The Platform Group SE & Co. KGaA (TPG0) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us for our Q1 results webcast. Again, just as we did last time, I will guide you through the presentation, but focus on the questions you have and definitely spend about 10 minutes on the presentation with the details, also provided in the early morning press release that we sent. Obviously, we're very proud of the results, having grown 32% in the first quarter, achieved a significant growth in our non-DACH region. And obviously, most proud of the customer acquisition we achieved with 72% growth. As you can see, the number of orders grew significantly even higher than revenue, which is a mix-driven effect, which I'll come to later. As you can see, the visits have grown about 37% year-on-year with a very strong and continuously growing mobile traffic share. So as a summary, the highlights basically just reflect the trend we've initiated last year and continue to grow as expected from the market. Total revenue, 32% growth. Very proud of our growth in our core region, DACH, almost 28% year-on-year. And the accelerated growth outside of our core region is especially impressive. As you all are aware, the revenue in the U.K. has become more difficult to be achieved with the Brexit and the consequences on shipping and tax legislative actions that the Brexit has caused. So a very impressive number for us. Again, we've always communicated that we clearly focus on customer acquisition, especially now that the market is switching from off-line to online and continuing to increase its online penetration, therefore, the 72% new customer growth. But all the growth of 60% in active customers is a very successful result that we're very proud of. In total, we almost achieved a 50% order growth, which was driven by the existing and the new categories. Also, the traditional category, handbags, our core category, has grown 45% year-on-year. The other categories which we continuously expand and expand our selection have contributed significantly to the growth. In the bubbles on Page 6, you see the unit growth of jewelry, for an example, almost 150%; watches, 130%; but also shoes, almost 50% growth year-on-year. So all categories contribute significantly to the growth all over Europe, not only in our core market. As a summary, the strategy obviously remains unchanged. We're continuously focusing on expanding our selection. We are finishing our project of the beauty expansion, which is going to launch latest early in Q4. With the acquisition of Brandfield, we've already expanded our European footprint significantly, and we continue to invest in, obviously, marketing, but mainly in our data and IT platform and in content production, which helps us to convert more new customers and stimulate revenues from existing customers even further. There is no detailed updates on Brandfield as of yet. As you know, the consolidation will take place or is expected to take place on July 1. And obviously, in the second half, we will -- we also report all the details of the acquisition as group revenues and all the other KPIs. Just a quick few more details on our financials of Q1. We've already talked about the net revenue growth of 32%. We've always communicated that we see this year as a clear investment year and increased our spendings and marketing significantly, which for Q1 led to an almost neutral EBITDA decline year-over-year of roughly EUR 1 million. But obviously -- and we'll come to that later, we confirm our guidance for the full year of continuously profitable growth. We saw an improvement of our return rate, which is obviously driven by not only the category mix, also the country mix, but especially also the implementations on the IT side. We've talked about this in the past. We've developed tools that help customers to choose the right product, improve the content on the detail pages and throughout our different marketing channels to stimulate an improvement of the return rate, which obviously also has a positive result in growth and profitability. The average order value, mainly driven by a product mix away from handbags to the new categories, but also a small decline in handbags, average order value still strong in -- with EUR 252, basically spot on to the communication we've done for the full year to roughly be around EUR 250 for the year. The customer acquisition cost increased to EUR 58, a 24% increase. Again, for the full year results and during the road show last year, we always communicated to be roughly at EUR 60, EUR 65 for the full year. Q1, based on the revenue share, is obviously always a little bit higher. So we are significantly below the originally expected average customer acquisition cost for the first year -- for the first quarter. And as you can see, with 24% more investment, we achieved 72% more new customers. So definitely a rate we will continue to invest and grow our customer base. The marketing ratio increased by almost 350 basis points. But again, the customer base increased by 60%. So continuing to invest because it definitely makes sense, based also on the profitability of our cohorts, which I also commented on in the press release and you know from our road show and the full year results. Quickly talking about the P&L. Distribution costs, as you know, include our operational costs, all the logistic costs and the payment costs. We increased our availability, so increased our stock levels, and also significantly increased our orders, 50%. So almost 20 percentage points higher than our revenue growth. So we saw a slight uptick in distribution costs. The marketing cost ratio we already discussed when talking about customer acquisition costs and the cost ratio. While we obviously have a higher G&A cost ratio because of being a listed company, we still achieved a slight decline of the ratio. And operating income is, a, obviously, effect of growth, but also driven by a slightly lower receivable write-off -- or improvements from receivable write-offs versus last year. So no big surprises on our P&L here. Trade working capital, a slight increase, and also driven by the inventory stock-up that we've discussed, especially investing in growth in the future quarters. Slight trade-off from receivables and payables. So again, an investment in growth, as communicated in all our calls before. Outlook remains unchanged. We just provided the guidance with our full year results, and we don't see any reasons to change our outlook right now and stick to the guidance we've provided, which reflects 49% to 58% growth in -- on a consolidated basis only recognizing in Brandfield from July 1 on. So only a half year impact from Brandfield. And with that, I would hand over to you for your questions.

[Operator Instructions] And the first question is from Christian Salis, Hauck & Aufhäuser.

Christian Salis speaking from Hauck. And also congrats to the strong Q1 results again. A couple of questions from my side. I would like to take them one by one, please. So the first would be on -- yes, could you provide us with an update on the integration of Brandfield? Is that running according to plan? And also maybe a word on the cross-selling? Is there already -- do you see already traction here or -- yes, just an update here on Brandfield would be super appreciated.

Christian, so because Brandfield is only going to be consolidated starting on July 1, we are legally not able to work on the integration as of yet. Obviously, the strategic work has been continued all over the time. And I'm -- I will be able to talk about this more in the next results presentation.

Okay. And then on seasonality, in terms of profitability between the quarters over the year, so could we expect profitability in Q2 and Q3 to be higher than in Q1? Just because the overall sales level, I think, is higher compared to Q1. And then -- yes -- and then could we expect a jump then in Q4 basically?

Yes. So our expectation is to see a higher profitability going forward, therefore, also sticking to our guidance. And as always, with the biggest quarter being Q4, we expect the main contributor of profitability obviously being Q4, so the latter end of the year.

Okay. Perfect. Third question, could you please provide an update on the current share of handbags in percent of sales? And also in percent of sales, what was the negative effect -- negative Brexit effect in Q1, please?

So the revenue share of handbags has declined to 58%, while it has grown 45% in units. And therefore, the new categories contribute significantly to the overall revenue impact. And I cannot share the exact details of the U.K., as we only share revenues on non-DACH basis. But the U.K. are basically not growing. They're not significantly contributing to the growth of our company anymore.

All right. And then the last question. So I often get the question, why don't you have a mobile app basically. So what are your thoughts on an app? And when could be the time to launch it potentially, going forward? And what's the mobile share in terms of orders currently?

So the mobile share in terms of orders, I don't know on top of my head. The revenue share is close to 80%. So it's always a little bit lower than the traffic share. For last year, we communicated 76% of revenue share from mobile phones. There has not been a significant change in Q1. We focus with all our developments on the customer experience of our proprietary web application. As you see with the results we are achieving, we are -- we don't see a significant need from an app. We will develop an app once we have an opportunity to increase customer experience. And we also communicated this in one of the investment area. With the acquisition of Brandfield, we will definitely focus the existing IT resources on the integration of Brandfield onto our platform, which has a significantly higher, a, customer experience impact, but also revenue impact than the short-term impact we see from an app development. But it's definitely not off-chart to also invest in an app. We're debating currently how to invest the resources in view of the integration of Brandfield.

The next question is from Russell Pointon, Edison.

Daniel, I have 3 questions, I think, if that's okay. First of all, your order growth of 49% versus the site visits growth of 37% is good because it shows that you're converting more visits into more orders -- more orders per visit, I guess. But could you talk about how you think about the site visit growth of that high 30s percent in the context of more than doubling in the marketing spend? Is there -- should there be a relationship between that marketing spend and site visits? Or is there something in there which is, I don't know, it's more brand building? Or is that promotional spend or that kind of thing? My second question is just from a U.K. perspective, obviously, vested interest here. Could you just talk about what is actually happening? Is it orders are taking longer to get through? Or are the costs making it less attractive offer to the consumer? I would imagine the carriage costs are relatively low compared to the actual order value. But I have seen certain companies who are actually just not shipping to the U.K. anymore. They're just refusing to sell here. And my third question is with respect to the inventory increase. I mean obviously, this is the first quarter. Is there anything in that inventory build in anticipation of the Brandfield acquisition, which you were presumably negotiating around that time? Or is this is just pure Fashionette talk?

Thank you, Russ. So regarding the first question, visits and conversion rate, obviously, we don't optimize for a pure visit increase, right? The investment in marketing is very much driven on the customer acquisition costs, which are obviously tightly related to the orders generated from the marketing investor. So we are -- we're not optimizing for views, right? We're optimizing for revenue from the acquired customers. And therefore, the ratio of customer acquisition costs and customer lifetime value or short-term lifetime value is clearly our focus. And with the significant jump in mobile visits over time, you have seen, I would expect all over the industry, a significant increase in visits. But now that we've reached a certain level, 83%, I think conversion rate is catching up from a mobile user perspective, yes? And therefore, the conversion rate is increasing and stimulating more unit sales or more orders than -- or an increase in share -- faster increasing share of orders and units than visits, yes? And honestly, I think it's a strength of ours that we are able to convert more orders of more customers with only 37% more visits. So I would definitely not see it as a challenge, but as a strength of our company and our investment strategy in marketing. The second question was regarding cost of the U.K. import or costs for customers. So it's mainly a customer experience topic. So the shipments, because of the toll process, take significantly longer. Because of all the paperwork, it's more costly, yes? And therefore, if you want to achieve a relevant margin, it's less interesting to invest in the U.K. right now. There are definitely ideas how to tackle that challenge. We are very far away from having given up on the U.K. We still believe it's a very attractive market. And without a doubt, we will, I would say, increase our revenues in the future. And I will provide more details on the strategy there later on, not today, because we're still working on it. I hope to speak with you -- yes? Sorry.

I'd just come back and say, I mean, your average order value in Q1 was EUR 250. That's still quite a high average. I mean, obviously, I mean, the U.K. may be a different number versus other countries. So that still strikes me as quite a high average order value. So I mean, what scale of cost increase are you talking about for this extra admin? Is it...

It's a very low double-digit euro number that we see as a cost increase from all the efforts from carriers, but also from a logistics perspective. But more impacting on the growth or the revenue growth is definitely customer experience, especially when we have a higher average order value, you also have the expectation of a great customer experience. And therefore, shipping speed convenience is even more important. And without having a footprint, so -- a logistic solution, in the U.K., we just take at least twice, maybe 3x as long to get our products to customers than local retailers. And therefore, it's just not a good customer experience we can provide. And then it's also a question of when you can provide a good customer experience, do you want to significantly invest in that region, right? So we are definitely not overinvesting in the U.K. because we don't believe we are capable of providing a good customer experience as of right now, not forever, but as of right now. And therefore, we see it as an opportunity in the future with certain adoptions we have to make, and we are working on it, and we will definitely come back on the topic of the U.K. and future growth there at a later point. And Russell, any more questions regarding the U.K.?

No, that's fine. We'll come back to that actually in Q4. [indiscernible]

The third question was about inventory increase. I mean obviously, we see significant synergies from our core categories for Brandfield. And obviously, together with the brands, with our partners, we will also leverage our new platform Brandfield for that. The increase in inventory is focused on total growth of the group, not only Fashionette, but obviously with the predominant share of revenue coming from Fashionette, it's focus on our growth, yes. And maybe one hint, if we had -- if we were better stocked at the beginning of Q4 -- we exceeded our targets in Q4 if you remember, we would have been able to grow faster in Q1. So the stock came in a little too late/we couldn't stock up late in Q4 and probably missed a couple of orders in early Q1. So we decided to invest in inventory to make sure we can exceed the growth expectations going forward.

And we've received a question from [ Sasha ] [indiscernible], Private Investor.

Yes, Sasha [indiscernible], private investor. Daniel, could you please -- how -- say how comfortable you feel with the revenue growth projections to nearly EUR 300 million in 2023? Is it a normal growth or through acquisitions? And do you plan to make a capital increase for -- to reach these revenues projections?

Thank you. So I'm not sure which projection you're referring to. We have never provided a projection outside of the current business here. So the guidance is only reflecting the '21 year -- 2021 year, and is guided to be -- just as we did it in the annual results presentation, obviously, we expect to also drive further growth in the future, but I cannot give you any more details outside of the 2021 growth. The question regarding the capital increase. I cannot answer. In the future, right, we will definitely continue our strategy in investing in organic growth, but also in inorganic growth and for the right target, if necessary. I'm more than prepared to go back to my investors and also raise capital from new investors if it makes sense for us as a company and for our shareholders.

And we have a follow-up question from Christian Salis, Hauck & Aufhäuser.

Yes. Just one follow-up on the return rate. So this developed quite favorable. And you mentioned some improvements in terms of IT and that you developed some tools to find the right product and also that you improved some marketing channels here. So it would be interesting to get some -- yes, some more flavor here, some more details. And also how much of the decrease in the return rate is driven by COVID?

Okay. Maybe to tackle the last question first, I have no clue if COVID has an impact on return rate. I strongly believe not. And the single reason for that is our average order value is relatively high compared to other e-commerce companies. And I don't believe you just keep something if you don't like it, I simply don't believe in that. We have seen declining return rates for a long period of time now. And they have said there's 3 factors, right? The first, obviously, are developments that we are investing in our platform, that comes down to, for an example, personalization. We continue to invest in the increase of the personalization of our CRM activities, which is especially important with the increase in selection, right? You can't remember, we are getting close to about 10,000 more SKUs, so over 100% growth than we had 2 years ago. So if not investing in our platform and helping customers to find the right product, it becomes more challenging. And with the increase of mobile traffic, it obviously is very important to invest in personalization features throughout the whole value chain, not only in our platform, also with our marketing partners, et cetera. So there's a couple of leverages we've taken there in the development of our platform. The country mix, I mentioned this during the full year presentation, I believe, Germany is by far the worst offender in terms of return rate. With an increasing share of international footprint, we will automatically see a decreasing return rate. And the third factor is that there is also a positive mix effect from the new categories, which have lower return rates.

[Operator Instructions] And there are still no further questions, so I hand back to you, Daniel, for closing remarks.

Thank you very much. If you have any follow-up questions, please feel free to reach out to me through the IR team. And I'm looking forward to meeting you, hopefully, soon also in physical presence maybe, and later talk to you with the Q2 results in the summer. Thank you very much. Bye-bye.