Zalando SE — Earnings Release 2014

Mar 5, 2015

EUROPE'S LEADING ONLINE FASHION DESTINATION

Q4 / Full-Year 2014 Earnings Call 5 March 2015

Results highlights and business update

CONTINUED CLEAR FOCUS ON EXECUTION

(1) Excluding equity-settled stock based compensation costs ("SBC") of €4.6m in Q4 2014.

(2) Includes operating cash flow (€75m) less investing cash flow (-€2m).

Financial update Q4 and Full-Year 2014

STRONG REVENUE GROWTH, GAINING MARKET SHARE

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

CUSTOMER KPIS DRIVE REVENUE GROWTH

a a a Average orders per active customer (LTM in #) Average basket size after returns¹ (in €) GMV per active customer² (in €) 2.7 2.8 Q4/13 Q4/14 69 72 Q4/13 Q4/14 186 203 Q4/13 Q4/14

(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 €).

OPERATING LEVERAGE DRIVES GROUP PROFITABILITY

Costs and margins (Q4 and FY)

(excl. SBC in percent of revenue¹ )

		FY		Q4
	2013	2014	Delta	2013	2014	Delta
Cost of sales	(59.4%)	(56.5%)	(2.9pp)	(56.2%)	(52.6%)	(3.6pp)
Gross profit	40.6%	43.5%	2.9pp	43.8%	47.4%	3.6pp
Fulfillment costs	(23.9%)	(22.3%)	(1.7pp)	(20.1%)	(20.1%)	(0.0pp)
Marketing costs	(17.6%)	(13.2%)	(4.4pp)	(16.8%)	(13.9%)	(2.9pp)
Administrative expenses & Other	(5.3%)	(4.4%)	(0.9pp)	(4.4%)	(3.5%)	(0.9pp)
EBIT	(6.2%)	3.7%	9.9pp	2.4%	9.9%	7.4pp

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

FOCUS ON CAPITAL EFFICIENCY

Intangibles PP&E

SUBSTANTIAL CASH FLOW GENERATION

Cash flow development (Q4 & FY)

(in €m)

WE REMAIN CONVINCED THAT ONLINE FASHION IS A LONG-TERM GROWTH OPPORTUNITY…

Source: Euromonitor International, February 2015, 2014 values based on actuals and estimates; fixed exchange rates. Data for Europe (excl. Russia) incl. apparel and footwear, bags and luggage, jewellery and watches. All market figures inclusive of sales tax. Company information.

…AND ZALANDO IS IN THE POLE POSITION

• Clear market leader
• Tailored, scalable technology and fulfillment infrastructure
• Growth at scale, profitable, well capitalized

WE WILL KEEP THE FOOT ON THE GAS

CONTINUE TO DRIVE GROWTH THROUGH SEVERAL INITIATIVES

• CONVENIENCE: faster delivery, more delivery options, easier returns
• SPECIALTY CATEGORIES: underwear, women sports, plus sizes, maternity, petite
• LOW PRICE POINTS: offer customers attractive entry price points
• SPECIFIC MARKET PUSH: accelerate growth trajectory in selected markets
• ACTIVITY & LOYALTY: launch tailored customer programs
• MOBILE FIRST: rethink processes from mobile perspective and increase speed

IN FIVE YEARS, WE WILL DELIVER ON SEVERAL NEW USE CASES FOR CUSTOMERS AND BRANDS

EBIT¹ margin broadly around strong level achieved in 2014

Continued focus on operational capital efficiency

INCOME STATEMENT

€m	FY/12	FY/13	Q1/14	Q2/14	Q3/14	Q4/14	FY/2014
Revenue	1,158.7	1,762.0	500.7	546.4	501.4	665.6	2,214.0
% growth	127.2%	52.1%	34.6%	25.1%	24.2%	21.1%	25.7%
Cost of Sales	(623.8)	(1,047.0)	(311.3)	(293.6)	(299.1)	(351.4)	(1,255.3)
Gross Profit	534.8	715.1	189.4	252.8	202.3	314.2	958.7
% margin	46.2%	40.6%	37.8%	46.3%	40.3%	47.2%	43.3%
Selling and Distribution Costs	(560.7)	(733.5)	(192.0)	(199.4)	(173.9)	(228.5)	(793.8)
Administrative Expenses	(63.2)	(105.1)	(28.8)	(24.6)	(30.2)	(25.5)	(109.1)
Other Operating Income	6.3	12.5	4.2	3.6	1.4	3.0	12.2
Other Operating Expenses	(0.8)	(2.9)	(0.8)	(0.9)	(2.1)	(2.0)	(5.8)
EBIT	(83.6)	(113.9)	(27.9)	31.5	(2.6)	61.1	62.1
% margin	(7.2%)	(6.5%)	(5.6%)	5.8%	(0.5%)	9.2%	2.8%
Net Financial Result	(1.0)	(3.3)	(0.8)	(0.8)	0.8	(3.6)	(4.5)
EBT	(84.6)	(117.3)	(28.7)	30.7	(1.8)	57.5	57.7
% margin	(7.3%)	(6.7%)	(5.7%)	5.6%	(0.4%)	8.6%	2.6%
Income and Other Tax	(0.5)	0.7	(0.2)	(1.6)	1.3	(9.9)	(10.5)
Net Income	(85.1)	(116.6)	(28.9)	29.0	(0.5)	47.5	47.2
% margin	(7.3%)	(6.6%)	(5.8%)	5.3%	(0.1%)	7.1%	2.1%
Depreciation & Amortization	6.2	14.9	5.5	6.9	7.1	6.4	25.8
EBITDA	(77.3)	(99.0)	(22.4)	38.4	4.5	67.5	88.0
% margin	(6.7%)	(5.6%)	(4.5%)	7.0%	0.9%	10.1%	4.0%
Share Based Compensation (SBC)	6.5	5.3	5.1	3.7	6.4	4.6	19.8
Adj. EBIT (adj. for SBC)	(77.1)	(108.6)	(22.8)	35.1	3.8	65.7	82.0
% margin	(6.7%)	(6.2%)	(4.5%)	6.4%	0.8%	9.9%	3.7%
Adj. EBITDA (adj. for SBC)	(70.9)	(93.7)	(17.3)	42.0	10.9	72.1	107.8
% margin	(6.1%)	(5.3%)	(3.5%)	7.7%	2.2%	10.8%	4.9%

SHARE BASED COMPENSATION

€m	FY/12	FY/13	Q1/14	Q2/14	Q3/14	Q4/14	FY/2014
Per Income Statement Line Item
Cost of Sales	0.6	0.5	0.8	0.9	1.6	1.2	4.4
Selling and Distribution Costs	2.5	2.1	2.2	1.8	3.2	2.3	9.6
Administrative Expenses	3.4	2.7	2.1	0.9	1.6	1.2	5.8
Share Based Compensation	6.5	5.3	5.1	3.7	6.4	4.6	19.8
As % of revenue		FY/13	Q1/14	Q2/14	Q3/14	Q4/14	FY/2014
Per Income Statement Line Item
Cost of Sales	0.0%	0.0%	0.2%	0.2%	0.3%	0.2%	0.2%
Selling and Distribution Costs	0.2%	0.1%	0.4%	0.3%	0.6%	0.3%	0.4%
Administrative Expenses	0.3%	0.2%	0.4%	0.2%	0.3%	0.2%	0.3%
Share Based Compensation	0.6%	0.3%	1.0%	0.7%	1.3%	0.7%	0.9%

SEGMENTS

€ m	FY/12	FY/13	Q1/14	Q2/14	Q3/14	Q4/14	FY/2014
Revenue	1,158.7	1,762.0	500.7	546.4	501.4	665.6	2,214.0
DACH	773.0	1,056.1	283.9	310.3	276.3	363.5	1,234.0
Rest of Europe	335.8	630.2	193.2	206.1	197.8	265.5	862.6
Other	49.8	75.7	23.5	30.0	27.3	36.5	117.4
As % of total	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%
DACH	66.7%	59.9%	56.7%	56.8%	55.1%	54.6%	55.7%
Rest of Europe	29.0%	35.8%	38.6%	37.7%	39.4%	39.9%	39.0%
Other	4.3%	4.3%	4.7%	5.5%	5.4%	5.5%	5.3%
EBIT	(83.6)	(113.9)	(27.9)	31.5	(2.6)	61.1	62.1
DACH	12.5	5.3	(3.1)	25.5	7.5	42.4	72.3
Rest of Europe	(84.0)	(100.8)	(23.5)	2.2	(11.7)	14.5	(18.6)
Other	(12.1)	(18.4)	(1.3)	3.8	1.6	4.3	8.4
% margin	(7.2%)	(6.5%)	(5.6%)	5.8%	(0.5%)	9.2%	2.8%
DACH	1.6%	0.5%	(1.1%)	8.2%	2.7%	11.7%	5.9%
Rest of Europe	(25.0%)	(16.0%)	(12.2%)	1.0%	(5.9%)	5.4%	(2.2%)
Other	(24.3%)	(24.3%)	(5.5%)	12.8%	6.0%	11.7%	7.2%
Adjusted EBIT	(77.1)	(108.6)	(22.8)	35.1	3.8	65.7	82.0
DACH	15.2	8.2	(0.2)	27.5	10.9	44.8	83.0
Rest of Europe	(81.1)	(99.1)	(21.8)	3.4	(9.4)	16.2	(11.6)
Other	(11.2)	(17.8)	(0.7)	4.2	2.3	4.8	10.5
% adjusted margin	(6.7%)	(6.2%)	(4.5%)	6.4%	0.8%	9.9%	3.7%
DACH	2.0%	0.8%	(0.1%)	8.9%	3.9%	12.3%	6.7%
Rest of Europe	(24.1%)	(15.7%)	(11.3%)	1.7%	(4.7%)	6.1%	(1.3%)
Other	(22.5%)	(23.5%)	(3.1%)	14.0%	8.4%	13.0%	9.0%

BALANCE SHEET

€m	FY/13	FY/13 (% of total assets)	FY/14	FY/14 (% of total assets)
Total Non-Current Assets	176.1	16.4%	194.0	10.9%
Thereof: Property, Plant and Equipment	105.7	9.9%	111.0	6.2%
Other Financial Assets	48.1	4.5%	49.4	2.8%
Non-Financial Assets	0.0	0.0%	3.7	0.2%
Other Non-Current Assets	22.3	2.1%	29.9	1.7%
Total Current Assets	895.7	83.6%	1,591.6	89.1%
Thereof: Inventories	332.5	31.0%	348.4	19.5%
Trade and Other Receivables	87.2	8.1%	140.1	7.8%
Other Assets	58.7	5.5%	52.1	2.9%
Cash and Cash Equivalents	417.2	38.9%	1,051.0	58.9%
Total Assets	1,071.7	100.0%	1,785.5	100.0%
Total Equity	546.5	51.0%	1,126.7	63.1%
Thereof: Issued Capital	0.1	0.0%	244.8	13.7%
Capital Reserves	833.3	77.8%	1,120.4	62.7%
Retained earnings	(0.3)	(0.0%)	0.9	0.1%
Accumulated Loss	(286.6)	(26.7%)	(239.4)	(13.4%)
Total Non-Current Liabilities	29.2	2.7%	30.9	1.7%
Thereof: Financial Liabilities	17.0	1.6%	17.6	1.0%
Other Non-Current Liabilities	12.2	1.1%	13.3	0.7%
Total Current Liabilities	496.0	46.3%	627.9	35.2%
Thereof: Trade Payables and Similar Obligations	410.0	38.3%	492.1	27.6%
Other Current Liabilities	86.0	8.0%	135.9	7.6%
Total Equity & Liabilities	1,071.7	100.0%	1,785.5	100.0%
Net Working Capital	9.7	0.9%	(3.6)	(0.2%)

CASH FLOW STATEMENT

€m	FY/13	FY/14
Net Income	(116.6)	47.2
Non-Cash Expenses1	2.0	19.6
Depreciation	14.9	25.8
Change in Provisions	0.0	1.0
Change in Inventories and Receivables	(122.7)	(68.7)
Change in Trade Liabilities	101.5	94.9
Change in Other Assets/Other Liabilities	40.8	55.1
Cash Flow from Operating Activities	(80.2)	174.9
Payments for Investments in Fixed and Intangible Assets	(73.8)	(51.1)
Change in Restricted Cash	(16.4)	(0.8)
Cash Flow from Investing Activities	(90.2)	(51.9)
Payments Received from Capital Increases Cash Received from Loans	199.3 9.1	510.1 3.9
Cash Repayments of Loans	(3.2)	(3.2)
Cash Flow from Financing Activities	205.2	510.8
Change in Cash and Cash Equivalents	34.9	633.8

KPI DEVELOPMENT

	2011	Q1/12	Q2/12	Q3/12	Q4/12	2012	Q1/13	Q2/13	Q3/13	Q4/13	2013	Q1/14	Q2/14	Q3/14	Q4/14	2014
Site Visits (m)1	324.6	133.4	159.3	195.8	249.8	738.3	274.5	294.4	291.0		357.0 1,217.0	331.8	322.7	321.7	387.6	1,363.8
Mobile Visit Share (in % of Site Visits)2	4.6%			9.3% 10.7% 13.5% 16.2%				13.0% 21.3% 24.9% 28.2% 31.6%				26.8% 36.2% 40.7%		43.3%	47.9%	42.3%
Active Customers (m) 3	4.8	5.7	6.7	7.8	9.2	9.2	10.3	11.6	12.3	13.1	13.1	13.5	13.7	14.1	14.7	14.7
Number of Orders (m) 4	11.0	4.3	5.3	5.8	7.4	23.0	7.8	9.3	8.2	9.8	35.1	9.7	10.4	9.7	11.6	41.4
Average Order per Active Customer	2.29x	2.36x	2.41x	2.47x	2.50x	2.50x	2.56x	2.62x	2.67x	2.68x	2.68x	2.74x	2.77x	2.81x	2.82x	2.82x
Average Basket Size (in €) 5	58.1	61.5	57.5	61.3	66.9	62.3	60.5	58.4	60.7	69.3	62.5	63.9	65.7	64.4	71.7	66.6
Fulfillment Cost Ratio (in % of revenue) 6	26%	26%	28%	25%	24%	26%	28%	26%	24%	20%	24%	24%	23%	23%	20%	22%
Marketing Cost Ratio (in % of revenue) 7	27%	23%	25%	24%	20%	23%	17%	18%	19%	17%	18%	14%	13%	11%	14%	13%

• (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 gross merchandise volume (including VAT) after cancellations or returns customers spend in proportion to delivered orders in the measurement period.
• (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

		March 2015			May 2015				June 2015				August 2015				November 2015
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
2	3	4	5	6					1	1	2	3	4	5	3	4	5	6	7	2	3	4	5	6
9	10	11	12	13	4	5	6	7	8	8	9	10	11	12	10	11	12	13	14	9	10	11	12	13
16	17	18	19	20	11	12	13	14	15	15	16	17	18	19	17	18	19	20	21	16	17	18	19	20
23	24	25	26	27	18	19	20	21	22	22	23	24	25	26	24	25	26	27	28	23	24	25	26	27
30	31				25	26	27	28	29	29	30				31					30

Date	Action
Tuesday, 24 March	Capital Markets Day 1 – Erfurt Site Visit
Wednesday, 25 March	Capital Markets Day 2 – Berlin
Tuesday, 12 May	Q1/2015 Results
Tuesday, 2 June	Annual General Meeting 2015
Thursday, 13 August	Q2/2015 Results
Thursday, 12 November	Q3/2015 Results

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.

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