HelloFresh SE (HFG) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of HelloFresh SE. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Dominik Richter, CEO of HelloFresh, who will lead you through this conference. Please go ahead.

Good morning, ladies and gentlemen. Welcome to our first quarter 2022 earnings presentation. In the next couple of minutes, we will cover our most recent first quarter results, show some additional proof points why we continue to be really excited about our growth prospects going forward and we'll obviously give you the opportunity to ask questions in our Q&A section. By almost any measure, HelloFresh is today a much stronger company than we were 6 or 12 months ago. We've just come off the biggest revenue quarter ever. We've continued to grow significantly higher than quasi any other e-commerce player coming out of COVID, underlining the strength of the business model as well as our team's stellar execution. The unique characteristics of our business model has been proven over and over again over the last 17 quarters since we went public. We have incredibly high customer lifetime values, very strong repeat purchase behavior, very low competition and switching going on in our industry and one of the best retention profiles in e-commerce. Existing customers continue to see more value in our product. They spend more than ever with us, stay longer and are happier with the meals that we sell as is evidenced by the meal ratings that we collect from our customers. This is largely due to the fact that we have continued to build our proposition with competitive pricing, great relative affordability and a significant range expansion in all markets. Also, our fulfillment center build-out is progressing really well. We're on track to fully launch what we had anticipated at the beginning of the year, and that will give us runway to hit our [ EUR 10 billion -- 10% AEBITDA ] target in the next couple of years. Despite all of the investments and our most recent share buyback, we have funds of close to EUR 800 million on the balance sheet directly and a new revolving credit facility of an additional EUR 400 million available so giving us access to around about EUR 1.2 billion in cash. Temporarily, we're also subject to higher input costs along our supply chain like every other business with a physical supply chain. But given our market position, the strong operational cash flow generation and great affordability to consumers, we strongly believe that our current investment strategy will pay off very handsomely in the midterm making us a stronger business and allowing us to pull away even further from direct and indirect competition, which is arguably impacted much more than we are from the current and temporary supply chain disruptions and cost pressures. With that in mind, I'd like to provide you with the numbers underlying my confidence, and first, turning my attention to the highlights of the first quarter 2022. First off, we've grown our revenues significantly, 26.4% year-over-year in constant currency growth, and it reached over EUR 1.9 billion for the first quarter. That's the highest revenue quarter that we ever had. It's also been a landmark quarter for our U.S. segment, which has actually achieved over EUR 1 billion in revenue for the first time in 1 single quarter. That strong revenue performance was driven by the strong performance of the underlying KPIs. So active customers are up EUR 1.24 million year-over-year. Order rates are at very high levels, stabilizing. And our AOV has also increased by about 6.5% at constant currency levels. We've achieved a solid adjusted EBITDA margin of over EUR 99 million, just shy of EUR 100 million, with a group margin of 5.2%, higher than what we had anticipated and expected at the beginning of the year. We also have a strong closing cash position of close to EUR 800 million despite our share buyback, despite paying the first tranche of the Factor75 earn-out during the quarter and despite the fact that we continued to invest heavily into our performance center build-out. On top of the financial numbers, we've also released our sustainability and nonfinancial report very recently and this report has confirmed a number of the structural benefits that we actually have in our supply chain as compared to procuring and cooking your food via traditional ways. It has shown that there is about 20% to 25% less carbon 2 emissions along the whole supply chain when procuring your food with HelloFresh and cooking our recipes. Now before I turn to our revenue numbers, let me very quickly cover our performance versus a basket of other so-called COVID winners. So the structural benefits are not only in our supply chain when it comes to sustainability, but they have also -- the structural benefits have also allowed us to sustain our growth post COVID at a much higher level than most other e-commerce companies out there. Compared to pre-COVID, we have tripled our revenues. We continue to expect robust growth also in 2022 in every single quarter after the massive growth we have clipped during the last 2 years. This is, for HelloFresh, due to the high share of revenues that is generated by our loyal customer base and the corresponding high industry-leading revenue retention rate across e-commerce businesses. It's also helped by the fact that cooking at home is a very sticky category that shows great appeal not only in times of lockdowns, but also in normal times. So as a matter of fact, about 50% of dinners pre-COVID were cooked and consumed at home in the U.S. Around 2/3 of dinners in our international markets were cooked and consumed at home, and this is a category that is here to stay. It's the most common way to prepare dinner. And I think with HelloFresh, we're one of the biggest innovations that has happened to cooking at home. Due to more work from home happening than ever now post pandemic and also lots of it anticipated to stay for the foreseeable future, we think a lot of that behavioral change and structural shift is going to be permanent. And the respective gain in share versus out-of-home is here to stay at much higher levels than pre-pandemic. Let's look at our active customers and the growth that we've seen in the first quarter compared to last year's period. We've increased our customer base by about 17% year-on-year to 8.52 million in the first quarter, which is always earmarked by being one of the best quarters where we actually spend a lot of our marketing firepower to attract new customers in times when they stay home a lot. The growth was driven by both segments. Our International customer base is up year-on-year by about 19%. Our U.S. customer base is up over 15% year-over-year. And if you look at the year-over-2-year numbers, you can see that we've more than doubled our customer base over that period. Not only our customer numbers have grown significantly, but we've also managed to stabilize our order rates at a very high level of 4 orders per quarter. That is significantly higher than the 3.5 orders that we've had 2 years ago. In detail, it's over 14% higher than where we were 2 years ago. And I think this is very much due to the fact that we have increased the attractiveness of our product portfolio very significantly. Let's come to our average order value, our basket size. Although our basket size has increased by 6.5% in constant currency year-over-year, it's even a 16% increase on a year-over-2-year basis. And the increases were driven by the larger number of meals per order, the rollout of our HelloFresh Market and the selected price increases that we've undertaken predominantly in the U.S. Within our International business, there were some small selective price increases, but the overall year-over-year number suffers a little bit from some mix effects, some countries with smaller baskets growing faster than other markets, but the underlying trend is the same. Within each market, looking at it in an isolated view, we're able to increase AOV in basically each and every market that we're operating in. For Q1, on an absolute level, basket size has been over EUR 55. That's a record high in our history and I think a testament to the fact that customers continue to see increasing value in our operations. Despite emerging from the pandemic, we continued to increase the customer value that we actually clip from our cohorts through improved monetization and a lot of product innovation. Based on the higher AOV and the continuously high order rates, we now achieve meaningfully higher lifetime revenue per cohort than what we did 2 or 3 years ago. The chart here is actually based on credit card data in the U.S., it's not only our own internal numbers. So it's credit card data that you can also track for yourself and against direct and indirect competitors. The improvements that we've always seen pre-pandemic have mostly been coming from small, but continuous order rate increases. And those order rate increases in themselves are very powerful when they compound over time. But then since last year, also our AOV has started to significantly contribute to better monetization of our customer cohorts. And so as of today, looking at the last year or 2-year cohorts, we now meaningfully better monetize the customers that we have and we now clip the highest customer lifetime values and the highest customer lifetime revenues than we ever have in HelloFresh history. Coming out of COVID, we don't really see any adverse forces that would mean that our cohort lifetime revenue should actually decrease. And this is something that I think will be a major contributor to our growth going forward. Now why do we think that actually from the levels that we have right now in terms of cohort lifetime revenue we can further improve? It's due to the fact that we think that we have a very exciting product roadmap on the horizon. We've not only built out our product portfolio over the last 2 years also at a little slower speed than what we would have liked to do, given that we were operating under a lot of capacity constraints, but now in 2022 this is something that has moved up the agenda quite significantly. And today, there are actually like 3 things that I want to talk about and that we're really excited about, which is the menu size expansion, the rollout of HelloFresh Market and the recipe personalization. With the vast amounts of data that we collect from our customers, we always use that data to improve our product portfolio. And so if you look at the menu size and over the course of the year, we want to add over 100 additional unique recipe slots across the group on a weekly basis. That's a 20% to 25% increase in our product offering and in our menu size year-over-year. So significantly making the product more attractive to customers who will then be able to find meals that are a better fit for them and will probably also encourage them to add more meals to their overall basket. The second thing that we're really excited about is the rollout of HelloFresh Market. We're in the process of expanding it to 100% of our U.S. customers after having launched this towards the back end of last year. We will launch our HelloFresh Market in 3 additional International markets in addition to being live in Benelux now for over a year. To be exact, about 15 months. Finally, we've also made a lot of investments within our fulfillment center capacity, within our technology, within our procurement operations that now allows us to meaningfully invest into recipe personalization. So over the course of the year, with a high focus on the second half of the year, about 50% of our menu and our recipes will become customizable. This is something that we think will encourage users to take up more meals and will also encourage them to order more often with us because very often what we hear from customers today is that there are some meals, which look really attractive to them. But because of dietary restrictions or because of one ingredient that they don't like, they're actually not putting that into their basket. We've tested all 3 of those strategies many times before. That's why we have not only positive data, positive indicative data for all 3 in our testing period, but also quite high confidence in the success of those strategies. And all 3 should help us to further improve AOV and order rates leading to higher cohort lifetime revenues. Now coming back to the most recent quarter, you can see some of those trends that I just described around customer growth, around AOV, around order rates shaping up very nicely already and contributing to a very strong first quarter. The long-term trends of investing in our products have already yielded great impact even though most of the material impact will only show up in our H2 numbers as we go towards the second half of the year. U.S. has in Q1 achieved for the first time revenues of over EUR 1 billion per quarter, a 28% growth year-over-year, whereas our International business has actually grown by about 25% year-over-year, also a strong performance coming off of COVID comps. And overall, our growth amounted to over 26% in constant currency and around 33% non-FX adjusted. If you look over the year-over-2-year number, we once again see a great scaling performance that the team has executed. It is no small feat by any means to grow revenues by over 173% in 2 years when you ship a perishable product through a highly time-sensitive supply chain all across the globe. So I think we're quite proud of the team and how they've executed on that. With that, I'll hand over to Christian to cover our margin trends, as well as the outlook for the remainder of the year.

All right, great. Thank you, Dominik. So let's turn first to the development of our contribution margin. In Q1 2022, we achieved a contribution margin of 25.2%. This is down 3 percentage points from the same period last year due to the factors that we had discussed previously, namely, an increase in procurement expenses, which came out at a margin impact of 0.7% in the first quarter; secondly, a continuation of the ramp-up of capacity of new markets and new brands; and then thirdly, some inflationary headwinds in other areas such as production wage increases, which we implemented at the back end of last year and fuel surcharges. Now having said that, against these headwinds, the 25.2% contribution margin is actually quite strong and better than what we had originally targeted for Q1. How did we achieve this? Firstly, we already start to realize productivity improvements in recently launched fulfillment centers, such as in the U.S. and in the U.K. This drove a sequential improvement in production expense -- in productivity expenses -- in production expenses already compared to Q4 2021, i.e., our productivity increased sequentially versus the prior quarter. Secondly, we managed to contain cost inflation in Q1 better in certain key markets than originally planned. This outperformance on contribution margin in Q1 is the key driver why Q1 adjusted EBITDA is coming somewhat better than originally targeted. Next, let's turn to our marketing spend. Our marketing spend in Q1 came in very much in line with previous guidance with 17.6% of revenue. As you know, in a business-as-usual environment, Q1 is the most important quarter for us to increase our customer base. We have achieved this by adding 1.3 million new customers in the quarter. And we did this with customer acquisition costs, which were similar to what we have seen in the back end of last year. Let's also have a quick look at the development of price incentives we have given to new customers. This is something we've been asked for a few times recently by investors, so what we tried to plot here is the development of price incentives as a percentage of gross revenue over time. As you may remember from our last Capital Markets Day, we primarily grant price incentives to new and reactivated customers typically spread over the first 3 to 4 deliveries on a decreasing scale. So what you should take away from this chart are really 2 things: one, price incentives as a percentage of revenue increased seasonally in periods where we acquire a lot of new customers, i.e., typically in Q1; and secondly, Q1 2022 is really middle of the road compared to prior periods, i.e., we have not meaningfully shifted our attitude to price incentives compared to the past. The fact that our price incentives in Q1 were not out of the ordinary is also, by the way, evidenced by our continuously increasing average order value, which is already net of any discounts. With that, let's come to our AEBITDA. When you combine a somewhat better-than-expected contribution margin and in-line marketing spend, you'll see that we have started the year with a solid AEBITDA. We have achieved an AEBITDA just shy of EUR 100 million, corresponding to a margin of 5.2%, i.e., somewhat better than the 3.5% indicatively targeted at the beginning of the year. As discussed earlier, drivers for that outperformance were better performance in COGS and somewhat better-than-anticipated productivity increases. This means, for Q2, we may put a bit of that buffer that we have created in Q1 back into marketing in Q2 if we see the opportunity for incremental profitable growth spend, I'll get back to that point in a few minutes. But before that, let's have a look at the development of our cash flows and liquidity position. We have delivered a very strong cash flow from operations of EUR 198 million in Q1, primarily driven by our AEBITDA of EUR 99 million and seasonal inflow from working capital of EUR 120 million. This means we have maintained our cash position at a very healthy EUR 796 million at the end of the quarter despite investing EUR 66 million into CapEx, spending EUR 125 million on buying back stock and paying EUR 25 million for the first tranche of the earn-out for the Factor acquisition. On top of our strong organic free cash flow -- on top of our strong organic cash flow generation, our strong cash position and the largely unlevered balance sheet, we have also, as Dominik alluded to earlier, further strengthened in April the external financing sources available to us. We have extended the maturity of our revolving credit facility to 2027 and we have increased the size of that facility to EUR 400 million. This facility is largely undrawn, i.e., it provides backup liquidity to us. This means that available liquidity to us is around about EUR 1.2 billion, a cash balance of approximately EUR 800 million and a largely undrawn revolving credit facility of EUR 400 million. Okay, with that, let's turn to our outlook. We would like to reiterate our outlook for the full year, i.e., we continue to target constant currency revenue growth of 20% to 26% and an absolute AEBITDA of EUR 500 million to EUR 580 million. For Q2, we indicatively target constant currency revenue growth of mid- to high teens given the March through end of May period is probably the toughest period with respect to the prior year benchmark. Even against this heavily COVID-impacted period, we expect very healthy growth of mid to high teens given the repeat purchase model that we have. Thereafter, i.e., in H2, we expect year-on-year constant currency growth of 20% and above again when also the comparative period is less COVID affected. At current FX rates, this would translate into an absolute revenue in Q2 broadly in line with what we delivered for Q1. From a contribution margin perspective, we also expect in Q2 a similar level as in Q1, where further food price inflation and seasonally higher packaging expenses are expected to be largely offset by further productivity improvements and selected price increases, which are still flowing through. Given we have somewhat outperformed our AEBITDA target in Q1, we may put some of that outperformance into incremental gross spend in Q2, i.e., marketing as a percentage of revenue will still be lower in Q2 than in Q1, but potentially slightly less than initially targeted. Overall, we consider current consensus expectations reasonable, both -- and that applies for both Q2 as well as the full year. Now all of this obviously comes with some caveats, namely, we're still only at the beginning of Q2. Then secondly, there are a number of external uncertainties out there, including accelerating food price inflation and heightened overall macro uncertainty. Okay. With that, we look forward to opening up the Q&A.

[Operator Instructions] We have a first question, it's from Fabienne Caron of Kepler Cheuvreux.

My question would be, Christian, you remember when you gave the guidance for the full year, the 200 basis point AEBITDA decline was made of minus 150 basis for gross margin and minus 50 basis points for SG&A, where fulfillment costs would be flat given the fact that what happened in Q1 with better gross margin. Do you see the same structure for the full year on average or has it changed?

Fabienne, it's broadly the same structure with a bit of variance based on externalities that you may see. I would say the most important is that we're doing well on the net level that comes out of this, i.e., the contribution margin itself, where we have guided at the Capital Markets Day to be slightly down year-on-year, and we came in now in Q1 already at a touch north of 25%, i.e., somewhat better than expected. So the broad split in terms of headwinds still applies, but obviously as we see things shaping out, we may see an opportunity to outperform a little bit on some cost line items to offset bigger pressure that we see on other cost line items as we get along. But let's say, ballpark 25% for the year is still what we're targeting and we're doing better after Q1.

The next question is by Nizla Naizer of Deutsche Bank.

My question is around the price increases that you're doing to sort of help mitigate the impact of rising food inflation. How large were the price increases across the group in Q1? And will you sort of continue this trend over the next few quarters? How are you thinking about price increases as a way to sort of counter the rising cost of your ingredients?

Nizla, it's Christian here. So impact in Q1 was a touch below 5%. Our approach to price increases hasn't changed to what we have discussed in the past, i.e. , we're constantly testing price elasticities in terms of tweaking certain parameters of our all-in price where we see it makes sense. We follow through on that and somewhat obviously also impacted by what we see on the other side, on the cost side, with respect to food price inflation.

What sort of food price inflation are you seeing, Christian, just on that?

So some of the moving targets, but for the full year across the group, we are expecting something of around about 10%.

The next question is by William Woods of Bernstein.

Back in kind of full year results, you guided to around 3% to 3.5% Q1 AEBITDA margins, but obviously achieved about 150 basis points more than that driven by contribution margin, it looks like the fulfillment costs, particularly in the U.S. Are you able to kind of disclose kind of what changed in the kind of months after full year to kind of make this change? And what is it driven by? Is it by delayed kind of fulfillment center investments?

Hey, William, it's Christian. So it's really driven by 2 things. One, better performance on the COGS side, i.e., we managed to hold on to pricing, and let's say, delay the impact of food price inflation for longer than initially anticipated. That applies to a certain degree to both segments, but especially to our U.S. segment. And then the second one is really more on the productivity side. So we've managed to decrease production expenses sequentially somewhat faster than initially planned and that contributed as well to that contribution margin outperformance versus our initial target. But we have not delayed or slowed down on any of our capacity expansion.

Great. And just what drove the fulfillment expense decline?

Exactly what I just mentioned. So higher productivity levels, i.e., less production costs per box.

The next question is by Clement Genelot of Bryan Garnier.

Only one on my side. To what extent that you already adjusted your recipes in Q1 in order to mitigate inflation. And to what extent would you do it again throughout the year?

We haven't made big strategic moves to -- with regards to value engineering. We think providing great value and great recipes to our customers is a major driver of demand. What we sometimes do, which we've also done in the past when there were ingredient shortages, for example, is that we replace certain ingredients that have been inflating faster than others. But this is sort of like limited to really making sure that we're not basically decreasing the customer value proposition that we have. So we've done it selectively, but this is something that has also happened in earlier years when I think 2 years ago there was the zucchini crisis or other things where you couldn't get sort of like certain vegetables, certain proteins, et cetera, that this is more business as usual for us. And this time, we've used some of those tactics to also replace very small select amount of ingredients, given that we are on top of the menu.

The next question is by Marcus Diebel of JPMorgan.

Very strong active customer number. I know you're going to [ give ] the split between gross and net additions, but could you at least comment on kind of like the direction here? I mean is the number driven by, yes, better retention of existing customers, a higher share of reactivations in gross additions? Or is it just more customers coming through the funnel? That would be interesting. And if you could just update us on the number, what would you say in the U.S. how many customers have, as of Q1, actually tried HelloFresh? That will be very interesting.

So with regards to gross additions, net additions and what actually drove the strong customer numbers in Q1, I would say retention rates are stabilizing at very high levels, at higher levels than they were in the previous year. And our both gross additions and net additions came in very much according to plan. So I think no big surprises on that end. We've been very disciplined in our marketing spend, great cost controls on overall customer acquisition costs and managed well against the budget and well against the targets that we had in mind and had positive tailwinds from the fact that customers continued to order at very high rates with us.

Okay. Perfect. And Dominik, could you give us the number -- or a question, roughly how many customers have tried HelloFresh in the U.S. so far? Only if you have it.

It's not a number that we track on a weekly basis. I don't have it on top of mind. Also, one question only, Marcus.

The next question is by Miriam Josiah (sic) [ Adisa ] of Morgan Stanley.

Just one on the average order sizes. So you called out a few drivers of AOV. Can you just give a bit more color on which factors were the most important in the quarter and which you would expect to have the biggest impact going forward? And perhaps if you could just share a bit more color on HelloFresh market and some of the KPIs around that in terms of the number of SKUs you now have there.

Hey, Miriam, it's Christian here. So in terms of the AOV expansion from a group perspective, price impact, as previously mentioned with Nizla, was just shy of around about 5 points. The impact of effectively more recipes per order, i.e., bigger order sizes around about 2 points. And then higher surcharges, add-on market and so forth, altogether, around about 1 point. And then the offset of that, i.e., in the other direction is effectively mix effects and other effects in between the composition of our AOV from a group perspective.

Great. And then anything specifically on HelloFresh Market?

So Market would be -- would have contributed with around about 1 point to that, yes. So that's what Market and surcharges together, around about 1 point.

The next question is by Andrew Gwynn of BNP Paribas Exane.

Just coming back to the point that you had mentioned before about testing the price elasticity. I suppose without giving the secret sauce away, what have you learned? Is there any sort of sensitivity or any evidence that sensitivity is increasing as things like energy prices hit the consumer?

So Andrew, let me quickly comment on that. I think with any price-related measures, it's really important to measure them over the midterm and long term because as you can see from the cohort lifetime revenue chart that we showed, a lot of a cohort's revenue is actually not done in the first month or in the second month, but throughout sort of like their entire lifetime with us. So that's why a lot of the tests that we do have a pretty high sensitivity as to what does this mean for long-term order rates to customers. Does that mean they're ordering more often the same, less often if sort of like some of that happens to a large degree. So it's something that we are careful testing into it because our sort of like North Star that we want to optimize for is always that we capture as much customer lifetime value and as much customer lifetime revenue as possible. Now there were sort of like tests that we did towards Q4 last year and then rolled out in the U.S. in Q1, and the test that we now did in the first quarter and are sometimes sort of like slowly rolling out across our International markets have shown that elasticity during those times was lower than what we had seen before. So we were quite confident doing the price increases, but we continued to basically do more tests because the environment is obviously changing very rapidly. It's all over the press in different countries, et cetera. To date, we don't really see like a big impact of lower consumer confidence or other things that could sort of like meaningfully drive anything lower. But the most important point for us in our framework into how we do price testing is we don't want to just look at the next month and increasing prices for new customers or existing customers, but really get, together with our data science teams, a good understanding what any type of price adjustments, up or down, actually mean for the customer lifetime revenue and customer lifetime value over a period of 1, 2, 3 years. And we are pretty good at forecasting that, but it always takes a couple of months to get very robust results on that. At the moment, very happy with what we're seeing and certainly potential to further test them, too.

The next question is by Sarah Simon of Berenberg.

My question is on Market. In the U.S., where you've rolled it out, can you give us an idea of what kind of proportion of the user base has adopted Market in terms of adding extra items? And what the sort of average spend beyond the box would be for those customers? So how much are they spending on Market and what the proportion of the user base that's been using it.

So in the U.S., it's not exposed to 100% of the customer base. It's exposed in a number of our fulfillment centers. And we're now focusing the next 2 quarters in rolling it out to 100% of U.S. customers. Within those fulfillment centers where we are active and customers who can order our products, it's about low teens percentage of customers taking items from our marketplace. And if they take items from our marketplace, they're probably taking around $15 to $20 baskets in addition to what they spend on meals with us. The caveat here is the portfolio is still quite low -- or quite small. It's much smaller than what we have in Benelux. So we're talking at the moment of around about 80 to 100 products by fulfillment center. In Benelux, we're at about 400 products, so this is also why the numbers, both in terms of customer uptake as well as basket would be higher in Benelux. But I think it's a positive testing ground. And now the focus is, firstly, on exposing 100% of our U.S. customer base to it and then increasing the portfolio and the portfolio's attractiveness to drive both uptake as well as overall spend.

The next question is by Emily Johnson of Barclays.

I think Christian has alluded to this already, but my question is regarding the COGS beat in Q1. How much of that was down to one-off, for example, running down supplies of frozen proteins, which were purchased in a less inflationary environment versus trends that should be extrapolated into the rest of the year, i.e., your food inflation was slightly less than expected.

Yes. So Emily, what I said the -- it's more the first so that we managed, through active management, hold on to beneficial pricing for a bit longer than initially anticipated. Obviously, through active management, menu planning and so forth, we can mitigate somewhat the impact also going forward of headline food price inflation, but we're not isolated from it completely. So to a certain degree as food price inflation further accelerates, we're exposed to that as well.

The next question is by Nick Coulter of Citi.

Would it possible to get your sense of the outlook for customer acquisition costs from here, please? Is there any movement in your different markets and emerge from COVID? And how do you expect the CAC to evolve over the coming quarters? And I guess I'd be particularly interested in the U.S.

Nick, I think the main message is we will continue to be disciplined and we don't think that there will be major changes to the level of customer acquisition costs that we forecast. We are pretty diversified spending our marketing dollars, our advertising dollars on a range of different channels, both online and off-line. Some of those channels will certainly move in one direction or the other. But given our diversification between channels and also between markets, we can usually react pretty quickly to that. And it's hard to take a directional view. But our view is that we will continue to be disciplined and will probably see the same level of customer acquisition costs, which is very attractive compared to the customer lifetime value that we generate. And this is what we're trying to spend against.

The next question is by Victoria Petrova, Credit Suisse.

Congratulations on the results. Within the context of your midterm guidance, which, if I haven't missed anything, is still EUR 10 billion, given sort of EUR 2 billion per quarter in a year like that looks pretty conservative. What are the key drivers behind your forecast apart from the fact that you don't want to revise it every year? And what percent of sales within this framework should be coming from new initiatives? That includes Market, that includes new foods and Factor and also new markets such as, for example, Japan, which you officially entered just around a week ago.

Thanks, Victoria. I don't think it's given sort of like the volatility in markets, given the volatility in outlooks, et cetera, I don't think it's prudent to give any early updates on our midterm ambition. But we certainly feel good about that. We certainly feel confident about that how I referenced before. Within that sort of like midterm ambition, we definitely do see some contribution of our ready-to-heat businesses, Factor, new foods, which are growing very nicely. We do think there's penetration upside in our existing markets. And there's also some parts that should be played by HelloFresh Market. I think new geographies, which was the third or fourth one that you mentioned will probably play a lower role in that because it usually takes us about 2, 3 years until new markets start contributing meaningfully to group revenues. The first year is usually about finding product market fit, finding the right partners. We're starting to scale up in year 2. And then by year 3, year 4, year 5, that's really when new markets start generating significant revenues and contribute significantly to group revenues. So across those three, I think, definitely, we see very good growth momentum going forward and good contribution to our midterm targets through the ready-to-heat vertical. We continue to see like good momentum around our HelloFresh marketplace, probably less than from the ready-to-heat vertical. And then a large part of it will continue to be driven by our existing markets and increasing penetration in those existing markets, especially in those markets where we're not operating since 10 years, but maybe since 5 years or 6 years where we still have a lot of penetration upside.

The next question is by Andreas Riemann of ODDO BHF.

As you guys operate different meal kit brands, did you observe any down trading within the group or within your portfolio? Or would you be able to compare the performance of the different brands in Q1? This would be my question.

So, so far, we haven't been able to track any downgrading of, let's say, HelloFresh customers in the U.S. to become EveryPlate customers. During COVID, we had maximized our exposure to the HelloFresh brand because it's the most profitable to run for us and we have been sort of like in the most scaled team setup, fulfillment center setup, et cetera. And I think now coming out of COVID, we will also continue to focus on our -- on other brands more and more going forward as we think, overall, the timing is good for them. They're still underpenetrated in the income household target audiences that they mostly operate in. So I think going forward, EveryPlate, Green Chef, Factor will be brands that will have, probably over a 3- to 5-year time horizon, a higher growth momentum than the HelloFresh brand, which at the moment is performing really well there.

The next question is by Sebastian Patulea of Jefferies.

I've got a question regarding the guided EUR 500 million in CapEx investments, please, split roughly between EUR 300 million in capacity expansion and EUR 200 million in automation. What percentage of that CapEx guidance is hedged, please? What's the risk of potentially needing to invest more in CapEx given prices of materials are accelerating?

Hey, Sebastian, Christian here. The line was a little bit spotty, but I think I got the question. So if I got it correctly, it was about our CapEx guidance for the year, the EUR 450 million to EUR 550 million if there's risk of that increasing because of input price inflation there. So on that, our guidance still stands effectively with that range. There is certainly a bit of pressure on some of the material inputs. I would say, overall, we managed to contain it to the levels that we have targeted. So part of that was priced in already, part of it then we also locked effectively in contracts. But there's a bit of headwind, but not to the extent that would mean we would need to shift that overall CapEx guidance upwards.

May I please follow up, and sorry if it's patchy. Is the guidance fully unhedged, the CapEx guidance? Or is there a particular proportion of it that is hedged?

Hedged in a sense where you say that we're exposed to underlying materials price inflation. I would say the majority of what goes into that capacity expansion CapEx is effectively locked in from a pricing perspective.

The next question is by Adrien de Saint Hilaire of Bank of America.

A couple of quick questions, if that's okay. You gave us some trends, but can you be more specific around your expectations for active customers in Q2 and for full year '22, given that Q1 was ahead of your expectations? Secondly, in the U.S., can you discuss the growth rates across your different product lines between Factor75, Green Chef, the core HelloFresh brands? And maybe last question, if I just may, can you discuss your latest thoughts on any opportunity for partnership with on-demand grocery players? Is there anything that you see of interest here to develop maybe Factor75 in the U.S?

Hey, Adrien, Christian. So let me take the first one on active customers for Q2. So base case for us is that this is sequentially a touchdown versus the number we just reported for Q1. So let's say, around about -- and again, with the caveat we're still at the beginning -- pretty much at the beginning of that quarter around about 100,000 to 300,000 lower than what we just came out with for Q1, i.e., if you're playing with active customers for Q2 of around about 8.2 million to 8.4 million, just ballpark the zone that we are targeting. Maybe to also touch on the other key KPIs then for Q2 when we are on the subject, average order rates broadly stable sequentially versus Q1. And average order value, we would target a slight sequential uplift versus Q1. And that effectively the product of all of that would mean we're targeting roughly a similar revenue level for Q2 as we've just here published for Q1 quarterly.

I think there was a follow-up question. On the U.S. brands, Factor has been developing very strongly, obviously, coming from a low base, but this is a vertical that we strongly believe in and that has seen a very good year-over-year growth. Green Chef, we have been a little capacity constrained. Hopefully in the second half of the year, we will be able to grow Green Chef lot more. EveryPlate has been developing slightly faster than the group's average. And HelloFresh, probably like a little bit lower than what we showed as growth rate for the whole segment.

Dominik, do you want to address the point about the on-demand grocery partnership?

No plans as of yet.

There are no further questions, and so I hand back to you.

Thank you, everyone, for attending our first quarter earnings call. I think, overall, especially focused on the midterm, we're very excited customers ordering more than they have ever with us. Very strong quarter, I think. But even the underlying KPIs more impressive. And if you look at the product road map that we have for the rest of the year, I think we're very bullish about that, that we can really go back to innovating at very high pace on our customers' behalf. And that's building out our proposition when it comes to affordability, when it comes to variety, when it comes to taste that we can build that out really well. And I think this will be a major driver of our growth going forward. And with that, I'll leave you to it. Thank you for attending, and speak to you around -- about our Q2 results in the summer. Thank you. Bye-bye.

Ladies and gentlemen, thank you for attendance. This call has been concluded. You may disconnect.