Soft final Q4 results and a muted FY 23 outlook reflect that Westwing is facing another challenging year as consumers cut spending on higher-value products such as furniture, which comes on top of a general slowdown in online demand due to a normalisation post COVID boom. This should be particularly true for Westwing due to relatively low order frequency and high basket values in home & living. While Westwing looks set to benefit from its focus on home & living accessories (70% of sales), its positioning in the premium market segment makes the company vulnerable for ‘down-trading’. At the same time, the company has started to adapt to the new reality and efficiency measures start to support the margin recovery.

Sales are expected to develop within a range of -9% to 2% yoy in FY 23e, implying a 3.5% yoy sales decline at mid-point (eNuW: -3% yoy, eCons: -0.4% yoy) to € 390-440m (eNuW: € 418m, eCons: € 429m). While comps are seen to ease from Q1 onwards, the macro environment remains challenging as European consumers are seen to face higher energy payments with a time lag going into 2023e. Moreover, Westwing’s decline in active customers has not slowed down in Q4 (-22% yoy), which suggests a sluggish top-line development especially in H1, even though GMV per customer has improved by 6% yoy to € 364 in Q4.

Nonetheless, adj. EBITDA is seen at € 4m to € 13m (eNuW: € 7.0m, eCons: € 11m) with a margin of 1% to 3% (eNuW: 1.7%, eCons: 2.6%). At mid-point, this implies a margin improvement of 2.5pp yoy, reflecting that efficiency measures are bearing fruit. This should be carried by improved contribution margins on the back of better full-price sell-through and mix (i.e. higher private label share, +7pp yoy to 44% of GMV in Q4) as well as reduced G&A expenses due to cost savings (i.e. personnel). Consequently, FCF is expected to turn positive again in FY 23e (eNuW: € 2m) driven by improving profitability and normalised inventory levels.

Against this backdrop, short-term news flow looks set to remain uninspiring while we remain convinced of Westwing’s long-term prospects driven by the structural shift towards e-commerce and its unique positioning in the European home & living market. Hence, we expect Westwing to return to its mid-term growth trajectory of around 10% p.a. in FY 24/25e and profitability is seen to recover assuming normalised input costs and solid operating leverage. BUY, PT € 16.00, based on DCF (4% TY EBIT margin, 3% LT growth, 8.0% WACC).