Zalando SE — Earnings Release 2015

Aug 14, 2015

EUROPE'S LEADING ONLINE FASHION DESTINATION

Q2 2015 Earnings Call 13 August 2015

Results highlights and business update

1

SUCCESSFUL FIRST HALF YEAR 2015 WITH ACCELERATING GROWTH

(1) Excluding equity-settled stock based compensation costs ("SBC") of €8.4m in YTD/15.

(2) Includes operating cash flow less investing cash flow (investments in fixed, intangible assets and payments for acquisitions); excludes changes in restricted cash and investments into short-term deposits with maturity of more than 3 and less than 12 months (total of -€76.5m).

GROWTH MOMENTUM DRIVEN BY FOCUS ON CUSTOMER EXPERIENCE

PLATFORM DEVELOPMENTS FOR LONG-TERM GROWTH

Opening of two international tech hubs in Dublin and Helsinki

Starting internationalization of Zalon

Investment in marketplace software company Anatwine

Bread & Butter acquisition

EVOLVING WAREHOUSE FOOTPRINT

• Build-out of sections 4 & 5 in Mönchengladbach
• Accelerate planning of new central hub in Germany

Build-out of hub & spoke system with first satellite warehouse in Northern Italy (service provider)

Financial update Q2 2015 and YTD 2015

GROWTH ACCELERATED EVEN FURTHER IN Q2

(1) Segment "Others" includes revenues from Zalando Lounge, as well as two outlet stores in Berlin and Frankfurt and others.

STRONG CUSTOMER KPIS DRIVE REVENUE GROWTH

(1) Defined as the transactional revenue (incl. VAT and transactional volume of Partner Program) after cancellations or returns divided by the number of orders.

(2) GMV (gross merchandise volume) per active customer = average orders per active customer (LTM in #) x average basket size after returns (in €).

CLEAR GROUP PROFITABILITY IN Q2

(1) Excluding equity-settled stock based compensation costs ("SBC") of €4.4m and €8.4m in Q2 and YZD/ 2015, respectively.

EXCURSION: PAYMENT COST

• Payment costs: Expenses for payment methods such as credit card fees, and also credit risk for invoice¹. Invoice is a popular payment method in several countries, e.g., DACH, Benelux and Nordics, driving customer satisfaction and check-out conversion
• Payment risk steering: Determines invoice offering to customers. Continuous strive to maintain balance between opportunities and risks associated with the payment offering
• What happened:
• Historically, the algorithm has been very robust, successfully limiting risk
• In late 2014, we changed the payment offer to allow for more invoice for new customers
• At the same time, due to an unexpected wave of systematic fraud, we took on more credit risk than we had anticipated
• In Q2, we reversed the invoice offering back to prior levels. Monitoring and early detection capabilities were significantly increased
• As a result we booked higher allowances within payment costs in Q2

(1) Invoice: customer receives package with merchandise, plus a bill asking customer to pay within payment period, e.g. 14 days in Germany.

(2) Excluding equity-settled stock based compensation costs ("SBC") of €8.4m in YTD/15.

CONTINUED OPERATING LEVERAGE; TEMPORARY IMPACT IN PAYMENT

Costs and margins (YTD and Q2)

(excl. SBC in percent of revenue¹ )

	YTD			Q2
	2014	2015	Delta	2014	2015	Delta
Cost of sales	(57.6%)	(53.0%)	(4.6pp)	(53.6%)	(51.5%)	(2.1pp)
Gross profit	42.4%	47.0%	4.6pp	46.4%	48.5%	2.1pp
Fulfillment costs	(23.4%)	(26.6%)	3.2pp	(22.9%)	(28.3%)	5.4pp
Marketing costs	(13.6%)	(11.9%)	(1.7pp)	(13.3%)	(12.0%)	(1.3pp)
Administrative expenses & Other	(4.2%)	(4.2%)	(0.1pp)	(3.8%)	(4.1%)	0.3pp
EBIT	1.2%	4.3%	3.1pp	6.4%	4.1%	(2.3pp)

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

FOCUS ON OPERATIONAL CAPITAL EFFICIENCY

⁽¹⁾ Excludes payments for acquisitions of €12.2m (Q2 and YTD 2015).

LIQUIDITY REMAINS CONSTANT

Cash flow development (Q2) (in €m)

(1) Includes investments in fixed, intangible assets and payments for acquisitions; excludes changes in restricted cash and investments into short-term deposits with maturity of more than 3 and less than 12 months (total of -€2.2m).

(2) Includes changes in restricted cash (€17.8m), financing cash flow (€3.2m) and effect of exchange rate on cash and cash equivalents (€-0.2m).

(3) Q2/15 liquidity includes investments into short-term deposits with maturity of more than 3 and less than 12 months of €110.0m.

Adj. EBIT¹ margin of around 4.5%

Continued focus on operational capital efficiency

ISSUED SHARE CAPITAL

Share information (as of 30-June-15)

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 (1.3% share1)
Total Number of Shares Outstanding	246,619,133
Issued Share Capital	€246,619,133

Stock option programs (as of 30-June-15)

Program	# Options outstanding	Strike price
Various	427,295	1.00
Stock Option Program 2011	2,842,400	5.65
Stock Option Program 2013	9,817,500	15.63
Stock Option Program 2014 – Tranche pre IPO	5,303,203	17.72
Stock Option Program 2014 – Tranche Mar 2015	654,900	22.79
Stock Option Program 2014 – Tranche May 2015	371,800	25.03
Total	19,417,098

INCOME STATEMENT

€ m	FY/13	FY/14	Q1/15	Q2/15	YTD/15
Revenue	1,762.0	2,214.0	643.6	733.0	1,376.6
% growth	52.1%	25.7%	28.5%	34.1%	31.5%
Cost of Sales	(1,047.0)	(1,255.3)	(353.5)	(378.5)	(732.0)
Gross Profit	715.1	958.7	290.1	354.5	644.6
% margin	40.6%	43.3%	45.1%	48.4%	46.8%
Selling and Distribution Costs	(733.5)	(793.8)	(236.8)	(297.4)	(534.2)
Administrative Expenses	(105.1)	(109.1)	(29.1)	(31.7)	(60.8)
Other Operating Income	12.5	12.2	3.0	2.2	5.2
Other Operating Expenses	(2.9)	(5.8)	(2.0)	(2.0)	(4.0)
EBIT	(113.9)	62.1	25.1	25.7	50.8
% margin	(6.5%)	2.8%	3.9%	3.5%	3.7%
Net Financial Result	(3.3)	(4.5)	5.4	(0.9)	4.5
EBT	(117.3)	57.7	30.6	24.8	55.3
% margin	(6.7%)	2.6%	4.7%	3.4%	4.0%
Income and Other Tax	0.7	(10.5)	(6.3)	(1.8)	(8.1)
Net Income	(116.6)	47.2	24.3	23.0	47.3
% margin	(6.6%)	2.1%	3.8%	3.1%	3.4%
Depreciation & Amortization	14.9	25.8	7.5	8.0	15.5
EBITDA	(99.0)	88.0	32.6	33.7	66.3
% margin	(5.6%)	4.0%	5.1%	4.6%	4.8%
Share Based Compensation (SBC )	5.3	19.8	4.0	4.4	8.4
Adj. EBIT (adj. for SBC)	(108.6)	82.0	29.1	30.2	59.2
% margin	(6.2%)	3.7%	4.5%	4.1%	4.3%
Adj. EBITDA (adj. for SBC)	(93.7)	107.8	36.6	38.1	74.7
% margin	(5.3%)	4.9%	5.7%	5.2%	5.4%

SHARE BASED COMPENSATION

€m	FY/13	FY/14	Q1/15	Q2/15	YTD/15
Per Income Statement Line Item
Cost of Sales	0.5	4.4	1.0	1.1	2.1
Selling and Distribution Costs	2.1	9.6	2.0	2.2	4.2
Administrative Expenses	2.7	5.8	1.0	1.1	2.1
Share Based Compensation	5.3	19.8	4.0	4.4	8.4
As % of revenue	FY/13	FY/14	Q1/15	Q2/15	YTD/15
Per Income Statement Line Item
Cost of Sales	0.0%	0.2%	0.2%	0.2%	0.2%
Selling and Distribution Costs	0.1%	0.4%	0.3%	0.3%	0.3%
Administrative Expenses	0.2%	0.3%	0.2%	0.2%	0.2%

SEGMENTS

€ m	FY/13	FY/14	Q1/15	Q2/15	YTD/15
Revenue	1,762.0	2,214.0	643.6	733.0	1,376.6
DACH	1,056.1	1,234.0	347.1	411.0	758.1
Rest of Europe	630.2	862.6	265.0	285.3	550.3
Other	75.7	117.4	31.5	36.6	68.1
As % of total	100.0%	100.0%	100.0%	100.0%	100.0%
DACH	59.9%	55.7%	53.9%	56.1%	55.1%
Rest of Europe	35.8%	39.0%	41.2%	38.9%	40.0%
Other	4.3%	5.3%	4.9%	5.0%	4.9%
EBIT	(113.9)	62.1	25.1	25.7	50.8
DACH	5.3	72.3	30.2	11.9	42.1
Rest of Europe	(100.8)	(18.6)	(6.3)	9.7	3.4
Other	(18.4)	8.4	1.2	4.1	5.3
% margin	(6.5%)	2.8%	3.9%	3.5%	3.7%
DACH	0.5%	5.9%	8.7%	2.9%	5.5%
Rest of Europe	(16.0%)	(2.2%)	(2.4%)	3.4%	0.6%
Other	(24.3%)	7.2%	3.9%	11.3%	7.8%
Adjusted EBIT	(108.6)	82.0	29.1	30.2	59.2
DACH	8.2	83.0	32.3	14.4	46.8
Rest of Europe	(99.1)	(11.6)	(4.7)	11.3	6.6
Other	(17.8)	10.5	1.4	4.4	5.8
% adjusted margin	(6.2%)	3.7%	4.5%	4.1%	4.3%
DACH	0.8%	6.7%	9.3%	3.5%	6.2%
Rest of Europe	(15.7%)	(1.3%)	(1.8%)	4.0%	1.2%
Other	(23.5%)	9.0%	4.5%	12.0%	8.5%

BALANCE SHEET

€m	Q2/14	Q2/14 (% of total assets)	Q2/15	Q2/15 (% of total assets)
Total Non-Current Assets	190.1	18.4%	175.6	9.0%
Thereof: Property, Plant and Equipment	116.6	11.3%	110.1	5.7%
Other Financial Assets	49.0	4.7%	26.3	1.4%
Non-Financial Assets	0.0	0.0%	4.0	0.2%
Other Non-Current Assets	24.5	2.4%	35.2	1.8%
Total Current Assets	842.2	81.6%	1,767.1	91.0%
Thereof: Inventories	279.4	27.1%	432.5	22.3%
Trade and Other Receivables	115.7	11.2%	167.3	8.6%
Other Assets1	59.8	5.8%	193.8	10.0%
Cash and Cash Equivalents1	387.3	37.5%	973.5	50.1%
Total Assets	1,032.3	100.0%	1,942.7	100.0%
Total Equity	556.0	53.9%	1,182.0	60.8%
Thereof: Issued Capital	0.2	0.0%	246.6	12.7%
Capital Reserves	842.0	81.6%	1,130.1	58.2%
Retained earnings	0.3	0.0%	(2.6)	(0.1%)
Accumulated Loss	(286.4)	(27.7%)	(192.2)	(9.9%)
Total Non-Current Liabilities	26.2	2.5%	33.0	1.7%
Thereof: Financial Liabilities	17.2	1.7%	16.0	0.8%
Other Non-Current Liabilities	8.9	0.9%	17.0	0.9%
Total Current Liabilities	450.1	43.6%	727.6	37.5%
Thereof: Trade Payables and Similar Obligations	334.6	32.4%	569.1	29.3%
Other Current Liabilities	115.5	11.2%	158.5	8.2%
Total Equity & Liabilities	1,032.3	100.0%	1,942.7	100.0%
Net Working Capital	60.5	5.9%	30.7	1.6%

(1) Other assets includes investments into short-term deposits of €110m, which are no longer listed under Cash and Cash Equivalents due to their maturity of more than 3 but less than 12 months. 21

CASH FLOW STATEMENT

€m1	FY/14	Q1/15 YTD	Q2/15 YTD	Q2/15
Net Income	47.2	24.3	47.3	23.0
Non-Cash Expenses from Share-Based Payments	19.8	4.0	8.4	4.4
Cash Settlement of Claims from Share-Based Payments	0.0	(2.0)	(2.3)	(0.3)
Depreciation	25.8	7.5	15.5	8.0
Change in Provisions	1.0	(0.4)	(0.3)	0.1
Other Non-Cash Income	(0.2)	(0.9)	(2.5)	(1.6)
Change in Inventories and Receivables	(68.7)	(155.4)	(110.8)	44.6
Change in Trade Liabilities	94.9	117.5	78.2	(39.3)
Change in Other Assets/Other Liabilities	55.1	(6.4)	(10.2)	(3.9)
Cash Flow from Operating Activities	174.9	(11.8)	23.3	35.0
Payments for Investments in Fixed and Intangible Assets	(51.1)	(8.4)	(19.3)	(10.9)
Payments for Acquisitions	0.0	0.0	(12.2)	(12.2)
Cash Paid for Investments in Term Deposits	0.0	(90.0)	(110.0)	(20.0)
Change in Restricted Cash	(0.8)	15.8	33.5	17.8
Cash Flow from Investing Activities	(51.9)	(82.6)	(108.0)	(25.4)
Payments Received from Capital Increases	510.1	1.5	5.5	4.0
Cash Received from Loans	3.9	0.0	0.0	0.0
Cash Repayments of Loans	(3.2)	(0.8)	(1.6)	(0.8)
Cash Flow from Financing Activities	510.8	0.7	3.9	3.2
Change in Cash & Cash Equivalents	633.8	(93.7)	(80.8)	12.8
Effects of Exchange Rate on Cash & Cash Equivalents	0.0	3.6	3.4	(0.2)

KPI DEVELOPMENT

	2013	Q1/14	Q2/14	Q3/14	Q4/14	2014	Q1/15	Q2/15
Site Visits (m)1	1,217.0	331.8	322.7	321.7	387.6	1,363.8	392.8	411.8
Mobile Visit Share (in % of Site Visits)2	26.8%	36.2%	40.7%	43.3%	47.9%	42.3%	52.6%	56.6%
Active Customers (m) 3	13.1	13.5	13.7	14.1	14.7	14.7	15.4	16.4
Number of Orders (m) 4	35.1	9.7	10.4	9.7	11.6	41.4	12.0	14.0
Average Order per Active Customer	2.68x	2.74x	2.77x	2.81x	2.82x	2.82x	2.84x	2.89
Average Basket Size (in €) 5	62.5	63.9	65.7	64.4	71.7	66.6	68.0	67.4
Fulfillment Cost Ratio (in % of revenue) 6	24%	24%	23%	23%	20%	22%	25%	28%
Marketing Cost Ratio (in % of revenue) 7	18%	14%	13%	11%	14%	13%	12%	12%

(1) Site Visits defined as the number of series of page requests from the same uniquely identified client at Zalando, including website, 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 period 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 returns. 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 period or have been cancelled.

(5) Average Basket Size defined as the transactional revenue (incl. VAT and transactional volume of Partner Program) after cancellations 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 mainly include logistics, content creation, service and payment expenses, as well as allocated overhead. costs. Fulfillment costs therefore comprises all selling and distribution costs, except 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 consists of advertising expenses including search engine marketing, television, online display and other marketing channels as well as allocated overhead cost. All numbers shown excluding equity-settled SBC costs.

FINANCIAL CALENDAR 2015

						Date	Action
November 2015		Thursday, 17-Sep	Deutsche Bank Technology Conference, Las Vegas
	M	T	W	T	F	Monday, 21-Sep	Berenberg & Goldman Sachs German Corp. Conference, Munich
	2 9	3 10	4 11	5 12	6 13	Tuesday, 22-Sep	Baader Investment Conference, Munich
	16	17	18	19	20	Oct-2015	Q3/2015 Trading Update
	23 30	24	25	26	27	Thursday, 12-Nov	Q3/2015 Results
						Friday, 13-Nov	Morgan Stanley European TMT Conference, Barcelona
German ad hoc disclosure rules (Section 15 WpHG, "German Securities Trading Act")			Zalando quarterly trading updates
• Requires companies to immediately publish material non public information that is (i) sufficiently concrete, and (ii) has the potential to influence the share price significantly			• Provide the financial community with a voluntary update on revenue and profitability shortly after quarter-end • Zalando pre-announces the date of each trading update via
• Hence, ad hoc disclosures are never pre-announced							press release

DISCLAIMER

These materials do not constitute an offer of securities for sale or a solicitation of an offer to purchase securities of Zalando SE (together with its subsidiaries, the "Company") in any jurisdiction. The distribution of this presentation may be restricted by law in certain jurisdictions and persons into whose possession any document or other information referred to herein comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

This presentation contains certain forward-looking statements relating to the business, financial performance and results of the Company and/or the industry in which the Company operates. Forward-looking statements concern future circumstances and results and other statements that are not historical facts, sometimes identified by the words "believes," "expects," "predicts," "intends," "projects," "plans," "estimates," "aims," "foresees," "anticipates," "targets," and similar expressions. The forward-looking statements contained in this presentation, including assumptions, opinions and views of the Company or cited from third party sources, are solely opinions and forecasts which are uncertain and subject to risks. Actual events may differ significantly from any anticipated development due to a number of factors, including without limitation, changes in general economic conditions, in particular economic conditions in Germany, changes affecting interest rate levels, changes in competition levels, changes in laws and regulations, environmental damages, the potential impact of legal proceedings and actions and the Group's ability to achieve operational synergies from past or future acquisitions. The Company does not guarantee that the assumptions underlying the forward-looking statements in this presentation are free from errors nor does it accept any responsibility for the future accuracy of the opinions expressed in this presentation or any obligation to update the statements in this presentation to reflect subsequent events. The forward-looking statements in this presentation are made only as of the date hereof. Neither the delivery of this presentation nor any further discussions of the Company with any of the recipients thereof shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since such date. Consequently, the Companydoes not undertake any obligation to review, update or confirm investors' expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise in relation to the content of the presentation.

This presentation contains summary information only and does not purport to be comprehensive and is not intended to be (and should not be used as) the basis of any analysis or other evaluation. In addition, the information in this presentation is subject to change. No representation or warranty (express or implied) is made as to, and no reliance should be placed on, any information, including projections, estimates, targets and opinions, contained herein, and no liability whatsoever is accepted as to any errors, omissions or misstatements contained herein.