elumeo published mixed Q4’23 that continue to be affected by a lingering macroeconomic slowdown. Here are our key takeaways:

The company’s FY sales were slightly better than feared, but still burdened by muted consumer sentiment in the eurozone. Sales for FY came in flat at € 45.4m (-1% yoy; eNuW: € 44.7m), bolstered by increased spending in S&M and healthy return to customer growth (+9.3% yoy to 83k). While, the company saw another sharp decline in its average sales price, which declined to € 73 (-10% yoy) as customers postponed big ticket item purchases, items sold partially offset this downward movement and recovered to 623k (+10% yoy).

Having said that, the company’s EBIT declined sharply and came in negative at € -2.9m or -6.3% of sales (-3.2ppts; eNuW: € -1.2m). According to management, operating losses worsened as a result of increased investments in TV web sales channels and inflation-related decline in the gross profit margin. We note that the decline in the gross profit margin is concerning as it also suggests limited pricing power and increasing competition and have adjusted our estimates for FY24e and beyond accordingly. During the earnings call, management addressed ongoing margin issues by introducing a more restrictive return policy, increasing airtime for higher-margin products and utilizing AI in customer support. In our view, margin improvements will likely come at the cost of lower top-line growth, reflected in our slashed sales estimates.

As flagged in our last update, while jooli demonstrates a positive development, we currently do not expect any material top or bottom line contributions from in the foreseeable future. The company’s video-shopping platform exhibited a GMV of

c.

€ 4,558 (eNuW: € 16,110) in March 2024, with the number of orders totalling 1,353. Moreover, management set the take rate (referral fee) at 7.50% of GMV. In our view, the slower-than-expected growth of jooli makes substantial revenue and margin contributions unlikely during the foreseeable future.

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The company’s long-term outlook is mixed, reflected in its issued FY24 guidance. While sales are expected to grow 4-8% yoy (eNuW: 4.2%), the gross margin is seen to come in at 49-51% (eNuW new: 50.5%; eNuW old: 54%), thus significantly below our expectations. Long-term, we see elumeo growing its sales moderately by

4.6%

p.a. to € 54.3m due to (1) favorable performance in the company’s webshop (2) the continued and promising development of an interactive mobile jewellery shopping app and (3) AI translated automated shopping shows which should likely boost video shopping content globally. However, we note that this growth likely comes at the expenses of lower-than-expected EBIT profitability due to continued inflationary pressures and the need for continued investments in marketing.

Considering the above-mentioned challenges the company is beset with, we adjust our rating to HOLD under the present circumstances with a new PT of € 2.70 (old: € 5.00) based on DCF.