Zalando Se Ord

Thank you and good morning from my side as well and welcome to our Q1 2024 earnings call. Today I'm joined by our CVO Sandra Badembeck. Sandra will briefly walk you through the financial developments of the quarter and is available for questions afterwards. 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 website later today. Sandra, With that said, I will now hand it over to you. Please go ahead.

Thanks, Patrick. Good morning, everyone, and hello also from my side. Thanks for joining this morning's call. We're very excited about our updated strategy that we presented to you in March. And so before we jump into the Q1 results, let me do a brief recap. So with our updated strategy, we are moving from platform to ecosystem, and this is allowing us to cover a larger share of the fashion markets. In our consumer business, we are evolving into the go-to destination for quality fashion and lifestyle shopping and inspiration. And in B2B with sales, we are building the operating system to enable fashion and lifestyle e-commerce across Europe on and off Zalando. And with our updated strategy, we also presented to you our new midterm guidance until 2028. It reflects our ambition to return to strong growth and to continue our margin expansion. So 2024 is the first year of our updated strategy. And in 2024, we return to growth while we continue to improve profitability and continue to invest in future growth. So with a solid Q1 performance, we made a first step towards delivering these updated goals. And with that, let's now turn to the highlights of the first quarter on page two. In Q1, we delivered GMV growth of 1.3%, following on from three quarters of muted growth. And with that, we returned to growth in the first year of our ecosystem strategy. On profitability, we continued our path of margin expansion. We increased gross margin and reduced OPEX. In B2C, we continued to elevate and expand our multi-brand platform. The partner business continued to outperform our own retail business thereby putting us on track to reach our partner business target share of 40 to 50% of B2C GMV by 2028. And with our multi-proposition approach, we follow and cater to the very diverse needs of our customers across different aspects of their lifestyle. So this quarter, our beauty, sports, kids and family, as well as our Lounge by Zalando propositions delivered the strongest GMV growth. In B2B, We bring more and more volume into our logistics network through sales fulfillment. And as a result, we see continued strong growth of 13% in our B2B segment, thereby outperforming the group revenue growth rate. On multi-channel fulfillment, we increased the number of merchants by five, bringing the total number now to 27. And our sales pipeline continues to grow. We also added two more markets, Poland and Spain. So looking forward, we are on track to meet our full-year target, and we confirm our 2024 guidance. So let's now turn to our Q1 performance in a bit more detail. Starting with the group figures on page three, in Q1, we returned to GMV growth. GMV grew by 1.3% to close to 3.3 billion euros. Revenue came in broadly stable at 2.2 billion euros, The revenue growth rate of minus 0.6% is below the GMB growth rate as a result of the growing partner business share. Our focus on margin expansion is reflected in the increase of adjusted EBIT. Adjusted EBIT came in at 28 million euros, representing a year-over-year improvement of 29 million or plus 1.3 percentage points in margin. This was largely the result of a reduction in fulfillment costs supported by an increase in gross margin. And with this set of results, we continue on our journey to deliver growth and increase profitability in 2024. So let's turn to page four, our B2C segment performance. And as a reminder, the business to consumer segment includes our previous segments, Session Store, Off Price, and also ZMS, which we previously reported in All Others. So starting with top line growth, We saw GMV grow by 1.3% while revenues were down 1.9%. The slow end of the fall winter season sale in January was followed by a timely start into the spring-summer season, which resulted in growth for the quarter. The partner business continues to outgrow our retail business and is increasing its share. And as mentioned before, we saw strongest GMV growth in line with our strategy to further expand into lifestyle in beauty, sports, kids and family, and lounge by Zalando. There was a notable improvement in profitability with an increase of 1.4 percentage points, resulting in a profit margin of 1.1%. We saw a reduction in fulfillment costs, as well as an improvement in gross margin. And here it's important to note that the B2C gross margin benefited from an improvement in the retail gross margin, as well as the higher partner business share. Let's turn to the corresponding B2C customer metrics on page five. Starting on the left, at the end of 2023, we had 49.6 million customers compared to now 49.5 million in Q1. So our active customer base developed broadly flat. On a last 12 month basis, this is roughly 3% less customers compared to the first quarter last year. Moving over to the right, Here, all customer KPIs show similar trends as in the previous quarter. And this highlights our focus on differentiating now through quality. So while order frequency decreased by 3% from 5.1 to 4.9, the average basket size increased by 5.4% to 60 euros 40 cents as a result of higher average item value. And this is mainly the result of a change in assortment mix. GMV per active customer increased by 2.2% to 297 euros. Let's now turn to page six and talk about our B2B segment performance. And before we dive into the numbers, a brief recap of our B2B segment, which includes sales fulfillment, so ZFS and multi-channel fulfillment, our software business trade bite, and health mobility. So with sales, our goal is to solve the complexities of Europe in fashion and lifestyle for our brand and retail partners. With ZFS, we have already solved these complexities for partners that sell on Zalando. And with multi-channel fulfillment, we will now do so for partners of Zalando. Tradebyte is a leading channel integrator in the industry, which we acquired in 2016. This software-as-a-service business helps partners to map their products to sales channels like Zalando. And Hyzenobiety. Hyzenobiety is an influential fashion and lifestyle media brand, bolstering our inspirational storytelling and assortment curation capabilities. We acquired a majority stake in Hyzenobiety in 2022. So now to the numbers. In Q1, B2B continues to show strong growth of 13.4%. And this growth was predominantly driven by ZFS. And with a profit margin of 2.5%, our B2B segment delivers profitability while we ramp up investment into our B2B strategy. So now let's move on to page seven. Here you can see our group P&L. Our group gross margin improved year over year by 0.3 percentage points. This was driven by an increase in our B2C gross margin, with better sell-through rates and improved inventory management in our retail business, as well as a higher partner business share. The positive development was partly offset by the scaling of our B2B business, which comes with a lower gross margin. Moving on to fulfillment costs, they decreased by 1.8 percentage points, And with the growing sales fulfillment business in the B2B segment, a larger share of actual fulfillment costs are now reported in cost of sales. So in Q1, this shift in cost drove roughly half of the reduction in fulfillment costs. The other half came from improved order economics. Marketing costs, they increased by 0.9 percentage points. Here we stepped up our investments in performance and brand marketing, to leverage the timely start of the spring-summer season for both demand generation as well as brand building. Admin and other expenses developed flat in the quarter. So summarizing the group here now, we stepped up our profitability year over year as a result of an improved gross margin and a reduction in OPEX. Turning to slide eight for networking capital, networking capital was negative in Q1, Looking at the year-over-year development, we see a cash inflow of more than €300 million, primarily from a lower inventory level. At the end of Q1, we had inventory of €1.6 billion, so a year-over-year reduction of 23% as a result of the improved inventory management. And compared to the end of Q4, inventory has increased by 10%. And while this development reflects our continued prudent approach on buying for our retail business, we made sure that we have the relevant assortment as we see demand improving. So let's move on to slide nine. Our cash and cash equivalents remain strong at about 2.3 billion euros, and this is more than 500 million better than last year, coming from higher operating cash flow, largely as a result of improved networking capital. Compared to Q4 2023, we recorded a decrease of around 230 million in cash and cash equivalent, And this is primarily due to the seasonal networking capital increase of over 100 million euros as we inbounded inventory for the spring-summer season. Cash capex amounted to around 60 million euros as we continue to invest in key capabilities like logistics and technology. So this now concludes the financial update for Q1. Let's move on to the outlook on page 10. So here we confirm the guidance for the financial year 2024, which we provided to you in March. In March, we said in 2024, we return to growth while we continue to improve profitability and continue to invest in future growth. So before we now jump into Q&A, let me just wrap up with the key takeaways of today. Our ecosystem strategy is off to a good start. In Q1, we delivered a return to growth and continued margin expansion, we accelerated our B2C growth by elevating and expanding our multi-brand platform, and we delivered double-digit growth in B2B driven by increased adoption of sales fulfillment. And with that, we confirm our full year guidance for 2024. So let's now open up for Q&A.

Ladies and gentlemen, at this time, we will begin the question and answer session. If you would like to ask a question, please press star. and 1. If you wish to remove yourself from the question queue, you may press star and 2. Anyone who has a question may press star and 1 at this time. And our first question today comes from Monique Collard from Citi. Please go ahead with your question.