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.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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 two. Participants are requested to use only handsets while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star and one at this time. First question from Adam Cochrane, Deutsche Bank. Please go ahead.

Good morning. Thanks, guys. The first question I've got is on the basket size that you've reported, you've got the combined number. How has the basket size progressed over the period? I know that as you're gaining new customers, they generally come in at a slightly lower rate. average basket size. Is it possible to give us any sort of view on how the existing customer-based basket size is evolving? And then obviously you've got the new customers coming in and then you've got the acquisition of About You as well. It's quite hard to get a picture of what's going on within the basket size. And then secondly, in terms of the B2B business, how is it evolving without the the benefit of scale. And within scale, would you be able to give any view on, you've dropped in a few names there of clients. How much EBIT do these clients generate from the scale operation? Just so we get a flavor for talking about NETSO as an example, or Dicu, and I don't want them exactly, but how much EBIT do these clients generate for the group? Thanks.

Yeah, good morning, Adam. Thanks for your questions. I mean, looking at basket size development, I think the most important thing to understand, and as we've explained when we released our strategy, is that our key goal is really to increase GMV spend per customer, right? So our key focus is on the wallet of customers rather than the basket size of each individual purchase, because ultimately that's what we need to drive to drive customer lifetime value and to also obviously drive value of the business. That being said, obviously we have taken measures over the past years, as you know, to improve our order economics, also on individual orders. And that has led to an increase in average basket size, actually both on Zalando and about you. um and yeah that's also a trend that we actually expect to continue in the future but as you know what we are even more focused on at the moment is to drive more frequency frequency of engagement through our inspiration and entertainment efforts but also frequency of shopping especially through our loyalty program salando plus And then on your second question regarding developments in B2B, I think I'm happy to confirm that even without including scale, our B2B business looks very strong, continues its double-digit growth trajectory that we've also talked about earlier this year, predominantly driven by Zeus Fulfillment. And as we've also commented already in the presentation, the margin also without scale is up year over year in that business. And scale is contributing obviously even more revenue growth due to the first time inclusion on a reported basis. And then also obviously supports the margin due to the strong software gross margins Which then also leads me to the second point that you asked for. So if we look at scale specifically, obviously it's a high gross margin software business, meaning that if we add meaningful revenue, which in the case of large enterprise merchants can be right in the millions, there's also a strong drop through of that revenue onto the bottom line.

The next question from William Woods, Bernstein. Please go ahead.

Hi, good morning. Thanks for taking the question. The first one is just on, obviously, you're engaging in kind of more sponsorships with the German Football Association, etc. Do you think that this will become a larger portion of the business? And do you think the marketing spend might have to come up over the next couple of years? And the second one is similar to Adam's question, just on the active customer growth. Can you give some color on who you're acquiring, either by gender, age, category? And are you seeing similar retention rates? And then where do you think there's further room to go in terms of acquiring customers? Thanks.

Sure. Yeah, so maybe taking a step back on sports in general, right? I mean, as you know, as one pillar of our B2C strategy, we are definitely keen on expanding more into live sports. style areas beyond fashion. We see this as a key way to drive share of wallet and GMV per customer, as I also just explained on Adam's question. And especially a sports business is appealing there, right? Because sports, in a way, very nicely brings together style, culture, and obviously also performance. And we see that there's generally a high interest from our customers in that category. And that's why we also enjoyed significantly double-digit growth last year and also seeing strong growth this year. And for us, these sponsorships are now really an opportunity to further step up our game in sports and further raise awareness and consideration with customers to continue to grow that category very strongly. In terms of the implication that has on our marketing spend, I think what we rather see it as a reallocation of marketing spend within the marketing budget, so we don't intend to increase our marketing spend on a relative basis. I guess we've always said over time we rather aim to take it down in relative terms over time, and that is still very much true today. For us, it rather means we refocus some of our marketing spend on these big partnerships because we think they are an interesting new way to engage with customers, especially when it comes to these exciting new lifestyle propositions. And we've seen it work very well. with the running sponsorships that we've done this year. So as we talked about in the presentation, several partnerships with key marathon events. And in the running category, we've seen even higher growth rates than in sports overall. So I think we have strong proof points that exactly this strategy is working, and we're now using the same playbook for football. Also ahead, obviously, of the large-scale events coming up next year with the World Cup. in the US, Canada and Mexico. And then second question on active customer growth. I mean, we are very happy actually at both Zalando and about you to see this strong active customer growth continue. I think it shows us that we are far from reaching maturity levels anytime soon. I mean, as we've talked about multiple times, the market is huge. Our market share even combined is still very small. um and we continue to attract customers across all our markets really right so even in more mature regions like that still looking strong on a new customer acquisition it's also broad-based across age groups across also the different propositions which also provide us with a new angle obviously to attract customers right so some customers now are also coming to us because of beauty, because of sports, because of kids, right? And I think that is very much explaining the strong traction that we are seeing on the active customer side.

The next question from Georgina Joannan, JP Morgan, please go ahead.

Oh, hi, thank you. I've got two, please. The first one was just, on the synergy guidance of 100 million euros. I think just any updated thoughts on that from the early work that you've been able to do. And then secondly, I think just following on from I think Adam's question on scale, I think I'm right in saying that about use guidance historically was for about 25 million euros or so of EBITDA for their fiscal 25 from that business. It would just be really helpful, even if it was on a one-off basis, to understand the sort of level of depreciation that was going through scale, just so we could get a sense of that EBIT contribution, please. And then just sticking with scale, I know about you had talked about the potential for US client wins. So just wanted to understand if that was something that you were still targeting under your ownership, please. Thank you very much.

Sure, Georgina. So on synergy guidance, I think nothing has changed since the last update. If anything, I guess we are becoming more and more confident with every day that we are working together that we will be able to deliver on the synergies that we promised and might even find new ones along the way. I think one thing to still keep in mind, we already mentioned that several times in the past, is that The largest amount of synergies is obviously backloaded, so we'll mainly then hit the outer years, 2020, A, 2029, but obviously we are working hard to enable those synergies already with the actions that we are taking today and also next year. But yeah, we'll be happy to provide further updates as we move along, most likely already then with our full year results in March next year. um on scale i think i'm afraid that um i can't help you out on on the uh specific details uh you asked for what i can confirm however is that the strong um cross margin and also ebit contribution that scale has talked about in the past is also something that is obviously now driving our B2B business forward as you can imagine with now reporting on a combined basis we are also taking the same approach to capitalization that we are taking for Zalando overall so no difference here in the treatment going forward and with regards to the US opportunity indeed this is potentially one of the biggest opportunities for additional scale momentum in the future. As you know and have seen, the momentum is very strong in Europe already, but obviously the total addressable market could be significantly expanded if we gain a foothold in the US. And so it's a key priority for us as a group and for the scale team in particular I'm definitely happy to report that there are several key discussions in what I would call close to final stages. So I would say stay tuned for further updates to come in that regard.

The next question from Sarah Roberts, Barclays. Please go ahead.

Hi, good morning. Thank you for taking my question. Leslie, digging into the B2C Zalando growth margin moving parts a little bit more, could you walk us through the key moving parts of the B2C growth margin? We know there's some impact from partner program and ZMS, some headwinds from loyalty, but can you quantify these? And then how much of the pressure on growth margins reflects a more price sensitive or promotional consumer? And then secondly, the M&S partnership for ZEOS looks like a strong win. Could you share a little bit more color on its potential contribution to B2B revenues and give us a sense of when we might start to see those revenues coming through for B2B? Thank you.

So, yeah, so on B2C gross margin, I mean, the overall impact is something that you see very transparently, I guess, in the bridge that we provided. In terms of the quantitative impact of the different factors influencing, especially the Zalando B2C gross margin, I think I'm definitely happy to tell you how they rank in terms of how much they influence the picture. The biggest impact definitely comes from the commercial activations that were very successful. across our destinations in Q3, considering also that that is seasonally a quarter very much driven by commercial activations with end-of-season sales, for example. Second largest impact then came from the lounge business, showing very strong traction and I think also allowing us to have a strong offer for value-focused and value-conscious consumers in the current market environment I think that was key strength of the group that we can also cater to these needs whereas our main destination as you know is more geared towards quality full price and then the smallest impact but that's one we already flagged to you same time last year essentially came from the continued rollout successful rollout of the loyalty program which saw a 30 percent increase in active memberships quarter over quarter and that obviously is also reflected in our cross margin on the b2c level these are the negative ones i guess on the positive side obviously we did as we commented we did benefit from the higher gross margin of our partner business, especially also the continued double-digit growth of our Zalando marketing services. And yeah, then coming to your question on the Marks and Spencer partnership, I mean, I'm personally super happy actually to see that after this landmark deal with Next, we are now seeing also strong interest from other brands and retailers to go for a similar setup, essentially trust us, not with just a part of their business, but go all in with the ZEOS solution, especially to leverage its full advantages across continental Europe, where I would say our network is really one of a kind in fashion and lifestyle and also is able to deliver superior performance in terms of customer service and cost efficiency at the same time. I think the deal here is further testament to that. And as you can imagine, we are also talking to some other clients for similar moves. And yeah, we'll see that impact come through next year. As usual, there's a bit of integration and onboarding work that needs to happen, as also happened with Next. But as you can imagine, the more we do these kinds of rollouts, the better we get, the faster we get, and the faster we can also scale our B2B business going forward. And so we expect it to also contribute to our growth acceleration next year.

The next question from Frederick Wilde. Jeffries, please go ahead.

Good morning, David. Thank you for taking my questions. I'm afraid I've got three. So first of all, could you give us a bit more detail about current trading and particularly was it consistent across October and any trends there? Second, is the gross margin year-on-year move in Q3 a good guide for Q4? Because I was looking at The fact that about you seems to have structurally lower margins in Q3, so should we see some recovery in year-on-year gross margin in Q4? And then finally, I'd like to understand, please, what the partner program GMV mix was in the quarter, both for the combined group and for Zalando standalone. Thank you very much.

Sure. Yeah, I mean, on current trading, I think we see ourselves very much on track to hit our full year guidance. As we said, we expect on a performer business basis, sorry, mid single digit growth in Q4. And that is very much supported by what we've seen so far. So we're not betting like on an acceleration and what you could call second half of the quarter, but it's very much what we've also seen so far. And basically expecting that to continue throughout the remainder of the quarter. Now, cross-margin-wise, I think Q3 definitely can serve as a good indication for Q4 in the sense of the effects that we just talked about, right? The impact from the inclusion of About You, the impact from commercial activations, impact of a fast-growing launch, impact of loyalty program, accounting effects. I think all these are very much going to persist in Q4. And that's why I think that gives you a good indication for what to expect also next quarter. And then last but not least, I think looking at partner program performance in terms of GMV growth, we saw both retail and partner business grow almost equally strong in the third quarter. And so that also then implies that there's no bigger change in mix on the Zalando side. Keep in mind, obviously, that the partner share on the About You side is significantly smaller, but is also accelerating as they are now driving the platform transition to a true marketplace model on the About You side.

The next question from Yashraj Rajani, UBS. Please go ahead.

Hi, thank you for taking my questions. I've got two, please. So the first one is, how does your role as an aggregator change with the advent of agentic AI, please? Like what are you doing to ensure that you are a beneficiary of AI traffic rather than being adversely impacted by agents directing customers to brand websites rather than your website? So that's the first one. The second one is you made a comment that you are far from maturity and still growing. Appreciate it's, you know, still quite early to comment on next year. But does that comment mean that, you know, you can potentially accelerate GMV growth next year? Or, you know, do you think that at this point it's better to be conservative and potentially amid single digit GMV growth for next year is a reasonable place to be, which is where consensus is?

Sure, yeah, thanks for your questions. I mean, on the GenTech, and I think that's very much in line with how you've seen Zalando act in the past, right? So when we see shifts in the industry, be it early on the shift from web to mobile, then later, obviously, also seeing other shifts in the industry towards more inspirational formats and so on, I think we've always had the ambition to lead that change and to also leverage these shifts as an opportunity to strengthen our business, to accelerate our growth, and to, yeah, obviously also grow our share. And we think the same way about GenTech, and that's also why we decided to really act early. You've seen that happen For example, through our targeted efforts to develop our very own Zalando Assistant, which is an agentic interface on our own premises. We've, I think, learned a lot. We've also managed to roll it out and scale it over time. we're obviously looking at other use cases as well i think especially important to consider that um yeah the opportunity in the end um is also huge on the b2b side of the business as many brands and retailers are asking themselves these questions how to grow their business and continue to engage with customers in an energetic environment and i think scale can also obviously play a key role in enabling them for that future and that's why yeah we we continue to embrace that opportunity and and make sure that once again similar to these shifts in the past we come out strong and and use it as a way to further strengthen our position in the industry without being naive of course right so we also know there are potentially areas of this development that we need to have a careful eye on. But yeah, I think the key focus is really on the opportunity that it creates for us. Regarding next year, and as also stressed during my outlook presentation, I think, yes, indeed, we are aiming to accelerate growth further next year. And so I think that's something you should expect from us. We definitely expect it from us going forward in line with really the midterm guidance that we have provided to you a while ago.

The next question from Richard Chamberlain, RBC. Please go ahead.

Yeah, thank you. Good morning. Two also for me, please. I just had, first of all, a question about inventory. How are you feeling about the composition of your inventory at the moment? How fresh is the inventory overall? And then the second one is on the midterm gross margin target of 40%. Can you just remind me what the key drivers you think are for improvement to get to that level? Will that come from more buying and procurement, or will that come more from improved full price sales? Thank you.

Sure. So on inventory, I think we feel very good about our inventory position. I think it has enabled us to also have the right offer for customers. It has enabled a strong season start already in September and now continued good trading in the months thereafter. I think it's really important to realize, I made that comment earlier, that the quantitative impact you see us report is mainly due to the inclusion of About You, right? And so if you would essentially consider that impact, then the remaining increase on the Zalando side is comparatively small and hence very much in line also with the growth rates that we are driving at the moment. Now, on the gross margin outlook, we are very much focused on gross margin, as you know, and we also are very committed to achieving the around 40% that we guided towards for 2028 as part of our midterm guidance. And the building blocks really remain the same, right? So on the B2C side, we see further opportunity to increase the retail margin, more full price sell-through. Also, obviously, thanks to economies of scale, better cost of goods and so on. I think the other key part obviously is that as we continue to increase the platform part of our business, so the partner business, and especially also Zalando Marketing Services, we add a lot of high gross margin revenue, which will also contribute to an increasing B2C business. cross-profit margin over time. And then what obviously also contributes to the 40% outlook is the B2B business, which is growing strongly, but which comes with a structurally lower gross margin, though that obviously does not mean that it comes with a structurally lower adjusted EBIT margin, right? So an adjusted EBIT, as we've seen this quarter, actually B2B can be a very strong contributor and will definitely also be going forward. But, yeah, gross margin, especially on the logistics revenues, is obviously lower than on the retail side.

The next question from Clément Genelot. Stiefel, please go ahead.

Good morning, Gordon. Thank you. Only one on my side. So just as a follow-up on the agenda take, As we have recently seen a large multiplication of partnerships in the US between open AI and online platforms. On your side, would you be open to the idea of striking a similar partnership with open AI or over AI chatbots in Europe? Thank you.

Yeah, definitely. I mean, I think we've been successful in the past when driving innovation with a combination of in-house efforts and then also partnerships. I think the very initial development, for example, of our Zalando assistant also came about by leveraging open AI technology. But I think important for us as part of our strategy, and that's also what I meant earlier with we don't want to be naive, right, is that while we like these partnerships, we don't put all our eggs in one basket. So the approach we are generally taking is to be model agnostic. It's hard to say who will win in the end, right, and what model will be best for which use case. And therefore, we continue to experiment with different models, and we also build our tech stacks in a way that we can easily exchange models depending on who performs best at a given point in time. But I think, yeah, this general approach of co-innovation with strong partners is one we'll continue to leverage going forward.

Next question from Mia Strauss, BNP Paribas. Please go ahead.

Hi, good morning. And maybe just, I think you've talked about the commercial environment a bit. How would you characterize the promotional environment at the moment before even heading into the key trading events? And then just secondly, can you just remind us of what is your marketing strategy on social media? So I think the point was touched on about redirecting to brand websites, but how do you bridge the gap to be redirected to the Landis platform?

Sure, Mia. So in terms of the promotional environment, I think we've basically seen a continuation of what we already saw in the past quarters. No surprise, right, given the continued rather muted macro environment also in some of the key countries in Europe, for example, Germany. Consumers in general, I would say, remain a bit more price conscious and value seeking. That's why we see strong responses to our commercial activations. That's also why especially our lounge business is performing particularly well. And yes, obviously we are taking that into account when we optimize our go-to-market strategies for the current environment. But for me, that's more tactics, right? Where obviously we need to make sure that we always stay relevant for consumers and fulfill their needs. in pursuit of long-term customer value accumulation. What it does mean is that we change on our general strategic direction, right? So, we continue to see our role in the industry as a role that supports brands, that also drives quality, and is not overly focused on price. Now, coming to your second question on engaging customers on social media. Obviously, we are very active on social channels and it's also an important part of our content strategy, not just in terms of customer acquisition, but also, yeah, sometimes the first steps of an inspiration journey obviously start on social media. We do a lot on our own, but we also do joint campaigns with key partners through ZMS. However, I think it's important to understand that our primary goal is really to engage customers on our own premises. And that's why we typically construct these campaigns in a way where, yeah, you might see a first hook. on a social media app but then we aim to move customers into a funnel where they then continue their inspiration journey on Zalando and I think that's especially where new innovations like our Zalando feed experience which we talked about in our half-year report and which we've now rolled out to a number of countries successfully where these innovations can also help us further drive user engagement because They allow a much more immersive, much more content rich experience than what we were able to offer before. And I think it also really blows the lines a bit between the inspiration you can get on social media and what you see on Zalando. And yeah, the first reactions from customers in terms of how much engagement they show in each visit, but also in terms of frequency of visits are very promising. And that's why we will continue on that path, so essentially considering ourselves our own best marketing platform, while obviously working also with social media outlets going forward.

The next question from Anne Critchlow, Barenburg. Please go ahead.

Thanks. Good morning. I've got two questions, please. The first one is in terms of the seasonal promotions and commercial activations. Just wondering if there's been any shift from Q4 into Q3 this year in terms of the weighting. And also whether you think there's been a shift to the start of the autumn-winter season, particularly in the back region, from Q3 into Q4, maybe from a weather perspective. And then the second one, please, just in terms of the virtual fitting room, whether you're getting any different results, any developments there, any other initiatives on size and fit. And also, if you could talk a little bit about the differences between the return rate between Zlando and About You. Thank you very much.

Sure. I mean, in terms of seasonal development, I think everything that we've seen so far points to a very normal seasonal pattern, had a good start to the season, but also then the usual, I would say, timing and also performance of mid-season sale. And that's also why we expect similar trends to continue throughout the upcoming peaks. So nothing unusual, I would say, very much in line. with what we've seen in the past. And then in terms of size and fit, it remains a key strategic topic for us, predominantly also because we think it differentiates us from other platforms to provide our customers with superior size and fit advice. We've seen very good responses in the past and that's why we're doubling down on these investments. Virtual fitting room I think is working well. I think the key task here for us is to scale it to more products over time because it's really much harder to scale in a way than the pure data-driven size advice that we already offer for the bulk of our products. You need much more information about each single product than you need if you just try to match a size with a customer. But we are confident that that will unlock the next level of size advice to improve the customer experience and to also further reduce size-related returns. When we look at return rates overall, and I think that's also to be expected given that we sell largely similar items on About You and Zalando after all. If you look at same geo and similar items, I think the return rate is really not so different between the two platforms.

The last question comes from Vendita Sud. Siti, please go ahead.

Good morning. I just had two quick ones. Firstly, could you give us an update on how the integration with About You is evolving and if you are expecting any sort of changes to the synergies that you'd provided to before basically not being too significant this year, and also if there's any seasonality between the third quarter and the fourth quarter in that. And then secondly, I saw that you're now buying back some shares just for the employee programme. Just wondered how you think about the timing of when you do these and how we should model it. Yeah, thank you.

Sure, indeed. Thanks for your questions. I mean, on about you, I said earlier, I think everything is working super well so far. Both teams are excited to team up. I think we've seen very good traction on now also executing against our ambitious plans to drive values strategically and financially. And so, we are very confident to achieve the synergies we outlined to you in our half-year call, also with the ramp up over the next few years. Obviously, much more impact to come in later years due to the nature of the synergies. And yeah, as I also said earlier, I definitely see an opportunity to also identify additional sources of value creation over time, be it in the standalone business about you or also through synergies between our activities in B2C and B2B. So no changes, I think just more certainty and confidence that we'll deliver on what we shared. And then on the share buyback, I think that is really to be seen in light of what we also did in the past, right? So very regular procedure, a very similar amount as well, up to 100 million euros to fund our existing share-based compensation programs. We expect these shares to be bought over the course of the fourth quarter. And as usual, you will also see the reporting of the share buyback on our website.

This was the last question. I would like to turn the conference back over to you, gentlemen, for any closing remarks.

Sure. Thank you very much. So, yeah, great questions, great discussion. Thanks for your interest, as always. Let me take this opportunity to wrap up with the key takeaways of today. As you can see, our ecosystem strategy and the integration of About You are progressing very well in the first nine months of 2025. We delivered strong growth and increased profitability, and we are fully on track to deliver on our combined guidance for 2025 and also on our midterm guidance beyond. So thanks, everyone, for joining today's call. Have a nice day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Call School, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.