Signa Sports United N.V. posted 28 percent growth in net revenue to €300 million in the fourth quarter and revenues grew 31 percent to €1.063 billion for the full year on a reported basis. The specialist sports e-commerce company with businesses in bike, tennis, outdoor, and team sports said in a release that a deteriorated macroeconomic backdrop combined with prolonged supply chain constraints on high-end ranges weighed on the pro forma performance and was only partly mitigated by promotional activity to drive sales and manage overstock.

Net revenue declined 11 percent in Q4 and was down 12 percent for the full year, on a pro forma basis. Signa said the positive impact of multiple long-term megatrends supported net revenue pro forma growth vs. pre-Covid, of 25 percent versus the 2019 pre-COVID results.

Gross margin was down 592 basis points (bps) to 31.6 percent of sales in Q4 and down 385 bps to 34.7 percent of sales in the full year 2022, reflecting “increased discounting activity required to drive consumer demand and manage inventory overstock,”, especially in the second half.

Signa reported an adjusted EBITDA loss of €29 million in Q4 and a loss of €66 million in the full year, with Adjusted EBITDA margin reported at (9.6 percent) in Q4 and (6.3 percent) in 2022 full year, impacted by lower gross profit levels and inflationary pressures across cost lines in a challenging operating environment

The company posted a net loss of €566 million in 2022, broadly due to a €244 million goodwill impairment charge and €122 million one-off accounting charges related to the public listing on the NYSE. The goodwill impairment related to the WCRC acquisition mainly stems from lowered earnings forecasts, due to supply chain and macroeconomic factors negatively impacting consumer sentiment, as well as rising inflation and interest rates. Adjusted for both the above-mentioned non-cash items and for €26 million loss resulting from discontinued operations, the net loss for continuing operations amounted to €174 million for the full year 2022.

Stephan Zoll, CEO of Signa, said, “Fiscal 2022 was a year of two halves, meaningfully increasing our scale through acquisitions before being affected by the macroeconomic turbulence. We successfully achieved several operational wins, expanding our Own brand range, increasing our tennis customer reach and advancing our plan to enter the US bike market. The unexpected consumer sentiment deterioration and inflationary pressures due to the conflict in Ukraine, affected our operations and margins significantly, particularly in the bike business and in international geographies. We are thus now shifting our commercial approach to focus on our core markets, where we enjoy leading positions. We are confident the strategic realignment currently underway will enable us to emerge as a more agile and resilient scaled leader, and take advantage of the many consolidation opportunities arising from these turbulent times.”

The company said in a release that the past year has seen an unexpected downturn in consumer sentiment, inflationary pressures and the operating environment as a whole, impacting Signa’s main markets over the course of 2022. Nevertheless, Signa achieved several significant milestones in fiscal year 2022. The company listed on the NYSE and considerably augmented the scale of its two main categories, bike and tennis. As such, the acquisitions which closed in Q1 FY22 enabled Signa to deliver double-digit net sales year-over-year growth and to more than double its net revenue vs. pre-COVID (+123 percent vs. FY19) on a reported basis. Similarly, the company’s reach expanded meaningfully as its customer base increased by 39 percent year-over-year and 146 percent vs. pre-COVID (2019) on a reported basis.

On the profitability side, the combination of supply chain challenges and the deterioration in consumer confidence coinciding with the conflict in Ukraine have resulted in a competitive, overstocked market significantly impacting margins, particularly in the bike business and in international territories. The company is as such renewing its focus on profitability by leveraging on its core geographies and assessing selective strategic opportunities to deliver sustainable long-term value to shareholders.

Alex Johnstone, the company’s CFO, said, “As very challenging market conditions weighed incrementally on our performance throughout FY22, we are retrenching our focus to our core markets, where we have strong competitive positions and good unit economics. This change in commercial approach, coupled with a focused plan to adapt our operating model and deliver transaction synergies, should enable the company to return to run-rate Adj. EBITDA profitability in 2024. The agreements with our lending group and further capital commitment provide the required financial flexibility to return the Company to profitable growth and take advantage of attractive consolidation opportunities.”

Outlook
The worsening operating environment in 2022 has widely impacted Signa’s sales, profitability and cash generation. The challenging macroeconomic backdrop continues to impact our operations and is forecast to do so through 2023, and continuing inflationary pressures are expected to weigh on consumer sentiment and discretionary spending. Overstock in the sports retail market, in particular in the bike category, is anticipated to last into 2024. Against this market backdrop, the company has developed a focused plan to return to profitable long-term growth:

  • Sharpened focus on core geographies, where Signa sees strong competitive positions and better unit economics,
    adapting commercial and operating models to ensure efficient stock management, cost base optimization and improvement in unit economics.
  • Delivering transaction synergies via various operational measures, such as cross-selling own brands, procurement, logistics consolidation, and technology.

This change in operating approach is expected to impact the business in multiple ways in the near term, leading to a targeted return to profitability (on a run rate basis) in 2024:

  • Changes in the commercial model result in lower sales, albeit at a higher contribution;
  • Significant gross margin YoY contraction expected through H1 2023, gross margins to start recovering from H2 2023;
  • Focus on lean operating processes to result in accelerating cost benefits from 2024;
  • Transaction synergies to start accruing from FY24 along with IT re-platforming, logistics consolidation, and procurement benefits;
  • Focused inventory reduction to release over €30-40 million of capital in 2023; and
  • Capex expected at €35-40 million level in 2023.

As the company adjusts to its operating model, supported by its strengthened financial flexibility, Signa remains committed to delivering long-term sustainable growth. As such, the company is undergoing a comprehensive strategic realignment assessment, focusing on generating long-term shareholder value.

In this stressed operating environment, Signa expects multiple consolidation opportunities. As a scaled leader, Signa is well-placed to implement its renewed strategy and capitalize on increased opportunities to consolidate customer access and verticalize the business, by continuing to build out its portfolio of brands. The company remains confident in its long-term growth prospects, supported by the strong global megatrends of health and fitness, e-mobility and e-commerce, in a growing sports retail market.