US shoppers boost Global Blue but recovery has a long way to go

Global Blue, the tax-free shopping specialist, reported Q2 results showing that it continues to benefit from the rebound in international travel. Pent-up demand for luxury goods is driving revenues back towards pre-pandemic levels although there is much further to go. Critically, Chinese visitors are still missing but management is confident that they will spend big once they are free to travel once more.

Sales in store (the total value of transactions) was €5.2bn in the three months to September 2022 (Q2 22/23) – up 148% on the same period last year. Global Blue points to 19/20 as a more helpful reference point. Sales are now just 17% below pre-pandemic levels.

Total revenue was €81.9m, down 36% on 19/20. Margins have been under pressure from changing product mix as Tax Free now accounts for a smaller proportion of sales. Take rate was 1.58%, a little better than last year but well below the 2.04% recorded in 2019.

Global Blue reports three divisional results. 

Tax Free Shopping volumes were €3.5bn (down 36% on pre-pandemic) despite sales in Europe returning to 2019 levels once you exclude the affect of TFS abolition in the UK. Strong demand from American and Gulf visitors offset the continuing absence of Chinese and Russians. Sales in Asia Pacific remain well down but are recovering. Management says high spending customers returned first in both regions. 

Tax Free revenue was €62.5m, 43% below 2019. Behind the headline numbers, the tourism rebound is patchy. Portugal, Greece and France have been trading well ahead of 2019 levels but sales in Germany. Austria and Holland remain depressed. 

American visitors are taking advantage of the strong dollar and spending 2.5x normal levels in Europe. Sales to shoppers from the Gulf were up 2x and especially buoyant in Turkey which also saw a huge increase in sales to wealthy Russians who aren’t allowed to shop in Europe.

Nobody knows when China will relax its Covid restrictions and allow its citizens to travel once more. However, Global Blue cites survey evidence suggesting that 80% of previously regular travellers will take a trip within a year of being free to do so. And experience from Hong Kong and Taiwan, which have relaxed restrictions this year, backs this up. Sales to these nationalities is already back at 69% of pre-Covid levels. 

Added value payment solutions (AVPS) volume, which includes DCC and multi-currency, has recovered more quickly than TFS. Sales were €1.4bn, 17% ahead of 2019, but revenue was €15.3m, 11% behind 2019. Management blames shifting product mix – in particular a successful quarter for merchant acquiring in Austria – for the decline in margins.

The new Complementary Retail Tech Solutions (CRTS) division includes two businesses acquired in 2021 to give Global Blue a wider portfolio to sell to its luxury retail customers. Combined revenue from ZigZag, an eCommerce returns platform and Yoduda, an eReceipts platform was €4.1m, up 41% on last year.

Revenue growth at the group level is not yet hitting the bottom line. Operating expense more than doubled to €80m which narrowed operating profit from €7m to €2m. 

The company’s preferred measure of profitability is adjusted EBITDA which gives a happier result. This measure swung to a profit of €25.8m from a loss of €0.4m in Q2 last year. This was mainly due to sharply increased profitability from Tax Free Shopping. However, group adjusted EBITDA is still running almost 50% below pre-pandemic levels.

Financing costs grew €7.7m resulting in an overall pre-tax loss of €11.7m. Global Blue generates most sales in Euros but borrows in dollars which has led to FX losses.

Looking forward, management is optimistic about 2023. It claims to have cut 25% of operating costs during Covid which will spark significantly higher profits when business finally returns to normal levels. Global Blue also says it is well hedged against inflation – luxury goods brands can sustain price increases – and the looming European recession. Domestic slowdown won’t hit tourism, management claims. 

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