Global Fashion Group - comment

Today the company reported its Q2 2024 results. The big surprise in the results were the repurchase of €110 million of its existing €166 million existing convertible notes in August 2024 at 85% (10 points higher than the existing price of 75%). This leaves the outstanding balance of the convertible at €56 million and a net cash balance of €160 million (pro forma for the buyback). 

On our review of the results, it seems that management is focused on controlling what it can. Their focus on cost efficiency generated a cash flow benefit by delivering a €34 million or 11% reduction in its total cost base. A targeted reduction of inventory older than 180 days reduced aged stock levels by €13 million. Gross profit margin was 45% (an +300 bps improvement and 100 bps higher than our estimates due to lower discounting) and Adjusted EBITDA came in at € -4 million (better than our estimates of €- 6 million). Along with capex remaining low at €9.3 million, the company generated normalised free cashflow of €3 million.

In the meantime, macro conditions continue to weigh on the topline at with Net Merchandise Value at €285 million (-12% vs. Q2 2023). This decrease was driven by a yoy reduction of 16.9% in Orders and 16.7% in Active Customers. The Latam, SEA and ANZ segments showed declining active customers and net merchandise volume. Revenues also declined by 12.3% to €184.8 million.

While we applaud the company for doing the right thing for shareholders by reducing the largest portion of its liabilities at a discount - the capital structure has become too small for Sarria to actively cover the situation. In the meantime, we wish the management team the best of luck in its efforts to continue to turn around the business.