Zozo Inc Ord

It is time, so we would like to begin FY 2022 third quarter results briefing.

To prevent the spread of COVID-19, we are only holding this session online today, and This briefing session will take place till 535. And from 550 on the separate Zoom channel, we will have a Q&A session for institutional investors. I would like to introduce at this time our participants, President and CEO, Kotaro Sawada, and Executive Vice President and CFO, Kojiya Nagisawa. Thank you very much. We have two presenters today. The CFO Yanagisawa will take us through the results. This is the Executive Vice President and CFO Yanagisawa, and I will take you through the FY2022 third quarter results. Today's apologies about starting a little bit late today. And also, we're having some issues with the video, technical issues. So any video, we can only provide audio. But the presentation has been uploaded, and we can show you the presentations as we go along. So please follow along. And the same documentation is also available on the IR section. Now moving on to the results for this quarter. So the FY22 third quarter GMV was up 8.3% year-on-year, ending at 406.4 billion yen. The GMV excluding other GMV was up 8.9% year-on-year, ending at 372.0 billion yen. The operating profit increased 15.1% year-on-year, landing at 44.6 billion yen and the operating profit margin was 12%, improving 0.6 points year-on-year. As was the case in the first half of the year, the GMV and OP trended positively. Especially with respect to the OP, we determined that we will overachieve our initial target. Thus, as of today, we have revised our forecast upward.

Against the revised forecast, the GMV excluding other GMV has achieved 75% and the OP 81.2%.

Here on page seven of the document, here are the quarterly trends in the consolidated performance. In the third quarter, the GMV excluding other GMV increased by 9.1% year on year. Last fiscal year, in the fourth quarter, we saw a large brand leave our B2B business. Therefore, when we look at the overall performance, the growth remained below 10%, but if we look at Zuzotan and Yahoo Shopping, these businesses grew 12.4% year-on-year, maintaining a double-digit growth. We made great strides in both customer acquisition and sales promotion this quarter. Thus, in year-on-year terms, it became the best-performing quarter this fiscal year. Although the customer acquisition and sales promotion costs increased in comparison to the previous fiscal year, gross profits increased in line with the growth in GMV, and some costs, mainly variable costs, decreased, though the OP was up 16.3% year on year. The OP margin traded high, landing at 12.1%. Next, let me introduce some highlights of our performance. If you look at page eight, here's the increase-decrease analysis of the OP. The OP, which was 38.77 billion yen in FY 2021 third quarter, increased by approximately 5.86 billion yen to 44.63 billion yen. OP increased mainly due to three reasons. It increased by 0.31 billion yen due to the increase in consignment sales resulting in the increase in commissions. 1.07 billion due to the increase in sales from the advertising business. And 2.01 billion due to the increase in shipping income and payment settlement income. On the other hand, the OP decreased due to four reasons. It decreased due to the increase in the number of employees, logistics centers, and consignment operations. So this pushed the OP down by 1.51 billion yen. And it also decreased by 1.2 billion yen as a result of an increase in variable costs that fluctuate with a GMV. And 3.72 billion yen as a result of an increase in the actual promotion costs such as customer acquisition and point rewards. And 1.1 billion yen as a result of one-off costs related to the increase in logistics centers, rise in telecommunication costs related to the increase in the cloud server usage, et cetera. Next on page 15, here are the quarterly trends in the GMV. As I have explained, in the fourth quarter last fiscal year, a brand that used to make a large contribution to the GMV left their B2B business. Therefore, the contribution of the B2B business to the GMV decreased by 2.6 points to 2.9%. On the other hand, consignment sales, which comprises majority of the GMV, has been trending well, and its contribution to the total GMV increased by 2.2 points to 77.5%. Next, moving on to page 19, here's a breakdown in the SG&A as of the end of the third quarter. The cumulative SG&A against the GMB was 22.3%, decreasing 0.5 points year on year. The key reasons why the SG&A decreased, there's basically three, were, sorry, two, were improvements in operation efficiency in the legit centers, which resulted in a 0.4 point reduction in shipping related expenses of the payroll. The second reason is a resizing of the cardboard boxes used in shipping and cost reductions resulting from the increase in the AOV surpassed cost pressures from fuel surcharge, which resulted in the 0.3 point reduction in shipping costs. However, the SG&A went up due to the increase in customer acquisition costs, such as web commercials and advertising, resulting in a 0.2 point increase in advertising expenses.

Moving on to page 23. This is the breakdown of the SG&A by quarter.

In the third quarter, the SG&A against the GMV was 21.7%, decreasing by 0.7 points year on year.

Like the

first half of the year, the shipping and packing costs have remained at low levels in comparison to the previous fiscal year.

But I already explained the reasons why. Next, moving on to page 22, the actual promotion costs.

This quarter we used 5.4% of the GMV on actual promotion costs which includes advertising and point rewards. Since our business has been performing well, we invested in more promotions than we initially had planned. Moreover, in the fourth quarter, we will continue to invest in promotions to maintain sustainable growth in the coming fiscal year. Thus, we had announced that we plan to use 3.5% of the GMV for promotions the fiscal year.

But this percentage may end up being higher for this fiscal year. Next, moving on to page 20, here are the trends in the OP and OPM.

In the third quarter, promotion costs increased in comparison to the same quarter previous year. Promotions using points increased in comparison to the same quarter previous year. However, the gross profits increased in line with the growth in GMV and some costs, mainly variable costs, decreased. Thus, the OPM improved by 0.8 points to 12.1%.

Next, on page 24. From here, I would like to introduce the KPIs for Zozotown.

Figures that I will be referencing going forward does not include Yahoo Shopping and the B2B business. It's only for Zozotown. These figures are only for Zozotown. The annual buyers increased by 350,000 to 11.21 million, and active members increased by 390,000 as of the last quarter to 9.93 million. And the number of guest buyers decreased by 40,000 to 1.27 million. The active members increased because the new customers we acquired last year became regular customers. And we also strengthen our customer acquisition efforts by airing TV commercials and web advertising during Zozo week and the summer sales period. Next on page 25, here are the number of shops. As of the end of the third quarter, the number of shops was 1,554, a net increase of 22 shops since the end of the previous quarter. 35 shops joined this quarter, including American Workwear Brand, Universal Overall, and a French luxury bag brand, Longchamp, and an Australian skincare brand, YSL.

These shops have joined our platform.

Next, moving on to page 30, you'll find the average retail price. And the next page, you will find the average order value. But starting with the average retail price, which was 4,438 yen, of 6.5% year on year. The ARP improved due to the increase in price of certain products and the decrease in the discount rate of products sold during the sales period. So these two are the key reasons why the ARP improved. Next on page 31, average order value was 8,961 yen, 4.3% year-on-year. Although the number of items purchased per order decreased, the ARP increase surpassed this impact, thus the AOV also increased year-on-year. Lastly, on page 33, I would like to talk about the consolidated fiscal year forecast and dividends. As I mentioned before, we are making great progress towards the initial fiscal year forecast announced on April 27, 2022. And since it seems likely that we will be overachieving our initial targets, we have made upward revisions to the forecast as of today.

And as I touched upon on the slide about the promotional costs, we are planning to make

Upfront Investments is sustainable growth next fiscal year, and we are also considering providing our employees with a year-end bonus. As a result, our business performance forecast post-revision is as follows. The GMV and GMV excluding other GMV and net sales will remain the same. On the other hand, the OP forecast is stable. 6.8% higher than our original plan and will be 55 billion, a growth rate of 0.8% year-on-year. The operating profit margin will be 11.1%. And the ordinary profit target is 7.2% higher than our original plan and will be 55.2 billion, growing at a rate of 11.2% year-on-year. And the profit attributable to owners apparent will be 38.4 billion yen, 7% higher than the original plan, and the growth rate for this is 11.3%. And the net profit per share will be 128.07 yen. And as I mentioned, we will maintain the dividend payout ratio of 50%, but the estimated dividend per share will be revised to 65 yen. This concludes my explanation of our performance. Now, our CEO Sawada will take it from here. So I would like to talk about last, Zozo's first physical store, Niao Lab, that we announced last fall. We would like to talk about what the objective is and what it is as well.

Moving on to the next page. First of all, what we will be doing is that we've

We have already explained this, publicized this information, but the stylist and the AI will help you find a style that best fits you, your style. And we actually wanted to show you a video that explains what the service is going to be like, is like, but unfortunately with the technical issues, we cannot show this video to you at this time, but we will upload it to YouTube or some other platform so that you can take a look at it later. But just to give you a brief explanation, you need to make a reservation. But when you make a reservation, you actually will take a survey. And based on the survey and your answers, when you come to the store, the stylist and our staff will communicate with the users, discuss with the users. asking them about their preference and help customers discover their own style.

And we have hundreds of fashion items in the store.

So we explain the products and then we find our customers find their style and in terms of AI we had the smart mirrors. and recommendations that the AI will suggest, and we can based on that we customize that look and, lastly. Actually, we end up proposing three styles, and the users would choose the one that they like best. And at this time, we don't sell these products. We just tell the customers, you know, we have the same products and sometimes if you would like to make a purchase, you can purchase it there, but we don't sell the products in LinearLab. And sometimes it does take two hours for the consultation, but we do spend ample time to help people find their style. And this is basically a service that's provided free of charge.

And the reasons why, what's our objective for doing this?

We actually received that question from many people. First of all, ZOZO has announced the three pillars of the strategy. Since last fiscal year, we are following along this path. The first one is increased traffic from other than by. And the second one is to step into production support. And made by Zozo, we announced last year. So we're making great progress in this area as well. And we're also trying to license our technology as well. And last summer, we... We started a service called Zozofit in the US. So we are welcoming more users to the service as well. And Nyala is actually going to fit under number one, the strategy number one.

So to increase traffic from other than buy. So what this actually means is that

We want to generate traffic other than just to try to sell products. We think it's meaningful to generate traffic for other objectives, more specifically, Purchasing, making a purchase is, and you will find that in the lower funnel, but we want to start approaching customers in the upper funnel as well. So when the season changes, we want to be a touch point for many of our customers before they make a purchase decision. So this is one of the reasons why we want to embark on this strategy. And other than, what does other than buy mean? And one... One definition is to help people find their style. So it's not to just sell products by providing this service. Ultimately, we believe that this will actually energize demand for apparel.

and encourage people to make purchases on Zototon. And we talked about Zotofit and production support, but the number, the first strategy is a very, as a management strategy, we have more fashion and fashion tech and we want to help people explore your style.

We are providing fashion tech and more fashion because we want to help people explore their style and, By helping people discover their style, we talked about, you know, the GMB might be positively impacted and through production support, we can actually help brands manufacture items that look better on people and With technology, we can expand into the global market, but if we can actually define the logic behind why things look great on people, then we can apply that to technology as well. So we want to, by being able to find the styles that look good on people, this will impact all areas of our strategy.

Moving on. the future prospect, how NEAL level will evolve in the future.

First of all, we called it a lab. So from that name, as you can gather, Now, or whatever style that looks good on you it's still under research and development, so we want to continue to study what looks great on people and by acquiring experience we want to and learnings we want to apply that to social town and where.

So that's the first step. but it doesn't stop there.

Going forward, we believe that we can apply our findings. If we can launch Nail Lab as a service, and if we believe that it's very effective for our users, we can actually apply it to other stores as well. So right now we have started receiving reservations for near level and already 27,000 people have made reservations. So we believe that there's a lot of potential demand here, a lot of consumers are interested. Therefore, we are receiving great feedback from the market. But if We can explore monetizing this, providing this as a paid service, and we need to explore what the best model will be, but we can actually help define what a new source could be like.

And as I mentioned before,

We will be, we're probably going, the only company that's studying styles that look great on people and the results of our research can be applied. And the solution can be applied worldwide.

So as you can see, we're still, Neal Lab is still, it's not certain what it will look like in the end.

We're still exploring different avenues, but we know that there's still ample room for growth.

So that's it from myself. Thank you very much. That concludes Zozo's FY 2022 third quarter results briefing. Thank you for joining us today.