Zozo Inc Ord

It is now time to start the full year financial results briefing of Zozo for FY 2022 ending in March 2023. We will 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&A session with institutional investors from 5.50 p.m. I'd like to introduce the participants. Representative Director, President, and CEO, Kotaro Sawada, hello. Director, Executive Vice President, and CFO, Koji Yanagisawa, hello. The briefing will be offered by the two presenters. Now CFO Yanagisawa will take us through the business results. So I'm going to take off my sunglasses and change to regular glasses. I'd like to walk you through the full year earnings results of FY22 ending in March of 2023. And 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 of this quarter. As for FY2023 full year, our gross merchandise value, GMV, went up 7.0% year-on-year, landing at 544.3 billion yen. GMV, excluding other GMV, went up 8.4% year-on-year, landing at 501.1 billion. Operating profit was up by 13.6%, landing at 56.4 billion yen. Operating profit margin, OPM, was 11.3%, improving by 0.6 point year-on-year. Both GMV and operating profit exceeded the revised company plan, achieving extremely favorable results. Both GMV and operating profit reached record highs. The achievement rate against the revised plan for GMV excluding other GMV was 101.1% and 102.6% for operating profit. Let's go to page seven. These are the quarterly trend of the consolidated business results. In the fourth quarter, GMV excluding other GMV was up by 7.0% year-on-year. It grew by 9.5% Zozotown and Yahoo Shopping combined. As for OP, although expenses for attracting customers and sales promotion increased compared to the same period of the previous year, thanks to the gross profit, increase coming from the GMV growth and some cost reductions, mainly variable costs. OPM increased by 8.4% year-on-year. OPM turned out to be 9.1%. Next, I'd like to share the details of our business results. This is page eight of the deck. Let's look at the increase-decrease analysis of the operating profit. OP was 49.65 billion in FY22. In FY23, it amounted to 56.42 billion, up by approximately 6.77 billion. Factors attributable to the growth of the OP were, first, 13.11 billion from the increase of consignment shop commission from the GMV growth. 1.47 billion from the sales increase generated by the advertising business. 2.8 billion from the growth of shipping revenue and payment service revenue from the GMV growth. Factors that drove down the OP were Actually, there are four factors. First, 2.43 billion from the increase in fixed costs impacted by the increase in the number of employees, the logistic basis and outsourcing expenses. So that's minus 2.43 billion. Minus 1.86 billion from the increase in variable costs that rose in correlation to the GMV. minus 4.65 billion from the increase of the actual promotion-related expenses associated mainly with expenses to attract customers and point-related expenses, minus 1.68 billion from other expenses such as the one-off expenses incurred in connection with the increase in the number of logistic bases in the first and the fourth quarter, and the increase in telecom expenses due to the rise in cloud server usage. Next, here are the cash flow trends. Cashflow from investing activities was used for the expansion of the logistic basis this year. There are no other major items. Let's go to page 16. This is the quarterly GMV trend. As we explained before, In the B2B business, a brand that used to make a large contribution to our GMV left our B2B business in the fourth quarter of the previous fiscal year. Therefore, the ratio of B2B business against GMV decreased by 1.9 points year-on-year to 2.8%. On the other hand, our consignment sales, which comprises the majority of the overall GMV, has been trending very well. The component ratio grew by 3.8 points, becoming 76.7% of GMV. Next, there's the breakdown of SG&A on a full year basis. The SG&A to GMV ratio was 22.9%. down 0.1 point from the same period of the previous year. Factors that drove down the SG&A ratio are as follows. One, the operational efficiency of the logistic basis improved resulting in a 0.3 point decline of the logistics related expenses under payroll and staff costs. Number two, resizing and optimization of the sizes of the cardboard boxes used for delivery and cost reductions resulting from higher order value surpassed the cost pressure coming from the fuel surcharge. This resulted in a 0.3 point reduction of the shipping cost. On the other hand, factors attributed to drive up the SG&A ratio were, first, increase in customer acquisition costs coming from TV commercial and web ads, resulting in a 0.4 point increase in advertising expenses. Second, others increased by 0.2 point due to an increase in cloud server usage for system replacement and service enhancement, as well as equipment purchases associated with the increase in the logistics centers in the first quarter and the fourth quarter. Next is Page 24 of the deck, this is a breakdown of SG&A expenses by quarter. The ratio of SG&A to GMV was 24.7% up 0.9 point from the same period of the previous year. So from before the third quarter, rising order value has kept shipping costs to GMV ratio lower than the level it was in the same period last year. Also, the ratio of payroll costs for employees under payroll and staff costs to GMV rose 0.3 points due to the provision for bonus. And we actively aired more TV commercials and web ads, which resulted in a 0.7 point increase in advertising expenses. So these are the main factors that drove up and down the SG&A ratio. Next, I'm going back a little bit here to page 23. Here's the actual promotion related expenses trend. In the fourth quarter, as I have explained earlier, our actual promotion related expenses, which is a sum of advertising expenses and point related expenses turned out to be 5.0% of GMV. Because our business performance was trending positively, we actively implemented ads such as TV commercials and web ads to attract customers. Moving on to page 21, here are the trends in operating profit and OPM. Although, as I have mentioned, there was an increase in the provision for bonus to our employees and promotion expenses in the fourth quarter, However, gross profit increased in conjunction with GMV growth, and we saw certain cost reductions, mainly in the variable costs. For these reasons, our operating profit margin exceeded the one of the same period last year by 0.1 point, landing at 9.1%. Let's go to page 25. Moving on to the main KPIs of Zozotown. And by the way, the KPIs hereafter do not include the results of our Yahoo shopping or B2B business. This is only for the main Zozotown. The number of total buyers, was up by 200,000 from the previous quarter amounting to 11.41 million of which active members was 10.19 million increasing by 260,000 against the previous quarter exceeding 10 million for the first time. Guest buyers decreased by 60,000 finishing at 1.21 million. As for the increase of the active members, we managed to retain the newly recruited members from last year. Also on top of that, active TV commercial airing and web ad implementation during the main winter sale and the cosmetic campaign period worked to attract customers. So these are the factors. Let's go to page 26. This is the number of shops in Zozotown. As of the end of the fourth quarter, the number of shops was 1,562, a net increase of eight shops from the end of the previous quarter. We welcomed 31 new shops to our platform this quarter. To name a few, we now have a fast fashion brand from the U.S. that has relaunched in Japan, Forever 21. and a brand from a major catalog mail order company, Nissen. The brand name is Nissen. And a well-known all-in-one beauty essence shell developed by Shin Nihon Seiyaku, perfect one. Moving on to page 31. With respect to the average retail price, it was 3,987 yen, up by 6.3% year-on-year. The increase is attributed to the price increases of certain products and decrease in the discount rate of products sold during the sales period. These factors pushed up the retail prices of merchandise sold both at original prices and discounted prices. Moving on to page 32, average order value. The average order value turned out to be 8,300 yen, up 4.1% year-on-year. Although the number of items per shipment continued to decrease, the impact of the retail price increases was greater, and this led to a higher average order value compared to the same period of the previous year. Now I'd like to share the company's plan for the FY23 ending in March, 2024, which is the ongoing period. This is page 34 of the handout. Here are the full year consolidated earnings forecasts and dividends for the ongoing fiscal year. GMV plus 6.7% from the previous year, 580.8 billion yen. GMV excluding other GMV plus 6.8%, 535.2 billion yen. net sales plus 9.4% from the previous year, 207 billion yen, operating profit plus 6.3%, 60 billion yen, and operating profit margin projected to be 11.2% or higher. This is our earnings forecast, and we will continue to target a dividend payout ratio of 50% or more. Therefore, the dividend per share is expected to be 71 yen. Let's go to page 35. Here are the targets by business for the current fiscal period. For the Zozotown business, we aim to achieve successive growth by continuing to implement measures to attract customers. The 21.7% year-on-year decline in outright purchase, production and sales within the Zozotown business takes into account the reaction of the large contribution to sales of the products coming from the collaboration product, coming from the collaboration project with celebrities that was implemented in the previous fiscal year. As for Yahoo Shopping Zozotown, it is expected to remain flat due to the impact of the changes in Zholdings sales promotion policy. As for the B2B business, we expect a certain level of growth of the clients we support. However, we also expect a slightly negative growth because support for the two sites that generated medium-sized sales last year was terminated. Lastly, We'd like to go back a little bit to page 11. This is our capital investment trend. We plan to make capital investment totaling 8 billion yen in the ongoing fiscal year. The breakdown is as follows 6 billion yen for the new logistics Center which will start operation in August 2024 1.2 billion yen for existing logistics centers and offices and 0.8 billion yen for system related investments that'll be all from my side next Mr sawada representative director will take it from here. Hello everyone. I'm Sawada. As Yanagisawa explained, last year, our GMV, excluding other GMV, we were able to reach 500 billion yen. And then for the active users, excluding guest buyers, we've been able to exceed 10 million for the first time ever. So we have been making announcement that that was our target. We've been able to achieve that target this year. And now that the COVID is settling down, the stores are reopening and the prices are hiking up. So we'd like to explain our management plans and the future outlook in this environment. First of all, how do we see the market? What is the market overview? So we used different public data sources and we also used our original survey data to come up with these numbers. At the moment for the fashion retail market, we calculate that market size to be 10.8 trillion yen. And our target market is 7.5 trillion yen. And then this diagram shows on the vertical line, the population of Japan and our share in fashion. So the breakdown of 7.5 trillion yen is that we calculate Zozo's target population to be 64 million. So later teens to forties has been set as our target segment, but nowadays people in their fifties started to shop from us from Yahoo shopping. So we believe that we can set our target to be from late teens to people in their fifties. And then that means we calculate our target population to be 64 million. And then our EC penetration is about 28%. and we've been able to achieve 500 billion yen already. And then the number of Zozo active members amounts to 11 million. Not only are we going to focus on the active members of Zozo, we're also including active members of Yahoo Shopping Zozo Town as well when we look at our market size. And the number of active members, if they spend, if they purchase five times fashion, then one of the purchase of the five purchases could be from Zozo. So that's where we stand. in terms of how frequent they're buying from us. And going forward, how do we plan to expand this? So vertically, as I have mentioned, we're seeing more people in the 50s showing interest toward us and also people in their teens showing more interest toward us. So what we'd like to do is to broaden or user base. I'd like to talk more about this in detail later. So that's how we see the vertical line. And then for the horizontal line, EC is very convenient and we'd like to let people experience that. And then we want people to buy from us one out of four times that they buy fashion. So potentially we're already forecasting 800 billion size So that was about the domestic market size that we forecast and the potential that we have in this market. So that's number one. And number two, what we'd like to do is to attract a broader range of customers going forward and also improve the frequency of purchase per customer. And there are other things we like to do. which is number three, production support that we started to do last year. So at Zozo or Yahoo Shopping, depending on the sales that we generate, we hope that this production support will give us incremental sales. And then number four is the expansion of the cosmetics. We've been working on this for the past two years. And then this is... the research data from Yano Keizai, which is a third-party organization. So the EC penetration of the cosmetics category is not that high. So we see an ample room for growth there. And we also want to seize other ways to generate more. And last year around autumn, we made the announcement of this. We also want to continue to aim to monetize our technologies. So this is the overview of our future expansion plan. And I'd like to talk more about each of them in detail. So when it comes to attracting a broader range of customers, The number of active members has been on the rise since FY16. And this is, I repeat myself, inclusive of Yahoo Shopping buyers as well. You can see that we've been able to grow consecutively, and we believe that there's still more room for us to grow here, especially we've been able to... acquire new members steadily in the past few years. And then as Yanagisawa mentioned, we've been able to successfully retain them the following years as well. And by the way, for last year, we've been able to acquire record high number of new members. This is another angle to look at how we aim to attract a broader range of customers. So you can see who exactly have become our active members already, and then how much potential we still have. So you see orange and pale orange. So these are people who stopped buying, although they have experienced buying from us. And there are people who are interested in our service that are willing to use Zozo. And there are people that know of Zozotown, but they're not interested. So that's the breakdown here. And then when you look at these bar charts, you see active members indicated in red, and then we believe that there's just as many potential customers. And what we'd like to do is to expand our recognition to decrease the number of people who fall under others. And we believe that there's still an Apple room for us to grow by acquiring these customers. And we also talked about raising the purchase frequency. How do we exactly aim to go about doing this? So before the sell, there is the step called communication. So this is what we are focusing on right now. There is Niao Lab. I'm not gonna go into detail of that, but there is also Niao TV and there's also Wear. So what we'd like to do is to combine them in a powerful way so that we offer solutions to find the user's own style. So rather than just to sell, we help them discover their own style and sell. So we'd like to offer them more solutions so that we catch them at the upper part of the funnel. And indicate in yellow are measures that we are implementing right now Physical stores, we have more physical stores than the EC sales in the market. So rather than just to focus on EC, we'd like to find ways to monetize the physical stores as well and expand it. And then in blue, you have promotions, which is our forte. So what we'd like to do is to further hone them by using AI. So that policy remains unchanged. We want to further enhance that policy. And by combining all of these, we'd like to increase the touch points with our users to increase our GMV. And next is about the production support. So for the products that we sell on our platform, why don't we start producing them as well? That was the initial idea. And then this is the result from last year. Number of production types, 461. Number of pieces produced, 120,000. And these are the number of items that we produced and sold on our platform. And then this is The number of pieces that we produce and then and that equals to the number of pieces that we sold and then last year we. kicked off made by zozo and this has been well received by our clients. and The benefit of this is that you can get more sales per type compared to regular production. And then this is, we produce once we receive the order. So there's no inventory risk and there's elimination of the gap between sales period and the actual demand period. And thankfully this made by Zozo service was utilized by Ships and Ships decided to launch an exclusive brand for Made by Jozo. And this is now available. But when it comes to the profit, the profit is still small. So what we'd like to do is to aim to generate a profit in the billion range as early as possible. Let's go to cosmetics. For cosmetics, As we have mentioned in the beginning of the fiscal year, we said that we're going to aim for 10 billion yen, sorry, 100 billion yen. Correction, 10 billion yen. And we didn't actually reach that level. Our GMV turned out to be 9.1 billion yen. So what we'd like to do is to apply the category development expertise we have gained from our operations that we gained from apparel business. And I believe that there are more steps that we can take. So what we'd like to do is to further enhance our cosmetic category. And We did achieve the GMV of 9.1 billion, which is a little bit shy of 10 billion yen. As a matter of fact, we are already one of the largest cosmetics EC players. We don't just want to be one of the largest cosmetic EC players. We want to be the largest in the near future. And for other categories, aside from cosmetics, we're always exploring what other categories we can go into. And hopefully we'll be able to make an announcement of the new categories that we might be able to enter. And number five is the monetization of technologies. Zozo Fit, I won't go into details about the service, but just to give you the results, we started this from September last year, and we've been able to sell the number of pieces accumulatively. And the pieces sold amounts to about 8,300 pieces. And we let the users wear that suit to measure themselves. And so we started this in the United States. And we are going through different trial and error. And we are discovering new interesting things. So we really want to use this as our pillar. so that we can turn body measurement into an actual business. And we want to start generating a profit in the billion range as early as possible for this one as well. So this is the summary of the future management plan. For Zozotown and Yahoo Shopping Zozo, we will continue to expand customer base and contact frequency. I always say this to internal people and outside as well. We want Zozo to be a place for fashion. And we also want to be an infrastructure for fashion. So becoming a place for fashion, this is from the consumer's point of view, and then becoming an infrastructure for fashion is the industry's point of view. So what we like to do is to capture new customers and have a bigger customer base and promote horizontal category development by leveraging customer base and also promote new market development by leveraging technologies. So that will be all for this part. And it's been a while since we last talked about sustainability. So I wanted to go into that topic as well. Two years ago, we started to address this in a full-fledged manner. Two years ago, we came up with our sustainability statement And then that sustainability statement is fashion connects and leads us to a sustainable future. And as a platformer, of course, we need to take an active role, but also at the same time, involve other players in the industry to move sustainability forward. And we wanted to take it down a notch. and decide what exactly we should do. So we did that two years ago. And we decided on these four actions. And I wanted to share with you where we stand on these four. First of all, indicated in PIC is highlight sustainable fashion choices to improve users' experience. So we created a page called Be Love. On that page, we introduce sustainable fashion brands and the passion that goes behind these brands. And this is very popular among these brands as well, our initiative. So we want to continue to do that. And another one is to create a made-to-order platform for zero waste. So we talked about made... by Zozo. So once again, we produce once we receive the order, it's made to order. So there's no excess inventory. So if promotion of that leads to business, and at the same time, it also connects to positive impact in terms of sustainability as well. and promote diversity, equity, and inclusion among everyone involved in fashion is the blue one. So during the pride month, we changed our site. So we engage in those activities and we also promote women I believe that we're not doing enough of that. So as a corporate goal, we really want to focus on promoting women within our organization. And then the last one is to contribute to sustainable community development. So mainly in Chiba, we are contributing to the community and our employees do lectures in places like elementary schools and junior high schools in Chiba. And 90% of our energy is renewable too. And our corporate site, has more and more information like this. We do have a comprehensive report. So please take a look at that report. And then yesterday, we launched a new movie to showcase our initiatives in sustainability. So we're very serious about thinking of what we can do as a platformer in the fashion industry. And I hope that you understand that we're making very steady progress on all fronts. So that is all from my side. And lastly, I'd like to introduce the cast. Thank you very much for watching and enjoying the drama series for one year. I'd like to introduce the hero and heroine of the drama. Hello. I'm Masaharu Ito who played Daitaku. Thank you for watching the financial drama series for an year. This drama was produced all by Zozo employees. And I was once again touched by Zozo's do it yourself mentality and how high the quality turned out to be. I personally liked the music composed by our employees for this drama. And I believe that really suited the tonality of this drama. turned out to be such a great piece of music. I like it. And this has been, this is live streamed on YouTube. So please check it out. And I hope you also listen to it while watching the drama. Hello, I'm Erika Tamai. I play the role of Hina. Thank you for watching the drama. I've never had the type of shooting like this and it was a great experience for me. It was innovative how we came up with this idea of producing a financial results document that's fun to read and watch. It's so Zozo-like and I truly enjoyed filming it. The drama came to a finale and I'm already excited to learn more about the next financial results report. That will bring us to the end of the full year financial results briefing of Zozo. for FY 2022 ending in March 2023. Thank you for watching.