Zozo Inc Ord

To start the financial results announcement of the third quarter, FY25, ending in March 2026 or so, we will only be offering live streaming this time. We plan to have a session until 5.20 p.m. After that, we will have a Q&A session with institutional investors on a separate Zoom channel from 5.30 p.m. Now I'd like to introduce the presenter, Director, Executive Vice President, and CFO Koji Yanagisawa. Hello. Now, CFO Yanagisawa will take us through the business results. I'd like to walk you through the third quarter financial results for FY25 ending in March 2026. The presentation document we will use today has already been uploaded to our website's investor relations page, so please take a look. First, I'd like to walk you through the highlights of the third quarter of the FY25 period ending in March 2026. As for the third quarter, GNV increased by 9.1% year-on-year to 502.9 billion yen. GNV excluding other GNV increased by 11.9% year-on-year to 483.1 billion yen. EBITDA increased by 9.5% year-on-year to 60.6 billion yen. EBITDA margin was 12.6%, down 0.2 percentage points from the same period last year. Progress against the revised company plan announced on July 31st is as follows. GMV excluding other GMV, 73.9%. And EBITDA, 79.1%. Regarding GMV, we were... affected by lower demand due to persistently high temperatures in the second quarter. Furthermore, while we implemented aggressive promotions against a high base from the same period last year, the effect of some sales events fell short of expectations in the third quarter, resulting in a slight shortfall against the plan. On the other hand, EBITDA exceeded the progress plan, benefiting from lower logistics and shipping costs and lower than budgeted promotional expenses. Both GMV and EBITDA achieved record highs in the third quarter. Next, this is page 8 of the handout. This is the quarterly trend in consolidated performance. For the third quarter accounting period, GMV, excluding other GMV, increased by 11.3% compared to the same period last year. And this overlaps partially with the earlier explanation of the third quarter cumulative results, but Zozotown's business fell short of its plan as sales of fall and winter products showed limited growth, particularly in November and December. Meanwhile, Line Yahoo Commerce succeeded her plan for having more days of Honki no Zozo Matsuri. As for List, we fell short of our plan due to factors including industry headwinds and changes to the US tariff system. EBITDA increased 14.9% year-on-year, with the EBITDA margin reaching 13.6%. While GMV and gross margin were below plan, Evita improved faster than expected, primarily driven by shipping and logistics-related cost reductions. Next, this is not included in the handouts, but I'd like to share the main topics of the third quarter. The first one is about the termination of our production business. Our production business was designed around a made-to-order model to address chronic inventory problem in the apparel industry. However, demand from brands fell short of expectations. and we faced challenges in achieving profitability. And after a comprehensive review of the business's future viability, we have decided to discontinue this operation. In connection with the business liquidation, we recorded an extraordinary loss of 700 million in the third fiscal quarter. and we have also suspended accepting new orders effective October 20, 2025. We will continue to sell the existing inventory and plan to see sales once it is fully depleted. We'd like to continue actively pursuing new business ventures, leveraging the insights and know-how we gained from the production business. Next is about the K-Fashion Zone, which opened on November 6. On the same day, we also welcomed the opening of Musinsa, a leading Korean fashion platform. At launch, it featured approximately 140 brands, and by the end of December, the set expanded to 2015 brands with around 200,000 listed SKUs. And further expansion is planned going forward. In terms of sales, sales got off to a strong start, broadly in line with our initial expectations. It's been gaining traction primarily among women in their early 20s, with Korean brands known for their strong trend sensitivity showing particularly strong performance. Next, I'd like to present an overview of the key performance details. Let's go to page 9 of the handout. We will analyze the changes in EBITDA compared with the previous year's results at the end of the third quarter. EBITDA increased by approximately 5.25 billion yen from 55.42 billion yen in the previous year to 60.67 billion in the current quarter. Factors attributable to the increase in EBITDA are the following four factors. Gross profit increase due to higher GMV in the Zozotown business and Line Yahoo Commerce, plus 6.68 billion. Next, sales increase due to growth in the advertising business, plus 400 million yen. and gross profit increase due to consolidation of list and other businesses plus 4.97 billion and lastly reduction in variable costs driven by containment of logistics related personnel expenses resulting from the streaming of logistics centers plus 420 million And mainly there are three factors that reduced EBITDA. First, increase in fixed costs due to a rise in consolidated headcount associated with the consolidation of lists, the occurrence of one-time expenses related to an A in the first quarter and others, minus 2.59 billion yen. Increase in actual PR expenses to attract customers, promote sales, and cover list standalone expenses, minus 3.9 billion yen. Thirdly, increase in other expenses due to success fees paid to SA related to M&A and others in the first quarter, minus 730 million yen. Next, let's go to page 21. This is a breakdown of SG&A. The SG&A to GMV ratio was 21.8%, a decrease of 1.0 point from the same period of last year. While GMV increased due to the consolidation of list, incremental SG&A expenses were either zero or minimal for certain items related to list alone. This contributed to a decrease in the SG&A expense ratio. Let's look at the breakdown. there are mainly two factors that drove up the SG&A ratio. One, amortization of goodwill related to the acquisition list plus 0.3 point. Second, in addition to expenses recorded for list alone, advertising expenses increased due to higher worth advertising spending for Zozotown plus 0.2 point. And there are mainly four factors contributing to the decrease. of sgna ratio one lower shipping costs resulting from improved economic terms from the delivery con with the delivery contractors starting october 2025 driven by both expanded consolidation scope and delivery efficiency initiatives minus 0.7 point a decrease in logistics-related labor costs driven by improved operational efficiency, including inventory optimization of logistics centers and labor savings from automation initiatives, as well as the expanded scope of consolidation, minus 0.5 points. Third, a decrease in payment collection commission due to the expansion of the consolidation scope, minus 0.2 points. Fourth, a decrease in rent expense due to the expansion of consolidation scope minus 0.2 point. Next, let's go to page 24 of the handout. We are showing our actual promotion-related expenses. In Q3, actual promotion expenses amounted to 4.9% of GNV. The actual promotion-related expenses include advertising costs and point-related expenses that are deducted from sales. The increase was driven by three main factors. First, we increased web advertising for Zozotown. Promotional expenses rose due to initiatives such as acquiring new members and reactivating dormant members. And third, we recognized expenses solely for lists, with advertising accounting for a large portion of SG&A. While these three factors work to increase the actual promotion expenses, the elimination of PGA tour sponsorship expenses from prior fiscal years had a greater impact, and as a result, the SG&A ratio decreased by 0.4 points compared to the same period last year. And please note that the actual promotion expenses for the third quarter were largely used as planned. However, as mentioned in the opening slide of the earnings summary, the cumulative amount for the first three quarters remains below plan. The remaining budget will be utilized in the fourth quarter, and on a full-year basis, we expect to use the budget as planned.

Next, I'd like to talk about Zozotown's KPIs.

Let's go to page 25. And please note that the following indicators do not include results of Line Yahoo Commerce list or B2B businesses. The number of total buyers increased by 280,000 from the previous quarter to 12.8 million. The number of active members increased by 310,000 from the previous quarter, 12.11 million. The number of guest buyers decreased by 30,000 from the previous quarter to 680,000. In Q3, we continue to successfully acquire new members by increasing our web ad and friend referral campaigns year over year. In addition, re-engagement initiatives for dormant members have delivered positive results, with the impact of reactivation now becoming visible. Next, let's go to page 28. This is the number of shops on Zozotown. At the end of the first quarter, At the end of the third quarter, the number of shops stood at 1,712, a net increase of 26 from the previous quarter. The number of new stores opened in the third quarter was 46, including stores like Musinsa, that I just mentioned, Korea's leading fashion platform, and Toys R Us and Babies R Us, comprehensive specialty stores for toys and baby products, and Anne Won, an apparel brand popular mainly among young consumers, and more. Next, this is page 30 of the handout. average retail price and average order value let's go to average retail price first it came to 4277 yen a 2.1 year-on-year decrease price increases for new fall and winter merchandise have moderated with prices now broadly in line with last year's levels but the average retail price fell due to a higher proportion of sales items compared with the same period last year let's now go to average order value So our average order value stood at 9,328 yen minus 1.0% year-over-year. The number of items purchased per order rose, supported by an improved cross-selling ratio, which was driven by a higher markdown ratio. However, the decline in average retail price outweighed these effects, leading to a lower average order value. Also, the volume of promotions offering free shipping on purchases of 12,000 yen or more remained at the same level as the previous year, and the effect of this promotion on increasing the number of items purchased per order was limited. Lastly, this is the full-year consolidated earnings and dividend forecast for the current fiscal year. There are no changes to the earnings forecast. This concludes our presentation for today. This brings today's earnings call for Zozo's FY25 third quarter to an end. Thank you for your participation.