Sosandar Plc (SOS) Earnings Call Transcript & Summary

Welcome to the Sosandar Full Year 2023 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.

Thank you, Tamzin. Good morning, everyone, and welcome to the call. Here with me today is Ali Hall, my Co-CEO; and our Chief Financial Officer, Steve Dilks. As with previous trading update calls, we'll be providing a short summary of the update, followed by a Q&A session ending at 9:00 a.m. We are extremely pleased to be reporting on what has been a milestone year for Sosandar with revenue of GBP 42.5 million, which is 44% up versus last year. We have delivered our first full year of profitability with PBT expected to be at least GBP 1.6 million, a substantial positive swing of GBP 2.2 million versus a GBP 0.6 million loss in FY '22. We are incredibly proud of the business that we've built. Sosandar has grown from a true start-up business just 6 years ago to a brand which is delivering multimillion-pound revenue and is profitable. This growth has been delivered against a backdrop of some of the most challenging macroeconomic times ever experienced, and our sustained performance is testament to how well our product resonates with our customers. In just 6 years, we've built one of the fastest-growing fashion brands in the U.K., sold through the country's biggest retailers, which now include Sainsbury's, which we announced in January. We started trading with Sainsbury's online in March, and we will launch in 10 of their largest flagship stores in August, alongside an elite collection of brands. This move to be an omnichannel business opens even more opportunities to service customers in both the U.K. and international markets, both on and offline. On that note, I'll hand over to Ali to talk more about the exciting developments for the year ahead.

Thanks, Julie. As Julie mentioned, this has been a pivotal year for Sosandar, and our huge progress highlights the effectiveness of our strategy, the appeal of our diverse product range to our target audience and the growing awareness of our brand. We're incredibly excited about the many opportunities that we have for the year ahead, which is why we brought investment forward in the latter part of FY '23. Firstly, we have further invested in our senior team with the hiring of some new pivotal roles, including an E-commerce Director, International Commercial Director and Head of Operations. These hires are particularly important to have in place in order to execute the next stage of our growth. To ensure that our customers can engage with the brand through as many channels as possible and our technology is constantly evolving, we're in the process of developing a mobile app, which we launched in Q2 FY '24. In addition, we have also invested in personalization and segmentation tools for sosandar.com, both of which will further underpin customer acquisition, retention, order frequency and AOV. And now to move on to our international strategy. As we've talked about previously, we've been exploring and researching opportunities. Whilst in this phase, we've always remained conscious that any move to serve our customers internationally would have to be done in a cost-effective way with minimal risk. We are pleased to announce today that we've signed an agreement with Global-e, the world's leading platform to enable and accelerate global direct-to-consumer cross-border e-commerce that will allow us to transact and fulfill orders worldwide in a cost-effective manner. This is expected to go live in Q1 FY '24 and is an important part in the next stage of our development. We're also in active dialogue with a number of potential international third-party partners, and it is clear that Sosandar will be a brand in demand overseas. We expect to be able to provide more details on this in the coming months. All 3 of these areas of investment are vital parts of our next stage of development as we continue to execute on our growth strategy and build on the strong foundations that have been laid over the past 6 years. I'll now pass over to Steve to pick up some highlights on the financial side.

Thanks, Ali, and good morning, everybody. As Julie has said, we are very pleased to report net revenue of GBP 42.5 million for the year ending the 31st of March 2023, which is a 44% increase against the prior year. We have also delivered our first full year of profitability and expect to report PBT of at least GBP 1.6 million, which is a substantial positive swing of GBP 2.2 million from the GBP 0.6 million loss in FY '22. The variance to PBT market consensus is predominantly people costs that we originally planned to be in FY '24. However, we were fortunate to find the right people in the latter part of FY '23, which will enable us to capitalize on the opportunities quicker. Pleasingly, our gross margin was maintained at 56.1%, in particular, given the growth in revenue from our lower-margin wholesale channel over the year. Every single KPI on our own site has improved year-on-year, with a couple of standouts being conversion, which has increased to 4.1% versus 3.9% last year, and our average order value, which is up 8% at GBP 97. Trading with our long-standing third-party partners, John Lewis, Marks & Spencer, Next, the Very Group and JD Williams continues to be a huge success. In order to meet the demand that is being generated through this channel, we increased the amount of stock allocated to each partner throughout the year. Over the last 12 months, we have continued to invest and expand our unique product range, and we are thrilled to say that every single product category experienced growth during FY '23. The spring season has started really well, with revenue for the month of March being 32% up on the previous year. As at the 31st of March '23, we have a net cash position of GBP 10.5 million which follows the GBP 5.5 million equity raise that we did in February 2023. We are in a very strong position to maximize the wealth of opportunities that we have ahead of us. FY '23 has been a true milestone year for Sosandar. And as we enter FY '24, we do so an even stronger, more diversified and scalable company. We're absolutely delighted with the progress that has been made so far. However, we remain vigilant of the difficult external environment that still faces us, but the strength of our people, our product and infrastructure gives us every confidence in our ability to achieve long-term sustainable growth and ever greater value for shareholders. Looking ahead to FY '24, we are investing further in our business to take us on the next stage of our development and to build the infrastructure to serve our customers internationally. So to summarize, we have delivered a financial performance well ahead of the prior year. We have a clear growth strategy in place and a proven ability to execute our plan. This gives us confidence that we will achieve what we have set out for in FY '24 and beyond as we continue to move forward on our journey to make Sosandar one of the largest womenswear brands globally. If you have any questions, we will be happy to take those now.

[Operator Instructions] And we've got a question here from David Reynolds from Davy. Can you provide a little more color on Global? And if possible, what are the building blocks of the growth initiatives?

So we see Global-e, David, as a brilliant way for Sosandar to enter international markets. It will enable us to deliver products globally directly to consumers. The Global-e platform have created a mechanism in which they can localize the payment gateway solutions offered in each market, and they also manage the logistics side of moving the goods cross-border, which was particularly more challenging post-Brexit, of course, that enables customers to receive their goods. It deals with duty and local VAT issues and as well as the return lag. We see Global-e as a start point. It's not the end goal. It's part of a process of going internationally, driving brand awareness, being able to deliver goods into consumers internationally, but it's a great pathway in which we can start to engage with third parties as well because we've then got that brand presence in market that can drive penetration across an omnichannel route to market.

And a question from [ Alan Charlton ]. Congratulations on the performance in full year '23 and also on the raise. The second half, particularly does look like an exceptional third-party performance, but with own site orders and conversion lower than half 1. Is there any reason for that, for example, the Royal Mail strikes, et cetera?

Thanks for your question. The Royal Mail strikes, yes, well, had a small impact. But actually, we feel like we navigated that process really well. And of course, October and November for us are much more pivotal months than December are. The growth rate did slow in half 2, but that was absolutely in line with our expectation because the comparatives year-on-year for the second half in the prior year, which much stronger post an investment or greater investment in stock that we did in the previous year. So the second half was absolutely in line with where we expected it to be on both our own site and with third parties. Both are in growth, and both are continuing to go from strength to strength. So we're perfectly pleased with the performance across the board.

Tremendous. And a follow-up question from [ Alan ]. Now you've crossed the rubicon in going into stores and becoming omnichannel. Is the opportunity to go into stores with the third parties who already know and love you, so John Lewis, Marks & Spencers, Next, et cetera?

So the opportunity to go into store has really been discussed with many of our third parties rights from the beginning when we started trading with them. That excludes Next because they don't -- Next don't currently sell brands in store. Up until this point, we made the decision not to go into store because clearly, we were trading through very volatile times with COVID and stores were opening and closing. So it remains certainly a possibility to go into store at some point with our existing third-party partners. What we're very keen to do is execute Sainsbury's first and get that experience with Sainsbury's and then -- but we are very much open to working in store as well with our existing third-party partners. I think it's also worth saying that many of the conversations that we're having with overseas third-party partners that is both for in-store and online. So having made the move to start selling in store, it's very much opening further opportunities internationally because the partners -- the potential partners that we're talking to see us not just as a pure-play brand but as an omnichannel brand.

And [ Paul Jones ] asks, do you see the main partner opportunities internationally now rather than with adding further domestic players?

I think with the U.K., we're with the biggest retailers in the U.K., and we're really happy with our partners there in the U.K. As Julie has just mentioned, there are other opportunities within the partners that we've got in the U.K. But yes, our focus now is to look at international, and we're having conversations with partners across all territories. It's really just about us selecting the right potential partners as we've done in the U.K., which is about getting partners the right commercials, the right logistics and the right way of showcasing our brand and it's for us to make the same decisions that we made with the U.K. brands that we partner with and make sure they're the right partner for Sosandar.

[Operator Instructions] [ Mohit Gayatri ] asks, what's the level of CapEx anticipated for full year '24?

Pretty low. So we are doing a relatively modest system change in the back-office systems that we use, which is our ERP system. Beyond that, there isn't significant CapEx requirement in the business. Everything is largely OpEx based here. So a little bit of software development, but beyond that, fairly minimal other than the routine stuff that we do for our staff, et cetera. So very little CapEx relatively speaking.

And [ Alan Charlton ] has another question. Clearly, last year had margin headwind, several of which seem to be reversing now, lower freight, currency, cotton, et cetera. Are you seeing that come through?

We are, [ Alan ]. And when you look at the margins that we've reported in the second half, they were really strong, underpinned by some of the points that you've said but also some of the things that we're doing that are internalized rather than external, which is around maximizing and improving the way that we move goods from our suppliers into the U.K., et cetera, et cetera. As we move forward, we think there's still margin gains to be had, not only because of what's external but also the way we operate as well. We've obviously got scale, which we're still relatively small in terms of where we're heading. So we've got gains in terms of supply as well as just improving the overall supply chain further to drive efficiencies in -- that will come through in the margin. The only word of caution around our gross margins is that as we grow the proportionality of our wholesale business, which is lower margin at the gross level, then we will start to see some erosion, I suppose, on the reported number, but we will narrate that appropriately at the relevant times.

And [ Paul Jones ] asks, how much spare capacity is there to service additional partners without adding additional people?

I think we would say that it's not really about people in terms of serving additional partners. It's much more about stock, so which is obviously why we did the fundraise in -- back at the beginning of February because it's really just the stock that you need in order to serve the additional partners. So we don't see a big uptick or certainly not -- it's not going to be in line with the number of partners and the way that the business is growing, where we have employed an additional person as we've highlighted in the RNS is an international commercial director. And this is taken from -- because we've got so many interested parties overseas, what we've learned from the U.K. is the execution of those third-party relationships is absolutely fundamental. And you need senior representation overseeing the execution of those relationships. So we have employed an international commercial director, but we don't see huge teams being needed to facilitate more and more third-party partners.

The other thing I would add, [ Paul ], to that question in terms of scalability of the business, one of the beauties of how Sosandar is built is its infrastructure is that we work with a third-party logistics provider who can scale as we grow. And that's been the case from day 1 that we've worked with the same partner, and that can continue to be the case. So however big we get, we can continue to be serviced. And secondly, towards the latter end of FY '23, we onboarded Evri as an additional carrier to get goods to our consumers. And we've got further developments coming around the corner in that regard as well. And all of this is around building the capability to service the customers, both in the home market but also overseas as well as giving our customers the choice to use partners that they want to deliver their parcels rather than being constrained by who we choose. So there's a lot of developments that have already taken place and will continue to take place that ensure that as we grow, we can do it in a way that is sustainable for the longer term.

[ Peter D'Souza ] asks, how confident are you that your website won't be hacked? And what measures have you taken to prevent this?

We have both in-house and external provision support that provides lots of cyber-related security to make sure that we are in the best possible position in all regards of not being hacked. You can never say never, but we're confident that we're doing everything possible to maintain the security of the infrastructure, both of our website as well as other parts of the operation. In addition, we do stress tests to try to find problems or loopholes. We're doing everything that I think is reasonable or humanly possible to maintain the security of our systems.

And the final question at this stage is, what are the consensus forecast for 2024? And are your international ambitions region-specific?

So the house broker forecast for FY '24 have remained unchanged. They are revenue of GBP 58 million and PBT of GBP 3.1 million.

[indiscernible]. Second part was international.

And in terms of international, at this point, we're not region specific. We're talking to multiple partners across various territories around the world, and it's really just about finding the right partner that works for us rather than specific territories. We feel that -- we've always believed that Sosandar's proposition would translate across the world really. And the reaction we're getting from potential partners in multiple territories is [ proof in this ].

The question from [ Freddie Hay ] asks, the growth rate in new customer orders seems to have reversed by minus 7% versus last year. Have there been any changes in the client acquisition landscape that can explain this?

So I'm not sure what data that's pulling from. The growth rate on new customer orders hasn't reversed. We've grown both new customer orders and repeat customer orders in the year. The marketing mix continues to be tweaked, I suppose, to maximize the outturn of both customer acquisition but also retention. And we're really pleased with that mix, such that the cost of acquisition continues to be really low and managed really effectively. So we continue to modify and tweak and make sure that we're getting the most biggest bang for our book in the way that we invest our money, but we're really pleased with both our acquisition and our retention stats in the year.

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

Just to say thank you all very much for joining us this morning, and we look forward to updating you again, will likely be in July when we do year-end results.

Thank you very much, Julie, Ali and Steve and you all for joining. This is the end of the webinar.