Hello, everyone, and welcome to the SIGNA Sports United fourth quarter and full year fiscal 2021 financial results call. My name is Charlie, and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press Star followed by one on your telephone keypad. I will now hand over to your host, Alima Levy, Head of Investor Relations at SIGNA Sports United, to begin. Alima, please go ahead.
Good morning, and thank you everyone for joining us. Today, we will review our fourth quarter and full year results for fiscal year 2022. With me are Stephan Zoll, Chief Executive Officer, and Alex Johnstone, Chief Financial Officer. I would like to remind you that we will make forward-looking statements during this call regarding future events and financial performance, including outlook for the consolidated fiscal year 2023. We cannot guarantee that any forward-looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Our 20-F filing identifies certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. Except as required by law, we undertake no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events or otherwise.
Also, please note that during this call, we will discuss certain non-IFRS financial measures as we review the company's performance, including adjusted EBITDA. These non-IFRS financial measures should not be considered replacements for and should be read together with the IFRS results. Please refer to the investor relations section of our website to obtain a copy of our investor presentation, which contains descriptions of our non-IFRS financial measures and reconciliations of our non-IFRS measures to the nearest comparable IFRS measure. This call is being recorded and a webcast will be available for replay on our investor relations website. I would now like to turn the call over to Stephan.
Thanks, Alima. Good morning, everyone. For today's agenda, I'm happy to provide an overview of our fourth quarter and full year results for fiscal 2022 and share the progress we have made towards our priorities throughout the year. Fiscal year 2022 was a tale of two halves with great achievements but also extreme turbulences. Let me first remind you of our achievements this past year. As you are well aware, in fiscal 2022, we became a listed company on the New York Stock Exchange. We also closed two significant acquisitions, WiggleCRC in the U.K. and Tennis Express in the U.S., which enabled us to tremendously increase our scale and more than double our revenue base and customer reach versus pre-COVID-19 in fiscal year 2020.
We made great progress on our various strategic projects, reorganizing our logistics hubs to improve efficiency and better serve our customers and starting synergy implementation on the IT and commercial sides. We readied ourselves to enter the U.S. bike market, hiring an experienced team and setting up the right infrastructure through the year, which enabled us to successfully launch our U.S. bike business in Q1 fiscal 2023. Additionally, we expanded our own brand portfolio with multiple award-winning bike models. We also partnered with renowned institutions to advance our brand recognition. For instance, SSU's Tennis-Point was the first ever retailer with an on-site presence at the U.S. Open this year. Beyond these achievements, like many retailers in discretionary categories, we were severely impacted by the fallout of the conflict in Ukraine.
Going into the year, the supply chain challenges brought about by COVID-19 were starting to subside, albeit certain high-end categories such as e-bikes and componentry remained constrained. The inflationary backdrop that has been building globally since the start of fiscal 2022 accelerated dramatically with the onset of the conflict in Ukraine, resulting in all-time low consumer sentiment. This unexpected deterioration significantly affected the demand environment, resulting in significantly overstocked and competitive markets weighing heavily on margins, particularly in the bike business and non-core geographies. These prolonged macro challenges, persistent in fiscal 2023, have forced us to rethink our operating approach. We have launched a strategic realignment assessment to return to long-term profitable growth aligned behind three principles. First, a sharpened focus on core geographies where SSU's banners enjoy strong competitive positions. Second, adapt our commercial and operating models to drive efficiency. Third, deliver transaction synergies.
We're convinced that in the current environment, a sharpened focus on our core markets and an adaptive commercial model will return SSU to run rate profitability in fiscal 2024 and best position SSU for sustainable growth and value creation. We will provide a fulsome update on our plans in the near future. While SSU needs to navigate the current turbulent environment, we continue to monitor the market in a disciplined way as we strongly believe current dislocation will create M and A opportunities at historically attractive valuations for SSU as a natural consolidator. We are convinced M&A will play a key role in the company's future, both to further increase our scale on the retail side and to further verticalize by inorganically adding to our portfolio of brands. Current headwinds are transitory in nature while our tailwinds are structural. The current turbulence will drive consolidation, leading to a healthier market structure.
The long-term megatrends of health and fitness, e-mobility and digitization will resume enabling consistent, steady growth in the online sports retail market. Combined with our scaled position in this fragmented growing market, we are very optimistic about SSU's long-term prospects. With that, I would like to thank you all for your time this morning. I will hand over to Alex to walk you through our financial performance.
Thanks, Stephan, and good morning, everyone. Today I'll take you through our Q4 and full year results of fiscal year 2022 and offer some additional insights on the key factors affecting our financial performance. Let me firstly remind you that there were three quarters of full contributions of our recent acquisitions, Wiggle, Chain Reaction Cycles, and Tennis Express, which closed on December 14th and December 31st, 2021 respectively. Additionally, we made the decision to discontinue the Stylefile operations in the team sports business from the end of fiscal year 2022, and as such have restated historical figures to present continuing operations only. As you may have seen in our materials released this morning, Q4 2022 net revenue was EUR 300 million and full year revenue was EUR 1.06 billion, a 28% and 31% increase year-over-year respectively.
This reported performance reflects the enhanced scale of our operations and the beneficial effect of our recent acquisitions. Our pro forma revenue inclusive of a full year of acquisitions in the period inclusive of the discontinued Stylefile operations was in line with the top end of our August guidance of EUR 1.2 billion. On an organic basis, our financial performance was impacted by difficult market dynamics as the supply shock inflation dramatically impacted consumer sentiment from February 2022 onwards and supply constraints abated, resulting in overstocked competitive markets, in particular in the bike category. On the operating level, we took a meaningful step forward thanks to our recently closed transactions. In full year 2022 and on a reported basis year-over-year, active customers grew 40% to 6.7 million.
Visits grew 22% to EUR 320 million, and net orders grew 40% to EUR 9.5 million. Net AOV was broadly stable due to the effects of M&A and the mix effect of a lower full bike contribution in fiscal year 2022. Whilst all KPIs declined on a pro forma basis year-over-year, active customers, net orders, and conversion grew strongly relative to pre-COVID levels, indicating market growth even against the challenging backdrop. In fiscal 22, gross margin declined from the pandemic high by approximately 385 basis points to 34.7%, in part due to the sudden demand destruction catalyzed by the conflict in Ukraine. March onwards, organic demand was materially lower than prior years just as supply chain constraints started to revert, resulting in an overstocked, highly promotional environment.
This competitive environment, coupled with inflation across our OpEx base, resulted in a reported adjusted EBITDA for the year of negative EUR 66 million. The pro forma adjusted EBITDA margin inclusive of discontinued operations was negative 6.1%. To offset the deterioration in organic demand, the group's companies invested heavily in marketing to drive both traffic and conversion. The competitive backdrop made it difficult to pass inflation from variable and fixed costs to the consumer without further impacting demand. The company implemented various cost saving measures to contain and reduce the impact of inflation. However, these savings were offset by lower than anticipated order volumes, resulting in overcapacity and reduced efficiency across our operations. These results are wholly unsatisfactory, and we have a focused plan to return the business to profitability.
Before touching on the plan, I'll briefly cover our fiscal year 22 cash flow and the current liquidity position. In fiscal 22, net cash from operating activities was negative EUR 191 million, primarily driven by the lower level of adjusted EBITDA, a significant inventory buildup of approximately EUR 14 million, and material one-time transaction fees in connection with acquisitions and the NYSE listing. Our net cash from investing activities was negative EUR 238 million, primarily due to acquisitions which closed during the year and an elevated level of CapEx of approximately EUR 45 million as we invested in logistics consolidation and IT projects to re-platform acquired companies. Taken together with net cash from financing activity and the cash flow from discontinued operations, we ended the year with EUR 43 million of cash and highly liquid investments.
Pro forma, the subsequent capital raises and commitments received, the company's liquidity position stood at EUR 293 million as of fiscal year 2022 end. This included EUR 20 million of undrawn RCF capacity, the proceeds from the issuance of the EUR 100 million convertible notes issued in October 2022, and a further EUR 130 million convertible commitment, both signed with an affiliate of our largest shareholder. Additionally, the company proactively negotiated waivers on various covenants on its EUR 100 million bank facility, providing relief until June 2024. The company is confident this increased financial flexibility provides the runway to pursue its strategic realignment plans. Turning towards the outlook for this fiscal year.
The challenging macro backdrop continues to impact our operations as inflation is forecast to remain stubbornly high in fiscal year 2023, in particular in our core markets of DACH and the U.K. We anticipate the promotional environment will persist throughout the year until the excess stock, in particular in the bike category, works its way through the system. Stephan outlined against this backdrop the necessity to change our operating model to focus on our core markets and adjust our commercial approach. These changes are designed to return the business to adjusted EBITDA profitability on a run rate basis in fiscal year 2024. We anticipate these changes will result in lower sales in fiscal 2023, albeit at a relatively higher contribution. We are experiencing significant gross margin contraction throughout H1 as many market participants struggle for liquidity and the environment is increasingly competitive.
We anticipate that this will start to reverse as seasonal demand picks up in the spring/summer and the stock situation sequentially improves. Against this backdrop, it is essential that we focus on lean operating processes with the benefits of various technology and logistics investments starting to kick in towards the end of this year and accelerating throughout fiscal year 2024. The market environment has pushed transaction synergies from the Wiggle and Tennis acquisitions, in particular in procurement and in the cross-selling of our own brands into fiscal year 2024, but the opportunity remains significant. Finally, the company is focused on releasing capital from targeted inventory reduction of EUR 30 million-EUR 40 million in the year while managing CapEx within a EUR 30 million-EUR 40 million euro envelope.
As Stephan discussed, we do see significant opportunities for M&A at very attractive valuations, but we will remain highly selective and disciplined, preferring tuck-in and brand opportunities with limited integration requirements in the near term. We remain confident SSU will emerge from this period of dislocation positioned to grow profitably in a consolidating, growing market. Thank you very much for listening. With that, Stephan and I will be happy to take your questions.
Thank you. If you'd like to ask your question, please press star followed by one on your telephone keypads. If you'd like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your line is unmuted locally. As a reminder, that's star followed by one on your telephone keypad now. Our first question comes from Jian Xu of BNP Paribas. Jian, your line is open. Please go ahead.
Hey, guys. Thanks for the question. I was just wondering about revenue growth. I don't think I saw how necessarily, like, what your expectations for revenue are in 2023. You mentioned gross margin pressure in 1H. Is it fair to assume revenue pressure in 1H as well and then maybe some stabilization in the back half? Any help would be helpful.
Sure. Thanks for your question. Alex, Sorry, do you want to take the question? Sorry.
No, Stephan, you please go ahead.
Go for it. Go for it.
Hi, Jian. I think the way that we're looking at it is that we expect that we'll be slower in the first half of the year relative to last year on a pro forma basis. We expect that that will sequentially improve really from kind of March onwards as we start to lap the impact of the Ukraine conflict. On a gross margin basis as well, we're seeing a highly promotional environment at the moment as we see many competitors struggling for liquidity. We do anticipate that in the second half of the year that will sequentially improve. We think that probably the overstock situation by the end of the year should be more normalized, we'll be set up for a better year in fiscal year 24.
Jian, maybe just to add to that. The headwinds that we face right now, you know, we believe are transitory. If you look a little bit further out there, our mega trends that we talked about, right? The mobility, the health and life and fitness trend, the digitalization of our sports industry, all these trends are structural, so they will move their way up again. We see very positive growth in the midterm coming back.
Got it. Yeah, that's very helpful. Maybe just on the profitability, you mentioned getting back to run rate profitability in potentially 2024 or fiscal 2024. What does that mean for 2023? Are we still making progress versus 2022, or could we take a step back just 'cause of de-leverage or... How do we think about Is it 2023 kind of in between 2022 and 2024? Is that the right way to think about it?
I think it will. You know, it depends on really when the recovery and demand kicks in. We would anticipate that de-leveraging will certainly have a significant impact in the first half of the year, and we'll start to get better. Where we end up relative to 2023, it's tough to say, but we're very focused on controlling what we can control levels, obviously managing as much cost out of the business as possible. We will start to see, you know, significant benefits, in part due to the transaction synergies, between Wiggle and our existing bike business in the second half of the year. Really that will ramp up in fiscal year 2024.
Okay. That was very helpful. Thank you, guys. That's all.
Thank you. As a reminder, if you wish to submit a question, please press star followed by one on your telephone keypad. Our next question comes from Randal Konik of Jefferies. Randal, your line is open. Please go ahead.
Hey, thanks. Thanks, guys. Just back on the outlook for, I guess first for gross margin, can you give us a little bit of color on how to think about the extent of the gross margin declines that you expect, I guess, either in the first half or throughout the year? Is it going to be more similar to the gross margin declines exhibited in the fourth quarter, or, you know, how in this past fiscal year, the gross margin declines were obviously less worse. I'm assuming that it's more closer to what, you know, you saw in the fourth quarter. Is that fair? If that's fair, when do you start to see that inflection in gross margin? Back when the comparisons get, you know, easier in the fourth quarter.
I just want to get a feel for the extent of gross margin decline and then the shape of the flow of the declines and if they inflect towards the back half of calendar 2023.
Hi, Randy. Yeah, I would say that, sequentially, gross margins have worsened in Q1, and we anticipate that they will continue to do so in Q2. We are starting to see, you know, we expect an uplift in gross margins as we go into the seasonally stronger spring and summer months. We would anticipate that we'll be kinda back to pre-COVID levels of gross margin by the end of this fiscal year.
Okay. Then just can you give us some perspective on the demand environment, the U.S. versus Europe across bike versus tennis? Just give us some more kind of flavor there. It'd be super helpful.
Yeah, maybe I'll start, Randy. Hi. From a US versus EU perspective, U.S. is definitely less hit, right? There's less consumer sentiment decline versus in the EU, and especially in our core markets in Germany and the U.K. We saw that most advanced. U.S. is in a much happier place there. From a tennis and bike perspective, there's not a very big difference there. Our tennis business is slightly more seasonal, right? There's not a, not a massive difference in terms of consumer sentiment.
Okay. I guess lastly, how are you thinking about just the cost structure of the organization? If you think about the SG&A number, that you put up in 2022 calendar, you know, how do we think about that number, in calendar 2023 and beyond? Is that a number you can kind of keep bringing lower, or is it going to be flattish, or, you know, how do we think about the? It looks like you want to kind of obviously, you know, sharpen to get towards to get to run rate profitability, in 2024. Just want to get a sense of how we think about the SG&A.
Thanks, Randy. We're currently working through our kind of strategic realignment work. What we will see is that firstly, the change in commercial approach will sequentially improve the contribution of the sales that we're generating across, you know, with a more focused approach towards our core markets. In terms of our approach towards our overhead, we're being very focused in trying to reduce the aggregate cost. You know, it will probably tread water this year due to the lower sales level and the deleveraging effect. We anticipate that once the level of demand and we're in a position to pass more of the inflation or cost base to consumers, we expect that that will start to tick up materially in fiscal year 2024.
Got it. Just on that strategic realignment assessment, is that something I guess it's something you're working through now, and you plan to communicate some sort of outcome to the market, you know, in next quarter or, you know, two quarters from now? Or how do we think about, you know, the outputs of that assessment and when we should hear about, you know, what we learn from that assessment that you're working on now?
Yeah. Randy, you see, in our presentation there's already 2 items mentioned, right? The three areas that we cover with it and also some of the areas within those 3 buckets. It will be, let's say it like that, it will be published in the near future. TBD exactly when, but it won't take very much longer.
Got it. Okay.
All right.
Fair enough. Thanks, guys.
Thank you.
Thanks, Randy.
Thank you. As a final reminder, if you wish to submit a question, please press star followed by one on your telephone keypad now. Our next question comes from Ygal Arounian of Citi. Ygal, your line is open. Please proceed.
Hey, good morning, guys. Thanks for taking the questions. I guess just one thing is you didn't give full year guidance. I understand there's a lot of moving pieces here. You know, we're kind of through the first three or four months of the year, presumably you'll be reporting 1 Q soon. Any more granularity on what you're seeing in 1 Q? There was 1 data point kind of in one of the charts on organic revenue in 1 Q. I know we're talking about it in a big picture, anything from what we're seeing so far, how to think about, you know, guidance, if we could expect guidance again in the future? I'll start with that 1.
Hi, Ygal. I think the chart you're referencing is kind of indicating mid-teen year-over-year organic declines in Q1, and that's about right. As we just alluded to in answering Randy's question, in terms of gross margin compression, we're seeing similar levels as we witnessed in Q4. In terms of the timing of when we see a reversal of those trends, we think that Q2 will follow a similar trend. Q3 as we start to sequentially against the start of the conflict. In March last year, we saw a significant drop in organic demand, you know, with the advent of Russia's invasion of Ukraine, and that obviously persisted and got worse as the inflation situation developed throughout the year.
We anticipate that, you know, you're starting to see some data points that indicate that inflation in our core markets is starting to decline. Consumer sentiment is starting to improve. Slightly warmer winter than anticipated. There's a few data points that indicate that H2 will be better, in particular, as we're starting to see, you know, stock test time to move a little quicker as we get closer to spring. I think we're being very prudent, but we are, you know, optimistic that the second half of the year will be materially better. There is a lot of distress, in particular in the bike industry right now where we're seeing both with, you know, the OEMs and the suppliers, all have a lot of stock, and that's resulting in a competitive market.
You know, the situation will normalize in time. We just don't have a crystal ball of when exactly that will be. We're trying to really focus on controlling what we can control in the coming months and quarters.
Okay.
Even just to add to that... Just to add to that, if you, if you look out there a little bit, you know, next to, the normalization that Alex just described, there's also a consolidation happening in the market, right, that will take place. We'll see a more cleaned up, if you wish, a market structure over the next years to come, which also will have a tremendous impact, we believe, on our business in a positive sense.
Okay. All right, one on the supply constraints. Is the supply chain back to normal fully? Is that how you would characterize it? Then, you know, within, you know, tying that to the markdowns, you know, and inventory controls, any learnings from the markdowns? Are you expecting that to kind of dissipate fully by the second half and get back to normal pricing? Would that potentially kinda continue throughout the course of the year, maybe just less, you know, less than it is right now?
That depends a bit on a couple of factors, right? First of all, we do see an easing of the supply chain disruptions, right? We still have some left, and especially our higher priced items and e-bikes, for example, and bike. That's still not normalized, but we expect that to normalize in the course of 2024. In terms of the promotional levels, right, that obviously depends how it's a bit by category, how quickly the overstock fades out of the market. Likely to take a little bit longer in bike than in tennis, for example, our category. That's something that we obviously watch very carefully.
Okay. Last question, on the commercial change and the focus on the core geographies. Presumably, U.S. is included in that, but I just want to make sure. Then, you know, talking about M&A here and continued focus there, does this understanding there will be a continued focus on M&A, and there should be good opportunities in the market in the coming, months or so. Does it change your M&A strategy at all? You know, are you focused on different things than you were before? Just tying all those pieces together. Thanks.
U.S. obviously remaining a very key part. And our tennis business, as you know, Tennis-Point and Tennis Express in the U.S. are very strongly positioned, and we are currently working on driving the synergies. Basically bringing these businesses closer together and work the market even harder. That's a very important piece of our growth strategy moving forward. Our U.S. bike business particularly, you know, well started. I mean, that's a nascent business, right? We hired a team, as you know, in the beginning of last calendar year in February 2022, and we launched our first shops with our own brands in November 2022, so less than 9 months after the first hire. Very strong start. And that's also part of our growth strategy moving forward.
In terms of M&A, not a real shift in focus in terms of targets. We still target, you know, online retailers to complement certain geographic reaches, but also, you know, brands to complement our own brand portfolio. The shift is that we obviously look much closer, and as Alex outlined, very disciplined in terms of, you know, looking at the best opportunities out there. However, right now is obviously a time where valuations came down heavily, and it's a good time to look at those targets again and to see if there's good deals to be struck. You know, target's not very different. Discipline increased for sure.
Got it. Thank you.
Thank you. At this time, we currently have no further questions, so I'll hand it back over to Stephan Zoll for any closing remarks.
Thank you very much everybody for, A, joining and, B, your questions, and we're very much looking forward to the next update. Thank you.
Ladies and gentlemen, thank you for joining today's call. You may now disconnect your lines.