Sosandar Plc (SOS) Earnings Call Transcript & Summary

[Technical Difficulty] 2026 Full Year Results. Today, we are joined by Co-Chief Executives, Ali Hall and Julie Lavington and Steve Dilks, Chief Financial Officer. Questions are encouraged throughout this webinar and can be submitted via the Q&A box on the panel on the right hand side of your screen. I will now hand over to Julie to begin the presentation.

Good morning, everyone, and thanks for joining us this morning. So just to run through the agenda for the presentation first. Ali and I are going to begin with the highlights. Then Steve will run through the financial results in more detail, and then back to us, and we will talk further about product, marketing and the channels that we sell through. So let's start off with why Sosandar is well positioned for growth. Looking at the clothing market, first of all. So in the U.K. alone, the clothing market is worth GBP 60 billion annually. It's the second biggest retail market in the U.K. after groceries and 11p in every pound spent on retail is spent on clothes. The clothing market has grown every single year as far back as data goes, apart from in COVID and even then it bounced back very quickly. So we target 35- to 65-year-old women who've got more money than the younger audience, yet they often feel overlooked by a fashion industry [Technical Difficulty] Okay. Apologies, everybody, for the technical glitches. I'm going to start again with the same slide. So we're looking, first of all, at why Sosandar is well positioned for growth. So first of all, looking at the clothing market in the U.K. This is worth GBP 60 billion a year, and it's the second biggest retail market in the U.K. after groceries. 11p in every pound spent on retail is spent on clothes. The clothing market has grown every single year as far back as data goes, apart from in COVID and even then it bounced back very quickly. We target 35- to 65-year-old women who've got more money to spend than younger customers, but they often feel overlooked by a fashion industry that tends to have an obsession with younger customers. We've built a loyal following women in this demographic because we really understand them. Over 1 million women will have woken up this morning with at least one Sosandar item in their wardrobe, and we've only just scratched the surface of the size of the market. Our unique product range is all designed in-house by women for women, and we reach them through multiple successful channels. One of our core strengths is combining creativity with data analytics, and this sits at the heart of everything we do. And we have a model that's scalable and CapEx light. So now let's look at the FY '26 highlights. So we've had a really good year. Our revenue is up 14% to GBP 42.3 million. All channels have performed really well, but in particular, our own website performance has really driven our growth. For our fourth year in a row, we've seen our gross margin increase. It's now a really healthy 64%, up from 62% last year. Profit is up, cash is strong, and we've got 0 debt. Our growth has been across the entire business, but the biggest highlight has been our own website with revenue up 24% -- so we've seen more traffic, higher conversion, resulting in higher order volumes and customers are buying more frequently. We're also seeing real growth in revenue across our stores now that they're all into their second year of trading. Last year, we did have the real challenge of dealing with the M&S cybersecurity incident, which meant that we had no revenue at all from M&S for a period of time. But our other third parties performed so well that third-party revenue overall was on a par with the previous year. We're in a really good position now for the business to scale going forward. Our fixed cost base will not fundamentally increase, which means that extra revenue will fall to the bottom line. So we are fully focused on increasing revenue across all channels at the high margin we're already at, which will mean profitability will also increase. We're also very much focused on maintaining a healthy cash balance. Just to touch on the new financial year, despite everything that's been going on in the world, we've had a really strong start with Q1 revenues that April, May and June, up 22% year-on-year, giving us confidence in achieving our full year results. I'll now hand over to Steve to talk through the full year results in more detail.

Good morning, everybody, and I'm delighted to share the detail of our financial results for FY '26, which is the year ending March 31. As we entered the year, our focus was on delivery of growth in revenue and specifically on our own website. And that is what we have delivered with total revenue up 14% at GBP 42.3 million, and that's despite the challenge created by the cyber incident at M&S. Our already strong gross margin strengthened further to 64%, up a further 2 percentage points versus the previous year. Adjusted PBT is GBP 0.4 million, which is in line with market expectations and up GBP 0.2 million compared with the previous year. And this performance in adjusted PBT includes the impact of retail stores, which whilst they have grown in revenue, they are taking time to mature. In the year, they made a combined loss of GBP 0.9 million. So our adjusted PBT from the rest of our business was GBP 1.3 million. Statutory PBT is 0, and that's after a noncash impairment, which relates to our retail store estate leases, which are held on balance sheet as required by IFRS 16 and is very normal in all retail companies. Net cash is GBP 8.4 million, and that's up from GBP 7.3 million a year ago. This includes GBP 1.8 million, which has been utilized for share buybacks, and we continue to have 0 bank indebtedness. We have been substantially cash generative in the period with free cash flow of GBP 2.9 million, helped by an improvement in working capital, notably from a reduction in inventory from GBP 11.1 million to GBP 10 million. Our model, excluding last year when we opened retail stores continues to be CapEx light with just GBP 0.2 million of CapEx in the FY '26 period. We're in a really strong financial position, which will enable us to deliver sustained growth in revenue and profitability for FY '27 and beyond. If we look at the component parts in much more detail, starting with revenue. So as we say, full year revenue was GBP 42.3 million, which is up 14% compared to the previous year. Growth was delivered from our own channels, which includes both our own website, Sosandar.com, and our own retail stores. Growth in our own channels was 31% to GBP 21.5 million. Our own website is the bedrock of our growth, and that grew by 24% with strong performance across all of our key KPIs. Visits to our website were up 11%. Conversion was up 26 basis points to 2.7%. Average order frequency was up 7% and average order value remained strong at GBP 109. Retail stores had their first full year of trading with the like-for-like growth in revenue across the estate being 13%. Overall, third-party revenue was flat compared to the previous year. However, this is inclusive of the cyber incident at M&S. We had 0 revenue for 11 weeks from late April through to early July. And following recommencement of trading on M&S, we had ongoing disruption through the autumn/winter season, and that was because there was restrictions on the number of styles that could be ingested into the M&S warehouse. That being said, for the styles that did go to M&S, revenue was strong in the autumn/winter season, but just on a lower quantum of stock. Trading through our other third parties continued to be strong in FY '26, and we continue to be one of the top-selling brands in all of them, which includes NEXT, who continue to be our largest partner. Importantly, M&S has stepped up further into the spring season, which commenced at the back end of our financial year. And that's because stock levels got back to expected levels and trading is now in excess of where we were pre the cyber incident. That takes us on nicely to the first quarter of our new financial year covering April, May and June. The positive performance has continued, and we achieved revenue of GBP 11.6 million, which is 22% up compared with the previous year. That growth did include minimal sales through M&S in the prior year. However, the spring season has been particularly strong across all of our channels. And that includes our own website, which is up 7%, where KPIs have strengthened further against a strong comparative period last year. If we move on to look at gross margin in more detail. The graph on the slide allows us to reflect on the substantial rise in gross margin that we've delivered over the last 6-year period. Our gross margin has increased in 6 years by over 15 percentage points from 48% in FY '20 to 64% last year. During that 6-year period, we've had 2 big step changes. Firstly, in FY '22, we had a substantial step-up in scale, which helped us to increase the intake margin through lower cost prices. During that period, our range size grew as did the number of suppliers. The second step change that we've had was in FY '25 when we pulled away from price promotional activity on our own website. And during that year, the margin increased by nearly 5 percentage points to 62%. In terms of the performance in gross margin in FY '26, our step-up has been primarily delivered through a continuation of our trading strategy through our own website, where full price sales are dominant. In addition, intake margins have increased further, in part reflecting the strengthening of sterling against the U.S. dollar, leading to lower landed costs for our stock. We have also reduced slightly the number of stock suppliers that we work with, leading to larger volumes being concentrated with a slightly smaller number of suppliers, which has resulted in improved prices. In terms of the first quarter of the new financial year, our gross margin is 65.2%, which is slightly ahead of the same period last year. So our gross margin is now very strong. Whilst there remains opportunity to increase this further in the coming years, the benefit for the future really comes from increasing revenue at such strong margins as they are now. If we look at the bridge for our adjusted PBT performance, which was GBP 0.4 million. In terms of the reasons for the prior year, following the fallow year in terms of marketing spend in FY '25, we invested more heavily in FY '26 with really strong results. The ROI was excellent with first order from a new customer being profitable, which is in part due to the gross margin being so much higher now than it was 3 years ago. The step-up in gross margin in the year contributed an additional GBP 0.8 million, and that demonstrates just how important it is to maintain and further grow that line. In terms of our retail stores, we traded through all 6 throughout FY '26. Whilst revenue increased by 13% on a like-for-like basis, the impact on profit increased by a further GBP 0.4 million to a loss of GBP 0.9 million in the year. The store that impacted our profitability the most was in Bath, which is why last month, we took the opportunity to exit this store by assigning the remaining term of the lease to another retailer. Revenue from the Bath store was actually very good and increased since it opened. However, the cost of occupation in that store was far higher than any other store that we have in the portfolio, which is why it resulted in such a loss being made. Overall, our overhead structures and spend continue to be well controlled. To call out a couple of areas, firstly, on fulfillment, which covers the cost of our warehousing operation and the delivery costs to our consumers. Whilst this spend increased in quantum, which is just a reflection of the increase in revenue and activity in the year, actually, as a percent of revenue, it fell to such an extent that it equated to an efficiency gain of GBP 0.2 million. One contributing factor for that gain followed the move of our physical warehouse and the partner that provides that warehousing operation, which we completed in February '25. The move has delivered what we expected, which is an economic benefit as a result of improved KPIs being delivered, which we will now see recurring each year. In terms of our other fixed overheads, these increased by GBP 0.3 million. Again, this is only a very small increase relative to the growth in revenue. Our fixed base -- our fixed cost base is structurally set for further growth in revenue as we move forward, which will give us the operating leverage to deliver greater improvements in profitability as revenue increases in FY '27 and beyond. Moving on to cash flow. So FY '26 has been a really strong year in terms of cash generation. Net cash at the end of March was GBP 8.4 million, and that's up from GBP 7.3 million a year ago. During the year, GBP 1.8 million has been utilized for share buybacks. So excluding that activity, free cash flow was GBP 2.9 million. This has been delivered by the strong trading performance, coupled with working capital, which has contributed GBP 1.7 million of that free cash flow gain, specifically from reductions in inventory. This reduction reflects strong sell-through that we achieved during the year and the utilization of carryover stock from the end of the previous year to deliver the revenue growth that we have. We do expect inventory though to increase again in FY '27, more in line with our cost of goods projection as we deliver greater revenue. In terms of the buyback of shares, at the end of March, we'd accumulated 24.8 million shares in total, which equates to 10% of the issued share capital. These are all being held in treasury. And we recognize that the buyback activity will have been a contributing factor with regards to the share price rising over the last 3 months. Since the end of the financial year, under a new authority, which was granted, a further 5 million shares have been purchased at a cost of GBP 0.5 million. Again, these are being held in treasury. Even after the buyback, the first quarter of the new financial year has been cash generative with the balance at the end of June being GBP 8.9 million. To summarize, from a financial perspective, revenue is growing, gross margin is strong, profitability is growing, and we are cash generative. And therefore, we're in an excellent position to deliver our plans in FY '27 and beyond. And on that note, I will hand back to Ali and Julie.

So we're now going to move on to talk about product marketing and the channels that we sell through in a little more detail. The reason Sosandar is successful is that we consistently produce a brilliant product range year after year, season after season that appeals to a wide audience. We're mid-priced, great quality and on trend. We have a unique aesthetic, which is sexy and chic. We cover all product categories for all occasions, but our main skill is understanding our customers and being able to translate trends into outfits that she wants to buy again and again. And that's whether it's a pair of well-fitting jeans, a sequin dress or a casual pair of trousers. To produce all this great product, we're constantly optimizing our development process. We have a really great worldwide supply base that produce premium products. Our in-house sourcing team work constantly with our partners to develop that supply base across the globe. Quality of fabrics is equally as important as design. So we're continuously working with our suppliers to get the best possible quality. It's a constant evolution process as fashion never stands still. We produce all our own prints in-house, so you can't get them anywhere else. They're so distinctive that many people can tell there is a Sosandar garment. We're always working to maximize customer satisfaction. A huge part of this is fit. It's such an important part of clothing for a 35- to 65-year-old woman. We've just introduced bespoke merchandising software that really helps us to optimize the planning and interpret data. As a team, we successfully combine all the creative skills and all the data brains, so we work together to constantly innovate and have the best product. Now let's move on to look at our marketing in a little more detail and how it drives customer loyalty. We're really good at communicating with our customers, and this is a fundamental part of how we sell our clothes. The emotional connection we've created with our customers has really been at the heart of how we've built brand loyalty. We do this through the imagery that we produce, showing upbeat models in great outfits in glamorous locations and also through our communication through e-mails, brochures and social media. We also have a large celebrity following who wear Sosandar time and time again. And just to remind you, we don't pay celebrities to wear our clothes. They wear Sosandar because they want to. We've also got a fantastic score on Trustpilot with a 4.6 star rating. We've got high levels of customer satisfaction, and that's both about our clothes and about the customer service that we offer. So we have real people sitting in our office on the telephones talking to customers, and this is something that customers absolutely love about Sosandar. Our marketing spend is also highly efficient with the cost of acquisition for a new customer paying back on first order. So first order is profitable. Our revenue across the year is split between 75% from repeat customers and 25% coming from new customers. A repeat customer buys on average 4 times a year, and she's spending GBP 109 each time she shops. And with a very, very low cost of marketing to these repeat customers, it makes this a highly efficient model. We're now going to talk through each of our core channels in more detail, beginning with our own website. So this channel is the engine of brand building and customer ownership, and it continues to be the highest margin channel. Our own website was up 24% last year in revenue. And this strong sales performance was driven by the overall number of customers increasing, but also in very large part by the high-quality customer base buying at full price much more frequently. So our strategy to focus on full price sales has really paid off. Our third-party partnerships are also crucial to our growth. They've gone from zero, five years ago to 50% of our group revenue with NEXT, M&S, John Lewis and Freemans being our 4 main ones. They've given us access to millions of shoppers from within our target demographic. We've reached a very broad audience very quickly. It's not just them that are important to us, we are also important to them. Brands like Sosandar are central to their own growth strategies, and we remain one of their top-selling brands. So we're all working together for the same aim. We benefit from the fact that they have huge audiences, which means we've built the business with them at no incremental acquisition cost, which is now also translating into international sales with Next. And our newest channel is our physical stores, and they're all now into their second year of trading. We're seeing growth in sales across the store estate. And this is being driven by people in the local area getting to know the brand and conversion improving. Like other retailers, we are seeing the benefit of our omnichannel presence across the brand as a whole. Being omnichannel is increasing brand visibility and loyalty. So the stores are driving new customers to the website and existing customers are buying more frequently in the locality of each store. We now have 5 stores after signing the lease for Bath to another retailer, as Steve discussed earlier. We are heavily focused now on bringing the store estate to profitability before we open further stores. So to summarize, it's been a really strong start to FY '27. Q1 is up 22% year-on-year. All our channels are trading ahead of last year. Gross margin was up again to 65.2%, and we have an even stronger cash balance. Profitable growth remains our key priority. We are focused on growing our own channels and partner business at strong margins. We will continue to deliver great product that resonates with our customer, and we will continue to focus on maintaining our healthy cash balance. Thank you, everyone. We'll now hand over for questions.

Thank you very much. We've had a number of questions pre-submitted and submitted live. [Operator Instructions] Now congratulations on your full year results. What were the key driver of the company's performance during the 2026 financial year?

I'll take that question. So the key drivers were the fact that all channels were in growth, apart from obviously the challenge of the M&S cyber incident, as we've discussed, clearly, the revenue from M&S was significantly down year-on-year. So own-site revenue was the biggest driver of growth at 24%. That was driven by new customers, but also very importantly, a bigger number of customers overall, but the customers that we do have buying more frequently was a key part of the growth. And then with third parties, all the third parties being in growth apart from M&S.

Our next question is, what are the management top priorities for sustaining revenue and profitability in the coming year?

We're really focused on 3 areas. So continuing to deliver really great product that resonates with our customers. growing our own site and partner business at the attractive margins that we're seeing and also maintaining disciplined capital allocation whilst retaining that flexibility to invest in the brand as well.

Are there any new product partnerships or expansion initiatives that investors should expect in the next 12 months?

In terms of partnerships, we're already with all the biggest retailers in the U.K., and there's still loads of opportunity to grow with all of them as well as loads of opportunity within our own site for growth as well. And with new partners, it really would be international going forward, and we're really open to this as long as they fit in with our strategic direction and with our brand positioning.

And our next question is, how is the company managing inventory levels and maintaining healthy profit margins in the current retail environment?

So in terms of inventory, Ali mentioned as part of her -- one of her slides about some bespoke merchandising system that we've recently introduced. We've always had a very strong merchandising team who analyze data about what sells, what size ratios are needed, what categories are growing, what are growing more. And that's combined with the creative flair that was already also discussed. So the challenge that we always face is to get the right level of inventory to deliver the growth, but not only the right quantum, but how that's split between the categories. The software goes further than where we've been before, which allows the team to refine even further the way in which that works. In terms of the quantum of inventory, so during FY '26, we reduced the level of inventory that we were holding in March versus the previous March. There's 2 reasons for that really. Part one was the timing of when stock landed at the previous year-end. So we had slightly more than we might do normally just because more landed in March than it would do, whereas this year, it is more April. So that's part of it. But also partly, we have slightly more carryover stock than we intended at the previous year, but that's okay because that's sold through this financial year. I wouldn't expect that reduction to be a recurring theme. It's important that we have the right level of stock so we don't miss opportunity in all of our channels. So I will expect that inventory will rise in '27. The key is to get the right level of stock the right size ratios with the right partners at the right time. It sounds easy, but there's a lot of work that goes into delivering that. And it's that fundamentally that will maintain our revenue growth and our strong margins to make sure that we've got the right stock at the right time in the right place. So hopefully, that gives some depth in understanding what lies beneath.

Thank you, Steve. Moving on to our next question. What's happening with return rates? Are they improving or still a challenge?

I don't know if we would ever describe them as a challenge. Return rates are just a fact of operating as an online business, in particular, the return rates are lower in a physical space. But returns aren't a challenge per se. They're just something that happens. In terms of our return rates, they've been pretty stable now for a long period of time post-COVID when it dipped. So for us, on our own website specifically, that will average somewhere between the mid-40s, sometimes a bit higher. And what makes it deviate is the time of year that we're in, the type of product that is selling most. So fit of garments return higher than floatier garments that are easier to fit. Initiatives do take place about fit specifically. Ali mentioned about we spend a lot of time here about garments to make sure they fit all shapes and all sizes as best as possible. And that's the critical aspect that can lead to higher return rates. So you can't change customers' behavior with wanting to buy 2 garments of a type or 2 sizes to make sure that one fits better. But what you can do is make sure that the fits are optimized for each garment, which ultimately maintains or even reduces those return rates. So return rates to summarize, aren't a challenge. They're just a fact of our operation. And I think the key thing is just managing the best we can in terms of efficiently to maintain or reduce them.

And what were the biggest drivers of customer acquisition and repeat purchases during the year? And how do you plan to build on them?

Okay. So the key areas of marketing for both repeat and customer acquisition were social media, e-mails and glossy brochures, which are all highly effective for both new and repeat customers. So -- and we plan to continue with all of those things. The thing that has really helped with the effectiveness of marketing and made marketing even more effective than it has been over the previous years of operating has been the higher margins. So at the higher margin, now a customer's first order is profitable. We're not having to wait for the second order for that to be profitable. So that makes for a really good business model. And then secondly, because we have such a high proportion of repeat customers, 75% of our revenue coming from repeat customers. And what we're seeing is people are buying more and more frequently all the time because they like the product range so much. It means that, that model is also highly efficient because it costs much, much less to market to a repeat customer than it does to acquire a new customer.

Thanks, Julie. Moving on to our next question. Stores are showing a loss. What are the key drivers that will lead stores to a profit?

So yes, in the first full year of trading, yes, the combined estate is making a loss. We mentioned as part of the presentation that last month, we assigned the store in Bath, and that was the largest contributing factor to the whole estate making loss. In terms of those, the underlying performance across the other 5 stores, it's been very, very positive, not only in terms of the like-for-like performance last year, but also the performance of the retail estate in quarter 1 as well. So if we extrapolate that performance through the balance of this financial year, that loss or the level of loss that was incurred in FY '26 will be substantially reduced. That being said, what are the things that matter? We expect each store to break even and make profit in its own right. But it's also important to recognize the contributing factor that each location has as a brand building process, which has absolutely led to more orders being generated on our website in the locality of each store. So whilst we measure the performance of the store by just the revenue that goes through the physical till in the store, we also -- it's really important that we recognize and we do when we analyze the effect that, that location has had on the wider business growing in the way that it has. Will some stores get to breakeven maybe beyond in FY '27? Potentially, yes. But we've got the critical season of autumn/winter to come, and that will be dependent on how they perform through that period. But we're very close in the oldest stores that opened first, which is really pleasing.

Please, can you provide an update on 3P partnership opportunities, especially if you're looking at expanding overseas and whether there is any more white space in the U.K. to target?