Mixed Q1 results reflected 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. At the same time, efficiency measures are bearing fruit, leading to improved profitability and cash generation.

Q1 sales decreased by 7% yoy to € 103m (eNuW: € 105.5m), showing a sequential improvement versus Q4 (-14% yoy), equally driven by DACH and international markets. At the same time, adj. EBITDA arrived ahead of expectations at € 5m in Q1 (eHAIB: € 1m), representing a margin improvement of 6.4pp yoy to 4.9%. Key drivers have been € 30m cost savings on the back of reduced performance marketing and personnel cost savings. Moreover, Westwing continued to streamline the organisation, which led to a reduction in G&A expenses. Adj. EBITDA margin in DACH recovered to 9.0% (+5.2pp yoy) while international markets reached break-even (+8pp yoy). Consequently, FCF came in at € 10m (vs € -17m in Q1 22) despite Q1 being a seasonally weaker quarter.

Westwing confirmed its FY 23 guidance of sales to develop within a range of -9% to 2% yoy (eHAIB: -3% yoy, eCons: -0.4% yoy) to € 390-440m (eNuW: € 418m, eCons: € 429m). While muted consumer sentiment and the decline in active customers (-21% yoy in Q1) should weigh on growth in H1, management expressed confidence to return to growth in H2, supported by easing comps and a stabilisation in m-o-m customer data. Adj. EBITDA outlook was reiterated at € 4m to € 13m (eNuW: € 12m, eCons: € 8m) with a margin of 1% to 3% (eNuW: 2.9%, eCons: 1.9%). Considering € 5m adj. EBITDA in Q1, the bottom-line guidance looks increasingly conservative, in our view. FCF is expected to turn positive in FY 23E (eNuW: € 14m) driven by improving profitability and normalised inventory levels.

Overall, Westwing has started to successfully adapt to the current transition period. While visibility on active customers returning to growth remains low, Westwing’s mid-term prospects continue to look attractive 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 by 6pp to 5.0% until 25E.

BUY, PT € 16.00, based on DCF (4% TY EBIT margin, 3% LT growth, 8.0% WACC).