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.
