huge potential as a consumer love brand, providing its loyal customers and creating value for our shareholders. Having said that, let us dive into the review of our Q2 2023 results. First up is top line development. As Andreas has already described, we achieved a stabilization of top line in Q2 2023, despite a continued challenging market environment.
Revenues in Q2 2023 developed in line with GMV and amounted to EUR 102 million, with only a slight decrease by 1% year-over-year. In these volatile markets, it remains important to also look at longer time horizons. Compared to Q2 2019, we increased revenues by 75%, which showcases the growth we have realized over the past years. Looking at segment growth, we can see that the international segment has already returned to a growth of 4% year-over-year to EUR 47 million in Q2 2023. The DACH segment was down by 5% year-over-year in Q2 2023, but also here we see a positive trend and stabilization of the top line.
We can't put the better growth of the international segment down to one specific reason, as both segments follow the same strategy. There are timing effects. For example, we are rolling out our One Westwing initiative early in some international markets rather late than that. In the first half of the year, we achieved revenues of EUR 205 million for the group. This represents a decline by 4% year-over-year. We move on to our income statement. Starting with Q2, our gross margin increased by 1.9 percentage points versus previous year to 50.5% in Q2 2023. We continue to be able to compensate for overstock and inflationary effects with a higher Westwing Collection share, and receive the full impact of last year's price increases, which we introduced to compensate for cost inflation.
In terms of fulfillment costs, we will realize further efficiency gains in our warehouses. For instance, we closed a smaller warehouse to increase the utilization of our remaining warehouses in Q2 2023. As a result, we improved our fulfillment ratio by 1.7 percentage points year-over-year to 21.7%. The positive development of both gross margin and fulfillment ratio, that's a strong improvement in our contribution margin by 3.6 percentage points to 28.8%. Even more notably, we improved our contribution margin by more than 10 percentage points compared to 2019. Such an improvement in unit economics in our extremely competitive retail market is extraordinary and showcases the competitive advantages we have built with our Westwing Collection and efficient fulfillment platform.
Moving down the P&L, our marketing ratio has improved by 0.7 percentage points to 9.4%. The reduction in marketing expenses is mainly driven by a more efficient setup, which resulted in personnel and OpEx cost savings. We continue to optimize our marketing efficiency while setting up Westwing for sustainable future growth. In addition, the G&A ratio improved substantially by 1.8 percentage points for this previous year to 19.7 percentage points. As already mentioned, we have by now completed our cost-saving measures and reduced costs in line with our expectations. Going forward, we will reduce the G&A ratio further based on the proven scalability of our business model and a strong cost discipline.
This brings us bottom line to the third profitable quarter in a row and a strongly improved adjusted EBITDA margin of 4.4% in Q2 2023, an improvement by 6.6 percentage points versus the previous year. Looking at the overall results for the first half of 2023, we see that they are in line with the year-over-year development of the Q2 results. Also here, we improved all P&L lines substantially and closed the first half of 2023 with an adjusted EBITDA margin of 4.6%, which is an increase by 6.5, 6.5 percentage points year-over-year. Let's take a closer look at profitability. In absolute numbers, we generated EUR 4 million of adjusted EBITDA in the second quarter of 2023, which is an increase by EUR 7 million compared to last year.
The first half of 2023 amounts to EUR 10 million in adjusted EBITDA, which is a EUR 14 million improvement year-over-year. In terms of segments, DACH delivered a very profitable second quarter with an adjusted EBITDA margin of 7.8%, while the international segment crossed an important milestone and achieved a break-even result at 0.4% adjusted EBITDA margin. Let's move on to our cash development, starting with our net working capital position. At the end of Q2, 2023, our networking capital was once again negative at -EUR 5 million and EUR 29 million lower than at the same time last year. This tremendous reduction in networking capital was mainly driven through a continued reduction of overstock. Overall, we managed to reduce inventory by EUR 23 million compared to Q2, 2022, without hurting our P&L significantly through aggressive discounting.
In addition, we continued to work with the trade finance solution, which had an impact of EUR 7 million in Q2 2023. At this point, we are reviewing the further utilization of trade financing in the coming quarters. Based on our strong cash position, we may decide to reduce or stop the utilization of trade financing for the time being. For the remainder of 2023, we expect net working capital to remain at healthy levels. However, for Q3 2023, we expect net working capital to increase due to typical seasonal effects, and the development will also depend on the utilization of trade financing going forward. Next is CapEx development. Overall, our CapEx investments and CapEx ratio has decreased significantly compared to last year.
The improvement in the CapEx ratio was mainly driven by the successful cost reduction on our tech organization, as we capitalize a significant part of tech development costs. In addition, we didn't have to take any major investments into our warehouses, as we have secured sufficient warehouse capacity in the past years. The CapEx ratio of 2% in Q2, 2023, once again highlights our CapEx light business model, which enables a high degree of cash conversion and profits going forward. Based on the positive developments in our P&L, net working capital and CapEx, Q2, 2023, was slightly free cash flow positive and improved strongly by EUR 13 million with last year. For the first half of 2023, we generated a strongly positive free cash flow of EUR 10 million, which is a significant improvement of EUR 40 million compared to last year.
Based on this development, we were also able to maintain our strong cash balance. We ended the quarter with a healthy cash balance of EUR 76 million, which gives us the ability to continue to steer the company with a long-term perspective as the opportunities are at unnecessary. Turn now to the outlook for the remainder of 2023. The results for the first half of 2023 have been consistent with the projections we set forth. This indicates that our strategic planning and execution are on track, even amidst the challenges posed by the current market environment. Our financial priorities for this year have been and still remain, to regain profitability and enable a free, positive free cash flow. We are very confident to achieve these goals on a full- year basis in 2023.
Looking ahead, we remain confident based on the progress we have made and the positive trajectory we are on. We therefore continue to expect a return to sustainable growth in the second half of 2023. Based on this, we also confirm our full- year 2023 guidance from March and expect currently to achieve revenue and adjusted EBITDA in the upper half of the guidance. The guidance from March indicates revenues of EUR 390 million-EUR 440 million and a positive adjusted EBITDA of EUR 4 million-EUR 13 million. In terms of outlook, please keep in mind that the seasonally weak third quarter is expected to be less profitable than the last, than the first half of 2023. With that, let me hand it over to Andreas for a quick summary and Q&A.
Thank you, Sebastian. As always, we are closing the update with a brief summary of our investment highlights before we move on to Q&A. The opportunity ahead of us is massive. The European home and living market has a size of EUR 130 billion and is still in the early stages of e-commerce, which provides exciting growth momentum based on dynamic online adoption for years to come. In addition, Westwing offers public investors a unique investment opportunity into the very attractive premium segment of this market. Customer loyalty is at the core of our business. We create superior loyalty based on our differentiating and inspirational core. As a result, we achieve best-in-class repeat order shares of over 80%.
Our Westwing Collection perfectly leverages the loyalty to our love brand at about 10 percentage points margin upside, our strategic target is to bring our Westwing Collection share to greater than 50% of GMV. As of Q2, 2023, it was already at 46%. We have a strong cash profile, our strong balance sheet provides us with ample liquidity and strategic optionality to navigate through the current challenging market environment. Finally, based on this highly profitable consumer love brand strategy, our best-in-class contribution margins and the proven scalability of our business model, we have an attractive long-term profitability target of 10%-15% adjusted EBITDA. Those were our investment highlights. Before we get to Q&A, let me thank our interim CFO and director of corporate finance, Max, for the support during the transition period and the ongoing smooth handover to Sebastian.
With that, Sebastian and I are happy to take your questions.
The first question comes from Volker Bosse, from Baader Bank. Please state your question.
Yeah, hello. Volker Bosse, Baader Bank. Can you hear me?
Yes, we can hear you.
Yeah. Okay, perfect. Sorry. Thanks. Yeah, first of all, congratulations to the great achieved earnings swing again, I can say, fortunately, second quarter after first quarter already. Welcome, Sebastian, to the new position, and all the best and a good start.
Thank you, Volker.
With that, I would like to start with the question, first of all, on your guidance regarding the second half. You said sustainable growth in the second half. What does it mean? Does it already include that you expect to return to positive sales growth in Q3, Q4? Does it also mean a positive-... EBITDA contribution in both quarters of the second half, so in Q3 and Q4. This would also lead me already into the second question regarding the current trading in July. I mean, if you are so confident and the, for, for second half, does it also mean that you saw an back to sales growth in July already, basically? A third question would be on the gross margin. Yeah, very great achievement to see 190 basis points improvement year-over-year.
Could you give some more granularity about the reasons, so the components of the gross margin improvements here, please? Yeah, last but not least, is my question on the inflationary cost pressure, which you saw, or which you're basically seeing. My question would be on, how do you already see the cost pressure evolving? Would you say that you have seen already the peak in material costs and freight costs? Do you see an easing on the cost front already or, yeah, just your most recent observations on that would be helpful. Thank you very much.
Thanks a lot, Volker, for your question. Thank you once again for congratulating. The first two questions, basically on growth, July, outlook for the rest of the year, I will be answering. The second two questions on gross margin and inflationary cost development, Sebastian will be taking that one.
Mm-hmm.
On, on growth and the outlook, so far, Q2, Q3 growth is in line with our expectations and in line with our guidance. Growth rates are still quite volatile, and it's too early to provide a good indication on Q3 2023 growth yet. We expect to report positive growth in the second half of 2023 for two main reasons. The baseline of 2022 is a bit weaker in the second half, and we expect to see a growing positive impact of our strategic initiatives that we mentioned beforehand. This is obviously based on the overall assumption that we will not see further deterioration of consumer sentiment. We also believe that this return to growth will be profitable in general. I can't tell you whether...
We have no indication whether both quarters will be profitable, but overall, H2, that's our assumption, will be profitable. The return to growth will be exactly that, profitable. May, let me mention, besides the uncertain market environment, we've been implementing a new strategy, and we do not yet have full visibility with regards to top-line impact. And then, of course, as always, for the second half of the year, single events such as Black Friday play a huge role in top line, so it really depends on just a few days to, to, to a certain extent, and that's why we are a bit cautious with regards to a proper, proper forecasting then. I hope that answers it. Now over to Sebastian for questions on gross margin and inflationary cost development.
All right. Hi, Volker. Thanks for your question. With regard to the gross margin improvement, it was improvement by 1.9 percentage points year-over-year. There are different effects. First of all, we were able to compensate for overstock and inflationary effects with a higher Westwing Collection share, and we also see now the full impact of last year's price increases. These also going to compensate for inflation. We also expect further share gains of our Westwing Collection share in our shops. We, we are confident to be able to even further improve gross margin. Yeah.
Then on the inflationary cost developments.
Yeah, sure.
last question.
I think with regard to, cost development, I think we, we have, reached a peak, but it depends on the different, costs that you are looking at. Overall, I think, now it's stabilized a lot, but, some costs, costs are increasing still, some others are declining, but overall, it's much easier for us to negotiate on these, items.
Yeah. Mm-hmm. May I come up with a follow-up, because you didn't mention it in the press release, it's regarding to your brick-and-mortar store in Hamburg, which you opened recently. Could you provide initial, yeah, feedback on, on, on consumers reaction, and, and how do you look at... As you said, it's a pilot store, and maybe we, we roll out the, the brick-and-mortar concept. What, what are your, what is your thinking in that regards currently? Thank you.
Yeah. Thanks, Volker, for that question. On the Hamburg store, we are very pleased actually with the overall performance, and the initial feedback we received from customers on the store. We are currently fine-tuning and optimizing our commercial model for the store to meet the commercial targets we set ourselves, and that takes a while. I mean, we opened the store in November, and it is, it is simply, it's something that you have to learn, if you're an e-commerce company and you want to provide an offline customer experience. But we are actually really, really happy with the development so far. With regards to kind of where does this lead us to?
We wouldn't rule out the opening of one or two more stores over the next quarters, but it's unlikely that that will happen in 2023.
Okay. Thank you very much. All the best. Thank you.
Thank you, Volker.
Thank you. The next question comes from Christian Salis, from Hauck & Aufhäuser Investment Banking . Please state your question.
Yeah, good morning, everyone. Also, congrats from my side. I would like to ask a couple of questions, one by one, please. The first one is on the top line development again. I mean, Volker already asked about it, but I wanted to focus a little bit more on the active customer numbers, which was quite a surprise for me. Good to see that the number of active customers or the decline in the number of active customers now slowed to minus 1% quarter-over-quarter, which is basically the slowest decline we've seen for, I think, probably two years now. There seems to be a bottoming out effect, following this post-COVID normalization period, I would call it.
My question would be, yeah, would you confirm that this is, this could be the bottom in terms of active customers? I.e., have you seen further sequential improvement or even slight growth in this number quarter-over-quarter now in July? Also related to this, as Zalando last week mentioned an improvement in terms of consumer climate, and they also expect to return to growth in the second half, so in line with your H2 guidance, basically. Could you confirm that statement, or what is really driving this sequential improvement in your opinion? Thank you. That would be the first question.
Okay. Thanks, Christian, for your question. Sebastian will answer the part on active customers, and I, in the end, will answer to your question regarding Zalando's outlook and whether that's in line with ours.
Okay. Yeah, thanks, Christian. Nice to talk to you. With regard to the improvement of the active customer development, I think you're right that that is kind of a normalization after the COVID impact. If we look at active customers, we also have to keep in mind that's a last twelve-month number. Q2 2023, 2022 was still impacted by, by COVID, and I think this effect now becomes weaker and weaker. Overall, we are quite happy with this, and we, we are quite confident that this is the bottom and that we will able to improve the number of active customers going forward.
Regarding the second half of your question, Christian, whether the consumer sentiment is improving, to be honest, if it is, then it would be a very recent development, to be honest. We don't see it in that way. We believe our guidance that we have for the second half of the year and why we are generally rather confident to return to sustainable growth, is more based on things like that the H2 baseline is a bit weaker from last year, so it's easier to actually grow year-over-year. It's not so much driven by our belief in increasing or improving consumer sentiment.
Okay. Then the second question would be on, again, on top-line growth, but the international business, which returned to growth in the second quarter. Could you maybe provide a little bit more color, what has been driving that and which countries and which initiatives have been driving this improvement?
Yep. Thanks, Christian. Sebastian will be answering that question.
Sure, yeah. Overall, as I already mentioned, the better growth of the international segment, we can't put it down to one specific reason. International all follows the same strategy as our DACH region. We are rolling out the One Westwing initiatives earlier in some countries. We are live in Netherlands. We see good progress there. This is one very positive aspect, and we are rolling out in DACH later. This might be one reason why we see a better growth in the international segment yet, but there are also baseline effect from previous year when you look at the different markets. That would be my answer to that.
Okay, that's interesting. Could you maybe provide a little bit or maybe some figures or indications on on operating KPIs on this One Westwing initiative? Which KPIs have improved following this, this launch in the Netherlands, for example?
Christian, we don't report specific numbers on One Westwing initiative. There's a variety of parts of this initiative that have different, that have different effects, and there's also several KPIs that we look at. Generally, what we, what our belief is, and that is confirmed, is that it's easier for customers to navigate, and we see increased traffic between our business models. That's actually the main thing that we, as an initial KPI, look at. Between our shop and our club, there we see increased traffic because it's easier to navigate between the two. You just need to click on a button, and you're on the other side. Beforehand, it was on two different domains.
Now what we're doing with the app rollout is, for example, all of those that have a club app installed, they will now also, with the rollout, have the whole shop at their fingertips, which was not the case beforehand, because for that, you needed to have both apps installed. These are the things that we're looking at. Overall, we are very happy with the KPIs, but we don't report on specific ones individually.
Sure. Okay, then last question on profitability. So regarding your cost savings measures, what do you think have been the two key drivers of the strong profitability improvement in terms of G&A and marketing? In Q2, then again on the price increases you mentioned, could you maybe remind us when and to which extent you have raised prices over the last 12 months?
The first one is, was, just some background on how we, did the, or what, what's the main driver in the cost reduction, right?
Yeah, exactly. In terms of operating costs, yes.
Operating costs, and the second one was on pricing, how we achieved, or why we are able to achieve price increases, is that right?
No. Just a quick reminder, and when you exactly implemented the first price increases, and by how much in %, and what has been the trajectory since then? You know, just to calculate maybe a little bit of gross margin expectation for the second half, whether we should still expect a positive impact from these price increases in the coming quarters or not.
Yeah. Yeah. Okay, thanks, Christian, for those two questions. The cost savings that we did across G&A, marketing, and CapEx, those were the EUR 30 million that we actually announced in, I think it was at the beginning of Q3 of last year, and we've completed those EUR 30 million. When you look at G&A in marketing, the main driver for that is actually a decrease in FTEs, so that's the strongest driver on, on that side. With regards to the price increases, overall, the price increases amount to about 10%, something like that, in two, three steps, actually.
Obviously what you then test is the elasticity, et cetera, et cetera, but overall, the price increases amounted to roughly 10%, and they were mostly put in place in the second half of last year. All right, thanks a lot. Thanks for the questions. With that, we are closing today's earnings call. Thank you for joining, and I wish you a great remaining week. Goodbye.