On November 6, Westwing will release its Q3 figures, for which we expect muted GMV and sales, but visible margin improvements. In detail:
Progressive improvement in GMV and top-line. As the product reassortment implemented in Q2 '24 reaches maturity, we expect a much less pronounced decline in LTM active customers (eNuW: 1.23m; -4% yoy), and consequently a decline in orders (eNuW: 420k, -21% yoy). The disproportionate decline in orders should be a direct result of the product reassortment, which implies a shift from more frequent, smaller ticket orders to less frequent, bigger ticket orders. Mind you, this is partially offset by a higher average basket size (+23% yoy). Thus, we forecast Q3 GMV to land at € 107m (-2% yoy), reflecting a lower decline vs H1. Accordingly, sales should arrive flat at € 96m. Regionally, DACH should still decline by 1% yoy to € 53m , as it should be more affected by the reassortment, whereas in International the same effect should be visible, albeit revenue from geographic expansions might already be visible, leading to a slight sales growth of 2% yoy to € 43m.
Westwing Collection's share to reach new high. After WEW posted a record 65% GMV share of own products in Q2, we expect it to reach 66% (+8pp yoy and +1pp qoq), which implies a 21% yoy decline in third party products GMV, and a +12% yoy growth in own products GMV. This should come in handy, as the Westwing Collection products carry structurally higher gross margins than third party products. As a result, we forecast a gross margin of 51.5% (+1pp yoy), leading to gross profit of € 49m (+2% yoy) in Q3.
Stron EBITDA improvement ahead. The expected gross margin improvement should be aided by more efficient fulfillment (eNuW: 18% fulfillment expense ratio; -0.9pp yoy), which should ultimately drive a +1.9pp yoy improvement in contribution margin to 33.5% in Q3. Moreover, a leaner overhead cost base (eNuW: G&A expense ratio -2.2pp yoy to 18.8%) thanks to the ongoing business model transformation and complexity reductions, which were strongly visible in H1, should drive adj. EBITDA to € 4.9m (5.1% margin; +1.4pp yoy), implying a remarkable +40% yoy growth in Q3 (eNuW).
Guidance fully in reach. Based on our estimates for Q3 and Q4, we expect WEW to deliver FY'25 results comfortably within the guidance (see bottom right). Sales are seen to arrive at € 440m (-1% yoy) and adjusted EBITDA at € 32m (7.2% margin, +1.8pp yoy).
In sum, we maintain our strong conviction on the investment carried by an imminent return to top-line growth with already visible margin expansions, coupled with a very attractive valuation. Therefore, we reiterate our BUY rating and keep WEW as part of our AlphaList with an unchanged PT of € 20.00, based on DCF.
ISIN: DE000A2N4H07