Zozo Inc Ord

It is time to start the financial results announcement of the second quarter of FY25 ending in March, 2026 for Zozo. We will only be offering live streaming this time. We plan to have the session until 5.40 p.m. After that, we will have a Q&A session with institutional investors on a separate Zoom channel from 5.50 p.m. I'd like to introduce the presenters. Representative Director, President and CEO, Kotaro Sawada. Hello. Director, Executive Vice President and CFO, Koji Yanagisawa. Hello. Now, CFO Yanagisawa will take us through the business results. Hello, I'm Yanagi Saba. I'd like to walk you through the second quarter financial results, FY25 ending in March, 2026. And by the way, this presentation document we will be using today has already been uploaded to our website's investor relations page. So please take a look. First, I'd like to share the financial results summary for the second quarter of FY25. For the second quarter of FY25, GMV increased by 11.9% year-on-year to 312.4 billion yen. GMV excluding other GMV increased by 12.2% year-on-year to 292.6 billion yen. EBITDA increased by 5.8% year-on-year to 34.7 billion yen. The EBITDA margin was 11.9%, representing a 0.7% point decrease compared to the same period last year. Progressed against the revised company plan announced on July 31st is as follows, GMV excluding other GMV, 44.8%, and EBITDA, 45.3%. With respect to GMV, although measures to address the prolonged summer heat were in place on the inventory supply side during the second quarter, demand declined due to persistently high temperatures resulting in a slight shortfall against plan. On the other hand, EBITDA slightly exceeded plan benefiting from lower than budgeted actual promotion expenses and a reduction in the cost ratio of logistics related expenses and shipping costs. Both GNV and EBITDA achieved record highs for the second quarter. Next, this is page eight of the handout, quarterly trend in the consolidated performance. For the second quarter accounting period, GNV excluding other GNV increased by 12.0% compared to the same period last year. This overlaps with the earlier explanation of the second quarter cumulative results, but the Zozotown business fell short of its plan, impacted by lower user demand due to persistently high temperatures, particularly in September. Meanwhile, Line Yahoo Commerce saw limited effectiveness of its large-scale September initiative, Honki no Zozo Matsuri, because there was an overlap in the timing with the rush event of Furusato Noze hometown tax program. However, strong performance in July and August offset this, achieving higher results than the plan. EBITDA increased 2.4% year-on-year with an EBITDA margin of 11.3%. While GMV and gross profit fell short of plan, we made progress more quickly than anticipated for EBITDA, primarily due to lower-than-budgeted actual promotion expenses and reduced logistics-related costs. Operating profit decreased 2.9% year-on-year. This was due to the impact of factors such as goodwill amortization and depreciation expenses associated with the list consolidation, which were factored into the plan at the planning stage. Next, I will present an overview of the key performance details. Let's turn to page 9 first. We'd like to analyze the increase and decrease in EBITDA compared to the previous year's results at the end of the second quarter. EBITDA increased by approximately 1.9 billion yen from 32.85 billion yen in the previous quarter to 34.75 billion yen in the current quarter. Factors attributable to the increase in EBITDA are the following. Gross profit increased A gross profit increase of 4.71 billion yen due to the increased EMV of Zozotown Business and Line Yahoo Commerce. And sales increase of 210 million yen due to the growth in the advertising business. Thirdly, gross profit increase due to the consolidation of List and others, 2.98 billion yen. And fourthly, decrease in variable costs due to improvements in the efficiency of logistics centers and a decrease in the ratio of shipping costs due to an increase in average order value, 60 million yen. Factors that reduced EBITDA were as follows. Increase in fixed costs due to an increase in the number of consolidated employees and the occurrence of one-time expenses related to M&A in the first quarter, minus 1.78 billion yen. Secondly, increase in actual PR expenses to attract customers, promote sales, and cover list standalone expenses, minus 3.73 billion yen. Thirdly, increase in other expenses due to success fee paid to FAA related to M&A and others minus 0.55 billion yen. That's for the increase and decrease analysis of EBITDA. Let's go to page 11. The cash flow trends are as follows. Cash flows from operating activities included increased payments for corporate income taxes and other taxes, as well as increased goodwill amortization related to the list consolidation. Cash flows from investing activities included expenditures that related to the list acquisition and equipment replacement at existing logistics centers during the current period. And lastly, cash flows from financing activities included expenditures that related to the acquisition of treasury stock. The Treasury stock acquisition conducted from May 1st to July 31st concluded as planned, and the total number of shares acquired was 6,541,500 shares, and the total acquisition cost was 9,999,854,450 yen. Let's go to page 22 of the handout. This is a breakdown of our SG&A. Our SG&A to GMV ratio was 23.0%, a decrease of 0.6 point from the same period of last year. While GMV increased due to the consolidation of lists, incremental SG&A expenses were either zero or minimal for certain items related to lists alone, and this contributed to a decrease in the SG&A expense ratio. Factors that drove up the SG&A ratio are the following. Mainly, there are two reasons for it. First, in addition to expenses recorded for lists alone, advertising expenses increased by 0.5 point due to an increase in web advertising spending on Zozotown. And secondly, amortization of goodwill related to the acquisition of lists resulted in a 0.3 point increase. On the other hand, factors contributing to the decrease in the SG&A ratio include the following. First, the expansion of the consolidated scope along with the improvements in operational efficiency, such as optimizing inventory levels and logistics centers and achieving labor savings through automation resulted in a 0.6 point decrease in logistics related labor costs. Secondly, the expansion of the consolidated scope And higher AOV compared to the previous period led to a 0.6 point decrease in shipping costs. Thirdly, the expansion of the consolidated scope pushed down the payment collection fee ratio against GMV by 0.2 percentage point. Next, this is on page 25. The actual promotion expenses are as follows. In the second quarter, we allocated 4.7% of GMV to actual promotional expenses, which comprise the sum of advertising and point-related expenses deducted from net sales. Compared to the same period of the previous year, the actual promotion-related expenses ratio increased by 0.8 points due to the following factors, or three factors mainly. First, increased spending on web advertisement for Zozotown. Secondly, increased promotional expenses to acquire new members, deactivate the dormant members, and offer free shipping campaigns. And thirdly, list recorded expenses separately with promotion and advertising expenses accounting for a large portion of their SG&A expenses. As mentioned in the opening summary slide, following the trend from Q1, the timing of some promotional spending has been postponed, resulting in actual promotion expenses falling short of the plan. And we... plan to utilize the unspent portion in Q3 and onward, and we plan to use the budget as intended on an annual basis. Let's go to page 26 of the handout. The following are Zozotown's KPIs, and please note that the following indicators do not include results from line of e-commerce, list, or B2B businesses. First of all, the number of total buyers increased by 160,000 from the previous quarter to 12.52 million. The number of active members increased by 210,000 from the previous quarter to 11.8 million. And then the number of guest buyers decreased by 50,000 from the previous quarter to 720,000. In the second quarter, we continue to acquire new members through a range of initiatives that leveraged web advertising in Zozotown's platform. We increased our web advertising budget year over year to enhance customer acquisition. And in addition, measures to reactivate dormant members have proven effective with the results of their activation now becoming apparent. Next, this is page 29 of the handout, the number of shops on Zozotown. At the end of the second quarter, the number of shops stood at 1,686, representing a net increase of five shops from the end of the previous quarter. The number of new stores open in the second quarter was 35 shops, including stores like Koss, a London-based fashion brand operated by the H&M Group, and Love Chrome, a cosmetic shop specializing in hair combs, and Olive Young Exclusives, the private label shop of South Korea's multi-branded cosmetics shop, Olive Young. Next, page 31, with... With respect to the average retail price, ARP, it turned out to be 3,584 yen, a decrease of 1.2% compared to the same period in the previous year. The average retail price declined as a result of an increased sales ratio due to the factors such as the summer sales period being longer than the previous year. And furthermore, price increases by brands for new spring and summer merchandise have now stabilized. with prices remaining at levels comparable to the previous fiscal year. Next, let's go to page 32. This is average order value, AOV. AOV was 8,183 yen down by 0.2% compared to the same period last year. This was primarily due to the great use of the free shipping policy for orders of 12,000 or more compared to the same period last year, leading to a higher portion of combined purchases and a larger average number of items per order. In the meantime, the decline in AOV outweighed the impact of the increase in the number of items purchased per order, resulting in a slight decrease in the AOV. Let's go to page 34 of the handout. Consolidated business forecast and dividend forecast for FY25. There are no changes to the earnings forecast. And finally, I'd like to share two topics with you. First, I'd like to present the key topics implemented and announced during the second half of the fiscal year. First, we held Zozofest at K Arena Yokohama on October 12th and 13th. Zozofest was a special event where fashion and music intersected, held with gratitude to connect the year 2004 when Zozotown was founded with the present, themed around Y2K. Approximately 40,000 people attended over the two days and sales of collaboration products at the venue were strong and we received many positive comments from attendees. Next, we are pleased to announce the launch of a new K-fashion zone on Zozotown. On November 6th, Musinsa, a leading Korean fashion platform, will be launched on Zozotown. This will significantly expand the lineup of Korean brands available on Zozotown, creating a shipping space where people can enjoy trendy Korean fashion more conveniently than ever before. At launch, the Musinsa Zozo Town Shop will carry approximately 140 brands, with a phased plan to expand the number of brands to over 1,500. And looking ahead, while continuing to strengthen our K fashion offerings, we will further expand into other categories and brands to create a shopping destination that meets the diverse needs of our customers. That's all from me. Now, our representative director Sawada will take the floor. Hello, everyone. My name is Sawaya. What I'd like to do is to share a topic with you. As you can see in the title, I'd like to talk about AI agents. The age of AI agents is coming, and this is progressing day by day, as you know. And then what I'd like to do today is to share Zozo's competitive advantage as we operate our e-commerce. So, you know, just kind of going back to what I said, the regular keyword search is going to shrink or is expected to shrink. And we believe that the era of AI agents is going to come. And I also believe that it will come. But in Japan, the speed is not as high. But if you look to other countries, searches through AI agents is becoming mainstream, apparently. So for sure, this age will come. And amid this environment, how should we act? Next slide, please. And of course, you know, this is something that we take for granted now. AI agents will start to replace searches. And when that happens, this is going to be far more superior than search as an engine because the needs and the interests could be understood and acknowledged through chat. And then it can bring the user's instantly to the purchase phase and whatever that is recommended to them they will make a purchase of them so and also in the e-commerce territory not only should we offer payment services we also offer recommendations we let them see what they might like So inevitably we're stepping into that territory and then there's going to be an overlap of what we do as an AC platform and what AI agents are capable of doing. And I believe that this is not just for us, but for other players as well. So is this a risk for us or is this an opportunity? So it's a matter of how we see this. We see this as an opportunity. And then there are mainly two reasons why we see this as an opportunity. First of all, there is a superiority of the merchandise that we handle, which is fashion. And then we also have superiority in the data that we hold. So when we have these two, we believe that in the world of AI agent, we have far more opportunities to capture the users. So what it means is that we want to step on the gas to enter into the era of an agent. So I'd like to sort of elaborate on the advantage we have as a merchandiser product and advantage as an EC commerce. So this may sound quite normal to you, how we have competitive edge because of the merchandise we carry. So for smartphones and detergents, for example, these are functional products. and commoditized products. Yes, the price range are different between a smartphone and a detergent, but they belong to the same group because they can be compared in a simple way. So it's quite easy for AI agent to capture this data and then do a comparison. On the other hand, there's fashion. And this is a red sweater. And then, yes, of course, everybody can hold the data about which brand this is from and the material, for example. But the question is, Is this a trendy cardigan or should this be tucked in or tucked out? So is this good for summer or is it good for winter? So all these ambiguous, intricate data is something that we need to handle in the world of fashion. So these have not been verbalized yet. Even our consumers are not able to verbalize them. And what we'd like to do is to capture this data and accumulate such intricate data in our database. And then recommending things like this. In order for us to be able to recommend things like this, database is going to be key. And we expect that this is a territory that normal AI agents will not be able to play in. And another one is our competitive edge as an EC platform. So I believe that this has been said already. So the purchase history of our customer is quite close to their purchases. So let's say that they saw media news or they were exposed to social media articles and compared to that, the customer information that we have is much closer to their purchases. So there's complicated, intricate fashion related data. We have that, and we also have customer data that is quite close to purchases. So we have both of them. And then we have our advantage and competitive edge with our data source. And then we have been spending several years to develop our AI agents. And how would this turn out as output? So little by little on Wear. So Wear is a styling information app. So we're continuing to enhance that. In August, we celebrated the 10th anniversary. We upgraded this app. And then for those of you who use this, I think you know this already, we are embedding AI quite a lot in Wear. And another thing we'd like to take on the challenge with is to have a conversational UI, because you already know, of course, that AI agent is very good at having conversations. And that's where we'd like to go into as well. So we want to create a line account with unique algorithms. So we'll be able to enable conversational experience that mimics their experience of speaking to human stylists. And this is one example of what we can do with Wear. So we can use LLM to produce comment about this item and send it to the customers. So we don't just simply describe this item. We tap into the consumer insight. For example, they may have some concerns or insecurities with their body, and then we can personalize our styling offering based on their concerns. when we make proposals. So this is the type of mechanism that is already in place. So if you're interested in trying this out, please do. And lastly, there's Line, Wear, and Zozotown. So there's the online upstream. So what we'd like to do is to connect it to the upstream of online. So SB is our parent company. And they are closely working with open AI. And there's also adoption of offline that we're considering as well. So This summer, we set up an offline store called Yokocho. So we can implement something like this in an offline store. And consider if AI Stylus is feasible. And we must create the algorithm for this. And it wouldn't be complete one day. How we envision this is to continue to develop and evolve this algorithm. So I hope that you pay attention to our further development, handling AI agent and AI. Thank you. So how do we think of the age of AI and AI agent is what I just presented. That concludes Zozo's second quarter financial results announcement for FI25 ending in March, 2026. And thank you for your time and attention.