Westwing released better than feared Q2 results and lifted its FY 23 guidance. Q2 sales remained broadly flat yoy at € 102m (eNuW: € 100m), showing a sequential improvement versus Q1 (-7% yoy). DACH improved to -5% yoy (vs -8% yoy in Q1) while international markets returned to growth yoy (4% yoy vs -7% yoy in Q1). Notably, following several quarters of a decline, the number of active customers remained largely flat qoq at € 1.25m (vs -21% qoq in Q1). Moreover, Westwing further increased the share of wallet, reflected in GMV per customer up 8% yoy to € 376 (last 12 months) underpinning that Westwing’s loyal customers spend more over time thanks to the company’s excellent product offering and strong customer experience.

Adj. EBITDA came in ahead of expectations at € 4.4m (eNuW: € 2m) vs. € -2.3m in Q2 22, reflecting that efficiency measures and price increases are bearing fruit. With that, adj. EBITDA margin rose by 6.5pp yoy to 4.6% and FCF strongly improved to € 0.2m in Q2 (vs € -13m in Q2 22) supported by more efficient working capital.

Consequently, Westwing lifted its FY 23 guidance, now expecting the upper half of its sales and EBITDA target ranges. To recap, sales are seen to develop within a range of -9% to 2% yoy to € 390-440m (eNuW new: € 434m, eCons: € 429m) and adj. EBITDA to come in at € 4m to € 13m (eNuW new: € 18m, eCons: € 11m) with a margin of 1% to 3% (eNuW: 4.2%, eCons: 2.6%). FCF is expected to turn positive in FY 23e (eNuW: € 18m) driven by improving profitability and normalised inventory levels.

Overall, Westwing’s sequential recovery suggests that Q2 might have been the bottom and the company might have arrived at a positive inflection point. During the earnings call, management reconfirmed its ambition to return to top-line growth yoy in H2 driven by strategic initiatives such as OneWestwing (merging daily themes app and permanent assortment app, providing a seamless customer experience), positive effects from price increases as well as easier comps. Considering that Westwing has improved efficiency over the past 12 months, accelerating top-line growth looks set to fuel disproportionate bottom-line growth. Given that Q4 is typically the most profitable quarter, the EBITDA guidance looks conservative, in our view.

BUY, new PT € 18.00 (old: € 17.00), based on DCF (4% TY EBIT margin, 3% LT growth, 8.0% WACC).