Westwing Group SE (WEW) Earnings Call Transcript & Summary

Ladies and gentlemen, and welcome to the Westwing Group SE H1 2026 Earnings Call. [Operator Instructions] Now 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 second quarter of 2026. My name is Andreas Hoerning, I'm the CEO of Westwing. I'm hosting the call together with Sebastian Westrich, our CFO. Looking at today's agenda, I will begin by providing key updates on our business for Q2 2026, after which Sebastian will share the details of Westwing's financial performance. After investment highlights, we will be happy to take your questions. Let's take a look at the current state of Westwing. Overall, in Q2, we saw strong top line growth while navigating a challenging macro environment. Our revenue increased by 14% year-over-year to EUR 113 million. This was driven by 2 main factors. First, we saw continued top line momentum from country expansion. Second, we benefited from strong recurring sales events. Both drivers had already contributed significantly to our strong top line growth in the first quarter of the year. On bottom line, we achieved an adjusted EBITDA of EUR 5.4 million at a revenue margin of 4.8%. This represents a decline of about EUR 800,000 compared to the same period last year. The negative development in adjusted EBITDA stems from expected macro-driven pressure on contribution margin, including transportation cost increases and one-off effects related to a large software transformation. Free cash flow was negative at minus EUR 9.4 million, including an impact of EUR 9.5 million for the settlement of mostly legacy stock options. Our net working capital was negative at minus EUR 5.5 million at the end of Q2, EUR 11 million better than a year ago. We ended the quarter with EUR 68 million in net cash, which includes the aforementioned stock option settlements and additionally about EUR 3 million spent on share buybacks during Q2. Overall, net cash was EUR 18 million higher than at the end of Q2 2025, despite option settlements and share buybacks, reflecting the continued improvement in cash generation. Beyond key financials, we again made good progress on our 3-step plan to unlock Westwing's value potential. Our key achievements included: One, we grew our Westwing collection business by 11% year-over-year and our third-party assortment by an even stronger 23%, driven by the onboarding of new partner design brands over the past quarters. Two, we continue to build momentum in our expansion initiatives with strong development in the U.K. and the launch of 3 additional countries at the end of July. Three, we strengthened our physical retail cadence by opening a new store in Frankfurt and moving our Munich store to permanent location. Four, we launched new order and warehouse management systems replacing our proprietary legacy system and completing the final major tip in modernizing our technology staff. Five, we successfully opened a third-party operated U.K. warehouse in July. To complete the summary, the overall development is in line with our guidance that we published in March and which we confirm today. Revenue is now expected to land in the upper half of the guided range. 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 first phase, scaling with operating leverage. As we grow both in pre-2024 as well as in new Westwing markets, we remain focused on cost discipline for operating leverage. Because of that, we are able to invest throughout the cycle. Let me now briefly guide you through our progress on 2 key levers of the sale side of our plan as market share gains in existing geographies and country expansion. As outlined in previous earnings calls, the size improvements in product assortment, we see offline store expansion as a lever for share gains in existing markets. In Q2, we opened a store in Frankfurt and relocated the Munich store to permanent location. Let's have a look at some pictures. In Munich, we relocated from our so-called Walmart stores to the permanent location at, one of the city's premier shopping streets. Munich is especially meaningful to us as it is where our journey began and where most of our central teams are based, enabling us to learn and refine the customer experience even faster. The new Munich store is also the first to feature our enhanced in-store shopping concept to allow for an even better customer experience. Next to Munich, we are also very proud to now have a permanent store in Frankfurt located in the heart of the Financial District. So far, we had a great start in both new locations. In total, we now offer enhanced branded product experience to our customers and 6 stand-alone and 4 store in stores. Let's move on from gaining market share in existing geographies to entering new markets. Our expansion markets that as countries launched since May 2024, accounted for 12% of group GMV in Q2 2026. Back in February, we reached a major milestone by entering the United Kingdom, representing our largest expansion so far. In just a few months, it has already become the biggest expansion market in terms of GMV. This early success reflects our focus on delivering great customer experience from day 1. Alongside our curated product assortments, we launched in the U.K. with our interior design service, Westwing delivery service and B2B service. To serve U.K. customers even better, we opened a local third-party operated warehouse in July. This will help us to reduce delivery times while improving supply chain efficiency over time. Beyond the U.K. warehouse launch, we continue to expand our geographic footprint. At the end of July, we entered 3 additional markets: Estonia, Latvia and Lithuania, bringing our total footprint to 26 markets. We are pleased with the traction in the new markets, and we'll continue to invest into customer acquisition and long-term growth. 2026 is marketing investments will be weighted towards the fourth quarter, including brand building initiatives. 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, as always, with our top line performance. Growth continued in the second quarter with revenue increasing by 14% year-over-year, bringing revenue growth for the first 6 months of the year to 13%. As Andreas highlighted earlier, our Q2 performance was once again supported by our country expansion initiatives, the continued strength of our recurring sales events and strong growth in both the Western collection and our third-party assortment. Let us now take a closer look at our top line performance on segment level. We are pleased to report growth across both segments with revenue increasing by 10% year-over-year in DAS and by 19% in international. In the DAS segment, growth was supported by the continued expansion of our physical store network. And in the International segment, our country expansion initiatives continue to deliver strong results, with the U.K., in particular, maintaining very encouraging momentum after our launch earlier this year. Q2 adjusted EBITDA came in at EUR 5 million, down EUR 800,000 year-over-year. Profitability was impacted by the expected macro driven pressure on contribution margin, including fuel costs and unfavorable shifts in demand mix. In addition, we incurred temporary one-off costs related to the migration to our new order and warehouse management systems. These costs mainly reflected implementation-related expenses, lower warehouse productivity during the ramp-up phase following the system go live, which required an additional shift as well as lower freight efficiency. While some migration-related costs will continue into Q3, we expect them to be significantly lower than in Q2. At the same time, we have already started to realize the first efficiency gains from the new systems, particularly in our inbound processes, with the full benefits expected to materialize from Q4 onwards. Beyond efficiency improvements, the new platform will enable faster shipping and flexible delivery options for enhanced customer experience. Looking at the first half of 2026 compared to the previous year's period, adjusted EBITDA remained broadly flat. Let me continue with an overview of our P&L development with a focus on the second quarter of 2026. In Q2 2026, gross margin decreased by 0.7 percentage points year-over-year to 51.9%. This was driven by a slightly lower Westwing collection share, 63% compared to 65% in Q2 2025 as well as overall margin pressure across the portfolio. The fulfillment ratio increased by 2.6 percentage points year-over-year to minus 21.7%. This development was driven by 3 main factors: First, we incurred temporary one-off costs related to the migration to our new management systems as discussed earlier. Second, transportation costs increased year-over-year, mainly due to the temporary fuel surcharges following higher oil prices. In addition, the increase was driven by our targeted investments in freight quality in the DAS segment and regular carrier price increases. Third, we continue to experience unfavorable mix effects, reflecting macro-driven changes in consumer demand. This included trading down behavior and a shift away from larger furniture items, both of which had a negative impact on our unit economics. Overall, contribution margin decreased by 3.3 percentage points year-over-year to 30.2%. Our marketing ratio improved by 0.2 percentage points year-over-year to 13% despite our ongoing investments into country expansion. Please keep in mind that brand marketing investments will be concentrated on the fourth quarter, as Andreas mentioned already earlier, which means that marketing ratio is expected to increase in Q4 compared to the previous year's fourth quarter. Our G&A ratio, including other results improved by 2.1 percentage points year-over-year to 15.9% driven by significant scale effects despite additional G&A costs for our new stores. This marks our seventh consecutive quarter of operating leverage in G&A. The result adjusted EBIT margin came in at 1.3%, down 1 percentage points year-over-year. G&A ratio improved by 0.5 percentage points year-over-year to 3.5%, also driven by scale effects. Our adjusted EBITDA margin amounted to 4.8% in Q2 2026, down 1.5 percentage points compared to 3.6% in the previous year. While we are, of course, not happy about the year-over-year decline in adjusted EBITDA margin and absolute profitability, it is important to note that the pressure on our contribution margin was primarily driven by temporary factors, including one-off system migration costs and macro driven. At the same time, we continued to benefit from significant operating leverage in G&A, MD&A, demonstrating that the structural efficiency measures we have implemented to remain firmly on track. With that, let's move on to profitability on segment level. In Q2 2026, negative one-off effects from the migration to new order and warehouse management systems affected profitability in both segments as related costs were allocated based on gross sales. Adjusted EBITDA margin declined in both segments as a result of these one-offs as well as the aforementioned additional negative margin cuts. The DAS segment was to a large extent impacted by unfavorable mix effect and deliberate investments in freight quality, including a shift in shipment volumes towards carriers offering higher delivery service levels. Consequently, adjusted EBITDA margin declined more than in the international segment. A very encouraging signals that adjusted EBITDA in the international segment increased year-over-year in both Q1 and Q2 despite the pressure on contribution action. This demonstrates that our expansion initiatives contribute positively to adjusted EBITDA, with only the countries launched in 2026, still below breakeven as they continue to ramp up. Let us now take a look at our net working capital. At the end of Q2 2026, net working capital remained negative at minus EUR 5 million, a year-over-year improvement of EUR 11 million. This mainly reflects a favorable development in trade payables versus last year's period. I would also like to highlight our disciplined inventory management during the quarter, which made a positive contribution to net working capital as well. Despite top line growth and inventory investments into U.K.-specific product to support the U.K. launch, we maintained inventory levels broadly flat year-over-year, demonstrating continued focus on working capital efficiency. On the next slide, you can see CapEx and CapEx ratio for the first half of 2026 compared to the first half of 2025. The first half of 2026, CapEx came in at EUR 6 million, an increase of EUR 1 million year-over-year, corresponding to a slightly increased CapEx ratio of 2.4% of revenue compared to 2.1% in the prior year period. This temporarily increased CapEx was mostly driven by investments in intangible assets related to the migration to new order and warehouse management systems and some minor investments into our ERP system. Overall, our capital expenditure continues to reflect our disciplined approach and 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 68 million at the end of June 2026. Free cash flow was at minus EUR 9 million in Q2 2026, which includes a cash out of EUR 9 million related to the settlement of employee stock options. IFRS 16 lease payments amounted to EUR 3 million leading to a free cash flow after these payments of minus EUR 12 million for the quarter. Other financing cash flow amounted to minus EUR 3 million related to the purchase of treasury shares. As free cash flow in 2026 was significantly impacted by stock option settlements, I would like to provide a clear view of the underlying cash generation in the first half of 2026 compared with the prior year period. This slide shows free cash flow after lease payments and before stock option settlements for the first half of 2025 and 2026. The stock option settlements are split into 2 categories. The purple bars represent cash settlements related to legacy stock programs -- stock option programs, which were established before 2020. Light green bars represent settlements under newer programs introduced after 2020, including our employee equity participation programs and management board program. As you can see, around 2/3 of the stock option settlements in the first half of 2026, so approximately EUR 6 million related to legacy programs, while around EUR 3 million related to newer programs. In the same period last year, virtually all stock option settlements related to legacy programs. Looking at the underlying cash generation. Free cash flow after leases and before stock option settlements improved by around EUR 9 million year-over-year from minus EUR 17 million in the first half of 2025, minus EUR 8 million in the first half of 2026. As I mentioned earlier, this improvement was primarily driven by stronger net working capital performance. Overall, the negative free cash flow in the first half of the year should not come as a surprise. Our business has a pronounced seasonal cash flow profile with Q4 typically generating the strongest cash inflows due to higher profitability and favorable net working capital movements. These working capital effects naturally reverse in the first half of the following year, resulting typically in temporary negative free cash flow. Let me now provide some additional color on the stock option settlements in the first half of 2026 and what you can expect going forward. As we mentioned in previous calls, we have been actively accelerating the reduction of our outstanding legacy stock options by exercising our rights to force the exercise of vested options. Combined with the higher exercise volume due to the increase in our share price earlier this year, this resulted in cash settlements of around EUR 9 million in the first half and reduced the number of outstanding stock options from 3.5 million at the beginning of the year to 3.1 million today, already including additional grants under new programs. The reduction was primarily driven by the settlement of legacy stock options from programs established before 2020. The number of outstanding legacy options declined from around 2.5 million to 2 million during the first half. Importantly, the legacy options exercised in the first half of 2026 had an average exercise price of just EUR 3.10. The remaining legacy options have an average strike price of more than EUR 18, meaning the potential dilution from these programs has been reduced significantly, especially if you expect an increase in share price over time. Looking ahead, we expect the number of outstanding legacy stock options to decline by around 70% until the mid-2027, driven by continued force exercises and the scheduled expiry of several programs. As a result, by the end of Q2 2027, we expect our outstanding stock option base to consist to a very large extent of our newer long-term incentive and employee participation programs with only very limited dilution risk remaining from legacy programs established before 2020. Let us now turn to capital allocation. With EUR 68 million of net cash at the end of June, a CapEx line business model and a completed turnaround, disciplined capital allocation remains a key priority, and we remain fully committed to our 5 capital allocation principles, which we introduced earlier this year. I already covered this third principle, reducing dilution from outstanding stock options on the previous slides, and we talked about the latest settlements. I would now like to turn to our fifth capital allocation principle, returning excess capital -- excess capital to shareholders through share buybacks, and APS, accredit share cancellations. We are very pleased to report that we successfully completed the share buyback program, which was launched in February 2026. In total, we repurchased approximately 512,000 shares representing 2.6% of our share capital for a total consideration of EUR 8 million. The average purchase price was EUR 15.62 per share. Looking ahead, we will continue to have lite capital allocation opportunities across all 5 principles, including the potential for further share buybacks where we believe they create value for shareholders. Turning now to our outlook with some comments on current trading. We confirm our full year '26 guidance with revenue expected in the range of EUR 470 million to EUR 495 million, representing 5% to 10% year-over-year growth, and adjusted EBITDA of EUR 36 million to EUR 48 million, corresponding to a margin of 7.7% to 9.7%. Given our strong top line performance in the first half of the year, we expect revenue in the upper half of our guidance rate. Let me share some comments on this with a focus on trading. Despite our strong performance in the second quarter, we ended the third quarter with a year-over-year growth remaining broadly flat. We believe this was largely driven by exceptionally hot sunny and dry weather across Europe, which typically reduce online shopping activities and which temporarily shifted consumer spending towards seasonal products such as fans, portable air conditioners and heat protection products rather than home furnishing. Finally, the year-over-year comparison is also affected by a stronger prior year base. as July 2025. In contrast to this year's holiday season, the above average rainfall across large parts of Europe, providing more favorable conditions for online shipping. As we expect these effects to be temporary, we remain confident that growth will return over the remainder of the quarter. However, given the softer start to the quarter and the stronger prior year comparison, we expect growth for the third quarter as a whole to remain below the levels achieved in the first half of 2026. As a result, the growth rate achieved in the first half of 2026 should not be annualized. Nevertheless, we remain confident that top line growth will continue. Overall, we are well on track to deliver on our guidance for both revenue and profitability. We remain focused on executing our 3 several creation plan with a clear objective to further improving profitability and cash flow while unlocking Westwing's full value potential. With that, I hand back to Andreas to conclude the presentation with our investment highlights.

Thank you, Sebastian. Let me briefly recap the 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, both in our existing geographies and beyond. Third, we are developing the super brand in design with high loyalty and through potential to grow further. Fourth, we have higher 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 this will lead us in the midterm to 10% plus adjusted EBITDA with a continued strong cash conversion. This also allows us to continue to invest 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] So we already have the first question. This one is from Volker Bosse from Baader Bank.

Congratulations on the great top line momentum you achieved in the second quarter. And this brings me to the first question. I don't know if it's possible, but what would your task on like-for-like growth. So if we exclude the expansion effects online and offline expansion, what would be like-to-like, if that is possible to break out, so to say? And second question is on the adjusted EBITDA. Could you be more precise, how much of the one effects were related to the new order and warehouse management system and that's a bit of more meat on the bone regarding what does it mean this warehouse management system. You had more flexible options and faster deliveries. But how can that be achieved perhaps a bit more details on what you changed here and why you expect here this positive outcome to come through over time? And thus at least per clarification and as a reminder, so to say, on your expansion plans, you are now in '26 markets where do you want to be until when? And also on the offline side, now 6 stand-alone and 4 store in stores, as I got it right. What is your target until?

So Mr. Bosse, just a short moment. The speakers have to dial in again. I think the connection was lost. It will be back in a second. [Technical Difficulty]

They got the questions?

I guess they heard everything. They're just...

We seem to be back from Westwing side. Can you please confirm that you can hear us?

Yes, we can hear you.

Okay. Good. Then Volker, we'll go ahead with the answer to your questions, we'll answer number one. And I will answer #1 and 3, and Sebastian will take your question on the warehouse migration. So the first question you asked for like-for-like growth without expansion markets and without stores, so that means the pre-2024 markets, excluding offline, and here, growth was low to mid-single digits, actually. So very different from market to market. For instance, we had a very strong performance in Switzerland. We had a not so strong performance in some of the Southern European countries, especially Q2 was already affected by stronger or better weather conditions, actually, especially in the southern part. So that would be a like-for-like growth comparison, low to mid-single digits. And your third question was on expansion plans, both new geographies and offline. So yes, in terms of countries, we are now in 26 markets. We still have a few European markets that we want to cover. We will likely also open 1 or 2 more new markets this year, and potentially remaining questions in the remaining countries over the next 1, 2 years. But our focus at the moment lies on kind of completing the European country expansion as far as it makes sense. We don't have specific plans on 2027 and '28 yet for that, but we will let you know as soon as we have them. And then our expansion plans in terms of offline what we -- we have 10 offline locations at this point in time. As you know, our focus right now is on improving the customer experience further and top and bottom line in the stores. We are actually very pleased with the results so far, but we believe that we need to optimize further. This is a new business model for us. We launched the first store in 2022, and we are learning constantly how to -- how to serve the customers in the store, how to connect online with offline and this is best done with a limited number of stores, and this is our focus at the moment. It might be that we open 1 or 2 more offline locations over the next 12 months. but not -- no more than that. We will then, in about 12 months' time, we believe that we will be able to judge better on whether we have found a model that we would like to roll out further and kind of scenarios from what we believe could happen is from keeping the stores that we have right now up to a broader rollout. But this is, at the moment, we have not taken any decision. We are focusing on the operational excellence of the stores that we have, and we will come back with information on what we believe we should be doing when the time is right for that. I now hand over to Sebastian for the question that you had on the operations system migration.

Volker, thanks for your question. So the first part of your question was how much of the one-offs related to the order and warehouse management systems migration. So the entire one-off effect that we reported now in Q2 relates to the systems migration. -- of auto wealth management systems. To give you a rough idea about the amount, it's about EUR 1.4 million of impact in the second quarter. And coming to the second part of the question. So what are the actual improvements that we see? I would distinguish between benefits for the customers and then benefits for our warehouse costs, starting with the customer benefits. So there are 2 main advantages for customers. first advantage, which you can already experience in Germany is that we were able to reduce the expected delivery times for on stock just by 2 days, for example. So we are able to reduce the promised delivery times towards customers, which, of course, is a very good benefit for customers. And on top of that, we are able to allow for more flexible delivery options. To give one example there. today, for us, it's a very manual process to consolidate large orders and to deliver, I don't know, for a complete new furnishing of a new house all orders on a specific delivery data that the customer requests. And with our new motor wealth management system, we will be able to allow exactly this so to consolidate large orders and deliver them on a specific date, which is great for B2C customers that have large orders, but it's also a very, very important requirement to -- for our B2B business. So also there a really, really good benefit for our customers. In terms of efficiency gains, so the 2 main areas where we expect efficiency gains going forward is the inbound process and also the picking process. Regard to the inbound process, we are now able to move from Mobike, inbounding process, which significantly increases the inbound productivity, and with regard to the picking processes in the warehouse, we will be able to optimize the storage of items within the warehouse to optimize the picking distances. So although this will improve the warehouse efficiency going forward, it will take some time to really fully materialize. But as said, from Q4 onwards, we expect that the efficiency gains should fully materialize. And with regard to the inbound process efficiencies that we already see an impact. Does this answer your questions, Volker?

Yes, absolutely.