Sosandar Plc (SOS) Earnings Call Transcript & Summary

Welcome to the Sosandar Full Year 2022 Trading Update Webinar. [Operator Instructions] This webinar is being recorded. I now hand over to Julie Lavington and Ali Hall, co-CEOs; and Steve Dilks, CFO. Julie, over to you.

Good morning, everyone, and welcome to the call. As [ Tamsin ] said, here with me today is Ali Hall, Co-CEO and our Chief Financial Officer, Steve Dilks. As with previous trading update calls, today, we'll be providing a short summary of the update, followed by a Q&A session ending at 9:30 am. We are delighted to report that following a record performance in Q3, we have delivered another profitable quarter in Q4, with every single month in the second half being EBITDA positive. We had extremely strong trading across all channels, resulting and is expecting to report annual revenue in excess of GBP 29 million, that's up 138% year on year and an EBITDA loss to the full year reduced by over 80%. This record performance is testament to our strategy, unique product offering and constantly increasing brand awareness. Our product range with new styles available daily and highly effective marketing continues to drive fantastic growth with both new and repeat customers. Following this morning's announcement, our House Broker, Singer Capital Markets has published a research note on us that is accessible for a Research Tree. Following the previous upgrade on the 30th of November, Singer's analyst forecast for the year to 31st of March 2022, have now been upgraded again to GBP 29.1 million in revenue and an EBITDA loss of [ GBP 450,000 ].

Having raised money in May '21, we put this to good use, building greater depth and breadth for stock across all product categories. This strategy has been executed to plan and led to an accelerated growth on our own site and by our concession partners. Our partnerships with John Lewis, Next and M&S have gone from strength to strength, and we see substantial opportunities for further growth of each of them. Testament to the success with these arrangements today, we're delighted to announce that we've extended our relationship with Next plc, with the family products we sold through Next Platform Plus. We will launch this during Q1 FY '23, allowing us to accelerate sales by selling an extended range with stock being picked from our own warehouse. We are also really pleased to announce that following an approach by The Very Group, we commenced a wholesale agreement from March '22 with strong sales and repeat orders quickly being placed. Selling Sosandar products through Very will further increase the brand's reach amongst our core target demographic and deliver incremental revenue and EBITDA growth. We have continued to leverage our agility in order to navigate external headwinds, including global supply chain challenges, which alongside margin gains driven by the business' growth have resulted in no material impact to the business to date. I'll now pass over to Steve to pick out some highlights on the financial side.

Thank you, Ali. First and foremost, as Julie mentioned, we are delighted to report revenue in excess of GBP 29 million for the year ending 31st of March 2022, which is a 138% increase against the prior year. This extremely strong performance, together with our increasingly efficient operations has resulted in an EBITDA positive second half, demonstrating the group's trajectory towards annual profitability. The way in which our product range is resonating with our customers can be seen by the increase in our sosandar.com KPIs. The number of orders increased by 84% year on year to 508,000 whilst repeat orders increased 93% to 367,000. Our conversion rate increased further to 3.9% from 3.1% and average order frequency increased by 10% to 2.28x per annum. In addition, we delivered average order value of GBP 90, which is up 9% from GBP 83 posted in the prior year. The company has a strong cash position with net cash of GBP 7 million as at the 31st of March 2022, and we have good stock levels ahead of the spring season. On that note, I'll pass back to Julie for a quick overview of our current outlook.

Thank you, Steve. This has been a milestone year for Sosandar, and we are delighted with what the team has achieved over the past 12 months. We've successfully executed our strategy across our own site and third parties, building momentum in H2 and ultimately delivering our first 6 months of profitability, which is a pivotal moment for us all. The outlook for Sosandar is very positive, which is reflected by Singers in their upgraded forecast for FY '23 and FY '24. We are really excited by the future for the business and we would now be delighted to take your questions.

[Operator Instructions] And Alan [indiscernible] asked the question. May I ask what percentage of sales in the second half came through third parties?

Good morning, Alan. Thank you for your question. And Steve, can I pass over to you to take that question.

In the second half, it was -- around 1/3 of our net revenue is generated through the combination of our third-party partners. And that makes the full year proportion just under 30%. It's important to note that growth has been generated, not only from third parties, but also our own sites. So the growth that we've delivered in the financial year has being driven by both our insight growing significantly, as well as the growth of our third parties.

And Mark [indiscernible] asks, what are you planning to do -- what planning do you have in place or what plans are you considering for any projected recession or downturn in market conditions?

Okay. Good morning, Mark. Thank you for the question. I'll take that one. So what we're seeing so far in terms of -- because a few people have asked us, have we seen any effect from the Credit Suisse squeeze, I suppose, and people having less disposable income. So we've seen no material impact to date from people spending less money on clothes. To a large degree, our customers are more protected from that, because we do have a very affluent customer base. So the rising cost of living is -- has less of a severe effect on our customers' pockets. So to date, we've not seen any effect on sales. Of course, we are very, very -- we watch that incredibly closely and are very, very mindful of it because there is a steep increase across -- in the cost of living in many different areas. The other thing that we would point to as well is that while there is no doubt that people's pockets are squeezed, that to some degree and certainly with our customers, and so the headwind is really coming from that are -- the opposite is happening because you've got the tailwinds of -- if you go back to a year ago, when things were very difficult, people were locked down, we weren't going out, and we've pretty much have that now for 2 years. What we've got currently is we've got the tailwinds of people going out more, going on holiday, going back to work. So the tailwind is people just needing more clothes because they've not been going out for the last 2 years.

And a quick question from [ Philip Olenick ] who asks, do you expect to break even for the financial year-end?

Steve, can I pass that one to you?

I assume that we're talking about FY '22, so the year just ended. And so as Julie mentioned, we've posted revenue in excess of GBP 29 million. And we have posted an EBITDA positive performance in the second half of the year. And whilst they're not our numbers, their numbers posted by Singers this morning, they have us have it posting EBITDA for the current -- for the last financial year of [ GBP 450,000 ] loss. That said, with the second half of the year being EBITDA positive, and that includes every individual month being positive EBITDA as well. It shows that trajectory towards being EBITDA positive in the next financial year, which is where we're heading towards.

And [ Paul Miskin ] goes on to ask, congrats on great progress. He says, what's the priority going forward, revenue or EBITDA growth?

Thank you for the question. Steve, can I pass that one to you as well?

Yes, of course. I think it's both. I think EBITDA positive for us that's been generated in H2 because we've had such a significant increase in revenue. So in effect, one is driving the other because we start to see the effective economy of scale. And just wide -- more widely, our operations become much more effective as our fixed cost base, along with all of the variable costs, for example, our marketing activities work more effectively because we're driving more revenue. So I think to a degree, it's a combination of both. Clearly though, we're really pleased with the performance we're posting, but the opportunities are significant for future growth as well. Not least, we've announced additional partnerships today. And so we think that both will be equal in importance. So we're driving revenue in terms of active customer growth, but also growth with our strategic third parties as well, which in turn will drive further EBITDA positive.

And Alan [indiscernible] asks, I understand Turkey is a major source of supply. I note that Turkish inflation is running at about 61%, but also their currencies collapsed. How has this affected us?

Steve, I think that's one for you again, as well.

Not materially. Clearly, there's lots of challenges going on in the local economy. But I think first and foremost, the route of supply from Turkey has been unhindered, and I think that's point one to make. So stock has been landing as planned, on time in full and that continues to be the case in our expectations as we move forward. From an economic perspective, our buy prices are agreed [ upfront ] prior to season. And so those are continued to be maintained. So there's ups and downs there in terms of currency, but also, in terms of inflation, but our buy prices have been set. I think the other aspect that our scale is helping us to deliver is improved quantities. So our commitment to our supply is growing in terms of volumes that we purchased per season. And that in itself helps us to improve further the buy prices. So that's an applicable point, of course, across all of our supply chain, including Turkey.

And [ Philip ] asks again. Do you have an estimate for your inventory turnover ratio?

Sorry, Steve, that one's for you again as well.

There were 2 key things on stock really. I'm not necessarily going to answer it in a way that you've asked the question, if you don't mind. What I will say, though, is that our focus is on making sure that we've got good stock, not just stock, but the stock that we've got is good stock, it's relevant stock, it's relevant for the season and that stock is turning incredibly quickly. So we land stock every day, pretty much. And so the customer is getting a lot of newness. And it's important that our stock turns quickly, which we then turn into either repeat buys or further newness that's available for our customers. Key point here is about making sure that we've got the right level of stock cover for future demand. So when we sat here at the end of March, we're always looking at our demand [ cover ] for April and early May and making sure that we've got the right stock available to meet our targets that are coming around the corner. And if you don't mind, I'm not going to answer that into the numbers today, but hasten to add, we're really pleased with the level of stock that we've got at the end of March. It's the right amount of stock for what we're projecting for in April and May. And that continues to be the case actually over the last 12 months or so, [ including ] the whole year, we've landed stock on time in full. And it's that increasing the stock and the constant investment in stock post the raise last May that's helped us to drive the growth that we're posting today. And there's no reason to suspect that will materially change going forward because we've delivered that through the last financial year.

And we've got a very long question from [ Leon Boros ] with lots of website stats, but we're just summarizing this in -- Can you comment on your Sosandar-specific website visits and analytics trends over 2020 to 2022? Sort of are they going up, down or what's happening?

I'll take that question. So all our KPIs are in an upward trajectory. So starting with traffic, first of all. So traffic has risen every year since 2020. Conversion rate has risen every year since 2020, and they are the 2, really, key stats because one; it makes -- you're getting -- more people are visiting the website and then of the people that are visiting the website, more and more people are converting. So they're probably 2 of the key stats that we would look at. And in terms of average order value, as Steve mentioned, the average order value has increased marginally on last year. I don't have the numbers for 2020 in front of me, but it would be broadly around the same kind of level, if not marginally up. In terms of the number of items per basket, that remains pretty constant at just below 2. Steve, were there any other stats that you could think of that I would have missed there?

No, not in terms of that. So I think the only thing I would add, if we look at over that 2 or even 3-year horizon, the pivotal thing that's helped to drive substantial improvement in our KPIs is product choice for the customer. So if we look at back to the pre-pandemic time, Sosandar is very strong in worldwide formal wear, dresses in particular. And today, the range is incredibly diverse. All men, women's wear categories are covered. And it's that product choice, coupled with our marketing activities and the constant refinement of that, that's really driving improvement or has driven the improvement in those KPIs. So the customer choice [ based ] into some newness but also in terms of diversity of the product mix is really strong, and it's that, that helps the customer to come back more and more often because we're fulfilling more of their wardrobe needs.

And [ Richard Straffon ] asks, to what extent are you concerned by lots of other brands finding success on the third-party side? M&S, Next, et cetera. Are you concerned that seemingly more brands are following your excellent strategy?

Ali, can I pass that all over to you?

I'm not quite sure I understood the gist of it. Is it saying that are we worried about our product being on other sites rather than our own or other people going on other sites and not on Sosandar, et cetera.

Are there competitors to you imitating the way that you're distributing and therefore, becoming more competitive to you?

Yes, I don't think that's something that we're worried about. I mean, obviously, with all those partners, especially when you look at Next, there were a lot of brands on those companies before we went from them. But I think the main thing is that we're doing extremely well with all 3 partners and as a strategic company with all 3 partners because our product is so differentiated. So we're not threatened there with brands who are doing the same thing as ours, because we have the unique products. And when we first launched on those sites, I mean a lot of customers wouldn't have known who [indiscernible] brand was at that time because we were very small, but they were still buying our clothes and finding our clothes despite there being lots of the brands on that because the product is so differentiated. So no, I think for us, all 3 parties are successful. We're really looking forward to working with Very as well, and we've extended our partnership with Next, as we said, because we believe that there's absolutely loads of huge potential and growth within all those 3 parties regardless of whether other brands are there or not. .

Leading on from that, [ Alan ] [indiscernible] asks, the new deal with Next, which allows you to pick stock your own website, which allows you to pick stock from your own warehouse. This is a fantastic development. Congratulations. Will this ultimately allow the full Sosandar range to be available on the Next site?

I'll take that question. So yes, ultimately, it could if we wanted to, that would give access to our entire range, and we're going to be starting initially with -- I mean, quite a large proportion of our range, but not the entirety of it. We don't particularly see any negatives in offering the full range to Next. It's just that we -- from a logistics point of view, we will take it slowly and not offer of the entire range right at the very beginning. The beauty of it really is, as much the offering great choice, obviously, on Next and great choice for future growth is, it enables us to test new products on Next with a very low risk. So rather than us having to take a chance on a brand-new product and ship stock into their warehouse, it means that their customers have got access to more products that maybe, we haven't, [ as ] brand new and we're able to get a feel very early on with Next customers are responding to that product, and therefore, it mitigates risk in trialing new products.

And [ Mark ] [indiscernible] asks, how large can turnover grow within all current constraints that exist now in the business, i.e., what size can Sosandar grow to before significant capital expansion would be required?

I'll answer partly, [indiscernible], and I'll pass over to Steve to add any other comments. I would say there are no limits into how big you can grow an e-commerce business because it is about just reaching, it's about the growth and the expansion of the product range and it is then about finding -- growing within existing markets and finding new markets, whether that's selling on our own website or selling with third-party partners. So there are no limits, I would say. There are -- it's very much within our sights for Sosandar to be one of the biggest fashion brands, women's fashion brands in the U.K. And I think we're making very fast leaps forward in achieving that ambition. But there is also a huge potential for Sosandar to expand internationally. And absolutely no reason at all why it couldn't be a dominant fashion player, broadly, in the wider world. The success that we've seen, I think, with third parties as well -- as Ali mentioned, when we launched the Next, John Lewis and M&S, Sosandar is, in the relative terms, some of -- relatively small -- a relatively small brand, and it would have been unknown to many of those -- many people that were shopping on those sites. And naturally, because of our product and our -- and the way we portray that product, i-e., our imagery, the way we shoot the product, we instantly [indiscernible] those customers. So their customers were buying our product because they wanted the product. So that same principle, we are confident holds true for when we do expand internationally, even though the brand wasn't necessarily be known internationally, the product is very highly differentiated and our product speaks for itself and the product can drive the awareness of the brand. So I would say no limits to what -- to how much we can grow. Steve, I don't know if you have anything to add to that.

Just a footnote really to do with the operational drivers that will enable the significant growth into the future. Julie, Ali and I, along with the rest of the senior team spent a lot of time, looking at the enablers to grow for the future and making sure that everything is in place to enable that to happen. Whether that is our warehouse capacity, whether it's the right logistics partners, whether it's a supplier base, those topics of conversation take place all the time as a matter of course in our business to make sure that we've got an eye on next year, the year after that and the year after that to make sure that the funding that's required to enable significant growth is all in good shape, really. There are no barriers. And just as a snippet, one of the reasons we choose to work with a third-party logistics provider indicates it's quicker, in our case, is because they've got the capacity to support our growth. And as opposed to say, doing your own warehousing, which would have some real challenges to accelerate, because we're in a shared facility and because we're working with experts in that field, we're able to significantly ramp up capacity and scale by working with them. So that's just an example, I suppose, where we've made really good judgments and decisions to support our growth trajectory.

And leading on from there, [ Tom Croft ] asks, what's the latest on international expansion? Are there plans in the next financial year to expand overseas?

Ali, shall I pass that one over to you.

I mean definitely, as Julie and Steve both mentioned, we see this opportunity for Sosandar being international and not just in the U.K. And we are currently in research mode, really, with regards to taking the brand overseas. So there's nothing imminent, however, our research is focused on ensuring that we do this in the right way in order to drive sustained profitable growth. And yes, it might be that we do this through partners, but we have to make sure we did that. But again, it is the right strategic fit for Sosandar in the same way that with all our U.K. partners, we make sure that's the case as well. So there's nothing absolutely imminent, but we'll definitely in research mode.

Thank you very much. And that's the end of questions. Julie, do you have any closing remarks?

Only to say thank you very much, everyone, for joining us this morning. Delighted to answer all your questions, and we very much look forward to updating you all again at our full year results in July.

Many thanks, Julie, Ali and Steve and to you all for joining. This is the end of the webinar.