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

Ladies and gentlemen, welcome to the About You Holding SE First Half 2024-2025 Earnings Conference Call. I am George, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Frank Bohme, Head of Investor Relations and Communications. Please go ahead.

Good morning, everyone, and welcome to our Q2 2024-2025 results presentation. Today's conference call will be hosted by Hannes Wiese, Co-Founder and Co-CEO of About You. Hannes will walk you through our Q2 results in just a second. The corresponding slides to this presentation has been published on our IR website under the Publications section this morning. After his presentation, Hannes will be happy to answer your questions. And with this, I hand it over to you, Hannes.

Thanks, Frank, and good morning to everyone also from my side. Today, as usual, we're focusing on the following topics: short business update, followed by our Q2 financials, the outlook section, and we'll close this call with Q&A. Let's now jump into our business update starting on Page 4 with the key takeaways of the second quarter '24-'25. Revenue increased by 2.4%, with strong growth in the DACH region of 8.6%, supported by investments and brand campaigns, such as the About You Fashion Week. The average order value for commerce increased to EUR 58.8 over the last 12 months and both LTM active customers as well as new customer numbers returned to growth quarter-over-quarter. Our separate business unit SCAYLE has delivered another successful H1 '24-'25 with ARR growth of more than 20%, continued high profitability levels and strong traction in acquiring new clients internationally. We made further progress in improving group profitability with an adjusted EBITDA uplift of more than EUR 10 million year-on-year reaching a negative EUR 2.3 million in Q2 '24-'25. EBITDA increase was largely driven by a 280 basis point improvement in gross margin and lower administrative and fulfillment costs. We also had a good start into the fall/winter 2024 season with double-digit growth rates in September and continued good trading in October. At the back of our strong year-to-date EBITDA performance, we raised our adjusted EBITDA guidance to a range of EUR 15 million to EUR 35 million in FY '24/'25. The range already reflects a step-up in marketing investments in H2, which should support a further acceleration in topline growth, paving our way to get back to double-digit growth rates in FY '25-'26. For FY '24-'25, we are narrowing our topline guidance to a range of 1% to 7% year-on-year. This reflects, on the one hand, relatively moderate growth achieved in H1, and on the other hand, strong current trading patterns and an expected acceleration in growth in H2. Let's dive into our business update section on Slide 5, starting with the About You Fashion Circus. This event took place in July during the Berlin Fashion Week in cooperation with Circus-Theater Roncalli. Brand shows were presented in the Circus tent combining fashion and art as well as spectacular performances with acrobatics and Magic. 1,300 guests attended on-site, including numerous brand executives, content creators and celebrities. And most importantly, the event generated a reach of around EUR 67 million via the digital channels of About You and a potential 334 million contacts via media. This made the Fashion Circus another great success in creating digital experiences around the About You brand. Let's discuss active and new customer metrics on Slide 6. Our stepped-up investments in brand and performance marketing are clearly paying off as the number of active customers as well as the number of new customers returned to growth in the last quarter. Let's start on the left-hand side of this chart, where we are comparing our rolling last 12-month customer metrics in a quarter-over-quarter view that is LTM for Q2 versus Q1 '24-'25. Total active customers, we have seen an increase of 1.3% quarter-over-quarter and LTM new customers increased by 0.8%. On the right-hand side of this chart, we are showing the same metrics in the last 3 months' view, comparing Q2 '24-'25 versus Q2 '23-'24. Here, total active customers increased by 4.4% and new customers by 3.2% year-on-year. That means that our customer numbers are growing healthily again and that growth has accelerated more recently. It's a good news on our strategic growth initiatives to further fuel growth in the future. To double-click on the operating model extension on Slide 7, which we preannounced with the full year release. As a quick reminder, we want to enable partners to sell directly to our About You customers in a typical marketplace operating model. We made strong progress over the last quarters, and we are now ready to roll out in H2. We have established a dedicated legal entity, SCAYLE Payments, employing around 50 payment experts already today, which are ready to handle online payments on the About You platform and beyond. Around SCAYLE Payments, we have successfully established the regulatory framework to enable marketplace payments on About You, including a license granted by the Federal Financial Supervisory Authority. Our sales developed technical infrastructure is ready to scale to thousands of new sellers on the About You platform. And we have developed a new seller center in API who is onboarding and operations for these sellers. Some screenshots on the left-hand side should give you a first impression of this newly developing seller ecosystem. Lastly, we have a large number of new partners already lined up to be onboarded to the new marketplace model. These range from top-tier brands over midsized merchants to smaller manufacturers. We are convinced that this operating model extension will substantially support future growth in GMV and contributions. However, unlike for our current 3P models, we will recognize only the commission as revenue for marketplace model sales. Potential revenue recognition effects are also reflected in the relatively broad revenue growth range we are guiding for FY '24-'25. Moving on to SCAYLE on Slide 8, where we can proudly announce that the strong operating performance continued in H1 '24-'25. SCAYLE's annual recurring revenues grew by more than 20% year-on-year, largely driven by the go-live of new enterprise customers. Gross margins on these ARRs remain very high at around 85%. This gives room for investments into product and go-to-market while sustaining EBITDA margin levels of more than 40%. But only key financial metrics improved in H1. We've also made further operational progress reflected in new customer wins in the U.K., Nordics and Germany. Stay tuned for the coming weeks, where we will announce further exciting new customer wins. We are also proud to report that SCAYLE has been recognized as a leader in the 2024 IDC MarketScape for Enterprise Headless Digital Commerce Platforms. Amongst other strengths, IDC highlights SCAYLE's strong understanding of the enterprise B2C landscape, the flexible architecture with modular pre-integrated core services as well as our extensive feature set and flexible product data model, which are some snippets of our SCAYLE's highlights in H1. More exciting content will be presented at the upcoming SCAYLE event. So let's focus on this for a second. On November 7, we will host a virtual and stand-alone event dedicated to SCAYLE. We will dive into SCAYLE's product features, present key financial and operational metrics and discuss the growth drivers for future success. We'll also make sure to leave sufficient time for Q&A. Registration for the event will open soon on our Investor Relations website. Let's now move on to our financial update, starting with our topline on Page 11. We grew our group revenue by 2.4% in Q2, which is a slight acceleration versus Q1 and corresponds to EUR 450 million in revenue. Let's take a closer look at our segments and our topline dynamics. Starting with DACH, where revenue growth accelerated to 8.6% in the second quarter. This growth was largely driven by the German market, which also saw an improvement in consumer sentiment. '24-'25 growth in DACH was further supported by an increased marketing spend to grow our customer base. Rest of Europe segment, revenue increased by 0.2% year-on-year. The individual countries and regions showed a relatively wide range of growth rates again. Many of our RoE focused markets were producing strong double-digit growth rates. Total revenue development for the segment was, however, negatively impacted by markets where we are reducing our commitments. This effect should wear off over the next quarters, enabling our RoE segment to get back to more meaningful growth rates. To our TME segment, where revenue declined by 1.5% in the second quarter. Topline performance, however, ride across the different TME divisions. In tech, revenue developed positively driven by the go-live and acquisition of new clients for SCAYLE, resulting in double-digit ARR growth as discussed in the business update section. In Media, revenue returned to growth as brand partners were investing more to increase brand awareness and visibility in the About You ecosystem. Enabling on the contrary, revenue declined, largely driven by a shift towards higher-margin B2B revenue streams. Let's now move on to Page 12, where we see our customer engagement metrics for the commerce segments. Our active customer base declined slightly by 1.4% year-on-year to EUR 12.4 million in the last 12 months. But as discussed in the business update section, active and new customer numbers returned to growth quarter-over-quarter. And we are confident that we will now enter into a new phase of sustainable customer growth, following the normalization over the last 12 months. The LTM average order frequency was relatively muted at 3.1 transactions per active customer. This can be attributed mainly to measures introduced to increase the profitability of existing customers. The average order value increased sharply by 5.6% year-on-year to EUR 58.8 over the last 12 months. The increase is largely due to our unit economic measures as well as higher RRPs and lower discount levels. With that, let's move on to our bottom line on Page 13. Group adjusted EBITDA shows a strong margin improvement of 240 basis points versus Q2 last year as depicted on the left-hand side of this chart. For the H1, total EBITDA improvements have grown to more than EUR 20 million year-on-year. With this, let's move on to segment profitability. In our DACH business, the adjusted EBITDA margin declined to 0.5% in Q2 this year. The decrease was the result of higher marketing investments in events, media and performance marketing. This overcompensated the positive effects from a higher gross margin due to lower promotional intensity. Moving onto our RoE segment, where we increased our adjusted EBITDA margin significantly by 480 basis points year-on-year. The improvement in the EBITDA margin was driven by lower clearance activity, measures introduced to improve unit economics as well as the nonrecurrence of one-time costs related to the rollout of the European distribution network. Our TME business, the adjusted EBITDA margin remained relatively flat on a high level of 22.9% in Q2. It has a higher share of high-margin B2B revenues, compensates the step-up in growth investments, particularly into SCAYLE. Let's now move on to Page 14 and take a closer look at the key cost lines of the group. Starting with the gross margin, which increased by 280 basis points from a relatively low base in Q2 last year, reaching 37.9% in Q2 '24-'25. Positive revenue mix effects with an increasing share of high-margin tech revenues, a significantly improved inventory position, combined with more effective discounting logics and a lower promotional intensity in the fashion industry more broadly were the main drivers for the gross margin increase. Next, our fulfillment cost ratio, which declined by 70 basis points to 23.1% in Q2. The decrease was primarily attributable to unit economic measures, productivity improvements and further optimizations in the logistics network. Let's move on to our marketing costs, which increased by 210 basis points to 11.1% in Q2 '24-'25. The uptick was planned and partly driven by events such as the About You Fashion Week or the About You Pangea Festival as well as new celebrity brand drops. This is in line with the strategic decision to increase marketing investments to drive brand awareness and growth. Selective adjustments and marketing steering models to support new customer acquisition further contributed to the increase in marketing costs. Lastly, our admin and other cost ratio declined by 90 basis points to 4.3%. The decline is largely due to operating leverage as well as strict operating cost control. All these factors combined resulted in the increase of our group adjusted EBITDA margin by 240 basis points to a negative 0.5% margin in Q2 '24-'25. Let's now take a look at our cash flow drivers on Page 15. Our net working capital is at a negative EUR 50 million at the end of Q2 '24-'25, it's a decline of around EUR 90 million versus last year, which largely results from a further reduction in own stock inventories and the optimization of payables through improved payment terms. CapEx amounted to EUR 10.7 million in Q2, which is EUR 1.5 million below last year levels. Areas of investment were in software and IT infrastructure as well as in influencer brands and incubators. Moving on to our cash position on Page 16. Let's first look at our operating cash flow, which is at a negative EUR 21 million in Q2. This development is largely seasonal as it results from the EBITDA and working capital dynamics at the end of the spring/summer season. CapEx translates into investing cash flow, and our IFRS free cash flow is, hence, at a negative EUR 32 million in Q2. Free cash flow is, however, clearly positive in H1, up almost EUR 50 million year-on-year. Our financing cash flow at a negative EUR 70 million in Q2, largely driven by payment for leasing agreements, we ended the quarter with cash and equivalents of EUR 146 million, which is around the prior year level. We had our credit lines of around EUR 100 million, remained undrawn, and we've also lowered the utilization of working capital financing lines. Thus, we remain very comfortable with our current liquidity position. Let's now move on to the final section of this presentation, the financial outlook. Let's start with top line, where we are narrowing our guidance today to a 1% to 7% growth range in FY '24-'25. This is a function of, on the one hand, moderate topline growth in our H1 actuals as well as potential revenue recognition effects from the operating models in H2 as discussed in the business update section. On the other hand, we have a very good start into the full winter season with strong double-digit growth rates in September and continued good trading in October. And we remain very confident that the planned step-up in growth investments will further contribute to a sustainable acceleration growth in H2. This is a good transition to our adjusted EBITDA guidance, which we are raising today on the back of strong year-over-year improvements in H1. For the full year, we are expecting an adjusted EBITDA between EUR 15 million to EUR 35 million versus EUR 10 million to EUR 30 million previously. This raised guidance still gives us enough flexibility to execute the discussed step-up in investments in H2, going into growth initiatives for SCAYLE as well as marketing for the Commerce business. For financial Q3, we continue to expect a year-over-year improvement in both revenue and adjusted EBITDA. Comparison versus last year's Q3 may, however, be skewed as the revenues from the Black Friday weekend will effectively be recognized in December under IFRS due to the timing of the event at the very end of November this year. For our financial Q4 in turn, this should mean a potential upside versus last year. Let's move on to CapEx and net working capital, where our full year guidance remains unchanged. CapEx is expected to be around EUR 30 million to EUR 50 million in FY '24-'25, and net working capital is expected to remain in negative territory. Let me close my Q2 presentation by saying that I'm really happy with the strategic progress we are making. Active and new customers are returning to growth. We expect further near-term upside from our strategic growth initiative. SCAYLE continues its great performance, and our strong group profitability improvements give room for a step-up in investments, laying the foundation to return to double-digit growth next year. I look forward to answering your questions. Moderator, handing it back to you.

[Operator Instructions] Our first question comes from Nizla Naizer in Deutsche Bank.

Great. Just had a quick question on the macro environment that you're witnessing in Germany and in Europe. We're not hearing the most optimistic news. Is that affecting the business at all? Could you give us some color on how you're managing that? That would be great. And you did mention double-digit growth in September and that, that should taper off. So it's fair to assume that there won't be a double-digit kind of growth momentum for the full quarter. Some color there would be great. And secondly, on EBITDA, you mentioned seasonality in the business before and Q3's better margin quarter, you mentioned that as well. So could we assume that absolute EBITDA in Q3 could be even higher than maybe what you reported in Q1? Some color there would be great. And maybe lastly on Rest of Europe. Clearly, not the growth that we wanted to see, but it sounds like you're prioritizing some markets over others. What are your most successful markets in that RoE business? And could that segment also return to positive margin territory in Q3?

Yes. Thanks for the question, Nizla. Let's start with the macro environment. I mean what we see in our trading currently is definitely positive development. What we are seeing is favorable weather patterns that may basically offset maybe some of these macro dynamics. We are also seeing a slightly lower competitive intensity in some areas. And of course, we are also facing some soft comps from last year. And I think all this together, combined with the strong execution of our growth initiatives, ultimately currently leads to very strong trading momentum, which definitely more than offsets maybe some bad news on the macro side. And then the next one on the growth outlook for the financial Q3, quarter-to-date, we've definitely grown in double-digit territory, so that's definitely clear positive. Now we're facing relatively tough comps in November with a very strong Black Friday season in the last financial year. And also, as discussed in the presentation, there will be some revenue shift effect because of the timing of the Black Friday weekend very late in the quarter this year, so part of these revenues are going to be shifted into the Q4. So we definitely expect growth for the Q3, but probably not in a double-digit range. Then lastly, total EBITDA for the Q3, yes, given the seasonality patterns, we would expect this to be also slightly above the EBITDA as seen in the financial Q1 and also probably slightly above the Q3 EBITDA from the last financial year. And last question on RoE. We are super positive currently on the BeNeLux markets, for example. We are also happy with some of our big CE markets in terms of current developments that drive both revenue and also contributions. Then there are some markets where we are reducing our commitments. Part of these have already been called out in previous earnings calls, like, for example, Spain is a candidate that we are not really focusing on. Similar for Norway, as an example. Net-net, we believe we are on a very good trajectory to also get to a positive adjusted EBITDA in the RoE segment as a whole. Whether this will already be the case in the Q3, this is actually too early to tell.

Our next question comes from Benjamin Kohnke in Stifel.

Let me maybe follow up on that, let's say, revenue guidance question. So you mentioned the sort of launch of the new marketplace model, so to speak. And could you just give an indication what sort of magnitude of lower revenues we could think of here as you're shifting from, I guess, wholesale to marketplace? And then the second question would be around your EBITDA guidance. And I appreciate that you increased it with today's numbers. But I was just wondering, I mean, the corridor is still very wide, and you haven't really changed that. Now we're through the first half of the year. And I was hoping you could give some more color on what it needs to get you to the upper end of that guidance, and I guess, respectively, to the lower end tier as well. And yes, that will be it for now.

Sure. Yes, thanks for the question. The revenue recognition piece, I mean, we would expect currently a low to mid-double-digit million amount from these new operating models, not recognized as revenues. And this then translates into a growth effect for the full year in definitely a low single-digit range. And this is then also factored into the guidance. And as said, partly also explains this relatively broad range in revenue because on top of the trading dynamics, we also factor in some uncertainty on these amounts of the revenue recognition. And on the adjusted EBITDA guidance, yes, I think that's a totally fair question. I mean, for us, currently, we're looking at a very strong development, which would have given room a more progressive guidance or a narrow guidance more like to the upper hand. But as also discussed in the call, we want to use part of this flexibility to increase investments in both Commerce and also in SCAYLE and the magnitude of this investment or these investments then also explains, to a large extent, where we end up in the upper or lower end of the EBITDA guidance range. As of now, I would agree that this seems broad and also fairly conservative. But as I said, we're comfortable with this at the moment because it gives us flex in exploiting growth opportunities.

Understood. Can I just quickly follow up on that last point you made? If I'm not mistaken, you kind of -- so at the time of the full year release, you guided for or you indicated EUR 30 million to EUR 40 million in incremental marketing and I think around EUR 10 million for SCAYLE. Can you maybe just say or give an indication how much of that growth budget, if that's the right term, has already been used in the first half?

I would say broadly half for both of these buckets, but now especially for commerce, given the current market momentum and also the increased customer lifetime value projections that we see we will probably move more like towards the higher end of this range or even above. That is also a function of how our customer value or customer lifetime value projects are going to develop over the next months. And this then is also discussed step up in investments in the call that we think we will end up more at the higher end of this range or even above.

Our next question comes from Yashraj Rajani in UBS.

So mainly 2 from me, please. The first one is just a follow-up on the double-digit percent number that you've given, Hannes. Like can you give us some more color into what that actually is? So is that sort of on the lower end of the double-digit range? Is that sort of mid-teens, high-teens? If you can help us think about that, that will be really helpful. And then the second question is on gross margins. So I appreciate very strong performance in Q2, but equally, that does come on the back of some very easy comps. So based on what you're seeing in September and probably early October, how should we think about gross margins for the second half, especially given we are coming up against slightly more elevated comps from last year?

Yes. Thanks for the question. So on the growth in September, that was in a mid-teens corridor, this is also I think a corridor, which we are happy with at the moment. And then on the gross margin in H2, we would expect a further improvement also here, but probably not in similar magnitude as what we've seen in the H1 given to your point that the comps are not as soft anymore. We, however, also see a continued improvement in the inventory position. We continue to see very good trading momentum. So we are positive to also achieve further gross margin improvements in H2.

Our next question comes from Georgina Johanan in JPMorgan.

Yes, just a few from me, please. First of all, just in terms of the Black Friday impact, thank you for reminding us of that in the upcoming quarter, is it possible just to get a kind of better understanding of the magnitude? I would have thought it would be something like 3%, 4% for the quarter. But any calculation there would be helpful, please. And then the second question, in terms of the benefit to the gross margin from the mix effect from, of course, the high-margin recurring revenues in SCAYLE and so on, is it possible just to clarify how much of that gross margin improvement is coming from that mix benefit, please? And then finally, you mentioned lower competitive intensity across the market. Is that sort of a very broad comment because, in general, inventories are less elevated than they were last year? Or are you seeing sort of specific players perhaps changing their behavior, please?

Yes, sure. Let's start with the Black Friday question. What we would expect here is an effect of low to mid-double-digit million revenues being shifted into Q4. This means the incremental revenues that we usually see from a Black Friday weekend, this is then in a low to mid-double-digit million corridor being shifted, and hence, also growth impact for the Q3 is probably in a similar corridor, as you just called out. Then on the gross margins, yes, it's largely driven by commerce. So we're definitely seeing an incremental positive effect from B2B, but the key driver at least for Q2 was the much healthier inventory position that we have, less need for clearance and has driven by improved gross margin from the B2C businesses. And then lastly, on the competitive intensity piece, I think it's both ultimately so the improved inventory position of the industry more broadly leading to less discounting pressure. Also, of course, the favorable weather patterns that we see right now are somewhat reducing competitive intensity versus last year. But also, we see CPCs, for example, gradually coming down. which also relates to some of the players in the market being less aggressive. So it's not just inventory and whether I think this is also, to a certain extent, the behavior that we can observe from some of the competitors.