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Original-Research: Westwing Group SE - from NuWays AG

Classification of NuWays AG to Westwing Group SE

Company Name: Westwing Group SE
ISIN: DE000A2N4H07

Reason for the research: Update
Recommendation: Kaufen
from: 26.06.2024
Target price: EUR 18.00
Target price on sight of: 12 Monaten
Last rating change:
Analyst: Mark Schüssler

On track to strengthen the premium H&L one-stop shop in 2024

While 2024 revenue and active customer growth will be affected by
headwinds in its International segment resulting from a deliberate and
strategic adjustment of the product assortments in Spain and Italy by a low
to mid single-digit percentage figure to enhance future scalability (all
other countries should exhibit growth rates superior or equal to DACH, in
our view), the company looks set to confirm and achieve its FY24 guidance
and continue to outperform its market going forward.

Westwing is showing progress in its business transformation through
building a strong brand via a more premium positioning: The company's
prudent, anti-cyclical investments into its brand amid a generally
depressed consumer environment helped the company increase its share of
mind with the consumer and set it up to transform this into a bigger share
of the consumer's wallet as well as boost traffic on the company's
platform. This should have a favorable impact on the Westwing Collection
share, which translates into higher gross margins, once the overall
economic situation eases. While the fruits of this may not be immediate and
increasing awareness and occupying more 'mental real estate' requires
patience from both the company and investors, the financial benefits
thereof should be intriguing and pay off handsomely eventually;
design-lovers who currently hold back on big-ticket items should turn to
Westwing in a knee-jerk fashion when it comes to ordering premium Home &
Living products once the macroeconomic skies clear.

Already Westwing's brand awareness campaign in DACH, which began in H2'23,
has fueled topline growth in the region both during Q4'23 (+2% yoy DACH
sales) and Q1'24 (+8% yoy), strengthening the premium love brand of the
company there. This came about despite a decline of the German
Home & Living market of 6% and 4% in Q4'23 and Q1'24, respectively,
implying market share gains in its biggest and most important market.

In our view, this demonstrates the effectiveness and promising potential of
a scaled up marketing activity and Westwing's recently elevated marketing
ratio (+4 ppts yoy to 12.8% of sales in Q1) should be regarded as a net
positive. Moreover, the company can tap into its vast financial resources,
wisely built up during the past quarters and thus comfortably lean on its
formidable net cash position of EUR 82m (still about EUR 4 per share) to fund
continuing investments into its brand and thereby boost active customer
and GMV growth, paving the way for a return to double-digit topline growth
by 2026 (eNuW: +10%).

Furthermore, the company is building a more scalable platform and
reducing its cost base significantly through (1) switching its tech stack
to a SaaS-based platform, (2) consolidating its logistics footprint by
re-routing the flow of goods via its central logistics center in Poland,
(3) restructuring corporate functions in Spain and Italy, and (4) adjusting
its product assortment there from a local to a more global setup.

Importantly, the company entered the Portuguese market in May, offering its
Shop and Westwing Collection entirely based on its new SaaS tech platform,
rendering unnecessary data migration and testing the tech stack transition.
We regard this to be a sensible country expansion, testifying of Westwings
prudent approach towards increasing its revenue base; by using AI to
translate all web & app content, managing the expansion from HQ, and
shipping items from its central logistics unit in Poland to achieve maximum
scale effects, the company experiments in a low-cost way and thus gauges
the engagement and interest of the Portuguese customer and avoid costly
over-commitment of both capital and labor.

The company impresses with (1) a clear vision and action plan for reviving
and continuing its growth story, (2) management's longterm focus over
short-term considerations, and (3) its costconscious and sensible capital
allocation to the benefit of the brand. Hence, Westwing remains on our
Alpha List and we continue to like the stock at the current price.

We reiterate our BUY rating with an unchanged PT of EUR 18.00, based on DCF.

You can download the research here:
http://www.more-ir.de/d/30097.pdf
For additional information visit our website
www.nuways-ag.com/research.

Contact for questions
NuWays AG - Equity Research
Web: www.nuways-ag.com
Email: research@nuways-ag.com
LinkedIn: https://www.linkedin.com/company/nuwaysag
Adresse: Mittelweg 16-17, 20148 Hamburg, Germany
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Offenlegung möglicher Interessenskonflikte nach § 85 WpHG beim oben analysierten Unternehmen befinden sich in der vollständigen Analyse.
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The result of this research does not constitute investment advice
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