Westwing Group SE

On track to strengthen the premium H&L one-stop shop in 2024

Mark Schüssler26 Jun 2024 06:00

While 2024 revenue and active customer growth will be affected by headwinds in its International segment resulting from a deliberate and strategic adjustment of the product assortments in Spain and Italy by a low to mid single-digit percentage figure to enhance future scalability (all other countries should exhibit growth rates superior or equal to DACH, in our view), the company looks set to confirm and achieve its FY24 guidance and continue to outperform its market going forward.

Westwing is showing progress in its business transformation through building a strong brand via a more premium positioning: The company's prudent, anti-cyclical investments into its brand amid a generally depressed consumer environment helped the company increase its share of mind with the consumer and set it up to transform this into a bigger share of the consumer's wallet as well as boost traffic on the company's platform. This should have a favorable impact on the Westwing Collection share, which translates into higher gross margins, once the overall economic situation eases. While the fruits of this may not be immediate and increasing awareness and occupying more "mental real estate" requires patience from both the company and investors, the financial benefits thereof should be intriguing and pay off handsomely eventually; design-lovers who currently hold back on big-ticket items should turn to Westwing in a knee-jerk fashion when it comes to ordering premium Home & Living products once the macroeconomic skies clear.

Already Westwing's brand awareness campaign in DACH, which began in H2'23, has fueled top-line growth in the region both during Q4'23 (+2% yoy DACH sales) and Q1'24 (+8% yoy), strengthening the premium love brand of the company there. This came about despite a decline of the German Home & Living market of 6% and 4% in Q4'23 and Q1'24, respectively, implying market share gains in its biggest and most important market.

In our view, this demonstrates the effectiveness and promising potential of a scaled up marketing activity and Westwing's recently elevated marketing ratio (+4 ppts yoy to 12.8% of sales in Q1) should be regarded as a net positive. Moreover, the company can tap into its vast financial resources, wisely built up during the past quarters and thus comfortably lean on its formidable net cash position of € 82m (still about € 4 per share) to fund continuing investments into its brand and thereby boost active customer and GMV growth, paving the way for a return to double-digit topline growth by 2026 (eNuW: +10%).

Furthermore, the company is building a more scalable platform and reducing its cost base significantly through (1) switching its tech stack to a SaaS-based platform, (2)  consolidating its logistics footprint by re-routing the flow of goods via its central logistics center in Poland, (3) restructuring corporate functions in Spain and Italy, and (4) adjusting its product assortment there from a local to a more global setup.

Importantly, the company entered the Portuguese market in May, offering its Shop and Westwing Collection entirely based on its new SaaS tech platform, rendering unnecessary data migration and testing the tech stack transition. We regard this to be a sensible country expansion, testifying of Westwings prudent approach towards increasing its revenue base; by using AI to translate all web & app content, managing the expansion from HQ, and shipping items from its central logistics unit in Poland to achieve maximum scale effects, the company experiments in a low-cost way and thus gauges the engagement and interest of the Portuguese customer and avoid costly over-commitment of both capital and labor.

The company impresses with (1) a clear vision and action plan for reviving and continuing its growth story, (2) management's long-term focus over short-term considerations, and (3) its cost-conscious and sensible capital allocation to the benefit of the brand. Hence, Westwing remains on our Alpha List and we continue to like the stock at the current price.

We reiterate our BUY rating with an unchanged PT of € 18.00, based on DCF.

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