ZOZO, Inc. (3092) Earnings Call Transcript & Summary

[Interpreted] It is now time to start this conference call. Hello. Good evening. My name is Yusaku Kobayashi, the VP of Strategic Planning and Development Department of ZOZO. Thank you very much for joining us in ZOZO conference call for the first quarter of FY '24 ending in March 2025. So from ZOZO, we have on the call, Director, Executive Vice President and CFO; Mr. Koji Yanagisawa and me, so there will be 2 of us joining from ZOZO. First, CFO, Yanagisawa, will take you through the financial results.

[Interpreted] Everyone, good evening. Now I'd like to walk you through the first quarter financial results for the fiscal year-ending in March 2025. Let's jump right in. Here are the highlights of this quarter. As for the first quarter of FY '24, our gross merchandise value, GMV, increased by 7.6% year-over-year, totaling JPY 141.8 billion. Our GMV, excluding other GMV rose by 7.5% year-over-year, reaching JPY 132.6 billion, and our operating profit rose by 0.2% year-over-year, reaching JPY 15.8 billion. And in terms of the achievement rate against the company plan, GMV, excluding other GMV achievement rate was 23.2%, and our OP achievement rate was 24.8%. Demand for spring and summer items has been growing since mid-April as the temperatures have aligned with previous years, and all businesses are generally progressing according to the plan. And our operating profit also exceeded the plan, although by a small margin. Both GMV and OP have reached record highs. Let's now go to page 7 of the handout. And this is the quarterly consolidated financial results. In the first quarter of this accounting period, GMV, excluding other GMV grew by 7.5% year-over-year.. Gross profits increased due to higher GMV growth in the advertising business and changes to the shipping policy. And these factors outweighed higher costs associated with the low logistics bases and with the new logistic bases and higher shipping costs due to changes in economic conditions. Let's go to page 8 of the handout. And this is the increase and decrease analysis of the operating profit of the first quarter. The previous fiscal year's OP was JPY 15.86 billion. In FY '24, it amounted to JPY 15.89 billion, up by approximately JPY 30 million. And there are 3 factors attributable to the growth of OP. First, plus JPY 2.42 billion from the gross profit growth resulting from ZOZOTOWN and Line Yahoo! Commerce GMV expansions; and second, plus JPY 417 million from the sales increase generated by the advertising business; and third, plus JPY 1.11 billion from the growth of shipping income and others coming from shipping policy change. And on the other hand, there are 4 main factors that drove down the OP. And first, minus JPY 1.6 billion from the increase in fixed costs impacted by the rise in the number of employees in logistics bases and others; second, minus JPY 1.65 billion from the increase in variable costs that rose in correlation to the GMV and shipping expenses. Minus JPY 310 million from the increase of the actual promotion-related expenses associated mainly with expenses to attract customers and point-based sales promotions and fourth, minus JPY 410 million from other expenses, such as the purchase of consumables, including materials and equipment, increase in cloud server costs and others. Let's now go to Page 20 of the handout. This is the breakdown of SG&A. The SG&A to GMV ratio was 23.4%, an increase of 1.4 points from the same period of last year. And there are mainly 3 factors that drove up the SG&A ratio. First one is the shipping expenses. The shipping expenses increased by 0.5 points as we accepted Yamato Transport shipping fee increases from April 1, 2024. And second, depreciation rose by 0.4 points as the depreciation of the material handling equipment related to the logistic base [ Ibaraki 4 ]. And thirdly, the rent expenses increased by 0.3 points following the commencement of the lease of ZOZO base Ibaraki 4 and 5. And this is the actual promotion-related expenses trend on Page 23. In this first quarter, we used 3.3% worth of GMV and our actual promotion-related expenses, which are the sum of advertising expenses and point related costs, it's about the same level as last year. Let's now go to Page 19 of the handout. Here are the OP and the OPM trends. Due to the increased costs related to the new logistics bases and increased shipping costs due to the changes in economic conditions, our OPM for the current fiscal year was 0.9 points lower than in the same period of the previous year, landing at 12.0%. Moving on to the main KPIs of ZOZOTOWN, I'd like to start off with Page 29, which is the number of total buyers. And by the way, the KPIs hereafter do not include the results of our Line-Yahoo Commerce or B2B business. The number of total buyers was up by 110,000 from the previous quarter, amounting to 11.79 million, of which active members was 10.91 million, increasing by 130,000 and guest buyers decreased by 20,000, finishing at 870,000. The strong effects of the warm winter slowed down the demand, which resulted in a decrease in the number of annual buyers in the fourth quarter of last year. However, in the first quarter, we saw a recovery in the new buyer acquisition as the temperature picked up from mid-April. And thanks to this, we were able to increase the number of total buyers solidly. Let's go to Page 27 of the handout. This is the number of shops on ZOZOTOWN. At the end of the first quarter, the number of shops was 1,605 a net increase of 10 shops from the end of the previous quarter. We welcomed 30 new shop to our platform this quarter. To name a few, we now have [indiscernible], an apparel brand produced by renowned female celebrity, Tory Burch, an American luxury brand and COSME ReMAKE that carries popular cosmetic brands from Korea like Rom&nd. Let's now go to Page 29. With respect to the average retail price, it was JPY 3,698, down by 0.7% year-over-year. The brands continue to increase their list prices for the spring and summer season, but the temperature continued to be higher than usual years. And then this resulted in an increase in the sales mix of relatively lower-priced merchandise, such as T-shirts and the ARP turned out to be slightly below that of the same quarter of the previous year. Now let's go to Page 30, where we have information on the average order value. The average order value was JPY 8,343, up 2.0% year-over-year. Although the average retail price was slightly lower, the number of items purchased per order increased, bringing up the average order value higher than that of last year. The number of items per order increased because we gave more days to free shipping on purchases over JPY 12,000 or more promotions than last year, and the ratio of combined purchases rose, thanks to it during this period. Go to Page 32. And here are the full year consolidated earnings forecast and dividends for the ongoing fiscal year. There's no change to the business performance forecast. So, that was a quick presentation from my side. Thank you.

[Interpreted ] Let's now go into the Q&A session. [Operator Instructions]

David Gibson from MST Financial. The 1Q result, you did very well on the take rate, a significant improvement for both the Yahoo business as well as the consignment. Could you elaborate on the driver behind that? I think you said brand mix in the Japanese call. But just do you think that's actually sustainable? Or will it change because of a seasonal change in brand demands going forward in other periods? The second question is, could you talk a little bit about how inventory was versus plan? Are brands changing their plans at all for you to carry the inventory going forward?

[Interpreted] So I'd like to answer the first question, which is about the brand mix. So this is something we can't really control because that's actually [ informed ] by the merchandise that the brands produce for different seasons. And then, yes, maybe the number of online players -- as our merchant advisers may go up, our merchants may go up, but it doesn't necessarily mean that, that will bring up the take rate automatically. So the brand mix is something we really don't have so much control over, and that's due to change. And about the second part of your question on the inventory, so I believe that, that question had to do with the fact that the turnover deteriorated last year, and I take it that question was related more to that. But the spring and summer sales finished and then the inventory level is rather stabilized now.

[Operator Instructions]

Just a quick question on -- in terms of when you look forward at the rest of the year in terms of the promotion that you guys control, any thoughts or changes on the level of promotion as you go through the year? And then also, can you just flag timing for what you expect large campaigns, if any, to be coming in the next 2 quarters?