Westwing Group SE ($WEW)

Good morning, ladies and gentlemen, and welcome to the Westwing Group SE Q1 2026 Earnings Call. [Operator Instructions] Now dear ladies and gentlemen, let me turn the floor over to your host, Andreas Hoerning.

Good morning, everyone, and thank you for joining us for our earnings call on the first quarter of 2026. My name is Andreas Hoerning, I'm the CEO of Westwing. I'm hosting the call together with my colleague, Sebastian Westrich, our CFO. Looking at today's agenda, I will begin by providing key updates on our business for Q1, after which Sebastian will share the details of Westwing's financial performance and how the current macroeconomic environment is impacting our business. After our investment highlights, we will be happy to take your questions. Let's take a look at the current state of Westwing. Overall, in Q1, we saw strong top line growth. Our revenue increased by 11% year-over-year to EUR 120 million. This was driven by 2 main factors. First, we benefited from a highly successful mega sales event in January, which we already mentioned in the last call. Second, we saw continued top line contributions from our expansion initiatives. In Q1 of last year, we operated in only 4 new markets and ran 4 offline stores. Since then, we expanded to 8 additional markets and added 3 more stores. It is great to see that these expansion efforts are already delivering a strong top line impact even against rather weak consumer sentiment. On bottom line, we increased adjusted EBITDA to EUR 9.6 million and an adjusted EBITDA margin of 8.0%. This represents an improvement of EUR 0.5 million compared to the same period last year. While we saw strong top line growth, the increase in adjusted EBITDA remained limited due to the investments into expansion. Free cash flow was negative at minus EUR 2.0 million, which represented an increase of nearly EUR 6.9 million year-over-year. Our net working capital remained negative at minus EUR 5.6 million at the end of Q1, which also showed an improvement from the minus EUR 2.1 million at the end of Q1 last year. We ended the quarter with EUR 84 million in net cash, which includes EUR 3 million spent on share buybacks during Q1. Overall, that's a EUR 27 million higher than at the end of Q1 last year, reflecting the continued improvement in profitability. This once again underscores the success of our business transformation as outlined in our previous earnings call. The overall development is in line with our guidance that we published in March and which we confirmed today. Beyond financials, we again made good progress on our 3-step plan. Most recently, in February, we successfully launched in the United Kingdom, where we're already seeing early customer traction and demand. As always, let's have a look at our 3-step value creation plan, which we initiated in 2022. We're happy to report that we are well on track with the execution of the third phase, scaling with operating leverage. As we continue to grow both in our existing markets through our store portfolio and in our new markets through recent country launches, we remain focused on maintaining cost discipline. This way, we can continue to invest throughout the cycle while sustaining a high level of profitability. Overall, we continue to make strong progress towards unlocking Westwing's full potential as we advance through this phase. I now hand over to Sebastian for details on our financial performance.

Thank you, Andreas, and good morning, everyone. I'm Sebastian Westrich, the CFO of Westwing. Let me start with details on our top line. Our GMV increased by 7% to EUR 135 million, and revenue increased by 11% year-over-year to EUR 120 million. In addition, we see a positive development in the Westwing Collection. Its share of total GMV increased by another percentage point to 63%. As Andreas highlighted in the business update, Q1 top line performance was supported by a successful January sales event, which we mentioned already in our last earnings call. Both the DACH and International segment benefited from this. While the DACH segment achieved a 3% year-over-year growth for the quarter, the International segment recorded a remarkable revenue increase of 22% year-over-year due to the contributions from the newly launched countries. While we were pleased with the Q1 performance, the macro environment remains uncertain, and we continue to focus on developing our business through disciplined execution of our growth initiatives, continued investments in attractive expansion opportunities and a clear focus on long-term value creation. Let me continue with an overview of our P&L development in the first quarter of 2026. I'm pleased to share that we delivered an adjusted EBITDA margin only slightly below previous year and an adjusted EBIT margin same as last year. Now let's go through the P&L line by line. In Q1 2026, gross margin increased by 1.3 percentage points year-over-year to 52.9%. This was supported by lower inventory depreciation effects compared to Q1 2025, which we don't expect to see in the upcoming quarters. In addition, our gross margin benefited from better purchasing prices and a slight increase in the share of Westwing Collection. The fulfillment ratio improved by 0.5 percentage points year-over-year to minus 18.8%. This was mainly driven by increased warehouse efficiencies from scale effects. However, this improvement was partially offset by higher freight costs as rising fuel prices increased linehaul and last mile carrier rates in March. Overall, contribution margin increased by 1.9 percentage points to 34.1%. Moving further down the P&L, our marketing ratio increased by 1.4 percentage points year-over-year to minus 13.2%. This reflects planned marketing investments in expansion countries to support growth and market penetration. Our G&A ratio, excluding other result, improved by 0.4 percentage points year-over-year to minus 15.7%, driven by scale effects and continued disciplined cost management more than offsetting the higher cost base associated with our expanded store portfolio. Other result ratio decreased by 0.9 percentage points year-over-year to minus 0.3%, mainly due to timing and one-off effects related to lower holiday and IFRS 9 provisions in the previous year. Adjusted EBIT margin came in at 4.9%, unchanged year-over-year. G&A ratio improved by 3.4 percentage points year-over-year to 3.1%, mainly due to reduced G&A of internally developed technology assets that we already discussed in the previous calls. Overall, adjusted EBITDA margin was at 8% in Q1 2026 versus 8.5% in the previous year as the improvement in contribution margin was reinvested into planned expansion initiatives and as we had less tailwind from other results. The adjustments made in Q1 were minor, except for the higher fair value of stock option programs, which amounted to about EUR 5 million. An overview of these adjustments as well as the unadjusted consolidated income statements can be found in the appendix to this presentation and in our Q1 financial report. Let's move on to profitability on segment level. As expected, adjusted EBITDA margins developed differently across the 2 segments in Q1. In the DACH segment, adjusted EBITDA margin decreased by 1.1 percentage points year-over-year to 8.3%. This was mainly driven by the ramp-up of new stores. In the International segment, adjusted EBITDA margin improved by 0.2 percentage points year-over-year to 7.6%, mainly driven by the successful ramp-up of our expansion countries. Let us now take a look at our net working capital. At the end of Q1 2026, net working capital remained negative at minus EUR 6 million, improving by roughly EUR 3 million compared to the previous year. The improvement reflects disciplined net working capital management and was supported by higher customer prepayments in line with GMV growth as well as better inventory management. On the next slide, you see CapEx and CapEx ratio for Q1 2026 compared to Q1 2025. CapEx remained at a healthy level of around EUR 2 million, corresponding to a CapEx ratio of 2% of revenue. Investments in intangible assets increased by EUR 2.8 million year-over-year, and this was mainly driven by implementation costs related to the transition from legacy systems to SaaS-based order and warehouse management systems. We plan to complete the implementation by Q3 this year. At the same time, investments into property, plant and equipment decreased by EUR 0.5 million due to higher previous year spend for store openings. Overall, CapEx remained broadly stable year-over-year and reflects our continued CapEx-light business model. Let us now take a look at our net cash position. We are pleased to report a strong net cash balance sheet position of EUR 84 million at the end of March 2026. Free cash flow was at minus EUR 2 million in Q1 2026, in line with normal seasonal patterns and significantly better than last year's Q1. Lease payments amounted to EUR 3 million, leading to free cash flow after lease payments of minus EUR 5 million. Other financing cash flow amounted to minus EUR 3 million, mainly driven by the purchase of treasury shares. Overall, our balance sheet remains strong with no debt other than IFRS 16 lease obligations and IFRS 2 liabilities from cash settled stock option programs. With EUR 84 million of net cash at the end of March, a CapEx-light business model and a completed turnaround, disciplined capital allocation remains a key priority. Our capital allocation continues to be guided by 5 principles. First, we maintain a strong balance sheet to navigate a volatile macro environment and preserve strategic flexibility. Second, we invest selectively in high-return opportunities. Third, we actively reduced dilution from outstanding stock option programs. In the latest exercise window, outstanding stock options were further reduced by more than 500,000 shares with very low strike prices corresponding to a reduction of about 15%. These exercises will lead to a cash out in Q2 of around EUR 9 million. Fourth, we retain an appropriate level of treasury shares to hedge dilution and cash risk from remaining stock option programs. And fifth, we return excess capital to shareholders through share buybacks and earnings per share accretive share cancellations. Since the start of the 2026 share buyback program, we have bought back 262,000 shares, representing 1.3% of share capital with an investment of EUR 4 million as of and including April 30. Overall, this demonstrates our continued progress in actively managing dilution and returning capital to shareholders while maintaining financial flexibility for attractive growth opportunities. The next slide provides an update on how the conflict in the Middle East impacts our business as well as further risks connected to it. While the initial impact on our business in Q1 remained limited, we continue to monitor the situation closely across several dimensions and expect to see more negative impacts, especially on our contribution margin in the upcoming months. From a top line perspective, we are seeing a noticeable deterioration in consumer sentiment across Europe. This weighing on average order value and creating negative effects on unit economics. If consumer confidence remains weak, we expect these trends to persist or potentially intensify. On the cost side, some logistics carriers have already introduced surcharges due to higher fuel prices, and we expect further adjustments across the industry. In addition, several product suppliers have indicated rising raw material and production costs. If oil prices remain elevated, we expect broader inflationary pressure on shipping and sourcing costs, which would negatively affect our contribution margin. We are also monitoring potential second order effects, including energy-related production constraints in Asia and possible disruptions to global freight flows. At this stage, we only see limited constraints at a small number of suppliers and no significant disruptions to freight, but the situation could deteriorate if restrictions become more widespread. Overall, these risks remain broadly in line with the assumptions we outlined during our full year 2025 earnings call. While the scope for short-term mitigation measures is limited, our business model provides a degree of resilience. This includes a diversified supplier base and a significant share of fixed container rates, which helped to partially mitigate cost volatility. In addition, our strong margin profile and healthy balance sheet position us well to navigate the current uncertainties. Turning now to our outlook with some comments on current trading. We confirm our full year 2026 guidance, which was shared in our last earnings call for revenue of EUR 470 million to EUR 495 million and adjusted EBITDA of EUR 36 million to EUR 48 million. The guidance reflects to a certain extent, top line and margin risk related to the Middle East conflict as well as upside potential from a stronger-than-expected country expansion and a fast recovery in consumer sentiment reflected in the upper end of our guidance. Let me also share some comments on current trading. Q2 is showing top line trends similar to Q1 so far, but at a slightly lower magnitude with a successful sales event early in the quarter, followed by an expected normalization. At the same time, our expansion initiatives continue to contribute positively to top line development. As highlighted in previous calls, comparables will become more demanding in the second half of 2026. In the first half of 2025, top line performance was still impacted by the transition to a more global premium and curated assortment, while contributions from expansion initiatives remained limited. From Q3 onwards, these headwinds started to ease and country expansion began contributing more meaningfully to growth. In addition, Q4 2025 benefited from a particularly strong Black Week performance. As a result, we expect tougher year-over-year comparisons in the second half of 2026. Overall, we are well on track to deliver on our guidance for both revenue and profitability. We remain focused on executing our 3-step value creation plan with a clear objective of further improving profitability and cash flow while unlocking Westwing's full value potential. And with that, I hand over to Andreas to conclude the presentation with our investment highlights.

Thank you, Sebastian. Let me briefly recap our investment highlights. First, we have a unique relevant customer value proposition through the specific assortment and the way we serve our customers. Second, the market potential is huge in our existing geographies as well as beyond. Third, we are developing the Superbrand in design with high loyalty and true potential to grow further. Fourth, we have high and increasing margins as well as operating leverage while we scale. Fifth, we have a great balance sheet with a strong cash position and no debt, strong net working capital and low CapEx. All of this will lead us in the midterm to 10% plus adjusted EBITDA with a continued strong cash conversion. This also allows us to continue investing through the cycle even in the presence of temporary headwinds from the ongoing conflict in the Middle East. Sebastian and I are now happy to take your questions.

[Operator Instructions] The first question is from Volker Bosse, Baader Bank.

Volker Bosse, Baader Bank. I would like to ask 3 questions. First, starting with the new markets. Does the overall perception acceptance of consumers meet your expectations here? I mean it's too early to speak about sales, obviously, but perhaps you can give us an indication on click rates or website visitor figures, which you could provide and which gives, of course, also an early and good indication for traction in the markets. Second question would be in Westwing Collection, 63% after 62%, I mean the top was 65% historically. Would you agree that with 65%, 66%, you would reach the ceiling here in regards to Westwing Collection share? And final one, could you please repeat what you said on U.K.? I did not get it and perhaps give also some add-ons on the progress in the U.K.

Thank you so much, Volker, for your questions. So basically 2 on new markets, right, generally and top line, what we see and then specifically on the U.K. and then a question on Westwing Collection share expectations in the future. So in terms of new markets, as you also said, it's too early to really share details on top line. Eventually, we will do that. What we shared last time was a bit on profitability so that 10 out of the 11 countries that we had launched in '24-'25 had reached profitability of full payback actually or are on track to deliver full payback within the first 12 months of operations that we continue to see. In terms of top line or consumer reaction to us entering the new markets, we, of course, have our internal target expectations, and they are currently met or even slightly overperforming. So we are actually overall very happy with the contribution. And you can see that, Volker, obviously, in the growth of the international segment, which in Q1 amounted to 22%. So that is primarily driven by the new markets and not by existing international markets such as France, Italy and Spain, where demand due to the current consumer sentiment is also rather weak. And details on click rates, website visitors, et cetera, we don't share them. But as I said, eventually, we will share information on top line development when we go a bit deeper into the international segment. And then you asked us to repeat what we have said on the U.K. So we launched on the 24th of February. And the U.K. is, from our perspective, provides the biggest growth opportunity from all the markets that we entered into. I mean, obviously driven by size of the customer -- potential customer base there. And this is holding true also in the first few months that we see so far. So the U.K. is ramping up faster in terms of absolute numbers than the other markets that we entered into. And we will, throughout this year and into next year, also put special emphasis on this market. So we expect that actually to continue. So overall, we're very happy with what we're seeing there. It's obviously too early to tell what the overall potential of this market could be, but we are very pleased with the development. Besides launching our website and our app, we also already launched our premium services in the U.K., such as design service or the Westwing Delivery Service in London is already active, has already delivered a 3-digit number of orders in London and the vicinity. So we're actually very happy with what we see so far. Then the last question of yours related to Westwing Collection share. We did give a hint so far, and I can confirm what we said about it, and that is that last year, Westwing Collection share actually increased significantly by several percentage points, and we expect that to slow down quite a lot and only to see gradual increase in Westwing Collection share for the next quarters. So for instance, in Q1, it increased by 1 percentage point, and we expect something similar to happen over the next quarters. So as you rightly say, Volker, the big -- kind of the big increases in Westwing Collection share, those times are likely closed now. The main reason being actually the change in assortment that we actually did over the last years. So we actively took out especially third-party providers with low margins and that did not fit our positioning anymore and also the local assortment in the countries where we closed down the local assortment. And this was besides, of course, improving the Westwing Collection, which we do all the time was an additional very strong driver of Westwing Collection share increase over the past years, actually. I hope that answers your 3 questions.

The next in line is [indiscernible].

First of all, congratulations on your very remarkable and respectable results for the first quarter. I basically have only 2 questions. My first question is, given that you have a nearly full coverage of presence in the European markets, I would be interested in what are your mid- and long-term perspectives on further country expansions. My second question relates to your AGM invitation and your top item #9, where you plan to institute a 3-tier Group structure. I would be interested to learn what the rationale for this.

Thank you so much, Michael, for your questions. I'll take the first one and then hand over to Sebastian for your second one. The first one was related to international expansion, and you asked whether now with nearly full coverage in Europe, we're also thinking of expanding outside of Europe. So answer first, no concrete plans. I don't want to rule it out. But right now, we are focusing on the expansion initiatives that we've already implemented. So specifically U.K., but also the markets that we opened last year. And we have a few smaller markets that we might enter into still this year. So that's the focus for the time being, but I don't want to rule it out for the mid-term, long-term future. And then I hand over to Sebastian for your questions on Item #9 for the AGM.

Thanks for your question. With regard to the three layered Group structure, first of all, there is a more detailed report on the reasons, the rationale and consequences of it among the documents that we published on our website under the Annual General Meeting section. So there, you find a larger report. And hopefully, this answers all the questions. But in a nutshell, the changes will provide us with a much clearer and more efficient structures in terms of our leadership structure and also in terms of our operational setup in the Group. And as a consequence, we will also have some positive effects in terms of balance sheet restructuring which also are beneficial for potential capital allocation measures. We don't expect negative consequences in terms of tax, et cetera. So a straightforward measure. As said, it provides a much clearer structure in terms of management structure and operations and comes also with some positive effects on our balance sheet.

There are no more questions in the queue so far [Operator Instructions] And there is a question from Michael Heider, Berenberg Bank.

Yes, I'm looking for more detail on the current trading and the impact of the Middle East. I mean you've given lots of explanations already. But is it correct that I understood you that Q2, you entered in a similar -- I think you said in a similar way than the Q1 growth level. That's at least how I understood it. And can you confirm this? And then the second question is on the production constraints that you are highlighting in your presentation. Can you elaborate a little bit more on this? I mean is this like -- I mean, do you see like just single problems here or would you -- is this also just concerning your Asian suppliers or is this also on the European side or just a little bit more detail on that side?

Thank you, Michael, for your questions. I'll hand over to Sebastian.

Thanks, Michael, for your questions. First one on current trading and the start into Q2. As you rightfully mentioned, so we saw a strong start into Q2, but at a lower level compared to the super strong start into January with a January sales event. We also had a sales event beginning of Q2, also was successful, but as I said, at a lower scale, but still positive start into the quarter. On the topic of production constraints, so this refers mainly to a very small number of producers in India because India has some issues with gas supply. That's why there are some restrictions on production. And so far, this has not really a material impact on our supply base, but it's definitely a risk. And if the gas shortage should continue and especially would become more severe, then, of course, also the impact on our supply base could become bigger. But as I said, so far, only a very limited number of suppliers that face some effects from this, but overall no constraint at the moment. Does this answer your questions, Michael?

Yes. But maybe again, a little clarification on the Q2 start because now I understood you that Q2 start was very strong because had a sales event, not as strong as the Q1 start, which I would then into my understanding would be then that the start into Q2 is stronger than what your Q1 delivered overall. Is this understood correctly?

So for the start of Q2, that's a fair assumption, but -- the start was lower compared to January -- normalization effects like we also saw during Q1. So again, there's nothing that you can extrapolate [ over next month ]. So we had a strong sales event beginning of Q2. Afterwards, we see the normalization. And the uncertainty remains. We see the macro environment deteriorating a lot. So the indicators significantly dropped now -- with the latest April, May figures. So we expect the macro headwinds to rather increase going forward.

At the moment, there are no further questions in the queue. [Operator Instructions] All right. There seems no more questions to be incoming. So with that, I'm closing the Q&A session and hand the floor back over to the host. Thank you.

Thank you. With no additional questions, we're ending today's earnings call. Thank you for joining, and goodbye.