Global Fashion Group S.A. (GFG) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Global Fashion Group due to an H1 2026 results presentation. I'm Christoph Barchewitz, CEO of GFG, and I'm joined today by our CFO, Helen Hickman. I will start with highlights for today and then share an update on progress we are making across the business. Helen will then take you through the regional and group final results and our guidance for the full year. After that, we will open the call for questions. Overall, we are executing on our strategy and delivering financial results in line with our expectations and guidance. We've continued to improve our unit economics. -- with sales and profit per customer in per order growing strongly, creating the foundation for profitable growth. We've made significant progress in enhancing our delivery proposition, strengthening our marketplace and scaling our platform services offering. While today's focus will be on fulfilled by our platform services also continue to grow driven by retail media across all 3 regions in our single stock solution in Southeast Asia. Combined with the integration of AI across our business, initiatives across these areas continue to strengthen our customer value proposition and profitable growth strategy. I'll be sharing more detail on these topics in a moment. On financial results, we delivered our first profitable H1 with our current footprint. For the LTM period to June, adjusted EBITDA improved by a strong EUR 23 million year-over-year and normalized free cash flow by EUR 28 million. Lastly, we have narrowed our 2026 guidance to take account of H1 results and our current expectations for H2. For NMV, we now expect a year-over-year change of negative 4% to 0%. For adjusted EBITDA, we now expect a range of EUR 18 million to EUR 25 million. Helen will explain these changes in more detail. Turning to our Q2 financial highlights. NMV was broadly stable with a 0.6% constant currency decline, while adjusted EBITDA margin increased by 1.8 percentage points. Our focus on unit economics is delivering results. Increased order frequency and cost discipline are offsetting the impact of fewer active customers and orders. Next, we have our business update. Over the last several years, we have focused on increasing the value and contribution generated from each customer and order while also reducing our fixed cost structure to drive substantial profitability and cash flow improvements. While this transition has resulted in about a quarter reduction in active customers and orders, it has also fundamentally strengthened our unit economics. This progress is visible across the entire group as shown with consistent trends on profit contribution in all 3 regions. NMV and gross profit per unit have increased reflecting our more targeted approach to customer acquisition and deepened repeat engagement. These improvements become materially more pronounced further down the P&L. After fulfillment costs, profit contribution per active customer has increased by 47% over the last 3-year period, while profit contribution per order has increased by 53%. After both fulfillment and marketing costs, the improvement is even more significant, with profit contribution increasing by 91% per active customer and 99% per order. These results were unable through a broad range of initiatives, including greater automation, improved terms with our delivery partners and marketing allocation towards the channels and customers that generate the strongest returns. We will continue to optimize unit economics while reinvesting efficiency gains into customer experience and marketing. Turning to our delivery proposition, which is a critical driver of both customer experience and unit economics. We continue to deliver a high-quality service with on-time delivery exceeding 90% across all regions and delivery speeds improving by more than 20% in ANZ and SCA compared with 2023, while remains stable in LatAm. We are also elevating the customer experience through greater choice and transparency. Real-time tracking provides end-to-end order visibility while our expanded fulfilled by GFG and drop ship partnerships are strengthening the marketplace delivery experience. We continue to invest in more delivery options. We have rolled out next-day delivery in additional key metro areas, introduced flexible express tiers and increased the number of automated parcel lockers. Importantly, we delivered these service improvements while continuing to build a more efficient model, having reduced fulfillment costs by 3 percentage points of NMV over the last 3 years. This has been achieved through vendor negotiations, route optimization and an expanded asset-light partner network that allows us to scale capacity without increasing fixed costs. All of these initiatives create a superior delivery experience that drives conversion and growth. Our fulfilled by service leverages our delivery and fulfillment infrastructure to manage logistics for marketplace brand partners, enabling them to bypass internal operations while providing a more consistent shopping experience for our customers. Filled by his life in all 3 regions, though they are in different stages of maturity. ANZ launched in early 2023, and adoption has been accelerating, so that it now represents 15% of Marketplace NMV with 88 brands live. In LATAM, the offering has continued to gain traction since its launch in June 4, fulfilled by now accounts for 6% of Marketplace NMV across 70 brand partners. SCA is our most established market, having launched the offering in 2019. Fulfilled by contributes 29% of marketplace NMV with [ A1 ] brand partners Live, our focus has been on optimizing the assortment and brand mix to support stronger unit economics. Overall, fulfilled by is a key contributor to the group's growing marketplace business. Together, fulfilled by and platform services deepen our relationships with brand partners improve their ability to reach and serve customers to support a more scalable, higher-margin revenue mix for GFG. Now looking at our integration of AI into our workflows across the business. In LatAm, we have transitioned to an AI-enabled workflow for image and video generation across our product catalog and marketing campaigns. The impact in Brazil has been significant, where e-production costs have reduced by over 50%. Beyond cost savings, this greater ability allows us to bring products to market faster and refresh content more frequently at scale. As AI opportunities extend beyond how we create content, we are also focused on how we improve our customers discover our products. In [ ANZ ] iconic is the only Australian fashion retailer participating in Google's Universal Commerce Protocol, or UCP pile. The UCP enables customers to discover select iconic products through Google's AI services, including Google Search and GEMINI and moved through to an integrated checkout term. The iconic remains a merchant of record and manages the entire fulfillment and post-purchase customer experience. This pilot allows us to learn from and help shape this emerging channel as shopping journeys evolve, as Discovery shifts towards AI-driven search, we are also prioritizing answer engine optimization or AEO to ensure our platforms and assortment remain discoverable in these new environments. We are also applying AI to the commercial decisions we make every day. In ANZ, our automated pricing tool now covers 100% of our retail assortment. This enables faster data-led pricing that helps our team better balance competition, margin and sell-through. Beyond pricing, we are applying AI across broader commercial workflows, including product descriptions, campaign SKU election and buying optimization, all to improve the speed and quality of our decisions. In summary, we are successfully driving a more efficient and profitable business through each of these strategic initiatives. I'll now hand it over to Helen, who will take you through our financial results.

Thanks, Christoph. First, let's look at our regional segment results. Starting with ANZ, our largest region, generating about half of our NMV. ANZ delivered 3% year-on-year NMV growth in both half 1 and Q2 on a constant currency basis. This was supported by 2% active customer growth and strong engagement across targeted campaigns. NMV more challenging discretionary spending environment, and invest performance reflects our highly relevant brand and assortment proposition that continue to resonate with customers. Higher living costs and interest rate increases have weighed on consumer confidence so far this year. Gross margin remained broadly stable at 48%. We saw growth driven by a greater mix of higher-margin categories, including own-branded women's apparel, alongside increased marketplace participation offset our continued investment in the loyalty program launched last year. As a result of further cost efficiencies, mainly in fulfillment, ANZ's half 1 adjusted EBITDA margin increased by 2 percentage points to a strong 5%. Moving on to LatAm. Our performance in half 1 reflects clear resilience on profitability while facing external headwinds. Lat Am delivered a solid 3 percentage points step up in adjusted EBITDA margin and was profitable in half 1 despite NMV go down 2% and revenue down 7%. In the second quarter, NMV was down 1% and revenue down 5%, reflecting external headwinds, including record household debt and the World Cup, which we directed consumer retention and spending. It was also a highly competitive environment, driven by a tax change favoring cross-border players. Now turning to SEA. Similar to LatAm, SEA delivered profitability improvements despite facing top line declines. In half 1, adjusted EBITDA margin reached 3%, improving 3 percentage points year-on-year. NMV declined 11% on a constant currency basis. SCA has made strong steps in reducing the fixed cost base to ensure we are well positioned as growth returns. Across all regions, we've demonstrated this half that we can deliver profitability in competitive markets through business model shifts towards more marketplace and platform services and operating cost improvements. Now turning to the group results. Order frequency increased by 1.8% year-on-year to 2.4x. We're seeing the customers who shop with us becoming more engaged whilst active customers declined 5.5% year-on-year. We're continuing to rebalance our customer base towards profitable growth. Turning to NMV. Q2 moderated to a 0.6% decline on a constant currency basis, following a 3% decline in quarter 1. For half 1, NMV declined by 1.7% year-on-year. 5.3% higher average order values substantially mitigated the effect of 6.6% less orders resulting from lower traffic in the first half. Average order value was supported by 3 main drivers in order of impact, this included a more favorable regional mix, price inflation and less discounting. Turning to revenue and profitability. Half 1 revenue declined by 3.5% year-on-year on a constant currency basis, reflecting the lower NMV and increased marketplace mix. We improved gross margin by 0.2 percentage points year-on-year to 47.2%, increased marketplace and platform service share offset a decline in retail margin. We improved adjusted EBITDA margin by EUR 9 million year-on-year to positive EUR 1 million. delivering our first positive adjusted EBITDA result for our first half within our current footprint. This represents a 2.8 percentage point margin improvement year-over-year. We delivered this through the benefits of evolving revenue mix and structural improvements to our cost base. We also continue to benefit from FX tailwinds this quarter. Now let me take you through our cost actions in more detail. Our total cost base continued to reduce significantly, significantly more than our NMV decline for half 1. Fulfillment costs reduced by 1.3 percentage points as a share of NMV, reflecting continued automation and efficiency improvements across our logistics network, specifically reducing delivery and personnel costs. Technology and administrative costs also reduced by 1.3 percentage points, then fitting from head count reductions and further simplification of the business. Marketing remained broadly stable at 6.9% of NMV allowing us to maintain investment in the customer and growth initiatives that generate the strongest returns. We expect to deliver further efficiencies and volume returns. Turning to cash flow. In Q2, our EUR 3 million improvement in adjusted EBITDA drove a corresponding improvement in normalized free cash flow and other key components, including leases, working capital and CapEx remained stable year-on-year. On a last 12-month basis, we're making strong progress towards a breakeven position with normalized free cash flow improving by EUR 28 million year-on-year-on-year to negative EUR 19 million. Our cash position remains robust. We closed Q2 with EUR 105 million in pro forma cash and EUR 89 million in pro forma net cash after accounting for third-party borrowings. Turning now to our full year 2026 guidance. On NMV, we have lowered the top end of our range to reflect half 1 performance and our revised expectations for a more challenging second half. This range continues to consider factors specific to our markets including the upcoming general election in Brazil and sustained cost of living pressures in ANZ. We now expect year-on-year constant currency NMV of negative 4% to 0%. On a reported basis, incorporating half 1 actuals and using 30th of June '26 closing exchange rates for the remainder of the year, this translates to EUR 1.05 billion to EUR 1.09 billion. Whilst our original guidance provided in March is December '25 exchange rates, ongoing strength in the Australian dollar and the Brazilian real offers a potential currency tailwind to our reported a values, if sustained here. On adjusted EBITDA, we've raised the bottom end of our range, and it now stands at EUR 18 million to EUR 25 million, representing a year-on-year improvement of EUR 9 million to EUR 16 million. This revised range reflects our half 1 performance and the importance of Q4 trading. Our full year expectations for leases, working capital and CapEx remain unchanged. In summary, our focus on unit economics, scaling our platform and AI integration is supporting our profitable growth goals as proven from our first half results. We've demonstrated that we have the foundation required to navigate varying levels of demand. We'll now open the call to your questions. If you'd like to submit a written question, please click on the speech button at the bottom of the page. Thank you.

[Operator Instructions] We'll now take our first question from Anne Critchlow of Berenberg.

I have a few questions, and perhaps I'll just ask them 1 by one. First of all, please, could you comment on how you're performing versus your competitors in the different regions?

Sure, Anne. So I would say it's a mixed picture, as you would expect, in ANZ, the reporting cycle isn't yet fully done. So don't have a complete picture on the public companies. But I think generally, we feel like we're performing at golf average. A couple of them have reported weaker sales and especially recent trends being fairly weak. And so with the growth that we've shown, we think we're a little bit ahead of for the mantos in that region. However, big pressure in the whole industry have intensified in June and in July in the region, and that's what a couple of people have commented on and it's also consistent with our foreign experience. LatAM some of the competitors and peers have reported softer top line where we continue to see strength in the general merchandisers and in the cross-border players, in particular, since there's been a temporary favorable tax decision, which again improves the relative competitive position for the cross-border. And in SDA, I would say, again, the large platforms doing reasonably well. Beyond that, a bit hard to tell given the fragmented nature of the market. But clearly, with our trends, we don't think we're gaining share. We think we're losing share in that market, and that's obviously a key focus area to turn around.

That's very helpful. Have you stepped up price investment? I'm just wondering how you're balancing price increments versus, say, use of loyalty programs in the various regions?

Yes. So we -- what we do is we really drive it off number competitive pricing -- so as it becomes more aggressive we will match, and we've seen a bit of an increase in that. Secondly, we obviously look at our inventory position and want to continue to keep that as healthy as it has been over the last couple of quarters. And as you've seen from the numbers, our Q2 ending position has been clean and healthy, but we do take a little bit of pressure on the retail margin as a result. We obviously also always go back to our brand partners and try to kind of share a little bit the dynamics in the market and share the burden of that. So there is a bit of that. There isn't an active down pricing or changing in the price positioning. I would say it's more business as usual with these parameters supplying. But clearly, the tougher the competitive environment and the weaker the consumer sentiment, no more pressure on retail margin we see.

That makes sense. Then I just wondered also, is it possible, do you think, to use the automated pricing tool that you've used in ANZ, would you transfer that into LatAm? And could that improve the gross margin in time?

It's definitely something we're looking at. We have a pretty sophisticated pricing operation in LatAm already, and it's also bit slightly different set up end market when it comes to that. But it is something we're definitely considering. In Southeast Asia, actually, we're using a fairly automated but internally developed pricing tool already. So the pricing mechanism is a really important driver of efficiency and also of margin. But in the end, the basics of buying right, merchandising right and getting the right consumer still the bigger driver than just the tooling.

Great. Could we move on to free cash flow. Just wondering how confident you are that Global Fashion Group can start to generate free cash flow in the medium term and whether anything has changed on the cash flow front.

Anne, Helen here. So yes, we're still very prudent and that's very much our goal. So you'll have seen we take the last 12 months, on our normalized free cash flow, we're now -- we set forward EUR 28 million at that time to minus EUR 19 million. And as you know, we generate all of our cash in the second half, mainly in the latter quarter of the year. So given that based in line with our profit guidance and our guidance with regards to sort of CapEx and leases, which will remain in agree at about EUR 30 million broadly, we think of it that we need at least EUR 30 million adjusted EBITDA to offset that fixed cost. Then we'll then get some small benefits around working capital. But we have sort of a run rate of about EUR 10 million of interest tax and others. So you have those compounded parts. And if you think where we are on the guidance that should give a good indication to us really being able to step much closer to that breakeven target.

Great. I do have a few more questions, but just wondered if I should take a break and allow anyone else to ask a question on the call.

Why don't you just run through it and then we'll go to others.

Okay. Great. So looking at the active customer decline. I'm just wondering how long you might be taking action on the unprofitable customers and how long that might continue to impact the active customer numbers.

Yes, that's a very good question, Anne. I think it's a distinct on a regional basis. in ANZ, we're obviously more in the kind of growth or at least very stable customer base depending on which quarter you exactly look at. But I think there, we feel like the economics are healthy. There's always more to be done, and we definitely would love to free up more room to invest in growth. We're seeing strong growth, for example, in New Zealand. So we think there's more opportunity in that market to acquire incremental customers, but also in Australia, certainly as a core market in the region. In LATAM and SCA, I think we have more work to do and further to go on really driving the customer profitability and order profitability to the right level. So we've made a huge amount of progress in both regions over the last few years already, but there's still more room to go and solve. I think it is likely in those markets that we will see first probably stronger NMV trends and then secondly, stronger order trends and then third, the active customer trends. And that really follows the logo. We're driving frequency. We're driving aperture value grow -- and so then naturally, as the metrics are the focus to drive the overall profitability the active customer number will be the most lagging in turning into positive territory, if that makes sense.

It does. On climate, we are beginning to see a bit of climate-related disruption in the supply chain in the industry. And also on the climate piece, are you seeing any disruption trading due to extreme weather patterns sort of recognizant that you're in a different hemisphere than the European businesses that we usually cover?

Yes, we've probably, over the years, seen quite a lot of extreme weather patterns, patterns in our markets. We have some wild fire seasons in Australia that have been quite extremely. We have typhoons and have regulatory typhoons and other events, we had an earthquake in Colombia this week. So there are things that are not always climbing overseeing the case of worth rate, but there are kind of, let's say, completely natural environment driven. I think the -- there's always a short-term disruption, operational demand and so when something dramatic like that happens. So that's a very consistent theme, but we also, I think, are very resilient in responding to it and have just kind of the experience of quite regularly, maybe a bit different from the European retailers. What we have seen also in the more longer-term trends is that the warmer winters in Brazil and Australia have really rung the share of the winter assortment in those categories. and making it even more critical to really get that product in those categories sold in the right timing because of the winter just becoming a much shorter period. And for example, most recently, April in Brazil was very, very warm. And as a result, the beginning of our winter sales were quite soft and then that obviously spills into the land later part and we have a bit more work down to do there and have done already in June, July. So yes, the answer is it has an impact, but we're experiencing managing those impacts because it's not new.

That's very interesting. Looking ahead to the next season, are you expecting price inflation to come through from, say, higher polyester costs and the disruption from the Iran conflict?

Yes. It's not something that we're seeing dramatically come through. Obviously, we need to be mindful of it. But where we are, we're trying as much as possible through supply negotiations to secured strong prices. And also we generally tend to pass cost price inflation ultimately on for our sales price. So it's not a significant issue as we're phasing into the second half.

We will now take our next question from Russell Pointon of Edison Group.

Few questions on Southeast Asia, if that's okay. you're still getting relatively high rates of decline there in the active customers. And I appreciate it as a lagging indicator as you often say. But could you just give us some idea of what you're seeing below the headline number in terms of client losses versus potentially new customers coming in? And perhaps give some detail on the individual countries? That would be my first question. The second question is the gross margin. Obviously, the revenue trends are challenging. The gross margin improved a little bit. Just interested in your thoughts on how satisfied you are with that in the context of the changes to the product offer and the relationships of brands you've made over the last year? And my third question is essentially in half 1 this year and half 2 last year, you've had around a 20% decline in operating costs. Perhaps just talk about what you've done there. And given those numbers have been consistent across the 2 halves, are you starting to annualize the easy gains and perhaps where there are opportunities coming forward.

Great. Maybe I'll start, Russell. On the Southeast Asian trends, and then I'll let Helen answer the question on the gross margin and then on the operating cost. So within -- when it comes to Southeast Asia, yes, active customer decline is still pretty strong -- it is across the markets. So obviously, Philippines, Indonesia and Singapore and Malaysia are the 4 larger markets and then Hong Kong is a smaller market for us. But we're seeing this across all markets. It is in the context of the natural and relatively high churn that's inherent in our business model, but it is elevated. And clearly, we are not able to acquire and reactivate customers at the level of marketing spending that we're willing to commit at this point. And so our constraining of the marketing spend and the payback periods around that is what ultimately leads to the erosion of base where basically churn is just higher than reactivation and a new acquisition of customers because of the marketing spend. We're obviously intensely working on improving retention, improving second water conversion, improving loyalty and we have many actions and programs underway, including a couple of changes planned for the rest of the year in terms of how we think about loyalty program, the Arsalora VIT program in Garica et cetera. So generally, it's a continuation of the trends. We do believe that we are able to retain rear-value customers. So I would say the quality of customer base is improving, but it's obviously very concerning to see the level of decline, and we want to stop that as quickly as we can, but we need to do it within the disciplined financial framework we are applying, and that's nonnegotiable around it. I hope that helps I hand it over to Helen.

So first question being gross margin in Southeast so in line with our expectations. So yes, it is in line with our expectations. I mean it's -- for the first half, it stepped 0.7 percentage points -- the highest of our 3 regions in the first half. I think if you unpack it, we know that the retail margin in Southeast Asia is slightly lower in that in some of our other regions. And I think that's definitely an area to focus for us Southeast Asia with a slightly higher aged inventory position than the rest of our regions. So we see clearance on some provisioning through that. So that's improving, and that's an area of focus for us to continue to improve that retail margin and -- but on the counter it runs the highest platform service and marketplace participation, which actually is highly accretive to margins. So land all those together -- and it is -- it has that board and it is in line with where we want it to go. But obviously, we're pushing for further improvements. Your second point then was with regards the cost improvement, which has led to the 3 percentage point adjusted EBITDA margin improvement in the first half and also seeing similar cost improvements in the second half. So we've done a lot of work with regards fixed costs and around head count. So we've done organizational change. So we did a large structural change at the start of this year, which, whilst we've got the benefits in the first half. Obviously, we'll then see benefits into the second half, which I think addresses part of your question, we've done a lot of work around renegotiating things like with our delivery partners, et cetera. So there are definitely some annualization from last year, which obviously will tail off into this year, but we do have a program of work that, that then just went [indiscernible]. So it will be in around -- we'll continue to look at administrative functions and how we simplify, how we automate and obviously, some of the AI initiatives that Christophe spoke about how we can continue to roll this out across all of our regions, including Southeast Asia.

Okay. Just can I have a follow-up question on Latin America, please, in terms of the gross margin. It went down there for the first time in quite a long time, actually, in you've done quite a good job of increasing the gross model margin over time getting with all the competitive challenges you have. What is the greatest effect on the gross margin in Latin America? Was it just this? Was it the competitor activity? Or was it that you talked about a slight weakness from a top-down perspective?