Sosandar Plc (SOS) Earnings Call Transcript & Summary

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

Good morning, everybody, and thank you very much for joining us today. So just to talk about the agenda, first of all. The presentation will be about 35 minutes, and then we'd be delighted to take your questions at the end. So as well as the usual sections on financials, KPIs and strategy. We've dedicated a section of the presentation upfront, which specifically looks at Sosandar's winning formula. Investors have been really keen to understand what is driving our success and what's unique about our business, which has enabled us to keep navigating the many external challenges that all businesses are facing. And as part of our strategy section, after the financials, we will be specifically addressing the market backdrop and looking at the challenges of the current economic climate and how we intend to navigate them. So first, on to the highlights of the year and current trading.

So it's been a brilliant year. Revenue is up 142% year-on-year at GBP 29.5 million. And the key milestone was we were profitable in every month of H2. Underpinning our success with strong growth both on our own site and through third parties, driven by an increased diversity of product mix, and there's also been a strong performance across all KPIs.

So we're very pleased to say that we've had a very strong start to the year. We had a record quarter. So that's for April to June, with revenue of GBP 10.4 million, which is up 81% year-on-year. And that growth has been both our own site and with third parties. We've had record records color, record days, a record week just last week and record conversion rates. And also very importantly, we've been EBITDA positive in every month of the new financial year. So that's now 9 months consecutive months of EBITDA positive. And we've seen high demand across all product categories, but particularly strong sales in workwear, occasion wear and holiday clothes and we successfully launched with The Very Group and Next Platform Plus. And all this is demonstrating just how big the opportunity is for Sosandar.

So our purpose is to dress women across the globe to feel sexy and chic. And in doing this, our opportunity is to be 1 of the biggest women's wear brands in the world.

So there are 6 key areas that we've identified that together make up our winning formula and drive our success. First has been a cultural change in society and how this has created an opportunity for Sosandar to thrive and grow. The size of the addressable market our differentiated product range, our unique creative process and use of imagery, our affluent, high-spending customer base and very high retention rates and then our company culture and how we run our business. So we're going to go through now each of these 6 areas. So starting off with an ageless society. So the very reason Sosandar was born is that Ali and I identified a big societal shift towards an ageless society. You can see from the quotes here, how increasingly age is no longer a barrier or a limitation and people are less and less identified by their age. The phrase middle age is becoming meaningless and people of all ages are rewriting every single rule about what you should do at what age, and the effect that this has had is that all rules about addressing for your age have also gone out the window. So fashion and the way people dress is becoming equally ageless. To illustrate the point, you can see on here, we have pictures of celebrities in their 30s, 40s, 60s and even 70s. We are all dressing in a chic -- sexy chic youthful way, and you can see age literally has no bearing on how they're dressing. And so therefore, it gives us at Sosandar a massive opportunity to dress all women over 35. And that addressable market of women over 35 that we target with Sosandar in the U.K. alone is a massive 20 million women with 13 million in our core demographic of 35 to 64. As age doesn't determine how we've dressed anymore, whatever age we recruit a customer at our opportunities to dress customers for their entire lives. And these numbers represent only the U.K. The same societal shift and the opportunity it represents exists in all developed countries across the world, giving us the opportunity to dress women right across the globe as the business scales.

And this huge addressable market are all united by a desire for on-trend affordable, long-lasting lifestyle appropriate clothes. Sosandar's magic is the successful execution of distinctive product and powerful communication, and this execution has captured the hearts and minds of our ever-growing customer base. And this slide demonstrates what we actually do with product as a clothing brand. Our product is obviously everything. This is the key driver to success that makes everything work. From a practical level, we create head-to-toe outfits that flatter figures, whether our customers are size 6 or a size 20 or anywhere in between. We give her a mid-level price point. We give a outfit she can always wear a bra with, outfits at a long-lasting, a wide product range that covers all occasions, unique prints that are designed in-house and unique shapes and the vibrant colors that she craves but on an emotional level as well, the clothes make women feel sexy chic, boost her confidence and make her feel both youthful and desirable. And then we'll amplify our product range is the imagery we use to connect with our customers. We brought a unique creative process from our backgrounds in the media that completely turned retail industry norms on its head. So lifestyle imagery is really important as it brings the product to life and also creates an emotional connection with the customer as she buys into the lifestyle we're presenting. So we're the only fashion brand to produce book scale lifestyle imagery and video for every product. We go from shoot to on-site and on air in a matter of days rather than taking the industry normal months. Our inventory shows how to wear the product, which increases conversion and drives higher basket value by selling entire outfits. And it's a big attraction for our third-party partners because our imagery is unique. We also changed the industry norm as all our third parties refused lifestyle imagery from their partners. They only took imagery photograph and white background but we convinced each of them to do a test with our clothes on white backgrounds and then with our lifestyle imagery, and they saw the obvious increase in sales, so let us break their rules and have lifestyle imagery on their site.

To go now to talk more about our customer, we are extremely mindful of the challenges that are presented with difficult economic times, and we're more focused than ever on delivering value for money for our customers. But the Socio-demographic of our customers will give them some degree of cushioning against the rising cost of living. Of key importance is that Sosandar customers indexed very highly on Mosaic profiling against the top Socio-demographic groups in the U.K. Our customers are most likely to be high income earners with successful careers and large houses in affluent areas. And this is also reinforced by the data that we see in our own business. A tiny proportion of customers use Klarna compared to what would be typical for other fashion brands as they have little need for spreading payments. Unlike many fashion retailers, we don't see a demonstrable uplift in sales around payday because our customers aren't waiting for payday in order to spend. And We also see year-round strong sales of high-ticket items over GBP 200 such as leather jackets and dresses. And we know our customers inside out. They have diverse wardrobe needs, their affluent and they shop regularly. And the success of our product and communication is proven in the rapid rise in our key customer metrics. So you can see here that the number of active customers has quadrupled in 3 years, now standing at around 0.25 million people, and an ever increasing proportion of those customers are becoming regular shoppers, that's now risen to 42% of the customers we recruit becoming repeat customers. And the frequency of buying amongst these regular customers has rocketed. On average, a repeat customer now shops over 4 times a year. And finally, we come on to the sixth point, which is around our company culture. This underpins everything that we do, and it's driven our ability to execute well and to successfully navigate the many challenges that all businesses have faced over the last 2.5 years. We're highly creative and innovative, challenging everything that we do to get better and better at what we do to understand our customers better, to think ahead to constantly innovate both in the business and in our product for our customers. We're also highly disciplined and organized as a business planning well, being proactive, anticipating challenges and thinking ahead to the solutions, and utilizing data sits at the absolute heart of the business, meaning we're constantly honing and refining everything that we do. So we combine creativity, discipline and data with agility and speed of an entrepreneurial culture. That means we can adapt quickly to change, we can solve problems and react to customer behavior. And our company culture is evident in every single area of the business, whether it's supply chain, product planning, marketing or customer care. To give you a couple of examples, how we've continued to navigate the supply chain challenges has been by good strategic planning across a diverse supplier base, a diverse freight strategy and the ability to adapt shipping methods quickly and working with strong partners. Also in our marketing, we run this like it's a news desk, expert planning and then we combine that with the ability to react quickly to product, weather, customer sentiment. So we always capture exactly what customers are thinking and feeling. So now I'm going to hand over to Steve who will walk through how everything that Ali and I have just spoken about is evident in our financials and KPIs.

Good morning, everybody. Starting with our financial highlights. And the first slide here that shows our net revenue for FY '22 was GBP 29.5 million, which is 142% up on the prior year and 228% on FY '20. The growth in revenue is delivered through incredibly strong performance on both sosandar.com and through each of our third-party partners who continue to go from strength to strength throughout the year. Our revenue in the first half of FY '22 was equal to the entirety of the prior year. The year included a series of new records, including record monthly revenue in 3 consecutive months from September through to November. Return rates during the year normalized on a category by category level, which for us means mid- to late 40%, depending on the time of year and what is selling at that time. In terms of profitability on the right-hand side, we are delighted to report that as our revenue grew significantly, our losses reduced substantially. For FY '22, our EBITDA loss was GBP 0.2 million, which compares with GBP 2.9 million in the prior year. This performance included a profitable second half of both EBITDA and PBT level with every single month being profitable, including the traditionally quieter months of January and February. This improved performance shows the clear trajectory that we are on towards being profitable full year as we head into FY '23. Next slide, please. In terms of gross margin, this improved significantly compared with the prior year, which reflected a more normal year being much less impacted by the COVID pandemic. During the year, as our scale has increased, we have seen margin improve, reflecting the benefit of larger order quantities, which has led to improved cost prices. In addition, we have continued to increase the proportion of stock being transported to the U.K. using cheaper and more environmentally friendly methods such as road and sea, and this trend will continue further into FY '23. The margin in the prior year was a result of greater promotional activity to ensure that inventory sell-through, in particular during periods of lockdown. This has not been repeated in FY '22 as the impact of COVID was much less severe, and consumers were gradually able to return to some sort of normality, including going back to work, going out or taking holidays. On the right-hand side is our overheads as a percent of net revenue, which reduced from 71% in FY '21 to 56% in FY '22. We've increased our spending to drive the business forward whilst maintaining the same strong cost control measures to ensure return on investment is maximized whilst also driving ongoing improvement in processes across everything that we do. Next slide, please. And in terms of the overhead breakdown, this chart provides more detail in terms of where our spend has gone. On the left is a breakdown of absolute spend, broken down into the 4 main categories. Overall, our overhead spend increased by 92% compared with the prior year. We've invested in all parts of the business throughout FY '22, which has enabled us to deliver the 142% growth in revenue. On the left, [ Impel gold ] is the commission, which is retained by our third-party partners. We report this in overheads, which ensures that the revenue and gross profit figures remain unaffected by whether we make a sale on sosandar.com or through 1 of our partner websites. On the right-hand side is our overhead spend as a percent of net revenue. All types of spend fell in the year, resulting in our loss being so substantially reduced. A particular note is that our fulfillment and logistic cost has fallen as a percent of revenue for the second year running. This is inclusive of us supporting our warehouse provider Clipper with colleague wage increases, which has been more than offset by productivity initiatives, which has brought down the cost per unit overall. There remains more opportunities to come to further improve our overhead percentage. Next slide, please. I'll now come on to look at some of the core KPIs for our own website, sosandar.com only. So these exclude our third-party partnership results. On the left, the number of visits to our website increased in FY '22 by 47% to just over 13 million. This included 6 of the 12 calendar months being new records, reflecting the ongoing awareness of our brand and the response to our marketing communication strategy. We are delighted with the continued improvement in conversion on the right-hand side during the year, which averaged 3.9%, which is a 25% increase compared with the previous year. In addition to our marketing, this step-up is a reflection of the amount of product choice that we have available for our customers. Next slide, please. This increase in conversion resulted in 508,000 orders being generated in FY '22, which is an 84% more than the prior year. We had several records with both October and November having more than 50,000 orders for the first time in a calendar month. Our AOV on the right steps up again to GBP 90 in a year. This is a 9% increase, reflecting a greater proportion of full-price sales, given FY '21 was impacted by actions that we had to take as a consequence of COVID in order to ensure strong seasonal stock sell-through. For reference, the AOV in FY '20 reflected a product mix, very different to where we are today, and it was heavily dominated by higher price point categories such as dresses. Next slide, please. In terms of new orders, these are orders generated from new customers, and they increased by 64% in FY '22 to 141,000, represented by the bars on this chart. Importantly, the critical KPI, the CPA or cost of acquisition reduced again in FY '22, having fallen substantially from pre-pandemic levels, which is the gray line on the chart. We're incredibly pleased to have further improved the ROI from our customer acquisition activity with a CPA under GBP 19, which is 65% lower than in FY '20. The reduction in FY '21 was in part due to cutting back on marketing, particularly in H1 due to COVID. However, to further reduce our CPA ever since that point means that each customer is profitable to us very early in order #2. Next slide, please. And in terms of repeat customer orders, on top of the strong customer acquisition KPIs, we've also continued to grow our repeat customer orders. In FY '22, we generated 367 repeat customer orders, which is 94% up on the prior year. So to summarize, we've continued to deliver increasing levels of customer engagement on sosandar.com with all KPIs increasing year-on-year. Next slide, please. So moving on to third parties. We've been delighted with how well the Sosander products has resonated with our third parties as well as their customers. This graph shows the growth in revenue that we've achieved over the last 2 years. We grew significantly through the first half of FY '22 from a low base, and this was further accelerated in H2 as we were able to invest in even more stock following the equity raise that we did in May '21. We continue to allocate more styles to each partner throughout the year and have increased the average number of units per style as well. We've increased the proportion of overall range that is allocated from around 10% in FY '21 to an average 15% in FY '22. And this is even more now with Next following the launch of Platform Plus in Q1 of the new financial year. The concession model is profitable from day 1. And so this significant step forward in revenue has helped us to drive us towards profitability whilst also giving us even more opportunities, which having greater scale brings. With the addition of our first wholesale arrangement with The Very Group in March of '22, we still have so much more opportunity for further growth across this sales channel. Next slide, please. For completeness, here is a summary -- or here's our full income statement for FY '22. In addition to what I've already shared, I want to just draw your attention to a couple of additional highlights. Firstly, within amortisation, there is a GBP 200,000 charge relating to accelerated amortization of our website intangible. And that's resulted in our carrying value on the balance sheet now being 0 in effect, a one-off in the year. Second, and for the first time, we have been able to recognize the deferred tax asset, which is GBP 400,000 in the year Previously, this was all unrecognized. However, given our trajectory now towards full year profitability, it's now been possible to recognize a portion of this tax asset within FY '22. And for information, the unrecognized element of our deferred tax asset now stands at GBP 4.7 million. Next slide, please. Moving on to our balance sheet. I'm really pleased to share our growing balance sheet strength with net assets now of GBP 10.6 million, which is roughly double the level in the prior year. This strengthening includes GBP 7 million of cash, which is after investing GBP 2.2 million in working capital during the year. This followed the equity raise in May 21, which allowed us to accelerate our growth through additional investment in stock with both breadth and depth in the range increasing. We executed our plan as envisaged with stock increasing in the year by GBP 4.4 million to GBP 7.3 million, which includes further investment to the spring/summer season. It is this additional stock that has allowed us to meet the clear and growing demand from customers across all sales channels, including from our third-party partners where the Sosandar product range has resonated so well with their customers. Debt has increased by GBP 1.7 million to GBP 2.5 million and creditors increased by GBP 3.9 million to GBP 6.8 million where creditor days have continued to move favorably, which reflects the trust that our suppliers have in Sosandar and how much they value our relationship. In February, we renewed our existing office lease. And from April 22, we were delighted to take on even more space. This has doubled our overall office capacity, which has provided a fabulous working environment for our team, allowing us to further attract and retain great people to drive our business in the future. And finally, our cash balance as of June '22 is GBP 6.1 million which reflects the timing as well as further investment in inventory, which is driving another step-up in revenue as we go through the first half of FY '23. Next slide, please.

We're now going to look ahead at our strategy for the next stage of growth for the business and also at the market backdrop. So we've just gone through over 2 years of extremely challenging trading conditions where consumers have had little actual need for clothing and have spent vast amounts of time at home, and we still thrived as a business against this difficult backdrop. We are under no illusion that we now have another set of very challenging circumstances with a difficult economic climate, rising cost of living and how that impacts discretionary spend and also creates low consumer confidence. It's no surprise that fashion retailing is 1 of the more resilient retail sectors at the moment. And this has been driven particularly by the mid-market, which is exactly where we sit because in difficult economic times, women do still buy clothes. We also know that our customers are more affluent as we showed at the beginning, and therefore, more cushioned from economic pressures. However, trading is and will continue to be challenging against this tough economic backdrop. Although women is still buying clothes in hard times, the impact is they tend to buy less clothes. So what we can do is drive even harder to keep gaining market share.

We intend to do this by broadening the product range even further. In the pandemic, the product ranges were narrower in terms of what the customer wanted to buy as she just largely wanted casual clothes, now she has broader lifestyle needs again and wants clothes across all areas from workwear to occasion to casual. However, we're fast tracking those categories where we know she's most likely to spend. This is occasion wear, beach and swim and tailoring. Basically, what we're seeing is after a couple of years wearing casual clothes , no one saw her in. She's actually spending her money now in the places she will be seen. So going out, going to work and going on holiday. On top of this, we are also looking at wider pricing structures. We know our customer really well. And as we did in the pandemic, our messaging and our communication with customers will reflect how our customers are thinking and feeling. What customers really want at the moment is standout quality clothing and value for money, and that is what we're really good at. We are so focused on a business -- as a business on loyalty, seen in our ever-increasing repeat rates, and we intend to take more share of spend, something we're confident we can do. So now we're going to look at our strategy going forward, which falls into 4 pillars: product, marketing, sales channels and supply chain. So to look at product first, it is our strategy to continue expanding the number of styles in all categories. whilst always maintaining our strategy of on-trend quality, long-lasting lifestyle appropriate clothes. As you can see from the pie chart, we already have a really equitable mix across all product categories, and we are in all main women's wear categories, and all those categories are in growth. However, there is still lots of room for expansion in all the categories. We are also fast tracking some new categories that we spoke about earlier that we've seen explode post pandemic: Occasion wear, beach and swim and blazers and suits. We are also developing new shapes and length. So we already do all trousers and jumpsuits in 3 lengths, and we're expanding different lengths into our dresses too. We're also increasing garments using sustainable fabrics and maintaining our affordable mid-price point. We'll also make sure we have daily newness while maximizing our bestsellers. So our strategy of planning, buying and merchandising stock has really been critical to our success. We constantly hone and develop this to mean that we turn stock very fast. We maximize best sellers and we create constant newness while minimizing risk. So the graph on the left shows the number of styles. 60% of styles will be completely brand new to the customer in a year and 40% of styles are best sellers. So the range constantly feels new and exciting to the customer, inspiring them to spend with brand new things that they've never seen before and also on bestsellers that come back into stock. And then the graph on the right shows the total stock units. Because we buy much more deeply on proven sales, when it comes to overall stock count, 65% of our cash is invested in stock that goes into proven bestsellers with only 35% of our cash invested into brand new styles. So it means we can offer a constantly refreshed clothing range to the customer while minimizing our risk on stock. And it's not just stock planning that's unique. It's also our customer acquisition strategy. Our plan for acquisition is to invest in 3 big areas, and we invest in them pretty much equally. That's TV, glossy brochures and social media. And then a fourth area with a small amount of money goes into digital marketing, which is things like Google Shopping & Search. Because of our backgrounds in media, we've been able to develop a strategy that makes all forms of media work from print to digital to TV, and it stood us in really good stead not to be overly reliant on 1 channel. It's also very easy to dial up and dial down and adapt each to when we get the best ROI in each area. And again, we've taken the industry norms and turn them on its head. So to quote our agency, no one, but no one buys TV like we do. We buy TV like a digital campaign. We track sign ups by hour in order to optimize channels, programs in specific times of day. And then we combine this with a brand-new TV creative shot every month. We shoot it cost effectively on location, at the same time that we shut all our stills, meaning that we get an unheard of response rate to TV. And our brochures are also brand-new every time. We put them together like we would a magazine with fresh imagery, new product and the turnaround in a matter of days, so we can exactly tap into what customers are thinking and feeling at any moment. Our strategy is to acquire high-quality customers who will go on to repeat as we saw at the beginning, how effectively we're doing this, which leads on to our retention strategy. The same channels that work for acquisition also drive retention. So TV, social and brochures drive deep ongoing engagement with our customers but our #1 retention channel, which utilizes our backgrounds in media to best effect is e-mail marketing. It works for us in a way that we've never seen for all the brands. We have industry-leading open rates, and we drive over 50% of our revenue with negligible cost. And it means that we constantly have our finger on the pulse as e-mails can be adopted by the minute to tap into what customers are thinking and feeling. And the final bit of our strategy is 0 cost brand endorsement through TV, celebrities and third parties. We've always had brilliant celeb endorsement for Sosandar from high-profile actors, presenters, dancers and singers. Unlike a lot of brands, we don't pay celebrities to wear our clothes. The celebrities wear them as they like them. The great thing about our strategy is that when a celebrity wears our clothes, it's like the icing on the cake, but we're not reliant on celebrities or influencers and their popularity to sell our clothes. The product sells as we're producing product women in our market want and need and until Sosandar were not able to find. And we have found 1 [ subtears] just like our customers, they repeatedly wear us. So on average Sosandar clothes appear daily on a celeb, on a TV appearance, like the rain fashion slot or this morning or on an influencer. And also selling through our third-party partners is great for brand endorsement to as we are exposed to their large database of customers, and we also received promotions from the free such as Marks & Spencer's doing in a bottom-line brand campaign this autumn, which we don't have to pay for. So next, looking at our sales strategy. Our own site growth is the anchor to our success. We work with strategically chosen third parties where we can grow rapidly. So far, Next, Marks & Spencer's, John Lewis and The Very Group. Our strategy is to scale our own site and existing channels and then start to expand overseas either through third parties or our own site, and this is what we are currently assessing, modeling and comparing the opportunities for.

In terms of our supply chain strategy, it is all about doing more of what we are already doing and ensuring that all elements can scale up in line with our growth plans. It's imperative to have daily newness of products for our customer to shop and therefore, our supply chain has been structured to manage this really effectively. From a supplier perspective, we have always mitigated risk by spreading our suppliers across multiple countries. The focus remains on further expanding and diversifying our supplier network, balancing the objectives of scale, margin, ethical compliance and sustainability. In terms of shipping, historically, we have used predominantly air freight to move goods to the U.K. Over the 12 months -- over the last 12 months, this has changed with H2 FY '22, in particular, using much more road freight. The proportion of air freight has reduced even more in FY '23 within a more equitable mix of air, sea and road being used, and this will continue to be managed in a way to retain speed to market, balancing our economic and environmental aims. Since the beginning, we have partnered with Clipper Logistics who manage our warehouse -- manage the warehouse in our behalf. They are efficient and work with great speed, but importantly, they can scale their operation to support our growth objectives.

Julie, you're muted.

Sorry.

Great, we can hear you now.

Can you hear me now?

Yes, thank you.

Sorry, my Internet just went. So to come on to the future, we've got an exciting future ahead and the new financial year has started very strongly. The rise of an ageless society means the opportunity for Sosandar is ever growing and we can dress our ever-growing customer base for their entire lives. We are very clear about the challenges that a struggling economy will bring, but we have confidence in our ability to navigate tough times ahead as we have gone through the pandemic. We've navigated a hugely challenging time when women have little need for clothing in addition to steering our way through global supply chain challenges and rising costs. We've delivered record revenue and moved the business into profit now with 9 consecutive profitable months. Our achievements have been down to our strategy, planning and our ability to execute, and it's the way that we run our business that will enable us to steer through the next set of challenges. We've got a very clear strategy in place and the ability to execute our plan, giving us confidence that we will achieve what we set out for the coming year and beyond. So that's the end of the presentation, and we'd love to hand over to you now for questions.

Thank you, Julie. So the first question is, do you have a sense of the age of your inventory? So what percentage is more than, say, 90 days?

Steve, do you want to take that question?

Yes. There'll always be a proportion over 90 days. But the key thing really is about the rate of sale from our point of view. We categorize stock in multiple ways, whether it's by season, by category, so on and so forth. 90 days isn't necessarily for us a milestone. The key thing is to enter a new season, so say, spring really well with good stock and then transition out of spring/summer into autumn with relatively clean stock. Even if we have stock that was brought in a year previous to that season. It will always sell in the following. But we have a really clean stockhold overall and a very, very fast selling throughput. So 1 of the charts that Julie shared, was about how we purchase stock. The new lines that we bring in are relatively low in quantity and monitoring the sell-through of those items is really fundamental to whether we repeat buy that item. So if it proves its worth on a minimum buy, we'll get more volume behind it in the second buy, which in turns drives best seller, and that drives the newness for the customer. So we've got a relatively clean stock hold. Really pleased actually in the position we're in right now and exiting Q1 is with absolutely the right amount of stock for the rest of the summer. And then we've got a good pipeline of stock starting to go on some [ boats ] ready for the autumn season. So really pleased overall with our stockhold.

Tremendous. Thank you very much indeed. Sorry, I didn't say, to ask your question, click on the Q&A button, but many people have already found that. So we've got lots of questions and do not use the chat button. Next question. Many thanks for the time today. Congratulations on your numbers. Given so many brands, for example, Lipsy, a listing on Next, M&S, et cetera, to what extent in time will these platforms charge you for -- to be on their, say, top list like Amazon do with adverts and sponsored listings, et cetera? And might this in time affect margins? Second question from the same person. How much do you estimate you'd have to spend on marketing to stand still and not grow at all. E-mail is obviously mostly freight is free, but you'd still need to spend on photo shoots. Do you count the cost of the photo shoots as marketing in your numbers?

Right. Quite a few questions in there. Let me start with the question around paying for marketing on third parties and then perhaps we move on to you, Steve, to talk about actual expenditure and our marketing on our own site. So third parties, the simple answer is they already do the charge. If you want to pay for marketing on Next or John Lewis or Marks & Spencer's, you can pay the marketing on their sites. The answer to that question is we don't pay for marketing because we've not found the need -- that we don't find the need to pay for marketing. And that's really the beauty of our relationships with them is organically our product is selling. What those third parties care about is selling product. They don't make their money from marketing. They -- that's an additional revenue stream. They just want the best product to sell. So if organically, your product sells, which is exactly what ours is doing, that's really why it's working so well for us. We do get some free marketing as well with -- because our product is so strong. I think Ali mentioned in her section of the presentation. It's 1 of the benefits of working with the third parties. We often get free marketing because our brand is doing so well on their site. They want to promote us because, in turn, that drives revenue for them in their brands. Hopefully, that answers that question. Steve, do you want to answer about the photo shoots falling to marketing.

So on the presentation slide, there is the overhead breakdown by the 4 distinct types of spend. We include the cost of our photo shoots and the creative for our TV ads within the marketing line in there. In terms of how much would we need to spend to standstill with, we don't necessarily model that as such. I think the key thing, of course, is about retention of customers but also of acquisition because it's really important to keep adding to our database. And that's what we've been doing over the last 12 months. And as Julie said, we're now at a 0.25 million active customers, which is a fraction, of course, of the overall opportunity. So the key point really is about cost-effective acquisition, and with the cost of acquisition now under GBP 19, which has now been maintained and lowered over the last 12, 18 months, we're in great shape to continue to grow the active customer number. There are months where we don't spend very much at all, and those are the months where they're typically lower return on investment months. And therefore, we channel our marketing activities into the periods where you're going to get more reward for the investment. So we do get 3 or 4 months in the year where we do minimal marketing in terms of acquisition marketing to focus the effort where we're going to get the biggest bang for our books. So hopefully, that answers the questions that were asked.

Thank you very much. And a couple of questions on returns. Are you impacted by growing returns? And if so, what your plans to mitigate this? And do you have any plans to charge for returns?

Steve, do you want to take that as well?

So from our point of view, -- we have -- again, we've seen a curve, of course, with returns. So if we go back to pre-pandemic for us, we had a return rate that let's call it normal. That was predicated on the mix of product that we were selling at that time. That was predominantly dresses and formal wear, which typically is a cost with a slightly higher rates of return because it's harder to fit onto the body. Through the pandemic, we had a much lower rate of return as the industry did. Partly because people didn't want to return stuff and go out but predominantly because of the product categories that we're selling at that time were much more casual, much easier to fit. Those rates of return we're never going to carry on as we came out the other end of COVID. So what we did, we always planned for rates of return to grow in our modeling, and that's exactly what's happened. So what we've seen post pandemic, if you will, is a much more normalized product mix, more formal wear, much higher return rate as a consequence, but it's just reflective of the mix of product that we're now selling. So we've not seen any material change since pre-pandemic on a category by category level. And therefore, at the moment, we've not been looking at whether we do or don't change the way we kind of run the business from an economics perspective. So that would include charging customers for returns. We're not seeing any material change in consumer behavior when they buy at Sosandar. And therefore, at this moment in time, we're not looking at charging the customer. But of course, we're very aware what other brands are doing in the e-commerce space, and we watch that, and we'll take learnings. But at this moment in time, we don't need to and we're not changing the model that stood us in good stead up until now.

Thank you very much. Given the success of third-party sites, like Very and Next, are there other sites that would be appropriate for Sosandar to be listed on? And are these a good way to start international sales?

Ali, do you want to take that?

Yes, I think there is room for possibly 1 more site in the U.K. And we are, at the moment, looking at how we enter the market internationally because we know that the opportunity that we've seen in the U.K. for Sosandar is definitely an opportunity overseas. Obviously, our opportunity in the U.K. is still massive because of 20 million women in the U.K. of 35, our active database is 0.25 million. So we still have a huge opportunity just in the U.K., but we know that this also transfers overseas. In terms of overseas, how we'll do that. Will it be through search party sites? Will it be through our own site. That's what we're assessing and modeling at the moment. It may well be that it's a combination of the 2, but that's something that we're definitely looking at and we'll inform you about in time.

Thank you very much. This questioner says really impressive performance. Congratulations. Your larger online rivals like ASOS and boohoo are facing strong headwinds with logistics problems, inflation, Brexit, rising returns and falling EBITDA margins. You've explained why you've bucked the trend. But is there a concern that as you scale, you'll start to see gross margin generation and big CapEx requirements?

Steve, would you like to take that?

Probably not. I think what we're conscious of is growing the business in a way that's diverse and mitigates risk from day 1. So the one of the core DNA elements of the business is it strikes a balance between high entrepreneurial spirit and agility, but we plan and we make sure that we make decisions that don't put the business at risk. So for example, we've already got a really diverse set of suppliers across multiple countries, which in turn reduces the risk profile of the business. So as we scale, that DNA doesn't change. So we place ourselves in as good a position as possible to not be impacted by headwinds in the future, of course, with not immune or headwinds. They affect all of us equally. But I think from our perspective, we've worked really hard to put structure in place that tries to protect us as best as possible. From an economics perspective or a gross margin perspective, I guess, we've got great opportunity. Already, we're increasing proportional volume that comes to the U.K. using lower-priced shipping methods, and that will only continue. That has quite a significant impact on our margin already. And importantly, we see material benefit already, and that will only carry on as we continue to order larger volumes of product coming from our suppliers. So we're still -- we recognize that there's still massive opportunity and our growth profile will be significant and that it brings opportunity. It also brings challenge, but it brings real opportunity to mitigate headwinds, but also to drive future growth in gross margin. From a warehouse logistics more general perspective, One of the reasons Sosandar chose to work with a third party and specifically, Clipper, is because they can scale our operation to a level much, much larger than we are today. We have regular meetings with them in terms of not just the near-term objectives, but also the longer-term objectives to make sure that we have the structure in place that will grow with us, whether that's [not a] print process, automation, investment. All of those things are on our road map, not necessarily today, but we do dedicate a lot of time to make sure that the pathway is clear so that we can achieve the growth ambitions that we have for the business.

Tremendous. Thank you very much. How does your cost of customer acquisition compared with your competition? Where do you think this cost will eventually settle and keep you efficiently gaining market share?

And I'll answer part of that. To my knowledge, other companies don't release their cost of acquisition unless safe. I don't think -- to my knowledge, I don't think anybody does today.

Not to my knowledge, no.

No. So it's impossible to compare. So I think what really matters is that the cost of acquisition that we have works for us and works for our model. And the cost of acquisition that we're sitting at now, which is just under GBP 20 is a sustainable and long-term way of running our business, acquiring because it's quality customers that matter. It's not about acquiring cheap customers that then don't necessarily go on to repeat. For us, it's about acquiring the right customers that become regular purchases, as you've seen in the growth that we've seen in the frequency of purchase. So I think if our cost of acquisition were to remain at the level it is now, which is around that GBP 20 lock, that's perfectly that's perfectly acceptable and we can run long term the business at that kind of level. Is there a possibility to reduce that further? Then yes, probably. The business is modeled really on staying at that kind of level of cost of acquisition. So therefore, if we were able to reduce that further because we're constantly trying to reduce that further, constantly trying to hone and refine exactly what we're doing. Then obviously, that would be very beneficial and upside for us in the future.

Thank you very much. We've got a couple of questions on international. At what point will you start to address the international opportunity? And what lessons do you draw from the experiences of other large online clothing brands that have attempted to grow internationally? And which country or countries do you have in mind?

Ali, do you want to start on that?

With that, yes, as I kind of mentioned in the last question, we're at the moment where I think last time we spoke to you, we were in research stage. We've moved slightly on from that, and now we're looking at assessing and modeling the opportunities for going international. In terms of which country, that's not something we've decided yet because we're assessing all countries, all areas. I think we take a lot of the lessons that we've learned from what we've done in terms of the U.K. and apply that to going internationally. I think the point is to take each 1 slowly and not rushing to going into lots of different countries, but actually take it slowly launch into 1 country, see how that goes and what lessons we learn from that before we spread ourselves to [ SIM ], which is what we did in the U.K. So at the moment, that's our strategy. There's still a lot of work to be done in terms of modeling and investing, and we will keep you informed on that as we go along.

I would add to that, Ali, that probably worth noticing within the senior team at Sosandar, we have several members of the senior team that have worked in other businesses that have launched and growing businesses overseas. So not just the learnings from the sector, but also more hands on experience but also knowledge about what it takes to grow a business overseas, some of the challenges and some of the learnings, a space that are very much more close to hand to people so that they brought those to Sosandar. When we do execute, we're doing it from a point of knowledge on strength rather than guesswork. So I think as with everything that we do, we plan and we'll make sure that we're robust when we execute the go-live.

Thank you very much. What are your plans for Sosandar branded accessories?

We do -- we already do quite a lot of accessories anyway. So we do scarves, jewelry, belts and all things that all go with clothing and obviously, we do a very extensive range of footwear. So I would say we're already very much in the accessories market.

Plans to expand beyond that?

I think we're expanding in all our categories. Every single category that we're in is growing and has an opportunity for expansion and some of them are well into their infancy. So yes, accessories along with all the other categories, there is a plan to expand.

Thank you. And this is the final question at the moment. So if anyone does have a burning question? Get typing now. When did John Lewis and Next, et cetera, start saying to you no more third-party relationships, please. Do you think that will happen?

I think because it's a concession arrangement and we're in control of how much stock we push into them. What they care about is that, that product is selling on their site. It doesn't matter to them really if product is sold -- is sold elsewhere. They've never at any point, raised any concerns about the fact that we work with the 3 biggest womenswear retailers in the U.K. already, and then obviously, we launched on Very. I just think it's perfectly normal business -- normal business behavior to sell on a number of sites, and I don't envisage that they would ever really raise that as a question.

Thank you. And you've covered the recession a lot or impending recession a lot, but someone is asking quite emphatically, can you talk a bit about say, U.K., about how a U.K. recession might impact Sosandar, and what you might do to mitigate that impact? I know you've covered this a lot.

Yes. Okay. We'll just talk about that maybe again. So I think -- I think I would say that the forecasted that are in the market from singers are realistic. They're realistic based on challenging times ahead. Those forecasts have been put together with that really in mind, I think. So I think we are under no illusion about what recession means. We've -- all 3 of us have managed businesses through very difficult recessionary times in the past. And we know that businesses can really thrive in recession. Some businesses don't, but some businesses do. And we think that we -- our strategy around product, customer retention, and engagement with our customers will be the right strategy to keep gaining share. So I suppose if we were to sum it up is even if customers shop less which they will because overall, women will buy less clothes in a recession. They still buy clothes, they just -- overall, the pie will be is likely to be smaller. But that doesn't stop you gaining share. Gaining share from that pie. So we can still do all those things. And we -- our strategy is really around our product being differentiated, the absolute best product that you cannot buy anywhere else apart from Sosandar branded product and also understanding and engaging with our customers and understanding how they're thinking and feeling. I think we would some talk to say it's no different than being in the pandemic. It's just the set of challenges we're different in the pandemic. In the pandemic, people have lots of money, but they had absolutely no need for any clothes whatsoever because they were just sitting at home. We still managed to turn that to our advantage. It was a very, very tough trading and selling clothes in -- during COVID, but we managed to thrive. We kind of switch it on its head now. What we've got now going forward is people with less money, but much more of a need to buy clothes. And as Ali said, to buy clothes that they're going out into the world and people are seeing them in clothes. And so it's very -- the challenge is very obvious to us, and I think we're very clear of how we tackle that challenge. I don't know if [ it does anything ], Ali?

I totally agree with everything you said. I mean at the end of the day, as we said a lot through the presentation, the product is king. It's all our success is based on. I think we just continue to drive that forward and keep that unique differentiation of our products going forward for the customer and will help us drive through this challenge as well.

Many thanks indeed. And I'm afraid that's all the questions we've got time for. Julie, do you have any closing remarks?

Just to say thank you very much, everyone, for your time today and coming to listen to the presentation, and we look forward to seeing you again next time.

Many thanks, Julie, Ali and Steve. And to everyone listening, you'll now be taken to a webpage to give feedback on the presentation. And if you're unable to complete it now, you'll receive a follow-up e-mail. We would be really grateful if you could take a few minutes to complete. Many thanks for joining. This is the end of the webinar.