Sosandar Regulatory News (SOS)

Sosandar plc

Trading and COVID-19 Update

Delivering revenue growth and cost savings in an unprecedented environment

Sosandar is pleased to announce a trading update for its financial year ended 31 March 2020. Alongside this, at this time of unparalleled uncertainty, the Company also provides an update on how it has been operating since the outbreak of COVID-19, the impact on current trading and the actions taken by management to ensure that it is well placed to deliver on its longer-term growth ambitions.

COVID-19 Update

Current trading

Despite all the challenges, the Company is pleased to report that it has responded well to a period of significant disruption and uncertainty. As an online-only business, it has been able to react quickly, maintain service throughout and deliver continued revenue growth in first two months of the current financial year (1 April to 31 May). This is despite a significant reduction in marketing expenditure and demonstrates the benefit of having a larger customer database as a result of previous customer acquisition expenditure:

· Order growth of 44% year on year

· Revenue increase of 62% year on year

· New customer acquisition up 15% year on year

· Reduction in marketing expenditure of 69% year on year

· Returns down to c.33%

· Improvement in unit economics, with positive order contributions for the first time in April and May

· Year on year bottom line improvement with c.55% reduction in loss

· Agreements reached with John Lewis and Next to go live on their online platforms in Autumn/Winter 2020

· Addition of Klarna to the website, providing an extended payment option for customers

These results have been achieved against an industry backdrop where the online clothing market was down 24% in April and indications are that May also saw a year on year decline1.

Underpinning these results, we have seen a shift to more casual ranges as customers seek out comfort with fewer social occasions calling for more formal product types. As a result, the business quickly changed new-in products to meet these changing needs and has had a number of loungewear items, denim and casual summer dresses which have sold out in days and quickly repeated, as well as benefiting from customer waitlists which ensure quick sell through.

These product types naturally have lower sell out prices, which has led to lower average unit values and therefore lower basket values. However, this movement in average order value has been more than offset by the naturally lower levels of returns of these less fitted product types, helping to reduce overall returns rates to c.33% in April and May.

Browsing behaviour has increased, with traffic up 98% year on year. The nature of this search activity has meant lower levels of conversion as customers are either browsing as a pastime or making more considered purchase decisions. However, the business has still seen spikes in conversion following marketing emails and new in product notifications, showing continued engagement with the brand.

In the initial period of lockdown, like much of the industry, the business experienced a dip in demand and so promotions and discounts were utilised to stimulate purchases. This impacted margin in the early weeks of April, but the business has been able to successfully shift customers back to full price purchases with margin quickly returning to normal.

Financial position

Cash at 31 March 2020, was £5.2m, which had reduced to £4.4m at the end of April as the creditor position from committed spend in March unwound. Cash at the end of May remained flat at £4.4m, representing the actions taken to maximise efficiencies especially around stock and discretionary spend, reflecting the speed at which the business is able to adapt to change. The Company believes it is sustainable to continue successfully running the business with this significantly reduced cash burn level. It remains cautious in its approach to discretional spend, carefully monitoring KPIs and cash management whilst adapting product plans to meet the changing needs of the consumer.

Given this and the strength of its balance sheet, the Company is confident that its existing finances are sufficiently resilient to withstand the current crisis and means it is well placed to resume investment in growth at the appropriate time.

Management action

As a result of the drastically different trading environment, the Board has taken a number of actions to manage short-term costs, while ensuring the business remains on a strong footing to deliver on its longer-term growth ambitions. These include:

Operational Update

The Company's priority continues to be the health, safety and well-being of our team, partners and customers. The transition to working from home has been successful with minimal disruption and the team is working effectively to serve our customers.

Warehousing and distribution operations have seen no disruption with the Company's partner, Clipper Logistics, following national government advice in terms of remaining operational whilst adhering to the guidelines set out to protecting the welfare of distribution staff.

The Company sees its suppliers as partners and have been working with them to manage the way through what has been a difficult period. The Company has had to cancel orders, postpone intake and obtain discounts but this has been done in a collaborative manner to make sure that its supply chain is protected for the future. Sosandar would like to thank them all for their support over the recent months.

Trading update for year ended 31 March 2020

The year to 31 March 2020 reflects a period of trading largely prior to the disruption caused by COVID-19 and show there is a clear demand for the Company's unique offering in the market.

The Company expects to report revenue for the year of at least £9m which is over 100% revenue growth year on year. The Company's customer base continues to be very engaged with the brand, with repeat orders up 144% and its active customer base up 111%. Supported by its marketing spend, the period saw continued growth in customer numbers with new customers up 67% and orders up 109%. Returns remained flat at 50%.

This growth in new customers was driven by the Group's strategic decision to invest and focus marketing spend in TV advertising throughout Q2 and Q3. TV advertising naturally has a slower conversion rate in comparison to social media and brochures, which resulted in the Group's conversion rate decreasing by 25bps. Average order value for the period was down 6%, reflecting better than expected winter weather and the impact this had on product mix.

Following the Company's announcement on 18 March 2020, management has taken significant further actions to ensure the business is protected against the impact of the pandemic. These actions include an expected increased and prudent stock provision with the full year results due to uncertainties of the continued impact of COVID-19, increased levels of discount used in the initial period of lock-down to help stimulate demand and one-off costs relating to measures required to adjust working conditions. The discounting used during the initial period of lock-down and stock provision, alongside the planned first order discounting following the period of intense customer acquisition in Q2 & Q3, is expected to result in the Company reporting a gross margin decrease of 555bps. The Company also saw higher than anticipated returns on sales immediately prior to the announcement of the lock down. As a result, the Company now expects to report a loss for the year which is slightly higher than anticipated in its announcement on 18 March 2020.

Full year results

The Company will confirm the date for its financial results for the year ended 31 March 2020 in due course.

[1] Source: IMRG

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About Sosandar PLC

Sosandar is an online womenswear brand, specifically targeted at a generation of women who have graduated from throwaway fashion and are looking for quality, affordable clothing with a premium, trend-led aesthetic. This is a section of the market that is currently being underserved.

Sosandar was launched in September 2016. The Sosandar business model is built around using trend-led, exclusive designs produced in-house and then manufactured using a variety of global suppliers. Sosandar caters for a growing market of fashion-conscious women, while utilising an outsourced logistics provider that can support its planned growth over the coming years.

Sosandar's founders are Ali Hall and Julie Lavington, who previously launched and ran high street fashion magazine Look, as editor and publishing director respectively. They have a combined experience of over 35 years in the fashion industry, including in the design, manufacture and sale of fashion ranges for some of the UK's high street retailers, including Debenhams, Office, Oasis and JD Williams.

More information is available at www.sosandar-ir.com