Sosandar PLC

LSE:SOS

Earnings Call Analysis

Earnings Call Transcript 2023-Q2

[Operator]

Welcome to the Sosandar interim results webinar. [Operator Instructions] This webinar is being recorded. I now hand over to Julie Lavington and Ali Hall, Co-CEOs; and Steve Dilks, CFO. Ali, over to you.

[Alison Hall, executive]

Good morning, everyone. So firstly, today, we're going to take you through the half-year 2023 financials, but we know investors are particularly interested in current trading, especially with the current economic backdrop. So the second half of the presentation is dedicated to this and includes current trading, product expansion, customer acquisition and retention, operations, sales channels and finally, the outlook for the future. So before Steve goes through the details, the key highlights of the first 6 months of the financial year. Next slide, please. So we had revenue of GBP 21 million, which is up 72% year-on-year. We've had our second 6 months of profitability, and this strong growth has been equally achieved on our own site and through our third-party partners. We're successfully continuing to navigate the external challenges, and we further expanded and diversified our product range and have really strong performance across all our KPIs.

[Stephen Dilks, executive]

In terms of our financial highlights, starting with revenue, where our revenue for the first half of the financial year was GBP 21 million, a 72% increase on the GBP 12.2 million achieved in the first half of the previous year. This increase includes record trading across all sales channels enabling us to take market share across all categories. Further investment in stock has enabled us to deliver this growth, which has been delivered equally across both our own sites and through our third-party partners. The total growth in revenue was GBP 8.8 million, with growth from our own site being GBP 4.3 million and growth from third parties being GBP 4.5 million. Next slide, please. In terms of profit before tax, we have delivered the second 6-month period of PBT. Our PBT was GBP 0.1 million, which is a substantial positive swing versus last year, where we made a loss of GBP 1.1 million. This swing is driven by our revenue growth, ongoing operational efficiencies and further improvement across our customer engagement KPIs, which we are going to talk about later on. On the right is our gross margin, which was 54.4%, reduced compared to the 56.5% in the previous year. This reduction is all due to a planned end-of-season sale in late July and August, which we did not do in the previous year. Excluding the impact of the sale, underlying margins have been in line with the prior year, with some inflationary pressures on raw materials being offset by economies of scale and reduced average freight rates. This is a result of using sea freight for a much larger proportion of inbound stock, which is much cheaper and also significantly less impactful on the environment. Next slide, please. In terms of our overheads, we have seen a further substantial reduction in our overheads as a percent of net revenue, reducing to 53% compared with 65% in the previous year. The benefit of scale, coupled with making sure we spend effectively across all areas of the business has enabled us to bring down this percentage. The chart on the right is the breakdown of our actual overhead spend, which was GBP 11 million for the period, which is a 42% increase on the same period last year. The single largest increase was in commissions retained by our third-party partners, which increased to GBP 2.4 million compared with GBP 1.1 million in the previous year. This is a direct cost of the substantial growth in revenue that we have achieved in the period with Next, M&S and John Lewis. Our fulfillment costs, which includes the cost of warehousing and customer postage increased by 48% to GBP 2.9 million. However, this reduced from 16% to 14% as a percentage of revenue year-on-year. This reduction reflects a higher proportion of bulk transfers to our third parties and ongoing productivity initiatives being delivered in our operation. Operation costs increased by GBP 1 million in the period. But again, this reduced as a percentage of revenue from 18% to 15%. Operation costs include the cost of people, systems and general admin expenditure, which is supporting the growth of our company. There remains further opportunity to reduce our overheads as a percent of revenue in H2 and into the next financial year. Next slide. I've now got a few slides showing some of our key KPIs. They are all for our own site, sosandar.com only. On the left, visits to our website increased in the first 6 months by 25% to GBP 7.7 million. This included 3 of the 6 months in the period being new records, reflecting the increased awareness of our brand and the response to our customer communication strategy. We are delighted with the significant increase in conversion, which is on the right-hand chart, which continues to go from strength to strength. The average for the first half was 4.5%, up from 3.9% in the same period the prior year. In addition to our marketing and how we engage with our customers, this step-up is a reflection of the amount of product choice that we have available for our customers. Next slide, please. The increase in conversion resulted in 347,000 orders being generated on sosandar.com in the first half of the current financial year, which is 43% more than in the same period of the previous year. Again, we have 3 record months in the period with 5 of the 6 months having more than 50,000 orders, which is special given that we only had our first 50,000 order month last October. Our average order value stepped up to GBP 90 in the period, which is 4 percentage points above the prior year, reflecting the product offering being expanded, which has enabled us to increase the average units per order. Next slide, please.

[Julie Lavington, executive]

And you can see here the success of our customer acquisition strategy with new orders up significantly year-on-year, whilst also achieving a material reduction in the cost of acquisition. This is down to our powerful marketing strategy, which I'm going to go into more detail later on in the presentation. Next slide, please. We know our customers inside out. They have diverse wardrobe needs, they're affluent and they shop with us regularly. The success of our product and communication is proven in the rapid rise we see here in repeat customer orders, which are up 53% year-on-year, with over 70% of our orders now coming from repeat customers. Next slide, please. The number of active customers, i.e., people who've shopped with us at least once in the last 12 months has quadrupled in 3 years, now standing at over 0.25 million people. An ever-increasing proportion of those customers are becoming regular shoppers and the frequency of buying amongst these regular customers has rocketed. On average, a repeat customer now shops with us over 4 times a year.

[Stephen Dilks, executive]

So for completeness, here is our full income statement for the first half of FY '23. In summary, our revenue is up 72% to GBP 21 million and 388% up on 2 years ago. We have delivered the second 6-month period of profitability with PBT of GBP 0.1 million, which is a substantial positive swing against the GBP 1.1 million loss in the previous year. Next slide, please. Moving on to our balance sheet. Our net assets increased 15% to GBP 10.9 million as at September 2022. Our net cash at the same date is GBP 4.2 million, which is after the planned step-up in inventory to meet demand -- customers' demand at across all sales channels. In particular, we took the conscious decision to bring stock in earlier for the current autumn/winter season, particularly for our third-party partners in order to maximize sales across the whole of the selling season. In addition, in line with what we have said previously, we have taken advantage of using sea freight to bring a much greater proportion of stock into the U.K., which has the effect of suppressing cash as payment is made earlier. However, this switch to sea freight and away from air freight, in particular, enables us to reduce our environmental impact and also delivers gross margin benefit as the cost of sea freight is much lower than using air freight, in particular, for heavier bulkier product categories that we've got in the winter season. Our inventory balance is, therefore, greater as we have more stock in transit as we buy the majority of stock on FOB terms, meaning we take title of the stock in the country of origin. Our payables balances increased in the period to GBP 9.9 million, which recognizes the larger amount of stock being purchased, bringing more of the season stock in earlier and using sea freight for a greater proportion. Our average payment terms have continued to improve over the last 12 months as we purchased greater volumes, and we further cement our relationships with suppliers. And finally, our receivables balances increased, reflecting the significant step-up in revenue that we are now doing with our third-party partners. Next slide, please.

[Alison Hall, executive]

We're now going to move on to current and future trading. And in this section, we're going to cover product, marketing, operations, sales channels and outlook. We are delighted to say we've had a really strong start to the second half, and that's despite a challenging economic backdrop. In fact, we've had records [ go ] with consecutive record months in October and November, and this is both on our own site and across our third-party partners. In addition, both months have continued to be profitable and margin has actually been higher than in the first half of the year. And we've seen high demand across all our product categories with particular emphasis on coats, partywear and smart tailoring. We've also had a really successful launch with N Brown. We have been the most successful new brand launch this year, and sales are rocketing with all our partners. Next slide, please.

[Julie Lavington, executive]

We're often asked what the key drivers are to our success, especially in such challenging economic times. The key driver is our distinctive and expansive product range. And this product is made even more desirable by the fact that we photograph and video every single outlet in a lifestyle environment that emotionally engages with our customer. We also have a huge addressable market that we can continue to take share from building an ever-growing affluent customer base. Underpinning all this is our team and company culture, which is entrepreneurial and agile, whilst also being well-planned and disciplined.

[Alison Hall, executive]

And as a team, we have absolute clarity in our vision and our ambition. We want to address women across the globe to feel sexy and seek and we believe our opportunity is to be one of the biggest women to our brands in the world. Next slide, please.

[Julie Lavington, executive]

And to remind you, our addressable market in the U.K. alone of women over 35 is a massive GBP 20 million. As age doesn't determine how we'll address whatever age we recruit a customer at. So some there's opportunities to address customers for their entire lives. Next slide.

[Alison Hall, executive]

So now let's talk about the heart of our business, the product. We are continually told by customers and third-party partners that Sosandar's product range has created something truly new and differential in the market. From a practical level, we create head-to-toe outfits that flatter figures, whether our customers are size 6 or size 20. We give her a mid-level price point. We give her out which you can elsewhere bra with, outfits at good quality and so long-lasting, and we offer a wide product range that covers all occasions. We have unique prints that are designed in-house and unique shapes as well as the vibrant color she craves. And on an emotional level, the closed make women feel sexy and [ sheek ], they boost their confidence and they make her feel useful and desirable. Next slide, please. So you can see on this chart that all our categories are in growth. The reason all categories are in growth is we have expanded and continue to expand the number of styles in all categories, and we constantly innovate across all categories. Next slide, please. We make sure we are constantly at the forefront of customer behavior, anticipating what you'll buy into and making sure we give it the choice she craves. And we also maximize bestsellers whilst constantly bringing newness in to limit risk and to keep per engaged. It is our strategy to continue expanding the number of styles in all categories, whilst also maintaining our strategy of on-trend quality, long-lasting lifestyle appropriate close. As you can see from the pie chart, we already have a really equitable mix across all product categories, and we are in all main womenswear categories. However, there is still lots of room for expansion in all the categories. We are fast-tracking those categories where we know she is most likely to spend. We have a whole new summer occasion wire package launching for the first time. Holiday and swim is going to be big with all our third parties desperate for the offering. And we are also backing smart dressing [ as she's ] really buying into this. Next slide, please.

[Julie Lavington, executive]

What also sets a Sosandar apart is our intrinsic understanding of our customer and our powerful communication with her. We brought our extensive experience in media to Sosandar, enabling us to develop a highly effective marketing strategy that has seen us excel in every area of media, whether it be TV, social media, glossy brochures, e-mail, digital or PR. We run TV like a digital campaign with a brand-new low-cost creative every month, leading to on herd response rates from our television advertising. We're one of the few brands to make print media a cost-effective primary acquisition tool. We see fantastic return on investment on digital and social channels and opting celebrities where are closed without us paying a single penny. This success across all forms of media has created an acquisition machine that means our cost of acquisition has reduced materially year-on-year as you saw at the beginning of the presentation. Our success in e-mail communication means we have a constant direct line to our customers where we can communicate with her for free. One of the key results of this is that a whopping 50% of our revenue is now self-generated through e-mail. Next slide.

[Alison Hall, executive]

Moving on to our sales strategy. Our own site growth is always thank to our success. We work online with the biggest womenswear retailers in the U.K., all of which approach us and all of which we can continue to grow rapidly with. So far, we work with Next, M&S, John Lewis, Very, and N Brown. On all our third-party sites, Sosandar has been identified as a key growth partner. On Next and M&S, where we have strategically invested the most stock, we are already a top 5 brand. Our strategy going forward is to scale our own site and all existing channels and then start to expand overseas through third-party sites.

[Stephen Dilks, executive]

In terms of delivering future growth, we have significant operational bandwidth to enable this to happen. From a supplier perspective, we have always had a diverse network of suppliers across multiple countries, which enables us to mitigate risk. Many of our key suppliers can accommodate our growth plans as they already have done so to date. Our current suppliers are being complemented with new suppliers all at the time in order to further boost capacity, further mitigate risk as we can switch supply as required to deliver the margin gains that we're seeking. We continue to make regular in-person visits to our suppliers and supplement this with daily calls by all levels of the Sosandar team, and we ensure that up-to-date external audits remain in place. From a logistics perspective, as already said, we have a really diverse strategy with regards to inbound logistics, and we have multiple freight methods, routes and increasingly more carriers to use to maximize margins and mitigate any risk in one particular part of the supply chain. We have additional space available with our third-party warehouse provider, which will accommodate greater inventory levels and throughput as we need it. And we are in the process of onboarding with more delivery companies in order to give our consumer the choice to use their preferred delivery company to bring our orders to them. On systems, our front-end systems, including our website, is fully scalable and does not require any significant change. We are in progress to upgrade our back-end system to give us an ERP solution, which can fully support all of our needs for many years to come. And finally, in terms of people, we have a highly engaged and talented team, which is still only around 70 people. Many of the team have worked in bigger businesses that have already traded overseas, for example, meaning we have much of the experience that we need to execute the next stage of our growth strategy. Next slide, please.

[Julie Lavington, executive]

We look forward to the future with confidence. We've had a strong start to the second half of the year with record months of trading. Our product range for next year is incredibly strong, and we have confidence in our ability to navigate external pressures as we've done consistently over the past few years. We see continued growth ahead, both on our own site and with existing third-party partners. In addition, we also have new opportunities on the horizon in both the U.K. and overseas. We envisage launching with at least one third-party international partner in 2024. The future potential for Sosandar is incredibly exciting. And now we will hand over to you for questions.

[Operator]

Thank you very much, Julie. [Operator Instructions]. Yeah, we've got quite a few questions. How do our KPIs compare with our competitors?

[Julie Lavington, executive]

Steve, do you want to take that?

[Stephen Dilks, executive]

In lots of cases, incredibly well. If we take conversion as one pivotal example, we know that 4.5% on the comparables that we do have access to, not everyone reports on conversion, but we know that's incredibly strong. And we also know, as Julie highlighted that click-throughs from e-mail is what's enabling us to drive both visits to site, but more importantly, that conversion rate. So once we've captured a really good customer through customer acquisition, the click-through of e-mail is enabling us to drive incredibly strong rates of conversion. The other KPI that we're really pleased about is once we've acquired a new customer, their propensity to purchase and purchase multiple times per annum is really strong. So on average, if you look at the entire active customer database, it's in excess of 2. But if you look at the cohort of customers that buy multiple times per annum, that's in excess of 4%. And I think those KPIs are really strong comparable to others. Hopefully, that answers the question.

[Julie Lavington, executive]

I'd probably just add to that on the e-mail as well, just to elaborate a bit on that, the 50% of revenue that we are self-generating for no additional cost through e-mail. That's quite an exceptional KPI because we know certainly from -- it's not something that other companies publish. But we know from when we interview people, that it's thus unheard of at that type of -- that amount of revenue is self-generating through e-mail, which I think really comes down to what we said in the presentation, which is our background in media and our ability to use customer communication as if it were a magazine, I suppose, we treated daily e-mails like it's a daily newsletter or a daily magazine that means we do generate on herd levels of revenue from it.

[Operator]

Tremendous. And how do the factors within the overhead cost compared with the competitors?

[Julie Lavington, executive]

Steve, I think that's one for you as well.

[Stephen Dilks, executive]

Yes. From what -- obviously, Sosandar is at a slightly different stage to other businesses. So a directly comparable comparison isn't always easy. However, I think the key point to note on overheads is how it's reducing as a percent of our revenue, whilst at the same time, our gross margins rising, which, of course, is why we're starting to flex into sustained profitability. I think a couple of remarks to make about the future here. There is still opportunity to reduce our overhead percent of revenue further compared to where we are now. Will it keep going in the trajectory of reduction? No, probably not, but that's because we're starting to mature as an organization. And so the leaps and bounds gains that we've seen historically won't carry on. However, H2 will be lower. It's a stronger period and particularly, we don't spend as much money on customer acquisition in H2 as we do in H1. H1 is a period of high customer acquisition where the ROI is greater. H2 is more a period where we're converting those customers that have been acquired and then making sure that we sell through really well to those newly acquired customers that have been brought to us in H1.

[Operator]

Thank you very much. Great results, especially given the problems faced by some of your larger competitors. Inventory levels continue to climb, which has resulted in significant negative free cash flow during the period. I understand the reasons for the increase in inventory, but it would be useful to know the age profile of these inventories.

[Julie Lavington, executive]

Steve, for you as well, I think.

[Stephen Dilks, executive]

Yes. In terms of age, we've got good stock. There is always some stock that carries forward from previous selling seasons. That's normal. We're no different. But the number of that is not particularly large or anything to report on. So the pivotal point, though, that I think is just worth reflecting on is the step-up in inventory and why that's happened. It's the 2 primary reasons really. Firstly, at the end of September, we're carrying a much larger amount of in-transit stock because we've migrated a large proportion, particularly for the winter season on to sea freight. And so we've got a point in time really where we've got higher levels of inbound inventory coming for the winter season. Secondly, I obviously want to scale. As we grow, it's important that we're investing not only for us our own sites to Sosandar, but importantly, for our third parties. One of the learnings of working with the third parties is that you maximize your sales through availability of stock. So we took the conscious decision to bring stock in earlier for this autumn and winter season in order to make sure that the stock was available for those third parties at the right time at the beginning of the autumn season. Previously, that wasn't always the case. We were learning on the way to make sure that we maximize the revenue in the early part of autumn. The best way to do that is making sure that you've got stock available for them on sale at the right time. So we're at a point in time at the end of September. From September onwards, we will start to see our inventory balance reduce so we've got high inventory at September. And then as it goes forward through the winter season, the balance starts to reduce through to the beginning of the spring season in March, April.

[Operator]

Tremendous. Congratulations on continued success. Return rates, there was some chatter in the press recently about some brands seeing faster and increased return rates in recent weeks. Have you seen any evidence of that?

[Julie Lavington, executive]

I'll take that. No, we haven't. Our return rates are stable, and they are as we would expect them to be. So our returns rates vary depending on what product mix we're selling at any one time from mid-40s to high 40s. That's as we predicted. And the only thing that we see that moves that is when certain product categories form a higher proportion of overall sales. So for example, knitwear is one of the lowest-returning product categories. So if we sell a lot of knitwear, that will naturally reduce the overall returns rate. Dresses, woven dresses in particular because they're more rigid and harder to fit to the body, they will naturally have the highest return rate. So in periods of time when dresses are particularly high, then overall returns rates would reflect that. But we're not seeing anything that we've not predicted or planned for.

[Operator]

And regarding the sale, I noticed you started an early sale on Sosandar.com. How does this compare to last year in terms of timing and scale?

[Julie Lavington, executive]

So I'll take that one. So yes, we did start -- we started an early sale on Saturday, this weekend just gone. And in fact, last year, we didn't actually do a 50% of sales. So it's a bit like -- because we've basically seen customer behavior return to normal, whereas if you think back to a year ago, it wasn't normal. We were still very much in the middle of the pandemic. So it's a bit like when we did the sale in August this year, that the prior August, we haven't done a sale because it was we're just different, and we had a different amount of stock and so on. So it was a planned sale this year. And in previous years prior to the pandemic, we do tend to do the sales quite early because we see very much that's where customer demand peaks quite early on. So it's when people are still able to order and get things in time for Christmas.

[Operator]

And how much of your product is sold at full price? I'm a customer as well as a shareholder and virtually all e-mails come with a percentage discount.

[Julie Lavington, executive]

Should I start with that, and you want to add in, Ali? So we've always used -- there are 2 types of discounts. I think it's probably good to point out that retailers use and that we also use. One is promotional mechanics using a code, which is how we incentivize both repeat customers and we use it as an acquisition mechanic. So there's that type of promotion. And then there's also the strike-through promotion, which is more about flat sales or end-of-season. And we use both of those things in order to vary the messaging to customers. The reason we use promotional mechanics is in order to drive incentive to purchase. So what we're seeing currently is that consumers have a degree of guilt, I think, in spending. So we are finding that promotional mechanics, whether it be strike through up to a certain percentage of or promotions on certain categories, get that consumer over their guilt of spending money on flows. And so we're actually not discounting any more than we've discounted in the past. We're just using messaging in a different way and you can see that in the margin. So the margin for the second half of the financial year is higher than it was in the first half of the financial year, which obviously shows that the percentage of discount and the percentage of products sold at a discount has actually not changed.

[Operator]

Thank you Record months in October and November is excellent. But can you give an indication of year-on-year percentage increase?

[Julie Lavington, executive]

Steve, do you want to take that?

[Stephen Dilks, executive]

So if we take October and November combined, it was just below 40% year-on-year growth against harder, stronger comparables than in the previous year -- sorry, in the first half. So if we just -- why that would be -- if you remember in May 21, we do [ at least ] to invest in more inventory, particularly for third parties in order to capitalize on the momentum and the strong demand coming from customers with all of our partners. So that meant that the second half of last year had stronger comparables because the inventory went to the partners and they sold really well. We're still growing significantly both on our own site and with third parties, but the growth rate will slow and that's as planned as well. Importantly, the 38% that we delivered in October and November is higher a growth rate than we were projecting for the rest of the second half of the year. So we will see or in order to achieve the consensus numbers that are in the market, we don't need to continue to trade at 38% up year-on-year. It will be lower in the balance of the year, and that's as we have planned.

[Operator]

And in the past, you've spoken about the benefits of being able to quickly repeat order successful SKUs. How does this work if product is being shipped by freight?

[Julie Lavington, executive]

Ali, do you want to...

[Alison Hall, executive]

Yes. I mean we can do repeat orders quickly, but there are certain categories where we do have to plan much further ahead. That will be the most likely ones are knitwear and outerwear. And because these are bulky, those are the product that we would do on sea freight because it brings the cost down. So there is an element of some things we do have to plan ahead. It doesn't mean we can't ever get back into them, and we can bring things in by air if we wanted to repeat on them. But initially, what we do is those kinds of products we do plan ahead.

[Stephen Dilks, executive]

It's probably worth also adding, Ali, I think, just in terms of the mix of our freight now. So if we go back 12 months or maybe 18 months, we were almost 100% air freight, not quite 100%, but almost, Today, we're pretty equitable between sea, air and road. And that will depend on a few things, notably country of origin and type of product. So it makes sense for heavier products such as outerwear, padded coats to [ come by C ], whereas lighter product that is near a tone, particularly out Turkey can be with us in 5 or 6 days on a truck. So it's about choosing the right freight method, the right routes for the right product categories. But we're not bringing everything [ in by C ]. We're balanced that, and we can flex that depending on what's the need of the business, whether it's quick turnaround product or long lead time products, as Ali just said.

[Operator]

Do popular items at M&S, Next, et cetera, mirror your own website sales or different profile -- are they different profiles of customers?

[Julie Lavington, executive]

Ali, do you want to take that?

[Alison Hall, executive]

Yes. There are minor differences. But in general, we tend to sell the best sellers that are on our own site tend to be mirrored across Next and M&S. There's a few differences. But even in terms of the categories that dominate, they tend to be the same. So I think really, we're seeing a similar profile in terms of the way the customer shops that's mirrored across all of them.

[Operator]

And given the strong October and November growth, do you now see full-year market forecast as conservative and beatable? And also, how has December Black Friday trading been?

[Julie Lavington, executive]

Steve, do you want to take that?

[Stephen Dilks, executive]

Yes. If you don't mind, I won't necessarily comment in much more detail on what the consensus numbers are. I think if we look at how we're trading there, we're really pleased with how October and November traded, including the Black Friday weekend, where we had record visits for any single day on the Friday in isolation, which was really pleasing. In terms of where we are, though, if we just look at the macro environment, of course, it's not easy out there. There's a lot going on that is, I suppose concerning for some parts of our population, everyone is being hit with higher bills in some way, shape or form. So we're cautious, we're mindful, but that's not changed actually from how we've been over the last, say, 2, 2.5 years. There's been some external challenges that have been around us over that whole period, whether it's COVID, whether it's supply chain issues and now cost of living changes for people as well. So if you don't mind, I'm not going to answer whether I believe they're conservative or not. I do think we're trading well. And I think we continue to push above our weight against where we are -- where we come from in terms of our journey. So overall, we're pleased.

[Operator]

Can you update on your current cash position? Do you have adequate cash to finance growth? Or will you require further funding?

[Julie Lavington, executive]

Steve, for you as well?

[Stephen Dilks, executive]

Yes, we're pleased. So I didn't mention in the presentation, but it was in the [ RNS ]. We've also got GBP 4.2 million of net cash as at the end of November, which is unchanged versus September. The change that took place from September to November is the payables balance is much lower as of November as we continue to clear the inbound stock builds that we had ready to be paid us at the end of September. So no change. In terms of do we have adequate, I think it's important to note that the business has changed. It's matured. And I think we're bringing the stock in slightly earlier to maximize the sales opportunity, and that will continue to be the case. So yes, there is slightly earlier payments being made as a consequence, which suppresses the cash at any point in time. That said, the opportunities that does bring outweigh the slightly earlier. And also as a footnote, average payment terms have increased. So as we become larger, we're buying more and we're in to cross cost with newer suppliers who were able to offer terms to us, the average payment terms continue to grow. So we'll continue to see the payables balance stretch and thus allow the cash balance to grow as well when we trade through the stock that we've been purchasing. So at this moment in time, we feel comfortable with where we are from a cash balance in terms of the ability for us to self-manage and self-fund the future growth of the organization.

[Operator]

And are the partners, say, Next or the other is responsible for all unsold stock, i.e., no returns to you?

[Julie Lavington, executive]

No, they're not. The stock remains ours. It's different where it's a concession, so with Next, Marks & Spencers, and John Lewis their concessions. So the stock is ours up until the point at which it's sold to a customer. So ultimately, the stock or is always ours. With the wholesale partnerships, it's still -- it's completely different. So with JD Williams and Very Group, that's a wholesale arrangement. So we handle the stock over and that stock doesn't come back to us and they pay us for that stock at the point at which we hand it over. So it really -- it depends on the partner.

[Stephen Dilks, executive]

To add to that, Julie. I think in terms of slow-moving stock, which I think the question might have been alluding to, some stock does come back to us, but the majority of the stock sells through. So the objective of the relationship between the 2 parties is to sell the stock through and we work together to make sure that happens in various ways. So we start replenishing certain lines when we know that we don't need to continue to. We look at the return rate curve to make sure that that's factored into the algorithm, if you will, to make sure that the sell-through is strong. And then we do tactical activity, if need to be, with the partner to sell that through. And that activity may be different depending on the partner and how they operate in the market. But the first [ part of call ] is to sell through on the partner website. And yes, some residue stock will come back, but it's a relatively small proportion in the grand scheme of how much we pass over to them in the first place.

[Operator]

Do customers at M&S and the other partners eventually go direct to the website rather than shop in-store? And is that something you can track by asking how they heard about Sosandar?

[Julie Lavington, executive]

I'll take that, shall I? We don't own the customer. So the customer who shops through Next and Marks & Spencers, we would never get access to that customer's data next and M&S own that customer data. Obviously, we own the data on our own website. In terms of knowing where a customer is from, there is no hard evidence or proof that we could say a customer finds out about us on a partner website and then they may shop with us. So we don't have any hard evidence or proof because it's impossible really to determine that. What we do know is that they -- all those partners have got huge databases, and we built brand awareness through those databases by working with them in a way that is extremely cost-effective because it doesn't cost anything to build brand awareness with those partners. And it just makes logical sense that those customers wouldn't necessarily always shop on Next or Marks & Spencers, they might also come towards. Also, what's important really is it doesn't actually matter to us where a customer buys our product. It doesn't matter whether they buy on sosandard.com, Marks & Spencers, Next. All of those things are equally good for us in terms of selling the product. I don't know if anybody had to add anything to that.

[Stephen Dilks, executive]

And equally good in terms of the directly comparable profitability of each channel. So they all contribute fairly equally, if you look at the direct cost of the operation of each of those channels. So it doesn't matter from that point of view either. It's about growing the size of the cake for us at the moment, and that's what we're doing really effectively.

[Operator]

And a 3-part question. What are your plans for U.K. expansion in 2023? Why are you waiting until 2024 until you expand internationally? And how easy will it be to repeat your domestic success internationally?

[Julie Lavington, executive]

Three questions. Ali, you want to start?

[Alison Hall, executive]

With the first thing. And I think it's probably worth saying straight off is that there's still lots of opportunity for growth within the U.K. And that's obviously both on our own side and with the current partners that we've got. We work with the partners that we work with because we knew there was the opportunity for rapid growth and sustainable growth. So there is still a lot and a lot of opportunity to grow within those partners in the U.K. We know that there's a really big opportunity for Sosandar internationally, and we're at the moment considering opportunities within that whilst also carrying on developing the opportunities that we've got within the U.K. We think internationally, we'll probably do this through third parties because it's been so successful in the U.K., it makes sense for us to try and replicate that internationally. And the time line for that is within 24 just because there is so much to still do in the U.K. with our current partners and own site, but we will run the international alongside that and develop that in the same way that we did the U.K. So anyone want to add anything to that?

[Julie Lavington, executive]

No, I think that's fine.

[Operator]

Tremendous. And are you seeing any impact from the Royal Mail strike?

[Julie Lavington, executive]

Steve, do you want to go?

[Stephen Dilks, executive]

[ I want to say ] no. However, their speed at catch-up has been very, very good from our perspective. So there are other days where they don't collect from the warehouse. But what they've managed to do really well is expedite the pickups and the deliveries to customers for the most part, within the SLAs that we give to the customer, which is 3 to 5 working days. So it means that the customer is waiting slightly longer than they would do on whether strike is not prevalent, but their catch-up has been very, very good. It's also as a footnote, not necessarily actually as a direct consequence of the strikes, but we are in flight to onboard additional carriers. We recognize that offering just one, which has been Royal Mail historically, some of our consumers would prefer a different delivery company to deliver because they know that they deliver in a certain time frame or a certain way. So it's really important to be able to give that additional choice to the customer so that they can use their preferred option. So there will be some onboarding taking place in the early part of the next calendar year with additional carriers so that the consumer has that choice really as to who they work with.

[Operator]

And where do you see as your main competitors?

[Julie Lavington, executive]

That's always a difficult question to answer because we don't have a direct competitor because the reason we're doing so well is a business is because nobody else does what we do, both from a product perspective. Our product is completely unique, all designed in-house and the aesthetic and fail of our product and the way our product looks is not nobody else does product in the same way that we do or the breadth of product. It's the very reason why we've gone from nothing to a top 5 brand in Next and Marks & Spencers because our product is so differentiated. And then on top of that, the way we photograph the product exacerbates, I think, the uniqueness of the range. So it's not just the clothing is unique. It's also the way we photograph the clothing it's entirely unique, makes it very desirable, makes the clothes look very sheep and sexy and just as a feeling anesthetic that nobody does. So it's always the most difficult question to answer because there is no direct competitor. Obviously, the reality is that women shop in multiple places for clothes. That's the reality. It's an absolutely humongous market in the U.K. alone before we even start to go overseas. So the reality is what we're doing is taking a bigger and bigger share of that per spend. And the bigger our range gets and the more wall drive needs, we're able to fulfill, it's meant that we've been able to take a bigger and bigger spend of the purse of the consumer.

[Operator]

I think you may have answered this, but I'll ask it anyway. There's a lot of communication in relation to brand strength and record output to date. But what future plans are there under consideration to allow the group to differentiate itself further?

[Julie Lavington, executive]

I think we've probably answered that, but I think probably just to reiterate, the differentiation of this brand is the product. And that -- we just see that product continuing to develop because fashion never ever, ever [ done ] still ever. To give you an example of that, probably a year ago, we had virtually no smart tailoring and women were buying dresses over trousers. In the last year alone, smart tailoring as we call nearly 10% of our mix. So from literally nothing to 10% because fashions change, jackets and trousers are fashionable again, and that just keeps -- so the product just keeps developing all the time. While we build on bestsellers because bestsellers sell year after year and after year, we also constantly innovate with product. So really, I would say it's down to the product range is where we're differentiated. And as I just said, but it's also the way we communicate, the way we photograph, the way we do our marketing, the way we mostly engage with our customers that totally differentiates us.

[Operator]

And do you have any plans to move into the MEMS market?

[Julie Lavington, executive]

Ali, do you want to take that?

[Alison Hall, executive]

Not currently because I think we've got all with market at the moment. There's so many opportunities within the womenswear market. We're only scratching the surface of what we can achieve. We never say never to anything. We consciously chose a name for the brands, Sosandar that was neither feminine or masculine. So that if we ever wanted to go into another area, the brand could do that. But at the moment, we've still got so much to play for in terms of the women's market. We're sticking there for the time being.

[Operator]

Do you feel you'll continue to offer free returns in the coming year?

[Julie Lavington, executive]

Should I take that? I think it really we watch and have set and wait and see how the market develops. Obviously, we've seen several other brands start to charge for returns. So it is definitely something that we would keep under consideration.

[Operator]

And do you feel women shop around on price between third parties and sosandar.com based on your discounting and codes, et cetera?

[Julie Lavington, executive]

That's quite an easy question to answer. No, they don't, is the simple answer. I think we don't see any evidence of that at all because if we don't -- we can often have and really quite regularly, we will have a record day with third parties while at the same time, having had some sort of offer on our own site. So we don't really see that shopping around of comparing prices at all. There is absolutely no evidence of it.

[Operator]

Is there any particular region you'd focus on when you look at expanding internationally?

[Julie Lavington, executive]

We're open, I think, I would say is the -- we're currently -- we're just assessing all the possible different countries and different partners that we could work with. It's much more about choosing the right partner that we think is the right route to take the first step. So we're not closed to any particular territory at all. It's still very much up for discussion and consideration.

[Operator]

And do you ever see yourself operating a franchise store model rather than wholly online?

[Julie Lavington, executive]

I think probably what Ali said never say never, but it's not in our line of sight at all at the moment.

[Operator]

Tremendous. And that's the end of questions. Julie, do you have any gating remarks?

[Julie Lavington, executive]

Only just to say thank you all very, very much for joining us today. I can see a huge amount of participants on here. So really grateful here joining us, and we look forward to seeing you again next year.

[Operator]

Many thanks, Julie, Ali and Steve and you all for joining. Sorry, but you will now be taken to a web page to give your feedback on today's presentation. We'd be really, really grateful if you could complete it now or you'll get a follow-up e-mail about an hour later if you are unable to at this particular moment. Thanks very much indeed for joining. This is the end of the webinar.