Signa Sports United N.V. (SSU) reported a wider operating loss in the fiscal second quarter ended March 31 as sales dropped 23.5 percent. The Berlin-based owner of numerous e-commerce sites focused on tennis, outdoor, and team sports said the results reflect continued weak demand versus pre-pandemic levels and “severely elevated” inventories across the marketplace. 

SSU has more than 80 online sites and partners with 500 shops serving over 6 million customers worldwide. Its owned websites include Tennis-Point, WiggleCRC, Fahrrad.de, Bikester, Probikeshop, Campz, Addnature, TennisPro, and Outfitter.

Sales in the second quarter reached €255 million ($279 mm) against €195 million a year ago. Gross margins eroded from 36.1 percent to 22.5 percent in the latest quarter. Adjusted EBITDA was a loss of €59 million against a loss of €15 in the year-ago quarter. 

In the six months, sales were down 1.7 percent to €441 million ($483 mm) from €449 million. Gross margins decreased to 26.4 percent from 36.3 percent a year ago. Adjusted EBITDA widened to a loss of €97 million from a loss of €26 million. 

SSU said the operating environment in the first half of FY23 was a continuation of the disruptions introduced in Q4 of FY22. Although economic indicators across core markets have begun to improve slightly since the beginning of the year, demand remains below FY22 levels and pre-pandemic levels. On the supply side, stock levels across the industry remain severely elevated as market participants aim to clear excess inventory, resulting in a meaningful compression of gross margins and negative cash flows.

Stephan Zoll, CEO of SSU, said, “The first half of our fiscal year has been marked by challenging conditions across the sports retail industry. While macro headwinds and oversupply in the market have pressured our financial results, we have remained focused on positioning our business for success as operating conditions normalize. In response to the demand outlook in the near term, we have conducted a comprehensive strategic repositioning of the business with the aim of enabling a return to profitable growth and positive cash flow. In addition, I am pleased to welcome key hires across our Bike and Tennis segments with the experience and industry insight needed to deliver the next chapter of SSU’s growth story. Though our results in H1 FY23 have suffered as the market navigates another period of disruption, I am confident that the worst distortions are behind us and we remain fully aligned behind our renewed operating approach with a clear course toward long-term value creation.”

Alex Johnstone, the company’s CFO, said, “As we anticipated heading into the fiscal year, current operating conditions have severely weighed on our topline growth and profitability. Looking towards the second half of the year, we anticipate the lingering effects of excess stock in the market to challenge margins but believe the worst of the market disruptions were already incurred in H1. In addition, the cost measures put in place, in tandem with our renewed commercial and operating framework, will drive meaningful cost efficiencies in the coming quarters and support returning the business to Adj. EBITDA profitability. While the operating environment remains turbulent, we have taken critical steps to protect our liquidity position with an incremental €150 million commitment from our major indirect shareholder to support the business through to cash flow generation in a normalized market backdrop.”

H1 FY23 Business Highlights and Commentary

Business Update

  • Began implementation of updated commercial and operational framework and targeted cost initiatives designed to promote long-term stability including:
      • Prioritization of core, profitable markets while scaling back international partnerships;
      • Consolidation of logistics footprint to reduce redundancy;
      • Targeted stock management and cancellation of inbound orders; clean order book for FY24 to maximize; flexibility as operating conditions shifted rapidly and trimming of SKU count to reduce operational complexity;
      • Reduction in force across the employee base to allow for benefits of operating leverage; and
      • Cross-selling of Owned Brands and prioritization of Owned Brand portfolio given higher unit economics.
  • Roadmap outlined to achieve approximately 100M EUR of run-rate EBITDA savings by FY25
  • Strengthening of liquidity position with 150M EUR equity commitment to fund the operational and investment requirements of the business into FY25

Key Performance Indicators (KPIs)

  • (-15 percent) YoY decline in Active Customers vs. +143 percent pre-Covid (Q2 FY19) on a reported basis to 6.1 million active customers in H1 FY2023, led by acquisitions at the time and focused marketing spend to drive conversion;
  • (-26 percent) YoY decline in visits for Q2 FY23 and (-9 percent) YoY for H1 FY23 due as demand has contracted sharply on a year-over-year basis;
  • Net Orders decreased by (-27 percent) YoY in Q2 and (-3 percent) YoY in H1 FY23 driven by the traffic decrease, in the challenging operating environment;
  • 2 percent YoY Net AOV increase in Q2 FY23 and 4 percent YoY for H1 FY23 a result of improved product mix in H1 FY23 following severe shortage of full-bike stock in FY22; and
  • Q2 FY23 Core KPIs remain meaningfully above pre-pandemic levels with PF growth vs. pre-Covid (Q2 FY19) in Active Customers (+18 percent), conversion (+84 bps) and AOV (+7 percent).

Financial Update

  • (-1.7 percent) YoY Net revenue decline in H1 FY23, Q2 FY23 YoY decline of (-23 percent) as consumer sentiment continued to lag pre-pandemic levels. Though supply chain pressures eased in H1 FY23, market oversupply and tightening macroeconomic conditions have weakened consumer demand, particularly in non-core markets;
  • Gross margin contraction of (-1,364bps) YoY in Q2 FY23 and (-988bps) YoY in H1 FY23 a result of targeted inventory management to counteract the severe oversupply across the market and right-size stock position for level of market demand;
  • Significant cash outflows in H1 FY23 were driven primarily by weakened operating performance as well as elevated payables resulting from meaningful stock inbounds at YE FY22; and
  • On June 26, 2023, obtained €150 million hard financing commitment from Signa Holding GmbH to fund the company’s operational and investment requirements into FY25

Outlook & Guidance
Management announced FY23 guidance to reflect ongoing market dislocation and sustained demand contraction into H2 FY23 before any potential improvement anticipated in FY24.

FY23 Guidance

  • Net revenue: (9) percent to (11) percent YoY decline;
  • Adjusted EBITDA margin: (16) percent to (18) percent; and
  • Free cash flow: (€250) to (€270) million

SSU said, “In line with expectations going into FY23, SSU performance has been severely impacted by macroeconomic headwinds and market overstock. Management anticipates a continuation of challenging operating conditions into H2 FY23 with some improvement expected by management in Q4.

“As the company looks beyond the near-term turbulence, management reiterates its conviction that the measures enacted as part of the strategic realignment process provide the business with a clear pathway to profitable long-term growth as conditions allow. The financial impact anticipated from our renewed approach includes:

  • Changes in our commercial model that will result in lower sales, but at a higher contribution;
  • Focus on lean operating processes to accelerate cost savings from FY24; on track with various cost reduction measures;
  • Transaction synergies to start accruing from FY24 along with IT re-platforming, logistics consolidation and seeking procurement benefits.

“With near-term market disruption putting strain on suppliers and retailers across the sports retail industry, the company anticipates opportunities for inorganic growth in the coming quarters. With a market-leading position, SSU is closely monitoring the M&A pipeline with a continued focus on accretive M&A to broaden the reach and enhance our Owned Brand portfolio. The company continues to believe in the strength of the underlying global trends of health and fitness, e-mobility and e-commerce and is committed to delivering long-term value with a differentiated proposition.”