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

[Interpreted] It is time, so we would like to begin. All right. Good evening. This is Kobayashi. We would like to begin. Thank you very much for taking part in ZOZO's FY 2026 First Quarter Conference Call. From our firm, we have the Executive Vice President and CFO, Yanagisawa as well as myself, Kobayashi. Without further ado, we would like to have Yanagisawa to take you through the earnings results.

[Interpreted] Everyone, good evening. I would like to take you through the FY 2026 Q1 results. First, if you could turn to Page 6, I would like to start us off with an explanation of the repurchase of shares and their cancellation that we announced on June 16. [Interpreted] This initiative will enable us to further strengthen our shareholder returns and improve our capital efficiency, thereby enhancing our corporate value. [Interpreted] Since FY 2023 ending in March '24, we have aspired to achieve an average total shareholder return of 80% over the span of 5 years. Based on 70% dividend payout ratio, we have taken into account our cash position and share price levels and have flexibly bought back our shares so that we can further enhance our shareholder returns. [Interpreted] We have decided to repurchase our shares from the market with a maximum total purchase amount of JPY 30 billion or 43 million shares. [Interpreted] The repurchase period is scheduled to run from June 17, 2026 through December 30, 2026. [Interpreted] Moreover, all the shares acquired will be canceled on January 29, 2027. [Interpreted] By doing so, the ROE for FY 2026 will surpass 50%, significantly improving from 46.6% the ROE as of the end of FY '25. [Interpreted] Now I would like to take you through the FY '26 Q1 results. [Interpreted] GMV for this quarter decreased by 1.6% Y-o-Y to JPY 156.7 billion and GMV, excluding other GMV, increased by 5.1% Y-o-Y to JPY 156.6 billion. [Interpreted] Adjusted EBITA increased by 3.6% Y-o-Y to JPY 18.7 billion. Adjusted EBITA margin was 12%, decreasing by 0.1 points Y-o-Y. [Interpreted] The achievement rate against our plans for GMV, excluding other GMV, was 23.1% and 24.1% for adjusted EBITA. [Interpreted] The GMV has decreased Y-o-Y as the GMV from the ZOZO Option contract store on Yahoo! Shopping are no longer included as of September 2025. [Interpreted] GMV, excluding other GMV, have been impacted by less demand for summer products on ZOZOTOWN and LINE Yahoo! Commerce due to lower temperatures in June than the previous fiscal year but it landed in line with our plans for the quarter. [Interpreted] On the other hand, adjusted EBITDA was slightly higher than our plans due to improvements in shipping efficiency and warehouse operations, resulting in lower cost in packing, shipping and logistics as well as unspent promotional expenses due to the promotional schedule being pushed back. [Interpreted] We have achieved record high Q1 GMV, excluding other GMV, and adjusted EBITA. [Interpreted] Now if you would turn to Page 5. Next, I would like to talk about the Q1 initiatives for achieving the midterm management plan. [Interpreted] First, with respect to more fashion, proactive promotions have resulted in steady acquisition. Moreover, from July, we have started to provide ZOZO Niau [ coordinate AI Lab bot ] agent on the official LINE account. We will continue to improve our services to increase traffic. [Interpreted] Second is Near Fashion. PMI with HIGH LINK that we have begun in May has been going well. And to further enhance synergy, we have included flyers in ZOZOTOWN's packages to direct customers to HIGH LINK's key service Coloria. [Interpreted] Lastly, regarding global initiatives, an important undertaking for this year is to add the checkout function on LYST, and we are on track in terms of increasing the number of merchants opting into this service. [Interpreted] We will continue to undertake various initiatives to achieve our midterm management plan. [Interpreted] Now let me take you through some key results. [Interpreted] On Page 10, you will find the adjusted EBITA decrease analysis for Q1. [Interpreted] The adjusted EBITA has increased by JPY 650 million from JPY 18.09 billion to JPY 18.74. [Interpreted] This is due to 4 reasons: ZOZOTOWN and LINE Yahoo! Commerce GMV has increased, resulting in a gross profit increase of JPY 1.47 billion. And second, advertising business grew and sales increased by JPY 70 million. [Interpreted] Thirdly, LYST has been consolidated for a longer period of time and HIGH LINK has begun to be consolidated, resulting in a gross profit increase of JPY 500 million. And lastly, better terms negotiated with the delivery service provider has led to packing and shipping cost savings and better logistics center efficiency has resulted in payroll cost savings, thereby reducing variable costs by JPY 390 million. [Interpreted] On the other hand, the adjusted EBITDA has decreased due to 3 reasons: first, higher depreciation expenses following the commencement of depreciation for material handling equipment used for shipping at existing logistics facilities as well as an increase in the number of consolidated employees resulting from the consolidation of HIGH LINK, and these have led to an increase in fixed cost by JPY 730 million. Second, higher customer acquisition and promotion expenses as well as increased expenses resulting from the longer consolidation period of LYST led to an increase in underlying promotion expenses by JPY 750 million and other expenses increased by JPY 300 million. [Interpreted] Next, moving on to Page 11. This is our balance sheet. [Interpreted] Compared with the end of the previous fiscal year, cash and cash equivalents decreased mainly due to funds transferred to a securities account for the share repurchase program and tax payments, while goodwill increased following the acquisition of HIGH LINK as a wholly owned subsidiary. [Interpreted] Moving on to Page 22. I would like to talk about the SG&A expenses. [Interpreted] The SG&A expenses as a percentage of GMV was 22.1%, down 0.6 points from the previous fiscal year. [Interpreted] The SG&A expenses decreased due to mainly 3 reasons. By improving shipping efficiency, we were able to improve our economic terms with the delivery service partner as of October 2025, thus lowering the packing and shipping expenses by 0.6 points. Second, logistics-related personnel expenses decreased by 0.3 points due to improved operational efficiency, driven by initiatives such as optimizing inventory storage volumes at logistics facilities. And thirdly, due to the absence of the one-off expenses related to the acquisition of LYST that were recognized in the same period of the previous fiscal year, the cost decreased by 0.3 points. [Interpreted] On the other hand, the SG&A expenses increased due to 2 reasons: one, depreciation expenses increased by 0.2 points following the commencement of depreciation for shipping-related material handling equipment at existing logistics facilities; and second, amortization of goodwill increased by 0.2 points due to the longer consolidation period of LYST and the beginning of the consolidation of HIGH LINK. [Interpreted] On Page 25, you will find the trends in the actual promotion-related expenses. [Interpreted] In the first quarter, actual promotion-related expenses, or the sum of advertising expenses and point-related expenses deducted from net sales, was 4.5% of GMV. [Interpreted] The reason why this percentage against GMV has increased by 0.3 points Y-o-Y are: one, we strengthened web advertising and free shipping initiatives for ZOZOTOWN; and second, the consolidation period of LYST was 1 month longer than in the same period of the previous fiscal year. [Interpreted] Although the actual promotion-related expense percentage has increased, the consumption fell slightly below our plans. The unused budget will be utilized in Q2 onwards and the full year spending against the GMV will be 4.8% around the same level as last fiscal year. [Interpreted] Page 26 onwards, I would like to talk about the ZOZOTOWN KPIs. [Interpreted] First starting with the number of buyers. The number of annual buyers increased Q-on-Q by 240,000 to 13.41 million. If we break this down, the number of active members increased Q-on-Q by 230,000 to 12.71 million and the number of guest buyers increased Q-on-Q by 50,000 to 690,000. [Interpreted] As was the case last fiscal year, we increased our investment in web ads this quarter, resulting in steady increase in new acquisitions. [Interpreted] Moving on to Page 31, the average retail price. [Interpreted] The average retail price was JPY 3,682, down 1.7% Y-o-Y. [Interpreted] Price increases implemented by brands for new spring/summer merchandise moderated with price levels remaining broadly in line with the previous year. [Interpreted] On the other hand, the average retail price declined as both the proportion of sales from discounted items and the average discount rate increased. [Interpreted] Moving on to Page 32. The AOV, average order value, was JPY 8,506, down 0.4% Y-o-Y. [Interpreted] The number of items purchased per order increased as free shipping initiatives were implemented more frequently than in the same period of the previous fiscal year and the increase in the proportion of sales from discounted items led to a higher multiple item purchase rate. However, the decline in the average retail price had a greater impact than the increase in the number of items purchased per order, resulting in a decrease in the average order value. [Interpreted] Lastly, on Page 35, you will find our consolidated earnings forecast and dividend forecast, and there have been no changes made to these numbers. This concludes my explanation.

[Interpreted] Now we would like to move on to Q&A. [Operator Instructions] David-san, please go ahead.

It's David Gibson from MST Financial. Just to clarify on LYST, what is the like-for-like sales growth in the first quarter, please?

[Interpreted] So basically, Q-on-Q or compared to the same period last year, the growth rate is flat. However, last year, they were only consolidated for May and June. And this year, they're consolidated for the full quarter. So in that sense, it would appear as though they've grown by 30%.

Sure. But if we just look at the -- to your point, the year-on-year and look at last year was 2 months, and we gross it up, I think it implies at about down 10%, 11% year-on-year. Is that not correct?