fashionette released solid Q2 results and upgraded its FY 23 EBITDA guidance reflecting that efficiency measures are bearing fruit. Importantly, the decrease in net sales in Q2 was mostly driven by the discontinuation of beauty and smartwatches units. Organically, sales increased by 2% yoy in Q2 showing a slight slowdown vs Q1 (4% yoy) as fashionette reduced markdown activity to boost gross margin (+5pp yoy to 44%). Consequently, profitability strongly improved supported by the discontinuation of beauty and smartwatches as well as efficiency measures, resulting in an adj. EBTIDA of € 2.0m in Q2 (vs € 0.2m in Q2 22) and a margin of 6.9% (+6.4pp yoy).

fashionette upgraded its FY 23 guidance. Net revenues are still expected to grow by 5-8% yoy to € 173-178m (eNuW: € 176m, eCons: € 177m) including a negative single-digit €m effect from the discontinuation of beauty and smartwatches. In Q3-Q4, this requires a growth pick-up, which should be driven by the platform transition. Adj. EBITDA is now expected in the range of € 5-6m (previously: € 2-3m, eNuW: € 5.6m, eCons: € 3.0m), implying a 3.1% margin at mid-point. This represents an improvement of 2.9pp yoy despite one-off restructuring expenses of € 1.8-2.8m.

News flow looks set to remain positive as an extraordinary AGM on September 6 should pave the way for a business combination between fashionette and The Platform Group. Considering fashionette’s current market cap of € 41m, TPG should be valued at € 75m and € 95m EV, translating into merely c. 4.7x EV/EBITDA 23e for TPG and hence more than 50% discount to online peers. Consequently, the combined entity would be trading at an EV of € 142m, implying an attractive 5x EV/EBITDA 24e considering the sound profitability of The Platform Group (8.7% EBITDA margin in FY 22).

CEO Benner aims to transform fashionette into a true luxury eCommerce platform in the mid-term and the platform transition seems to be well on track. In September 2023, 130 B2B partners will be connected to the ecosystem and the number should rise to 200 until year-end. This should result in an elevated customer experience thanks to assortment breadth / depth and profitability is seen to increase structurally as the platform approach is capital-light and fashionette carries less inventory risk.

BUY, new PT € 23.00 (old: € 21), based on DCF.