Bike24 Holding AG (BIKE) Earnings Call Transcript & Summary

Good evening, good afternoon, good morning to -- from wherever you are joining us virtually today, and welcome to our Q2 2022 results conference call. Today, we would like to give you a detailed P&L overview, update on our strategic initiatives, in particular, on the outstanding results in our localized markets, Spain, Italy and France, and go a bit more into detail on the ongoing strong full-bike sales. Also, we will compare the current results to 2019 levels to highlight our statement from last year that we don't see the pandemic-related cycling boom as a one-off but as a step-up for the whole cycling industry, since demand and our sales are still significantly above pre-pandemic levels. As you probably know, we adjusted our full year 2022 top and bottom line guidance on July 20 as a result of the current negative macroeconomic environment, and we will give you a little bit more detail on that as well. Our presenters today are founder and CEO, Andrés Martin-Birner; and CFO, Timm Armbrust, Andrés, the stage is yours.

Thank you, Moritz. Now let's start with the general update. It's great to see again how much interest there is in Bike24's development. Yes, it's a challenging year. It is a year like we have never experienced in the history of Bike24. It was a tough second quarter. The results are not what we expected when we have been preparing our original full year 2022 guidance. However, and I presume you will follow me, we all could not presume the challenging developments and external disruptions. Alongside a lot of shadow, there was also some light. Our customer base has grown further to almost 850,000 active customers. This proves again our resilient business model. The strength comes from existing customers and their need to carry on replacing parts for their mobility or even for their sport. It also shows our strategy is working out. Our investments into new markets, [ key route ] localization and also the full-bike sales are growing disproportionately. We were able to attract many new customers in these new markets, 420% in France alone, but also Spain did extraordinary well considering that we had very high comps. Overall, our sales declined 4% in Q2, mainly because apparel was not in demand. Due to our forward-looking sourcing strategy and high availability in full bikes, we were able to grow this product category by 20%. On a positive note, and I would like to mention that we closed the first half of the year with a growth of 1.1%, which is still better than overall e-commerce sector. The high-margin comps in Q2 2021 were based on extraordinary effects. On top of the planned decrease margins were also affected by the lower sales volumes following the consumer restraint. I would now like to give a big picture. If you look at our top line, numbers show that we are significantly above the pre-COVID level. COVID was the step-up effect we expected to last. And trends in our markets are resilient and intact. However, in these times, consumers are reevaluating major discretionary purchases extensively. Let's look into the DACH region. Numbers still show high growth compared to Q2 2019. We reached a total different sales level in our market segment, which is also underlined by the high growth in the full-bike category. It shows that buying large and expensive goods in the web is the new normal. On the other hand, consumer sentiment is diverse. It has been since more than 30 years. This hits the anti-e-commerce market. And even though we are operating in a quite resilient market, we have not been able to escape this completely. However, our figure shows that Bike24 continues to the e-commerce sector industry. Moving to our strategy focus, international growth. The results based on the localization of our webshops, France, Italy and Spain showed great success for Bike24 and our whole team. We are offering to our customers in these markets exactly what the bike enthusiasts were waiting for: a broad and high-quality product assortment, fast delivery, great customer experiences and a super easy customer experience. In consequence, localized markets are growing significantly, and we just started. Further great potential will be realized as our customer base is growing in these markets. In new countries, Benelux will follow early in 2023. Not to forget about extended services, we will be able to offer when the Bike24 Barcelona warehouse will ship its first packages as promised end of this year. As for the third warehouse, we will start the planning process once the customer sentiment improves significantly. Now I will hand over to Timm for the financial update.

Thank you, Andrés. I would now like to share with you some details on the result of the second quarter of 2022. Despite the challenges in the world and the weak consumer sentiment, Bike24 has again notedly increased the active customer base by 7% to 848,000 customers. The main driver are our new markets, France, Italy and Spain, in which we almost doubled our active customer base during the last 12 months from 37,000 to 71,000 customers. In our home market DACH, we have a 7% larger customer base as well than in the previous year. Customers' activity is still on a high level, but the order frequency has normalized on pre-pandemic standards. This explains why the number of orders from new customers is proportionately higher. And therefore, the repeat order rate slightly decreased to 71.9% in Q2. However, the average revenue per customer within 12 months is stable against the decline in the order frequency due to a higher AOV. Let's turn to a more detailed look on our top line performance. Overall, sales declined by 4% in Q2. The main reason was the development of PAC sales, especially in the DACH region. Product segments such as apparel, footwear and bike protection are affected by the challenging consumer situation. This lead to a significant decrease of revenues in those categories. But the segment of parts, it's much less affected by the consumer restraint. Parts are of necessary investments or investments driven by technical innovations. This core segment of Bike24 contributes to our resilient business model and moderate the decline in demand for parts assessed with a closing to minus 7% overall. In line with our strategy, full-bike sales increased significantly by 20%, resulting in an all-time high and proves the potential of this product segment for our growth and the constant high demand for premium e-bikes. Now I would like to guide you through the regions. In our core market DACH, we lost 7% of revenues compared to Q2 last year as already shown through the weaker PAC segment but the [ pleasant growth ] of 18.5% with full-bikes. However, compared to prepandemic levels in 2019, that is still a growth of more than 90%. The development of our localized markets, Spain, Italy and France is outstanding. Overall, Bike24 grew by 133%, and the relevance of that region is getting more and more significant. In Q2, the localized foreign markets contributes with 9.2% to our sales, also showing the huge growth potential. So Andrés will give you a detailed update for each of the 3 European markets later in our presentation. If you compare this development with the other European countries, the success of Bike24's internationalization strategy becomes even clearer. Localized webshop is a key driver to gain market shares. The region outside the European economic area shows a decline of 17% year-over-year. If we exclude Russia, where we stopped to sell with the start of the war, the region would have shown a growth of 6.4%. Let's now have a more detailed look into working capital and inventory in particular. While this looks high at the first sight, allow me to explain the increase. The past 20 years of Bike24 confirm our assumption on the long life of cycling related inventory and the low risk of absolute stock. As most of the working capital increase is driven by higher inventory, let me focus on the latter one. As you can see from the sales of full bikes, growth in this segment accelerated and is on an ongoing high level. We, therefore, decided to double our full-bike inventory. Additionally, the majority of our procurement decisions are made on a strategic pace, so around 8 to 12 months ahead. That said, last year, we decided to stock on as much as possible for goods that has a long inventory life, especially bike parts like wheels, chains and brakes, but also accessories like air pumps or classical apparel, like black shorts that can be sold in any year. Another roughly EUR 10 million of the EUR 92 million are goods in transit. That part of the inventory doubled due to longer lead times during the stressed supply chain. To conclude, in the medium term, we expect our days inventory outstanding to improve from currently 180 days to the pre-COVID level of roughly 130 to 140 days. Let's now move to profitability. Overall, Bike24 generated an adjusted EBITDA margin of 7.9% in Q2 2022 as well all known in a very tough environment. As expected, the gross margin has normalized. And on top, we see some price pressure in the market related to the weaker consumer sentiment, especially smaller e-commerce players had to decrease their prices to convert stock into cash. Our gross margin is 29.8%, still on a good level. Please keep in mind that the margin in 2021 was exceptionally high due to a very high demand and limited stock. The increase of performance marketing spending was driven by the ramp-up of the localized webshops in France, Italy and Spain as well as increased marketing spending in DACH to acquire new customers. This leads to a reduction of the EBITDA margin by 1.6 percentage points but is fully in line with our business planning. The impact of personnel and miscellaneous expense is temporary. Our investment into talent and increased costs due to the listing is a step-up and will phase out near-term risk with growing revenues. Overall, our EBITDA margin in Q2 was below previous year and, for sure, behind our ambitions. Nevertheless, in these extraordinary times, our profitability shows how resilient Bike24's business model is. So now I'm handing over to Andrés, who will give an update on our strategic initiatives.

Thank you, Timm. I will now guide you through the business update. First of all, some more details on localization of our activities. Growth in the localized markets has accelerated further in Q2. The revenue share increased from 4% in Q2 last year to 9%. Our investments are paying off, and we are gaining market share in all these markets. With our broad- and higher-quality assortment, the high availabilities and our fast deliveries, we are obviously satisfying customer needs based on our experience of 20 years. In addition to a localized website, local language customer service is also part of an excellent customer experience. We, meanwhile, offer customer service in 5 languages. And due to the great success we have already started preparations for the next markets. So localized shops in Belgium, Luxembourg and the Netherlands are scheduled to go live in the first half of 2023. If you look at the situation in those countries where we have not localized yet, you can see how successful we have been in France, Italy and Spain. We were able to achieve a growth over 86%, up to 229%. Our second strategic focus on strengthening and growing full-bike sales pays off as well. In the last years, we invested into new brands and products and broadened our offering. This has been recognized and received extremely well by our customers. This is also a driver to acquire new customers, and it provides significant growth potential in full bikes based on 2 very positive effects. We achieved more sales and much higher order volumes. I want to underline the e-bike trend shows itself unbroken, and I would like to -- and I would expect it to even increase in the upcoming years. And Bike24 will be prepared to serve this trend. At the same time, we are still selling very strongly in the premium segment for enthusiasts and athletes. This is also true for our newly localized markets where we see significant demand for full bikes. As you all know, consumer sentiment has not improved over the past weeks and months. Especially not in our core market DACH but also across Europe. Therefore, we decided to adjust our guidance for the full year 2022 in July. Whilst our sales in localized markets remain strong and also the demand for full bikes continues to be high, consumers reevaluate purchase decisions of discretionary products. They have become more cautious because of the high uncertainties with regard to energy costs and inflation. All in all, we expect sales to grow by minus 5% to plus 5% and a positive EBITDA margin of 3% to 6%. Mid-term, we do expect relief and normalization of customer sentiment demand from the second half of 2023 onwards. We are driving on site, navigating through difficult times. Bike24 is well positioned and focused. Our products, our brands and our services are in demand. This is the strength and resilience of our business model. But in the interest of all stakeholders, we are not taking unnecessary risks. The mega trends, which have been driving the cycling market are unbroken. Our strategic focus, therefore, remains unchanged on those areas where we are very successful, driving localization and growing full-bike sales. We are one of the few profitable e-commerce companies in one of the most promising market segment flanked by a comfortable cash position. Summarizing in a sporting way, we see us in the pole position. So thank you now for your attention, and we are now open for your questions.

[Operator Instructions] And our first question is from the line of Catharina Claes from Berenberg.

Hope you hear me. Could you maybe elaborate a bit on current trading and the developments you've seen since the end of Q2, that would be great.

Yes, okay. Yes, of course. So what we see with the beginning of the third quarter, as usual, every year, the sales started and it started very well. And this was also in line with our expectations as customers are more willing to buy, I would say, price reduced goods this year. So the demand is really there.

Ms. Claes, are you finished with your questions?

Yes, for now. Yes.

[Operator Instructions] Okay. So there are no questions at this time, and I will hand back to Moritz Verleger for closing comments.

Yes. Thank you, Nathalie, and thanks, everyone, who listened. If you still have a follow-up question, feel free to reach out with me -- and to reach out to me, and we will organize a follow-up call. Thank you. Bye-bye.

Thank you. Bye.

Bye.