ZO1 - Zooplus

[buylowersellhigh]

do you have link to Coho's recent letter?

[Guest Schwab711]

do you have link to Coho's recent letter?

 

It should be included here eventually (last year it showed up the first week of August):

 

[SlowAppreciation]

Here you go

Coho_Capital_2017_Q2_Shareholder_Letter.pdf

[SlowAppreciation]

I spot checked maybe 5-8 different dog and cat foods between zooplus and Fressnapf. Every single time, Fressnapf was 10-30% cheaper for the exact same item.

 

This runs counter to what many claim is central to the thesis—zooplus has the lowest prices. In fact, I couldn't find a single cheaper item on zooplus than on Fressnapf. Does anyone know if anything changed in the market or with margin/pricing strategies?

 

[ukvalueinvestment]

Is Fressnapf a traditional retailer or online?

 

I have done similar checks with Pets At Home, in the UK.  Pets at Home is the dominant bricks and mortar retailer.

 

Again, it is not clear that Zooplus is materially cheaper on lots of the items sampled, albeit this is after Pets At Home has made "investments" in price. 

[Spekulatius]

Fressnapf is a trading retailer with online presence. I confirm that Fressnapf prices match or a lower than Zooplus. It does not appear a to me that has a pricing advantage. This is also confirmed in a study from the Deutsche Gesellschaft für Verbraucherstudien

http://www.dtgv.de/tests/online-shops-tierbedarf-test-von-preisen-angebot-und-service/

 

it is clear that Zooplus doe not have a pricing edge, nor are their product offerings broader than their competition.

[marcosc]

FWIW, items I purchase for my dog are indeed either equally or cheaper priced at zooplus vs. Fressnapf. Unlike others, I don't pretend to be able to make a definitive statement on which one is better based on a very small sample, but I can say the ~10 things I've looked at for my pet, zooplus has the clear advantage (not to mention free shipping at zooplus starts at €19 vs. €29 for Fressnapf).

 

A few examples:

 

Shampoo (zooplus has price advantage)

http://www.zooplus.de/shop/hunde/hundepflege/shampoo/pethead/348273

https://www.fressnapf.de/p/pet-head-spray-dry-clean-450ml#1212627

 

Dog food (zooplus has item, Fressnapf does not)

http://www.zooplus.de/shop/hunde/hundefutter_trockenfutter/selection/royal_canin_specialclub/4926

 

Dog food (specialty item) (zooplus has item, Fressnapf does not)

http://www.zooplus.de/shop/hunde/hundefutter_nassfutter/hills_prescription_diet/id/464502

 

Dentastix (zooplus has largest size variant, Fressnapf does not)

http://www.zooplus.de/shop/hunde/hundesnacks/pedigree/pedigree_dentastix/441510

https://www.fressnapf.de/p/pedigree-dentastix-multipack-56-stueck#fuer-mittelgrosse-hunde

 

 

[SlowAppreciation]

I was accidentally comparing the zooplus UK store to the Fressnapf DE store, so it wasn't a fair comparison. Checking DE vs DE shows zooplus as cheaper ~80% of the time in the small sample I checked.

[mateo999]

Here you go

 

Jake Rosser needs an editor.  He calls Mr. Flatt, Mr Platt.  The name of the hot pot chain owned by YumChina is Little Sheep, not Black Sheep.  Also, FWIW, he essentially regurgitates the YUMC pitch from the winning team at the Pershing Sq. Challenge held in Feb.  The students who pitched it would certainly know it's Little Sheep.

 

And the Zooplus pitch is essentially verbatim from IMC's pitch (down to the Nick Sleep reference, so I assume he had permission to borrow heavily).  And IMC's was essentially just a regurgitation of Hayden Capital's work on the name (though at least credit was given where due).

 

I suppose originality is a lost art these days.

[Foreign Tuffett]

Here you go

 

Jake Rosser needs an editor.  He calls Mr. Flatt, Mr Platt.  The name of the hot pot chain owned by YumChina is Little Sheep, not Black Sheep.  Also, FWIW, he essentially regurgitates the YUMC pitch from the winning team at the Pershing Sq. Challenge held in Feb.  The students who pitched it would certainly know it's Little Sheep.

 

And the Zooplus pitch is essentially verbatim from IMC's pitch (down to the Nick Sleep reference, so I assume he had permission to borrow heavily).  And IMC's was essentially just a regurgitation of Hayden Capital's work on the name (though at least credit was given where due).

 

I suppose originality is a lost art these days.

 

(Facepalm)

 

I would question how familiar he actually is with YUMC if he can't even get the name of one of its restaurant brands right. Even if you're cloning other investors' ideas you should (1) actually do the work and (2) give credit where credit is due.

 

 

[Foreign Tuffett]

Does anyone have any updated thoughts on Zooplus given the stock selling off somewhat in the wake of the below announcement?

 

http://investors.zooplus.com/downloads/zooplus%20-%20CN%2020170915%20EN.pdf

 

 

[Guest roark33]

Here you go

 

Jake Rosser needs an editor.  He calls Mr. Flatt, Mr Platt.  The name of the hot pot chain owned by YumChina is Little Sheep, not Black Sheep.  Also, FWIW, he essentially regurgitates the YUMC pitch from the winning team at the Pershing Sq. Challenge held in Feb.  The students who pitched it would certainly know it's Little Sheep.

 

And the Zooplus pitch is essentially verbatim from IMC's pitch (down to the Nick Sleep reference, so I assume he had permission to borrow heavily).  And IMC's was essentially just a regurgitation of Hayden Capital's work on the name (though at least credit was given where due).

 

I suppose originality is a lost art these days.

 

 

Who cares about originality?  This has got to be the dumbest idea out there, that an idea is only good if you are the one to discover it. 

 

Also, not sure Jake needs an editor with these numbers: Please find your quarterly statement attached. Coho Capital rose 9.8% during the second quarter and returned 25.1% through the first half of the year.

[SlowAppreciation]

Does anyone have any updated thoughts on Zooplus given the stock selling off somewhat in the wake of the below announcement?

 

http://investors.zooplus.com/downloads/zooplus%20-%20CN%2020170915%20EN.pdf

 

At the same time, the Management Board of zooplus AG is setting its sales target for 2017 at around EUR 1,125 m. The primary goal is to significantly accelerate the company’s growth in the third and fourth quarters in order to create a strong basis for increased growth in 2018. This means that accelerating sales growth will also be the top priority in the year 2018.

 

Previously they were forecasting >1,125m so top line seems lighter than expected too.

 

Also interesting is primary focus of investment ramp up is in customer acquisition. I'm not sure what their CACC is like, but would be interested to know if anyone has modeled this.

[ABM]

Does anyone know if they disclosed new customer growth trend in the Q2 conference call?  No transcript available.  They added 2.3M new customers (grosss) in 2016 or 15% growth.

 

Last week's 2H sales revision and related investment to new customer growth was sparked by a sharp deceleration in the new customer growth to 0% in recent weeks vs. prior year period, per the conference call.  This is important because 1/3 of company revenue growth comes from new customers. 

 

An important distinction is management promotes the "sales retention ratio" which is very different than the "customer retention ratio" as the former benefits from rising average spend and the latter does not.  In other words, former = volume + pricing while latter is only volume (i.e. actual customer count).  I point this out because the natural churn in customer count is like 1.5M at this point on a 4.8M base (~70% retention) so if customer count growth has completely flattened then that could have major impact on sale trends as average spend for new and old customers is only growing mid single digits. 

 

Management is relying on logistic investment, which I assume is (free) shipping incentives, and higher ad spend to drive traffic to site aiming to regain momentum in new customer count growth. 

 

The question is whether this is a structural shift in profitability or temporary and whether P&L is shifting to a higher variable mix vs. fixed mix.  Model very sensitive to these assumptions given the op ex is consuming like 80% of contribution margin at this point implying 5 to 1 leverage.  If you think it is a temporary blip and CAC/net and logistics will continue to be leveraged enough to offset the product margin concessions guided by management than their 2020 target is attainable.  If you assume CAC and logistics become more of a variable component (i.e. remain constant or head higher as a % of sales) then you need to assume larger sales growth then implied by management's 2020 guidance. 

 

Given the valuation, the stock is very sensitive to these changes so I am really wondering why customer count just completely stalled in recent weeks.  If it was a 5% run rate to 0% that I understand but 15%+ steady run rate to zero raises a question for me.  It looks like they had negative new customer count growth in 2013 so could be interesting what happened then.  Lastly, they keep citing intense pricing competition which reminds me of the old Buffett maxim about prayer circles and raising prices.

 

Any info would be appreciated. I want to be believe!

[Foreign Tuffett]

Here you go

 

Jake Rosser needs an editor.  He calls Mr. Flatt, Mr Platt.  The name of the hot pot chain owned by YumChina is Little Sheep, not Black Sheep.  Also, FWIW, he essentially regurgitates the YUMC pitch from the winning team at the Pershing Sq. Challenge held in Feb.  The students who pitched it would certainly know it's Little Sheep.

 

And the Zooplus pitch is essentially verbatim from IMC's pitch (down to the Nick Sleep reference, so I assume he had permission to borrow heavily).  And IMC's was essentially just a regurgitation of Hayden Capital's work on the name (though at least credit was given where due).

 

I suppose originality is a lost art these days.

 

 

Who cares about originality?  This has got to be the dumbest idea out there, that an idea is only good if you are the one to discover it. 

 

Also, not sure Jake needs an editor with these numbers: Please find your quarterly statement attached. Coho Capital rose 9.8% during the second quarter and returned 25.1% through the first half of the year.

 

I really hope you aren't trying to prove anything at all by using a fund's 6 month returns.

[ukvalueinvestment]

Does anyone know if they disclosed new customer growth trend in the Q2 conference call?  No transcript available.  They added 2.3M new customers (grosss) in 2016 or 15% growth.

 

Last week's 2H sales revision and related investment to new customer growth was sparked by a sharp deceleration in the new customer growth to 0% in recent weeks vs. prior year period, per the conference call.  This is important because 1/3 of company revenue growth comes from new customers. 

 

An important distinction is management promotes the "sales retention ratio" which is very different than the "customer retention ratio" as the former benefits from rising average spend and the latter does not.  In other words, former = volume + pricing while latter is only volume (i.e. actual customer count).  I point this out because the natural churn in customer count is like 1.5M at this point on a 4.8M base (~70% retention) so if customer count growth has completely flattened then that could have major impact on sale trends as average spend for new and old customers is only growing mid single digits. 

 

Management is relying on logistic investment, which I assume is (free) shipping incentives, and higher ad spend to drive traffic to site aiming to regain momentum in new customer count growth. 

 

The question is whether this is a structural shift in profitability or temporary and whether P&L is shifting to a higher variable mix vs. fixed mix.  Model very sensitive to these assumptions given the op ex is consuming like 80% of contribution margin at this point implying 5 to 1 leverage.  If you think it is a temporary blip and CAC/net and logistics will continue to be leveraged enough to offset the product margin concessions guided by management than their 2020 target is attainable.  If you assume CAC and logistics become more of a variable component (i.e. remain constant or head higher as a % of sales) then you need to assume larger sales growth then implied by management's 2020 guidance. 

 

Given the valuation, the stock is very sensitive to these changes so I am really wondering why customer count just completely stalled in recent weeks.  If it was a 5% run rate to 0% that I understand but 15%+ steady run rate to zero raises a question for me.  It looks like they had negative new customer count growth in 2013 so could be interesting what happened then.  Lastly, they keep citing intense pricing competition which reminds me of the old Buffett maxim about prayer circles and raising prices.

 

Any info would be appreciated. I want to be believe!

 

Can someone explain the concept of "sales retention ratio" to me a little more.  I cannot see how you combine customer retention and sales as a metric and, if this is correct, I think Zooplus' investor material is misleading.  Otherwise I think there's a good chance it's cheap - FY results out next week.

[KJP]

Does anyone know if they disclosed new customer growth trend in the Q2 conference call?  No transcript available.  They added 2.3M new customers (grosss) in 2016 or 15% growth.

 

Last week's 2H sales revision and related investment to new customer growth was sparked by a sharp deceleration in the new customer growth to 0% in recent weeks vs. prior year period, per the conference call.  This is important because 1/3 of company revenue growth comes from new customers. 

 

An important distinction is management promotes the "sales retention ratio" which is very different than the "customer retention ratio" as the former benefits from rising average spend and the latter does not.  In other words, former = volume + pricing while latter is only volume (i.e. actual customer count).  I point this out because the natural churn in customer count is like 1.5M at this point on a 4.8M base (~70% retention) so if customer count growth has completely flattened then that could have major impact on sale trends as average spend for new and old customers is only growing mid single digits. 

 

Management is relying on logistic investment, which I assume is (free) shipping incentives, and higher ad spend to drive traffic to site aiming to regain momentum in new customer count growth. 

 

The question is whether this is a structural shift in profitability or temporary and whether P&L is shifting to a higher variable mix vs. fixed mix.  Model very sensitive to these assumptions given the op ex is consuming like 80% of contribution margin at this point implying 5 to 1 leverage.  If you think it is a temporary blip and CAC/net and logistics will continue to be leveraged enough to offset the product margin concessions guided by management than their 2020 target is attainable.  If you assume CAC and logistics become more of a variable component (i.e. remain constant or head higher as a % of sales) then you need to assume larger sales growth then implied by management's 2020 guidance. 

 

Given the valuation, the stock is very sensitive to these changes so I am really wondering why customer count just completely stalled in recent weeks.  If it was a 5% run rate to 0% that I understand but 15%+ steady run rate to zero raises a question for me.  It looks like they had negative new customer count growth in 2013 so could be interesting what happened then.  Lastly, they keep citing intense pricing competition which reminds me of the old Buffett maxim about prayer circles and raising prices.

 

Any info would be appreciated. I want to be believe!

 

Can someone explain the concept of "sales retention ratio" to me a little more.  I cannot see how you combine customer retention and sales as a metric and, if this is correct, I think Zooplus' investor material is misleading.  Otherwise I think there's a good chance it's cheap - FY results out next week.

 

Customer retention looks at the percentage of people in a cohort that end up purchasing again in the future.  Based on the description in the post you quoted, "sales retention" refers to the total volume of sales from a given cohort over time.  For example, let's assume we call everyone who purchased for the first time in 2015 the "2015 cohort".  Let's assume there are 1,000 of them and they collectively bought $1,000,000 of stuff in 2015.  In 2016, only 750 of those 1,000 people purchased anything, but those 750 people collectively purchased $1,000,000 in 2016.  In 2017, only 500 of those same original 1,000 people purchased anything, but the collective purchases of those 500 people in 2017 totaled $1,000,000.  So the company's one-year and two-year customer retention is 75% and 50%, but its sales retention is 100% for both years.  This is something you'll often see with b2b businesses attempting a "land and expand" strategy whereby they may have fairly high turnover at the beginning, but a subset of customers sticks around for a long time and generates higher and higher ARPUs (or so these companies claim). 

 

One argument for looking at sales retention rather than customer retention is that if you're trying to gauge the returns on customer acquisition spend, sales retention may provide more useful information than customer retention.  Obviously "sales retention" isn't useful where ARPU of a cohort doesn't rise over time (in that scenario sales and customer retention should be the same).

 

 

[ukvalueinvestment]

Fantastic explanation - thank you.