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

Hello, everybody. Welcome to the Fashionette AG Conference Call for half year 1 results. I'm here with Thomas Buhl the COO and CTO of the company, [indiscernible] our Head of Finance; and with Armin Blohmann, who has his first day, actually his first hour right now as the Head of Investor Relations. So welcome, everybody, and welcome on board Armin. So I'm [ speaking ] today, I'm the CEO since July now, and I'll give a quick update also on my first impressions in the course of the presentation. So what are the highlights? So it was a tough half year 1. I mean that's for sure, for the industry, for everybody in Europe, but we could grow. So we grew net revenue by 5% on a pro forma basis. 50% on a consolidated view. We have a record active customer base of more than 1 million over the last 12 months, a great milestone. We're very proud of. We improved marketing efficiency in Q2 and we improved operating cash flow. And so we're now at 9.6 million available liquidity, which will be obviously important to fund future growth. We are also reconfirming our guidance for the year. So that's quickly the highlights. And before we go into the details and financials, let me just recap for my first couple of weeks, some of you asked me to do that. So what are my first impressions. So in general, I can say I can confirm some of the assumptions I had before I joined, and that's a good message. So I didn't find any scary stuff. So the market is attractive. We are in a great niche. We are in the premium and luxury segment with high average order values. We still see a lot of growth potential in there as this market is moving more and more online. So looking at the operations. After really dozens and I think it's actually hundreds of meetings, I can confirm a robust foundation backed by strong operational fundamentals. So I think we have a great tech stack. We have great proprietary technology. We have an amazing business intelligence team. So we can support data-driven decision making in a way that companies of our size normally can't. So this is something that we as an astonishing base, I think that Thomas and Daniel has built here, and that will allow us to make a sequence of good decisions over time driven by machines or by people and that drives business success. So super happy about that base. Same about the team, which is already customer-centric and works backwards from the customers, very passionate about the brand and about our customers. And that's great to see. There's not a big cultural shift we have to do there. That's just some refinement enhancements and more training we can do with the team, but the base there is also strong. And the strong -- the base is also strong on brand. So we have strong brand awareness for our shopping platforms in their respective locals, but also we're building more and more well-known own fashion brands. And all of that brands drive loyalty. Obviously, one of that is a good base to grow from. And our customers, well, let me start with the customers. They're just the best customers in the world. I have to say that. So we have 1 million hard-working women now that reward their hard work by getting the accessories they need and the premium design accessories they need to complement their outfits there, and they really deserve it. And they are very demanding and loyal if we meet those demands. So very proud of those customers. Just in the recent weeks, looked at the cohorts, and it's just awesome to see over the last years and what loyalty we drive when we acquire those customers and deliver well on the promises that we give those customers. So very proud to serve those. And so it doesn't mean there's no work to do. Obviously, that's not the case. So I hope I can add some value. There is opportunities. First, integration of Brandfield we acquired last year. As many of you know, it's a huge opportunity and an integration like that is not finished in a couple of months. We're just now starting the next phase of really leveraging the complementary skills that we have in the companies to drive further growth. So that's starting right now. And then resilience. I mean it is a tough environment, and it might even get tougher, right? So we need to put ourselves in a position to have a profitable growth no matter what the headwinds. So we run a very tight ship, and doing that without breaking opportunities for long-term growth, that's a nontrivial task, and I'm happy to add value there. And then obviously, find opportunities for expansion, smart opportunities in selection in geographies and partnerships in technology and especially in a situation where there's a tough environment out there where some people are struggling, those might be our opportunities. So there is work to do. But the core message would be that this is not a [ fundamental program ] business. I'm not here to tell you that. Everything that status has been made before me, and I cannot fix everything that this is really a solid business that Thomas and Daniel built and there's still a great opportunity. And it's an honor for me to help [ reap ] those opportunities. Okay, so let's get into the numbers. Yes, a tough first half year it was. I mean, who would have imagined we'd have a [ more ] in Europe when we were -- would be sitting here 12 months ago. And obviously, it did have an impact on us. Of course, it affected us. But still, we were growing. So we grew 5% in the first half year on a pro forma basis. And maybe let me quickly reiterate that you're looking at pro forma numbers here, which is numbers that assume in the year-on-year comparison that we would have Brandfield for the full period, Right? Because that allows apple and apple comparisons. The numbers we do report and have to report also that you find in our office documents, obviously, have a consolidated view that drives growth rates then about 50% and stuff like that. And it's just for you to get enough context and understand what's going on in the operations side. For this presentation, we focus on the pro forma. And so on a pro forma level, we grew 5%. And in Q2, we grew 2.4%. So we started very strong in the year and then the crisis came and it did hit. It specifically hit the Netherlands and Benelux from -- in terms of our demand. And we see some fading of the impact right now. We're actually growing very strongly right now, and we see some of that impact going away. But we do see the locals differently affected. DACH was growing 3% in Q2. The other segment, which is everything that's not a -- and Benelux grew 27% on a much lower base. Obviously, mostly driven by U.K., Italy, Sweden and France. And so what's going on in the Netherlands. So our view is that the Netherlands business is in the core of the Brandfield business, and that has a somewhat lower average order value. Therefore, it's not exactly the same customer segment, which is great and complementary, but we see that customer segment to obviously be a little more affected and also in the buying decisions by the crisis, and therefore, demand is being more effective there than in our higher-value cohorts. And so this is what we're seeing. We actually saw that for both quarters. So if we just look at orders and demand, we can say demand actually was solid with 11% in Q2 growth in the number of orders, also growth on the Brandfield side in Q2, net it over half year 1, we grew 7.7% in orders and also average order value increased at 2.1%. So if you break that down and look at, for example, Brandfield, we see an impact that also drives Brandfield AOV increase by some of the synergies we have, and I think that's worth pointing out. So we have our handbags business now that's much better where we use expertise and capabilities from Fashionette to support Brandfield growth, and we do see that impact also then in a mix effect that drives higher average order values. So I think that's also a benefit worth pointing out. And then customer base. Yes, we celebrate 1 million active customers now, and we see double-digit growth in active customers, both in Fashionette and in Brandfield with 16% Fashionette and 14.5% at Brandfield. For the period, new customers were mostly flat. We actually also saw a decline there. It's also worth pointing out in Brandfield for the full half year, but that grew again and we could turn that around so that in Q2, also new customers the number of new customers that we acquired is also now higher than in the last period of the previous year. So marketing cost, I think that's a topic you've heard us talk about in previous quarters. So our thesis is that we gain in marketing efficiency and improve our marketing quality on a per customer per order level over time. And that is as we get more data, as we can do more loyalty management or customer relationship management with a growing customer base and as we get more efficient and more effective driven by data to acquire customers. And that is a story that we see true where we have been doing it for some time for Fashionette. We, however, see an [ expect ] in terms of the overall effect because we actually saw customer acquisition costs increase somewhat in the -- with Brandfield. And in Q2, we improved it for the overall company. But for the overall half year, you see a slight increase in customer acquisition costs, obviously driven by the environment and by the headwinds we are facing. But in those numbers, is, I think, an interesting [ market ], which is the efficiency gains in customer acquisition at Fashionette, where we really decreased the cost of acquisition from EUR 54 to EUR 50.5 in half year 1, which I think is a strong, strong gain, and that's obviously very, very margin effective as we drive those efficiencies. And we will look into having similar efficiencies over the long run with Brandfield and also with some of those headwinds [indiscernible]. So then the table on financial KPIs. So one thing that actually closes the gap when you look at the very solid growth on the order side and the AOV growth, then how does it not translate directly into net revenues with the same percentage growth ratios and obviously, there's returns. We do see return rates increasing substantially versus 2021. We also saw that to continue in Q2, however, that is not a [ do loop ]. So there is an end to this. We actually see the return rates [indiscernible] at somewhat of the pre-COVID rates on a category level. So the outlier is not this year, it's rather the COVID times. And I think this is what we have to look at. So this is just back to normal now. We do see some small mix effects with increase in some categories that have [ return rates ] on sunglasses or shoes, but that's not the quarter. The quarter is really just customer behavior moving back to pre-COVID rates. And then moving to gross margin. Obviously, we do see the impact of the tough competitive environment on and off-line, I have to point out. So if you look at offline stores, it's astonishing what you see in terms of voucher and discount activities there. So there seem to be some problems out there with the folks being having inventory. And in some cases, we have to match those prices to not lose customer trust. So that definitely is something that puts pressure on the gross margin. We don't think it's the new normal. But frankly, we don't think this is something that necessarily goes away over time this year. So as we will see some pressure there, and we also have some ways to react, though. Then distribution costs. So on a percentage base, obviously, we also see a measurable increase, obviously, with the number of orders needed to drive the same net revenue. However, I want to point out that on a cost per order, we actually flat and actually improve the center despite all the external headwinds on cost. So I think that shows that our model and how we distribute is very solid and sound. It's just that we need more orders for the same revenue. So that leads to a profit contribution in half year 1 of [ 27.5% ] with the mentioned improved marketing cost ratio and a slightly improved G&A ratio is mostly increased because of investments in tech at Brandfield, but also into people, not into more people, but into the quality of people by training and that requires people hiring in the [indiscernible]. So then that adds up to the adjusted EBITDA margin of 4.7%, which obviously is a big chunk down from the last period last year. But obviously, seeing the headwinds, I'm proud that we can grow like that in a profitable way in spite of that crisis. So then obviously, we have to look at cash, and that's cash is king anyway. It's especially so when there's headwinds and when there is a challenging external environment. So we're very confident with available liquidity of EUR 9.6 million. We actually also saw improvement in working capital and so operating cash flow, EUR 3.6 million, actually, as we do optimize working capital, there is a seasonal effect reminding everybody, again, you've probably heard that from Daniel in previous presentations. Over and over again, we are a seasonal business. So we do invest in inventory in the first quarter, and there's a seasonality to cash flow because of that, and then you're positive on the operating cash flow on after Q4, right? When you have the high sales peaks. So this is how it is, and that's very natural. Within that seasonality, obviously, you can still perform good or not so good and then you can operate well. And I think we did operate well coming in slightly having on the inventory, but working on that and improving that substantially. And with our working capital facility that by the end of, of the period was 12.2% actually increased by now, even we are very, very confident with and very happy with our liquidity position. So -- and that improved also, obviously, we're paying back some of the debt from a Brandfield acquisition, that's always also affecting cash flow, but also we're making good progress there and the debt improving to 17.2%. So that leads us to the outlook. So we stay with our outlook. Outlook is unchanged. So as a reminder, we want to grow net revenues by 16% to 21%. So after what you've heard today, yes, that's an acceleration versus half year 1 and we actually see that acceleration already happening right now and that is required, and that's been good with that. And also profitability of between EUR 5 million and EUR 7.5 million for the full year. So again, it's a challenging store environment. There is an impact in customer sentiment. That is very clear. We see our customers demand side from our customers to be greatly recovering from that. But obviously, there's a risk and the things might change in the long run. And with netting all of that out, we're very confident to remain with the outlook. It's important that when you look at the impact on trading that you see that's reflecting our half year 1 numbers, the immediate weeks after the start of the war were really the worst. This is what really basically affected the half year most. And even a couple of weeks after the start of the war, we saw demand coming back. And so there's somewhat short-lived impact. And that, together with our management of cost and continued strict working capital management makes us very confident for this full year. And remaining with the strategy to drive selection, to drive technology improvements, optimize our geographic mix. I think we will do the right thing to deliver long-term shareholder value. And also even with the headwinds, it creates profitable growth and that it's great for us and for shareholders. So I'm going to talk in more detail about that. Will be at the Fall conferences [indiscernible] again, our one. Welcome again, and myself will be in Frankfurt next week will be at the Berenberg conference. And then after the Q3 results, we also be in Paris at the [indiscernible]. So feel free to meet us there. Looking forward to meet you in person and talk more about the business. We'll be able to discuss even more than a couple of weeks on the job there. So looking forward to see that end. So thanks until now, and then let's open up for Q&A.

[Operator Instructions] We'll take the first question from Christian Salis from H&A.

So I've got a couple of questions. The first one is on the customer behavior. So have you seen any shift there during the second quarter. So for instance, the average order value went down quite a bit in Q2 also compared to Q1. So could this be an indication already for some down trading by customers. So yes, any color here would be very helpful on the consumer behavior. Then secondly, on the full year guidance, so to reach the organic growth guidance of 16% to 21%. This basically, as you already highlighted, implies a strong acceleration in H2 versus Q1. So I understand that you have an easy compare base in Q3. Still, I think also in Q4, this implies some 20% organic growth or something like that. So could you please share with us your assumptions and expectations, particularly regarding Q4. So what makes you that confident that you can really accelerate the growth also in Q4 on a nominal comparative. Then the third question is on the return rate. So this has increased by 4 percentage points to [ 31% ] in Q2. And you just mentioned this should level out at some point. So could you maybe provide an indication where it should level out where it has been before COVID?Is the 41% already level, yes, which we could also expect in the coming quarters. And then the fourth question, yes, could you please maybe provide a comment on current trading. You already said you're seeing an acceleration. I think that should be well expected given the profit warning last year. But maybe could you also talk about the relative performance compared to 2 years ago? Maybe that would be helpful. And then also, a final question, please, on cash flow. Yes. So congrats cash generation in Q2, I think this was quite a concern after the Q1 results, and that's the [indiscernible] to see. So what should we expect in Q3? I think Q2 and Q3 or Q3 a seasonally weaker quarter in terms of cash generation. But what should we expect in terms of inventories? Should we expect a further decrease in inventories quarter 3 or rather a ramp-up ahead of the Q4? And what should we also expect in terms of operating cash flow in Q3?

Next questions, I'm going to go through them. So we have quickly but diligently. So customer behavior and AOV drop. So we don't see any demand patterns that would indicate a further reluctance of customers to buy or to buy cheaper items. We do see some mix effects, sometimes there might be mix between Brandfield and Fashionette and these things that drive those swings, but we don't see a customer demand driven impact there. That's why also we are confident. So if it stays the way we see it now, that's how we look at it, then we are accounting for the growth. And so what we see now and that also comes to your current [ same ] question, is growth that allows us to hit this goal. So this is -- that's the -- and of course, we can net out last year's operations issues. So we still -- there are a couple of customers seem to be willing. So our customers -- so our customers seems to be willing to complement that style and with design accessories, pretty much just like as if nothing had happened. What you see is the competitive environment. Obviously, that on gross margins and all the things, right? So -- and that's obviously a question how that will -- we can talk on decisions that other competitors are making. But we do see actually demand that makes us very positive. So that's it on the customer behavior and on the trading. And so how can we be so confident? I mean that's also goes into that. So we see that the demand is there. We see that the market segment provides further opportunities. We think we are -- have the operational capability, the data that allows the right decisions to keep gaining segment share and that's also something that happens in crises is that if you're a good operator, there's actually there. So yes, we have to increase, but obviously, growth rate versus half year 1, and we're doing that, and that's our plan. And then question 3 was on the return rate, yes. So -- yes, we obviously see leveling out. A group of people getting more and more crazy and unsure if they will be one stuff or a different buying behavior view, we think it's not new buying behavior. It's like [indiscernible] that's why when we look at where we see those rates. Now we don't expect them to keep increasing, but at that level and before COVID time. And then so just the pure seasonality will show you that Q3, we will again increase inventory, right? The stuff that we already bought. So we have to -- as you know in the fashion business, we order long term in advance, and we have an ambitious [indiscernible]. Obviously, some of the -- that's just the way the business goes. And so we expect to increase inventories in Q3 versus they were in Q2, obviously. And then obviously, inventories do come down in Q4, and that's where the cash is released. So this is a model and this will not be different now. So we will not be completely different. We think it's just I think the way we manage it, we can be very confident that we do that well. And we also expect the demand there, and we have also some -- it's all very high-volume, high-value products, right? It's designer products that don't age so quickly. We have chosen a segment that keeps value for a long time. And so we have a lot of opportunity also to free up cash when we want by selling more inventory more quickly. So -- but the third question, it's really just the seasonality. Q3, we'll be building up some inventory. Q4 will be setting up.

[ Current ] trading, please?

Yes, [ current ] trading. So obviously, [ current ] trading is a way that makes us confidence to meet our goals, as I mentioned. So no concerns there.

[Operator Instructions] We'll take the next question from Catharina Claes from Berenberg.

I was wondering if you think that H2 is that you're optimistic about it and that you already see a further recovery. I'm just thinking or trying to understand what are you thought specifically on Q4 and then probably then also starting into 2023, I mean, especially in, in Germany, but also other markets in Europe. I think it looks pretty much like consumers will be hit with further strong increases in basic [ drilling ] costs, be that heating or energy or whatsoever towards the winter time. Are you not afraid that this might impact your customers? I mean I understand that obviously, premium customers typically -- well, that later to a recession than more lower price for customers, which we've also seen during the global financial crisis. So I guess my question is generally, what do you think about that situation? And then what are your thoughts heading into 2023 at the moment?

So yes, we've talked about Q4. So obviously, it's a tough environment. Don't get me wrong. It's just that we see just -- I mean, they couldn't probably be an accumulation of worse messages that our customers have gotten so far than they have gotten by now, right? So there is -- I mean, everything that -- the most horrific scenarios for Q4 are out there, and people have them in mind. We don't see that affecting demand in a way that makes us lose confidence here. So this is -- we see some of that reflected too. We also see that the shift to online is actually supported by crisis. So when people -- especially when there is -- when budgets are tight, then people might rethink if they don't want to look for options online, where they maybe can save some money or they have the feeling that they get better value for money. It might not have mattered so far, but it might matter now. So you're not only losing customers to a crisis like that, that don't buy anymore, but you also gained some that come into your that were core that wasn't buying with you, but they are now discovering your offering. And so if we have the best value for money there, there's just an opportunity. And so there's some -- so it's not just -- doesn't only go one way. So it's also an opportunity, and that's how we look at it. And that said, I mean, as a disclaimer, crazy things might happen, right? So that's the new impacts coming that they don't know of yet, right? If there's something big, of course, it might change [indiscernible] in either direction. That's how it is. But we don't see that right now. And that's why we are -- that's why we're confident there. And we don't talk about '23 right now. So obviously, we want to enter '23 with a very good inventory position and with a lot of new customers that we've acquired in 2022. That's for sure. So -- but we don't discuss '23 as of now.

And then maybe 2 last questions from my side. One was, what exactly were the EBITDA adjustments? I think I've read somewhere that is something was related to inventory. And then the next question would be, what's the growth trend going forward? Have you already made up your mind? Or are you thinking about that yet? Or is it a bit too early still? I'm just thinking, obviously, the strategy so far was to increase the assortment and also grow via M&A? Or maybe when can we -- can we talk about that when or when will you, at the moment, think to publish something along that?

Yes. So the -- I think -- so the -- so adjustments mostly the step-up inventory, right, which is more like an accounting thing through the acquisition of Brandfield and then taking the Brandfield inventory into the Fashionette group inventory. There's just different ways how to value that inventory, obviously, as it's now part of the group inventory and that's an impact of 723,000 and then there's share-based pay, which is just also accounting for the old options program of the Board. So that's [ 491,000 ]. So that's the core impacts that make adjustments for the [indiscernible] completely nonoperational and basic accounting numbers. And then the other question, [indiscernible] going forward. So yes -- so I'm not coming, so before my first one is, I'm not going to do big strategy adjustment announcement here on the conference call. I think in general, what I wanted to point out is that this is not a broken ship, right? So this is a very solid ship that has delivered on the operational improvements on the strategy of driving selection, expansion and geographic expansion and investing to technology. And I think that has built a very resilient and strong foundation and happy to continue working on that. And of course, will comment on long-term growth strategy and give it more detail and [indiscernible]. And it's fair to be very interested in that. But that's not what we're doing today.

[Operator Instructions] There are currently no further questions on the phone. [Operator Instructions] There are currently no further questions on the phone. I'd like to hand the call back over to your host.

Well, thank you, everybody. Thanks for listening in. Thanks for supporting this company. It is tough time. So tough times are also opportunities. We have a very good base. I think Q2 has shown what we can do. Despite of those headwinds, we're going to run a tight ship. We're going to be resilient, but we will also grow. And again, thanks, for being on the road with us and maybe meeting you in the conferences. Thank you, and see you next time. Goodbye.