Zalando Se Ord

Thank you, and good morning, ladies and gentlemen, and welcome to our Q4 2023 earnings call. Today, I'm joined by our CFO, Sandra Dembeck. Sandra will briefly walk you through the presentation and is available for questions afterwards. Just as a reminder, later today, starting at 10.30 a.m. CET, we will provide a detailed strategy update. We cordially invite you to participate. Therefore, we will keep this call rather short, as well as the Q&A. As usual, this call is being recorded. The live webcast as well as the replay of the call will be available on our Investor Relations webpage later today. Sandra, I will now hand it over to you. Please go ahead.

Thanks, Patrick. Hello also from my side. And thank you for joining me on this morning's call. So for 2023, we set ourselves two key priorities. One was profitable growth and two, selectively investing in future growth. and we followed through on both priorities. And with that, we are well set up now for 2024. So let me summarize our 2023 achievements. For the full year, we delivered at the top end of our adjusted EBIT guidance and came in in line with our revised top line guidance. We are strengthening our wholesale gross margins and combined with the strong performance of our partner business, we delivered year over year gross margin improvement in Q4. And we generated a strong free cash flow, ending the year with a cash position of 2.5 billion euros. So overall, in 2023, we laid a solid foundation for 2024. And in 2024, we return to growth, with GMV and revenue growth expected to be in the range of 0 to 5%. And we continue to improve profitability while investing in future growth targeting an adjusted EBIT of 380 to 450 million euros. So let's turn to the numbers for 2023. So on page three, you can see that we delivered on our revised full year guidance. On growth, on top line, we delivered in line with our revised guidance amidst the weak consumer demand continuing over peak trading. Year-over-year GMB decreased by 1.1% in 2023 and revenue by 1.9%. On profitability, on adjusted EBIT, here we came in at the top end of the range at 350 million euros. And that's underscoring our strong financial discipline and our drive for sustainable efficiencies. On CapEx, we spent 263 million as we recalibrated the phasing of our logistics network build-out. And networking capital came in negative. We saw a cash inflow of $442 million. So let's move on to the group financials on page four. In Q4, the pressure on demand continued and limited our ability to grow. And as a result, Q4 GMB came in at $4.5 billion, down 2.6% year over year. Revenues declined by 3.5% to $3.1 billion. We delivered GMV growth in October, yet experienced the subdued demand over the peak trading events, cyber and Christmas. And given this market environment and given our healthy inventory position, we continued with our focus on improving profitability and progressing on gross margin rather than chasing growth. So as a result, in Q4, we saw a significant step up in profitability. We delivered adjusted EBIT of 183 million. an increase of 25% year-over-year, and an adjusted EBIT margin of 6%, so up 1.4 percentage points year-over-year. So a quick talk about the full year. For full year 2023, GMB came in at 14.6 billion, so slightly down on 2022, but this is still ahead of the pandemic peak levels. Adjusted EBIT almost doubled year-over-year, from 185 million to 350 million. So we delivered an adjusted EBIT margin of 3.5%, which brings us back into our profitability corridor of 3 to 6%. Let me now walk you through the customer metrics on page five. As always, this is on a last 12 month basis. So starting on the left, our active customer base stands at 49.6 million, showing a decline of 3.3% year over year. And in this substitute demand environment, we acquired less new customers as we focus on profitable growth. Moving over to the right, order frequency decreased by 3.1% from 5.1% to 4.9%. The average basket size increased by 5.5% to €59.80 as a result of higher average item value. And this is due to black price inflation as well as assortment mix. And GMV per active customer increased by 2.3% to €295.20. Let's move on to page six, our customer cohort. The macro impact from the lower discretionary spend, the rebalancing between online and offline, as well as our focus on profitable growth and de-averaging the customer experience are reflected in our customer cohort dynamics. So for pre-COVID cohorts, DMV contribution is ahead of pre-COVID levels, yet it is lower than in recent years. And this is most likely the result of macro impact. COVID cohorts show a more pronounced drop in customer retention and shopping frequency. And this is given that offline we gained momentum post the pandemic. And then let's come to the new cohorts of 2022 and 2023. Here's a result of our focus on profitable growth. We see slowing growth in new customer acquisition. So all in all, our active customer base of about 50 million provides a healthy customer set as a baseline for sustainable future growth. Let's now turn to our segment performance, starting with top line on page seven. In Q4, fashion store GMV declined by 3.2%. Revenues came in at 2.5 billion euros, down 4.1%. The partner business continued its strong performance and increased its share to 39% of fashion store GMB. So that's up three percentage points year over year. Top line performance in DACH proved resilient, partly helped by a catch-up effect and following the unseasonable warm weather in September. And revenues at minus 0.6% developed broadly flat. In rest of Europe, revenues declined by 6.8%, and here the picture is pretty similar across the more mature markets, while our new markets continue to grow. Off-price, here revenues declined by 1.2%, despite a good cyber week, as availability of attractive in-season stock in the sourcing markets remained low. Nevertheless, on a two-year over year basis, We see growth accelerating from Q3 into Q4 and continuing into Q1 2024. All other segments, including ZMS, high-smobility, trade-buy, perform flat. For ZMS, we saw continuous cautious spend from brand partners. ZMS revenues as percent of fashion store GMVs, they broadly flat at around 2%. So let's turn to segment profitability on page eight. In fashion store, adjusted EBIT increased by more than 70% to 167 million euros. And adjusted EBIT margin came in at 6.7%. Fashion store and also both regions, DACH and rest of Europe delivered a significant step up in the fourth quarter profitability, as you can see here in the middle of the slide. In DACH, adjusted EBIT came in at 190 million euros, from 92 million last year and in rest of europe the profit improvement is even more pronounced and that's despite the weak top line development so here the adjusted ebit came in at 49 million up from 2 million last year and in off price adjusted ebit declined against the softer top line which is driven by more aggressive discounting as a result of the assortment mix as well as a higher marketing spend Adjusted EBIT came in at 3 million and adjusted EBIT margin at 0.5%. And all other segments delivered adjusted EBIT of 17 million. So moving on to slide 9, let's first focus on the Q4 P&L on the right-hand side, the one where there is the bar around. In Q4, our gross margin improved by 1.2 percentage points to 39.4%. So our normalized wholesale inventory position allowed us to focus on gross margin improvement over peak trading. Fulfillment costs further improved by 0.9 percentage points to 22% as a result of better order economics and further scaling of our partner business. More than offsetting the increasing costs we see, especially in transportation. Marketing costs are up 0.4 percentage points to 8.3%. and admin and other expenses slightly better at 4.2%. So summarizing the Q4 P&L, improved gross margin and continued efficiencies in fulfillment, costs dropped a strong improvement in profitability. Let me also highlight our major developments for the full year 2023 on the left-hand side. The gross margin ended at 38.7%, down 0.5 percentage points. So throughout 2023, the market remained very promotional as players tried to mitigate the impact of substitute online demand, the elevated inventory levels across the market and adverse weather patterns. And as a result, our wholesale gross margin declined while our partner business remained margin accretive. On fulfillment, we continue to see a very positive development. Cost to revenue ratio declined by two percentage points to 24.2%. Drivers have been the same throughout the year. Improved order economics based on higher average item values and continued efficiencies. And the scaling of our partner program further supported fulfillment costs. Marketing costs decreased by 0.3 percentage points to 7.4% as we reduced performance marketing in light of the continued substitute demand and our focus on profitable growth. And admin and other expenses increased by 0.7 percentage points to 5.2%. And the increase is largely the result of two factors. First, we concluded our reshaping program, which resulted in restructuring costs of overall 32.4 million euros. And secondly, we consolidated our office footprint here in Berlin. Returning to slide 10 for networking capital. Networking capital was negative in Q4. We recorded a cash inflow of 442 million. And the main driver was the inventory. At the end of 2023, we had inventory of around 1.4 billion, so 20% lower inventory than last year as a result of our very prudent wholesale buy this year and the effective in-season overstock management. So let's go to slide 11. Operating cash flow doubled from last year, reaching 950 million. the biggest driver being the reduced wholesale buy in the lower inventory position. Investing cash flows of 321 million include 263 million of capex. We invested roughly 180 million in new distribution centers in France and Germany, as well as for existing logistics sites, and software investments amounted to 73 million euros. And with that, we delivered a strong free cash flow of 684 million as a result of our focus on profitable growth while selectively investing in future growth. And at the end of 2023, we had cash and cash equivalents of 2.5 billion, a year-over-year increase of half a billion. Our strong cash position provides us with the financial flexibility and allows us to invest in future organic and inorganic growth opportunities. So this concludes the Q4 and full year 2023 financials. Moving on to page 12. So to conclude 2023, let me update you one last time on our three key objectives as mentioned on this slide. So you will see from the ticks on the right-hand side that we achieved all three objectives and will continue on our multi-year journey of strengthening gross margin. Here we see further room for improvement, which I will come back to in our strategy update later today. So to conclude on 2023, with our focus on profitable growth, we delivered a significant improvement in profitability and increase in cash. And in combination with our selective investments in future growth, we laid a solid foundation for growth and margin expansion going forward. And with that, let's have a look at our guidance for 2024 on page 13. So 2024 is the first year of our updated strategy. But in this context also, we have to say 2024 is for us the year to return to growth. So for GMV and revenue, we guide to 0 to 5% growth. And two things to note here. The wider range reflects the continued uncertainty we still see in the market. The fact that GMV and revenue are growing at the same pace is the result of our growing B2B business, with ZFS and multi-channel fulfillment under the sales brand adding additional revenue, which is not accounted for in GMV. Hence, GMV and revenue guidance are very similar this year. And it's worth noting year over year, B2B will be outgrowing the group significantly. Adjusted EBIT will further increase and is expected to be in the range of 380 to 450 million euros. This is reflecting our continued focus on profitability. And so our guidance range implies further adjusted EBIT margin progression to 3.7% to 4.2%. CAPEX is expected in the range of 250 million to 350 million euros. as we continue to invest in our logistics infrastructure as well as in technology in line with our strategy update. So in 2024, we will return to growth while we continue to improve profitability and we continue to invest in future growth. And with that, let me conclude the presentation and open the room for some Q&A.

And before we jump into the Q&A, let's be please reminded that in this Q&A session, we only cover as well as 2023 and 2024 topics. We will not answer any strategic update questions, which we have enough space and time afterwards. Thanks for consideration and over to the operator.