Westwing Group SE

XETRA:WEW

Earnings Call Transcript 2021-Q2

[Operator]

Good day, and welcome to the Westwing Group AG Quarter 2 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to our CEO, Mr. Stefan Smalla. Please go ahead, sir.

[Stefan Smalla, Founder, CEO & Chairman of Management Board]

Thank you very much, and good morning, everyone, and welcome to our Q2 2021 earnings call. Today, we will review our Q2 2021 results. With me in this call is Sebastian, our CFO. Before we start our presentation, let me remind you of our mission that guides us here at Westwing since the beginning, to inspire and make every home a beautiful home. As we celebrate now Westwing's 10-year birth anniversary this year, it's great to see how far we've come with this mission as we serve our 1.7 million active customers across Europe and provide an unmatched inspirational e-commerce experience day by day. Yet, we are far from being satisfied where we are. To live up to this mission, we will continue to improve every aspect of our business day-by-day, and we are extremely excited for the next 10 years of Westwing. I will now provide a summary on our Q2 results and afterwards give a progress update on our strategic agenda, Westwing Customer Experience 2.0. Then Sebastian will provide the financial details for Q2. After a quick summary, we will then go into Q&A. Before I give you the details of our Q2 results, I would like to frame the bigger picture of where Westwing stands as of today. As the pandemic is continuing, yet our day-to-day lives are gradually normalizing, we were able to confirm that the top line level shift we have realized in 2020 is structural and has not, as some had feared, been retracting. We have seen the same from the market and our competitors. So that's a really good sign, both on the overall market environment and our specific performance at Westwing. Of course, as we had expected and flagged earlier this year, we have entered some choppy waters in Q2 and will continue to experience that in Q3. And because we had expected this, this is nothing that worries us too much. We are focused heads down on delivery of our business results. And to be more specific, much more relevant than the relative year-over-year growth is that we more than doubled our GMV in Q2 2021 versus Q2 2019. Meaning the level shift is indeed confirmed.Growth rates year-over-year are very much distorted by baseline effects from the previous year's extraordinary Q2 and will remain distorted through the year. At roughly double the size from just a couple of years ago, we have expanded our strategic opportunities massively and have strengthened our position in the market. We're now able to take sizable strategic investments and those investments will continue to strengthen our position as a leader in inspiration-based Home & Living e-commerce and will be the basis for sustainable growth for years to come while we navigate our business through these volatile times. We remain very upbeat on our long-term opportunities and continue to invest decisively to realize those opportunities. With that, let me summarize the strong results of Q2 2021. We realized revenues of EUR 132 million that resulted in 19% revenue growth on top of the strong 91% growth baseline from previous year. Our profitability remains very strong. In Q2 2021, we generated EUR 11 million of adjusted EBITDA profitability at 8.1% adjusted EBITDA margin. This adjusted EBITDA profit resulted in a positive free cash flow of EUR 7 million. We are now at EUR 44 million free cash flow for the last 12 months, which implies an 8% free cash flow margin, improving our best-in-class cash conversion. Our active customer base was at 1.7 million for end of Q2 2021, which is a plus of 47% versus the previous year. Our customer cohorts continue to demonstrate very healthy loyalty metrics and our customer acquisition numbers are strong, although slightly below the extraordinary Q2 2020 levels. During our Capital Markets Day, we have presented our strategy and targets for the coming years. Today, we'll give you an update on the progress on this strategy towards EUR 1 billion revenues by 2024, '25. The highlights in regards to the progress on our strategic Westwing Customer Experience 2.0 program include the launch of 2 new exclusive Westwing Collections, an 80,000 square meter new warehouse building project, accelerated technology investments and strong ESG results. Lastly, based on the strong first half of 2021, we confirm our guidance for the full year 2021. For the full year, we expect revenue growth of 18% to 27% to EUR 510 million to EUR 550 million of revenue while realizing EUR 42 million to EUR 55 million of adjusted EBITDA, implying an adjusted EBITDA margin of 8% to 10% for the full year 2021. Let me now provide you with some details. First, on the COVID situation. We have seen some positive developments when it comes to the COVID situation in Europe lately, greatly supported by recent successes of vaccination campaigns. Yet COVID still does impact our employees, customers and partners and might do so for some more time. Therefore, health and safety remain our #1 priorities, and we will continue to operate our warehouses and photo studios and offices with the highest hygiene standards and social distancing measures. By taking these comprehensive safety measures, we minimize the risk, especially of a temporary warehouse closure, yet the risk for this to happen remains for now. Additionally, our safety measures, we have started our Westwing team vaccination campaign. With this, we want to further support the safety of our employees and provide an opportunity to get back safe in a very convenient and unrhetoric way close to the workplace. Several hundreds of our team members has already been vaccinated by Westwing. As for now, our office teams continue to work mostly from home, and we cautiously review how and when we will partially return to our offices. Coming now to our GMV and active customers. As mentioned in the beginning, the very positive aspect of our Q2 2021 results, not so much only the year-over-year growth, but that we were indeed able to confirm the top line level shift. In Q2 2021 versus Q2 2019, we more than doubled our GMV. To be precise, we have seen a growth of 113% versus Q2 2019 to EUR 139 million. This is an 8% GMV growth on top of the extraordinary 97% growth baseline that we had in Q2 2020. It's important to note that the relative lower growth in Q2 2021 is very much in line with our expectation and guidance, and we're pretty happy about it. Our active customer base was at 1.7 million at the end of Q2 2021, which is a plus of 47% versus end of Q2 2020. It's a great characteristic of our loyalty-driven business model that we're able to maintain so many of those customers acquired during the extraordinary phase of strong growth. As part of this business update, let me now give you some insight on the supply chain challenges we currently face. Just like in other parts of the economy and for many businesses around the world, the aftermath of the pandemic has caused significant disruptions in our global cargo processes. This not only caused significantly increased cargo rates, especially for sea containers, but also capacity constraints for our supply from Asia. We expect that these challenges will remain into 2022. Due to the rapid increase in global demand, we also see a continuous raw material price inflation, were especially impacted from price increases on timber, textiles and foam and some of the main components of our products. In addition to this, the severe COVID situation in India has caused the lower production capacity in India. Since India is an important sourcing country for us, for instance, we get a lot of rocks from there, this caused subsequent supply shortages for several products. Since we had identified all these challenges early on and have taken decisive mitigating measures, we were and will be able to limit the impact. The current situation certainly does make our operations more complex and hard to manage for our teams, but overall, we are able to run our business without major disruptions or negative impact on our customer experience. As one of the most important measures, we intensified the collaboration with our suppliers. To ensure a strong availability of our products to customers, we have implemented more detailed forecasting processes with our suppliers, implemented a stringent prioritization of purchase orders to earlier reservations of production capacity with our suppliers and many, many other measures. On the cost side, we mitigate the current cost inflation for containers as well as raw materials partially through price increases to consumers. As we will not be able to pass on 100% of cost increases to our customers, we expect that the gross margin impact of this situation will amount to circa 1% of revenue for the full year 2021. It's worth noting that this impact is already priced into our financial guidance for the full year 2021. We also expect that the current situation will impact our net working capital. To ensure a steady supply of our products, we have started to secure extra production capacity through prepayments and inventory buffers. Both will impact our net working capital, and we expect a higher working capital for the coming quarters with a subsequent negative impact on our cash flows. However, this impact is only temporary until the situation normalizes again. Overall, we continue to be committed to a negative net working capital business model, which is so attractive at Westwing. With that, I would like to move on to the update on our strategic agenda. A quick recap of the strategy that we presented during our Capital Markets Day. With our strategic Westwing Customer Experience 2.0 program, we have defined and operationalized growth initiatives, which all aim on bringing our customer experience to the next level and strengthen all the elements of our business model, Flywheel. The Westwing Customer Experience 2.0 consists of 4 main topics: we'll double down on our creative inspiration at core; we'll set the next level of order and post-order experience; we'll scale up our business model and platform; and we'll deeply embed sustainability in our operating model. In Q2 2021, we've made significant progress on all of these topics. Let me highlight some. One highlight was the launch of 2 brand-new exclusive Westwing Collections in recent months. Our Retro Artsy and Earthy Boho collections combined perfectly what our Westwing Collection stands for. The designs are unique and created by our creative team. The bestsellers perfectly meet our customers' taste and the products are affordable at a very good value for money and at a high product quality. They are gorgeous also on a personal note. Overall, these collections truly convey our loved brand image, and the feedback received from our customers. Press and social media has been very positive and we'll continue to sell these for a long, long time. Also, the scale-up of our platform is progressing as planned, especially the building start of our 80,000 square meter new warehouse needs to be highlighted in this regard. Together with the developer, we have started the construction of a new warehouse to create additional capacity for our growth strategy towards EUR 1 billion in sales. With its 80,000 square meters plus the option to expand the warehouse by another 30,000 square meters, we will add capacity for around EUR 250 million of GMV per year. And thanks to its location, also important to note, we actually put it near our existing warehouses in Poznan, Poland and we'll be able to integrate this new warehouse very efficiently into our European logistics network. The warehouse is planned to be opened in the first half of 2022. And from an investment perspective, this warehouse also aligns with our low CapEx and cash-efficient strategy. So our development partner who we built the warehouse with will take the major investments for the ground and the building itself. And then Westwing will solely need to take the investment into handling equipment and installations within the warehouse. Overall, quite exciting. We'll share photos and more impressions once it opens. An extremely critical enabler of our growth strategy are technology investments. In recent months, we've accelerated the investments into technology, and we were able to attract a great number of great new talent. Beginning of last year, to put some numbers behind that, our technology team consists of around 150 engineers, developers, product managers, DevOps, et cetera. And by now, we're already at 205 team members and plan to reach around 300 team members during the first half of 2022. So we'll almost double our resources in technology. With these investments, we'll be able to enable improvements of our customer experience and ensure that our platform remains scalable and future proof. Focus areas, for instance, are mobile front end and app experience improvements, augmented reality and 3D, and updated ERP system and state-of-the-art security improvements, to name just a few, and there's, of course much more. As mentioned in the beginning, let's talk about ESG. One of our goals and commitments is to deeply embed sustainability into our operating model. Sustainability has always been a very important matter for us for years. We've already done a lot of initiatives that aimed at improving our sustainability and other ESG-related topics, and recent rating results confirm that we're on track and take the right actions. As an example, ISS ESG scored us within the top 30% of our industry and MSCI rated us with an A ESG rating. Yet to be also very clear, only at the beginning, we will continue to improve all aspects of ESG and have a clear ambition to embed sustainability deeper and deeper into our business model. Before I hand over to Sebastian for the financial details of Q2 2021, let me summarize the targets we aim to achieve by 2024, '25 based on our Westwing Customer Experience 2.0. We target EUR 1 billion of revenue by 2024-'25 and aim on increasing our market share from currently circa 0.4% to 0.8%. We plan to be highly profitable with more than EUR 100 million in adjusted EBITDA by 2024-'25 and maintain our best-in-class cash conversion, which will enable strong cash flows. And in addition, we have a very clear brand ambition. We aim to be the most desirable consumer Home & Living brand for home enthusiasts. With that, I'll hand over to Sebastian and the financial results of Q2 2021.

[Sebastian Säuberlich, CFO & Member of Management Board]

Yes. Thank you, Stefan, and good morning, everyone. Before we jump into the financial details of Q2 2021, I would like to give you some context on how we are to treat our current results in the broader picture, especially if we look at year-over-year growth rates or changes in our profitability. Last year was clearly an extraordinary year for us, with an unprecedented market environment and sudden surge in demand. This has not only resulted in extraordinary growth rates from the second quarter of last year on, but also in a significantly increased profitability. This very high profitability was a great proof of how well our business model works at this game. But at the same time, also driven by the fact that we did not ramp up our growth investments last year at the same speed as we have seen demand increase. As Stefan already mentioned, we are still at the beginning of the Westwing journey and have exciting opportunities ahead of us. In order to exploit these opportunities, we will continue to invest decisively into attractive growth initiatives. This was short to midterm implied that we will show lower profitability than during the extraordinary year 2020, as we have flagged to investors in our Capital Markets Day and with our guidance for 2021 very concretely. This is absolutely in line with our strategy and we see this as a strong sign that we continue to invest into the long-term vision of Westwing. Having said that, we are very happy with our Q2 2021. Much more important than the year-over-year comparison is that we were able to confirm the level shift of top line with 2019. With that, let me come to the financial details of the quarter. Revenue growth in Q2 was strong at 19% year-over-year, bringing us to now EUR 132 million for the second quarter. Considering that we now compare against the extraordinary baseline from last year, this is a strong sign that we can confirm the top line level shift. To really emphasize this important point, Q2 2019 revenue in comparison was only EUR 58 million. Our growth continues to be driven by both segments, both with double-digit growth rates on top of the extraordinary baseline. The DACH segment grew by 25% year-over-year to EUR 75 million in Q2, while the International segment grew by 11% to EUR 57 million. Let's look at our P&L for Q2 2021. In Q2, we realized a strong adjusted EBITDA margin of 8.1%. While this is lower compared to last year due to our growth investment, it's quite a level shift upwards compared to 2019, confirming our profitability ambitions. I will provide you now with some more details as we move down the P&L. Our gross margin continues to be very healthy and improved by 0.9 percentage points year-over-year to 49.5% in Q2 2021. This improvement was mainly driven by share gains of our highly profitable Westwing Collection. Our fulfillment costs increased slightly compared to last year, which overall resulted in a contribution margin of 29% for Q2 2021, an improvement of 0.4 percentage points year-over-year. Stefan talked already about the supply chain challenges and price inflations we currently face, which will impact our contribution margin. As a healthy contribution margin is the basis to our business and driving our ability to invest, we decided to take comprehensive measures to protect our contribution margin. Yet, we will not be able to fully compensate for these cost inflation. So as Stefan mentioned, we will see a negative impact of around 1% of revenue in our contribution margin for the full year 2021. Also worth noting that the impact from that is rather skewed towards the second half of the year. So we do not see the full impact on that yet. In terms of marketing, we have ramped up our activities significantly, and we are now within our target range at 9.6% marketing ratio for Q2 2021. This is 4.2 percentage points higher compared to the same quarter previous year, where the marketing ratio was only at 5.4% as we were very cautious on our marketing spending last year given the COVID situation. Also in our G&A ratio, we can observe that our growth investments, especially into technology and Westwing Collection, has become increasingly visible in our P&L. In Q2 2021, we reported a G&A ratio of 13.6%, which is 1.2 percentage points higher than last year's G&A ratio. Overall, this brings us to a strong adjusted EBITDA margin of 8.1% for Q2 2021. This is fully in line with our strategy and guidance, represents a massive level shift in profitability versus 2019 levels, while we are investing heavily into future growth. This level shift also becomes very clear when we look at the results for the first half year of 2021. In H1 2021, we were able to improve our adjusted EBITDA margin by 3.7 percentage points versus the previous year to now 11.2%. These developments clearly showcase that our overall business fundamentals have progressed significantly and structurally. In absolute terms, we generated EUR 11 million of adjusted EBITDA in Q2 2021, which brings the adjusted EBITDA for the first half of 2021 already to EUR 30 million. Both segments show comparable development versus the last year. The DACH segment realized an attractive adjusted EBITDA margin of 13.4%, while the International segment remains adjusted EBITDA positive at 1.4% margin. Moving on to cash flows. Also in Q2 2021, we have once again reported a negative net working capital. The negative net working capital is an important part of our high cash conversion strategy and enables us to grow without significant investments into working capital. At the end of Q2 2021, our net working capital amounted to negative EUR 3 million. This is EUR 8 million higher than at the end of Q2 2020. This change is mainly driven by investments into inventory. Let me give you some background on these investments. Foremost, we aim to improve our customer experience through better availability and an expansion of our Westwing Collection business, both requiring inventory investment. Additionally, due to the global supply chain disruptions, as Stefan described, we secured stock and production capacity by making prepayment to our suppliers to ensure we can fulfill demand also during times of unreliable supply chain. This development also could imply, as Stefan already mentioned, that our net working capital might be positive temporarily in the coming quarters. However, our overall strategy and commitment to a structurally negative net working capital did not change. Our CapEx ratio remains below 2% of revenues in Q2 2021 at 1.8%. We do expect somewhat higher CapEx investments in Q3 and Q4 for the new warehouse project that Stefan announced. As already mentioned, we will only take the investments into the warehouse equipment and installations, but not the building itself. So on a full year basis, we will be able to maintain our 2% to 3% target CapEx ratio. Free cash flow was EUR 7 million in Q2 2021, which marks the fifth consecutive quarter of positive free cash flow. Based on positive free cash flow, we increased our net cash balance further to EUR 122 million by the end of Q2. Our last 12-month free cash flow margin continues to be very attractive at 8%, showcasing our ability to translate our profitability also into strong cash flows. With that, let me turn to our outlook. The most important message is that we can confirm our guidance for the full year 2021. We continue to expect strong year-over-year growth of 18% to 27% to EUR 510 million to EUR 550 million of revenue. Furthermore, we expect to generate EUR 42 million to EUR 55 million adjusted EBITDA, implying a very attractive 8% to 10% adjusted EBITDA margin while we continue to invest into our long-term growth. Please note that the supply chain challenges and price inflations we discussed in this call are already factored into this guidance as far as we can estimate the impact at this point. As we still experienced a very volatile environment, let me also give you some more color around our expectations for Q3. We expect to free to continue to confirm the level shift in top line while expecting a typical seasonally weak development in the summer. As we had expected and shared with you in our last earnings call, consumers currently spend a lot of their time outside traveling and enjoying their social life in restaurants. So we believe that the short-term shift of expenditures and attention away from Home & Living for a few months. We are confident that this is only short term and will be reversed in the seasonally very strong Q4. For Q3, we are currently growing GMV against the backdrop of an extraordinary baseline. So we consider this a very solid development so far. To give you some numbers, in July and August to date, we realized a growth of 7% to 11% on top of the high baselines from last year. With regards to profitability, we expect Q3 to be significantly below Q2 as seasonality-wise top line will be much lower and we continue to invest into our long-term growth through more marketing, higher technology costs and by expanding our Westwing Collection. In Q4, we will then see significantly higher profitability again as top line increases giving us operating leverage. In terms of cash flow, we expect to follow the typical seasonal pattern of Q3. Accordingly, we expect a negative cash flow in Q3 based on the lower profitability as well as the net working capital investments to prepare for a very strong Q4. To summarize, I'm very happy with the development so far in 2021. We had a very strong first 6 months, both on growth and profitability, and we are very well on track to deliver our 2021 guidance as well as our 2024-'25 targets. With that, I would like to turn the call back to Stefan before we then will take your questions.

[Stefan Smalla, Founder, CEO & Chairman of Management Board]

Thank you, Sebastian. Before we go into Q&A, a quick summary on Westwing. In Q2 2021, we realized EUR 132 million of revenue, a strong 19% growth year-over-year. And more importantly, we confirm the top line level shift we had realized in 2020, providing us with great confidence on the quality of the business we run. Based on the strong top line development, we generated EUR 11 million of adjusted EBITDA in Q2 2021, an adjusted EBITDA margin of 8%. For end of Q2 2021, we served 1.7 million loyal active customers and have delivered 4.6 million orders across Europe in the last 12 months. Based on the strong first half of 2021, we confirm our full year 2020 guidance of EUR 510 million to EUR 550 million in revenue and a strong profitability of EUR 42 million to EUR 55 million in adjusted EBITDA. Given the strong results in the recent quarters, I would like to emphasize again that we are still at the beginning. The opportunity ahead of us remains massive. The Home & Living market has a size of EUR 120 billion just in the markets we're in and still very early in e-commerce, which provides exciting growth momentum based on the dynamic online adoption for many years to come. We, at Westwing, leveraged this opportunity with our loyalty-driven business model. We create superior loyalty based on our differentiating and inspiration at core and brand. And as a result, we achieved best-in-class repeat order shares of 80%. Our Westwing Collection then perfectly leverages loyalty to our loved brand at 12 to 15 percentage points higher adjusted EBITDA margin versus third-party suppliers. And very importantly, for our shareholders, based on this highly profitable consumer loved brand strategy, we target a long-term profitability of 15% adjusted EBITDA. And with our best-in-class cash conversion based on negative net working capital and low CapEx ratio, we convert these profits into very strong cash flows. Quite a good Q2. And with that, I would like to thank you for your attention. We're happy to take your questions now. Operator, we would like to open the Q&A.

[Operator]

[Operator Instructions] We will take our first question from Mr. Volker Bosse from Baader Bank.

[Volker Bosse, Co]

Volker Bosse from Baader Bank. Congratulations on the great second quarter results. I would like to start with your view on the guidance, 18% to 27% for the full year in regards to sales. After the H1, you are at plus 50%. So I hear you speaking about -- over the third quarter, but you also speak about strong expectations for the first quarter. So why not specifying your guidance to the upper end or so? I could see uncertainty, but a bit more confidence given what you stated would have been expected and welcomed, but you can share your view first with me on that. Second question is on, yes, the higher material cost, higher freight costs, you said 1% on margin with the cost in the full year and especially in the second half. So my question is how -- I mean the price transparency in your product category is quite low. So are you able to transmit the higher cost into higher prices for 2022? Or should we also expect for 2022 that it just leads more to margin pressure in the magnitude of 1% as we see for this year? Or how do you look at this increase of costs on a sustainable basis? How you compensate this going forward? And the next question would be on the next level of shopping, which you explained at the Capital Markets Day in May. I mean, video and live shopping event on social media. I think that is very exciting. So perhaps an update, what have you done here in the third quarter? What are the plans for the fourth quarter here to come? So just to get an update what happens here and are you on track to deliver on that? And a final one, if I may, is on your own distribution services, your own trucks and own drivers. I already saw events in Munich. So perhaps you can share with us your initial experience of that pilot and how will you -- and when you roll out the services to other cities as well?

[Stefan Smalla, Founder, CEO & Chairman of Management Board]

Thank you, Volker. Sebastian will take questions 1 and 2, and then I will take questions 3 and 4.

[Sebastian Säuberlich, CFO & Member of Management Board]

Yes. Thank you, Volker. I hope you're well. And I think on the first question, I think there's not too much to say on top of what you've said. I think, as you said, the current guidance implies a revenue growth for H2 of minus 6% to plus 10%. I think we are very happy with Q1, Q2 results and growth, how it develops over the start into Q3, as we mentioned, is quite good. But overall, you should not forget that kind of the baseline from last year, especially Q4, are extraordinary high. So we just feel comfortable with the range we have provided and don't see a reason yet to update it. That might change over the rest of the year when we get closer into Q4. But at this point, we will -- we feel very comfortable and confident with the guidance we gave. On the freight and material cost, I think also -- I think the 1% impact is kind of against the hypothetical scenario that these cost increases wouldn't have happened, and this is a net effect already. So basically, we already passed on a significant share of those increases. Especially container costs are heavy -- heavily as they kind of almost quadrupled, we pass on to the consumer. So we believe going forward that container prices will reduce again. We don't know yet when. So at least, let's say, for the next 6 to 12 months, I would still plan conservatively assuming that we have this impact. But then going forward, if container prices relax, we should also kind of get this 1 percentage point back into our margins. I hope that answered the 2 questions.

[Stefan Smalla, Founder, CEO & Chairman of Management Board]

Yes. Just to follow up on that, Volker, we also see from competitor scannings that we do that kind of everybody in the Home & Living industry is increasing price. I guess, in other industries, it's the same. It's just kind of in Home & Living because consumers typically have low -- price transparency is actually possible. But obviously, at the same time, you don't want to make products too expensive just for a short-term disruption. So that's probably the best explanation of why we still have an impact. Theoretically, we could have priced higher. There is no comparison to the products that we have on the market, mostly from our Westwing Collection, but you don't want to overdo it given that we do believe that it's temporary. Then question 3, next level of shopping, live shopping and social media. I think we're very -- we're progressing very well. That's quite a linear development in the way we run our marketing. So live shopping, for instance, we are now expanding. We now have shows, I think, more than 15 shows for Q3 planned, more than 20 shows for Q4. And today is actually a show, if someone that hasn't seen that yet live, when you go to westwing.de today, on the fourth campaign, the summer table update, there's a live stream that you can look at and see how that actually works and how customers are interacting with that. So we're super happy about that. We have now a technology integration that is quite nice, so customers can comment and like and you can buy the products right from the live stream. So that's pretty cool and super in line with kind of what we do. So that's a linear progression of upscaling the initiative, and it mostly actually happens on our site than app. And on social media, we also do a lot of live and interactive things with our customers. On Instagram, that's pretty much the same than what we've been doing over the last kind of couple of years with more focus now on Reels, which is this new format that Instagram rolled out [ and basically get ] TikTok blown. And then we're very focused on expanding YouTube. So that we haven't invested a lot in the recent years. Last year, we started investing more into YouTube and that's developing very well. Long-form content, especially home stories, with exciting homes all across the world, mostly focused on Europe right now, but in the future also expand. So we're very excited about all that progress, and it's an ongoing process for us where we see step-by-step improvements. And then on the delivery service, that's a super early pilot still. So initial experience is, as we've shown in the Capital Markets Day, the customers continue to be very happy. We're experimenting still with what kind of products we want to kind of deliver already at this early stage. Should be only the 2-man handling products, so really heavy stuff or should it also be slightly smaller stuff like chairs? We'll probably for now go with only the really big stuff. And we still have to optimize lots of processes the way we run it for now. We have optimized it for kind of customer happiness and the Net Promoter Scores in the 95% range, so customers are ecstatic. But at the same time, right now, our cost structure, our overall setup is not yet in a stage that we are able to roll this out to further cities, but that's the plan at some point, right? So -- but not yet. So we will take some more months to perfectionize the pilot in Munich. It's not an urgent priority. In the end, that's a customer experience improvement that we think given also the Net Promoter Score can truly transform the customer experience, but it needs to be spot on. So we're a pretty patient company in that regard. So we're not in a rush to roll this out immediately. We're in a -- we're focusing on getting it to a really, really good experience that will provide growth in the future, and then we'll roll it out. So we're also very excited and we're happy that you see it on The Street actually. It's good. I hope that answers all your questions.

[Operator]

We have Mr. Christian Salis from H&A.

[Hans Christian Salis, Equity Analyst]

Christian speaking from Hauck. Also a bunch of questions from my side. First of all, the first 2 set of questions is on the financing of the new warehouse. So could you maybe talk a little bit more about that? How much CapEx are you going to spend? And what will be the phasing over the next few quarters and years of this CapEx spending? And how much of the equipment is really going to be leased? And related to this, what will be the degree of automation in the new app compared to your existing infrastructure?

[Stefan Smalla, Founder, CEO & Chairman of Management Board]

Sebastian, I think you would take all those questions.

[Sebastian Säuberlich, CFO & Member of Management Board]

Yes, absolutely. First of all, when we talk about CapEx for this new warehouse that we are currently building and that will open next year, we currently estimate the total CapEx spend that we take around EUR 6 million. We're still trying to finance some of that. So it might also be ending up in the leasing line. But just to give you an idea, the EUR 6 million is kind of the rough level of investments needed to equip this warehouse. It's also I think important to highlight that this warehouse will be a warehouse focusing on large items. So there will be very little automation in this warehouse. So basically, you need some higher racks and some forklifts and people, that's what you need. So it's not like comparable to one of the warehouses from that we operate, small and [ past light ups ]. Regarding phasing, we expect some of that CapEx to start now because you have to do prepayments to secure also the equipment and to hold the aggressive time line that we have put out. So you can expect that over the next quarters. With regard to IFRS 16 cash flow, so basically for the rent and the investments, the landlord basically takes into the building and into the ground, we expect an IFRS 16 cash outflow of approximately EUR 2 million per year starting next year. Hope that answers the question.

[Stefan Smalla, Founder, CEO & Chairman of Management Board]

Yes, and as a business assessment, right? So this is one of the advantages of Home & Living, right? When you look at these large products that we handle there, it's relatively cheap to do warehouse expansion. It's a relatively sizable building, right? And then when you compare that maybe to what some electronics retailers or fashion retailers could do as GMV. So this building at 80,000 square meters plus 30,000 square meters potential to expand can do around EUR 250 million of GMV. So that's not a lot. But also at the same time, it's not very expensive. So it's basically the way to think about it is an empty building with some racks and shelves in there and then people and forklift trucks carrying stuff around the building, right? That's it.

[Operator]

[Operator Instructions] It appears that there is no -- oh yes, we have one just arrived. Ajay Nandal from Citi.

[Ajay Nandal, Research Analyst]

I have just one from my side. I just wanted to get more color on the customer behavior. I guess, Sebastian, you mentioned that in Q3, recently you have seen that there has been some shift in customer behavior from -- of online channels to offline channels. So what gives you kind of confidence that the customers will return to the online home furnishing channel back in Q4? And whether you will be able to add more customers going forward assuming that COVID situation normalizes? And yes, that's all from me.

[Stefan Smalla, Founder, CEO & Chairman of Management Board]

Yes. So I can mostly speak to what we're seeing. I think this is the first post-pandemic period for anyone in our lives, really. So it's very hard to speak exactly about Q4, but let me try to then elaborate on my thoughts, right? And then how we think as a company about it. So what we're seeing is that starting really in May, June, when the lockdowns were ending and vaccination rates were picking up and people were feeling more free to move again, we have seen people traveling much more going outside much more. So we have kind of seen the summer seasonality that we typically have, right? Our business in Q3 typically has lower activity of customers because they're not at home, right? If you're not at home, you don't spend as much for your home. That's why in Q2 2020, there was such an extraordinary growth because people were so much more at home than usually, right? So it's basically our business to some degree correlates to the time that people spend at home. And this year, summer seasonality started a bit earlier in May, June when people really started -- our credit team calls it revenge traveling. So like almost like, okay, finally, we can travel again, so let's get out, right? And people are outside and that leads to lower activity, and that leads to lower spend, just a natural occurrence. We continue to see that through kind of now this quarter-to-date as well as we shared. What we also see is that customers are not going back to the offline world. And we see that by our -- the customers that we gathered in the last year, not stopping spending. They're just spending less and their spend -- as a group, right? And the activity that we see is when you look at 2 numbers where we measure activity, one is monthly active user or member and one is daily active user or member. So the monthly active users declined not much, but the daily active users declined a bit more. So how to interpret that people are still active, but they're less active because they're less at home. And that gives us confidence in the end that Q4 will be maybe not a normal Q4 because nobody knows what in this world normal is. But that as people, just because of weather in Europe, will spend more time at home then that will lead to a just regular seasonality that we typically have with more spend. We also believe that people will spend even more time at home with friends and hosting people in Q4 than usually less going to events, et cetera, because there's not that many, which is good for us because people then buy stuff for hosting those people, right? So overall, the way we see it is we just have a stronger seasonality this year, but the same kind of seasonality patterns. Some are people less at home and then winter people more at home. And most importantly, we see that people are continuing to be online, and we see the top line level shift that we have seen, which is driven by activity and active customers, et cetera, continues to be where it was, obviously, not at the crazy growth rates that we had in Q2, Q3 last year or Q4 as well. Does it make sense?

[Operator]

We will take our next question from Catharina Claes from Berenberg.

[Catharina Claes, Analyst]

Kind of the -- was almost already answered by the previous question now. But maybe just to touch more on your expectations on number of active customers and also how you view 2022 in that regard if you have already realized.

[Stefan Smalla, Founder, CEO & Chairman of Management Board]

Yes. So active customers is a bit of a weird metric because it's last 12 months, right? And as you have -- so all the effects are still in there. So that's why when you look at it as an LTM number year-over-year, it has increased a lot. As a quarter-over-quarter sequentially, it hasn't actually increased. The reason for that is that churn actually happens -- bigger churn happens after the first order. So we obviously had more first-time customers in the last 9 to 12 months than before. So that's why active customer numbers in the beginning grew less than GMV, right? Because it's an LTM number, so it's lagging there. And now they're actually growing also less or they're kind of lagging the development, so they're flat right now, although we're still growing, right? And the reason is that now year-over-year, we have some churn from the Q2 cohorts, that kind of last year joined. But overall, that's just kind of this LTM weirdness that you have in our numbers. So we expect this number -- or we don't actually plan this number, so I don't want to give guidance on that. We expect for next year that we continue with our normal business development, assuming the pandemic doesn't flare up again. Right now, it seems as the world is kind of moving into kind of living with the virus partially because people are vaccinated, reopening is happening and people are getting back to normal. That might change in Q4, Q1. Nobody knows. But generally, we would expect that Q2 follows our normal patterns. And we have guided long term for kind of towards 2024-'25 to get to the EUR 1 billion, and we think we're going to take a pretty linear path to that number in the next year as well. But obviously, we haven't planned 2022 yet because we first have to see how everything develops.

[Operator]

[Operator Instructions] It appears that there is no further questions. I'd like to turn the conference back to the speaker for any additional or closing remarks. Please go ahead, sir.

[Stefan Smalla, Founder, CEO & Chairman of Management Board]

Thank you very much, everyone, for attending. We had a pretty good Q2. We're looking forward to finishing the year strong. And if you want to reach out for detailed discussions, you know our contact details. So thank you very much and speak to you either individually or on the next earnings call. Have a good day, and stay healthy. Bye-bye.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.