Original-Research: elumeo SE - from NuWays AG

Classification of NuWays AG to elumeo SE

Company Name: elumeo SE

ISIN: DE000A11Q059

Reason for the research: Update

Recommendation: Halten

from: 06.05.2024

Target price: EUR 2.70

Target price on sight of: 12 Monaten

Last rating change:

Analyst: Mark Schüssler

Mixed Q4 // Weaker-than-expected guidance; est. & PT chg.

elumeo published mixed Q4'23 that continue to be affected by a lingering

macroeconomic slowdown.

Here are our key takeaways:

The company's FY sales were slightly better than feared, but still burdened

by muted consumer sentiment in the eurozone. Sales for FY came in flat at EUR

45.4m (-1% yoy; eNuW: EUR 44.7m), bolstered by increased spending in S&M and

healthy return to customer growth (+9.3% yoy to 83k). While, the company

saw another sharp decline in its average sales price, which declined to EUR

73 (-10% yoy) as customers postponed big ticket item purchases, items sold

partially offset this downward movement and recovered to 623k (+10% yoy).

Having said that, the company's EBIT declined sharply and came in negative

at EUR -2.9m or -6.3% of sales (-3.2ppts; eNuW: EUR -1.2m). According to

management, operating losses worsened as a result of increased investments

in TV web sales channels and inflation-related decline in the gross profit

margin. We note that the decline in the gross profit margin is concerning

as it also suggests limited pricing power and increasing competition and

have adjusted our estimates for FY24e and beyond accordingly. During the

earnings call, management addressed ongoing margin issues by introducing a

more restrictive return policy, increasing airtime for higher-margin

products and utilizing AI in customer support. In our view, margin

improvements will likely come at the cost of lower top-line growth,

reflected in our slashed sales estimates.

As flagged in our last update, while jooli demonstrates a positive

development, we currently do not expect any material top or bottom line

contributions from in the foreseeable future. The company's video-shopping

platform exhibited a GMV of c. EUR 4,558 (eNuW: EUR 16,110) in March 2024, with

the number of orders totalling 1,353. Moreover, management set the take

rate (referral fee) at 7.50% of GMV. In our view, the slower-than-expected

growth of jooli makes substantial revenue and margin contributions unlikely

during the foreseeable future.

The company's long-term outlook is mixed, reflected in its issued FY24

guidance. While sales are expected to grow 4-8% yoy (eNuW: 4.2%), the gross

margin is seen to come in at 49-51% (eNuW new: 50.5%; eNuW old: 54%), thus

significantly below our expectations. Long-term, we see elumeo growing its

sales moderately by 4.6% p.a. to EUR 54.3m due to (1) favorable performance

in the company's webshop (2) the continued and promising development of an

interactive mobile jewellery shopping app and (3) AI translated automated

shopping shows which should likely boost video shopping content globally.

However, we note that this growth likely comes at the expenses of

lower-than-expected EBIT profitability due to continued inflationary

pressures and the need for continued investments in marketing.

Considering the above-mentioned challenges the company is beset with, we

adjust our rating to HOLD

under the present circumstances with a new PT of EUR 2.70 (old: EUR 5.00) based

on DCF.

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