elumeo SE (ELB) Earnings Call Transcript & Summary

Yes. Good morning, ladies and gentlemen, and welcome to our Q2 2023 Financial Earnings Call. Together with my colleagues, Wolfgang and Riad, I will guide you through the key developments of the second quarter of this year. In summary, we are happy to report that despite the challenging economic environment and the low consumer sentiment, we have been able to return to profitability and to increase our revenue by 4.3% in Q2 compared to Q2 2022. By this, we have outperformed the market, which had to record significant declines as I'm going to show you on one of our next slides. Just to give you an example, the online jewelry market declined by 17% in Q2. In contrast to this, with our webshop, we have been able to grow our revenues by 15% Q2 on Q2. Moreover, we increased our new web customers by 21%, while at the same time, keeping the online marketing costs at stable level. From our Q1 financial earnings call, you might remember the program we have launched to improve the operational sales and cost performance. And I'm happy to say that we are on track with this program and that it is showing its positive effects and bringing us back to a positive adjusted EBITDA with EUR 266,000. Our innovative video shopping app, Jooli, continues its dynamic development. The channels in India are growing to more than 1,500 channels. Moreover, we are making great growth with the scalability, reducing the cost per new channel and per customer. And so, Wolfgang is going to present to you, there's significant milestone ahead. We are preparing the launch of the in-app payment function, JooliPay, which is already in beta test, and moreover, we are continuing the development of Jooli's Virtual Reality app. So based on the fact that we are outperforming the market in this economic -- difficult economic situation, and thanks to the huge investment advantage, we have also gained with the learnings from Jooli. We have launched a growth program called #juwelo100. The target of this program is to increase the revenue of our core jewelry business to EUR 100 million by 2030. In one of the upcoming slides, I am going to show you the main areas of development to get to this target. And finally, we confirm our outlook for 2023. So let me jump directly to this slide. Here, you can see the development of our business since 2020. After 11 profitable quarters in Q1, we had to record the first negative quarter. And now in Q2, we returned to profitability. So let's take a look at the key developments in Q2. If we look at the general market situation, it's clear that Q2 took place under a highly challenging economic environment with the consumer sentiment that really remains very low. According to research that [ Bundesverband E-Commerce und Versandhandel vertritt den ], customers are still pessimistic about their real income expectations. They remain in a money-saving modes and are thinking thrice about every purchase. And indeed, this low consumer sentiment had a significant impact on the retail industry. If we look at all relevant markets to which we can compare our business, we do always see a massive revenue decline. On the left in the graph, the revenue of the German online jewelry and watches market, which went down by 17% Q2 versus last year's quarter. The revenue of the electronic multichannel market went down by 21%. The revenue of the German television shopping market went down by 19%. And in comparison to this, elumeo has been able to grow by 4.3%. I'm now going to present you some of the factors behind this outperformance of the market. Let me start with our live business, which accounts for roughly 2/3 of our total revenue. After revenue decline we had in Q1, we have been able to stabilize the revenue in Q2. Also thanks to our loyal active customer base. So as you can see, active customers increased by 3% in Q2. Moreover, we have been able to increase our new live business customers by 7%. This was also a result from our merchandise strategy that focused on jewelry items with suitable designs and price points for new customers. Speaking about merchandise strategy. On this slide, we can see the performance of new brands that we launched in 2023. In our live business, we measure product performance using the KPI called profit-per-show-minute, PPM. The higher the profit-per-show-minute, the better we are using the limited broadcasting time. And in 2023, we quickly reacted to the changed consumer preferences and thanks to our close cooperation with local manufacturers and our fast supply chain, we have been able to launch several successful new brands and collections that are showing a clear above average PPM performance, as you can see on the graph on the left. At the same time, we have been able to keep a healthy and stable stock level and the gross profit margin that remained stable at above 50%. Let's come to our aesthetic webshop. The webshop has been the main growth driver of our business. In contrast to the online jewelry market that went down by 17%, we have been able to grow our revenues by 15% to EUR 3.5 million. Let me point out 3 factors that have contributed to this growth. One is -- the first one is the successful marketing specials we did, re-targeting, reactivation campaigns, automated individual, personalized campaigns, bringing customers back in the webshop on a regular basis and increasing the number of active customers, as you can see on the right side by 15%. Then the second factor is the successful implementation of artificial intelligence functions to drive sales. For example, a new AI-based search function on-page that we have already implemented in Jooli. And, yes, until the day before yesterday, we run an A/B test that has shown that this new function is improving the revenue by 8%. And finally, a very successful new customer acquisition that I'm going to show you on the next slide. So you might remember from our Q1 call that one element of our operational and performance improvement plan was consistent in the online marketing improvements. And here, you can see that we have been quite successful in doing this. We optimized the marketing campaigns on Google and social media and Criteo using AI-based algorithms that improve the targeting of potential new customers. And in addition, we optimized the landing page for new customers, creating better new customer experience. And all this resulted in a clear increase of new customers by 21%, while we have been able to even slightly reduce the marketing cost. We have prepared our channels for scaling, and we expect to be able to further increase the amount of new customers by scaling the marketing channels in the upcoming months. I will now hand you over to Wolfgang, who will give you an update about Jooli.

Good morning. As you recall, we continuously said that the biggest strategic topic for Jooli to cover is the fact that -- due to the fact that Jooli is a marketplace, we have to develop the platform in parallel. We have to develop the offer side of the platform, which is the content, the channels and the merchants who offer their products on the platform. And at the same time, we have to increase the amount of users on the platform so that the platform is interesting for merchants who present their products, which in the result will make the platform more attractive for users and so on and so forth. In order to overcome this chicken and egg problem, we focused in the beginning on gaining momentum with merchants because without an offer side, there is absolutely no attractiveness to users. And we had merchants a lot in putting their offers on the platform, we have them doing the videos, and we made a lot of support to make it as easy as possible for merchants to come on to the platform. We have the checkout on the websites of the merchants for a merchant, there was a very low barrier of entry in order to offer their products on the platform. As we are now approaching the launch of JooliPay, which I'm going to elaborate on a little bit further in a couple of minutes. And we will now shift the focus a little bit to users also, not meaning that we're not going to focus on gaining content anymore, but it's users will also move into focus and users will move into focus with 4 main components, which is how much does it cost to acquire a new user? And how is this user going to engage with the platform? So how much time does the user spend on the platform? How many videos does the user watch? How good is the retention of user? So how much -- how many of the users that we newly acquired, retained on the platform and continue on the second or the third day, a month after the first usage to continue the platform? And then what is the purchase conversion? So what is the conversion of a user to an actual purchase? You have seen this slide many times. So I'm going to focus only on the right side of the slide a little bit. We continue to improve our user economics. And we have been able to maintain the level of EUR 0.25 as per new active user and also the retention has continued to show a positive development, which is very important in developing the platform further. As we've had quite a few questions over the course of the last couple of months on why actually did you choose India as a first market? I have put on the slide a couple of facts that are important or that have been important in our decision to focus on India and not on Germany. The Indian economy at the moment is growing very dynamically. So for 2023, there's a growth expected in the region of 7% to 8% for the total economics. Even more important is that, India has a very young demographic, 65% of the Indian population is below 35. It's a population that's very interested in trying new things and adapting to the digital development of e-commerce and therefore, kind of we have a good demographic, let's say, tailwind on that. And the last and most -- or not most, but also very important issue for us was that it's an economy where we can scale efficiently based on the funds that Jooli has available. And since I said in the beginning, the marketplace requires offer and demand to match. So you need to develop most. You need to develop this to a critical mass. And the total investment required in order to develop Jooli to this level of critical mass in India is roughly 1/10 of what that investment would have been in Europe. And therefore, we decided to go to India. Last but not least, the fact that TikTok has been forbidden in India, obviously, it helped in that decision. In the Q1 call, we reported that we have now launched the real-time feed for Jooli in India. So we decided that we have enough content so that whenever a user comes to the platform, the feed of the platform updates, it's offering every 5 interactions. So every 5 interactions, the feed is recalculated based on what the user is actually seeing. And you see that the real-time feed has resulted in a continuous improvement of the engagement of the users. We have come from a share of roughly 10% to 15% of impressions -- of more than 30 impressions during one session to currently 22%, and that continues to increase. So the engagement of the users after launching the real-time feed has been very positive. And also, if you come to the next slide, the average impressions per session. So the total average impression is now at 27. And also here, you see kind of the spike that has started after the launch of the real-time feed, and this continues to grow. Where we have still a little bit room to cover is the average clicks per session, that went down a little bit, and I can explain you why. We are constantly monitoring the user demographics that we are getting, and there was one specific group of users. All the men from rural areas in India that were not really completing purchases on the websites of the merchants, but playing around with this app quite a lot, and we decided to exclude that group from our marketing efforts because it doesn't make sense to acquire users who after playing around with the app don't complete that purchase. And therefore, we have excluded this from our marketing mix, which has resulted in a short-term decline in clicks per session. But as you can see, in August and also after the launch of the real-time feed that has come back to a growth perspective, and we expect that this is going to continue to grow, in particular, after the launch of JooliPay. So what are going to be the main focus points during the second half of the year? Obviously, we're right ahead of our most important strategic project for the year 2023, which is the launch of JooliPay. We have JooliPay in beta testing at the moment. And so far, the beta test looks very good. So we assume that we are going to launch JooliPay within the month of August. Obviously, as always, in beta testing, if we find one serious bug, that we haven't found so far, that could be delayed. But at the moment, we do not see any kind of delay happening. So we should be able to launch JooliPay in August and this then will be the crucial point because after that, we will, not only see whether people are also interested in buying products on the platform and completing the purchases, but also we can optimize our entire marketing campaign from interaction to conversion because at the moment, the digital marketing campaign on all channels, so whether this is on Instagram, on Facebook, on YouTube, on Google is optimized on interactions. So we say back to Google, back to Meta, when we get a new user, yes, we like this user because this user interacts with the platform. And in the future, we will be able to feedback the information, yes, we like this user because this user actually buys a product on the platform, which is a much more powerful information for Meta and for Google to optimize their campaigns, and that will be a very important milestone the moving forward. Together with that, there will be a full makeover of the onboarding process in Jooli. So we will see with a number of beta tests that we are currently planning on, how can we onboard new customers to the app in a way that they continue to buy products? Do they like to have an introductory video? Or do we need just to have a couple of introductory graphics? Should they onboard on the search and find function? Or should they onboard us with the first video? What kind of video should that be? So that kind of -- will be something that we'll be looking at for the next couple of months after launching JooliPay. And then furthermore, as you can see behind me, we are making good progress with our Jooli Virtual Reality app. The studio is working now. We are finalizing kind of the initial setup. We can now happily interact between 1 presenter and up to 5 avatars in the presentation of products. And we assume that, together with the launch of Apple Vision Pro in the first quarter of 2024, we will also have our Virtual Reality app on the Apple Vision Pro. So I'm going to give back to Florian, who is going to explain to you what kind of the spillover effect of all this innovation and Jooli is going to be on our Jooli#100 -- Juwelo #100 (sic) [ #juwelo100 ] project.

Exactly. Thanks, Wolfgang. Yes, let me give you a quick overview on #juwelo100. And in general, we believe that the e-commerce industry will massively change in the upcoming years away from aesthetic online shops, aesthetic platforms that follow a catalog logic towards highly personalized virtual shopping experiences. With our core jewelry business, we are already outperforming the market, which shows that we are doing the right investments. And moreover, as Wolfgang has said, thanks to the many positive experiences and learnings we are gaining with Jooli, we have a significant investment advantage that brings us into a great position to benefit from these massive e-commerce changes. Based on this, for our core business, Juwelo, we have launched this program, #juwelo100. The target is to bring the revenue to EUR 100 million by 2030. And to this end, we have, as you can see on this slide, developed several growth projects in 5 main areas. So, of course, our focus will always remain video shopping. Video shopping is probably the main pillar of our business model. It brings clearly higher customer lifetime values compared to all aesthetic shops or platforms. It has great conversion rates, and it allow us to transport both effects and emotions, and it really puts the focus on inspirational shopping. The second main topic is artificial intelligence. The projects in this area will help us to improve efficiency and improve output in operations, decrease cost, but also improve sales by, for example, predicting customer behavior, understand better product preferences, improve merchandise strategies, et cetera. And to give you an example of a little project, we will soon launch an AI sales assistant on WhatsApp that will understand customer needs that will make product suggestions to customers and that can directly sell the product within WhatsApp just by a customer writing, yes, please buy. Also, artificial intelligence provides the data for the third point, written here personalization. We have already made good progress in personalizing our marketing and webshop, which has also led to the growth and the outperformance of the market. But the main target is to create a fully personalized shopping experience in all digital sales channels, inspiring customers with products that are perfectly adapted to their preferences. We have also the area of cross-border e-commerce managed out of Berlin. We are developing projects to significantly increase our market presence and our visibility in all European countries. And finally, based on the learnings, we are doing with Jooli based on learnings we did with augmented reality shopping functions at Juwelo. We are creating projects to benefit from virtual reality shopping, which will really be -- we can say a revolution of e-commerce and will allow customers to have an immersive home shopping experience. So in summary, with #juwelo100, we are laying the ground for profitable mid- to long-term growth for our core business. I will now hand you over to Riad for the financials of H1 and Q2 2023.

Yes. Good morning. Let us come to the financials and to the main points there. I'm very happy to report that elumeo returns to growth in Q2, and as Florian said, we outperformed the market. We grew in Q2 by 4.3%. In fact, there are several factors so in order to like to resupply like this growth. The first part is also what we have to take into account concerning H1, that in H1, the partly strong -- we had partly strong growth in the previous year until the war in Ukraine, and all European countries were locked out. The second factor is an internal factor. Of course, we restructured the Italian TV business, and this was accompanied by highly disproportional high savings in reach costs. This contributed roughly to 1/3 of the decline in H1. Overall, good news, in Q2, elumeo outperforms the market, despite overall customer reticence. Gross profit. Overall, the margin is above 50% in H1 as well as in Q2. In H1, we had a decline of 6.3%. In Q2, the decline slowed down by just 4%. Hereby, we have to take in account that the Italian TV business impacted by 1 percentage point. SG&A costs. For us, as we started our cost program in Q1, it was very important to decrease the costs. In H1, we succeeded in decreasing the cost by 6%. In Q2, with the higher impact of the cost saving program, costs decreased by 13.1%. Which were the main drivers? The first point were the reach costs. Reach costs decreased in H1 by 7.4% and in Q2 by 14.2%, also mainly driven by the restructuring of the Italian TV business. As Florian already said, it was quite important for us to optimize our marketing investments. And I think it's a very good news that despite stable marketing costs, we succeeded in generating an increase in customers. Furthermore, an important point was the decrease in personnel costs. Personnel costs decreased in H1 by 10.1% and in Q2 by 15.5%. EBITDA, our core KPIs, our adjusted EBITDA. In Q1, we had a negative EBIT -- or a negative adjusted EBITDA. Right now, we succeeded to generate a positive adjusted EBITDA, not only in Q2, but of course, overall in H1. What were the main drivers which we adapted? One part was where the cost of Jooli, which amounted to roughly EUR 0.4 million in H1. These costs were not capitalized. On the other hand, we have the readjustment of the share program, which impacted by roughly EUR 0.2 million. We confirm our outlook, and this is the main point. We say -- we expect that our sales will be in the mid-positive and mid-negative single-digit percentage corridor. Our webshop is in a good path, and so we expect the sales growth in this year in the low single-digit percentage range. Our gross profit is expected to be stable at above 50% and adjusted EBITDA is to be expected in the low single-digit million range.

Yes, thanks, Riad. So this was the presentation of our H1, Q2 financial earnings. So I would now like to open the Q&A session. It would be great if you have a question, if you could raise your hand with the Zoom function. So my colleague Boris will be able to give you the microphone. And I think one of the first hand I saw was from Mr. Frey.

Well, it's nice to see you back to growth. Actually, probably starting first on the Jooli business -- sorry, on the Juwelo business. You mentioned the better performance of your new assortment. Is there -- has there been any change in price point? I saw your average price point was surprisingly actually even up in the second quarter. So is this more a question of offering better price value? Or is there -- is this more an statistical artifact of the small base that we are seeing here?

So it really depends on the collections. Of course, customers are, as I said in the beginning, quite picky, they think about every purchase twice. So for us, it's always important to have some product lines with a great price value. For our new customer acquisition, it was also important to have a lot of silver jewelry in the less expensive price ranges. And overall, it was about creating the right mix for the different customer groups we had. So there's not an easy answer to this question. It's rather an adaption to the changed customer preferences according to the different customer groups we have.

Okay. Sounds good. And then the 8% revenue uplift on [indiscernible] AI tool introduction, I'm not sure if I got it correctly. That's related to the aesthetic webshop.

Exactly.

Can you probably share a bit more the ingredients, how is precisely work? And if there's even more potential to roll that out?

Yes, absolutely. So since it's an A/B test, currently, only 50% of the group are seeing this. So we are currently only having 50% of this effect. Also, we launched it in the middle of Q2. So we don't have like the full effect throughout the whole second quarter. So there is more to come out of this effect. And maybe if we -- so you asked a little bit more about the tool itself. If you think about Amazon, the most important thing Amazon has on its page is a little search bar on top of the site. I think more than 90% of the revenue Amazon makes starts from the search. So it sounds like a very easy tool. It doesn't sound complicated at all. But it's for many customers, the start of their shopping experience, the start of their purchase experience, and therefore, finding the key to optimize this. And even if customers might type in strange search terms, understanding what customers really need, inspire them with new things that maybe customers didn't directly search, but where we know that they want this. This is the key. And therefore, everything that happens after a customer started to use the search bar is the secret of improving the webshop performance in such a significant way.

Sounds good. So basically helping your customers to navigate your really broad inventory.

Exactly.

And more or less, relating to that, that one juwelo100 has a lot of pillars. And how are you approaching that? Is this a simultaneous attack on all fronts? Or do you have broken that down into specific smaller projects in a sequence that you want to work through? AI, obviously, sounds like a good starting point that you are already working at. Anything we should bear in mind there?

Yes, of course, we broke this down to several projects. It's not a sequent thing where we first do video shopping, then we do AI and then we do personalization because a lot of the areas I presented interact with each other, right? So I can use AI in order to improve the video shopping performance. I can use AI in order to improve the personalization or said in a better way, I need AI to improve personalization. And together with all these points, I can then grow internationally and improve the cross-border presence with all the learnings and all the that are currently performing our German webshop, use them also in the French webshop and the Spanish webshop, et cetera. So, yes, of course, there are many smaller projects also, but the 5 main fields I presented are interacting with each other. And we are doing the projects simultaneously in all of these 5 areas.

Sounds good. A bit nitty-gritty, I think you mentioned in Jooli, you are now at more than 1,500 channels in India. So it sounds pretty much at the level that we talked about in May. So can we assume that this is a reason or the -- basically, you want to actually focus on the users first and then you just more or less didn't put much more money behind it? And basically, we see that also in your adjustments that you have pretty low Jooli adjustments in the quarter. Is that the right thinking? Or was there anything else behind that?

Not really, not really. At the moment, we are at 1,750 channels. So 1,750 channels as of August. And I'm quite confident that by the end of the year, we are going to surpass the 2,000 channel mark. So we're constantly adding roughly 100 to 150 channels each month. What I meant when I said is that, we are focusing no more on the user side is, in the beginning, we continued to increase our investment in channel acquisition all of the time. So we started this with a team of 4 people in India who were doing channel management, at the moment, the team of channel management in India is roughly 15 people. So we almost quadrupled that figure. But we're not going to increase that figure further. So, currently, what the team had in India says we have kind of the magic formula for channel acquisition. It's a team that works together very nicely, and it's a team that works together with a merchants very nicely, and we're not going to increase our investment in that area further. We have shifted our focus more on the user side, and we're heavily investing in the buildup of that, having a different type of HR or people there. So it's more data analysts. It's more digital marketing experts that we need in order to also roll out more digital user acquisition campaigns, run more A/B tests and all of that. And that is where we're going to focus. The rate at which we're investing is constantly the same. So we will invest into Jooli in this year roughly EUR 1 million to EUR 1.2 million in total and the buildup of the app, and that is something that we continue to be able to finance out of the cash flow of elumeo's core business.

So it's actually you've lowered a bit in your charts.

Excuse me?

You basically lowered a bit in your chart. It's all running nice and smoothly.

No, we're super happy. I mean, we've -- up until now, we have invested EUR 2.5 million into Jooli. So, obviously, there's a rationale behind it. We're extremely happy with the development. It's way better than we originally anticipated. I mean, after all we're a small jewelry company out of Europe. We never thought that we were going to be able to play such a role in the big e-commerce market in India. So it's been developing much better than we expected, and we continue to try to outperform our own expectations.

Sounds good. All the best and looking forward to your data in Q3.

Yes, that's kind of -- we're totally thrilled for that, obviously, because basically, it's the same as starting a TV channel. We will launch this function and then we'll be staring at our monitors waiting for the first order to come.

Well, I'm rewatching Facebook to get a TV.

Okay.

Okay. Then I see [ Frederic ] raising his hand.

I had basically 2 questions. My first question is, cost of goods sold is up by 14% year-on-year and also quarter-on-quarter. What is the reason for that? That's my first question. And the second question is, could you elaborate a bit on the monetization strategy for Jooli? So how is it structured? Who is paying for what? And what is the contribution to total group sales now and prospectively, so maybe in 5 years or 2030?

Okay. Maybe let me come to the first point, cost of goods sold in Q2. Of course, we saw entries, which is driven like by, I would say, like by these following factors. The first factor is the impact of the Italian business, which makes roughly like for H1. It also has a contribution in Q2 by 1 percentage point. And I think the second point is driven by our merchandise processing. So, in fact, we make our orders of merchandise roughly a 3 months or 6 months in advance. That means so from starting from Q4, we had certain kind of headwind from exchange rates. And these were implied within our stock. And so, starting with Q2, they showed like their effect.