Zalando Se Ord

Good morning and welcome to our Q3 2024 earnings call. Today I'm joined by our CFO, Dr. Sandra Dembeck. Sandra will briefly walk you through the financial developments of the quarter and discuss our outlook. She 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 webpage later today. Sandra, I will now hand it over to you. Please go ahead.

Thank you Patrick. Hello and good morning also from my side and thank you for joining today's call. So today I'll do a bit of a recap of our pre-release in October before we dive into the full set of results. Let's get started. On October 10th we shared our preliminary headline numbers for Q3 as well as an updated guidance as our performance in the quarter had exceeded our initial expectation. Consumer demand had increased across the industry and we saw a strong start to the autumn-winter season compared to last year's slow beginning. The third quarter has shown that our updated ecosystem strategy positions us very well to see such demand upticks. And this is also reflected in the number of active customers, which continued its positive trend from Q2. We increased active customers by half a million quarter on quarter, so now again above $50 million. And with the strong Q3 results, we report a solid nine-month performance. In the first nine months, the Zalando Group delivered GMV growth of 4.4%. Our adjusted EBIT came in at $293 million, and the adjusted EBIT margin improved by 1.7 percentage points to 4%. In our announcement on October 10, we also upgraded our full year outlook to reflect the stronger performance in the third quarter, while keeping our expectations for the fourth quarter largely unchanged. Today, we are confirming that we are on track to deliver the upgraded full year targets. So let's now turn to number four and five of the executive summary to share some facts on the execution of our updated ecosystem strategy, which we presented to you in March. We remain really excited about our updated strategy and the material progress we continue to make with the execution of it across both segments. In our B2C business, we have now started to increase our investments into key growth initiatives to support top-line acceleration in 2025 and beyond. And this includes the introduction of a loyalty program. I talk about some of the growth initiatives later in the presentation. In our B2B business, here we are continuing our trajectory of double-digit revenue growth. And in Q3, we enabled ASOS as a sage channel for CEOs that were expanding the value proposition for partners. With CEOs, we are now serving nine marketplaces, as well as brands' own e-commerce channel. So let's now dive deeper into our Q3 performance, turning to page three. In Q3, we strongly accelerated our top-line growth quarter on quarter. Our GMV came in at 3.5 billion euros and is up 7.8% year-over-year. Revenue is up 5%, translating into 2.4 billion euros. The significant quarter-on-quarter acceleration in growth was entirely driven by the B2C segment and the aforementioned strong start into the autumn-winter season. On profitability, we continued to deliver margin expansion in the third quarter. Adjusted EBIT reached 93 million, which represents a significant increase of 70 million year-over-year. Our adjusted EBIT margin improved year-over-year by 2.9 percentage points to 3.9% on the back of higher gross margins and a lower fulfillment cost ratio. So looking at the first nine months, our financial performance translates into 4.4% GMV growth and 2.6% revenue growth. We delivered a significant year-over-year improvement in our adjusted EBIT of 125 million to 293 million euros. So with these results, we keep delivering on our ambition for 2024 of top-line growth, coupled with continued margin expansion. Let's turn to page 4, our B2C segment performance. Starting with top-line growth, In Q3, GMB and revenue growth accelerated to 7.8% and 4.3% respectively. The acceleration was mostly driven by a strong autumn winter season start in Q3 on soft comparators. Our sports, beauty, and kids propositions delivered strong growth, supported by our strategy to elevate these assortment areas into powerful lifestyle propositions. Likewise, we saw strong growth across all our business models. Our partner business continued to outperform our own retail business, showing double-digit growth. And our ZMS business continues to grow, following its return to growth in the second quarter. Moving to the bottom line, we're also pleased with our progress on margin expansion in the B2C segment. In Q3, we delivered a significantly better gross margin, and this was mostly driven by better-than-expected sell-through in our retail business, supported by the strong season start. Our partner business, as well as ZMS, also contributed to the strong gross margin development. And as in previous quarters, we continue to see lower fulfillment costs, albeit to a lesser extent, which were partly offset by higher marketing investments. Our adjusted EBIT reached 87 million euros. The adjusted EBIT margin increased year-over-year by 3.5 percentage points to 4%. So looking at the first nine months in our B2C business, we delivered GMB growth of 4.4% and revenue growth of 1.8%. Adjusted EBIT came in at 275 million, a doubling of our adjusted EBIT margin year-over-year to 4.2%. Let's move to page five, the B2C customer metrics. Starting on the left, our active customers grew by 0.5% to 50.3 million. With that, we returned to year-over-year growth. In terms of quarter-on-quarter growth, we served half a million additional customers compared to the end of last quarter. Moving over to the right, average basket size increased by 3.8% to €61.10 as a result of a higher average item value, more than offsetting the decrease in order frequency. And as a result, GMV per active customer increased by 1.8% to €300. Let's now turn to page 6, our B2B segment performance. So in Q3, the B2B business continued on its trajectory of double-digit revenue growth. With revenue growth of 11.1%, it is significantly ahead of group revenue growth. And as in previous quarters, the growth of B2B was predominantly driven by sales fulfillment and our more mature ZFS business. Adjusted EBIT in Q3 amounted to 7 million euros with a margin of 2.8%. The year-on-year lower profitability is driven by front-loaded investments into future growth across sales and trade bite. And these investments are primarily overhead, but in the case of sales also include higher fixed costs. Looking at the first nine months, We've delivered revenue growth of 11.5%. Adjusted EBIT came in at 19 million with an adjusted EBIT margin of 2.8%. So let's now move on to the group P&L on page 7. And here we look at the Q3 performance on the right-hand side. Our group gross margin improved strongly year-over-year by 4 percentage points to 40.7%. All three business models in our B2C segment, so retail partner business and ZMS, contributed to this significant increase, with the better inventory management in our retail business contributing the most. Supported also by the strong start to the autumn winter season, we saw improved sell-through rates and an increase in our share of full price sales. And as always, the positive and strong gross margin development in B2C was partly offset by the scaling of our B2B business, which comes with a structurally lower gross margin. Moving on to fulfillment costs, they improved by 1.2 percentage points. We continue to benefit from favorable order economics, which is reflected in the higher average basket size, as well as from the scaling of our sales fulfillment business. Coming to marketing, similar to Q2, our marketing costs increased by 2.1 percentage points. Here we deliberately raised our investments in performance marketing to capitalize on the better top-line momentum in the third quarter. And at the same time, we continued to scale our brand marketing campaigns to play a greater role in our customers' lives. So we engage consumers all across Europe in various brand building campaigns, including our latest brand positioning campaign called What Do I Wear? Administrative and other expenses declined by 0.6 percentage points. And so to conclude on the bottom line for Q3, the strong improvement in gross margin combined with the lower OPEX delivered an adjusted EBIT margin of 3.9%, a year over year improvement of 2.9 percentage points. So let's now move on to page eight, and here I would like to make some general remarks around some of the growth initiatives which we have launched to support top line growth in 2025 and beyond. So during our strategy update in March, we mentioned that we see ample growth opportunities in the market as reflected in our new midterm top line guidance. And then in our earnings call in August, we mentioned that we are starting to increase our investments in strategic growth initiatives to support top line acceleration in 2025 and beyond. So let me give you a brief overview of some of these initiatives. First up, In our B2C business, we aim for driving customer loyalty. So here we are evolving our Plus program from a paid membership program into a free points-based system where loyalty members can unlock various benefits. And while the current Plus program mostly focuses on convenience benefits, the updated version will revoke customers with a much broader set of benefits based on their engagement with us. This new experience was successfully tested in Spain in July, and in Q4 we expanded it to France and Austria. And it is planned to be further rolled out to the majority of our markets by the end of 2025. The incremental increase in top line will more than offset any running costs, apart from the launch of the program triggering a revenue deferral during the rollout phase. Second, in B2C, we are expanding our customer experience beyond the transaction, and we aim to make fashion discovery more inspiring and entertaining. Efforts to get more eyeballs and time of our customers and users on our platform will deliver growth. We offer example investing in self-produced content, such as live shows and teaser content, as well as external content creators. And we're also progressing fast with the ramp up of our new tech hub in China, which allows us to tap into local expertise in social e-commerce. And we have already hired key leadership roles and further recruitment is well underway. And then lastly, on our European logistics network, which supports the future growth in B2C and B2B, here we remain committed to improving our logistics network by focusing on localized and personalized convenience for our customers. So we went live with our new fulfillment center outside of Paris at the beginning of October and adding additional capacity. France is one of our fastest growing markets and the go-live of the fulfillment hub will drive faster lead times across France and neighboring countries. With the added capacity of Paris and in 2026 with the added capacity of Frankfurt, we have sufficient capacity to support growth in the midterm. We are excited about these growth initiatives, and they will support us to achieve our mid-term targets, which are growth of 5% to 10% CAGR through 2028, as well as adjusted EBIT margin of 6% to 8% by 2028. So you can see we are executing our ecosystem strategy at full force. So now turning to slide 9 for networking capital. In Q3, our networking capital continued to be negative benefiting from our improved inventory management. Our inventory levels are 2.3% lower than last year as a result of the improved inventory management and going forward, we will gradually increase our inventory position to support our growing retail business. For the full year, we continue to expect negative net working capital. Trade receivables increase driven by the strong B2C business performance and the favorable seasons start towards the end of the quarter. And this development was more than offset by higher trade payables due to the overperformance of the partner business and higher inbounds in September. So moving to page 10, the development of cash and cash equivalents. Our cash and cash equivalents remain strong at about 2.4 billion euros, almost 500 million higher than last year. The main driver was a higher operating cash flow as a result of higher net income and improved net working capital. Compared to the second quarter of 2024, we recorded a decrease of around 180 million euros in cash and cash equivalents. And this is primarily due to the seasonal net working capital increase of over 240 million euros as we inbounded inventory for peak trading around cyber and Christmas. Cash capex amounted to around 40 million euros as we continue to invest in key capabilities like logistics and technology, albeit at a lower speed. So this concludes the financial update for Q3. Let's move on to the outlook on page 11. We confirm our upgraded full-year guidance as published on October 10. For the first nine months, we have improved GMB and revenue growth to 4.4% and 2.6% respectively. And as a result, we expect GMB to grow for the full year between 3% to 5% and revenue to grow between 2% and 5%. This improvement is driven by a strong start to the autumn winter season in the third quarter. And the strong start brought forward some of the demand to the third quarter, especially when we compare it to last year where we experienced a delayed start to the season. Nevertheless, current trading is fully on track and makes us confident that we will land within our updated top line ranges for the full year. In terms of profitability, in the first nine months, we achieved an adjusted EBIT of 293 million euros, 126 million euros above last year. largely driven by an extraordinarily strong Q3 result of 93 million euros. And this development led us to upgrade our adjusted EBIT outlook to 440 to 480 million compared to 380 to 450 million euros previously. As already mentioned earlier, the positive business momentum reinforces our commitment to increase our investments into key growth initiatives leading to more modest EBIT development in the fourth quarter. With regards to cash, we managed to further adjust the speed of our investments in our logistics network to optimize network utilization. And consequently, our capex investments for 2024 were lowered from an initial range of 250 to 350 million to now around 200 million euros. Our networking capital guidance remains unchanged. So this concludes the outlook for 2024. Let's move to the summary. So let's wrap up with the key takeaways of today. First of all, we are making material progress on the execution of our ecosystem strategy across both segments B2C and B2B. In the first nine months of 2024, we accelerated topline performance and delivered strong margin expansion. We are fully on track to deliver the upgraded full-year targets. For 2025, we expect an acceleration of growth over 2024 in line with our midterm guidance as we increase our investments into key growth initiatives. So let's now open up for Q&A. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and 1 at this time. The first question came from the line of Luke Holbrook from Morgan Starley. Please go ahead.

Yeah, good morning, everyone. Thank you for letting me ask questions. My question is on the inventories, which increased about 450 million euros quarter on quarter compared to the half year period. That upswing is about twice what we saw last year. I just wondered why that was the case. I know it's down a couple of percent year on year, but on a quarter on quarter basis, it would be interesting to hear your opinion. And when you're discussing maybe less or more selling of high or full priced items, is this a conscious decision here to basically do less clearance, do less sell through, resulting in that higher inventory levels into Black Friday, into the Christmas holiday season? Just be really interested to hear your thoughts there. And then the second question is just on the plus program. You discussed some of the early success that you'd seen in Spain. It'd just be really interesting to hear some of the frequency uptakes that you saw from customers adopting that program and some of the learnings that you're then building into Austria and France. Thank you.

Thank you. So on inventory, yeah. So year over year, the inventory is down, but yes, the you can see that we are inbounding more inventory now as we are returning or have returned to growth in our retail business. And that's one of the reasons why you would have seen this significant increase versus last year. A second reason was timing. The issue with the Suez Canal and constraints on the containers had shifted some of the inbounds from Q2 into Q3, which would have also increase there for the inventory year-over-year. On the higher black price share, that's intentionally our strategy. We had seen higher discount rates over the recent years. As per our mid-term guidance, we want to increase our B2C gross margin to 45%. one of the main drivers is improving our retail growth margins and within there we have on the one hand inventory management but on the other it's also around trading like increasing the black price sell-through share and what now the timely automated start has shown us that we actually can deliver against that. So then coming to the plus program Yeah, so we launched PLUS in July in Spain and just recently in France and Austria. And for us now, it's too early to talk about actually the increase in frequency and anything. It's all about people opting in. And there we see very good traction.

Understood. Thank you.

The next question comes from Adam from Deutsche Bank. Please, go ahead.

Good morning, guys. A couple of questions, if I can. Firstly, in terms of the sales performance that you saw during the third quarter, differences by material differences by region within your sales performance. And I know there's a bit of... during the quarter with September seeing a decent uptick. Have you noticed any indications of a pull forward from your sales in October pulled forward into September or how are you thinking about what that might mean for the Black Friday and the key trading period ahead in terms of that strength in the end of the third quarter? And then secondly, 2.4 billion is a decent amount of cash to sit on the balance sheet, given a relative size of your market cap. Can you just remind us what your policies on capital distributions might be, how much cash you think you need in the business, and what an excess cash might look like and what you would do with it? Thank you.

Thanks, Adam. Good morning. So on the phase regional performance, we saw growth across all regions in the third quarter. And also then the significant uptake in September happened across all of them. So not really much of a difference to point out there. Definitely it will be a bit of a pull forward when you have an early season start and that's also something that we really appreciate to have because the early in the season we sell the merchandise at the better margin we are selling it. So therefore, definitely there would have been a bit of a pull forward from October into September. Nevertheless, what is important to say, putting the two months together, September and October, we do see significant growth across the total business. So the growth of September is continuing, not at the same level, but into the fourth quarter. And I guess that's also what you see in our guidance. Black Friday, we don't believe that the good season start will be impacting Black Friday because the start of the season is usually need-based transactions. You need a new coat, you need the warmer coat, et cetera. I think Black Friday then is very much transactional and what deal can you make and also then into Christmas where you sell a lot of accessories. So for us really, and that is what has led to the upgrade of the GMB and the revenue guidance, the strong September has basically supported that. On our capital allocation, so 2.4 billion, We have still 900 million of the convert outstanding, so net cash is 1.5 billion. Our policy says that roughly 10% of our revenue we should hold as a safety buffer, any short-term cash requirements. So that leaves you still with a good amount of cash that we can consider to primarily invest in the business to accelerate growth along our ecosystem strategy and that one either organically or inorganically. And then, of course, regularly we also consider shareholder returns. But for the time being, we have the no dividend policy in place. The next question is from Monique Pollard from Citi. Please go ahead.

Hi, morning Sandra. Thank you for taking my questions. Just a few for me if I can. The first one was just whether there was anything that you could help us with in terms of the comp effect for the different months as we go through the fourth quarter. Last year at the third quarter update, you talked about October trading having started positively, and obviously the 4Q GMB was down 2.5%. So I'm thinking that the comp November, December gets materially easier as we go through the fourth quarter. The second question was just on ZEOS. Obviously, you've added ASOS. So brands can now use Zalando for multi-platform fulfillment across nine major e-commerce platforms, including Amazon, et cetera. I'm just wondering how you're finding the take-up of that offer, that kind of multi-platform fulfillment, because presumably that could be quite nice and a sort of easy, simple solution for brands. Yeah. And then just the final question, obviously you mentioned you've accelerated investments in performance marketing to drive the top line, but you're going to be investing more in brand marketing as well to sort of keep customers sort of sticky to the site. So just wondered if you have increased out further your payback period for new customers or whether it still stands at one and a half years. Thank you.

Thank you. So maybe taking the last question first. So on our upgraded marketing activities, performance marketing still stands at 450 days, so one and a half years. On the performance of Q4 and what do we expect, I think the easiest is to look at the guidance that we have issued. It implies growth in Q4. and I think you can also extrapolate or like identify the implied growth that we can get there, which is the midpoint is around the 3% and at the upper end around 6%, and that should help you to calculate, I would say, what to expect and what we expect for cyber and the Christmas peak trading period. And then on sales, yes, ASOS is new, so nine terms now present in 12 markets. For us, As we explained it at the strategy update, with our B2C business, in the past, we always talked about 10% market share. But there was 90% that we couldn't tap into, basically. And CEOs now really allows us to tap into those 90%. So it also helps us to accelerate growth and add additional market share opportunity. For brands, of course, it is a very valuable tool because with one solution, you get access to several markets, and you get access to several channels. And that naturally should result in an acceleration, or that should result in additional growth for the brand. So I hope that gives a bit of an idea, but yeah, happy to. comment further if there are more questions around sales. The next question came from the line of Sarah Roberts from Berkeley. Please go ahead.

Hi, good morning. Thank you for taking my question. So just a quick follow-up on the loyalty program. It would be interesting to hear your decision-making behind removing the paid prescription and implementing loyalty program and are you able to help us think about the size of the impact to next year's ebit that we should expect both from the deferred revenue impact and the one-off costs associated with the payback of the subscription fees um and then secondly at the q2 results you sounded fairly confident about the frankfurt distribution center going live in early 25. this has now been pushed out to 26. i just wanted to understand what has changed since Q2 that made you revise down your capacity expansion plans a little bit. And then just finally on competition, can you provide an update on what you're seeing in terms of competition in key markets? One of your peers mentioned recently they had started to see Google advertising costs come down slightly and that they saw competition was easing, particularly in Western Europe. So just curious to hear your thoughts there. Thank you.

Thank you. So on loyalty, it's basically the logical consequence of the ecosystem strategy, of the updated strategy. In the strategy we said that on the one hand we want to move into more lifestyle propositions and at the same time we also want to not just focus on transactions but also inspire and entertain our customers And so the PLUS program purely offered a convenience benefit. So you were paying the membership fee and in return you were getting a convenience benefit like foster shipment or free shipment. The strategy now has evolved beyond just convenience and therefore the loyalty program we have amended accordingly. So this loyalty program now basically rewards customers for transactions, but it also rewards customers for engagement, like for example if you sign up to the newsletter or you engage in specific questionnaires, so you can gain points on several levels. And so that was for us, I would say, a necessary and consequent next step to do. On the financial impact that that will have, so there are One, of course, in the form of us having to pay back the membership fee to PLUS members. A lot of that is already part of the Q4 guidance. And then next year's impact is primarily around the revenue referral that happens as we roll out that program. And that will be somewhere in the mid-double digit millions. Coming to the warehouses, so the delay in the Frankfurt warehouse, so actually this is something that we are really happy about. I think earlier in the year when we discussed the two warehouses going live, Frankfurt and Paris, we also discussed about the overcapacity that we will then face into and therefore the additional cost we will have to carry in starting now in the second half of this year and into 2025 with the delay in the go-live of Frankfurt, we have managed to defer some of these costs out of 2025 into 2026. So it's basically signaling here that also to everyone how we are actively managing on the one hand our capex investment as well as our cost base. So there hasn't been any consideration around Do we not need it or anything? So when we launch the strategy with the guidance that we have given around the top line growth, we will need both warehouses to fulfill that growth. And then on competition, we haven't really seen much of a change. The cost per clicks and everything is, you're right, it's a little bit less competitive. There's less of the team work. but there is no significant change. The next question comes from the line of Georgina Dornan from GP Morgan. Please go ahead.

Hi. I've got two questions, please. The first one was just going back to some of the moving parts on 2025. Obviously, very clear that you've got lots of growth investment opportunities. I guess just trying to understand if you'd actually expect to see margin expansion year on year in for year 25, please. That was my first one. And then my second one, I sort of appreciate all of the comments on current trading and comps getting easier and so on and so forth into November, December. But just so we're sort of absolutely clear, was current trade, is Was October positive or negative, please, in terms of growth year on year? Thank you.

Maybe on current trading, you know, we usually don't comment on months in isolation. I think we always talk about the season and the quarter. But to reassure you, we're talking growth. So we had a really strong start into the autumn winter season. So that elevated our Q3 and we continue to see positive development of the autumn winter season as we enter the fourth quarter. On 2025, as always, we will use the full year results to discuss in more detail the 2025 guidance. For now what we would like to just emphasize is the acceleration on the top line that we will see into 2025 and then we have a midterm margin ambition that is six to eight percent and we are well on track to get there, also including those growth initiatives. The next question came from Miastra from BNP Paribas saying please go ahead.

Well, Sandra, thanks for taking my question. I just really wanted to talk back about the marketing spend. So obviously we've seen an increase now on both quarters. What is the outlook for marketing spend going forward for this year and then maybe into 2025 as well? And then just on ZEOS with the onboarding, I think previously spoke about, you know, the actual onboarding from signing the partners to go live took about 18 months. Has there been any improvement in this timeline? And then just maybe lastly, if you can talk about some of the customer engagement or retention from your AI initiatives, such as your fashion assistant and your trendspotters and those sorts of things. Thank you.

Yeah, so starting off with the customer engagement, it's really all the investments that we are making into those content formats now, the trendspotter, the Zalando Fashion Assistant, which by the way now is available in all markets and also in local languages, has created, for example, Zalando Fashion Assistant 1 million users. What we currently observe is people really engage with it, so the weekly engagement with the platform has increased. We also see that on the transport, people like to share, to save, and then also even to transact. So there are early indications that this is really improving the time spent on the platform as well as delivering growth. Again, these are all the experiments that we're currently doing, so we can't really extrapolate that onto like a group level to tell you exactly how much growth we envisage to come from that. But positive signals on all fronts on the investments we are taking now. On the tiers onboarding, well, There is, it is still lead times within the timeframe, as you mentioned, of like the 18 months or so. Most importantly, it's not just about onboarding a brand for the first time. It's then also about internationalizing them or moving then onto another channel. Yeah. So therefore there's a lot of activity that is happening beyond just the initial onboarding. Yeah. And that's what's adding to the sales growth. And then on marketing spend, outlook for Q4 and 2025, we have significantly stepped up marketing this year. We are around the 9% compared to the 7.4% last year. For next year, we do expect that more in line with the midterm guidance that we provided where we said like there'll be an initial investment in marketing that then later on will start to normalize. So we do not foresee a further uptake in marketing next year. The next question came from the line of Yashai Rayan from UBS. Please go ahead.

Hi, good morning. Thank you for taking my questions. A couple of questions from my side, please. The first one is on ZMS. I just wanted to understand how is this baked into your guidance for Q4? Are you expecting Q4 to grow ahead of Q2 and Q3? The second question, again, relating to that is, On the B2C side of things, can you quantify what the margin improvement in Q3 has been if we exclude the ZMS contribution, please? And then the third question is on retail gross margins. Can you give us some color on where we stand versus 2019 levels, please? Because we're just trying to understand how much more room for improvement we have on the retail gross margin side. Thank you so much.

Thank you. So on the retail gross margins, first up, let's not compare it to previous years because it is a very different portfolio now. We have, for example, significantly grown beauty, which comes at a significantly lower gross margin. So I think what is important to use is really what we showed in March. Our ambition for the B2C gross margin is to get to 45% within there. we see the partner business share grow significantly and ZMS grow significantly. And the retail gross margin, especially in the early years, improved based on the better inventory management, the better, like as we go into growth, better sourcing conditions, and then also us reducing the level of discounting. So that slide that is in that strategy app, that is really important because we will need to continue to get back to that, refer back to that one. So therefore on retail gross margin, let's not go back to any of the previous data. Let's use this slide. On the B2C and the group gross margin progression in the third quarter, this was by far the largest component driven by the retail gross margin. pretty much 75% of the gross margin expansion came from retail. So therefore also then when you look into the size of ZMS, it's not material in the third quarter compared to the overall gross margin expansion. ZMS will continue to grow. So we are back in growth. Q4 is an important quarter with cyber in Christmas. So I would say it's good to see The next question comes from the line of from RBC.

Please go ahead. I just have two additional questions, if I may. The first is on promotions. I wondered if you could give some color on how you see the environment currently and how it compares to last year. And then my second question is on France. I wondered if you could give some color on how you're thinking about the proposition and expectations for marketing spend or investment as we move forward and as the warehouse is fully up and running. Thank you.

So on France, France was a country that we We invested in a lot last year, especially around assortment, bringing on board local French brands. And this year now with the warehouse, it really helps us to localize the convenience aspect. And with that also forces like speed up the delivery time to the French customer. and more in line with what they would expect. So it's a two-pronged approach of last year really having worked on the assortment and now going live at the Paris warehouse. On promotions, given the industry-wide strong season start, it's a less intense promotional environment this year compared to last year, September and October. I think everyone was happy to see the season starting early and with that being able to drive more full-price sales. The last question will be from Benjamin Conquer from Stiefel. Please go ahead.

Good morning, everybody. Thanks for taking my question. The first would just be a follow-up on ZMS, if I may. And Sandra, I mean, these product lines seem to go very well across the industry and everybody's focusing on it quite a bit. And I was just wondering if you could specify the growth rates a little more than you've done. I mean, is it still single-digit growth? Can it come back to double-digit growth kind of and maybe Alongside that, could you talk a little bit more about the initiatives that you've taken there and the sort of product innovation, the new products that you've launched that may lead to a further acceleration and that growth? The second one would just be, just wanted to touch on categories a little bit more. I mean, sports has obviously been a very strong contributor to your growth in Q2 and probably also into Q3 and etc. probably fair to assume that this will sort of normalize going into Q4, into next year and so on. So maybe if you could quantify or try to quantify the impact here on that category sort of spike. And the last one was just, I noticed in your P&L, you mentioned some arguably small, but sort of some M&A related one-off costs. And I was just wondering if you could Let us know what this is about and maybe to that question and back to the capital allocation. Would you, I mean, what's your current view on M&A? Is it still sort of bolt on technology stuff? Have you changed that view on M&A in any sort of way? Thank you.

Thank you. Yeah, so retail media is a big topic across the industry. Our ambition is to get to 3-4% of B2C GMV with ZMS. So that's the mid-term guidance that we have provided. In order to get there, ZMS has to grow double digit. So ZMS is growing double digit at the moment and ZMS will have to continue to grow double digit in order to get to the 3-4% by 2028. The measures we have taken, one is we have several propositions and also going back again to the strategy day where we showed ZMS has been a bit concentrated in countries and in propositions. So the levers that we have is to really now bring ZMS to other propositions like beauty, for example, is a very strong propositions on ZMS. to bring it to other countries, so really elevating it to the levels that we see in Doch or in Germany. These are the measures that we're taking on the one hand. On the other hand, it's also about not just offering or using it for PMs, but also for upper funnel marketing. That's a little bit on ZMS. On sports, sports has seen double-digit growth. It's a very strong proposition for us this year. We focused a lot, of course, on the Eurosports, but also on elevating the customer experience within the running segment. So there we created a very strong assortment with ON, with HOKA, etc. we see that customers really engage in that one also in the live streams that we do but also in the type of products they're buying so we can generate very high price points on that one and we have invested in the product quality or product data quality so when you look for running shoe you get a lot more detail around that shoe now whether it'll fit you for which purposes for what type of foot etc so that that was that whole package basically around running was a real good driver and example for how you can drive growth within the sports category. The good thing about sports is it has many other categories. So for example, football, that's another category that we are now tackling. And so in order to sustain this growth going forward and into next year and throughout, we will just bring that experience that I just explained on running to other subcategories of sport, for example, football. And then on M&A, what you have on the adjustments in our P&L relates to high snobiety and vision, so the two Bolton acquisitions we did a couple of years back. And therefore, coming to our M&A strategy, Correct. Historically, we have primarily done bolt-on acquisitions. Nevertheless, of course, we are screening the market for bolt-on and capabilities, but also other opportunities which can help us to accelerate growth in our B2C or B2B segments. Ladies and gentlemen, that was the last question. I would like to turn the conference back over to Mr. Koffler for any closing remarks.

Yeah, thanks everyone for joining. This concludes our Q3 2024 conference call. As always, you can reach out to IR if there's any questions that you still would like to ask. We are very much looking forward to seeing and meeting many of you over the next couple of weeks on a couple of conferences or roadshows And with that, thank you very much for your participation. All the best and bye bye. Take care. Bye bye. Bye.