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Q3 Review: topline and margin beat // PT increased to € 22
WEW's Q3 results beat our expectations, returning to growth and improving margins. We reiterate our BUY recommendation at an increased €22.00 PT.
Yesterday, WEW released very strong Q3 figures, beating our topline and margin estimates. In detail:
Return to topline growth powered by geographic expansion. As anticipated, the shift in product assortment continued to weigh on GMV during Q3, resulting in a 9% yoy decline in active customers to 1.16m (eNuW: 1.23m) and a corresponding 14% drop in total orders to 460K (eNuW: 420k). This was partially offset by a higher average basket size of € 252 (+22% yoy). Thus, Q3 GMV landed at € 115m (+5.5% yoy), turning around the H1 decline (-4.2% yoy). Accordingly, sales grew 3% yoy to € 99m. Regionally, DACH declined by 2% yoy to € 52m, as the product reassortment was launched later in the region, whereas International took flight, climbing 11% yoy to € 47m as new markets contributed significantly.
Westwing Collection share reaches new high. After posting a record 65% GMV share of own products in Q2, WEW reached a new high of 66% (+8pp yoy), which implies a 20% yoy growth in own products GMV and a 15% yoy decline in third party products GMV. This is beneficial to gross margin, as the Westwing Collection products carry structurally higher margins than third party products. Consequently, gross profit in Q3 increased by 8% yoy to € 52m, with an implied gross margin of 52.7% (+2.2pp yoy).
Top-line growth and gross margin fuel EBITDA upside. Driven by top-line growth and gross margin expansion, contribution profit increased by 11% to € 33.6m (33.9% margin; +2.3pp yoy), which implies there were little efficiency gains in fulfillment due to initially lower fulfillment efficiency in the recently launched countries. G&A expense ratio increased 2pp yoy partly due to increased SBPs (adjusted for a higher stock price). Notwithstanding these factors, the company delivered an impressive adj. EBITDA growth of 74% yoy to € 6.1m (6.2% margin; +2.5pp yoy).
Positive FCF driven by sound WC management. In Q3, WEW reported a positive FCF of € 10m, mainly driven by a better cash conversion cycle (lower receivables, higher payables) and a tight inventory management, thereby avoiding the inventory buildup we had previously expected for the upcoming holiday period. We still see positive FCF generation for Q4 (eNuW: € 23m, thus € 17m for FY ‘25e) and remain confident that WEW could generate double-digit FCF for FY ´25, in line with management´s guidance.
On its way to reach the upper end of FY ´25 guidance. In light of Q3 results, we have updated our FY ´25 estimates to € 447m (0.5% yoy) in sales and adj. EBITDA of € 34.8m (7.8% margin, +2.4pp yoy), which corresponds to the upper end of the guidance, as management signaled after the results.
Overall, the turnaround plan continues to materialize, with earlier than anticipated top-line growth coupled with key cost drivers trending in the right direction. Despite the significant stock price hike after the results, we still see ample room for meaningful re-rating, highlighted by still cheap multiples (i.e. 4.5x EBITDA FY ‘26). Therefore, we reiterate our BUY rating, keep WEW in our AlphaList and increase our PT of € 22.00, based on DCF.
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