Zozo Inc Ord

It is now time to start the full year financial results announcement of Zozo for fiscal year 2021, ending in March of 2022. To prevent the spread of COVID-19, we would only be offering live streaming this time. We plan to have the session until 5.35 p.m. After that, On a separate zoom channel, we will have a Q amp a session with institutional investors from 550pm. Now i'd like to introduce the participants representative director, President and CEO quote that also other. Hello. Director executive Vice President and CFO koji Yanagisawa hello. We will have two presenters today. And first, CFO Yanagisawa will take us through the business results. Hello, I am Yanagisawa, Director, Executive Vice President and CFO. Now I'd like to walk you through the full year earnings results of FY21 ending in March of 2022. By the way, the presentation document we will be using today has already been uploaded to the IRR page of our website, so please take a look. Let's jump right in. Here are the highlights for FY21. Let's go to the next page. You see manga again. This is going to be the final episode of this manga, so please enjoy it. until the very end of the page. Although this page does not exist in the deck, I'd like to walk you through the highlights of FY 2021. This year, our gross merchandise value, GMV, went up by 21.3% year-on-year, landing at 508.8 billion yen. GMV, excluding other GMV, went up by 13.3% year-on-year, landing at 462.1 billion. Operating profit was up by 12.5%, landing at 49.6 billion yen. Operating profit margin was 10.7% decreasing by 0.1 point year on year. Both GMV and OP exceeded the plan, and we were able to finish the year very strongly. We recorded the new highs for both GMV and OP. Next slide, please. This is page seven of the financial results announcement document. These are the quarterly changes of the business results. In the fourth quarter, GMV excluding other GMV was up by 12.7% year on year. Unaffected by the changes in the number of COVID infections and the degree of the traffic recovery, the brands continue to proactively provide us with their inventory. And on top of that, our vigorous promotional activities have proven to be fruitful, and as a result, our GMV grows steadily, maintaining more than 10% growth year-on-year. Regarding the operating profit, the cost increased from the same period of the previous fiscal year as we launched TV commercials and web advertisements to attract customers. and that we also implemented point-based promotions to promote sales. And we also made donations through the sales of charity t-shirts in support of Ukraine. On the other hand, our gross profit increased thanks to the GMV growth and the advertising business. And we managed to reduce the logistic related costs and payment collection fees as well. And these factors drove up the profit by 5.0% year on year, our OPM landed at 9.0%. Next, I'd like to share the details of the business results. This is page eight. Let's first look at the increase decrease analysis of the operating profit. OP was 44.14 billion last year, and this year it became 49.65 billion, up by 5.5 billion approximately. Factors attributable to the growth of the OP were, there are mainly three. First, 10.17 billion from the increase of consignment shop commission coming from GMV growth. 2.17 billion from the sales increase generated by the advertising business. And thirdly, $3.78 billion from the growth of shipping revenue and payment service revenue coming from the GMV increase. On the other hand, factors that drove down the OP were, first, $3.37 billion from the increase in fixed costs impacted by the increase of employees' logistic basis and the outsourcing expenses. And 4.87 billion from the increase in variable costs that rose in correlation to the GMV. And 1.77 billion from the increase of promotion expenses associated mainly with the active airing of TV commercial to attract customers. And 600 million from other expenses. Next, this is page nine of the document. Here's the balance sheet. As we have explained before, we acquired treasury stock to meet the criteria for the prime section. And consequently, our cash and deposits saw a decline and treasury stocks saw an increase from last year. There are no major changes aside from that. Next, this is page 10, cash flow trends. Cash flows from operating activities decreased due to increased income taxes paid. So that's minus 4.8 billion. And cash flows from financing activities had gains and losses from the purchase and disposal of treasury stock. Next, this is page 16, quarterly GMV trend. The ratio comprised by other GMV that we started to record from the second quarter of the last fiscal year went up by 2.5 points year on year, finishing at 9.6% this quarter. This worked to push down the ratios of other business segments in conjunction with the impact of apparel sales seasonality. So the ratio, the share of this has gone up. We don't see major changes overall though, as far as the ratio and share is concerned. Let's go to page 22. This is SG&A trend. In the fourth quarter, we aggressively implemented advertising activities such as TV commercials and web-based media to attract customers. And as a result, the ratio of promotion-related expenses recorded in SG&A became 2.3%. Next, this is page 21. Let's now look at the OPA and OPM changes. In the fourth quarter, as I mentioned, OPM increased with the advertising business growth, although we have spent quite a lot in advertising. And we improved operational efficiency in the distribution centers. This pushed up the OPM. However, as I have mentioned, the promotional costs increased for active recruitment and sales promotion, and donations made with the sales of Support Ukraine t-shirt and bonus payout to the employees took place, and they worked to bring down the OPM by 0.7 point year on year. And at the end, we landed our OPM at 9.0%. Next, this is page 20, SG&A breakdown for the full year. SG&A against GNV finished at 23.0%, decreasing by 0.5% year-on-year. The ratio decrease is attributed to these main reasons. One, with the new revenue standard application, point-related expenses recorded as an SG&A expense last year are now deducted from net sales instead. This brought down the point related expense by 0.5 point. Second, the efficiency of the logistic basis improved, resulting in a 0.3 point decline of logistic related expenses under payroll and staff costs. Third, payment collection fee decreased by 0.3 point due to improved economic conditions that came with the payment collection company change related to credit card payments. Fourthly, change of the packing materials improved others by 0.2 point. And by the way, we changed our packing materials in the middle of the second quarter of the previous year. Factors that drove up SG&A are TV, commercial and web ads to proactively recruit customers and free distribution of Zozo glass. They resulted in a 0.6 point increase in the advertising expenses. Moving on to page 24 and onward, these are the main KPIs of Zozotown and these KPIs hereafter do not include the results of pay-per-mall or B2B business. The number of total buyers was up by 310,000 from the previous quarter, amounting to 10.41 million, of which active members was 9.04 million, increasing by 330,000 against the previous quarter. Guest buyers decreased by 10,000, finishing at 1.37 million. As for the increase of the active members, we managed to retain successfully the newly recruited members from last year. Also, the implementation of Zozo Week and active TV commercial airing of the summer and winter sales to drive traffic turned out to be successful. In the fourth quarter, Not only did we focus on the new member recruitment, but we also implemented promotional initiatives to help prevent customer defection and also drive upsell. And as a result, we could grow the number of active members by about 100,000 more than how we did in the previous quarter. Next, this is page 25 of the deck. number of shops in Zozotown. As of the end of the fourth quarter, the number of shops was 1,510, a net decrease of six shops from the end of the last quarter. We welcomed 23 shops to our platform this quarter, to name a few. We welcomed a worldly renowned luxury cosmetic brand, Givenchy Beauty, and a brand that carries a vast collection of items using naturally derived and locally sourced ingredient three, and also VT Cosmetics from Korea, which is most known for its popular skincare items, and also Comme des Garcons Homme that combines timeless modernity and strength in their designs. Next, this is page 30. Concerning the average retail price, it was 3,752 yen up by 0.1% year-on-year. The slight increase is attributed to the lowered markdown ratio. Next, this is average order value on page 31. Average order value was 7,974 yen down by 0.2% year-on-year. And it's mainly attributed to the slight decline in the number of shipments. This led to a lower average order value compared to the same period of the previous year. Both average order value and average retail price have shrunken. And we believe that this is a positive trend that we are seeing. So that was the result from FY 2021. Next, I'd like to share a business plan for FY 2022, ending in March of 2023. This is page 33. The full year consolidated earnings forecast and dividend for the ongoing fiscal year are as follows. We target to increase GMV by 6.9% year-on-year to 543.8 billion. GMV excluding other GMV targeted to increase by 7.3% year-on-year. to 495.8 billion yen. Net sales plus 9.1% year-on-year, 181.3 billion. OP targeted to increase by 3.7% year-on-year, 51.5 billion. And OPN, 10.4%. So these are the plan figures that we have. We will continue to target a payout ratio of 50% or more we would like to first aim for 50% level. And we plan to pay a dividend of 60 yen per share. Also, the dividend for fiscal 2021 ending in March 2022 has been raised to 58 yen per share from the initial plan of 55 yen per share. thanks to a good performance. We disclose it today, so please have a look. And I will explain in detail about this on the next slide, but for the ongoing fiscal year, we plan to maintain a double digit growth in GMV for the combined total of Zozotown and Pepe Mall business. The departure of United Arrows from our B2B business will hurt the overall growth rate of GMV. We are already seeing it, but this slowdown will be temporary. In addition, the operating income margin is expected to decrease from the previous fiscal year due to somewhat of an anticipated decline in work efficiency at a logistic basis. An increase in the shipping cost ratio due to a decline in order value and an increase in system related investment, mainly coming from the outsourced work. Having said that, the company aims to achieve 3.7% growth in OPI. And these are the targets on this page by business for this fiscal year. So as a town consignment business, we aim for growth equivalent to that of fiscal 2021, excluding the impact of China business impact that we decided to pull out. And as for PayPayMall, we will continue to make maximum efforts this fiscal year as well, while benefiting from Z Holdings' continuous investment in sales promotion. So we're aiming for 29, roughly 29% growth. And as mentioned earlier, our B2B business is expected to experience a temporary negative growth from the departure of United Arrows at the end of February 2022. In advertising business, it's $7.2 billion, so we'd like to aim for 14% growth. Let's go to the next slide. Here are the changes in capital investment. A total of 10 billion yen approximately in capex is planned for the ongoing fiscal year. The breakdown is as follows. From February, 2023, The leasing of the new logistic base will start so that's 6.5 billion. And there's 2.5 billion for the purchase of equipment for existing distribution centers and 1.0 billion for system and system related investments so that's the capital investment that we are planning ahead. That brings me to the end of my part. I'd like to pass the microphone over to Sawada, our representative director, president and CEO. Hello everyone, I'm Sawada. From my side, I'd like to present to you some additional points. One thing that I know you're interested in is that the situation of COVID is starting to settle down. It's coming to an end soon. And amid this environment as an EC player, as Zozo, what are the things that we envision for this fiscal year? I believe that that's what you're interested to hear most. And as Yanagisawa mentioned, total numbers may seem a bit, week, but for Zozotown and Peipei Mall, we were able to show you that the growth is going to continue to be strong for these two businesses. So regardless of whether there's traffic or not, the customers are coming to our platform. We're not really affected so much by that. And it seems like the consumer mindset is changing. So that's something that I like to call out once again. And here I'm bringing to you some of the figures to prove that. to indicate that. So let's look at the next slide. So this is something that we track on a regular basis. In the past two years, we've been watching the changes of the mindset of people. We track the top of mind awareness of the survey through the survey, when they try to buy a fashion merchandise, what is the first place that comes to mind is the question that we always ask. And this is not just for online players, but also inclusive of offline players as well. And I'm afraid I cannot disclose specific numbers here, but you can see that it's showing a continuous upward trend in the past two years. This indicates the number of those who answered Zozotown for this question. So we believe that the approximate user, total user base is 70 million. And we've seen an increase by 2.5%. So this is an increase of 1.67 million if you convert it to the size of the population. And this 1.67 million is a huge base. So we can see that their top of mind awareness is really increasing for Zozo, and this is something that we're confident about. And next, this is the new buyer acquisition. Our GMV, in order for us to grow our GMV, it's really about how we attract new customers. We've been saying that many times already. It's about the new buyer acquisition that matters. And from April, we track the growth rate of the new users. And in red, we indicate how we did last year. And as you can see, regardless of COVID, virtually every month we've been able to have growth. And the traffic is recovering starting from the beginning of this year. And the sales of real stores is recovering as well for some of the brands. But regardless of this, We have not been impacted so much by that. And of course our promotional activities were fruitful as well. But what I can say is that we've been able to steadily grow our new buyer acquisitions. And we're also making effort to bring back the traffic to real stores as well. So people can go to Zozotown and ask for layaway in real shops. And now the stores showing their inventory data saw an increase by two times as far as the number of stores is concerned. So it's going very well. And I have been saying this from before as well. we are making this a paid service so that we can drive traffic to real stores. So we received the commission of about 12% of the prices of the merchandise. And when we made this announcement, one concern was raised. And that concern was that maybe the buyers will move away from you, but we monitored our data for the past six months and we discovered that those who use this service will actually visit Zozotown platform more than the regular users. We see that there's a difference of about 1.3 times in terms of the number of visits. And when they come, then naturally some of them may make a purchase as well. So the number of purchases also goes up by 1.1 times. And this excludes the layaway services and other purchases that they make in real stores, so this is in line with what we expected. What we would like to do is to further expand this so that we can further collaborate with physical stores to further enhance the value of fashion infrastructure. Next. Another concern that you might have is this, probably. This is the impact of the raw material costs. In conclusion, the impact of this is quite limited at this time. So we might see some negative impact on two fronts. Namely, one is the direct materials cost And another one is indirect materials such as cardboard, et cetera. So, when there is a price increase, then that gets reported in the news, in the media. But if you look at the situation of Zozotown, we have not witnessed price increases on our platform, but it's only for the merchandise categories that we handle. But if... So what it means is that the prices have not really risen for the users. It hasn't made the users more difficult to buy from our platform. So, so far, we have not been impacted negatively by the raw material costs, but there could be future impact. But at the moment, there is no definitive effect that we have witnessed. Next. So the raw materials costs are rising. And when you look at this trend for apparel, we should also be mindful of SDGs as well. Maybe we're overproducing and that is oftentimes said in the industry and we need to be well-prepared so that we can, support the production in a better way. So here you on the left, you have the comparison of sales between MTS and MTO. So MTS is about made to order. We call this So we offer correction MTO, which is made to order to our brands, so that we can help them reduce excessive inventory, so we call that MTO made to order. And there was one actual figures that we could draw from this. So between MTO and MTS, let's imagine that the same merchandise was sold under two different systems. And if it's MTO, you only have to produce 42,000 pieces to generate 250 million yen. And for the same merchandise under MTS, you would produce 34,000 pieces to generate 130 million yen. So if you do a simple math here, if we try to make the same sales by MTS, this is how much discrepancy or gap you will see. So if you try to produce under MTS system, you would have to produce 62,000 pieces. On the other hand, if it's under MTO, it would only be 42,000 pieces. So there's quite a lot of benefits for, this MTO system. We need to further explore opportunities to increase the amount of production under MTO, but this is something that we'd like to take on as a challenge. And next, this is the current situation of Zozo Cosme. So this is the month, we haven't been able to disclose to you how much GMV we're doing. But the milestone we've had that I've mentioned is that we'd like to do 10 billion yen with this. And we already achieved 5.7 billion in GMV for this fiscal year. And after fall, we've been able to have repeaters. And the first year anniversary did even more than what we expected. And we've been able to create a positive cycle of the users. As we expected from the outset, the cross-selling has been successful. What it means is that those who buy cosmetics has more LTV than those who only buy apparel. So the LTV of cosmetic buyers also expanded. And this is AR makeup. Maybe some of you have tried this. already, so you can easily virtually try on this lipstick on this screen, and you can easily see how it looks on you. This is not an original menu that we can only provide, but with one tap, one single tap, you can enjoy service like this one. And we're very much focused on fashion tech, and this is one of the menus that we bring in to our customers. And so, as I mentioned, we aim to achieve GMV of 10 billion yen, and we want to be in the tens of billions this fiscal year. And I don't think this is going to be the most difficult objective. We believe that by taking on those measures, we'll be able to achieve this. Of course, I mean, compared to apparel business, It's still small, but players that sell cosmetics is limited right now online. And we believe that this is achievable if we take the right measures. Next. This is where. So making where a commerce site. So finally we will make this happen. This has been released earlier and you can have detailed information about that on a separate deck, but we'd like to explore the opportunity for a new type of social commerce. And we call this offering C2C. So if people are going to post something on wear, then that should serve as an opportunity for purchases. So our idea starts from that concept. So someone can post the entire outfit and people who want to buy that outfit can apply for it. We'd like, we're using pay pay flea market system for this one. So what we would like to do is to give shape to a new type of social commerce on where, and we believe that we'll be able to implement this this summer. Next, this is another new topic called Zozo fit service. So this is a new service we are planning to launch this year. The logo has been made already, and I believe that we will be able to bring to you more news about this soon. And this is what it is. We made an updated version of Zozo suit, and we already made the announcement of that. And it's been a while since we made that announcement. We're utilizing this technology and we'd like to offer that to other players. And we also thought that maybe there's something that we can also work on directly. And this is how we conceived this idea for the service. So this is a measurement technology application that we will offer. And we're not simply asking people to measure themselves, but what we would like to do is to really focus on the measurement technology to sort of keep track of their body shapes. And the reason why we decided to focus on this is because when people wear zozo suit, it's not just limited to apparel, but we found out that many were wearing zozo suit to measure their body shape for a dieting purpose to stay fit. So people showed interest in how their body was changing. And we realized that many people were like that in the United States. So we thought that we should do a more of a deep dive in the US market to see what sort of demand and needs exist in the US. And therefore, we decided to launch this new service in summer this year, first in the United States. So the way that this works is that there are personal trainers Compared to Japan, there's a great demand, a much greater demand for personal trainers in the United States. So we are thinking of offering this to personal trainers as a service so that we can help them give online advice to their clients. and the users will wear this dosa suit to take measurement of their bodies. And this is only going to be the first step of this service. We would also like to upgrade our applications so that we can start to measure body composition activity level. And I mentioned that this is going to be a great tool for trainers but nutritionists can also utilize a service like this one or apparel manufacturers, health food manufacturers can also tap into this service as well. The body metrics and body shape data can be used by different industries so that they can offer new services based on the data that they acquire. And this is the last part about sustainability. Next slide, please. So last year around the same timing as today, we mentioned that we're going to focus on sustainability and there were four focal initiatives for us. And these four are written on the left. for each category, what are we going to do exactly? What are the actions we will take? And so that's been mapped out here on the chart. And we basically made our decisions using this X and Y axis. We thought of the importance, the level of importance for the stakeholder, so that's in the Y axis. And we also looked at the level of importance as for those a group so that's on the X axis and if there are actions that are proven to be important for both access, we will take on those initiatives. And we will set the kpis for each. and also. have more concrete ideas about our actions. and through our website and through financial results announcement sessions like this one, we would love to share with you more about this in the future. Okay, so that is it from my side. Thank you. We'd like to close the full year financial results announcement of Zozo for FY 2021 ending in March 2022. Thank you for your attention.