WEW released a strong set of Q2 results, in line with our sales and GMV expectation but beating our margin expectation. In detail:
Q2's GMV arrived in line with expectations at € 110m (-4% yoy) as a direct result of the assortment change towards a more premium, global and smaller offering. This led to a continued decline in active customers by 9% to 1.17m (eNuW: 1.21m), but was mitigated by a surging average basket size of € 260 (+31% yoy; eNuW: € 229). Unsurprisingly, the assortment change also comes with a shift towards the own brand "Westwing Collection", which made up a GMV share of 65% (+12pp yoy; eNuW: 63%) and implies a growth of 18% yoy, whereas third party products GMV declined by 28% yoy.
Sales also declined by 6% yoy to € 100m (eNuW: € 101m) in Q2 in line with our expectation. In particular, DACH saw a larger than expected decline by 9% to € 54m (eNuW: € 59m), following a strong comparable base (Q2'24 was not yet impacted the assortment change) and a still muted consumer sentiment. However the International segment already exceeded our expectation with sales declining by only 2% yoy to € 45m (eNuW: € 42m), following first base effects from the assortment change but more importantly first contributions from recent country expansions (8 new countries executed in H1).
Thanks to a slighty better than expected Westwing Collection share but also due to improved freight rates, the gross margin came in better than expected at 52.6%, up 2pp yoy (eNuW: 51.2%), yielding a gross profit of € 52.4m (-2% yoy). Furthermore, we underestimated the efficiency gains from the centralized and consolidated logistics center in Poland, which led to fulfilment expenses to fall by 11% yoy to € 19m (19.1% sales ratio, - 1pp yoy). Consequently, the contribution profit came in ahead of expectations at € 33.4m (eNuW: 32.4m) with the highest contribution margin ever recorded of 33.5% (+3.1pp yoy). To put this into perspective, this translates into a contribution profit per order of € 79, which not only grew rapidly by 41% yoy (15% qoq) but has nearly doubled since FY'23 (€ 43 per order). A further highlight was the reduced overhead as G&A expense declined by 20% yoy to € 17m (17.2% of sales, - 2.9pp yoy) on the back of reduced headcount and lower write downs, leading to a steep jump in adj. EBITDA by 60% yoy to € 6.2m (6.3% margin, +2.6pp yoy) ahead of expectations (eNuW: € 5.3m).
With a return to growth expected for FY26e, the visible margin levers should translate into even stronger operating leverage. Consequently, we expect a further adj. EBITDA margin improvement in FY'25e to 9% and rising FCFs thanks to the sound cash conversion.
All this makes WEW an excellent pick despite muted consumer sentiment. Trading at only 2.7x FY'26e EBITDA and offering an attractive FCFY'25e of 16%, we reiterate our BUY recommendation and keep WEW in our AlphaList with increased PT of € 20.00 (old: € 18.00), based on DCF.
