Zalando SE — Earnings Release 2016

Aug 11, 2016

Q 2 / 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 1 - 0 8 - 2 0 1 6

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

S T R O N G F I R S T H A L F 2 0 1 6 : S T R O N G G R O W T H , C L E A R 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

REVENUE GROWTH

AT UPPER END OF GROWTH CORRIDOR

In €m

PROFITABILITY

DRIVEN BY OPERATING LEVERAGE

EBIT margin excl. SBC¹ in percent

POSITIVE FREE CASH FLOW DESPITE INVESTMENTS

In €m

C U S T O M E R P R O P O S I T I O N C O N T I N U E S T O D R I V E G R O W T H

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

S T R O N G R E V E N U E G R O W T H A T U P P E R E N D O F G R O W T H C O R R I D O R

GROUP REVENUE

In €m

DACH REVENUE

In €m

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

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

(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

I N C R E A S I N G P R O F I T A B I L I T Y D R I V E N B Y O P E R A T I N G L E V E R A G E

GROUP EBIT PROFITABILITY

EBIT margin (excl. SBC¹ )

DACH EBIT

EBIT margin (excl. SBC¹ )

(1) Excluding equity-settled stock based compensation costs ("SBC") of €3.7m in Q2/16 and of €7.5m in YTD/16, respectively.

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

		YTD			Q2
	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	(53.0%)	(55.1%)	2.1%	(51.5%)	(52.6%)	1.1%
G R O S S P R O F I T	47.0%	44.9%	(2.1%)	48.5%	47.4%	(1.1%)
F U L F I L L M E N T C O S T S	(26.6%)	(23.6%)	(3.0%)	(28.3%)	(23.1%)	(5.1%)
M A R K E T I N G C O S T S	(11.9%)	(10.5%)	(1.4%)	(12.0%)	(10.5%)	(1.5%)
A D M I N I S T R A T I V E EXPENSES & OTHER	(4.2%)	(4.9%)	0.7%	(4.1%)	(4.9%)	0.8%
E B I T	4.3%	5.9%	1.6%	4.1%	8.8%	4.7%

COSTS AND MARGINS

excl. SBC¹in percent of revenue

W H I L E NWC I M P R O V E M E N T S F R E E U P A D D I T I O N A L C A S H , W E C O N T I N U E T O E X E C U T E O N O U R I N V E S T M E N T P R O J E C T S

NET WORKING CAPITAL (END OF Q2)

in percent of annualized revenue

CAPITAL EXPENDITURE¹

in €m

L I Q U I D I T Y D R I V E N B Y S T R O N G F R E E C A S H F L O W

CASH FLOW DEVELOPMENT (Q2)

In €m

• (2) Includes investments in fixed and intangible assets and payments for acquisitions.
• 11 (3) Includes financing cash flow (-€0.3m) and effect of exchange rate on cash and cash equivalents (+€0.8m).

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 I N C R E A S E D M A R G I N G U I D A N C E

13 (1) Adjusted EBIT margin excludes stock-based compensation of 0.5%, now also incorporating the EIP 2016 which was granted at the AGM on 31-May-16. (2) Excludes investments into M&A.

~Neutral working capital at year-end and ~€200m capex²

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 (3.8% share1)

Total Number of Shares Outstanding 247,147,408

Issued Share Capital €247,147,408

SHARE INFORMATION

SHARE STOCK OPTION PROGRAMS

Program	# Options outstanding	Strike price
Various	95,370	1.00
Stock Option Program 2011	2,646,050	5.65
Stock Option Program 2013	9,817,500	15.63
Stock Option Program 2014 – Tranche pre IPO	5,200,209	17.72
Stock Option Program 2014 – Tranche Mar 2015	644,145	22.79
Stock Option Program 2014 – Tranche May 2015	371,800	25.03
Stock Option Program 2014 – Tranche Aug 2015	193,500	29.92
Stock Option Program 2014 – Tranche Nov 2015	58,900	30.48
Stock Option Program 2014 – Tranche Mar 2016	342,450	31.60
Total	19,369,924

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

As of 30-Jun-2016

As of 30-Jun-2016

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

€
Cost of Sales
Selling and Distribution Costs Administrative Expenses
Share Based Compensation (SBC

€ m	FY/14	FY/15	Q2/15	Q2/16	YTD/16
Revenue	2,214.0	2,958.2	733.0	916.4	1,712.6
% growth	25.7%	33.6%	34.1%	25.0%	24.4%
Cost of Sales	(1,255.3)	(1,624.0)	(378.5)	(483.2)	(945.9)
Gross Profit	958.7	1,334.1	354.5	433.3	766.7
% margin	43.3%	45.1%	48.4%	47.3%	44.8%
Selling and Distribution Costs	(793.8)	(1,118.9)	(297.4)	(310.0)	(587.1)
Administrative Expenses	(109.1)	(129.0)	(31.7)	(48.9)	(89.5)
Other Operating Income	12.2	10.2	2.2	3.5	5.0
Other Operating Expenses	(5.8)	(7.0)	(2.0)	(0.7)	(1.4)
EBIT	62.1	89.6	25.7	77.2	93.6
% margin	2.8%	3.0%	3.5%	8.4%	5.5%
Net Financial Result	(4.5)	(3.0)	(0.9)	1.7	(4.5)
EBT	57.7	86.6	24.8	78.9	89.1
% margin	2.6%	2.9%	3.4%	8.6%	5.2%
Income and Other Tax	(10.5)	34.9	(1.8)	(28.0)	(33.7)
Net Income	47.2	121.5	23.0	50.9	55.5
% margin	2.1%	4.1%	3.1%	5.6%	3.2%
Depreciation & Amortization	25.8	34.2	8.0	10.1	19.2
EBITDA	88.0	123.8	33.7	87.3	112.8
% margin	4.0%	4.2%	4.6%	9.5%	6.6%
Share Based Compensation (SBC )	19.8	17.9	4.4	3.7	7.5
Adj. EBIT (adj. for SBC)	82.0	107.5	30.2	80.9	101.2
% margin	3.7%	3.6%	4.1%	8.8%	5.9%
Adj. EBITDA (adj. for SBC)	107.8	141.7	38.1	91.0	120.4
% margin	4.9%	4.8%	5.2%	9.9%	7.0%

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

€m	FY/14	FY/15	Q2/15	Q2/16	YTD/16
Per Income Statement Line Item
Cost of Sales	4.4	4.5	1.1	0.9	1.9
Selling and Distribution Costs	9.6	9.0	2.2	1.9	3.8
Administrative Expenses	5.8	4.5	1.1	0.9	1.9
Share Based Compensation	19.8	17.9	4.4	3.7	7.5
As % of revenue	FY/14	FY/15	Q2/15	Q2/16	YTD/16
Per Income Statement Line Item
Cost of Sales	0.2%	0.2%	0.2%	0.1%	0.1%
Selling and Distribution Costs	0.4%	0.3%	0.3%	0.2%	0.2%
Administrative Expenses	0.3%	0.2%	0.2%	0.1%	0.1%
Share Based Compensation	0.9%	0.6%	0.6%	0.4%	0.4%

Per Income Statement Line Item

S E G M E N T S

€ m	FY/14	FY/15	Q2/15	Q2/16	YTD/16
Revenue	2,214.0	2,958.2	733.0	916.4	1,712.6
DACH	1,234.0	1,580.1	411.0	471.4	877.3
Rest of Europe	862.6	1,211.6	285.3	383.2	717.7
Other	117.4	166.5	36.6	61.8	117.6
As % of total	100.0%	100.0%	100.0%	100.0%	100.0%
DACH	55.7%	53.4%	56.1%	51.4%	51.2%
Rest of Europe	39.0%	41.0%	38.9%	41.8%	41.9%
Other	5.3%	5.6%	5.0%	6.7%	6.9%
EBIT	62.1	89.6	25.7	77.2	93.6
DACH	72.3	92.2	11.9	63.8	101.1
Rest of Europe	(18.6)	(10.2)	9.7	14.4	(4.1)
Other	8.4	7.5	4.1	(1.0)	(3.4)
% margin	2.8%	3.0%	3.5%	8.4%	5.5%
DACH	5.9%	5.8%	2.9%	13.5%	11.5%
Rest of Europe	(2.2%)	(0.8%)	3.4%	3.8%	(0.6%)
Other	7.2%	4.5%	11.3%	(1.6%)	(2.9%)
Adjusted EBIT	82.0	107.5	30.2	80.9	101.2
DACH	83.0	101.9	14.4	65.7	105.0
Rest of Europe	(11.6)	(3.3)	11.3	15.9	(1.1)
Other	10.5	8.9	4.4	(0.6)	(2.7)
% adjusted margin	3.7%	3.6%	4.1%	8.8%	5.9%
DACH	6.7%	6.4%	3.5%	13.9%	12.0%
Rest of Europe	(1.3%)	(0.3%)	4.0%	4.1%	(0.1%)
Other	9.0%	5.3%	12.0%	(1.0%)	(2.3%)

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

€m Q2/15

€m	Q2/15	Q2/15 (% of total assets)	Q2/16	Q2/16 (% of total assets)
Total Non-Current Assets	175.6	9.0%	323.4	14.7%
Thereof: Property, Plant and Equipment	110.1	5.7%	169.4	7.7%
Other Financial Assets	26.3	1.4%	38.7	1.8%
Non-Financial Assets	4.0	0.2%	3.6	0.2%
Other Non-Current Assets	35.2	1.8%	111.6	5.1%
Total Current Assets	1,767.1	91.0%	1,878.6	85.3%
Thereof: Inventories	432.5	22.3%	445.3	20.2%
Trade and Other Receivables	167.3	8.6%	164.4	7.5%
Other Assets1	193.8	10.0%	233.0	10.6%
Cash and Cash Equivalents1	973.5	50.1%	1,035.9	47.0%
Total Assets	1,942.7	100.0%	2,202.0	100.0%
Total Equity	1,182.0	60.8%	1,332.5	60.5%
Thereof: Issued Capital	246.6	12.7%	247.1	11.2%
Capital Reserves	1,130.1	58.2%	1,148.9	52.2%
Retained earnings	(2.6)	(0.1%)	(0.9)	(0.0%)
Accumulated Loss	(192.2)	(9.9%)	(62.5)	(2.8%)
Total Non-Current Liabilities	33.0	1.7%	29.0	1.3%
Thereof: Financial Liabilities	16.0	0.8%	12.8	0.6%
Other Non-Current Liabilities	17.0	0.9%	16.2	0.7%
Total Current Liabilities	727.6	37.5%	840.5	38.2%
Thereof: Trade Payables and Similar Obligations	569.1	29.3%	675.3	30.7%
Other Current Liabilities	158.5	8.2%	165.2	7.5%
Total Equity & Liabilities	1,942.7	100.0%	2,202.0	100.0%
Net Working Capital	30.7	1.6%	(65.5)	(3.0%)

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

€m	FY2014	FY2015	Q2/15	Q2/16	YTD/16
Net Income	47.2	121.5	23.0	50.9	55.5
Non-Cash Expenses from Share-Based Payments	19.8	17.9	4.4	3.7	7.5
Cash Settlement of Claims from Share-Based Payments	0.0	(2.3)	(0.3)	0.0	0.0
Depreciation	25.8	34.2	8.0	10.3	19.3
Income Taxes	10.5	(34.9)	1.8	28.0	33.7
Income Taxes Paid, Less Refunds	0.0	(0.0)	0.0	(4.5)	(24.6)
Change in Provisions	1.0	(0.5)	0.1	(4.0)	(0.4)
Other Non-Cash Income	(0.2)	(1.0)	(1.6)	(1.0)	(1.0)
Change in Inventories and Receivables	(68.7)	(154.2)	44.6	144.1	35.8
Change in Trade Liabilities	94.9	154.9	(39.3)	(69.3)	20.3
Change in Other Assets/Other Liabilities	44.6	(16.2)	(5.7)	(1.2)	1.7
Cash Flow from Operating Activities	174.9	119.4	35.0	156.9	147.7
Payments for Investments in Fixed and Intangible Assets	(51.1)	(60.0)	(11.7)	(44.5)	(68.2)
Payments for Acquisitions	0.0	(16.8)	(11.4)	(28.3)	(29.2)
Cash Paid for Investments in Term Deposits	0.0	(155.0)	(20.0)	10.0	10.0
Change in Restricted Cash	(0.8)	35.3	17.8	(0.0)	(0.0)
Cash Flow from Investing Activities	(51.9)	(196.5)	(25.4) )	(62.7)	(87.3)
Payments Received from Capital Increases	510.1	6.4	4.0	0.5	0.5
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)	(1.6)
Cash Flow from Financing Activities	510.8	1.5	3.2	(0.3)	(1.1)
Change in Cash & Cash Equivalents	633.8	(75.7)	12.8	93.9	59.2
Effects of Exchange Rate on Cash & Cash Equivalents	0.0	0.9	(0.2)	0.8	0.4

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

Average Basket Size (in €)

• (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 6

November 2016
M	T	W	T	F
	1	2	3	4
7	8	9	10	11
14	15	16	17	18
21	22	23	24	25
28	29	30

Date Action

• Tuesday, 6-Sep Citi Global Tech Conference, New York
• Wednesday, 7-Sep Goldman Sachs Global Retail Conference, New York
• Thursday, 8-Sep NDR, San Francisco
• Tuesday, 20-Sep Berenberg & Goldman Sachs German Corporate Conference, Munich
• Wednesday, 21-Sep Baader Investment Conference, Munich
• Oct-2016¹ Q3/2016 Trading Update
• Thursday, 10-Nov Q3/2016 Results
• Thursday + Friday, 17-18-Nov Morgan Stanley European Technology, Media and Telecoms Conference, Barcelona

Wednesday, 30-Nov NDR, Paris

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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 no t 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 com pany or cited from third party sources, are solely opinions and forecasts which are uncertain and subject to risks. Actual events may differ significantly f rom 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 l egal proceedings and actions and the group's ability to achieve operational synergies from past or future acquisitions. The company does not guarantee that the as sumptions underlying the forwardlooking 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 an y 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. Conseq uently, the company does not undertake any obligation to review, update or confirm investors' expectations or estimates or to release publicly any revisio ns 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 s hould 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 o r warranty (express or implied) is made as to, and no reliance should be placed on, any information, including projections, estimates, targets and opinions, contained h erein, and no liability whatsoever is accepted as to any errors, omissions or misstatements contained herein.

D I S C L A I M E R