Warpaint London plc (LON:W7L) Chief Executive Officer Samuel Bazini caught up with DirectorsTalk for an exclusive interview to discuss the key factors driving growth in sales & profits, geographical sales growth, the significant expansion of the direct online sales, and the outlook for the remainder of the year.
Q1: Just to start, how did the group’s sales and profits perform in 2023 compared to the previous year? And what were the key factors driving that growth?
A1: I’ll start off with the financials. 2023, as you mentioned, was a very, very good year for the Warpaint London group, revenues were £89.6 million for 2023 against £64.1 million in 2022, 40% up year on year, the gross profit margin also increased from 36.4% in 2022 to 39.9% in 2023. PBT was £18.1 million in 2023 against £7.7 million in 2022 and cash at the end of 2023 was £9.1 million, up £3.2 million from the year before.
So, a big jump in the numbers, a very, very strong and solid year for us as our strategy starts to really kick in.
I think at this point I’m also going to mention the final dividend, which is the final dividend is 6p, bringing the total dividend for 2023 to 9p against 7.1p in 2022.
Q2: What are the factors driving the growth?
A2: The largest contributor to the growth is our existing customer base. As our brands are starting to get more and more consumer recognition, our retail partners are buying a wider range of our products, giving us more and more space within their stores.
We’ve also acquired a number of new customers, both in the UK and overseas, most notably in the UK Superdrug, which we’re very excited about. We’ve just announced a further rollout this morning. And in Holland, we started to supply at the end of 2023 a company called Etos, who are a cosmetic retailer with over 450 stores.
So all these factors are helping to drive the growth.
Q3: Could you just elaborate on the geographical breakdown of sales growth in 2023, particularly highlighting the significant increases in the EU, UK, and US markets?
A3: We had strong growth in all of the geographies with all of our brands. So the EU was our largest market in 2023, sales were up 61% against 2022. We’ve got a number of large retail customers that we deal with in the EU, and they’re expanding rapidly across the EU.
So, we’ve got a Scandinavian customer that is now in France, they’re going into Germany and Spain. We’ve got a Spanish customer that’s going into Portugal and Italy so our customers are growing.
Also, as I mentioned earlier, our brands are gaining more and more recognition so obviously sales are increasing so that’s really what’s been helping to drive the growth in the EU.
In the UK, which is our second largest market, though eventually I expect it to come back and be our largest market as we grow in some of the bigger retailers here, but sales increased in the UK by 18% in 2023 against 2022. It’s a combination of new customers, such as New Look and Superdrug, as well as significant growth within our current customer base.
The US also grew 37% in 2023 against the previous year, this has also driven a combination of new customers, as well as further expansion into existing customers, such as CVS, Sally Beauty, H-E-B and Five Below.
The rest of the world was up 57% for the same reasons I’ve mentioned, brand recognition is driving sales, also opened up some new customers, for example, went into 100 Watson stores in the Philippines.
This has all helped to drive the growth of our brand across all geographies.
Q4: What contributed to the significant expansion of the direct online sales?
A4: We’ve been growing steadily online since 2019 and what contributed to this growth since 2019, we decided in to focus on our online sales, not just in the UK, but also overseas, particularly in the US. Prior to 2019, we had our own website, we really just used it as a marketing tool for social media and to establish retails and we did this rather than promoting sales, we weren’t focusing on online revenues.
We changed all of this in 2019 aggressively to promote our sales on our website and on Amazon and we did a number of things.
The biggest step we took was to reduce our sales to resellers that were ruining the image of our brand online and we wanted to take back control. The result was in 2019, our online sales were approximately £180,000, in 2023, they were up to £6.2 million so a significant jump.
In the UK, we sell on Amazon as well as our own website and in the US and Europe, we sell solely on Amazon. We’ve got no infrastructure in these regions and Amazon offers a service called Small and Light, it’s for affordable brands so we’re able to supply our products to the consumers very cheaply. We couldn’t compete and get the products to the consumers as quickly as Amazon does so it really works for us.
We’re often asked is our online profitable and can you make money when you’re using Amazon because they take commissions and charges? But the reality for us, yes, we do. We make a similar PBT margin as the rest of the business. Obviously, our gross margin is higher, but the profit before tax margin is the same as the rest of the business, 18-20%.
We’re also often asked, could we not grow our online faster? We could grow our online business faster, but we’ve looked at other people and some of our peers, and it’s very, very easy to burn cash online and not be profitable.
Everything we do in this business is geared to making a profit. We came to the market, we said we’d have no debt, we’d be profitable, we’d pay a dividend so that’s what we try to do. So, we intend to grow online further this year, but in a sustainable way.
Q5: With a strong start in Q1 2024, and ongoing expansion plans, how do you see the outlook for the remainder of the year?
A5: Well, we expect 2024 to be another strong year for Warpaint London. We’ve got plenty of room to grow, we have a number of planned launches into new major retailers, the two standout retailers for me are Morrisons, we’ve just literally launched into just over 200 stores, and Walmart, which has obviously been a target for us for the last two years. We’ve had a significant Christmas order to be delivered later in this year. We’ve also had further expansion, as I mentioned, into Boots, Superdrug, CVS, and Five Below and we also expect to grow our e-commerce business again this year.
So, all in all, we’re confident for the year ahead. I mention the house broker’s note, he’s just upgraded his forecast for 2024. He’s forecasting revenues of £105 million, with an adjusted PBT of £23.3 million, and we are uber comfortable with his forecast.
