Growth accelerated through FY20

Fashionette 11 May 2021 Update
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fashionette

Growth accelerated through FY20

Retail

Scale research report - Update

11 May 2021

Price

€34.0

Market cap

€211m

Share price graph

Share details

Code

FSNT

Listing

Deutsche Börse Scale

Shares in issue

6.2m

Last reported net cash at 31 December 2020

€23.3m

Business description

fashionette is an online platform for premium and luxury fashion accessories in Europe. Geographically, the DACH region is its core, representing c 85% of revenue in FY20. It is seeking to diversify by geography and product offering.

Bull

Broad product and luxury brand offer.

Fragmented markets with strong growth outlook.

Data-driven processes expected to optimise the cost of acquisition and lifetime value of customers.

Bear

Premium and luxury demand is sensitive to economic growth.

fashionette brand name is less well known across new geographies that are targeted for growth.

Profit growth may lag revenue as it invests to acquire market share in new geographies.

Analysts

Russell Pointon

+44 203 077 5700

Sara Welford

+44 203 077 5700

fashionette delivered strong growth in revenue, profitability and cash flow, and a good improvement in KPIs in FY20, with improving trends through the year. The acquisition of Brandfield will accelerate fashionette’s geographic expansion plans, present revenue synergies from range extensions, and potential upsell to customers. Near-term investment will lead to lower profitability in FY21 before management expectations of improving profitability thereafter. The FY22e P/E of 30.1x (using consensus estimates) is at a discount to the average of other online peers and the average of luxury goods companies.

FY20: Exceeded management expectations

In FY20, fashionette’s range extension and geographic expansion delivered growth in revenue, EBITDA and most KPIs. Revenue growth of 29.6% y-o-y was driven by significant increases in new customers, active customers and orders, while average order value (AOV) declined as expected due to mix and the increase in new customers. A relatively stable adjusted EBITDA margin of 9.4% (FY19: 9.8%) was helped by leverage of staff and marketing costs. The year-end net cash position of €23.3m reflects the improvement in free cash flow generation and proceeds from the October 2020 IPO.

FY21: Revenue boosted by M&A but lower margin

The acquisition of Brandfield will accelerate fashionette’s geographic expansion. Management expects it to provide opportunities for revenue synergies from range extensions and upselling. In addition, there will be operating cost leverage in the medium term following initial margin dilution due to investment in infrastructure and marketing. For FY21, management guides to y-o-y revenue growth of 49–58% to €141–150m including organic growth for fashionette of 24–30% (€118–123m) and a decline in EBITDA of 22–44% to €5.0–6.9m. The consensus estimates for revenue in FY21 (€151.1m) is higher than guidance, and EBITDA (€6.7m) is towards the top of guidance.

Valuation: FY21 elevated due to lower margin

fashionette’s P/E of 91.9x in FY21e is at a premium to the adjusted average for online/offline peers (45.0x), albeit the range of multiples is very wide (see Exhibit 4), and a premium to the average P/E multiple for the luxury goods companies (43.1x). Its P/E multiple for FY22 of 30.1x is at a discount of 18% to the adjusted average online/offline peer multiple and a discount of 6% to the average multiple of the luxury goods companies.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

73.2

3.1**

N/A

0.0

N/A

N/A

12/20

94.8

5.0**

N/A

0.0

N/A

N/A

12/21e

151.1

2.8

0.37

0.0

91.9

N/A

12/22e

227.2

8.4

1.13

0.0

30.1

N/A

Source: Refinitiv, **Edison Investment Research

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

A strong debut

Following the IPO in October 2020, fashionette has reported a very strong set of results for FY20, with growth in new and total customers, orders, revenue, EBITDA and cash flow. In addition, fashionette announced its first significant acquisition, Brandfield, a Netherlands-based online retailer of premium fashion accessories with a presence in 11 European countries, which will help to accelerate fashionette’s expansion plans outside the DACH region.

Income statement: Improved momentum through the year

Exhibit 1: Summary income statement and KPIs

€m

H119

H219

FY19

H120

H220

FY20

Total revenue

60.9

67.8

128.7

70.7

91.9

162.6

Growth y-o-y

11.0%

16.1%

35.5%

26.3%

Less credits

(28.0)

(27.5)

(55.5)

(31.6)

(36.2)

(67.8)

As % of total revenue

46.0%

40.6%

43.2%

44.6%

39.4%

41.7%

Revenue

32.8

40.3

73.2

39.1

55.7

94.8

Growth y-o-y

12.1%

19.2%

38.1%

29.6%

Cost of sales

(19.4)

(23.9)

(43.3)

(23.9)

(33.4)

(57.3)

Other operating income

0.3

0.8

1.1

0.4

1.3

1.7

Gross profit

13.7

17.2

31.0

15.7

23.6

39.2

Gross margin

41.8%

42.7%

42.3%

40.0%

42.3%

41.4%

Personnel expenses

(3.3)

(3.3)

(6.7)

(3.4)

(4.1)

(7.5)

Other operating expenses

(7.9)

(9.6)

(17.5)

(9.4)

(16.4)

(25.8)

Adjusted EBITDA

N/A

N/A

7.1

N/A

N/A

8.9

Margin

9.8%

9.4%

EBITDA

2.5

4.3

6.8

2.8

3.0

5.9

Margin

7.5%

10.7%

9.3%

7.3%

5.5%

6.2%

Operating profit

1.2

3.0

4.3

1.6

1.8

3.4

Margin

3.8%

7.5%

5.8%

4.1%

3.3%

3.6%

Net interest

(0.7)

(0.8)

(1.5)

(0.8)

(0.7)

(1.5)

Adjusted PBT **

0.5

2.3

3.1

0.8

1.2

5.0

PBT

0.5

2.3

2.8

0.8

1.1

2.0

Income tax

(0.4)

(1.0)

(1.4)

(0.5)

(0.6)

(1.1)

Net income

0.1

1.3

1.4

0.3

0.5

0.9

KPIs:

New customers ('000)

62.8

84.3

147.1

85.3

154.8

240.1

Growth y-o-y

5.8%

35.8%

83.6%

63.2%

Active customers ('000) (last twelve months)

219.8

238.5

270.3

357.1

Growth y-o-y

11.4%

23.0%

49.7%

Average order value (AOV) (€)

317.0

306.3

284.2

261.0

Growth y-o-y

(0.9%)

(10.3%)

(14.8%)

Number of orders ('000)

187.0

230.5

417.5

243.3

364.4

607.7

Growth y-o-y

10.1%

30.1%

58.1%

45.6%

Customer acquisition cost (CAC) (€)

49.3

36.7

Growth y-o-y

(12.6%)

(25.6%)

Marketing cost ratio (% of AOV)

5.7

5.6

Source: fashionette. Note: **Edison figures.

Revenue: Growth in customers and orders

fashionette’s y-o-y revenue growth of c 29.6% in FY20 was due to a combination of active customer growth of +49.7% to c 357k, offset by a decline in AOV of 14.8% to €261.

Customer growth was helped by range extensions (stock keeping units or SKUs) increased by 59% y-o-y to more than 140k from a 37% increase in the number of brands to 180), which increases the potential addressable market and customer base, as well as geographic expansion. Customer growth outside the core DACH region of 72% was ahead of the group average, and the non-DACH region represented 15% of revenue in FY20 versus 11.4% in FY19.

The decline in AOV reflects a change in product mix, ie increased share of lower-priced items such as sunglasses and leather goods, as well as expected dilution from the addition of more new customers (+63.2% y-o-y is ahead of active customer growth) whose level of spend naturally takes time to mature. Exhibit 2 illustrates how fashionette’s order value progresses as the customer’s maturity profile increases.

Exhibit 2: fashionette’s order value lifecycle

Source: fashionette FY20 presentation

Growth in the number of orders (+46% y-o-y to 608k) was comparable to growth in the number of visits to fashionette websites (+46% to 39.8m), suggesting a similar conversion rate in both FY19 and FY20.

The acceleration in growth from H120 through H220 and versus FY19 for customer numbers, orders and revenue highlights the increasing success of the data-driven processes, which management believed would start to deliver higher rates of growth following a period of investment ahead of the IPO.

Management is encouraged by the y-o-y reduction in credits (reduction from total revenue) to 41.7% from 43.2% in FY19 despite the strong growth in new customers and the extension of categories and SKUs.

Costs and profitability: Trends as expected

Gross margin of 41.4% in FY20 declined by 40bp from 42.3% in FY19 due to mix, with a lower year-on-year delta for the H220 margin versus the prior year than for H120. The gross margin is not an important KPI for management given the significant variation in gross margin for products (low 30s for entry-level items and sunglasses to low 60s for own-brand products and fragrancies), so can be affected by sales mix. The reported gross margin of 41.4% includes €1.7m of other operating income versus €1.1m in FY19. If we eliminate other operating income, underlying product gross margin was 39.6% versus 40.9% in the prior year.

fashionette’s adjusted EBITDA (ie before non-recurring costs) grew by 24.5% y-o-y to €8.9m. The adjusted EBITDA margin of 9.4% for FY20 declined slightly versus 9.8% in FY19. Management anticipated a reduction given the outlook for a lower gross margin due to changes in mix, and the ongoing investment in growing the business. The EBITDA margin was helped by leveraging staff costs, which grew by just 12.3% y-o-y, offset by growth in other operating expenses which includes non-recurring costs of c 47.6%. For the key line items in other operating costs, the multi-year trend of improved marketing efficiency (see below) continued as advertising declined from 10.5% of revenue in FY19 to 9.6% in FY20, and distribution expenses increased from 6.3% of revenue in FY19 to 7.1% in FY20 due to strong volume growth. The less significant expense of loss on receivables increased by 50bp to 0.8% of revenue, but appears not to be a concern to management.

The marketing cost ratio relative to AOV declined by 10bp y-o-y to 5.6%, following a reduction of 94bp in FY19 from 6.6%. Note that historical figures for marketing cost ratio and customer acquisition cost (CAC) have been restated from those included in the IPO presentation due to the movement of IT costs from marketing to IT.

Operating profit of €3.4m in FY20 represented a y-o-y decline of 19.3% due to the inclusion of incremental non-recurring costs. On a normalised basis, operating profit of €6.5m represented a higher margin of 6.8% than FY19’s 6.3% due to marginally lower depreciation and amortisation.

Net interest expenses of €1.5m were in line with the prior year and the effective tax rate of 33.0% was similar to FY19’s 32.7%, leading to lower reported net income of €872k (net margin of 0.9%) versus €1.4m in FY19 (net margin of 1.9%).

Cash flow and balance sheet

fashionette’s operating cash flow almost trebled to €5.2m in FY20 as lower net income and higher cash payments were offset by lower working capital investment, primarily due to an inflow on trade payables. Debtor days reduced from 42 at the end of FY19 to 29 at the end of FY20.

Investing cash flow of -€0.7m was similar to FY19’s -€0.8m, leading to free cash flow (after interest payments) of €3.2m, which compares very favourably with the outflow of €433k in FY19.

At the end of FY20, fashionette had a cash position of €38.1m and a net cash position of €23.3m, due to the improvement in operating cash flow and net proceeds of c €35m from the IPO.

Acquisition of Brandfield

With the results, management announced the acquisition of Brandfield, a Netherlands-based online retailer of premium fashion accessories, with 75% of revenue from the Netherlands and Belgium and a presence in nine other European countries.

The acquisition will accelerate fashionette’s geographic expansion plans and provide the opportunity for revenue synergies through range extension to Brandfield’s customers and the use of fashionette’s data-driven processes. Brandfield offers more than 8,000 SKUs versus fashionette’s more than 140k. Brandfield’s product focus is currently more on jewellery (48% of total), watches and leather goods (10% of total), compared with fashionette’s greater focus on handbags, shoes and sunglasses. In addition, Brandfield has a much higher representation of own-branded products (40%) than fashionette. All of the above contribute to Brandfield’s AOV of more than €80 (from more than 450k orders) being significantly lower than fashionette’s AOV of €261, implying strong potential to upsell if the customer base has a similar disposal income profile.

In FY20 (ending June), Brandfield’s revenue was €26.7m and in FY21 is expected to generate revenue of c €40m (y-o-y growth of c 50%) and adjusted EBITDA of €2.8m (margin of 7%).

The acquisition price of ‘lower double-digit million euros’ would represent prospective multiples, if we assume an acquisition price of €11–14m, EV/Sales of 0.28–035x and EV/EBITDA of 3.9–5x, which are very low multiples versus other online peers.

New guidance for FY21

Management has provided its first guidance for FY21 which incorporates the acquisition of Brandfield from the start of July 2021, ie for six months. Guidance for revenue of €141–150m represents y-o-y growth of 49–58% and adjusted EBITDA of €5.0–6.9m a y-o-y decline of 22–44%, which equates to an adjusted EBITDA margin of 3.5–4.6%, below the historical adjusted margins for fashionette (9.4%) and Brandfield (7.0%). The lower initial margin is a function of investing in the platform, customer experience and customer acquisition. A breakdown of the new guidance is shown in Exhibit 3 below.

Exhibit 3: fashionette’s FY21 guidance

€m

FY21 pro forma

FY21 guidance

Net revenue:

fashionette

118–123

118–123

Brandfield

42–47

23–27

Combined

160–170

141–150

Adjusted EBITDA:

fashionette

4.1–5.5

4.1–5.5

Brandfield

1.9–2.6

0.9–1.4

Combined

6.0–8.1

5.0–6.9

Adjusted EBITDA margin:

fashionette

3.5–4.5%

3.5–4.5%

Brandfield

4.5–5.5%

3.9–5.2%

Combined

3.8–4.8%

3.5–4.6%

Source: fashionette FY20 presentation

For fashionette alone, FY21 revenue guidance of €118–123m represents y-o-y growth of 24–30%. Management has provided no guidance for growth or margins beyond FY21, but is confident that revenue and cost synergies should lead to a higher group margin after FY21, and ultimately the adjusted EBITDA margin should be double-digit in the medium to long term.

Valuation

We include a peer valuation table for two groups of peers: companies that operate online platforms/marketplaces with exposure to the consumer or are offline retailers of luxury brands, and luxury goods companies that own the brands that are sold by fashionette. The online/offline companies include companies with quite different exposure to fashionette from the perspective of geographic coverage and products offered. The recently floated, mytheresa (MYT) is the closest comparator.

fashionette’s P/E of 91.9x in FY21e is at a premium to the adjusted average for online/offline peers, albeit the range of multiples is very wide, and at a premium to the average of luxury goods companies (41.9x). Its P/E multiple of 30.1x in FY22e is at a 18% discount to the average online/offline peer multiple and a 6% discount to the average of the luxury goods companies.

Exhibit 4: Peer valuations

Ccy

Price

Market cap (local, m)

EV
(local, m)

Sales growth (%)

EBIT margin (%)

EV/Sales
(x)

EV/
EBIT (x)

P/E
(x)

FY1

FY2

FY1

FY2

FY1

FY2

FY1

FY2

FY1

FY2

Online/offline consumer

Amazon

USD

3,190.5

1,609,040

1,604,931

27.0

18.6

7.0

8.1

3.3

2.8

46.8

34.1

57.3

44.3

ASOS

GBp

5,000.0

4,940

5,229

21.6

18.2

4.8

4.4

1.3

1.1

27.6

25.3

33.6

31.2

Boohoo Group

GBp

322.9

4,030

3,772

28.9

23.2

7.3

7.6

1.7

1.4

23.0

18.0

30.0

24.0

Boozt

SEK

187.6

11,990

11,228

26.5

16.2

5.7

6.2

2.0

1.8

35.4

28.3

43.5

37.1

Calida Holding

CHF

32.8

271

282

5.1

2.6

5.1

6.0

0.8

0.8

15.8

13.0

20.8

16.9

Delticom

EUR

8.1

101

190

6.0

6.8

1.8

2.7

0.3

0.3

18.1

11.5

19.5

8.8

eBay

USD

61.4

41,857

45,540

17.2

7.7

29.0

29.9

3.8

3.5

13.0

11.7

15.6

13.5

Farfetch

USD

41.0

14,530

13,951

32.4

28.2

(21.2)

(13.5)

6.3

4.9

N/A

N/A

N/A

N/A

MYT Netherlands Parent

USD

27.6

2,371

2,195

N/A

20.4

6.6

6.3

3.8

3.1

57.7

49.8

61.4

65.1

Shop Apotheke Europe

EUR

153.6

2,755

2,670

22.5

31.3

0.6

1.7

2.3

1.7

368.2

99.1

1082.8

144.7

Watches of Switzerland Group

GBp

719.0

1,704

2,053

11.4

21.0

9.2

9.3

2.2

1.9

24.4

20.0

29.4

23.5

Zalando

EUR

83.8

21,861

21,258

28.0

19.2

3.9

3.9

2.1

1.7

53.8

44.9

86.3

70.4

Zooplus

EUR

233.8

1,676

1,650

14.9

14.4

1.3

1.6

0.8

0.7

59.4

43.2

97.8

67.1

Average

20.1

17.5

4.7

5.7

2.4

2.0

61.9

33.2

131.5

45.5

Average excl. loss-making companies

6.7

7.2

Luxury goods

Burberry Group

GBp

2,190.0

8,774

9,420

(11.6)

14.3

15.9

17.2

4.0

3.5

25.5

20.6

36.5

26.7

Essilor Luxottica

EUR

139.9

61,570

64,941

22.2

8.2

15.5

15.7

3.7

3.4

23.8

21.7

31.8

27.4

Hermès International

EUR

1,059.5

112,164

109,128

27.8

11.4

34.2

35.0

13.4

12.0

39.0

34.3

58.8

51.3

Kering

EUR

704.4

88,309

94,351

22.6

10.1

27.3

28.7

5.9

5.3

21.5

18.6

30.1

25.5

LVMH

EUR

625.0

316,356

333,657

32.3

9.7

22.2

23.1

5.6

5.1

25.4

22.3

37.1

32.4

Moncler

EUR

51.7

14,200

13,985

33.5

18.6

28.4

29.7

7.3

6.1

25.6

20.7

37.3

30.2

Mulberry Group

GBp

339.0

202

284

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Prada

HKD

50.2

128,453

16,101

26.8

11.8

11.1

14.7

5.2

4.7

47.2

31.8

70.6

44.1

Richemont

CHF

95.5

49,890

47,020

(8.5)

16.8

10.3

14.3

3.6

3.1

34.9

21.6

58.9

30.8

Swatch Group

CHF

295.3

15,286

13,654

26.0

8.6

11.6

13.0

1.9

1.8

16.6

13.7

26.3

20.7

Average

19.0

12.2

19.6

21.3

5.6

5.0

28.8

22.8

43.1

32.1

Fashionette

EUR

34.0

211

214

59.4

50.4

1.8

3.7

1.4

0.9

79.2

25.8

91.9

30.1

Premium/(discount) to average online/offline consumer

195%

187%

(62%)

(36%)

(40%)

(52%)

28%

(23%)

(30%)

(34%)

Premium/(discount) to average luxury goods

212%

314%

(91%)

(83%)

(75%)

(81%)

175%

13%

113%

(6%)

Source: Refinitiv 5 May 2021

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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United States

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Australia

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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