Zalando Se Ord

Thanks for the intro and good morning ladies and gentlemen and welcome to our Q3 2023 earnings call. Today I'm joined by our CFO Sandra Denbeck and Sandra will briefly walk you through the presentation and is available for questions afterwards. As usual this call is being recorded. The live webcast as well as a replay of the call will be available on our Investor Relations website later today. Sandra, I will now hand it over to you. Please go ahead.

Thank you Patrick. Good morning, everyone, and thank you for joining today's call. I got a bit of a cold, so please excuse my voice. Let me kick off. In 2023, we set ourselves two key priorities. The first one was profitable growth, and the second one, selectively investing in future growth. Both priorities continue to guide our strategic decision-making and are reflected in our first nine months' results. Let's look at how we performed in the first nine months before we dive into the third quarter. In the first nine months, we improved our profitability year over year by more than 120 million euros. That's a significant step up. We delivered an adjusted EBIT of 167 million. And that despite quite some headwinds. We saw ongoing normalization between offline and online, pressures on consumers' disposable income continued, and we experienced adverse weather conditions particularly in September. And despite these top-line headwinds, we managed to maintain our pandemic peak GMB. Our business model mix continues to inject resilience with our brand partners continuing to grow their direct-to-consumer business on Zalando. In the first nine months, partner business share increased to 39%, a six percentage point increase year over year. This was fueled by an increased adoption of ZFS, with the ZFS share now at 64%, an increase of almost four percentage points year over year. And at the same time, we continue to selectively invest into strategic areas of our business. So in September, we launched Stories by Zalando. But before I talk more about this, let me update you on our latest full-year guidance. We continue on our path of profitable growth, and therefore our adjusted EBIT guidance for 2023 remains unchanged. We are committed to deliver 300 to 350 million euros. However, we expect pressure on demand to continue throughout the upcoming peak trading season, which is why we revised our top-line guidance for the full year. So let's move on to Q3. Throughout Q3, we continued our focus to selectively invest in future growth. And on page 3, let me highlight one of our strategic investments, Stories on Zalando. We believe that adding more inspiration and entertainment is a crucial next step in the evolution of our customer experience. That's why last year, in collaboration with High Snow Biety, we started our discovery journey, and now in September we launched the next iteration, Stories on Zalando. Here we completely redefine the way our customers can discover exciting fashion trends. So what are we aiming for? Firstly, we want to capture the attention of our customers so that ultimately they spend more time with us and they come back more frequently. Secondly, we also want to attract customers. those that have a higher discretionary spending and are more fashion-affine. And thirdly, the experience creates a strong halo effect also for our brand. It's still early days on our discovery journey, but the first results have been very encouraging. So keeping in mind our strategic efforts of investing in future growth, let's now move on to the Q3 financial results. Let's start off with our group financials on page four. The market environment in Q3 remained challenging and limited our ability to grow. In this environment, we maintained the necessary balance between short-term sales and strategic business objectives. And as a result, we improved our profitability by staying on track with our inventory sell-through targets. Before Q3, we reported a muted top-line performance. July and August showed small but positive top-line growth. However, the unusually warm temperatures in September dampened consumer demand for winter merchandise. And with that, our GMV came in at 3.2 billion euros, down 2.4% year-over-year. Revenue at 2.3 billion is down 3.2%. On profitability, here we again show an improvement. Adjusted EBIT increased from 14 million to 23 million, and this corresponds to an adjusted EBIT margin of 1%. a year-over-year improvement of 0.4 percentage points. Here, our continued efforts to drive efficiencies and fulfillment costs offset the decline in gross margin. Now, looking at the first nine months, our financial performance translates into slightly negative GMV and revenue growth. While adjusted EBIT came in at 167 million, or 2.4% margin, so a significant increase compared to last year. Let me now walk you through our customer metrics on page five. And as always, this is on a last 12 months basis. So let's start on the left. Our active customer base stands at 50.1 million, showing a flat development year over year. And the main reason for this is the lower new customer acquisition, which is due to the subdued demand environment and our continued focus on profitable growth. Moving over to the right, Order frequency decreased by 3% from 5.2 to 5. The average basket size, however, increased by 5% to 59 euros. And this is due to a higher average item value as a result of black price inflation, but also our work on the assortment mix in wholesale and partner business. GMV per active customer increased by 1.5% to almost 295 euros. So let's turn to our segment performance. Starting with the top line performance on page six. Let me walk you through the chart from left to right here. Fashion store GMV is down 3.7%, revenues declined by 4.4% as the partner business share continued to increase to 39%. Top line in DACH region was particularly impacted by the delayed fall winter season start. It was more pronounced there. While in rest of Europe, we actually saw positive development in Eastern Europe and also in some of our mature markets. The off-price segment grew by 4%, and we already indicated that last time, we see a normalization for off-price. It's a dynamic we also expect to see in Q4. Tavings from more attractive in-season stock being available in the sourcing markets were reducing. And coming to the all other segments, This is including high-smobility trade bite and ZMS. Here revenue declined by 12.1%. For ZMS, we saw that in the current market environment, brand partners spend more cautiously. And given the delayed season start, they also canceled or postponed start of season campaigns. So turning to the segment profitability on page seven, Let's start with the fashion store. We see a strong improvement in adjusted EBIT as a result of the improved profitability of the DACH segment. In DACH, adjusted EBIT more than tripled to $48 million. Adjusted EBIT margins significantly stepped up from 1.7% to 6%. The main drivers here are improved order economics and lower fulfillment costs, also benefiting from scaling of partner business. Rest of Europe showed an adverse development with adjusted EBIT at minus 29 million and margin declining from minus 1.6 to minus 2.8%. Efficiencies in fulfillment only partly offset the declining gross profit and the higher marketing costs. Off-price saw decline in adjusted EBIT to 3 million, and this was driven by lower gross margin due to the assortment mix and the promotional environment in the full-price channels. And the all other segments delivered an adjusted EBIT of 6 million. Let's move on to the P&L on page eight, and let's focus on the Q3 development, which is on the right hand side of the table. Our growth margin declined by 2.4 percentage points to 36.7%. And there are two main reasons for the decline. First, in this promotional market environment with subdued demand, the effectiveness of additional price investments remains reduced, and as such comes at the cost of margin. And secondly, due to the delayed fall winter season start, pressure on sell-through rates increased. So we chose to prioritize reducing overstock early on, meaning in September we actively managed the sell-through of our fall winter stock by additional price investments, and this way mitigate any potential overstock risk at the season end. On the positive, our partner business remains margin-accretive and helped to offset a small part of the margin decline. Fulfillment costs improved by 3 percentage points to 24.9%. This continues to be the result of favorable order economics and the scaling of our partner business with a growing ZFS share. Improved order economics from higher basket sizes as well as several efficiency measures more than offset the inflationary cost increases. Marketing costs at 7% developed broadly flat year-over-year. We deliberately decided to not push for more marketing spending throughout the quarter in light of the continued subsidy demand. And admin expenses increased by 1.2 percentage points to 5.6%. We saw an increase in non-personal costs and made an impairment for lease assets as we consolidate our office footprint here in Berlin. So summarizing the P&L, Our continued drive for sustainable efficiencies, particularly in fulfillment costs, resulted again in improved profitability and more than offset the decline in gross margin. Let's turn to page 9 for networking capital. Networking capital was neutral in Q3. Looking at the year-over-year development, we see a cash inflow of around $130 million. And this development is primarily driven by lower inventories. And let's talk about inventory. At the end of Q3, our overall inventory position is at around 1.9 billion euros, so it's down 10% compared to last year. The fashion store inventory is significantly below last year as we reduced our wholesale buy and we effectively managed any potential overstock risk throughout Q3, albeit at the cost of gross margin. And for the full year, we expect a further improvement in our inventory position. Returning to cash on page 10, our cash and cash equivalents remain strong at 1.9 billion. Compared to the second quarter, this is around 170 million less due to the seasonal changes in our networking capital as we received inventory for the fall winter season. In regards to investing cash flow, we invested roughly 70 million, of which 50 million was for capex investments in our logistics infrastructure for the new distribution centers in France and Germany, as well as for existing logistics sites. The cap expense of 147 million in the nine months reflects our financial discipline in the current environment, while we continue to selectively invest in setting us up for future growth. And our cash position, as such, remains strong. It continues to provide us with financial flexibility and allows us to invest in future organic or inorganic growth opportunities. So this concludes the QC Financials, moving on to page 13. As in previous quarters, let's do a quick check-in on our three main objectives for 2023. So here on this slide, you will see that apart from one amber tick, it's all green. But let me walk you through the slide, and this time let's start from the bottom. Selectively investing in future growth. So earlier, we already talked about stories on Zalando, but there are also other examples worth mentioning. So in mid-October, we started rolling out a new luxury boutique-style space for designer brands fashion store and the brand feedback is already very positive in the second quarter we talked to you about our fashion personal fashion assistant power by chat GPT this one will shortly be live in four countries on time for cyber week and we launched our b2b brand sales it will enable brands and retailers to manage the multi-channel business across Europe within one unified platform By now we have around 30 brands and retailers such as Pepe Jeans, Marks & Spencer, and Casar already on board. And lastly, Zalando Plus. In Q3 we expanded our offering to Belgium and Luxembourg, so Plus is now available in eight countries. We're also well on track with our second objective for 2023, which is to simplify for speed of execution. So here we finalized our program to simplify our organization. And we're continuously working on improving our operating model towards a more localized shopping experience, whether that is through locally relevant assortment or convenience. And we are live with the first pilot in Sweden. So coming to the third objective, strengthen gross margin. So this clearly has proven to be more difficult this year than what we had initially expected. The current tough market environment prevents us from showing positive year-over-year gross margin development. Nevertheless, it's important to mention that the actions we are taking around more prudent wholesale buy, driving full-price sales through focusing on assortment relevance or through creating inspiration on our platform, the new commission table, the growth of the partner business, all these efforts that we are making are ultimately supporting this objective of strengthening gross margin. So in summary, despite the temporary headwinds we experience, we are delivering against our objectives And with that, we are all well positioned to not only deliver on profitability, but once the momentum in the market returns to accelerate our growth. So with that, let's have a look at the outlook on page 12. We expect continued pressure on demand throughout the rest of the year. Hence, as you saw, we adjust our top line outlook for 2023 and expect GMV growth in the range of minus 2% to plus 1%. So this is from previously the lower half of plus one to plus seven. Revenue growth is adjusted accordingly and is expected to be in the range of minus 3% to minus 0.5%. So from previously the lower half of minus 1% to 4%. It's really important to note that our adjusted EBIT guidance remains unchanged. We are committed to deliver 300 to 350 million euros as we continue to focus on profitable growth while we continue to selectively invest. With regards to capex, we have already adjusted the speed of our spending throughout the year to reflect the macro dynamics. We have now recalibrated the timelines of our investments in distribution centers in France and Germany and therefore expect capex to be between 260 to 300 million euros from previously the low end of 300 to 380 million. So this concludes the outlook. And before we move to the Q&A, let me conclude with the key takeaways of today. Both of our key priorities, profitable growth and selectively investing in future growth, continue to guide our strategic decision-making, and they are reflected in our first nine months' results. Here we delivered a significant improvement in profitability of more than $120 million to $167 million. And we are committed to deliver 300 to 350 million in adjusted EBIT for the full year, and that despite the temporary top-line headwinds. And at the same time, we are progressing well along our strategy. With our 50 million active customers, we are well positioned in the European fashion and lifestyle space. We make strides to unlock the future potential of new innovations, and we invest in inspiration to elevate the customer experience on our platform. And at the same time, we continue to empower brands to grow their direct-to-consumer business by leveraging our enabling capabilities, whether that's on or off Zalando. And while we cannot change the current adverse market conditions, we can prepare so that once consumer sentiment and online growth return, we can best capture the opportunities and we can accelerate. So let's now open up for Q&A.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one under touchstone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. In the interest of time, please limit yourself to two questions only. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. The first question is from William Woods with Bernstein. Please go ahead.

Hi, good morning. Thank you very much for taking my question. Two, please. The first one is on the drivers of the margin compression in the rest of Europe and in off-price versus Germany, Austria and Switzerland. What are the different factors at play in the different regions from a margin perspective, please? And then the second one is on the partner program. It looks like you've had a slight deceleration of the Partner Program despite you pulling back on the wholesale buy for autumn-winter. I think it was at 38.7 in H1, 39% in Q3. Why do you think the Partner Program acceleration is slowing down slightly? Thank you.

Thanks, William. So I think the first one, The drivers of margin compression in the rest of Europe and in off-price. I think it's important to point out that we saw a significant increase in the profitability in the DACH region and that was benefiting a lot from fulfillment cost benefits but also from the increasing share of the partner business with ZFS share. In the rest of Europe we saw a slight different dynamic whereby they had to do higher price investments and we saw Still good efficiencies on fulfillment, but because of inflation rate, some of the cost items, like especially carrier costs, are actually increasing faster than we would see in the DOS region. So it's a bit of that effect whereby the gross margin decline was higher and the fulfillment cost efficiency is not as high as in the DOS region. On off-price, here it is a matter of gross margin. Basically, the supply of attractive in-season stock that you can sell at a higher gross margin has gone away as the inventory levels in the market are normalizing. So the supply of those in-season, off-price merchandise for us to buy is not there. And as such, the merchandise that we have on show comes with a lower gross margin, because it is what you usually have in off-price, the pre-season merchandise. And that is what is impacting the profitability there. The deceleration of the partner parameters as a whole, that actually has to do with a decision we made in September, which maybe the partners not all followed in the same way. So we talked about the delayed season start, the delayed fall-winter start, And we took a conscious decision to early on address potentially risky overstock positions and discount them. And we saw that some of the partners did not follow the same approach. And therefore, you have a slight deceleration in the partner program that what you may have seen. I mean, they suffered from the same delay in season start that we did as well, yeah.

Great. Thank you very much.

The next question is from Adam Cochrane with Deutsche Bank. Please go ahead.

Good morning, guys. Two questions, please. The guidance for the full year gives quite a wide range of outcomes for the fourth quarter. Given October's start is strongly backing to positive territory, why are you assuming such a significant slowdown in November December is there anything from the comps from last year from marketing is there anything that we should just be aware of thinking about the trend throughout the quarter and then the second question is on not on exactly 2024 guidance but let's call it 2024 outlook you've cut your capex guidance with regards logistics spend and phasing and it sounds like you may be cutting your marketing spend for the third quarter. You originally were going to increase your marketing spend for the fourth quarter. Is that still a plan, or could you, given external conditions, be more cautious on the marketing spend? So with lower capex and lower marketing spend, does that sort of look like the 2024 outlook is going to be slightly weaker rather than slightly stronger as you see things today?

Thanks. Thanks, Adam. So first of all around the guidance range. So basically in the first nine months we delivered GMV growth that is slightly negative. And when you look at the new guidance that is basically the midpoint of the guidance, the range then really is defined by what will be the consumer demand that we see in the fourth quarter or as you rightly say during the peak trading events of cyber and the holidays. We have to keep in mind that last year there was a big step up in momentum in the market over cyber and over the holidays. So if we do see something similar like that, that defines the upper end of the guidance. But we also have seen a lot of volatility still on the demand side. So if that is not happening and we see a step down in demand, then you get to the lower end of the guidance. So this is a bit that what explains the range. But what I want to say there as well is, and that brings a little bit to your second question, but we said for this year we want to do profitable growth and we want to selectively invest in future growth. So the reason why we dropped our top line is because it exactly allows us to do that. So it allows us to continue in the fourth quarter to invest in the areas that will secure the future growth so we can continue to invest in marketing for growth in the future. Because if you chase your growth over cyber or anything, that's very costly and that doesn't deliver the growth next year. So we want to be very wise about that. So there is an increase in the marketing spend which will support the future growth. And so then 2020 for Outlook, On marketing, I already referred to, yes, we are investing more. We are extending the payback period. We are increasing the brand marketing spend. So you will see that increase in Q4. Last year in Q4, we also did a lot of that. So it will remain at a similar level. But that will help the growth in 2024. On CapEx, don't forget, we haven't stopped any investments in any warehouses. We haven't We are still opening up all of these distribution centers, all of these warehouses. What we are changing is the ramp up, the speed with which we are ramping up the capacity, because we don't want to carry unnecessary overcapacity. So that is not a signal that has anything to do now with, I would say, the growth outlook.

The next question is from Andreas Riemann with OdoBHF. Please go ahead.

Yes, good morning. Andreas here. Two topics. One is the inventory position. It's down 10% year-over-year. So my question would be, can you manage the return to growth with such a low level or do we have to expect a massive increase in the partner program in the coming months? That's the first topic. And then the second one about luxury, can you maybe say whether you have already a few brands onboarded or what is different now compared to previous attempts to enter the luxury space? Thanks.

Thank you. So in regards to return to growth and buying, so we are buying for growth in Holsang. So our spring-summer buy, our fall-winter buy, When you take wholesale together 2024, we are buying for growth. So you're right that the partner program was a strong backbone now over the last two years and accelerated its growth. You will see a more balanced picture there next year. On luxury, we alluded to that, I think, a lot last year when we saw that we have a target audience. that actually even during these times, we have proved to be very interested in the higher price points in our premium segment. And we found out that there is quite a strong audience that we can address through a more dedicated luxury proposition. In order to get the brands on board as well as the customers, you have to create a specific environment, and that's what we are doing with that.

The next question is from Monique Pollard with Citi. Please go ahead.

Hi, morning everyone. Two questions from me, please. The first was just on the gross margin progression for the fourth quarter. Just wondering if we should think about that gross margin being stable year on year in the final quarter of the year. And then the second question, just on the customer numbers, obviously we're still not seeing stability there sequentially on year on year, but You've also talked about the marketing ramping back up in the fourth quarter and increasing that customer payback period to support that. So should that be the thing that leads to that stabilization in the customer base, presuming that it's the new customers that are still a bit weak?

Thanks, Monique. So on growth margin in Q4, we do expect this intense promotional environment to be sticky, to stay with us also in the fourth quarter. And as such, you're absolutely right. We expect a stable growth margin for the fourth quarter. In terms of the customer numbers, as we return to growth in 2024, we, of course, will also see a sequential increase in our active customer numbers. So the ambition, of course, is to, on the one hand, grow active customers through new customer acquisition, and this is where the marketing comes in. And on the other hand, at the same time, we also want to deepen customer relationships to ensure that actually they spend more with us. So these are the two levers, and that's what we will see in 2024.

Understood. Thank you. The next question is from Benjamin Conkey with Stifel. Please go ahead.

Good morning. Thanks for taking my question. The first would be on gross margins again. And Sandra, I was wondering if you could, by any chance, quantify the negative impact of the disproportionate growth in ZFS on gross margins in Q3, and if you sort of expect that to continue in a similar way going forward as you continue to invest into ZFS, obviously ZEOS and so on. The second would be on your current thoughts around shareholder returns. I mean, you know, it all seems to be going in the right direction. You sit on $1.9 billion in cash. You kind of, you know, seem to have good flexibility on CapEx spending, networking capital going in the right direction. So going into 2024, I would expect, you know, a little more pressure on Uber investors maybe to Yeah to step up share all the returns. I was just wondering about your current thoughts around that topic.

Thank you Thanks a lot so on on gross margin the The best way to explain it is to say like what the decline you see is is really driven by the current promotional as well as us deciding to early on go into the markdown of the for winter merchandise. The ZFS impact, we don't disclose it individually. The way we package it up in the partner program, yeah, and that is to a small extent offsetting that margin decline that we are seeing. Within the partner program, of course, ZFS is gaining importance because it's growing faster than the partner program is now. But it's still, when we package it together, it is more generative. On our cash position, we have a very strong cash position, and I think that gives us the necessary financial flexibility, especially in times like this, that's very good to have, because it allows us to continue to invest in our strategy as well. And that's what we plan to do. We are looking at shareholder returns, of course, all the time. At the moment, this is not, like if you're asking about share buybacks or anything, it's nothing we have on the radar because we believe that at the moment, it's better for us to invest it in the business. Opportunities exist here organically, inorganically. In the past, we have primarily done organic, yeah? We are, however, have acquired like Fission, which you now see we are benefiting on with our size advice. And we have acquired Hyphenobiety, which we are benefiting a lot from now trying to bring inspiration to the platform. So yes, we are also screening, of course, for opportunities there, but it has to be the right opportunity.

The next question is from Anne Critchlow with Societe Generale. Please go ahead.

Thank you. I have two questions, please. The first one is actually on the vision size and fit tool. I just wondered what any early learnings are here, and have you seen any improvement in the return rate? And then the second question is about the new partner commission table. I just wondered if that had affected partner participation or availability of particular brands or products on the site. Thank you.

Thank you, Anne. So on Fission Insights and SITS, we are still in early days here, so we're still trying to extract all the learnings. What is interesting for us with this product is that we can really create a virtual silhouette of the body of our customer. And so we don't need to have each individual customer's body silhouette in order to actually use the data to help other customers with site recommendations. So we are now in the phase where we say, like, let's learn as much as we can because when we then want to really apply it at large scale, it will be for all our customers, not just those who upload photos or who give us the data, but also for those that have based on their behavior, a similar shopping or return pattern than those that gave us the data. And so we are very positive about it. I think it is revolutionary for the industry, and yes, it does help on return rates. On the partner commission table, so the implementation here has worked very, very well. We have seen a stronger participation from partners I would say those who want to be on the platform. So I would say those who casually, like if you talk about retailers, those who casually sold items, they are much more engaged now since we have introduced the fee. And on the other partners, like we have really created now a more relevant assortment, like managed to change the assortment mix we offer on the platform through the new commission table. So all in all, I would say the customer experience through the introduction of the commission table has improved. increased a lot.

The next question is from Warwick O'Keen with BNP Paribas Exane. Please go ahead.

Good morning. I've got two questions really about the consumer, please. The first is on product segment performance. Can you say anything on that? Is it still mostly the young fashion segment that's under pressure or have you seen any changes in premium or sports? And then the second question is, what evidence do you have that investing and inspiration is working both for the customer and for your economics? Thank you.

Thanks, Mavic. So on product segment performance in Q3, this was less a question of categories. It was really a question of the delayed season start. So what you saw performing well there were all those less exposed categories like accessories, like footwear, like travel. Those things really performed well in Q3. Other than that, the trends that we alluded to earlier, where we see premium streetwear, sport, performing well in young fashion, maybe to a lesser degree, but still performing, those trends haven't changed. But Q3 is more predominantly driven by the weather than by anything else. On inspiration, it depends on from what angle you want to look at it. Ultimately, what we see is 70% of generations said they they get inspired, they decide on their purchases while being on social media, while getting inspired. And so the question is how do we create the inspiration on our platform so that the purchase decisions are being taken on our platform and therefore the transaction is happening with us. So ultimately, this is what we want to achieve. The stories on Zalando, what we see here is basically customer comes back more frequently to browse and to discover and I think this is the important first step because you see it in our customer data a customer transact five times a year yeah but they come to discover and browse and get excited and inspired a lot more frequently and that allows us to keep in touch with them to stay top of mind And that's the positive proof point why we think this investment is the right thing to do.

The next question is from Georgina Joinen with JP Morgan. Please go ahead.

Hi, thank you. Good morning. I've got two, please. The first one just with regards to 2024, I guess I'm sort of slightly confused as to what the strategy is into 2024. You said you're sort of buying for wholesale growth. So are you still hoping to be in sort of attractive growth again by the end of the year with that supported by marketing spend? should we therefore be looking for sort of broadly flat margins next year or would you expect to see gross margin recovery if you could sort of just remind us about how you're thinking about 2024 more broadly particularly given that the consumer backdrop sort of continues to be to be difficult and volatile and a reminder there would be really helpful please and indeed as well you know if it does turn out to be more difficult than hoped are there further OPEX levers that can be pulled to support margin. And then my second question, apologies, very short term. Would it be possible just to confirm where you are trading in October, please, and how much more difficult the base becomes into November and December? Thank you very much.

Hi, Georgina. Thanks for So about 2024. So for 2024, it's about a return to growth, and that's holder business and partner growth. We will increase our marketing spend, and we had promised to continue our margin progression. So you will be looking at increased profitability. On current trading, So in October, we saw a significant step up. We are at the level where we would have to be in order to get to the upper end of our guidance. But the problem now is really November, December, where we are lacking really strong comps, especially in December. And this is why we feel most comfortable with, at the moment, the midpoint of our guidance to say, Realistically, the demand patterns that we have seen in the underlying, the consumer sentiment hasn't really stepped up significantly. We believe this is where we would end. Maybe because you're combining current trading with the 2024 outlook. Just to reiterate what I said earlier to Adam, We are in this phase of 2023 where we have profitable growth and investing in future growth. So Q3 now with the more prudent top line allows us to continue to invest in the marketing for growth next year, in the strategic initiative for next year. Like we talked about assortment, bringing the right assortment on board. We talked about the fast and for me last time, we talk about inspiration. So all of that, we are getting ready. so that we can return to growth next year. And of course, we also launched our sales brand, so you will see B2B happen as well next year.

The next question is from Yash Raj with Rajani, UPS. Please go ahead.

Thank you for taking my questions. Two from me, please. The first one is on fulfillment costs. So again, can you give us some color on how much of the improvement was actually due to the lower volume handling in the fashion store? And again, given you continue to, in some sense, expect volumes being down for Q4, I mean, again, do you sort of still see a meaningful improvement in fulfillment costs in Q4, even though you are lapping some of the efficiencies from Q4 last year? And my second question is on just a follow-up on marketing costs again. Can you give us, again, some color on, you know, with the launch of Zalando Stories, how much of that has actually, you know, materialized in terms of marketing to sales ratio? And, again, sort of giving that cost will annualize next year. I mean, do you expect marketing to go above the 8% mark? Thank you so much.

Thanks a lot. That's a lot of questions. So let me start with the fulfillment cost. I think, so you're talking about like how to best demonstrate to you what was actually just the improvement because of low volumes versus what is really the improvement we're actively pushing for. And I think the best way maybe to demonstrate it is the cost per order. So if you just take our GMB and divide it by the orders, I think you see a clear improvement. So we're talking here like the mid-single digits. And I think this is really what shows the strength we have in our teams here to effectively and efficiently drive cost savings in those fulfillment cost lines. The next question was around stories on Zalando. So inspiration is nothing that translates straight away into GMV. So I think with inspiration, what we are aiming for is customers spending more time with us. So staying longer on our platform and coming back more frequently. So these are the measures that we are looking at here. And I think we will talk more about that at the full year. So please be patient here with us. We come back to you on that one. And then on marketing cost ratio, I think we have improved our internal processes and everything in a way now whereby potentially we will next year not yet hit an 8% mark. But again, let us come back to you at the full year with exactly how it will be. I think the most important message to take away here is that we are investing again in marketing, in new customer acquisition that's in brand.

The next question is from Clément Geneleau with Brian Carnier & Co. Please go ahead.

Good morning. Who are on my side, please? So the first one is rather on 24 to really to call on back on the previous question. How do you approach 24 between the need to generate growth versus the need to really improve the growth margin? My second question is rather on the prices. As you are already in negotiations with the suppliers, do you see more inflation or inflation next year? Many thanks.

Thank you. So on the price inflation, we do still see a bit of price inflation, yeah. So that's also still continuing into next year. It has reduced significantly, yeah, from, it was like just a double digit, but it is more now in the low single to mid single digits. On your first question about what are the growth drivers for 2024 and are we sacrificing gross margin? What we're trying to really do is to put different, different drivers in place. One is around assortment. Yeah. So we are now churning through the inventory. So then next year we can offer fresh assortment. We have worked on, on the, with the brands to onboard, like for example, in sport, we onboarded very strong brands like Lululemon, like now Rafa. So we're working on that. We are working on inspiration, what we talked about earlier. We're working on becoming locally more relevant, so that basically the assortment is more tailored to the local customer, the convenience offer is more tailored. So there is a lot of stuff going on that is actually supporting the growth in 2024. So I think you asked whether we're sacrificing gross margin for that. No, that is not the ambition. It's the other way around, actually. And then, of course, yeah.

And the last question today is from Anubhav Malhotra with Libero. Please go ahead.

Hi. Thanks for taking my question. I had a couple. Firstly, on the GMV performance in the third quarter, at the one estate, I think you had mentioned July, you had seen some signs of improvement. uh but and today you highlighted september was particularly weak so maybe if you could talk about monthly gmv performance in the third quarter just qualitatively and if july and august were in positive gmv growth in the third quarter and then second question on the guidance um if you look at the midpoint of guidance the revenue guidance has been cut by around three percentage points but clearly you have made no cut to your ebit guidance So maybe just you could tell us where you have been able to find those extra efficiencies or savings that you had not previously budgeted at the start of the year or even at the first half stage. Thank you.

Thank you. So GMB development over Q3. So we saw positive growth in July and August. And then we saw significant negative growth in September. And the quarter is such that the season start, of course, is worth more than the end of season sale period, July, August. On our EBIT guidance, when we go back to Q2 here, we actually elevated the flow of our EBIT guidance. We took it from 280 to 300 because we felt very comfortable with the progress we had made on our ambition to improve profitability. And we continue to have this conviction and this level of comfort because we see that all the things we are doing, especially around the fulfillment costs, is allowing us, like it's continuing, but it's also allowing us to be flexible. So we have seen that on fulfillment costs we can significantly improve year over year and with that really stabilize our profitability and with that get to the profitability that were at 300 to 350. So I think very confident about that. Fulfillment costs being the main driver.

So the real final question is coming from Paul Rossington, HSBC. Please go ahead.

Good morning. Thank you for taking my question. It's just one. Thank you. If you've downgraded GMV guidance for this year, albeit with quite a wide range for Q4, does that mean we should now be thinking about a slower start the first half of next year as well? And on that basis, are you able to give us any kind of view or thought as to what a good starting point for GMV growth guidance might look like for 2024? Thank you.

Paul, I would love to be able to give you the answer. I think the reality is, going back a bit to looking at the Q4 GMV guidance range, you see it's a very broad range. And I think that signals the question that is there around the consumer demand. When will it pick up? How will it develop? And therefore the starting point for Q1 or the starting point for 2024 Q1 or first half will heavily depend on that. So let us get back to you on that one at the full year.

So there are no further questions and this time I hand back to Mr. Colfer for closing remarks.

Thank you and thanks everyone for joining today's session. If there are any further questions, do not hesitate to contact the known numbers. In that case, wishing you all a great day.