Zozo Inc Ord

It's time to start the earnings briefing for the full year financial results of FY25 ending March 2026. We will only be offering live streaming this time. We plan to have a 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, Otaro Sawada. Hello. And Director, Executive President and CFO, Koji Yanagawa. Hello. There will be two presenters today. First, CFO Yanagawa will take us through the business results. I'd like to walk you through the full year financial results for FY25 ending March, 2012. The presentation document we will use today has already been uploaded to our website investor relations page, so please take a look. First, I'd like to walk you through the highlights of the full year financial results of FY25. As for the full year, GMB increased by 8.4% year-on-year. You're 666 billion yen in the including other to be increased by 12.4% air near to 646.1 billion yen. Total gmv for those of the town business won't get the farmers and be to be this is combined increased by 5.1% year-over-year to 600. We're not in the league and then it got increased by 10.2% year-on-year to 76.9 billion yen. If it did a margin one point 9% down their point to point from the same period last year. Progress against the revised company plan announced on July 31st. It follows in the including other gmv 98.8%. And total gmv for those of the town business line of commerce and be to be business all combined a 100.1%. and EBITDA, 100.3%. Regarding GMV, strong performance during the winter sales in the fourth quarter enabled us to achieve growth that offset the shortfall from the end of the third quarter. As a result, the combined total for the Zillowdown Business Line, EFM Commerce, and B2B Business Met target. On the other hand, LISP fell short of its target due to factors such as the slump in the luxury industry and changes to the system resulting in the overall business failing to meet its target. EBITDA met its target primarily due to reductions in logistics-related expenses and shipping costs. Both GMV and EBITDA reached new all-time highs. Let's now go to page seven of the handout. This is the quarterly trend in consolidated performance. As I mentioned, for the fourth quarter accounting period, GMB, excluding other GMBs, increased by 14.2% compared to the same period last year. For the same reason I mentioned, the Zillow Town business saw strong customer traffic, particularly in January, and with ample inventory available for the sales period and sales during that period grew. Yahoo! Commerce also grew steadily, partly due to an increase in the number of days of Honki no Zozo Matsuri. Moving on to the next page, this does not exist in the handout. As announced in today's press release, we have acquired all shares of Highland and made it a wholly owned subsidiary. Founded in 2017, Hi-Link operates Polaria, a comprehensive fragrance platform, as its primary business under the mission of ending world fragrance. By welcoming Hi-Link, a company engaged in businesses centered on fragrances, which has a high affinity with fashion, into Zozo Group, we aimed to punch out into a new area related to fashion. Regarding the details of the transactions, we have acquired all outstanding shares of high length for $4.95 billion on an entire list with our own capital. The company will be consolidated starting in May 2026. And then this acquisition is already reflected in our full year consolidated earnings forecast for this whole year. That will be explained later. Let's now go to page eight of the handout. We will analyze the changes in EBITDA compared to the previous year's results at the end of fourth quarter. EBITDA increased by approximately 7.14 billion yen from 69.78 in the previous year to 76.92 billion yen in the current fiscal year. Factors attributable to the increase in EBITDA are gross profit increase due to higher envy of those who found business in line Yahoo Commerce plus 9.93% I'm sorry, plus 9.36 billion in sales increase due to growth in business, plus 27 million gross profit increase due to consolidation list and other businesses, 6.86 billion reduction in variable costs, plus 290 million. This is driven by the containment of logistics-related personnel expenses resulting from the streamlining of the logistics centers. Factors that reduce DBDA were as follows, increase in fixed costs, due to a rising consolidated headcount associated with a consolidated list. The occurrence of one-time expenses related to M&A in the first quarter, minus 3.15 billion yen. Increase in actual PR expenses to attract customers, promote sales, and cover lists standalone expenses, minus 9.97 billion yen. Increase in other expenses due to success fees paid to M&A related to M&A. The first quarter minus 920 million yen. And here are the cash flow trends. Cash flows from operating activities were driven by an increase in profit before income taxes, as well as increasing in payments of corporate income taxes and others. Cash flows from investing activities for the current period included expenditures associated with the acquisition of lists and the replacement of equipment at existing logistics centers and cash flows from finance activities included expenditures related to the acquisition of treasury stocks. Next, phase 21, a breakdown of SG&A. The SG&A ratio relative to GND was 22.2%, a decrease of 1 percentage point compared to the same period last year. While GND expanded following the consolidation of this, certain SG&A items did not occur or are minimal on a standalone list, contributed to the decline in the SG&A ratio factors that drove up The S and a ratio are the following as we have been explaining before I'm going to get real related to the acquisition list. And also there was an increasing of and as the higher with that advertising and in fact it's going to be a decrease in the S and a way to do that the following lower shipment. Result that lower shipping costs resulting from being pre economic terms with the delivery contractors starting October 2025 driven by both expanded consolidation scope and delivery efficiency initiatives minus 0.6 points. A decrease in the logistics-related labor costs driven by improved operational efficiency, including inventory optimization and logistics sensors and labor savings from automation initiatives, 0.5 points. A decrease in payment collection commission In addition, as we have achieved our full-year targets for operating profit and EBITDA, we have decided to pay an year-end bonus and consequently, we have recorded a relevant expenses in the fourth quarter under payroll cost for employee logistics related expenses. Let's go to page 24. We show our after promotion related expenses here. These expenses include advertising costs and point-related expenses are deducted from sales, as we have explained before. In Q4, actual promotion expenses amounted to 5.5% of GMV. The 0.7 point increase in the ratio of actual promotion expenses to GMV compared to the same period was due to the following factors. One, an increase in online advertising spending on those accounts. I can an increase in promotional expenses rose to change it to such as a fire in the members and reactivating dormant members and they're the recognition of expenses on a standalone basis that but in particular for those that have business and you or we invested additional expenses on top of the remaining amount from 2, 3, 8, 8, 8, 8, 8, 8, 8, 8, 8, 8, 8, 8, 8, 8, which is slightly higher than our initial plan that we announced at the start of the year. And we expect the budget for the current fiscal year to remain at the same level as FY25 at 4.8% of GMZ. Moving on to page 25 of the handout. And the followings are the ZOZOTOWN's KPIs. Please note that the following indicators do not include results from LINE, Yahoo, Commerce, List, or B2B businesses. The number of total buyers increased by 360,000 from the previous quarter to 13.17 million. The number of active members increased by 308,000 from the previous quarter to 12.47 million. And the number of guest buyers decreased by 4,000 from the previous quarter to 609,000. In Q4, we continue to successfully acquire new members by increasing our web ad and 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. During the fiscal year, new member acquisition remains strong in every quarter resulting in a significant increase in the number of total fires. Page 28 of the hand out a number of shops on the town at the end of the 4th quarter, the number of shops that it. 1,710 a net to stop in the previous quarter. The number of news boards open in the 4th quarter with 40 things like the outdoor brand element. And I'm real how the brand to provide by some real and operate of a math lab and I got as much or an apparel store operated by the publishing company to cut it in the shop and more. Please note that in the 4th quarter as we have explained before there were relatively a large number of store closures particularly due to band is continuation And as a result, the total number of stores compared to the previous quarter. But nevertheless, we successfully achieved our whole year target for new store openings for FY25. And we aim to maintain a similar pace of new store openings in the current full year as well. With respect to average retail price, which is on page 30, it came to 3,974 yen a day. 1.6% year-on-year decrease. Price increases for new fall and winter merchandise have moderated, with prices now brought in line with last year's levels. But the average retail price fell due to a higher proportion of sale items compared to the last year. And as a result of this, our average order value stood at 8,864 yen minus 1.3% year-over-year. The number of items purchased per order rose, supported by an improved cross-selling ratio, which is driven by a higher mark-down ratio. However, the decline in average retail price that I just talked about outweighed these effects, leading to lower average order value. Also, the volume The volume of promotions offering free shipping on purchases of well out then or remain at the same level as the previous year. And the effect of this promotion and increasing the number of items purchased per order was limited. Although the volume promotions offering free shipping on purchase of 12,000 and apologize for blitz or more with lower than the danger to last year but the campaign for implemented effectively. Therefore, the reduction in the frequency of these promotions did not result in the decrease in average purchase. Let's go to page 33. I can explain the changes of our key disclosure indicator from the next fiscal year, FY26. From the perspective of presenting our groups underlining earnings power, we have adopted EBITDA as our management indicator of that. Excludes impact of amortization related to goodwill and other items arising from M&A. However, the group has consistently been making capital investments in logistics centers and allocates resources to the internal development of software. And the depreciation associated with these investments is recognized as an essential cost of our business operations. Accordingly, to more appropriately reflect our group's underlining earnings power, we have decided to adopt adjusted CBITA, And under this metric, only amortization of goodwill and intangible assets arising from M&A as well as acquisition-related costs will be adjusted, while all other depreciation and amortization expenses will be reflected. So starting from this current fiscal year, we are going to adopt EBITDA instead of EBITDA. So please bear that in mind. Okay, so I'd like to share the full-year consolidated earnings forecast for the current fiscal year, FY26. Total GNV is expected to increase by 2.0% year-over-year to 679.6 billion. And GNV, excluding other GNV, are expected to increase by 5.0% year-over-year to 608.6 billion yen. Net sales is expected to increase by 5.9% year-on-year to 241.9 billion yen. OPI is expected to increase by 7.3% to 74.2 billion, and the OPI margin, 11.0%. And adjusted EBITDA is expected to increase by 7.2% year-over-year to 77.9 billion yen, and adjusted EBITDA margin is expected to be 11.5%. Regarding dividends, we continue to target the payout ratio of 70% or higher and plan to pay a dividend of 40 yen per share. Moving on to page 35, these are the targets by business segment for FY26. For Zozotown business, we will continue to aim for sustained growth by increasing the number of buyers primarily through enhanced efforts to acquire new users and by raising Zozotown's share of fashion consumption. For a lot of Yahoo commerce, assuming that large-scale promotional channels such as Honkino Zozo Matsuri and those on Yahoo Shopping are implemented at levels comparable to the previous year, we expect growth driven by new member acquisitions and increased contribution required in prior years. For lists, we expect approximately 10% growth, mainly driven by an increase in the number of months included in the consolidated pricing statement. We view the current and next fiscal year as a critical investment base for achieving future nonlinear growth. And we're focusing on building new business models that go beyond a different framework. So we consolidated that in May. And then starting from FY26, we will be able to have the impact of this on the full year basis. And then we expect to have a par level GMV growth as the previous fiscal year. And regarding ZozoAd, which accounts for the majority of our advertising business, our plan is based on conservative assumptions for key advertising-related metrics. In addition, revenue from advertising many offerings other than ZozoAd is expected to decline, reflecting our plan to discontinue advertising. And as a result, we project a slight year-over-year increase in the overall advertising business. Go to pay for what we do. Like to share our logistics they plan are regarding DPL about you know which we began leaving in April 2024 and has been operational since August of that year. The least area will be and then starting in May 26. Furthermore we will begin leaving those of these that have to know me starting in March 2027. Operations are scheduled to begin in August of 2027 with full-scale operations planned for October of 2027. So, operation will take place in FY 2027. And Zozobase Notational 3 is positioned as a facility that will transfer, revamp, and rebuild the functions of Zozobase Notational 1. And as a facility designed to accommodate future growth in GMV, we will promote further automation to aim for a workforce reduction of approximately 50% compared to the existing basis. Okay. And lastly, this page, sorry, that I must ask you to go back several pages. This is page 11. This is the trend in capital expenditures. Capital expenditures for FY25 were largely in line with our plan. And for FY26, which is our current fiscal year, due to the cash outflow related to ZOHO-based Nanashino 3, Nanashino 3, which is CapEx, which I explained earlier, we're planning capital expenditures of 11.5 billion yen. Additionally, regarding goodwill amortization, As I explained our plan is based on the assumption that it will begin to be recognized. Starting in May 2000 when he said. And amortization of goodwill related to high link is expected to commence in May 2026 and based on the assumption it is a projected at 610 million for the current fiscal year and 670 million for the following year. fiscal year, reflecting a full year impact from the next fiscal year and the amortization period of the goodwill is planned to be seven years. This concludes my part of the presentation. Now I'd like to hand over to our CEO. Hello, everyone. Thank you for your participation. So what I would like to do is to walk you through our medium term business plan. Why are we talking about medium term business plan now? Well, actually, we haven't had the opportunity to share our midterm business plan to external parties. But when we think about the rapid changes of the external factor, which is inclusive of how people work in the era of AI and the services we provide, we need to think about how we fight in the world of the internet and that must change going forward in order for us to have a healthy battle, our resources, money, people, and information, we're starting to gather all these valid information and we needed to come up with a clear path going ahead. So what I like to do today is to share our medium-term business plan with you. So here's the agenda. Next slide, please. So this is a really brief summary of our business plan. So first of all, this is the period. This is a four-year plan. And this is until FY 29, ending March 2030. And in terms of our objective or are just did you be I T a which mystery and I have explained as our new indicator. We will aim for 90 billion yen and that is a 123.8% of it by 20 I just to give you the background of this so we operate this guy in or that all those And we have been allocating a lot of our research there. But we know that this is not something that we can rely on 100% in the future. Of course, we're going to continue to grow our those accounts. But we also have to think of other services so that we can have incremental revenues. We are detecting internal and also external changes of the market. And we'd like to seize our opportunity there. And by the way, our midterm business plan, sometimes or oftentimes, I believe that companies come up with a catchphrase or like a tagline. And we thought of our tagline as well. And then we came up with a really simple tagline of 2K, which is a really simple word, 2 being the sound of a mouse. you know, being the sound a mouse makes in Japan and also the first part of the word medium term that represents our medium term business plan. And then we came up with this character of a mouse. And this is our plan for the upcoming year. So this is how we have grown so far. And then in the next four years, we'd like to grow to 90 billion yen. So when you look at FY21, we achieved 50 billion, and we are here in fiscal year 25, and then this is where we want to get to by fiscal year ending March 2030. And we identified three different domains that we'd like to focus on, near fashion, more fashion, and global domain. So for fashion, this is where our core business of Zozotown goes into, and also where as well. But basically, please think of it as our . And with this alone, we'd like to add to $80 billion. And if you turn to the left bar, which is near fashion domain. So this means peripheral domain of fashion. We'd like to divide billion. And with global domain, five billion. Next slide, please. So for each domain, how are we going to make a conquest? So let's start with more fashion domain. So this is our core driver of this growth. And we want to have even more solid growth here. Next slide. And I have different pieces of information here that I have already shared with you. So what are the growth engines for our existing business? It is the new user acquisition. Our share is quite high. So do we still have potential for growth? That might be the question, but we're looking at the numbers. We do believe that there is more potential for us to grow. Last year, we inducted those of us. And then recently, I think it was in March, we did a pop-up store. So we know that there are segments of new users that we have not yet engaged with. So what we would like to do is to really expand into offline touch points to reach to those. And then, you know, because of these efforts that we've made so far, and we've been observing this for quite some time already. So we conduct a survey to our consumers and we ask, about their top of mind places to buy fashion. This is for men and women 15 to 59. Sorry, no women only 15 to 59. And then we asked what they would think of as a place to buy fashion products. And we are the lead. We are in the leading position, as you can see. And then now I want to talk about more fashion further. And I'm sure this is of your interest as well. I want to talk about this stuff. So we've been able to enjoy an increased number of brands on other towns. So now we handle 11,247 brands. And then there was a notable increase of the number of brands driven by Machinsta. And Machinsta has been very proactive in incorporating us for the pop-up store. So Machinsta is a large-scale Korean fashion mall. And we will continue to deepen our relationship with them as we engage in different activities. And I want to continue on to talk about more fashion domains. So what is the impact of AI agents? And for the next coming years, this is going to be our policy. Next slide, please. So you can see here that people go through this very simple funnel. until the purchase of fashion items. It's like simple. So there's the needs and interests. And then currently, search engine play an important role there. But the wave, the new wave of AI agents is coming there as you all know, and what sort of impact would that have on e commerce? I do believe that there will be an impact in e commerce. So We don't know yet which operator will be mainstream, but what we would like to do is to work with them so that we can utilize them as our touch points. And at the same time, these AI agents, I believe, are very good at answering general needs. And I'm sure many of you use this already, and you can understand what I'm talking about. If it's something really specific as a John Rue, the answers that you may get from the AI agents may not always be correct. And that is what is happening around the world. So we don't think that it will be able to advance that feature. We have abundant amount of data in fashion. So we run a fashion e-commerce mall. And that is what has made us strong and characteristic. And we believe that our AI agent, which is fashion specific, will also be valid. So what we'd like to do is to develop our fashion specific AI agent. to cater to more specific needs. And then a press release has been announced already. So ChatGPT is a leading company of AI Asian. So we're already working with ChatGPT app to propose wear styling or wear output. And then just the other day, finally, this was our long-awaited aspiration. We were able to use LINE. And we were able to release a LINE official account that supports users to decide their outfit through conversational AI. I hope that you use this so that you can feel firsthand what we aim to do in this world. in this world of AI. So our data is very original. And we've been developing data to train AI. And we are using this data to come up with different features on where. And it's been advancing quite well. And that's data we'd like to utilize them to the bullet. So that aware. So we've been using this to the fullest and then. The next month user revisit rate has gone up to 1.1 times already. So we believe that the revisit rate could go up higher and we utilize data this way. And then we are rolling out through different channels. And then we want to bring this on board to build up now. And if we cannot give you a timeline for it, please understand that aim to do in the future. So these are some of the initiatives that we'd like to implement so that we can enhance our or fashion domain. Let's go to near fashion domain next. Next slide, please. So what is the concept of near fashion? What exactly is that domain? So DeltaTown users also buy different categories of things. And we want to start proposing to those people different areas. of merchandise. So we want to branch out into other fashion areas outside of those accounts. What do we mean by that? Exactly. So these are examples of quote unquote, near fashion domains that may resonate with those account users. So hair salons makes up for about 2 trillion yen market size, and also fitness and gym that 700 billion and then and also teeth whitening, which is really trending right now, is $45 billion. And we call it, you know, internally as ways to, quote, unquote, polish yourself. And then we're not trying to sell them on e-pay. We could also consider offering physical, services we're not just sticking to the idea of selling this online on our e-commerce platform these are some of the new services that we consider to go to so i just wanted to give you more color on this um so we're thinking of two levers for expansion so um hi link is An example of the left one, this is actually the first example of the left one. So this is partnership. Um, and they maybe it doesn't go that far as MNA. It can be, you know, us having partnerships with capital alliances, the different companies. And then there's another lever, which is to create something in-house from scratch. So this is another approach we'd like to take in order to expand into near fashion domain. So for Highlink, if we can finally turn to the next slide. As Yanagisawa-san mentioned, we acquired Highlink as a wholly owned subsidiary. And they have, they've been operating a fragrance platform, Calaria, and then they offer a subscription model. For the interest of time, I won't go into detail, but it's very close to fashion in terms of this area. So what we'd like to do is to find a way to conquest without using ET. So I hope that you continue to pay attention to what we do with Calaria. And let's go to the global domain. Next slide, please. So, of course, in Japan, we operate Zozotown. And last year, we acquired this, and then that's based in the UK. But in terms of the commercial areas, they're not just operating in the UK. They're also operating in the US and other areas as well. And then in the US, the We've already launched Zozo Fit, and it is growing as a seed of our service. So these are some of the drivers that we'd like to use in order to grow our overseas pillar. I want to talk about Zozo Fit. So we surpassed 1 billion downloads. Actually, last year, this grew significantly, and we do believe that this has a good potential. So this app is quite Americanized. And the market has been accepting this quite well. And by the way, the total download, the total number of downloads of Wear is about 12 million yen. So compared to that, it is still small. But we believe that it's a great achievement. how we were able to surpass the 1 million downloads. Let's talk about lists. So there are many things that we need to do, but in the long term, what are we aiming for, for lists? I wanted to share that with you. So, um, we, I just mentioned that we're going to make our own AI agent as a category pillar, and we're going to operate this AI agent. And then, uh, we are also able to create a similar funnel using lists. So the know-how and the data expertise that we have to create that sort of a fashion-specific AI agent, we believe that we can transplant that to lists as well. So that was a brief explanation of our medium-term plan business plan. And lastly, this is outside of the medium term. But I wanted to share something with you. This is about internal use of AI. So it is progressing quite steadily internally. And we have adopted BILGO's own AI utilization metrics. And we have already. set up an objective for this. As you can see, you can take a look at it later. So level three, we believe, is going to have a business impact or valid business impact. So we want to first get to level three and then ultimately to level four. And next, this is about responding to geopolitical risks. I'm sure you're quite interested in this topic. The impact of this is as of today, still limited. So regarding items supplied by brands, we haven't seen a significant increase in prices yet. We may start to see impact sometime in fall. But so far, we haven't seen an increase in prices. And for indirect materials like packaging and cardboard, some cost impact is expected. But impact on FY26 is expected to remain limited. We are doing a lot of analysis. Of course the chances of us having negative impact is greater than having no impact, but still it remains and we expect this to remain the next step. Lastly, this is about SDGs. We are looking at different external assessments and so far we've been well received by multiple external assessors. We want to really define and identify which metrics that we're going to focus on as we make progress in this field. This brings us to the end of the earnings briefing. Thank you for your participation.