Original-Research: Westwing Group SE (von NuWays AG): BUY

Classification of NuWays AG to Westwing Group SE

Company Name:	Westwing Group SE
ISIN:	DE000A2N4H07
Reason for the research:	Update
Recommendation:	BUY
from:	09.08.2024
Target price:	EUR 17.50
Last rating change:
Analyst:	Mark Schüssler

Solid Q2'24 results // FY'24 guidance confirmed; chg.

Westwing released solid Q2 results and was able to continue the trend of yoy GMV growth witnessed in the recent  quarters (+5% yoy to €  114m in Q2). Q2 sales were slightly higher than expected and increased  by 4.1% yoy to €  106m (eNuW: €  104m), driven  by healthy growth in active customers (+2% yoy to 1.28m) and a surging basket size (+11% yoy to € 198). DACH grew 4.5%, while International remained flat yoy, implying continued market share gains amid a flat German online Home & Living market yoy.

At the same time, adj. EBITDA was below estimates at € 3.9m in Q2 (eNuW: € 5.7m), representing a margin of 3.7% (-0.7ppts yoy), as a result of elevated investments in brand awareness, which - although flagged in our last update - came in higher than expected. Having said that, Westwing's higher marketing ratio should be regarded as a net positive since it allows the company to increase share of mind with the consumer which eventually can be translated into a higher share of customer wallet once the macroeconomic picture improves.

Nonetheless, Westwing demonstrated a contribution margin expansion of +1.8ppts yoy to 30.6%, thanks to a favorable product mix (i.e. significantly higher private label share, +7ppts yoy to 53% of GMV in Q2), and reduced fulfilment expenses (-1.4ppts yoy) as a result of cost savings through consolidation in logistics. Working capital increased by € 7.7m but was once again negative at € -11m (Q1: €  -19m) due to payment-related timing effects in Q1 as well as the seasonal build-up of inventory, leading to Q2 FCF of € -7.3m (Q2'23 FCF: € 0.2m).

The company confirmed its FY24 guidance with sales growth  seen at 3%  to 4% yoy to €  415-445m (eNuW new: € 435; eNuW old: € 442m). Management continues to expect H2'24 sales to be weighed down by complexity reductions and strategic adjustments of the product offering in Spain and Italy (now completed) as well as Czech Republic, Poland, and Slovakia (to be implemented in H2), and the ongoing challenges in the general home & living market.

The adj. EBITDA outlook was reiterated at € 14m to € 24m, implying a 3-6% margin (eNuW new: €  18.5m; eNuW  old: €  23.7m). Considering €  10.2m adj. EBITDA in H1, the bottom-line guidance looks achievable, in our view, while FCF for the full year should likely be close to break-even (eNuW: € 0.3m) due to one-off restructuring costs (i.e. complexity reduction, SaaS transition) and normalizing inventory patterns.

All in all, the company impresses with (1) a clear vision and action plan for reviving and continuing its growth story, (2) management's longterm focus over short-term considerations, and (3) its cost-conscious and sensible capital allocation to the benefit of the brand. Considering the currently very undemanding valuation, we continue to like the stock and reiterate our BUY rating with a  changed PT of € 17.50 (old: € 18.00), based on DCF.

You can download the research here: http://www.more-ir.de/d/30413.pdf
For additional information visit our website: www.nuways-ag.com/research

Contact for questions:
NuWays AG - Equity Research
Web: www.nuways-ag.com
Email: research@nuways-ag.com
LinkedIn: https://www.linkedin.com/company/nuwaysag
Adresse: Mittelweg 16-17, 20148 Hamburg, Germany
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