Westwing Group SE

XETRA:WEW

Earnings Call Analysis

Westwing Achieves Steady Growth Amid Market Declines

In Q3 2024, Westwing grew revenue by 3% and GMV by 2%, outpacing the declining German online home market by 9 percentage points. The DACH segment saw a 4% increase despite a challenging environment, while the International segment rose 2%. The Westwing Collection now represents 58% of GMV. Adjusted EBITDA improved to 4%, and despite planned complexity reductions impacting revenue, the full year guidance remains stable. The company aims for an adjusted EBITDA margin of 10-15% long-term. With a strong cash position of EUR 63 million, Westwing is focused on a leaner, scalable platform, enhancing its premium market positioning.

Navigating a Challenging Market

In the third quarter of 2024, Westwing Group SE showcased resilience despite facing a declining German online market, which saw a year-over-year decrease of 5%. Westwing's revenue grew by 3%, and its Gross Merchandise Value (GMV) increased by 2%, indicating a commendable performance given the tough conditions. The company significantly outperformed the market, particularly in the DACH segment, achieving growth that outpaced its peers by 9 percentage points.

Solid Financial Performance

The company's adjusted EBITDA stood at EUR 4 million, translating to 4% of revenue, which was bolstered by an enhanced contribution margin and investment in brand awareness. However, free cash flow was negative at minus EUR 6 million primarily due to seasonal inventory increases, leaving Westwing with a net cash position of EUR 63 million at the quarter's end.

Embracing Change with a Strategic Plan

Westwing is currently in the second phase of a three-step plan aimed at unlocking its full value potential. This involves a significant overhaul of its operational framework, transitioning to a SaaS-based technology platform and enhancing its premium product offerings. The company successfully migrated this new platform to customers in four additional countries, further demonstrating its commitment to operational scalability.

Shifting to a Premium Product Focus

The Westwing Collection, which represents the company’s own premium brand offerings, reached a record-high share of 58% of group GMV. The shift to a more premium assortment is a strategic move intended to raise margins, albeit it negatively impacted the active customer base and overall revenue growth in the short term. Westwing is committed to further increasing this share, even amidst the anticipated challenges in the upcoming quarter.

Earnings Guidance Amidst Challenges

Looking ahead to Q4 2024, Westwing confirmed an expectation of a stronger negative top-line impact from its product assortment transition. The company's total one-off cash costs associated with restructuring measures are projected to be between EUR 10 million and EUR 12 million for the full year. Despite the hurdles, management remains optimistic about maintaining operational stability and achieving a breakeven free cash flow for 2024.

Promoting Brand Value and Awareness

Investment in brand campaigns, such as the recent 'Iconic Pieces' advertising in Germany, underlines Westwing's commitment to solidifying its market presence. Collaborations with prestigious manufacturers like MEISSEN not only enhance brand prestige but also cater to design-conscious consumers, reinforcing customer loyalty.

A Comprehensive View of Profitability Metrics

The gross margin improved by 0.7 percentage points to 50.5%, primarily due to gains from the Westwing Collection but was tempered by rising container costs and pricing pressures on third-party products. Additionally, improvement in the fulfillment ratio and reduced lease expenses have positively impacted the overall contribution margin, which increased by 3.4 percentage points year-on-year, reflecting the effectiveness of Westwing's operational adjustments.

Long-Term Vision and Objectives

Westwing aims for an adjusted EBITDA margin of 10% to 15% in the upcoming years, positioning itself for greater profitability and cash generation. This growth strategy reinforces the board's confidence in current investments and initiatives to navigate the challenging market landscape while establishing a robust platform for sustainable expansion.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, ladies and gentlemen and welcome to the Westwing Group SE Q3 2024 Earnings Call. [Operator Instructions]

Now dear ladies and gentlemen, let me turn the floor over to your host, Andreas Hoerning.

[Andreas Hoerning, executive]

Good morning, everyone and thank you for joining us for our earnings call on the third quarter of 2024. My name is Andreas Hoerning. I'm the CEO of Westwing. I'm hosting the call together with Sebastian Westrich, our CFO. Looking at today's agenda, I will begin by providing key updates on the business, followed by Sebastian, who will be presenting the details of Westwing's financial performance. After our investment highlights summary, we will be happy to take your questions.

Let's take a look at Westwing's current state and the key achievements in a good third quarter of 2024. We were able to increase our GMV by 2% and our revenue by 3% year-over-year in a still declining market and while shifting to a mostly global and more premium product assortment. In the DACH segment, we clearly outperformed the market. Our top line grew 9 percentage points faster than German online home & living. Adjusted EBITDA amounted to EUR 4 million or 4% of revenue. This result was driven by an improved contribution margin and sustained investments into brand awareness. Our free cash flow of the third quarter amounted to minus EUR 6 million. It was negative mainly due to the seasonal increase in inventories. Our net cash position at the end of the quarter amounted to EUR 63 million.

Beyond current financials, we again made good progress on our 3-step plan to unlock Westwing's full value potential. Firstly, we successfully implemented the announced reorganizations in Central and Eastern Europe and in our headquarters. Secondly, the migration from our proprietary technology ecosystem to a mostly Software-as-a-Service or SaaS-based platform reached the next important milestones. The new platform was successfully rolled out to customers in 4 additional countries ahead of plan. Thirdly, we further increased our Westwing Collection share to an all-time high of 58% of group GMV in the third quarter.

Fourthly, we continue to strengthen our premium brand positioning, for example, with our Iconic Pieces brand awareness campaign in Germany. Last but not least, the overall development is fully in line with our guidance that we published in March and which we confirm today. Let's briefly put our top line into perspective by looking at market development. As you can see on the left-hand side of the slide, the German online market for furniture, lighting and decoration declined year-over-year in every quarter of 2024. The 5% decline in the third quarter of 2024 was the worst so far.

We clearly outperformed the German online market by 9 to 11 percentage points in each quarter of 2024 and our DACH segment continued to grow also in the third quarter. It is worth noting that we achieved this outperformance while switching to a more premium assortment and actively cutting back on nonpremium products, which had a negative effect on both our active customer base and on top line. We believe that our growth in a weak market proves that we are right on track with our OneWestwing commercial model and the positioning of our brand.

Let's have a closer look at our strategy and the progress we've made. In the full year 2023 earnings call, we presented our 3-step plan to unlock Westwing's full value potential. We are currently in the second stage, building a lean and scalable platform. I will briefly provide an update on the levers we're working on, complexity reduction, Westwing Collection share increase, OneWestwing commercial model and stronger premium brand positioning. Let me start with a follow-up on the measures from our last earnings call in August. We shared that we had completed the consolidation of our logistics center footprint and the switch to a mostly global product assortment with the related restructuring of the Italian and Spanish corporate functions.

We then said that we intended to use the momentum and continue with the next step of complexity reduction that also supported the completion of our OneWestwing commercial model and the stronger premium brand positioning. Based on the learnings and experiences we had made during the restructuring in Italy and Spain, we decided to introduce a mostly global product assortment also in Central and Eastern Europe. In addition, we announced to double down on our efforts to strengthen our brand positioning with the premiumization of our product assortment on a global level. This meant that less premium and lower-margin products would be phased out.

These measures entailed a restructuring and consolidation of related functions. We also stated that both measures would have negative top line impact in the short to midterm but would strengthen the positioning of Westwing, similar to the effects we had already seen in Italy and Spain. Since August, we made good progress on all these areas as well as on the ongoing tech migration to a mostly SaaS-based platform, which I will get back to in a minute. We completed the switch to a mostly global product assortment in Central and Eastern Europe and the related reorganization of business functions. We made good progress in premiumizing our product assortment on a global level by phasing out less premium and lower-margin products.

As stated in August, the additional complexity reduction measures likely have a negative top line impact in 2024 and also 2025 but they will strengthen us in the mid- to long term by allowing us to concentrate on our target audience, design lovers and ultimately maximize profitability and cash generation. The expected top line impact of all complexity reduction measures remains in line with the previously communicated range of a low to mid-single-digit percentage of full year 2024 group revenue. We expect a stronger negative impact in the fourth quarter compared to Q3. We also confirm our forecast of total one-off cash costs for all initiated complexity reduction measures in the range of EUR 10 million to EUR 12 million.

Let's have a look at some other measures we are taking to build a scalable platform. The move to a largely SaaS-based technology platform with the aim of less complexity and completing the OneWestwing commercial model is progressing well. Recent months brought us to further milestones as the new platform was made available in 4 more countries. In addition to Portugal and the Netherlands, customers in Spain, Belgium, France and Italy now have access to our newly designed website and app tailor-made for design lovers. This puts us slightly ahead of our initial migration plan. We will migrate all remaining countries to the new platform over the next few months.

The next update concerns our gorgeous, sustainable private label product brand, the Westwing Collection. Q3 2024 was again a quarter in which we were very pleased with the performance with its share of group GMV growing further by 10 percentage points year-over-year to an all-time high of 58%. While we expect the Westwing Collection share to continue to grow in line with our strategy, its share in the fourth quarter is expected to be lower than in the third quarter due to seasonal factors. This strong development supports our top line as well as profitability since the products are very desirable and they allow us to achieve a higher contribution margin compared to third-party products. One caveat to the aforementioned. We didn't see the full effect of the share increase in the gross margin in Q3 due to an increase in container prices and current price pressure on third-party products. We don't expect third-party prices to go down further. But in any case, we concentrate on increasing our Westwing Collection share to further improve our gross margin.

Let's briefly dive into the Westwing Collection share development by segment. Two aspects are remarkable about the Q3 numbers. First, we reached a new all-time high in both DACH and International. Second, on the slide, you can see the massive catch-up in the International segment. A few years back, there was a difference of approximately 20 percentage points. And just 1 year ago, International was still 7 percentage points behind. Now it's on par with DACH in terms of Westwing Collection share. The catch-up stems from the switch to a mostly global and more premium product assortment and it underpins the strength of our strategy. Sebastian will later show the impact on profitability in the International segment.

The next update concerns our brand positioning. In Q3, we launched our Iconic Pieces campaign in Germany, which included out-of-home advertising across major German cities. The campaign was launched in September to kick off a strong main home and living season, autumn/winter. On the current slide, you can see some examples of the brand campaign. On the next slide, you see another initiative to strengthen our premium brand positioning, our collaboration with a renowned porcelain manufacturer, MEISSEN. Together with MEISSEN, we designed a limited edition product, a vide poche or porcelain key tray that features letter designs from A to Z.

On the right-hand side, you can see, for example, a tray with a letter G. It's the perfect fusion of MEISSEN's 300-year tradition of craftsmanship and Westwing's premium design. The collaboration was announced with a joint launch event. It generated quite some buzz on social media and reached more than 1.5 million people organically on Instagram alone. The gorgeous products went live day before yesterday and were sold out on the same day.

I now hand over to Sebastian for details of our financial performance.

[Sebastian Westrich, executive]

Thank you, Andreas and good morning, everyone. I am Sebastian Westrich, the CFO of Westwing. Let me start with the details on our top line. We achieved a revenue growth of 3% and a GMV growth of 2% in the third quarter of the year. Given the weaker home & living market and the negative impact on top line from the switch to a mostly global and more premium product assortment, that Andreas mentioned before, the growth in Q3 is slightly lower compared to the previous quarters of 2024.

Let's now take a closer look at the revenue development by segment. The DACH segment grew by 4% in the third quarter of 2024, which is less compared to the previous quarters of 2024. There are several factors to consider when looking at the Q3 growth rate of our DACH segment. Firstly, as Andreas mentioned earlier in this presentation, the German online market for furniture, lighting and decoration declined by 5% year-over-year in third quarter of 2024. So we outperformed the German online market by 9 percentage points. Secondly, the German online market declined by 4 percentage points quarter-over-quarter, making growth more challenging for us.

And thirdly, as we switch to a more premium product assortment, we also see negative top line effects from this in the DACH segment. Taking these effects into account, the 4% growth rate in the DACH segment in third quarter is actually a really good result. The International segment, on the other hand, showed a revenue increase of 2% year-over-year in third quarter of 2024, slightly better compared to the previous quarters of 2024. It should be noted that the negative impact on top line from the switch to a mostly global and more premium assortment has so far been greater in international than in DACH, especially driven by the changes in Italy and Spain that we already mentioned in previous calls. This explains the lower growth rate of the International segment compared to DACH.

Please also note that we expect a greater negative top line impact from the switch to a mostly global and more premium product assortment in Q4. Looking at our P&L, we see improvements across most of the P&L lines. In the third quarter, our gross margin increased by 0.7 percentage points year-over-year to 50.5%. This development was driven by strong Westwing Collection share gains. However, the positive margin effect of the Westwing Collection share increase was partially offset by increased container costs on the spot market and pricing pressure on third-party products. We were also able to improve our fulfillment ratio by 2.7 percentage points in Q3 compared to the previous year, mainly due to cost negotiations and efficiency gains.

All this led to a significant year-over-year improvement in contribution margin of 3.4 percentage points in the third quarter of 2024. We are very proud of this development as it proves the strength of our commercial model. Moving down the P&L, you can see that our marketing ratio increased by 1.8 percentage points in the third quarter of 2024 compared to the previous year. This development is driven by continued marketing investments. Andreas already provided details on the recent campaign earlier in this call. This development is also very much in line with what we pointed out during the Q&A session of the last earnings call. Andreas mentioned that some of the brand investments to kick off the very important Black Friday and Christmas season could start as early as end of Q3, supporting top line in Q4.

Looking further down, our G&A ratio, which also includes other results, slightly increased by 0.7 percentage points to minus 20.2% in Q3 2024. I would like to comment on 2 drivers of this increase. Firstly, we have a negative temporary impact from higher D&A due to the shorter life of internally developed technology assets, which we have seen since the start of our technology migration. This effect accounts for 0.6 percentage points of the increase in the G&A ratio in the third quarter. Secondly, we see a further increase of 0.6 percentage points from one-off restructuring costs, which did not qualify for an adjustment in our management P&L. Our D&A ratio did only increase by [Technical Difficulty] across fulfillment, marketing and G&A, a total of 0.8 percentage points that's driven by the shortened useful lives of internally developed tech assets.

Positive effects from lower lease expenses largely offset this effect. All this led to an adjusted EBITDA margin of 3.7% in Q3 2024, an increase of 1.1 percentage points year-over-year. Please note that in Q3 2024, we had onetime restructuring expenses of EUR 1.2 million related to our complexity reduction measures. Due to their nonrecurring nature, we adjusted these expenses in our P&L. The development of adjustments over time as well as the unadjusted EBITDA, EBIT and earnings before tax can be found in the appendix to this presentation.

Looking now at the profitability of our 2 segments, we see opposing developments. The DACH segment profitability declined year-over-year. The reason for this is that our brand awareness investment again was focused on Germany, our biggest market. Therefore, the full brand investment was allocated to this segment. In contrast to the DACH segment, the International segment showed a significant improvement in adjusted EBITDA margin by 5.4 percentage points year-over-year. This improvement was mainly driven by a strong increase in Westwing Collection share, which Andreas presented as a key achievement earlier in this presentation.

We are very proud of this development, which clearly shows that the levers of our 3-step plan are producing the expected results. Of course, we will continue working on improving profitability in both segments. Let us now take a look at our net working capital. By the end of Q3 2024, net working capital remained clearly negative at minus EUR 5 million. This is an improvement of EUR 3 million year-over-year, mainly driven by increased trade payables and decreased prepayments on inventories.

Quarter-over-quarter, however, net working capital increased by EUR 6 million in Q3 2024, primarily driven by seasonal inventory buildup for our peak season. If you compare this year's net working capital and inventory development with 2023, please keep in mind that throughout 2023, we were reducing excess inventory and did not see atypical seasonal net working capital developments during the year. On the next slide, you can see CapEx and CapEx ratio for the first 9 months of the year compared to the previous year. In the third quarter, we made some investments in our warehouse for maintenance and automation purposes, which is why our capital expenditure in the third quarter was higher compared to the previous quarters. This explains the increase in CapEx year-over-year.

Let us now take a look at our free cash flow. Free cash flow in the third quarter of 2024 was minus EUR 6 million. This development was mainly driven by the change in net working capital, which accounted for minus EUR 6 million in Q3 and which I explained previously was the main driver of seasonal increase in inventories. Additional effects on free cash flow in Q3 were EUR 1.5 million for restructuring expenses, mostly linked to the complexity reduction measures. Free cash flow for the first 9 months of 2024 was minus EUR 9 million. This is EUR 22 million lower than last year.

This change compared to the same period last year is mainly due to 2 effects. Firstly, the change in net working capital, which accounted for EUR 15 million. This was mainly due to the seasonal buildup of inventories in 2024, while the change in net working capital in the comparative period in 2023 benefited from the reduction of excess inventories. Secondly, implementation costs of about EUR 5 million related to the complexity reduction measures of our 3-step plan, which we did not have in the first 9 months of 2023. As mentioned in our previous calls, we expect free cash flow for the full year 2024 to be breakeven, considering all one-off cash costs for the complexity reduction measures. In terms of net cash, we are pleased to report a strong net cash balance sheet position of EUR 63 million at the end of September, EUR 6 million below last year's level. The main drivers for the decreased net cash position are our complexity reduction related onetime restructuring expenses and the net working capital effects from the seasonal inventory buildup.

In addition to the already explained free cash flow of minus EUR 6 million, we had lease payments of EUR 3 million in the third quarter of 2024, mainly for offices and warehouses, which are shown in the financing cash flow according to IFRS standards. As a result, we maintained a strong balance sheet with no debt other than the IFRS 16 lease obligations. Finally, let's have a look at our outlook for the remainder of 2024. First of all, we confirm the full year revenue guidance. Although the transition to a mostly global and more premium product assortment is expected to have a stronger negative top line impact in Q4 compared to previous quarters, a decline in revenue for the full year 2024 is unlikely by now.

However, given the importance of the upcoming peak season and continued challenging market conditions, Q4 performance remains hard to predict. In terms of profitability, the development so far has been in line with our guidance, which we also confirm for the full year. Overall, I second what Andreas said earlier, we are well on track with our 3-step plan to unlock the full value potential of Westwing, not only in terms of strategy and operations but also in terms of financials.

Our focus in 2024 and 2025 is to build a less complex and much leaner platform that will enable us to scale with operating leverage. While the complexity `reduction and premiumization will negatively impact top line growth in the short term, we will benefit from it in the mid- to long term. As communicated in previous earnings calls, our long-term target is to build a highly successful business with an adjusted EBITDA margin of 10% to 15% and strong cash conversion.

With that, I'm handing over to Andreas to conclude our presentation with our investment highlights.

[Andreas Hoerning, executive]

Thank you, Sebastian. Let me briefly recap the investment highlights of Westwing. First, we have a unique relevant customer value proposition through the specific assortment and the way we serve our customers. Second, the market potential is huge, especially in our existing geographies but also beyond. Third, we have a strong brand with high loyalty and true potential for us to grow further. Fourth, we have high and increasing margins as well as operating leverage while we scale. Fifth, we have a great balance sheet with a strong cash position and no debt, strong net working capital and low CapEx. All of this will lead us to the 10% to 15% adjusted EBITDA with a continued strong cash conversion.

Sebastian and I are now happy to take your questions.

[Operator]

[Operator Instructions] First question comes from Volker Bosse of Baader Bank.

[Volker Bosse, analyst]

Volker Bosse, Baader Bank, speaking. Congratulations on the good third quarter results. I would like to start with 3 questions. First is on the sales performance in the International segment. You stated 1.8% plus in the third quarter. Of course, Italy and Spain were weaker. Could you give an indication or can you confirm that Italy and Spain decreased? And what was the magnitude of decrease? Was it down mid-single digit or even double-digit percentage rates year-over-year? Just an indication so that we can see how the rest of the international business should have performed then?

The second question, perhaps it's a bit of a clarification. I mean -- could you remind us where do you stand in regards to the status quo of the transformation process in Italy and Spain cost-wise? I mean headquarter is closed, personnel is laid off. I mean what has to be done in regards to transformation process in Italy and Spain? That's the second question. And the third question would be on the -- on your experience with the physical stores, you opened, if I'm not misunderstood, a shop-in-shop at the Breuninger department store in Stuttgart. So what is your experience here? Did you see any impact on online sales in the catchment area of Stuttgart, for example? And what are the next plans in regards to expansion, where and how many stores can be expected going forward? An update here would be helpful as you did not mention this topic in today's presentation at all.

[Andreas Hoerning, executive]

Volker, thank you so much for your questions. Sebastian will be taking the first and the second one. So related to the International segment, especially Italy and Spain, I will, before I hand over, briefly answer the question on the physical stores. So yes, Volker, thanks for the question. So on the store, we have one stand-alone store in Hamburg on Jungfernstieg, close to the Alsterhaus of KaDeWe and we have a store-in-store as you mentioned, within Breuninger luxury department store in Stuttgart.

And we are very pleased with the performance of both of those stores or store-in-stores. We also -- we see not only good performance in the stores themselves but also what you mentioned, we see an uplift in our online sales beyond people that visited or made purchase in the store. So we do see an online uplift also in the catchment area. We measure this versus other cities where we don't have stores. So we're also happy about that. Generally, this is something that we believe is a good contributor to brand and to top line for us. And that's why we -- as we already stated earlier on, we are considering and are working on kind of how we can leverage this more in the future. But it's too early to really talk about what we're precisely going to plan. But we will get back to the earnings calls in due time once we actually know more and when it makes sense to report more.

[Volker Bosse, analyst]

So, is there any -- sorry to interrupt. Are any rental contracts signed or any locations fixed already? Or is it really down the road and not decided yet? Sorry to ask.

[Andreas Hoerning, executive]

As I said, we're working on it and we will get back in due time once it actually makes sense really to report on it. So far, nothing substantial kind of has been made, has been concluded but we're working on it and we will get back on the topic.

With that, Sebastian, over to you for the questions on the International segment, in Spain specifically.

[Sebastian Westrich, executive]

Volker, thanks for your question. So your question was on the sales performance of the International segment and the impact in Italy and Spain of our complexity reduction measures. So we can confirm that the top line in Italy and Spain decreased. All other countries are growing. So it's a similar development compared to previous quarters, so fully in line with our expectations.

Then on the second question related to the restructurings in Italy and Spain, the transformation measures are completed in those countries. So it means that we successfully closed our warehouses there. The offices are closed. And we also saw the one-off restructuring costs in the previous quarters already. So we are really happy with the results and how this process was completed and we are happy with this situation. This would be my answers to those 2 questions.

And Volker, any more questions on this?

[Volker Bosse, analyst]

Yes. Thanks for asking. I would as a follow-up on the one-offs on full -- after 9 months, you have now EUR 4.6 million one-offs. You mentioned the EUR 10 million to EUR 12 million in total for the transformation, the EUR 10 million to EUR 12 million is on a combined basis, EUR 24 million, EUR 25 million? Or is another EUR 5 million to come in the fourth quarter? So question is, number of one-offs or amount of one-offs on a full year basis after we have already seen EUR 4.6 million after 9 months.

[Sebastian Westrich, executive]

Thank you, Volker. Yes. So we expect one-off cash costs for the implementation of our complexity reduction measures, especially technology transformation and the implementation of the remaining countries during Q4. We are quite confident to stay within the range of the communicated one-off costs related to this of EUR 10 million to EUR 12 million. And yes, I think this is a good range and we feel really comfortable with those costs. So I think no surprises to be expected from that.

[Volker Bosse, analyst]

Yes. So the EUR 10 million to EUR 12 million, which you mentioned is on fiscal year '24 in total, right? There's nothing included from '25 or so.

[Sebastian Westrich, executive]

This is 2024 forecast. What we expect for full year of 2024.

[Volker Bosse, analyst]

So this means another EUR 5 million to EUR 7 million one-offs in the fourth quarter.

[Sebastian Westrich, executive]

Yes, maximum, so rather less.

[Operator]

[Operator Instructions] All right. There seems -- 1 follow-up by Volker Bosse, Baader Bank again.

[Volker Bosse, analyst]

I would come back -- I would like to come back on the gross margin, which improved 74 basis points. You mentioned the building blocks, positively product mix, negatively freight costs. Could you bit a -- could you please bit of more precise in regards to the building blocks? So is it 100 basis points coming from product mix, 30 basis points negative from freight costs or to see the magnitude of the building blocks, which ends up to the 74 basis points, which you mentioned, just to have a broad range at least.

[Sebastian Westrich, executive]

Yes. So the biggest -- so there was a positive impact, as we mentioned, from the increased Westwing Collection share, which was partially offset by the higher container cost and price pressure. And with regard to the negative effects, the container cost effect was the biggest driver that prevented us from showing a higher contribution margin in Q3. And so we do not expect also that the container costs continue to increase. So it recently stabilized but I think situation overall still is unstable. But yes, container costs being the biggest negative impact.

[Volker Bosse, analyst]

I guess the container cost is based on a contract which you have on a 12-month rolling forward basis also. So if you say container costs will stay on an elevated level or will stay on the headwind for gross margin, you would also say that for '25, the level of '25 as it is agreed as of today is higher than for '24. So container costs to remain a headwind on gross margin going forward, also looking into '25?

[Sebastian Westrich, executive]

So I think it's difficult to predict given the high volatility of the spot market prices throughout 2024. But given the volumes that we have secured at fixed prices, we do not expect at the current container cost price is a risk -- a big risk for next year. But I think to expect a positive effect from this, I think it would be much too early. So we would need to see really lower container prices over a longer period of time to really benefit from this.

[Volker Bosse, analyst]

Roughly how much of the container capacities you have via secured the 12-month contract also? And how much of the container capacity is bought by spot market prices? Just -- is it 50-50 or 80-20 or?

[Sebastian Westrich, executive]

Yes, it's about 50-50 but please consider that also about 50% of our overall purchase volume is sourced from Eastern Europe. So only a part of our sourcing is then impacted by the higher container costs.

[Operator]

[Operator Instructions] All right. There seems to be no more questions in coming. So I'm handing the floor back over to the hosts.

[Andreas Hoerning, executive]

Thank you so much. As we haven't received additional questions, we are ending today's earnings call. Thank you for joining and goodbye.