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

Good morning, everyone, and thank you for joining for our H1 earnings call. Before we get into the presentation, let me quickly introduce our new Head of IR, Irina Zhurba, who is with me in the room, and I will be introducing her to you over the next couple of days and weeks and hope that you get a much better service than just for me with Irina joining now. And with that, I would kick off the presentation. We have successfully increased our revenue by 25% in H1 to EUR 49 million, driven by the growth in new, but also active customers, leading to an active customer base of over 400,000 customers, more than 50% increase year-on-year. As you know, we've always been focused on continuously expanding our selection, now reaching more than 17,000 individual SKUs from more than 190 brands. The guidance, as you've read, is now EUR 133 million to EUR 143 million net revenue and EUR 3.3 million to EUR 4.3 million EBITDA on a consolidated basis. Please note that the consolidation of Brandfield has already begun on -- has only begun on July 1. So the first half year of Brandfield is not reflected in the consolidated guidance. Quickly through the agenda. I'll give you a business update first, talk about the financials and then a quick outlook as we just discussed. But mainly focused on the Q&A at the end of the presentation where you will have an opportunity to ask all your questions and hopefully receive good answers. The highlights from Q1. Obviously, we continue to grow outside our core region in DACH at 39%. And please note that this is already including a negative impact from the Brexit and the decrease in revenues in the U.K. Mobile traffic and mobile conversions have been a core of our strategy, and we're reaching now 84% visits through mobile devices. You know that with the selection expansion, we have very much focused on increasing our order growth, driving it to 38% in the first half year from 40% -- 47% more customers than year-over-year -- new customers year-over-year. I think a very strong figure is that we continue to grow our core category, Handbags, 38% in units sold. And we continue to drive our own brand share, specifically in the Jewelry category, to almost 1/3 of the units sold. The revenue from H1, growing at 25%, was driven by both Q1 and also Q2, despite the strong comp base from the first COVID impacted quarter last year. As you can see on the right-hand side, we're proud of the growth we are achieving in the DACH region with 22% -- almost 20% growth. And despite the Brexit, as I said before, continuing to grow outside the DACH region. The strongest country outside the DACH region are the Netherlands. The strongest country next to the Netherlands are the U.K. The growth obviously is based on the dynamic growth of our active customers' base now reaching 411,000 customers, driven by both new customer growth, but also returning customers, as you can see on the right-hand side. Overall, as I've been talking about for the last 12 months, we focused on 3 pillar: selection, expansion -- our regional expansion and to focus on our IT and data set up. All of those pillars will now also be translated to Brandfield, and I'll come to that in a second, but first guide you through the developments of H1 in all those 3 pillars. Looking at the Selection expansion. We've now reached another quarter of 45% growth year-on-year in SKUs and 18% in brands, driving a lot of sales. Obviously, as you heard before, 38% H1 growth in Handbags units sold, but almost 100% units sold increase driven in Jewelry, which is contributed by -- or simulated by almost 1/3 of the units sold from private labels, excluding the Brandfield impact, which will drive that number up significantly in the second half of the year. We continue to focus on premium and luxury products, as we've always communicated. And as one of the results, as you can see on the right-hand side, 86% of our returning customers in H1 have bought products from 2 different brands, which is really important for us to have a broad selection and also a deep selection at the same time because those customers actually have also bought -- 75% of those customers have also bought from 2 different categories, which is one of the core focus areas of our strategy to continuously expand selection in existing, but also add new categories. As you know, planned in Q4 is the expansion into the Beauty segment, which I'll present to you in the next slide. And today, we're also ready to announce that we launched a category in October with more than 100 premium brands. The reason why we've invested in the expansion of our selection, which is Beauty category, is very clear. We've listened to a lot of our customers and understand that basically every single woman who bought a designer handbag before also shops a premium and beauty luxury products. We understand that fashionette customers are 60% more likely to buy premium or selected beauty brands than not yet fashionette customers. And the purchase probability with 70% is extremely high. So for us, 3 clear facts that prove our strategy and will realize continuous revenue starting in Q4. The second pillar has always been the regional expansion. You know that we've been working on our logistics transformation into the new logistics warehouse here in Oberhausen. We started the transition back in the calendar week 22 with the ramp-up of the inventory. As you can see on this page, in 31 -- the calendar week 31, the stock transfer was completed. And since then, we carry on the stock in the new warehouse and obviously also ship products since the very beginning of July only out of the new warehouse in Oberhausen. For us now, the clear focus is to bring the customer experience back to the pre-relocation levels since we've talked about in the last couple of days. What we've also invested in is obviously our technology and data infrastructure, and the personalized and automated distribution of our content has always been a core pillar of our strategy. As you can see on the left-hand side, especially in our CRM activities, we executed 78% more CRM campaigns. Again, I talked about this in the past already. This doesn't mean that we communicated 78% more e-mails, it's just different campaigns that we are sending to our customers on a more personalized approach. Overall, this drove a 27% increased click rate in our CRM campaign. So it does not only expand our portfolio and communication base to our customers, it also improves customer experience at the very same time. Also, when the customer arrives on the detail page, we are continuously working on the optimization of what we call listing or landing pages. The sorting of the products is now fully automated and based on an artificial intelligence in the background of our infrastructure that helps drive, obviously, revenue through an improved conversion rate, but also with the more personalized approach improves the return rate and therefore has a significant cost benefit over time. So for us, huge milestones that we made a significant step towards our goal of a full personalized and automated website. Also, a quick update on the consolidation of Brandfield. Our acquisition successfully closed on July 1, as communicated. So far, we've been very happy with the development of the business. Instead of the expected EUR 2.8 million EBITDA, we are now expecting more than EUR 3 million EBITDA out of the last 12 months of the business year and is ending in June. And we are currently auditing the numbers with the external auditor, but expecting more than EUR 40 million in revenue and more than EUR 3 million in EBITDA. And obviously have already ramped up the investments in our synergies, which I will talk about on the next slide. Again, just to recoup that, the business was completely focused on the BeNeLux region, mainly Netherlands and Belgium, which contribute more than 70% of the revenues. The focus right now is very much on truly contributing more than 50% of the revenue and only 10% leather goods share, which is one of the core synergies that we are focusing on right now. And obviously, as a third point, the development of own brands is significantly ahead of the development of our own brands, and therefore, a strong synergy already visible in the first couple of weeks, and I'll give you an update later. The customer base has reached 570 orders in the last years combined, will easily cross the 1 million orders on a pro forma basis for this year, making us really a relevant player, not only in the DACH, but now also in the Benelux region, which was a clear strategy with the IPO communicated last year in October. So I mentioned this before, clear focus, again, the 3 pillars that we've communicated. Selection expansion, we're expecting up until the end of Q3 25% more brands in the leather goods selection of Brandfield, obviously most of the brands that we already carry today. We've already initiated a clear strategy for our own brand development. So we combine the brands that we've built up over the last couple of months in Jewelry with the brands of Brandfield and will only communicate a focused category brand selection towards the customers. And thirdly, the teams are already working on integrating the IT and data platform with a clear focus of enabling all our business intelligence power before the start of Q4. As you know, the most important period of the business year. Jumping to the financials before we come to outlook and Q&A. We've talked about the net revenue growth in DACH and non-DACH. And again, just as a reference, please remember that in the non-DACH, revenue is also a negative impact from the U.K. We are continuously growing in the Netherlands, but have already started to manage the investments in marketing with Brandfield to not compete and drive up prices there. So there will also be an impact on the Netherlands growth organically, inorganically in Q4, which we'll communicate later this year. The number of orders growing at 38%, outgrowing revenue because of a small decline in average order value. The declining average order value is at 7%, is fully expected, driven by the category mix, but also by the increase of selection as the new brands are more premium-focused and luxury-focused because our selection in the luxury part of our business has already been established for a long time. The return rate impact is mainly driven again by the category mix from the new categories like remodeled shoes, but also driven by a very strong DACH revenue base, which has grown up to 86%, with the highest return rate of any of our countries. For the return rate, I clearly expect a significant improvement for the second half year, mainly because of the consolidation of Brandfield, which will add a significant portion of the revenue outside the DACH region, which has significantly lower return rates than especially Germany. As you know, we continue to invest in marketing. You might have read in the press release that the customer acquisition cost for H1 was EUR 54, so a small increase year-on-year, but fully in line with our expectation, given the fact that we've grown new customers 46%. The marketing cost ratio obviously also has increased at the same time, but again, fully in line with the expectation that we set out. If you look at the shortened P&L, I've talked about the impact on gross margin already when we had a discussion about Q1 very early and also strong impact from a very competitive sales phase, but I think on comparison base with 140%, I am okay. Again, looking forward to bringing up the gross margin to 40% and north of 40%, which will definitely be a possibility in the short term now with the acquisition of Brandfield and the increased share of private label revenue, our own brand revenue. The distribution costs have slightly increased, but again driven by the significant increase in orders, 38% growth, which ultimately led actually to a decrease in cost per order by 2.3%. So I believe, while cost of energies, et cetera, grow, we've shown that we can continuously improve our cost base also in the first half year, a period of high growth. Marketing cost ratio, we talked about the last slide. Obviously, G&A ratio impacted by the investments in our team and the associated cost of being a listed company. Over the next years, we expect to see significant improvements there, and we'll definitely communicate that also in the guidance for next year when we do this later this year. The inventory buildup was also part of the discussion from Q1. Basically, the trade working capital ratio is in line with March, so is the inventory position and the working capital positions. If there are any questions, I'm happy to answer them, but no big changes in Q2 from Q1, fairly flat development as expected. The cash bridge basically only impacted by the buildup of the inventory. The financing cash flow is only impacted by the installment plan business. So we currently don't use our financing lines with our banks since we still have the cash from the IPO on the banks and which we use, obviously, for the payment of the acquisition of -- or the financing of the acquisition of Brandfield, which we will see in the Q3 report. The outlook has been discussed over the last couple of days and also earlier in the presentation. What's really important for me to communicate is the pro forma forecast. Please let's not forget that we only consolidate Brandfield for the second half year. Ultimately, a full consolidation starting at the beginning of the year would translate into 62% to more than 70% year-on-year growth. But still on the consolidated basis, we are growing 40% to 51% or expecting to grow 40% to 51% at a profitable EBITDA level, which you see in the guidance on the lower part of the presentation. And with that, I would hand back to the moderator and open the room for questions.

[Operator Instructions] We have our first question. It's from Christian Salis, Hauck & Aufhäuser.

I've got 3 questions, please. So Daniel, could you please talk a little bit more about the private label? So how much is this in percent of group sales in Q2 for fashionette stand-alone? And what's your 2021 targets? And what's again the midterm target, please? And second question is on the integration of Brandfield. Could you please provide some details on the progress you've made here so far in Q3? And is there any negative impact on the integration from your logistics issues? And then finally, on the Q4 outlook. So your guidance implies a strong re-acceleration -- at least at midpoint, implies a strong re-acceleration in terms of growth year-over-year in Q4, despite the tough comparable base. So you already talked about some things like Beauty and also ongoing assortment expansion and so on. But yes, could you please provide some details here or elaborate on these strategic initiatives that should kick in, in Q4, please?

Thank you, Christian. Starting with the question about private label share. So you know that currently on fashionette, we only sell our own brands in the Jewelry category. The Jewelry category, as you now, is one of the youngest categories and still building up. It's a single-digit percentage of our revenue, and 1/3 of that 29% is private-label business. So in total, for fashionette stand-alone today, the own brand or private label share is in the low single digits. The revenue share of own brands at Brandfield is already north of 40%, giving the expectation of us integrating the brands here, and driving further growth will easily come to double digits in the second half of the year as a group. But I have to be very clear here. For us, the own brand and private label business is not a replacement of the premium luxury brands that we are working with today. For us, it's a continuous selection expansion focus, providing more opportunities for customers to find new brands with a different positioning, et cetera. So we will never replace a existing premium or luxury brands with one of our own brands. It's an on-top development we are focusing on. There is no midterm target communicated yet. We will do this once we have a strategic update for the capital market, focusing definitely more on private label and own brand development over the next years. The second question was about the progress of the integration of Brandfield and then is there any impact from our logistics challenges. So I'll take the last part or the second part of the question first. The Brandfield logistics setup is still fully independent in the Netherlands. So there's absolutely zero impact from the logistic challenges we have with our logistics here in Oberhausen. The first part of the question was about the progress of the integration. For now, clear focus, obviously, financial integration. So we are ready to communicate and present the figures for Q3 in a short timeframe. The BI integration or Business Intelligence integration to provide the teams with full transparency in their operational KPIs, not talking about revenue, et cetera, so really detailed analysis that will help us steer the business much smarter and better in the future. And also the increase of selection basically separated in 2 parts. First of all, the integration of -- or the increase of the selection of leather goods at Brandfield and the integration of our own brands on fashionette. All those activities have started and will be ongoing, especially technical integrations, but we expect to see some revenues already in Q3, despite the low expected growth in Q3 from the logistics challenges. The third question was about the Q4 guidance/how we want to come up to the growth -- back up to the growth. Obviously, the customer base and the significant increase of our customer base over the last almost 24 months now provides significant opportunity to continuously increase our revenue, especially with the opportunity to generate follow-up purchases in Q4, which is a typical process in our business. And therefore, with focusing on delivering the pre-relocation customer experience, we are very confident of our Q4 guidance and focus on delivering the results right now, preparing Q4 already in depth.

Our next question is by Russell Pointon, Edison Group.

A few questions, if that's okay. First one is on the gross margin. Your comments refer to an early and more competitive sales base. So could you just elaborate on what that means and what drove it, please? Is that increased competition, et cetera? Second question is, in the second quarter, the site visits declined. And I think that's the first time I've seen that. Could you just talk about what drove this? Is that just a COVID comparative? Whether that's a concern for the future customer recruitments? Because obviously, you've got lots of countries that are still maturing. So are there certain countries -- I mean, I guess the U.K. will be an influence there? But just some indication of the visit -- the health of the site visit, et cetera? And then in terms of the logistics, could you just talk about how long the sales disruption was? How you've handled that in terms of managing customer goodwill? And in the new guidance, how much of that is lower gross margin versus more cost than you expected previously?

Thank you, Russ. Gross margin, obviously, what I mean by competitive sales is -- looking way back, summer sales fairs in Germany and in some other areas in Europe has traditionally begun in late. So the last -- Germany, it was the last Monday of August. This year, we saw the sale initially starting in April with some competitors and then really picking up in June. This is way earlier than before. So the sales fairs is longer lasting and definitely also more aggressive from a discount level. So I expect inventories in the market to be higher than last year, given also that COVID was -- had an impact on for some retailers on availability. So that's not increased competition. It's just a different behavior of our competitors, which we obviously continuously track and optimize our strategy based on the developments that we are seeing in the market. Q2 site visits decline. You mentioned the U.K. briefly, there is an impact from the U.K., but let's probably take a step back. What we focus on is not growing visits, right? This is not a strategic goal for us. We are not a media company. We are not paid in visits. We are not generating shareholder value from visits. For us, the clear focus in our marketing investment is to drive new customers and drive orders from new and existing customers. As of what you can expect from the lower visits, and you'll see when you run the numbers, is an increased conversion rate. This is attributed to an updated or continuously updated marketing strategy, and we've shifted budgets between the different marketing channels, which ultimately didn't drive as many visits as before. But as you can see in the orders, the 38% growth in H1, significantly higher order base from both new and existing customers. So for us, this is not concerning also given what you mentioned the impact from COVID, where, let's say, the screen time in general definitely was higher than today for every one of us. And therefore, another concern going forward. Third question was about logistics and how long the sale disruption has been ongoing and what the impact for customers and gross margin was? So as mentioned before, we literally started full outbound processes, 100% in the new warehouse with the 1st of July. And since day 1, sales disruption was impacted because of the shipping promise, so the time that we communicate on detailed pages to customers how long it will take for their package to arrive at their doorstep has been increased or was increased to 4 days from 2 days, so basically doubled. And since about 1.5 weeks, we've seen improvements in our processes that we've been working on with our partner. So we were able to reduce the shipping promise down to 3 days from 4 days. So still 50% up from our, let's say, original customer experience, but also 50% improved from the significant worsened customer experience that transition cost. There clearly was an impact for customers. They had to learn -- to wait longer for their orders. Obviously, there is an impact on marketing efficiency because if you have to wait longer, you are less likely to purchase the product. So therefore, marketing efficiency is lessened than before. It is weaker than before, but there is no direct impact on gross margin. So it's more an impact on EBITDA driven by less marketing efficiency.

So can I just come back on that last question? So your revenue -- the reduction to your guidance on revenue is about 5% or 6%, I think. So just shifting the days delivery from 2 to 4 days, is there something else, which is...

What I can tell you is that June was exactly on our expectation. We were really happy with the growth in June and literally with the change of the shipping promise. The cut down of revenues was effective. We have not changed anything else. So there's no reason for us to believe that -- maybe as always look -- look, there's many impacts, right, but there's no major impact that we have driven. And the only impact that we are seeing is driven by the logistics impact. And obviously, also now being live with the improved shipping promise for almost 2 weeks now, we're also seeing a small uptick already.