Zalando SE Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Adam Cochrane - Deutsche Bank - Analyst : Good morning. Thanks, guys. My first question is, when you're talking about the sequential improvement expected in sales and GMV into the second half of the year, is this based on anything more than a view that online penetration is going to continue to increase against stores? Or is it a slightly more positive view on the consumer? Or is this all related to measures that you're taking yourself? And within that, has that already started in July, sort of carrying on from the strong June that you talked about? On the second question, the business that you're talking about on AI sounds really quite exciting. Is this a question of if you were to put generated pictures on things, as that becomes more of the range, do you still get the same uplift? Or is it really just a transfer between different brands where one shoe has the background and another doesn't so that the shoe with the background goes up by 10%, but the other shoes go down by 10% or whatever the numbers are? If it's applied across everything, do you still get the same uplift from some of these sort of AI-generated type images? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 06, 2024 / 7:30AM, ZALG.DE - Q2 2024 Zalando SE Earnings Call

Question: William Woods - AB Bernstein - Analyst : Hi. Good morning. Thanks for taking my question. The first one is just on that recovery in the consumer. What specifically are you seeing in terms of the metrics that's driving that improvement in the consumer sentiment? And is there anything different between Germany or DACH and the international regions? And then the second one is obviously, you're having to take marketing spend up quite a lot to drive that growth, manifesting in the active customers. And is that about -- is that spend about reactivation of customers or acquiring new customers? Or could you give any color on where the spend is going? Thank you.

Question: Monique Pollard - Citi - Analyst : Hi. Thank you very much for taking my questions. Just two if I can. The first one, I guess, if I look at the 1H numbers, you delivered GMV growth of 2.4%. You've talked quite confidently about the acceleration in the top line as we go through the year and sort of consumer sentiment and your own net measures. So just trying to understand why this full-year guide is still 0% to 5%. I would have thought, I guess, given what you said at a minimum that could be narrowed to the top half of the range. And then the second question I had, again, coming back to the marketing cost. I was wondering if you could give us an update on the customer payback period that you now have set on the marketing expense. I know it's gone from sort of 2 years out to 1 to 1.5. Are we back to the sort of two-year customer payback period, particularly for the performance marketing now? Robert Gentz - Zalando SE - Co-Chief Executive Officer, Co-Founder, Member of the Management Board Yeah, thank you for your question. So I mean, on the guidance on GMV growth, I think -- I mean, I think two reasons. I think, first of all, as you know, like the big price in fashion is always in the second half. And I think within the second half, it always as well depends on the season side in September. And so -- and then I think overall, the -- as well like these macro uncertainties that we saw. So I think we find at the moment just prudent to actually stick to the guidance range that we have set out, and we feel are coming within these guidance ranges. On the marketing piece that you asked and payback period isn't a lot to it. So the marketing has two components, the performance marketing and the brand marketing. On the performance market, actually, our payback period of 1.5 years remains intact. What we do, though, in performance marketing that we have increasingly is we're diversified into more and more channels, as we're more experimenting and do test or so, like we work with Snapchat and TikTok and the experiment is quite broader here in the performance marketing channel. The bigger uptick of investment is actually though on the brand marketing piece where we are as well normalizing towards, I think, the subdued investments that we had in the last two years, and we just actually get it back to more normalized brand marketing investment level as we see the opportunity now for the future in the market.

Question: Sarah Roberts - Barclays - Analyst : Hi. Thank you for taking my question. Just a couple from me. So it's largely on kind of current trading. You mentioned during Q1 results that April was a modest acceleration on Q1, so maybe low single digits. It sounded like May kind of especially given poor weather in Northern Europe might have been a little bit on the softer side, which kind of imply a bit of a step-up in acceleration in June. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 06, 2024 / 7:30AM, ZALG.DE - Q2 2024 Zalando SE Earnings Call And it would be just good to kind of share any color on kind of trading throughout the month. And then off the back of that, how should we think about July? Have you seen a continued acceleration in that kind of growth trajectory? And then secondly, on ZMS, that came in at 1.2% of GMV for the half, so a little bit softer than maybe the full year for last year. Just curious as to what you're seeing in terms of advertising spend at brands and what your expectations for the second half of this year are.

Question: Luke Holbrook - Morgan Stanley - Analyst : Good morning. I've got two questions. The first is just on the fact that actives were down 3% in the first half. I'm just wondering if you can just outline particularly around the Euro, the Olympics, some of the one-off impact that you had into the second quarter with that improving 300,000, how much of that is one-off versus sustainable? And then the second question is just on the AI feature rollout, it'd just be interesting to touch base on where we are on that geographic rollout of features like size fitter, maybe Trend Spotter, anything you can provide in that regard?

Question: Yashraj Rajani - UBS - Analyst : Hi, good morning. Thank you so much for taking my question. My first question is just a follow-up on the guidance, please. So I very much appreciate your comment on keeping the revenue and GMV guide unchanged. But if we just translate that to adjusted EBIT, what you're basically implying for the second half is that you probably see very little, if any, margin accretion, right? So does that mean that, just putting in hindsight your marketing comment, does that mean that all of the improvements in gross margin and fulfillment will be kind of offset by marketing and that's why you've left the guidance for adjusted EBIT as well unchanged? I mean what else is holding you back on that?

Question: Jnrgen Kolb - Kepler Cheuvreux - Analyst : Yes. Thank you cery much. Two, first one on the inventory level, which is obviously very low if we base it on a trailing 12-month sales basis. And I was wondering if this is now the new level, the new level we should also consider going forward? And, or if you think that there might be a development into the opposite direction in the second half? And then maybe also a quick look into 2025. Is that strategy in terms of maybe putting less emphasis on the wholesale business, but more emphasis on the B2B will then also translate in a continuously better inventory management? And the second question around the tech center in Shenzhen. I was just wondering if you could maybe share some additional light on it. What do you expect from that investment? How many people do you expect to see there? What's the main purpose of innovation and targets that you expect to come from there? Just a little bit more details. Thank you very much.

Question: Georgina Johanan - JPMorgan - Analyst : Hi. Thanks for taking my question. I had a couple, please. And the first one, just in terms of the gross margin outlook for the rest of the year. You're obviously starting to see a healthy recovery there, but given that we're expecting sort of inventory to go back up again, I mean, is it reasonable to expect an H2 recovery in gross margin sort of in the region of what we saw in the second quarter, please? And then my second question, and apologies if you've commented on this and I missed it. I appreciate the color for the rest of full year '24 on fulfillment costs. But just thinking about how we should think about that for fiscal '25. Is it sort of -- is it a sensible modeling assumption that's sort of broadly flat year on year? Or actually as more of those costs are coming on from the Frankfurt ramp-up, could we actually see that ratio go up a little bit? Just any help there would be great, please. Thank you.

Question: Georgina Johanan - JPMorgan - Analyst : So leverage -- still leverage year on year into full year '25.

Question: Mia Strauss - Exane BNP Paribas - Analyst : Hi, there. Thanks for taking my question. Just two for me. I wanted to find out in your B2C growth, are you able to give us a little bit more color how much of it is coming from wholesale versus partner program? And then secondly, a slightly different question. But are you hearing anything from the third-party brands regarding supply disruption from Bangladesh?