Hello, welcome to the SIGNA Sports United Q2 and half year fiscal 2023 financial results call. My name is Alex Johnstone, coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press Star followed by One on your telephone keypad. If you'd like to remove your question, you may press Star followed by Two. I'll now hand it over to your host, Jeremy Nelle, Head of Corporate Finance. Please go ahead.
Good morning. Thank you for joining us. Today, we will review our Q2 and half year results for fiscal year 2023. 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 can 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 IFRS financial measures and reconciliations of our non-IFRS financial 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, Jeremy, and good morning, everyone. For today's agenda, I'm pleased to provide an overview of our Q2 and H1 results for fiscal year 2023, as well as provide an overview of our recent actions aimed at charting a clear path towards profitability in the coming years. Before we dive into our results, I would like to provide a brief update on the market conditions that we have observed in the H1 of the year across our core markets. Similar to other retailers in discretionary categories, our business has not been immune to a rapidly shifting macroeconomic picture. As many of you will recall, H1 fiscal year 2022 was marked by severe supply disruptions, resulting in unmet demand throughout the market.
However, following the onset of the Ukraine war and persistently elevated inflation, a material downturn in consumer demand set in as our customers pulled back on spending while the economic outlook became challenged. In conjunction with these macro developments, in the back half of 2022, we saw a significant easing of the supply chain pressures that had plagued the bike industry in particular. The result was a material increase in inbound stock, ordered 12 to 18 months prior in a meaningfully lower demand environment. To put this in perspective, among publicly listed bike suppliers, we saw an estimated 27% increase in stock position, with finished goods growing by nearly 40%.
This supply overhang was felt acutely in the H1 of our fiscal year as brands, distributors, and retailers across our industries worked to reduce their inventory position, often at meaningful discounts, particularly in the bike industry. In the midst of this market turmoil, we have noticed a clear disconnect between the operating conditions of the bike industry with a sustained interest and enthusiasm from our customers. Taking the U.K. as an example, we have seen a boom in e-bike sales from pre-COVID levels, sizable growth in selling prices of bikes throughout the market, and a sustained uptick in activity with average daily bike participation currently at 1.4x the March 2022 levels. I note these trends to help illustrate that while our business has been severely impacted by market conditions, the overarching mega trends that are driving our operating thesis have shown no signs of slowing.
With this backdrop in mind, we engaged in a thorough strategic realignment process to ensure the business was best positioned to navigate the near-term market turmoil, and more importantly, ensure we are all prepared to capitalize and build on our market position over the long term. Coming out of this strategic realignment process, we have identified and detailed our three clear, actionable initiatives aimed at returning the business to profitability and cash flow positivity as soon as possible. Although we touched on these points in our last call, I would like to take this opportunity to briefly walk through each of these points in a bit more detail. First off, one area we're focused on is a repositioning of the business to prioritize our core markets.
Our business has a dominant position across the DACH region, Southern Europe, parts of Scandinavia, the UK, and a growing presence in the American market. While we aim to serve our customers across the globe, our focus will be placed on markets where we have established infrastructure that allow us to serve customers with favorable unit economics. Across our core markets, we see a meaningful advantage in profit contribution, and driving orders from these geographies will best position us for a return to profitability. Secondly, we have worked closely with each business across the portfolio to identify and outline a range of operational measures to create a more efficient organization with lasting financial and strategic benefits.
On the organizational side, we have taken the painful step of reducing our employee base to rightsize our organizational footprint with the level of demand in the market and operate with a leaner structure. From a commercial and operational perspective, there are a number of initiatives aimed at driving efficiencies across our business model. These measures range from a much tighter inventory management program to reduce our dependency on pre-orders and improve our inbound flexibility, to tweaking our commercial offering by optimizing assortment and our marketing and fulfillment activities for maximum margin contribution. The full impact of the wide range of initiatives identified will accrue over the coming quarters and will drive a lasting improvement in our operating performance.
Lastly, we've touched on the numerous transaction benefits in our prior calls, but we have made progress on delivering sizable synergies from our Wiggle and Tennis Express acquisitions and have a clear pathway to realizing the full potential of these group benefits. We've begun to realize group procurement synergies as a result of our enhanced scale and have teams in place to optimize our tech stack and drive efficiencies across our organizations. In addition, growing our owned brand portfolio and cross-selling our brands across platforms remains a critical strategic initiative and one that we are keenly focused on executing. Taken together, we are confident these measures will result in a refined operating model that will provide the basis for our renewed focus on achieving profitability.
In total, the initiatives across our strategic realignment process are expected to deliver EUR 100 million of adjusted EBITDA benefit in fiscal year 2025, when we anticipate the business will be free cash flow breakeven. Despite the turbulence we have experienced in the H1 of the year, we are optimistic that we are now through the worst of this dislocation and are focused on delivering a stronger H2 of the year. The near-term picture remains uncertain as the market still navigates through this period of disruption, we are focused on delivering a more resilient business that is poised to benefit from the lasting consumer megatrends that will drive the attractiveness of the sports specialist retail industry and our position within for decades to come. With that, I would like to thank you all for your time this morning.
Now I will hand over to Alex to walk you through our financial performance.
Thanks, Stephan, and good morning, everyone. Today, I will take you through our Q2 and H1 results for fiscal year 2023 and offer some additional insight on the key drivers of our financial performance. As you may have seen in our materials released this morning, Q2 fiscal year 2023 net revenue was EUR 195 million, and H1 revenue was EUR 441 million, a 23% and 2% decrease year-over-year, respectively, on a reported basis. As many of you know, our Q1 fiscal year 2022 did not reflect the full impact of our WiggleCRC and Tennis Express acquisitions.
When considering our results on a pro forma basis, our financial performance was impacted by difficult market dynamics and a softer demand environment than we saw a year ago, with pro forma H1 revenue down 17% from the prior year. In H1 fiscal year 2023, on a reported basis, year-over-year, active customers declined 15% to 6.1 million. Visits were down 9% to 119 million, and net orders fell 3% to 3.5 million. Net average order value grew 4% due to improved product mix and the relative strength of the e-bike category, thanks in part to improved supply chain environment. While our year-over-year comparison was unfavorable on a pro forma basis, active customers, net orders, and conversion were elevated against pre-COVID levels, as interest across categories has sustained growth in recent years.
Moving on to our cost base, our financial performance in H1 fiscal year 2023 was heavily impacted by the severe overstock present in the market, particularly in the bike category. As retailers, distributors, and brands have been forced to aggressively manage stock positions, heavy promotional activity has led to a material margin contraction. The H1 of the year, our gross margin heavily declined by 1,000 basis points to 26.4%, mostly driven by deliberate inventory reduction measurements at high discount. Though our financial performance suffered in the H1 of the year, we were successful in our deliberate choice to materially reduce our inventory position and have returned to our target stock levels as we enter the H2 of the year.
To achieve this, we took an exceptional one-time inventory write-off in the quarter, approximately EUR 20 million, which is being sold to alternative channels. The company now has a clean order book for fiscal year 2024 and is in position to take advantage of the overstock in market and favorably manage our intake margin. A lower revenue base, coupled with a contraction in our gross margin, resulted in a reported adjusted EBITDA for the half year of negative EUR 97 million. The adjusted EBITDA margin, inclusive of discontinued operations, was negative 22%. Our OpEx base was heavily impacted by inflation, which in a competitive environment could not be passed to the consumer. While some of this inflation will be permanent, there are signs that many input costs are at or below pre-pandemic levels, which we are starting to see a benefit from.
It's important to note that these figures do not reflect the commercial and operational measures that we have implemented, such as the impact of our reduced personnel footprint, as an example. Before covering our longer-term outlook, I'll briefly cover H1 fiscal year 2023 cash flow and our liquidity position. In H1 fiscal year 2023, net cash from operating activities was negative EUR 136 million, and our net cash from investing activities was negative EUR 17 million, corresponding to investments in logistics consolidation and IT projects for the replatforming of acquired assets. Taken together with the net cash from financing activities and the cash flow from discontinued operations, we ended H1 with EUR 35 million of cash and cash equivalents.
To adequately address the business' near-term cash flow requirements, we have taken important steps to ensuring the long-term liquidity of the group that will allow the business to weather the near-term disruptions. We are very pleased to have reached an agreement with an affiliate of our major shareholder to provide the financial resources to execute on our long-term strategy with an incremental EUR 150 million in available liquidity to fund the business to cash flow breakeven. With this additional investment, the business is well positioned to execute against our organic and inorganic ambitions in the coming years. Pro forma for subsequent capital raises and commitments received, the company's liquidity position stood at EUR 273 million as of H1 fiscal year 2023.
This liquidity position includes EUR 88 million of undrawn convertible note capacity, as well as the incremental EUR 150 million commitment previously mentioned. Looking ahead to the back half of the fiscal year, we anticipate a continued but slow improvement in macroeconomic conditions, which have shown signs of recovery recently as consumer sentiment starts to rebound from the recent lows. That being said, the overstock in the market will likely take another 12-18 months to fully clear and will continue to weigh on gross margins for fiscal year 2023. As a result, we anticipate revenue growth of between -9% to -11% on a year-over-year reported basis, as well as an adjusted EBITDA margin of -16% to -18% for the full fiscal year 2023.
In conjunction with our 2023 outlook, we would also like to provide some visibility to the long-term horizon. In the medium term, we anticipate the market to further consolidate and for SSU to return to 12%-15% top-line growth in the coming years, with the EUR 100 million run rate EBITDA benefit of the strategic realignment process, enabling the business to be breakeven on a cash flow basis by fiscal year 2025. For fiscal year 2026 and beyond, we expect the full benefits of our recent acquisition, as well as the benefits of operating leverage, will allow the business to be cash generative for fiscal year 2026 as we approach our target financial profile of 7%-10% adjusted EBITDA margins.
In closing, I would like to thank our team for the effort and resilience displayed across our business as we navigate a very challenging period in our industry and the willingness to take all the necessary steps to position SSU for a successful future. As Stefan mentioned earlier, an improving market and economic picture, as well as our solidified financial footing, leave us encouraged that our performance in the back half of the year will compare favorably to H1. Thank you very much for your time. With that, Stefan and I will be happy to take your questions.
Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. If you'd like to remove your question, you may press star followed by two. Please ensure you're unmuted locally when asking your question. As a reminder, to ask a question, you can press star followed by one on your telephone keypad. Our first question for today comes from Ygal Arounian from Citigroup. Your line is now open. Please go ahead.
Hey, good morning, good afternoon, everyone. Maybe just a couple of questions. First, if we can get a little bit more color on... There were some comments around the economic indicators beginning to improve, and understand that on the macro side with inflation and certain things starting to get better. Talk about your the confidence level as we get through the remainder of the year on how demand can improve from the consumer side, and then, I want to talk a little bit more about the finance capabilities as a follow-up.
Great. Thank you, Ygal. I think maybe firstly, just to address your questions in order. On the economic outlook, we've seen, you know, the core CPI inflation start to come down in our core markets, in particular in mainland Europe. Consumer confidence is also starting to improve off the lows the H2 of last year. In the U.K., that picture is slightly taking slightly longer than anticipated. Core inflation is higher than expected, and it's taking longer to come down. I think we're starting to see, ultimately, you know, inflation abate, and you've seen now at least two quarters of private sector wage growth exceed inflation.
We do anticipate that that will result in a healthier consumer, in, you know, as we go into the next fiscal year. I think your second question was regarding our confidence levels for the H2 of the year. We're in, you know, we're in May now, right? Our business is seasonal in the sense that about 60% of our revenues are typically recognized in the H2 of the year. We're in June now, and so, you know, we've got good visibility on, you know, Q3. Trading is, as is in line with our expectations. You know, because we took such dramatic actions to clear, you know, to clear the inventory that was kind of we took over into...
You know, into this fiscal year, we're now in a position where, you know, we've got open to buy again, and we're inbounding, you know, the in-demand, in-demand items. That's resulting in, you know, we're starting to see an uptick in, you know, adjusted gross margin, and that will ultimately result in, as the overstock in the market starts to clear, the levels of demand and stock are aligned, obviously healthier gross margin. We're starting to see the green shoots in terms of gross margin improvements, and we anticipate that to continue into next year.
I think your last question was regarding-
I think.
Was regarding the financing.
Yeah.
Maybe if you could just repeat the question to me.
Actually, maybe just before we jump into the financing, since we're basically through your fiscal third quarter here, any more specifics on what the expectations are for this quarter, if you're going to weigh in on that?
We're struggling to hear the question, Ygal, but I think you said something about our expectations for the H2 of the year?
No. Well, I mean, the fiscal third quarter is, we're just a few days from that being finished. Maybe just the trends for the quarter, specifically, if there's anything you could share on that?
Sure. I think it can be inferred from the H2 guidance that we provided this morning. Generally, again, year-over-year, you know, we will see year-over-year declines, reported revenue declines in the kind of high single digits. You know, we start to improve in the third quarter. In the Q4, that's our expectation, really, because as we look at just the lacking effects of when demand started to slow last fiscal year, you know, the overstock in the market really picked up in our Q4.
Okay. I'll actually maybe just ask for some more clarification on the kind of updated strategy. You know, it seems like there's, you're pulling back in some markets, and others you're not. You kind of noted in the press release you're still looking for potential M&A, and I think you'll see some participation there.
Maybe just help us understand kind of, you know, how to think through, the strategy, the market, like, where the M&A focus is now, or why there even is really an M&A focus right now, given the dynamics in the industry and from way through, why not just kind of buckle down and figure it out before you get back to thinking about M&A? Thanks.
Yes, Ygal, let me take that. The focus of our organization, of our company, is obviously to deliver and to execute against the plans that we laid out. Right? That's the core focus that the company is basically driving at. As we mentioned, right, there's the four areas of focusing on our core markets, adjusting our operational and commercial models, and also delivering on the transaction synergies of the transactions we've done is kind of the core focus. Having said that, you know, the turmoil in the market and the distortion, especially in the bike market, right, obviously have a flip side to that, which is opportunity in terms of buy and build continuation, right? That's always been our strategy, right?
Long term, we are a buy and build strategy and then company. We do look, you know, and explore opportunities in that market. Again, that's not the focus. The focus is to really nail and then execute against the plans that we have laid out.
Okay. Sorry, if I could ask one more. I'm not sure if there's other questions. Quick, maybe on the liquidity side. You've gotten now kind of a number of infusions from your kind of core holder, I guess. You know, can you talk to the level of commitment? You know, is it kind of like an unlimited runway if things continue to go, if the improvements continue to take longer than expected, if the environment continues to be more challenged? Maybe just a little bit more color around the expectations there. Thanks.
Sure. So evidently, we have exchanges with our core shareholder. In this environment, you know, we obviously put forward the requirements of the business as we see them to get to free cash flow break even, which is intended to be, you know, on a four-year basis in fiscal year 2026. The commitment that has been put in place will see the company into fiscal year 2025 on a relatively conservative scenario in terms of the continuation of this market, but obviously a right sizing of our inventory position. The way that we look at it is that, you know, we have a frequent exchange, and ultimately, you know, it's ultimately gonna be dependent on the outlook for the business.
We're confident that the commitment today will enable the business to execute against our core pillars that Stephan laid out and enable us to return the business to adjusted EBITDA profitability and subsequently, free cash flow.
Great. Thank you.
Thank you. As a reminder, if you'd like to ask a question, you can press Star, followed by 1 on your telephone keypad. At this time, we currently have no further questions, I'll hand back to Stephan Zoll for any further remarks.
Yes, thank you. Let me just reiterate one more thing, which I think is the key takeaway here. We're very confident, while we continue to execute against the plans that we laid out, that the results that we've shown today will improve already in H1, as Alex alluded to as well. Also, second point, like, if you look through this, in the midterm, right, the mega trends that drive the consumer behavior, that drive eventually the growth of our markets and the segments that we are operating in, are very positive, and they continue to be positive.
Next to that plus consolidation that's happening in the market in this time of the season and this time, we're very confident that we get out of this with a stronger setup and a even more opportunity ahead for us to continue to build our business. With that final remark, thank you very much for listening to us, and we're looking forward to the next update. Thank you.
Thank you for joining today's call. You may now disconnect your lines.