Zalando Se Ord

Ladies and gentlemen, welcome to the Zalando SE publication of the Q1 Results 2025 conference call. I am Shari, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Patrick Scoffler. Please go ahead.

Good morning and welcome to our Q1 2025 earnings call. I'm joined today by our co-CEO and interim CFO, David Schröder, who will provide a brief overview of the quarter's financial performance. and our VP Finance, Roland Loew, and David will be available for questions afterwards. As always, this call is being recorded in both the live webcast and the replay will be available on our Investor Relations webpage later today. David, over to you for the financial overview.

Thank you, Patrick. Good morning, everyone, and thank you for joining today's call. Last year, we announced our new ecosystem strategy, started to execute against it and successfully delivered on our growth and profitability ambitions. This year, we aim to continue on this great trajectory by further advancing our B2C and B2B growth factors, accelerating our growth and driving further profitability improvements. At the same time, we also keep investing in future growth opportunities, reflecting our ambition and conviction to serve an even larger share of the €450 billion total European fashion market in the long term. Our strong Q1 performance confirms that we are well on track and marks another step towards our mid-term goals. Let me now start with the Q1 highlights on page two. We delivered an accelerated GMV growth of 6.5% year-on-year in the first quarter, supported by successful end-of-season sales and a promising start to the new spring-summer season. Revenue growth outpaced GMV growth, reaching 7.9%. We also continue to increase profitability, delivering an adjusted EBIT of 47 million euros, which represents a margin of 1.9%. Our adjusted EBIT margin improved by 0.7 percentage points year on year, mainly due to a stronger gross margin in our B2C segment. We are progressing on our strategy as planned across both our growth factors, B2C and B2B. In B2C, we further elevated and expanded our multi-brand platform across our three strategic growth pillars. We successfully rolled out our upgraded loyalty program to additional markets, further elevating the quality of our shopping experience for our customers. I will talk about the exciting developments in our upgraded loyalty program Zalando Plus in more detail in a moment. We also saw double-digit growth in our lounge, sports, designer, and in our beauty propositions. This strong performance demonstrates our ability to cater to our customers' diverse lifestyle needs. Furthermore, we are rolling out our new Zalando Boards experience as part of our strategy to offer customers personalized inspiration and entertainment. The next step will be to allow users to create, share, and engage with curated and user-generated boards, fostering inspiration and discovery across the platform. And more than 1 million customers have already interacted with the new experience. In B2B, we recorded revenue growth of 11.6%, significantly ahead of group revenue growth. This year is about further advancing our ZEOS offering with a particular focus on logistics and software solutions. Recently, ZEOS and TradeByte were selected as TikTok's preferred logistics and integration partners for fashion and lifestyle merchants. This partnership enables merchants to seamlessly connect to newly launched TikTok shop in key European markets. including Germany, France, and Italy. During the first quarter, ZEOS and TradeFight facilitated the successful launch of the first partner on TikTok shop in Germany. By leveraging our ZEOS offering, they were able to quickly capitalize on a new growth opportunity and efficiently navigate the complexities of launching on a new sales channel, paying into our vision of unlocking multi-channel growth opportunities for brands and retailers across Europe. The proposed acquisition of About You perfectly fits into our strategy to build a leading ecosystem of fashion and lifestyle e-commerce. The acquisition is progressing as planned. Let me give you a short update on where we stand. On December 11, we announced our intention to make a voluntary public tender offer for up to 100% of About You's share capital. Since then, 91.5% of About You shares in total, excluding treasury shares, have been successfully secured. To obtain the remaining shares, we intend to implement a squeeze-out of minority shareholders post-closing. In the meantime, we have received regulatory approval by the German Federal Financial Supervisory Authority . The transaction is nearing closing with only the regulatory approval from the EU antitrust authorities remaining, which we anticipate to receive by summer. Last but not least, in terms of Zalando's standalone financial performance, we are well on track to meet our full-year targets and confirm our 2025 guidance, despite a fast-changing geopolitical and macroeconomic environment. Before we turn to our Q1 performance in a bit more detail, let me briefly touch on the progress of our upgraded loyalty program, Zalando+. During our full year update in March, we laid out our exciting plans to further advance our strategy to accelerate our growth trajectory this year and beyond. In B2C, besides bringing Zalando to more European markets and launching our propositions like Beauty and Launch by Zalando in additional markets over the course of the year, one of the core initiatives is the rollout of our upgraded loyalty program, Zalando Plus. Zalando Plus rewards customers with points for shopping products and engaging with content on our platform. Customers can unlock three different loyalty levels with an increasing number of benefits as they collect points. Since the initial launch in Spain in the third quarter of last year, we've successfully rolled out the program to a total of 13 of our 25 markets. Additional markets will be launched throughout the year. Already more than 15% of our customer base in all live markets is participating in the program. Our ultimate ambition is to serve the majority of our customers with this program and to increase the average order frequency and hence our share of wallet with them through the program. Early data from our first markets indicates promising progress towards this goal. Let's now take a closer look at our Q1 financial performance, starting with group level figures on page four. In Q1, we accelerated GMV growth. GMV increased by 6.5% to 3.5 billion euros. This was driven by both retail and platform business. Revenue grew even faster at 7.9% to 2.4 billion euros, driven by strong performance in Zalando marketing services and B2B business, which generate additional revenues not reflected in our GMV figures. Our focus on driving profitability is reflected in the increase of adjusted EBIT recorded in Q1. Adjusted EBIT reached 47 million euros, up 19 million euros year-over-year. Adjusted EBIT margin improved by 0.7 percentage points to 1.9%, primarily due to a higher gross margin. Our Q1 results demonstrate continued progress towards accelerating growth while continuing to drive profitability improvements and investing in future growth. Let's turn to page five and look at our B2C segment performance in more detail. Revenues were up 7.6% exceeding the GMV growth rate. Growth was supported by successful end of season sales and a promising start to the spring summer season. As mentioned before, our lounge, sports, designer, as well as our beauty propositions delivered strong growth supported by our strategy to elevate these assortment areas into powerful lifestyle propositions. Additionally, Strong growth in ZMS contributed to the revenue growth in B2C as well. Profitability improved by 0.7 percentage points to 1.9%, primarily due to an improved gross margin. Let's turn to the corresponding B2C customer metrics on page 6. Starting on the left, our acceleration in GMV was fueled by an active customer growth of 5.9%. By end of Q1, the number of active customers reached a high of 52.4 million in the first quarter, an increase of more than 2.9 million customers year on year. Looking at the right side, spend per customer remained flat at around 296 euros, with order frequency and basket size developments offsetting each other. Turning to page seven now and having a look at our B2B second performance. In the first quarter of 2025, we achieved B2B revenues of 240 million euros. That corresponds to an increase of 11.6% compared to the previous year and significantly above group level. In Q1, our B2B segment achieved an adjusted EBIT of 6 million euros with a stable adjusted EBIT margin of 2.4%. As in previous quarters, the vast majority of growth in B2B came from ZEOS fulfillment, including ZFS and multi-channel fulfillment. In multi-channel fulfillment, we continue to scale the number of merchants and also the number of sales channels ZEOS is active in and supporting merchants with their sales. As mentioned at the beginning, we also started a new partnership with TikTok Shop. It opens up a unique opportunity for merchants using both ZEOS and TradeByte and allows them to be part of TikTok Shop's expansion, thereby accelerating their e-commerce growth across Europe. Let's now move to the group P&L on page 8. Our group gross margin improved year-over-year by 0.9 percentage points. This was driven by a continuous strong self-rule of our retail inventory, which was further supported by a promising start to the spring-summer season in March. Additionally, strong growth in ZMS contributed since its advertising revenues come with a structurally higher gross profit margin. Fulfillment costs with a cost-to-revenue ratio of 24.4%, fulfillment costs are broadly unchanged. Marketing costs, on the other hand, saw 0.5 percentage points uptick. We deliberately increased investments in performance marketing to support continued active customer growth. Additionally, we continue to invest in several brand marketing campaigns to enhance brand visibility, among them our new spring-summer campaign with Sarah Jessica Parker. Admin and other expenses improved by 0.4 percentage points, driven mainly by increased operating leverage. Summarizing the group P&L, we achieved the year-over-year increase of 0.7 percentage points in profitability, driven primarily by an enhanced gross margin. Turning to slide nine for next working capital. Networking capital continues to be in negative territory and came in at minus 86 million euros. compared to last year, networking capital increased as a result of higher inventory levels reflecting our preparations for the spring-summer season and a low prior year baseline. Additionally, trade receivables rose by 22.6 percent as the business performed strongly, particularly towards the end of the quarter. Let's go to slide 10 now. Our cash and cash equivalents remained strong and ended the quarter at around 2 billion euros. This is around 600 million less than Q4 2024. Major drivers for the decrease in cash are one, a lower operating cash flow driven by inventory purchases for the spring-summer season, and two, restricted cash related to the about-you tender offer. Here, 403 million have been put into an escrow account. Consequently, this amount moved from cash to other current financial assets. This covers nearly 40% of the equity consideration of 1.1 billion euros This concludes the financial update for Q1. Let's now move on to the outlook on page 11. Since we published our full-year outlook at the beginning of March, we've been observing a fast-changing geopolitical and macroeconomic environment. So far, we've not seen any notable impact on our business as also evidenced by our strong performance in Q1. Consumer demand has been rather stable and our brand partners have not made any major changes. Going forward, our priority remains to successfully execute on our ecosystem strategy and to position Zalando effectively to handle any external developments. After Q1, we are off to a good start and confirm our standalone guidance for the financial year 2025, which we provided to you in March. In 2025, We will continue to focus on accelerating growth while delivering on our profitability target for the year and investing in future growth opportunities with our loyalty program Zalando Plus being one key example we highlighted today. This concludes our presentation for today. Before we jump into Q&A, let me wrap up with the key takeaways of today. Our ecosystem strategy is progressing very well. In Q1, we delivered an acceleration in GMV growth coupled with continued strong revenue growth and increased profitability. We continue to advance our strategy across both our B2C and B2B growth factors. The proposed acquisition of About You is progressing as planned with closing expected by summer. And we confirm our full year guidance for 2025. Let's now open up for Q&A.