Zalando SE — Call Transcript 2016

Nov 10, 2016

Q 3 / 2 0 1 6 E A R N I N G S C A L L

E U R O P E ' S L E A D I N G O N L I N E F A S H I O N D E S T I N A T I O N

1 0 - 1 1 - 2 0 1 6

Certain statements in this communication may constitute forward looking statements. These statements are based on assumptions that are believed to be reasonable at the time they are made, and are subject to significant risks and uncertainties. You should not rely on these fo rward-looking statements as predictions of future events and we undertake no obligation to update or revise these statements. Our actual results may differ materiall y and adversely from any forwardlooking statements discussed on this call due to a number of factors, including without limitation, risks from macroeconomic developments, external fraud, inefficient processes at fulfillment centers, inaccurate personnel and capacity forecasts for fulfillment centers, hazardous material / c onditions in production with regard to private labels, lack of innovation capabilities, inadequate data security, lack of market knowledge, risk of strike and chang es in competition levels.

D I S C L A I M E R

R E S U L T S H I G H L I G H T S A N D B U S I N E S S U P D A T E

Z A L A N D O W I T H S T R O N G Y T D / 1 6 P E R F O R M A N C E : S T E A D Y G R O W T H , I N C R E A S E D P R O F I T A B I L I T Y A N D P O S I T I V E C A S H F L O W

O U R C U S T O M E R P R O P O S I T I O N K E E P S E V O L V I N G …

…W I T H B R E A D & B U T T E R B E I N G T H E U L T I M A T E F A S H I O N E V E N T I N Q 3 / 1 6 …

…AND T H E O P E R A T I O N A L BACKBONE O F T H E P L A T F O R M T A K I N G S H A P E

F I N A N C I A L U P D A T E Q 3 / 2 0 1 6

R E V E N U E G R O W T H A B O V E M A R K E T , G A I N I N G M A R K E T S H A R E

GROUP REVENUE

In €m

DACH REVENUE

In €m

S T R O N G AND W E L L B A L A N C E D C U S T O M E R K P I S

10 (1) Defined as the transactional revenue (incl. VAT and transactional volume of Partner Program) after cancellations or returns d ivided by the number of orders. (2) GMV (gross merchandise volume) per active customer = average orders per active customer (LTM in #) x average basket size afte r returns (in €).

ACTIVE CUSTOMERS

AVERAGE ORDER PER ACTIVE CUSTOMER

C L E A R G R O U P P R O F I T A B I L I T Y I N Q 3 / 1 6

GROUP EBIT PROFITABILITY

EBIT margin (excl. SBC¹ )

DACH EBIT

EBIT margin (excl. SBC¹ )

12 (1) Excluding equity-settled stock SBC costs ("SBC").

F A V O R A B L E D E V E L O P M E N T I N O P E X D R I V E S E B I T M A R G I N

		YTD 16			Q3
	2015	2016	D e l t a	2015	2016	D e l t a
C O S T O F S A L E S	(55.2%)	(56.2%)	1.0%	(59.4%)	(58.6%)	(0.8%)
G R O S S P R O F I T	44.8%	43.8%	(1.0%)	40.6%	41.4%	0.8%
F U L F I L L M E N T C O S T S	(26.8%)	(23.7%)	(3.1%)	(27.1%)	(24.0%)	(3.1%)
M A R K E T I N G C O S T S	(12.0%)	(10.2%)	(1.8%)	(12.3%)	(9.5%)	(2.8%)
A D M I N I S T R A T I V E EXPENSES & OTHER	(4.3%)	(5.1%)	0.8%	(4.5%)	(5.6%)	1.1%
E B I T	1.7%	4.7%	3.0%	(3.3%)	2.3%	5.6%

COSTS AND MARGINS

excl. SBC¹in percent of revenue

F O C U S O N O P E R A T I O N A L C A P I T A L E F F I C I E N C Y

NET WORKING CAPITAL (END OF Q3)

in percent of annualized revenue

CAPITAL EXPENDITURE¹

in €m

L I Q U I D I T Y R E M A I N S S T A B L E

CASH FLOW DEVELOPMENT (Q3/16)

In €m

• (1) Q2/16 and Q3/16 liquidity include investments into short-term deposits with maturity of more than 3 and less than 12 months of €145m and €220m, respectively.
• (2) Includes investments in fixed, intangible assets and payments for acquisitions.

(3) Includes financing cash flow (-€0.2m) and effect of exchange rate on cash and cash equivalents ( €0.5m).

O U T L O O K

O U T L O O K F O R F Y 2 0 1 6 W I T H R A I S E D M A R G I N G U I D A N C E

2

18 (1) Average Oct-2016.

(2) The AGM of 31-May-16 authorized the Management Board to grant options under the Employee Incentive Plan. (3) Assuming the exercise price equals the closing price of 30 -Sep-2016 of €37.15, this translates into the issuance of 158,995 shares upon exercise. (4) Assuming the exercise price equals the closing price of 30 -Sep-2016 of €37.15, this translates into the issuance of 43,406 shares upon exercise.

Type of Shares Ordinary bearer shares with no-par value (Stückaktien)

Stock Exchange Frankfurt Stock Exchange

Market Segment Regulated Market (Prime Standard)

Index Listings MDAX (2.6% share1)

Total Number of Shares Outstanding 247,250,258

Issued Share Capital €247,250,258

SHARE INFORMATION

SHARE STOCK OPTION PROGRAMS

I S S U E D S H A R E C A P I T A L

As of 30-Sep-2016

As of 30-Sep-2016

EMPLOYEE INCENTIVE PLAN²

As of 30-Sep-2016

Program	# Options outstanding	Strike price	Program	# Options outstanding	Strike price
Various	95,370	1.00	EIP 2016 – Tranche Jul 2016	114,574	1.00
SOP 2011	2,543,200	5.65	EIP 2016 – Tranche Jul 20163	587,726	27.10
SOP 2013	9,817,500	15.63	EIP 2016 – Tranche Jul 20164	348,281	32.52
SOP 2014 – Tranche pre IPO	5,200,209	17.72	Total	1,050,581
SOP2014 – Tranche Mar 2015	644,145	22.79
SOP 2014 – Tranche May 2015	371,800	25.03
SOP 2014 – Tranche Aug 2015	193,500	29.92
SOP 2014 – Tranche Nov 2015	58,900	30.48
SOP 2014 – Tranche Mar 2016	342,450	31.60
Total	19,267,074

Strike price

I N C O M E S T A T E M E N T

€

€ m	FY/14	FY/15	Q3/15	Q3/16	YTD/16
Revenue	2,214.0	2,958.2	713.1	834.8	2,547.4
% growth	25.7%	33.6%	42.2%	17.1%	21.9%
Cost of Sales	(1,255.3)	(1,624.0)	(424.7)	(490.6)	(1,436.4)
Gross Profit	958.7	1,334.1	288.4	344.3	1,111.0
% margin	43.3%	45.1%	40.4%	41.2%	43.6%
Selling and Distribution Costs	(793.8)	(1,118.9)	(282.9)	(283.1)	(870.2)
Administrative Expenses	(109.1)	(129.0)	(34.2)	(48.7)	(138.2)
Other Operating Income	12.2	10.2	1.5	1.3	6.3
Other Operating Expenses	(5.8)	(7.0)	(0.7)	(1.1)	(2.5)
EBIT	62.1	89.6	(27.8)	12.7	106.4
% margin	2.8%	3.0%	(3.9%)	1.5%	4.2%
Net Financial Result	(4.5)	(3.0)	(6.3)	(3.3)	(7.8)
EBT	57.7	86.6	(34.1)	9.4	98.5
% margin	2.6%	2.9%	4.8%	1.1%	3.9%
Income and Other Tax	(10.5)	34.9	5.6	(4.4)	(38.0)
Net Income	47.2	121.5	(28.5)	5.0	60.5
% margin	2.1%	4.1%	(4.0%)	0.6%	2.4%
Depreciation & Amortization	25.8	34.2	8.7	11.1	30.4
EBITDA	88.0	123.8	19.1	23.8	136.8
% margin	4.0%	4.2%	(2.7%)	2.9%	5.4%
Share Based Compensation (SBC)	19.8	17.9	4.3	6.8	14.3
Adj. EBIT (adj. for SBC)	82.0	107.5	(23.5)	19.5	120.7
% margin	3.7%	3.6%	(3.3%)	2.3%	4.7%
Adj. EBITDA (adj. for SBC)	107.8	141.7	(14.8)	30.6	151.1
% margin	4.9%	4.8%	(2.1%)	3.7%	5.9%

S H A R E B A S E D C O M P E N S A T I O N

Per Income Statement Line Item

				YTD/16
				3.6
				7.2
				3.6
19.8	17.9	4.3	6.8	14.3
				YTD/16
				0.1%
				0.3%
				0.1%
0.9%	0.6%	0.6%	0.8%	0.6%
	FY/14 4.4 9.6 5.8 FY/14 0.2% 0.4% 0.3%	FY/15 4.5 9.0 4.5 FY/15 0.2% 0.3% 0.2%	Q3/15 1.1 2.2 1.1 Q2/15 0.2% 0.3% 0.2%	Q3/16 1.7 3.4 1.7 Q2/16 0.2% 0.4% 0.2%

Per Income Statement Line Item

S E G M E N T S

€ m	FY/14	FY/15	Q3/15	Q3/16	YTD/16
Revenue	2,214.0	2,958.2	713.1	834.8	2,547.4
DACH	1,234.0	1,580.1	371.2	407.1	1,284.4
Rest of Europe	862.6	1,211.6	300.8	374.0	1,091.8
Other	117.4	166.5	41.1	53.7	171.3
As % of total	100.0%	100.0%	100.0%	100.0%	100.0%
DACH	55.7%	53.4%	52.1%	48.8%	50.4%
Rest of Europe	39.0%	41.0%	42.2%	44.8%	42.9%
Other	5.3%	5.6%	5.8%	6.4%	6.7%
EBIT	62.1	89.6	(27.8)	12.7	106.4
DACH	72.3	92.2	(5.1)	38.1	139.2
Rest of Europe	(18.6)	(10.2)	(23.4)	(20.8)	(24.9)
Other	8.4	7.5	0.6	(4.5)	(8.0)
% margin	2.8%	3.0%	(3.9%)	1.5%	4.2%
DACH	5.9%	5.8%	(1.4%)	9.3%	10.8%
Rest of Europe	(2.2%)	(0.8%)	(7.8%)	(5.6%)	(2.3%)
Other	7.2%	4.5%	1.6%	(8.5%)	(4.7%)
Adjusted EBIT	82.0	107.5	(23.5)	19.5	120.7
DACH	83.0	101.9	(2.8)	41.4	146.3
Rest of Europe	(11.6)	(3.3)	(21.7)	(17.9)	(19.0)
Other	10.5	8.9	1.0	(4.0)	(6.6)
% adjusted margin	3.7%	3.6%	(3.3%)	2.3%	4.7%
DACH	6.7%	6.4%	(0.8%)	10.2%	11.4%
Rest of Europe	(1.3%)	(0.3%)	(7.2%)	(4.8%)	(1.7%)
Other	9.0%	5.3%	2.5%	(7.4%)	(3.9%)

B A L A N C E S H E E T

€m Q3/15

		Q3/15 (% of total		Q3/16 (% of total
€m	Q3/15	assets)	Q3/16	assets)
Total Non-Current Assets	192.9	9.1%	364.7	14.7%
Thereof: Property, Plant and Equipment	119.8	5.7%	203.0	8.2%
Other Financial Assets	30.8	1.5%	39.6	1.6%
Non-Financial Assets	3.7	0.2%	3.3	0.1%
Other Non-Current Assets	38.6	1.8%	118.9	4.8%
Total Current Assets	1,919.6	90.9%	2,113.2	85.3%
Thereof: Inventories	590.4	27.9%	620.9	25.1%
Trade and Other Receivables	154.6	7.3%	167.4	6.8%
Other Assets1	249.8	11.8%	348.5	14.1%
Cash and Cash Equivalents1	924.9	43.8%	976.4	39.4%
Total Assets	2,112.6	100.0%	2,477.9	100.0%
Total Equity	1,164.8 1,164.8	55.1%	1,342.9	54.2%
Thereof: Issued Capital	246.8	11.7%	247.2	10.0%
Capital Reserves	1,134.4	53.7%	1,156.1	46.7%
Retained earnings	4.2	0.2%	(2.9)	(0.1%)
Accumulated Loss	(220.6)	(10.4%)	(57.5)	(2.3%)
Total Non-Current Liabilities	33.8	1.6%	30.5	1.2%
Thereof: Financial Liabilities	15.2	0.7%	12.0	0.5%
Other Non-Current Liabilities	18.6	0.9%	18.5	0.7%
Total Current Liabilities	914.0	43.3%	1,104.5	44.6%
Thereof: Trade Payables and Similar Obligations	758.2	35.9%	946.2	38.2%
Other Current Liabilities	155.8	7.4%	158.3	6.4%
Total Equity & Liabilities	2,112.6	100.0%	2,477.9	100.0%
Net Working Capital	(13.3)	(0.5%)	(157.9)	(4.7%)

C A S H F L O W S T A T E M E N T

€m	FY2014	FY2015	Q3/15	Q3/16	YTD/16
Net Income	47.2	121.5	(28.5)	5.0	60.5
Non-Cash Expenses from Share-Based Payments	19.8	17.9	4.3	6.8	14.3
Cash Settlement of Claims from Share-Based Payments	0.0	(2.3)	0.0	0.0	0.0
Depreciation	25.8	34.2	8.7	11.1	30.4
Income Taxes	10.5	(34.9)	(5.6)	4.4	38.0
Income Taxes Paid, Less Refunds	0.0	(0.0)	0.0	(4.6)	(29.2)
Change in Provisions	1.0	(0.5)	(0.0)	1.1	0.7
Other Non-Cash Income	(0.2)	(1.0)	1.8	0.3	(0.7)
Change in Inventories and Receivables	(68.7)	(154.2)	(145.2)	(178.6)	(142.8)
Change in Trade Liabilities	94.9	154.9	188.2	264.7	285.0
Change in Other Assets/Other Liabilities	44.6	(16.2)	(5.3)	(47.3)	(45.6)
Cash Flow from Operating Activities	174.9	119.4	18.3	63.0	210.7
Payments for Investments in Fixed and Intangible Assets	(51.1)	(60.0)	(19.9)	(47.7)	(115.9)
Payments for Acquisitions	0.0	(16.8)	(7.8)	0.0	(29.2)
Cash Paid for Investments in Term Deposits	0.0	(155.0)	(45.0)	(75.0)	(65.0)
Change in Restricted Cash	(0.8)	35.3	6.0	0.0	(0.0)
Cash Flow from Investing Activities	(51.9)	(196.5)	(63.5)	(122.7)	(210.0)
Payments Received from Capital Increases	510.1	6.4	0.2	0.6	1.1
Cash Received from Loans	3.9	0.0	0.0	0.0	0.0
Repurchase of treasury shares	0.0	(1.7)	0.0	0.0	0.0
Cash Repayments of Loans	(3.2)	(3.2)	(0.8)	(0.8)	(2.4)
Cash Flow from Financing Activities	510.8	1.5	(0.6)	(0.2)	(1.4)
Change in Cash & Cash Equivalents	633.8	(75.7)	(45.8)	(60.0)	(0.8)
Effects of Exchange Rate on Cash & Cash Equivalents	0.0	0.9	(2.9)	0.5	0.9

Cash Flow from Investing Activities (51.9) (196.5)

K P I D E V E L O P M E N T

	2014	Q1/15	Q2/15	Q3/15	Q4/15	2015	Q1/16	Q2/16	Q3/16
Site Visits (m)1	1,363.8	392.8	411.8	393.9	457.9	1,656.4	479.5	480.2	468.6
Mobile Visit Share (in % of Site Visits)2	42.3%	52.6%	56.6%	58.8%	59.9%	57.1%	62.3%	64.7%	67.0%
Active Customers (m) 3	14.7	15.4	16.4	17.2	17.9	17.9	18.4	18.8	19.2
Number of Orders (m) 4	41.4	12.0	14.0	13.8	15.4	55.3	15.6	17.5	16.4
Average Order per Active Customer	2.82x	2.84x	2.89x	3.00x	3.08x	3.08x	3.20x	3.32x	3.39x
Average Basket Size (in €) 5	66.6	68.0	67.4	63.3	72.1	67.8	66.5	66.2	62.8
Fulfillment Cost Ratio (in % of revenue) 6	22%	25%	28%	27%	23%	26%	24%	23%	24%
Marketing Cost Ratio (in % of revenue) 7	13%	12%	12%	12%	11%	12%	10%	10%	10%

• (1) Site Visits defined as the number of series of page requests from the same uniquely identified client at Zalando, including w ebsite, m.site and apps in the measurement period. A visit is considered ended when no requests have been recorded in more than 30 minutes.

• (2) Mobile is defined as tablets, mobile site and apps.

• (3) Active Customers defined as the number of customers placing at least one order in the last twelve months in the measurement p eriod irrespective of cancellations or returns.

• (4) Number of Orders defined as the number of customer orders placed in the measurement period irrespective of cancellations or r eturns. An order is counted on the day the customer places the order. Orders placed and orders delivered may differ due to orders that are in transit at the end of the measurement peri od or have been cancelled.
• (5) Average Basket Size defined as the transactional revenue (incl. VAT and transactional volume of Partner Program) after cancel lations or returns divided by the number of orders.
• (6) Fulfillment Cost Ratio defined as fulfillment cost as a proportion of revenue in the measurement period. Fulfillment costs ma inly include logistics, content creation, service and payment expenses, as well as allocated overhead. costs. Fulfillment costs therefore comprises all selling and distribution costs, exc ept for marketing costs. All numbers shown excluding equity settled SBC costs.
• (7) Marketing Cost Ratio defined as marketing cost as a proportion of revenue in the measurement period. Marketing cost mainly co nsists of advertising expenses including search engine marketing, television, online display and other marketing channels as well as allocated overhead cost. All numbers shown excl uding equity-settled SBC costs.

F I N A N C I A L C A L E N D A R 2 0 1 7

Date	Action
Thursday + Friday, 17-18-Nov	Morgan Stanley European TMT Conference, Barcelona
Wednesday, 30-Nov	NDR, Paris
Jan-20171	Q4/2016 Trading Update
Wednesday, 1-Mar	Q4/2016 Results
Tuesday, 9-May	Q1/2017 Results
Wednesday, 31-May	Annual General Meeting 2017
Monday + Tuesday, 19-20 June	Capital Markets Day 2017 (Day 1: warehouse tour, Day 2: Berlin)
Thursday, 10-Aug	Q2/2017 Results
Tuesday, 7-Nov	Q3/2017 Results

May 2017 March 2017							June 2017					August 2017					November 2017
M	T	W	T	F	M	T	W	T	F	M	T	W	T	F	M	T	W	T	F	M	T	W	T	F
		1	2	3	1	2	3	4	5				1	2		1	2	3	4			1	2	3
6	7	8	9	10	8	9	10	11	12	5	6	7	8	9	7	8	9	10	11	6	7	8	9	10
13	14	15	16	17	15	16	17	18	19	12	13	14	15	16	14	15	16	17	18	13	14	15	16	17
20	21	22	23	24	22	23	24	25	26	19	20	21	22	23	21	22	23	24	25	20	21	22	23	24
27	28	29	30	31	29	30	31			26	27	28	29	30	28	29	30	31		27	28	29	30

(1) Date will be pre-announced a few weeks in advance via press release.