ABOUT YOU Holding SE (YOU) Earnings Call Transcript & Summary

Esteemed shareholders, welcome also from our part to the digital AGM. We are delighted that you join us. For the next 20 minutes, we want to focus on 3 topics. We will get started with the vision and strategy. Then Hannes will present the financial performance of the past financial year. And then finally, we will give you an outlook of the current financial year. About You was founded in 2014. So we are 9 years old. And we founded the company with the idea to digitize the offline shopping store. What do we mean by that? So you have the shopping behavior, you go to the city center, and you don't really know what you are going to shop, what you're going to buy. It could be an outfit for a wedding, maybe you're invited to a wedding, or maybe you just want to have some new piece of clothing. So you just troll around, you get inspired, and then you buy even more. You may know about it. It's a rather typical shopping behavior in the offline world. And this shopping behavior is to be digitized. So we want to actually bring it on to the smartphone. Our target group is men and women from the Gen Y and Gen [ Z. ] So those are people from 20 to 49 years old, but we said it's not about the biological age. It's about the felt age. So if you feel as if you are between 20 and 49 years old, you are welcome to start your shopping store with us. Based on this idea, we came up with our vision: Become the global #1 fashion platform. Of course, this is a very long-term and bold and ambitious vision. However, we believe that we have everything in order to achieve this vision. On the one hand, we have our own commerce business. So we want to digitalize the offline shopping store. And 3 things are very important. First, the smartphone experience. And that is why you can see smartphone on this slide. This is the #1 device for young people to buy new things. And secondly, it's about inspiration. If we want to digitize the shopping store, we have to inspire people on our platform. And that's why you find enough and a lot of content, you can follow several celebrities, you have content, you have a lot of clothing and of course, digitization. This is in our name. This is why we are called About You. If I log on to About You it will be changed from About You to About Tarek. And with every click, we will build an individualized shopping experience. So we don't only have one vision of About You, but 50 million versions of About You because we have 50 million registered users, and they reflect our vision here. Secondly, we have to make sure that there is a win-win-win situation. Our customer benefits from a very good shopping experience. We as About You benefit from increasing growth revenues that we can monetize. And our partners, more than 3,800 brand partners have to benefit from that. And they are benefiting, because we are generating purchases, which would not have taken place without About You. So now people are actually addressed to these new brands, and they find new companies they like. And second -- thirdly, it's not just about our commerce business, aboutyou.com, but beyond our own trade platform or commerce platform, we also want to participate in the e-commerce market. Since 2014, we have written our own software, and we offer this software to our B2B unit, it is just called Scale, and we offer it to other companies, other retailers, traders. They can use our software, and then we actually build our software according to the turnover of our customers. So they are actually participating in our business model, and they are also participating in the e-commerce market. Now we would like to present six different chapters. First, we will give you an overview of the market. Then we will talk a little bit about influence and marketing and the way how we position our brands. We have very strong company growth. The third topic, then fourth, the customer retention, then fifth, the unique SAS Software-as-a-Service business and then sixth, multiple future growth levers. Let's get started with the market. So if you take a look at the market, you can see that over the past few years that it was always an up-and-down. It was a roller coaster. Before COVID-19, it wasn't the case. Before the COVID pandemic, we have seen a strong growth. And the online fashion market grew by 5% to 10%. That was great. There was a tailwind. It was plannable. It was content. Then we had COVID-19. And we saw two things. First, the entire demand for fashion went down. So people spent less for fashion, online and offline. That's logical. You were sitting at home. There were no celebrations, no parties. So the demand for fashion went down. However, those who spent money for fashion did it much more often online. That's also logical, because the shops were closed for a specific period of time. So the entire fashion market decreased. However, the online fashion market increased, so that there was an overcompensation here. And then we had 2022. So we are now out of COVID-19, especially referring to the lockdowns, et cetera. And then we and most of the experts actually expected the fashion market to stabilize again to the pre-COVID level. However -- and that we see a sustainable online effect. However, both issues or factors didn't come true. We now have a very weak market, because we have the war inflation, lower consumer sentiment. So the people in 2022 spent less money for fashion compared to the pre-COVID. Secondly, the decrease of the online penetration was much stronger than what the experts and we expected. So the people went back to the offline shopping store. So if you take a look at the trend, the offline penetration 2022 without the pandemic, it would have been at the level which everyone expected pre-COVID. So this sustainable effect of the penetration didn't come true. And this led to the online fashion market in 2022 to decrease. So it's very difficult to get figures, especially for the entire European continent but also for our categories. However, there is a decrease, and we assume that this decrease amounts to 15% to 20% in terms of online fashion. And this 10% growth that we were able to generate over the past year can thus be considered very positive. So we actually gained significant market shares. However, it was also disappointing because we and all the other players in the industry expected more from the market. In 2023, it is not really clear what the fashion market will be like. We expect the fashion market to decrease slightly. However, as of 2024 and beyond that, we believe that the trend will be increasing again. So the development that we saw pre-COVID that people went from offline to online successfully, this will actually continue, we believe, as of last year. So that means in the next few years, we will see more tailwind in the market. Although 2022 was more difficult and '23, we will also see a slight decrease. Now let's take a look at the online fashion markets. That's the pie chart on the right-hand side, we see a second tailwind for the About You model, because they are moving to online pure players. So those are companies that really focus on the online business. And of course, we benefit from that. So how do we want to make sure that we will be able to benefit from this growing fashion market in the future as we did in the past? Well here, you have four different aspects. The smartphone experience, for instance, more than 85% of mobile revenue share comes from people using their smartphones. This fills us with pride because we get the best reviews from our online users compared to our competitors. Then we have our influencer ecosystem, which is the second aspect. So we try to make sure that people know our brand that they want to pay us a visit and that we use the marketing instrument, which is the influencers. We have a proprietary database with 25,000 users. So this is a strong followership. And from this huge pool of influencers, we can benefit, and we have more than 1,000 corporations on a monthly basis. And all of this leads to a vibrant community with more than 45 million different people visiting About You on a monthly basis, many of them several times a week, they use us as inspiration, fashion magazine to kill time. And what fills us with pride is that most of them, roughly 75% come to us in an organic session. So that means they open us directly. On About You, they find a large assortment with 600,000 items and more than 3,800 different brands. And what you find more and more on About You, our products, you do not find anywhere else. We have our own labels, of course, that we have ever more cooperations with known celebrities. We develop products together with them, and you can only find those products on About You. During the last few years, this generated strong growth from 0 to EUR 1.9 billion, which is very impressive. And this goes to show that the About You model is successful. It's a giant leap forward. Our sales grew by effect of 2.5% compared to the pre-COVID times. And we use the last to use for demographic expansion, geographic expansion. We are present in 29 different countries. We cover most of Continental Europe. And 1.5 years ago, we started development that led us to supply more than 100 different countries. It's a solid foundation for our business, our customers. What is pivotal for us is to [indiscernible] first, the entire organization is that people are loyal, that they like us because this makes sure that we can do business. And that is why we take a look at very many different figures every day, but the customer lifetime value is a very important index, because it tells us how many -- how much is spent on our platform. And this is what you can see on this chart, it gets you a good impression of what we do. We analyze the customers after the year we acquired them. So you have different years; 2017, 2018. This is when a person was acquired and then two different factors play a role. The first factor is how many buy stuff from us. And secondly, how much money are these active customer's willing to spend on our platform? This isn't all that common in e-commerce to have growing cohorts year-on-year. It means only a few customers stopped ordering on About You, but those who are loyal, overcompensate that decrease. So every year, you can see a consistent growth of customer spending with the exception of last year, because we have the pre-COVID, post-COVID effect. Last year, for the very first time in our history, we saw customer cohorts to go down slightly. And that is why the dynamics also went down slightly. But you can interpret that in two different ways. The last financial year 2022-2023 cannot be compared to other years. But if you did that, you can't imbalance it if you take a look at the long-term trend and compare the year before COVID with the year before that, you see there is a trend. Customers spend more and more money on About You year-on-year and most of them are loyal. So we believe that this port will continue to grow. We believe that they will continue to be our solid foundation for our growth and our business. And with that said, I will hand over to my colleagues in best.

Thank you, Tarek. Now I would like to talk about our TME segments; Tech, Media and Enabling. And this is our business unit where we cooperate with our business partners. Our TME segment consists of two different segments. We have the commerce-related revenue, and we have our own independent brand, Scale. On Scale, we sell our software solution that we build ourselves to large companies, and then they can operate that on our platform. Now I would like to give you the latest figures from our Scale business unit. In the last financial year, we managed to operate 41 shops based on that technological -- 141 shops based on the technological foundation. We had EUR 87.7 million in terms of sales. And Scale has an adjusted EBITDA of EUR 27.7 million. If we take a look ahead, we believe we're very robustly positioned with our strategy. On the one hand, we would like to continue to improve our core product. On a second level, we would like to grow our reach in the already existing markets. On top of that, we would like to further expand our categories. And we've also wanted to invest in our E segment team, so that we can continue to use Scale in a very lucrative fashion. The progress that we have made for our sustainability objectives filled us with great pride. This is what you can see on this slide. We have our science-based targets. And then on the right, you can also see that 24.6% of our sales was done with sustainable products. So again, we believe we are very solidly position. And with that said, I would like to pass over to my colleague, Hannes.

Thank you. So I would like to talk about the results of the last financial year 2022-2023. It was a challenging year with the Western Ukraine war high inflation and a consumer sentiment that hit a record low. We still managed to grow our sales figures with a 2-digit number. The [indiscernible] by 20% to EUR 1.9 billion, which was within the framework of our expectation, we see growth in all 3 different segments, DACH, our German speaking core markets, 9.1% growth to EUR 916.3 million. Rest of Europe, our international commerce business is 17.3% growth to EUR 900 million and TME, our B2B segment, a growth number of 16.5%, up to EUR [ 495 ] million. We believe that these sales developments in light of the challenging market must be seen positively. In all three segments, we were able to expand our market share tremendously. Now I'd like to take a look at the sales drivers to our commerce business. We were able to tremendously grow our number of active customers by 11.8% to EUR 12.7 million. I accept this is a solid foundation of existing customers. Positive frequency went up by 7.1% to EUR 3.1 million. The average order went down by 5.2% to EUR 54.8 per order. That's because of the normalization of weak figures and a discount-driven environment that we were able to observe in the fashion industry in 2022 and 2023. This difficult environment impacted the results. We had EBITDA of minus EUR 137 million, which was still within the expectations for the last financial year. The drivers we have planned investments, marketing, the expansion of existing customers and infrastructure in a difficult market environment. And this can also be seen in the results of our financial results. DACH, EUR 14 million adjusted EBITDA and 2% EBITDA margin, still slightly profitable, but not as profitable as in the year before. B2B, EUR 31 million, adjusted EBITDA, 16% margin, still highly profitable despite the difficult market environment. So we could expand our profitability. Rest of Europe, minus EUR 169 million adjusted EBITDA and a margin of minus EUR 19 million. So we had different rollout campaigns, marketing campaigns and new markets and the expansion of our network. So you see that the results were under pressure last year, and we were able to improve that, and I will talk about that when we eventually look ahead. Now I would like to wrap up my part by talking about the cash position. In the last -- at the end of last year with EUR 205 million as of cash position, and we were able to get a backup loan with our partners to the tune of EUR 97.5 million. So this is an equity position of EUR 300 million, give or take, which is a comfortable situation to navigate through these difficult market conditions. Now let's talk about the outlook and priorities for the financial year 2023-2024. Our top priority is to achieve our result objectives based on adjusted EBITDA. We want to have a breakeven point, and this has been our goal. This will be our goal. And this is in line with our forecast for the next financial year. What are the drivers? In terms of revenue, we expect a year-on-year growth of 11%. When it comes to adjusted EBITDA, we would like to reach our breakeven goal and make that binding. In terms of CapEx, we expect EUR 30 million to EUR 50 million. And in terms of net working capital, we believe we have the same level as of last year 2022-2023. So the bottom line is that we are ready to absorb some growth decreases and counteract this with the [ raft ] of different measures to reach the breakeven point. So what are these measures? Well, I would like to tell you about these measures. We have different cost systems and structures, and that is why we have a -- we can control these developments. When it comes to gross margin, we expect a growth because of adjusted buying budgets, also new buying cost structures. When it comes to consumer costs, we believe that thanks to measures like a minimum order price and no longer minimal one-off costs believed to be able to counteract that. Marketing costs are the biggest lever. We also think that there will be reductions. So we will have a lower cost for the campaigns. And we were focused on new markets, younger markets, and we will also have an online control of the marketing channel. We already see that these measures already take effect right now. And we are also very optimistic that we will achieve this breakeven point this year as we also presented in the guidance. Now let's take a look, a very careful medium-term look to the future. So now we focus on the current financial year 2023-'24. This is -- or '22-'23. This is rather a transition phase, where we still have this difficult market environment, and it is not clear whether we will be profitable, but we want to breakeven. And next year, we want -- we expect an improving consumer sentiment within the market environment, we will see a normalized environment, and we will then also see acceleration in the top line growth and positive adjusted EBITDA development. Esteemed shareholders, this is actually the end of our presentation. Thank you very much for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]