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Zalando SE — Call Transcript 2020
May 7, 2020
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Zalando Q1/2020 Earnings Call
May 7th, 2020
While COVID-19 impacts Q1 financials, we see strong traction on our Starting Point Strategy
COVID-19 Response: Company-wide response effort successfully ensuring employee safety, financial health and strategic response
Q1 financial performance has been impacted negatively: GMV Growth (+13.9% YoY) and adj. EBIT (-99m EUR)
Our Starting Point Strategy is even more relevant than before and we see strong traction: fast Active Customer growth (+17.2% YoY) and accelerated platform transition (+4.4pp YoY Partner Program share)
We are confident to give an optimistic outlook for the full year guiding to doubledigit GMV growth and clear profitability, and we continue to aim for our 2023/24 targets.
Executing our Strategy in times of Covid-19
Rubin Ritter, Co-CEO
Our #1 priority is to ensure the safety of our employees
All colleagues who can work from home are in home office
For colleagues who cannot work from home, we do everything possible to create a safe working environment.
We are focused on ensuring business continuity despite high absence rates and struggling carrier networks.
Our #2 priority is to safeguard our financial success
Developed different demand scenarios for the year and stress-tested our financial health
Initiated cost savings and drew our revolving credit facility to remain flexible also in worst case
Adjusted our trading routines to the new environment (preponed mid-season sale, adjusted marketing steering and messaging to customers)
Our #3 priority is to find the right strategic response
Opportunity to be part of the solution for the fashion industry
Accelerate our Starting Point strategy, specifically platform transition
Adjust our priorities for the year accordingly
We see first signs that customers may shift to online even faster: highest number of new customers ever achieved in month of April
Brands need to shift towards digital even faster - and we are supporting them by accelerating the platform transition
We are supporting bricks and mortar retail by accelerating our Connected Retail program, driving offline/online convergence
We have the right assets and the right strategy to grow stronger throughout this crisis
We have the right assets… …and the right strategy…
…to grow stronger throughout this crisis.
Confident to finish 2020 with strong growth and profitability, remaining on track to our targets 2023/2024
Financial Update Q1/2020
David Schröder, CFO
Continued double digit growth in a highly challenging environment
1) Q1/20 (Q1/19) contains -€89.6m (-€129.7m) reconciliation of internal revenues
2) Other segments including various emerging businesses; private label offering zLabels no longer presented as separate unit since Q2/19
Underlying customer metrics continue to follow historical trends
1) Defined as GMV divided by the number of orders
2) Defined as GMV divided by the number of active customers
Short-term profitability hit hard by negative impact from Covid-19
1) Q1/20 (Q1/19) contains -€0.0m (€0.4m) reconciliation of internal EBIT
2) Excluding equity-settled share-based compensation (SBC) in Q1/20 of €14.5m (Q1/19: €24.8m thereof SBC of €11.8m; restructuring costs and non-operating one-time effects of €13.1m)
3) All other segments including various emerging businesses; private label offering zLabels no longer presented as separate unit since Q2/19
Decisive adjustments in commercial steering and continued improvements in overhead efficiency could not compensate for lower growth and deterioration in gross margin
| Costs and savings (in % of revenue, unadjusted) |
Q1 | |||
|---|---|---|---|---|
| 2019 | 2020 | Delta | ||
| Cost of sales | (60.1%) | (64.7%) | 4.6pp | |
| Gross profit | 39.9% | 35.3% | (4.6pp) | SS20 inventory write-off and price investments |
| Fulfillment costs |
(28.7%) | (29.9%) | 1.2pp | Lower utilization and higher sickness rate |
| Marketing costs | (7.0%) | (8.1%) | 1.1pp | Elevated ROI based marketing investment |
| Administrative expenses & Other | (5.4%) | (4.7%) | (0.7pp) | |
| EBIT | (1.2%) | (7.4)% | (6.2pp) | |
| Adj. EBIT1 | 0.5% | (6.5%) | (7.0pp) |
1) Excluding equity-settled share-based payment expense ("SBC"), restructuring costs and non-operating one-time effects
Negative Q1 YoY EBIT Development largely driven by operating deleverage, inventory write-off and price investments caused by Covid-19
1) Net difference between equity-settled share-based compensation (SBC) in Q1/20 of €14.5m and Q1/19 of €24.8m (thereof SBC of €11.8m; restructuring costs and non-operating one-time effects of €13.1m) and a gain recognized from the sale and lease back of undeveloped land in Berlin (Zalando Campus) in Q1/20
Working capital increased significantly driven by increase in inventories and lower business volume
Our strong cash position allows us to navigate confidently through this challenging time
- (1) Both Q1/20 and Q4/19 liquidity include investments into short-term deposits with maturity of more than 3 and less than 12 months of €25m, respectively.
- (2) Includes investments in fixed and intangible assets and payments for acquisitions and change in restricted cash (+€0.0m)
- (3) Includes financing cash flow (€359.6m) and effect of exchange rate on cash and cash equivalents (+€0.5m).
Outlook
GMV and Revenue growth of 10 – 20%
Adj. EBIT1 : €100 – 200m
Negative net working capital and €230 – 280m in Capex2
1) Excluding equity-settled share-based payment expense ("SBC") of ~€50m, restructuring costs and non-operating one-time effects for FY/20
2) Excludes M&A transactions
Issued share capital
| SHARE INFORMATION | Type of Shares | Ordinary bearer shares with no-par value (Stückaktien) | |
|---|---|---|---|
| (AS OF MAR 31, 2020) | Stock Exchange | Frankfurt Stock Exchange | |
| Market Segment | Regulated Market (Prime Standard) | ||
| Index Listings | MDAX | ||
| Total Number of Shares Outstanding | 252,883,564 | ||
| Issued Share Capital | €252,883,564 |
STOCK OPTION PROGRAMS MGMT BOARD (AS OF MAR 31, 2020) STOCK OPTION PROGRAMS SENIOR MGMT (AS OF MAR 31, 2020)
| Program | # Options outstanding | Weighted average exercise price (EUR) |
|---|---|---|
| SOP 20111 | 1,346,400 | 5.65 |
| SOP 20131 | 9,275,200 | 15.56 |
| VSOP 2017 | 290.000 | 42.24 |
| LTI 2018² | 5,250,000 | 47.44 |
| VSOP 2018 | 500,000 | 29.84 |
| LTI 2019 | 784,000 | 15.71 |
| Total | 17,445,600 | 25.25 |
| Program | # Options outstanding | Weighted average exercise price (EUR) |
|---|---|---|
| SOP 20141 | 2,061,931 | 21.28 |
| EIP1 | 3,628,749 | 35.31 |
| VSOP 2017 | 459,166 | 42.24 |
| ZOP | 707.439 | 17. 58 |
| Total | 6,857,285 | 29.73 |
1) Settled with new shares
2) Only to 43% dilutive / to be settled with new shares, remaining backed by treasury shares
Upcoming events
| Date | Event | |
|---|---|---|
| Wednesday, May 13 | UBS Pan European Small and Mid-Cap Conference 2020 | All events are virtual |
| Thursday, May 14 | Exane BNP Paribas Frankfurt E-Commerce Day | |
| Thursday, May 14 | Roadshow Frankfurt, Hamburg & Austria | |
| Monday/Tuesday, May 18-19 | US-Roadshow | |
| Monday/Tuesday, May 18-19 | Roadshow Scandinavia | |
| Wednesday, May 20 | Roadshow Zurich | |
| Thursday, May 28 | Morgan Stanley Annual Berlin Internet Field Trip | |
| Tuesday, June 2 | Roadshow Paris | |
| Monday, June 15 | Barclays Internet Day | |
| Tuesday/Wednesday, June 16-17 | Erste Consumer Conference | |
| Tuesday, June 23 | Annual General Meeting | |
| Tuesday, August 11 | Q2/2020 Results |
Zalando Investor Relations Team
Patrick Kofler Head of IR
Dorothee Schultz Junior Manager IR
Nils Pöppinghaus Manager IR
Jan Edelmann Manager IR
Team Contact
T: +49 3020 9681 584 Zalando Tamara-Danz-Straße 1 10243 Berlin
[email protected] https://corporate.zalando.com/en
Disclaimer
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 forward-looking statements as predictions of future events and we undertake no obligation to update or revise these statements.
Our actual results may differ materially and adversely from any forward-looking 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 / conditions in production with regard to private labels, lack of innovation capabilities, inadequate data security, lack of market knowledge, risk of strike and changes in competition levels.