Westwing published better-than-feared Q4 preliminary figures, indicating a gradual recovery following the consumption shock in H1 2022.Consequently, management confirmed its FY 2022 revenue guidance of € 410-450m (eNuW: € 430m, eCons: € 424m) and the upper half of the € -15m-0m EBIT range (eNuW: € -4m, eCons: € -10m).

For Q4, this implies a 14% revenue decline yoy to c. € 128m, which came in ahead of expectations. While consumer sentiment remained challenging in Q4, Westwing was able to capitalise on its attractive private label offering (“Westwing Collection”), which grew by 7pp yoy to 44% of group sales.

Adj. EBITDA remained positive in the seasonally important Q4 at c. € 4.5m (eNuW), while the margin still declined by 3.4pp yoy to 3.5% due to negative operating leverage and higher input / freight costs. However, this represents a significant sequential improvement vs 9M (-10pp yoy ti -2.8%), suggesting that cost measures have started to bear fruit (i.e. personnel). Hence, FCF again turned positive in Q4.

Short-term news flow looks set to remain uninspiring as GMV continued to decline by 14% yoy (Q3: -13% yoy) and the number of active customers shrank by 23% yoy to 1.32m in Q4 (vs -19% yoy in Q3). Moreover, demand for home & living is unlikely to rebound in the short-term as European consumers will face energy bills in the coming quarters.

At the same time, a potential economic recovery towards the end of 2023e, the ongoing shift towards eCommerce as well as easing comparables from Q1 onwards (sales -20% yoy in Q1 22 vs -4% yoy in Q4 21) explain why we expect Westwing to return to growth in FY 23e. Moreover, supply-chains and input costs seem to be gradually improving, which should allow for a slight positive adj. EBITDA in FY 23e.

In our view, the trough has been reached and Westwing’s operating performance should continue to improve gradually in the coming quarters. Westwing’s balance sheet looks healthy boasting a € 52m net cash position (FY 2022, eNuW). Despite the recent share price recovery, the stock is trading at a ~20% discount to its 3y average EV/sales 2023e (0.48x vs 0.62x). 

BUY, unchanged PT of € 16.00 based on DCF  (4.0% terminal EBIT margin, 3.0% long-term growth, 8.0% WACC).