Zalando Se Ord

Ladies and gentlemen, welcome to the Zalando publication of the Q3 Results 2025 conference call. I'm Vicky, 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 Koffler, Director of IR. Please go ahead, sir.

Good morning, and welcome to our Q3 2025 earnings call. Today, I'm joined by our co-CEO and interim CEO, David Schröder. David will kick it off with a business update before he walks you through the financial development of the quarter. Finally, David will discuss our outlook and will be 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. I will now hand it over to David. The floor is yours.

Thanks, Patrick. Good morning, everyone, and thank you for joining today's call. We continue to execute on our ecosystem strategy at full force, and the third quarter demonstrates its effectiveness in capturing profitable growth across both of our B2C and B2B segments. Our strong Q3 results incorporate, for the first time, the fully consolidated financial results of About You, effective July 11, the closing date of the transaction. Final step of the squeeze-out, which implies the delisting of About You, will happen very soon. With our continued strong performance in the third quarter, we are well on track to achieve this year's combined guidance and to make further progress towards our midterm targets for 2028. Let me now walk you through the five key highlights of the third quarter on page two. Number one, we are pleased to report strong financial performance in Q3 2025, demonstrating our resilience in what still is a dynamic geopolitical and macroeconomic landscape. We achieved 6.7% year-on-year pro forma GMV growth, with an even stronger pro forma revenue growth of 7.5%, on top of a strong prior year baseline. Our profitability also remained solid, with adjusted EBIT reaching 96 million euros, slightly surpassing last year's figures, despite negative impact from the inclusion of About You. Number two, in B2C, we continue to expand into lifestyle, with a key focus on sports this year. Today, we announced an exciting new partnership with the German Football Federation, DFB. I'll come back to these very exciting developments in a moment. Number three. Our B2B segment continued its double-digit growth trajectory. We are pleased to highlight several successful large-scale client go-lives and extensions, along with enterprise merchant wins for both ZEOS and SCALE. Further details on this will follow shortly. Number four. As already announced, we are equally excited to welcome Anna Dimitrova as new CFO to Zalando. She will officially start on January 1, 2026. Throughout her career, she has been responsible for all aspects of finance, including capital markets and investor relations. Her experience in fast-moving, capital-intensive, technology-driven sectors positions her perfectly to support Zalando's ecosystem strategy and work with our teams to seize the exciting opportunities ahead. And number five, on the back of our strong year-to-date performance, we are confirming our combined guidance for full year 2025, including about you from the 11 July 2025 closing date onwards. Let me now elaborate on the progress of our B2C strategy as detailed on slide three. To briefly recap, with our ecosystem strategy, we are extending Zalando's reach and relevance beyond fashion into broader lifestyle areas, playing an even more important role in our customers' lives. This involves creating a distinct and engaging experience that positions us as the go-to destination for sports enthusiasts. Our strategy continues to yield positive results, demonstrated by sustained customer growth and double-digit GMV increases in our sports proposition last year and this year. Furthermore, we are strengthening our commitment to authentically integrate Zalando into sports culture through strategic partnerships. I'm just very excited to announce the significant stride in these efforts today. an extensive partnership with the German Football Federation. Until 2030, Zalando will be a main partner for the men's, women's and youth national teams. The new sponsorship agreement presents an unparalleled opportunity to significantly elevate Zalando's standing as a leading football destination. Following the same playbook, we also made significant strides to boost Zalando's awareness and consideration as a running destination. We've entered partnerships with the Rotterdam Marathon, the Copenhagen Half Marathon and Berlin Marathon, all with the aim of inspiring runners across Europe. Let's now turn to the latest developments in our B2B business. With our B2B business, ZEOS, we are building the operating system for fashion and lifestyle e-commerce in Europe, unlocking and accelerating digital business opportunities for brands and retailers. Building on our unique infrastructure and technology capabilities, we are now scaling and enhancing our offering with a particular focus on logistics and software. Regarding logistics, we already announced our large-scale strategic partnership with British retailer Next last November. This collaboration has successfully launched in September this year in 21 markets on Next.com and additional European marketplace businesses. We are pleased to announce that British retailer Marks & Spencer has expanded its collaboration with ZEOS as well. Having already utilized ZEOS for its marketplace business, the partnership now covers fulfillment for the brand's entire continental European e-commerce business to take full advantage of one single stock pool. With the acquisition of About You, we also complemented our software offering with Scale, a leading enterprise digital commerce platform. This shop system allows us to better support the most important channel of our merchants, their own e-com. After the initial go-live of the partnership, we are very thrilled to see the go-live of Deichmann on Scale's shop system in its key market, Germany. Deichmann is the market leader in European shoe retailing. We are equally happy to celebrate another key merchant win, namely Netto Markendiscount, the German discount grocer. This partnership is a great example that scale is the perfect shop system for implementing modern retail concepts in different verticals efficiently and at scale. This concludes our key business updates. Let's now take a look at our Q3 financials. In doing so, let me first focus on our group level figures on page five. All presented financial figures are as reported figures, including about use results from the 11 July 2025 closing date onward. Additionally, GMV and revenue growth are presented on a performer basis. For the corresponding prior year period, historical performer figures include About You's results from the 11th of July 2024 onward. In Q3, we sustained our profitable growth trajectory. GMV saw reported growth of 21.6%, while reported revenue grew by 26.5%. This increase was primarily due to the inclusion of About You. Performa GMV grew by 6.7% and Performa revenue increased even more by 7.5%, supported by a strong performance of Zalando marketing services, ZEOS fulfillment and scale, all of which contribute revenues that are not included in our GMV figures. Our focus on driving profitable growth is also reflected in our adjusted EBIT performance. On a reported basis, combined adjusted EBIT, including About You, reached 96 million euros, slightly surpassing last year's figure of 93 million. On profitability, the inclusion of About You acted as a headwind and resulted in an adjusted EBIT margin of 3.2%, 0.7 percentage points below last year's level. Our combined Q3 results once again underscore our consistent progress in achieving profitable top-line growth while simultaneously facilitating investments that cultivate long-term value. Now, let's examine the performance of our B2C segment in more detail on page six. In Q3, revenue grew by 27.9% exceeding the GMV growth rate. The strong reported growth was predominantly driven by the inclusion of about U-commerce business. Additionally, growth in Zalando B2C was supported by strategic growth investments such as the Zalando launch in Portugal and the rollout of our upgraded Zalando Plus program. Plus now serves more than 13 million customers. Furthermore, we saw a successful start to the autumn-winter season and particularly strong growth in our lounge, sports and beauty categories. Continued strong growth in Zalando marketing services also contributed to B2C revenue growth. Adjusted EBIT declined to 77 million euros, with the adjusted EBIT margin decreasing to 2.8% due to the inclusion of About You's commerce business. Before we move on to our customer metrics, I want to briefly highlight something I'm incredibly excited about, the unmatched scale of our total combined customer base following the About You transaction. As you can see on slide seven, teaming up with About You is a clear testament to our strong position as one of the leading multi-brand fashion and lifestyle groups across Europe. Together, we now serve a combined active customer base of more than 60 million customers. This supreme scale does not only showcase our strong standing in Europe, but further broadens our market reach and provides us with the opportunity to actively influence and shape the European fashion and lifestyle industry hand-in-hand with our more than 7,000 partnering brands. More than 5 million customers already take advantage of both the Zalando and About You platform. They exhibit a significantly higher spending compared to customers that only shop on either Zalando or About You. At the same time, the high share of unique customers on both platforms is a clear testament to the appeal of our dual brand strategy. which we are going to leverage going forward to drive growth and to cover an even larger share of the 450 billion euro European fashion and lifestyle market. Let's now move on to page eight and look at the remaining customer metrics of the combined group. With the inclusion, spending per customer held steady at around 300 euros, This was due to the increased spending from customers using both platforms, which compensated for the lower average spend of customers who use the About You platform less frequently. Let's now turn to page nine and take a closer look at our B2B segment performance. In Q3 2025, our B2B segment achieved combined revenues of $277 million, marking a 15.6% increase year-over-year. The growth in our B2B segment was primarily fueled by ZEOS fulfillment, which includes both Zalando fulfillment solutions and multi-channel fulfillment. Additionally, the inclusion of scale supported revenue growth. Adjusted EBIT for the B2B segment reached 20 million euros. The adjusted EBIT margin saw a strong increase of 4.3 percentage points, reaching 7.1%. This improvement was driven by efficiency gains in ZEOS fulfillment and the inclusion of scale. Let's now move on to the group P&L on page 10 and focus on the Q3 performance on the right-hand side of the table. With the change in reporting scope to include about you, all cost lines and the adjusted EBIT margin have been impacted. Group cross margin decreased year-over-year by 1.1 percentage point to 39.6%. More details to follow on the next slide in a moment. Fulfillment costs increased by 0.6 percentage points to 24.3% of revenue, and marketing costs rose to 9.3% of revenues, both primarily due to the consolidation of About You. Meanwhile, the consolidation positively affected admin costs, which improved by 0.6 percentage points. Overall, we delivered a low adjusted EBIT margin of 3.2%. Now let's examine the gross profit development in more detail on page 11. Our Q3 group cross-profit was impacted by three main factors. Factor number one, Zalando B2C negatively impacted the group gross margin by 0.7 percentage points. We saw negative impacts from active customer participation in commercial events, strong growth in our launch business coming with a structurally lower gross margin, and the planned revenue deferrals from our updated loyalty scheme. At the same time, we benefited from positive contributions of our partner business, including Zalando Marketing Services. Factor number two, the revenue contribution from About You's commerce business, which currently operates with lower gross margins and a lower partner business share, negatively impacted the group gross margin by 0.6 percentage points. And factor number three, B2B revenues positively impacted group gross margin by 0.2 percentage points, This was due to efficiency gains in ZEOS fulfillment and the inclusion of scale as a high gross margin software business, both of which positively affected B2B gross margins. Looking ahead, we remain fully committed to our midterm group level gross margin target of around 40% by 2028. Turning now to slide 12 for networking capital. Our networking capital continues to be negative in Q3 at minus 141 million euros. Compared to last year, we see an increase of more than 100 million euros. Inventories were higher, predominantly reflecting the inclusion of About You. Let's now take a look at slide 13. As of the close of the first nine months of 2025, our cash and cash equivalents stood strong at 1.3 billion euros. This figure represents a decrease of 1.3 billion euros from the 2.6 billion euros recorded at the end of last year. primarily due to the pay down of convertible bonds and the consideration transferred for the about you acquisition. This concludes the financial performance review. Let's now move on to the outlook on page 14. Today's strong Q3 results confirm that we are fully on track to achieve our combined guidance for the financial year 2025, as provided in August. Based on current trading and looking ahead at cyber and Christmas peaks on the horizon, we anticipate a strong finish to the year with mid single-digit performer GMV growth in Q4. As a team, we are fully focused now on providing our customers with great experiences and our partners with top-notch service during the upcoming peak season. For the upcoming year, our ambition remains clear. We will continue to deliver on our ecosystem strategy, accelerate growth, and increase profit across both our B2C and B2B segments, fully in line with our midterm guidance. This will be supported by both accelerated growth of our platform business in B2C and further scaling of B2B, delivery of cost synergies enabled through the combination of Zalando and About You, as well as continued cost efficiency measures. This concludes our presentation for today. Let's now open for Q&A.