ZOZO, Inc.

the financial results announcement of ZOZO for the first quarter of FY 2020 ending in March. In order to prevent the spread of COVID-19, we changed the way we organized the session. We would only offer a live streaming this time. I would like to now introduce the participants, President and CEO Kotaro Sawada, Executive Vice President and CFO Koji Yanagisawa. We have two presenters today. CFO Yanagisawa will take us through the business results. Good afternoon. I am Yanagisawa. As it was mentioned, just like the previous time, in order to prevent the spread of COVID-19, we're offering this earnings results announcement only through live streaming on YouTube. The presentation document we will be using today has already been uploaded to the IR page of our website, so please take a look at it. Now, I would like to walk you through the earnings results of the first quarter of FY 2020, ending in March of 2021. And by the way, the fashion that we are wearing. More fashion is the key word for this fiscal year. Saki Inoue from EC Division dressed us up today. She served as our stylist to do a makeover for us. And my theme of this styling, what was the theme of my styling? I forget what it was. Was it botanical? Botanical mode. I see. Botanical mode it is. And every three months, whenever we have the financial results announcement, we will be styled in different ways. So please look forward to that. Now I would like to walk you through the earnings results of the first quarter.

Let's jump right in.

Gross merchandise value GMV went up by 19.5% year-on-year, landing at 95.3 billion yen. Operating profit was up by 33.9%, landing at 10.4 billion yen. Operating profit margin was 10.9%, improving by 1.1 points year-on-year. We are... quite happy. We did more than what we expected. If you go to the next slide you have the quarterly changes of the business results. Regarding GNV, The impact coming from the spread of COVID-19 resulted in a significant growth which exceeded the level of the past few quarters on a year-on-year basis. In Japan, people were requested to stay home until the end of May after the state of emergency declaration was issued. And we did see some negative impact of that as the demand for fashion slowed down. But for the brands, the sales channels were restricted because their clothes were temporarily closed. And we focused our initiatives to maximize our sales capabilities, support the brands. As a result of that, the positive impact from digital shift proved to be greater, offsetting the negative impact, allowing us to land with a high growth rate. Regarding AP, we saw an increase of gross profit from GMV growth, and there was a discount expense incurred for Zozo Arigato program up until the end of May last year. These factors resulted in the improvement of OP from the same period of the previous year. Next, I'd like to touch on the highlights of the business results. Let's first look at increase and decrease analysis of the operating profit. OP was 7.7 billion in the first quarter last year. It was 10.4 billion this year, up by 2.7 billion approximately. To give you a breakdown, factors attributable to the growth of the OP were there were four of them. The increase in sales of consignment shop commission, that was 5.45 billion. The increase of gross profit with advertisement business, that's $220 million. And the increase of gross profit with other sales, that was $330 million. And reduction of other expenses amounted to $320 million. On the other hand, factors that drove down the OP, we have three of them. First, the increase in fixed costs due to higher number of logistic bases and the number of employees, that's 810 million. And the increase of variable costs that go up in correlation with GMV growth, that's 2.73 billion. And the increase of promotion expenses, that's 140 million. For the breakdown of fixed and variable costs, please refer to the document. of the financial results. Next, here's the balance sheet. There's no special topic to highlight. Please check the document for details. This is the quarterly changes of GMV. Please refer to the breakdown by business in the consolidated financial results. You will be able to find that in consolidated financial results. There's not much change. Next, SG&A. SG&A against GMV for the first quarter amounted to 22.9% down by 0.3% year-on-year.