Sosandar – Delivering fast growth right now #SOS

Sosandar – Delivering fast growth right now #SOS

Sosandar is an online fashion brand targeting women in their 30s and above who the company believes are under served by existing high street brands and online offerings (latest share price 26.3p, market cap £31 million).

Paul Scott covered it in the Cube Podcast and also interviewed management last month. I thought management were hugely impressive in Paul’s interview!

(Source: Google)

Company background

The company raised £5.3 million at 15.1 pence in November 2017, and has made terrific progress since then. Shares are available today at a c. 50% discount to the 52-week high and a discount to the recent placing at 32p.

Management – dream team Joint-CEOs
  • Alison Hall, former Look magazine editor and co-founder of Sosander.  Alison helped grow Look to become a leading fashion magazine title. Alison has twice been awarded the Editor of the Year for Women’s Magazines.
  • Julie Lavington, former Look magazine publishing director and co-founder of Sosandar. She diversified Look magazine into producing successful Look-branded clothing ranges with leading UK fashion retailers. Julie was awarded the prestigious Publisher of the Year Award in 2010 by the Professional Publishers Association. 2014, Julie was also publishing director of UK InStyle magazine, a global fashion brand published in 17 countries worldwide.
Target Audience – women over 30

The company’s target audience, woman over 30 have more money than the under 30’s and aren’t actively targeted by other online brands – see the company’s presentation that I’ve linked to below for more details.

Growth/marketing strategy

The company is burning cash in order to drive customer growth through online marketing. Sosandar’s growth is also supported by its growing customer database which according to the January trading update had “increased 209% to nearly 100,000”, compared to the same period last year.

Gifting outfits to celebrities appears to be working:

“Sosandar’s content-driven marketing strategy, utilised across all its digital and print media platforms, has been further enhanced by a diverse and growing celebrity and social influencer fanbase. New celebrities seen wearing Sosandar clothing include Zoe Ball, Susanna Reid, Melanie Sykes and Una Healy”.

Margins at list

Whilst the company is currently loss making, as the business begins to mature and costs are spread over a larger revenue base I expect the business to become cash generative due to the attractive margins:

(Source: Sosandar Admission document)

According to the January update, margins had improved to 53.5% for the quarter.

Financials – excellent growth in revenues

Interim results 6 months ended 30th September 2018

(Source: RNS)

Revenue growth rate between the two periods accelerated to over 400%.

Quarter ending 31st December 2018 update

Record quarter – “Revenue for the period was slightly ahead of our expectations at £1.6m, a 219% increase on the same period in 2017”. Other highlights:

  1. Customer database increased 209% to nearly 100,000
  2. Conversion rate increased 129bps to 3.47%
  3. Average order value increased 10% to £105.58
  4. Repeat orders increased 527% to over 20,000

 (Source: RNS)

My lazy boy revenue calculations

Last quarter results multiplied:

  • £1.6 million * 4 = £6.4 million revenue with next to no growth.

Given the rapid acceleration, low starting point, increasing customer base and investment in customer acquisition, I’d hope to see growth of 100%, i.e. a doubling:

  • £6.4 million * 2 = £12.8 million revenue with 100% growth (Editor’s note: as of December 2018, brokers were forecasting FY March 2020 revenue of £9.5 million. Brokers seem to underestimate the company’s progress).

If the company is able to continue this growth trajectory over a three to five year time horizon, the numbers start to get interesting.

The only negative I’ve found during my research is that the company recently announced a grant of options at 29.2 pence. 50% of the options vest if the business does £5 million of revenue within a 12 month period.

I view this as a ridiculous easy target given last quarter’s performance – free money for the boy’s (and girls)! The other 50% vests upon the company becoming cash flow positive. If granted the shares have a ten year vesting period which means existing shareholders have the possibility of dilution for years to come without capital being injected into the business at the early stages where it could be used accelerate growth.

Inventory Management

The last thing anyone wants to see in a clothing company is having working capital stuck in unsold inventory. Sosandar has various strategies to ensure this doesn’t occur. I’ll let the results speak for themselves:

(Source: Sosandar December 2018 presentation)

Investor presentation

The following investor presentation and slides are worth watching (unfortunately not available on the company’s website):

https://www.youtube.com/watch?v=mW9sLP9GiOs

Stockopedia articles – Paul Scott’s commentary

If you go to this link (and sign up for a free account) you can read Paul’s commentary on Sosandar and see how the story has developed:

As regular readers will know I normally invest in resource stocks and my forays into other sectors were completely disastrous last year – Falanx/Totally/Starcom for example all saw double digit losses. The difference between those companyies and Sosandar is that they promised high growth exciting business (which they might be one day) whereas Sosandar is actually growing fast today and has a great (although limited) track record.

I like to back high quality management and I think Sosandar has this and an excellent business model. If the company is able to achieve half of what I think it can, investors will be well rewarded.

 

At the time of publication, the author has a long position in SOS.

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COMMENTS

Wordpress (4)
  • comment-avatar

    Nice summary – especially for someone like me who is heavily invested here. I too was very disappointed in the grant of all those very cheap (as in free) options.

  • comment-avatar

    Thanks for an interesting write-up.

    Couple of comments from my wife – who isn’t a current customer (or shareholder – target 21p depending on market momentum) but is in the correct demographic…

    1. How people get to know about this web-site if not already keyed into the marketing profile?
    When I type in – “women’s dresses”, this is not on the first page – Boohoo is (and Next funnily enough).. This is true also with the phrases “Women’s fashion uk”, “women’s fashion uk online”, “Women’s clothing” etc
    2. It is easy to navigate on the site
    3. It is good that they have sizes 6-20
    4. I don’t like that the items are mostly of polyester or nylon (even the knitwear). This will turn off some potential customers looking for quality longer lasting material as well as design
    5. I think there is no need to sell shoes (albeit a small selection) as there are plenty of competitors already in the market.
    6. With accessories – there are only a couple of scarves. Maybe a bit more choice could be a positive and also additional dress jewellery options would work well?

  • comment-avatar

    Joel, thanks for writing the article.

    I think the broker’s forecast revenue to be about £4.2M this year (ending 31 March 2019) and for the company to lose £3.5M, so if their gross margin is roughly 50% then that means they’re admin costs are roughly £5.6M for the year. This figure would tally with
    their interims, where their admin costs are £2.9M (Implying 5.8M admin costs). They started the year with £2.6M and raised a further £3M (probably around £2.7M after costs) which means that at the beginning of April this year (start of 2019 – 2020 year) they’re probably going to have in the region of £1.8M in cash perhaps less. So, given they lost 3.5M 2018 – 2019 and they’ve got 1.8M in the bank for the year 2019 – 2020, do you think they’re going to need to raise more money? What do you think that will do to the share price?

  • comment-avatar

    Thank you for all the feedback. sdmbot – it’s important to note that the company is currently spending a lot of money on acquiring customers (i.e. adverts) so I wouldn’t view their admin costs as £5.8m. I accept there’s a chance that they may need to raise more money but I don’t expect that to happen. The co accepted more money as there was institutional demand and they’ve used it to accelerate growth. My expectation would be that they’re able to use the existing cash to take through to profitability but that if their was an offer that would allow the co to further accelerate growth they should consider it.

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