Zalando SE — Earnings Release 2017

Aug 10, 2017

Q 2 / 2 0 1 7 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

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

H 1 / 1 7 : C O N T I N U E D S T R O N G G R O W T H A T S O L I D P R O F I T A B I L I T Y

E X E C U T I N G O N O U R G R O W T H O P P O R T U N I T I E S

BRAND PARTNERS

Nike joined Partner Program

Fashion Trade joint venture with Bestseller

Integration of offline stores: 4 x Tommy Hilfiger stores in Berlin

Z A L A N D O Z E T – O U R F A S H I O N T A I L O R E D M E M B E R S H I P P R O G R A M

O U R L O G I S T I C N E T W O R K I S F U R T H E R S C A L I N G F O R 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 7

Z A L A N D O C O N T I N U E S T O D E L I V E R O N G R O W T H C O R R I D O R

GROUP REVENUE

DACH REVENUE

In €m

In €m

S T R O N G S E Q U E N T I A L A C T I V E C U S T O M E R G R O W T H

(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 €).

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

GROUP EBIT

EBIT margin (excl. SBC¹ )

DACH EBIT

EBIT margin (excl. SBC¹ )

(1) Excluding equity-settled stock based compensation costs ("SBC") of €5.5m in Q2/17 and of €10.9m in YTD/17, respectively.

W E C O N T I N U E T O S H I F T M A R K E T I N G S P E N D I N G T O F U L F I L L M E N T I N V E S T M E N T S A S W E SEE C O N V E N I E N C E A S AN I M P O R T A N T L O N G - T E R M D R I V E R O F G R O W T H

COSTS AND MARGINS

excl. SBC¹in percent of revenue

YTD			Q2
2017		2016	2017	Delta
(55.6%)	0.5pp	(52.6%)	(53.0%)	0.4pp
44.4%	(0.5pp)	47.4%	47.0%	(0.4pp)	Mostly higher
(25.9%)	2.3pp	(23.1%)	(26.8%)	3.7pp	logistic costs: convenience and warehouse ramp-up
(8.3%)	(2.2pp)	(10.5%)	(7.3%)	(3.2pp)
(5.3%)	0.4pp	(4.9%)	(5.5%)	0.5pp
4.9%	(1.0pp)	8.8%	7.4%	(1.4pp)

S L I G H T L Y N E G A T I V E W O R K I N G C A P I T A L A N D L O G I S T I C S I N V E S T

NET WORKING CAPITAL (END OF Q2)

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 A T S T R O N G L E V E L S

CASH FLOW DEVELOPMENT (Q2)

In €m

• (1) Both Q1/17 and Q2/17 liquidity include investments into short-term deposits with maturity of more than 3 and less than 12 months of €150m and €130m, respectively.
• 13 (2) Includes investments in fixed and intangible assets and payments for acquisitions and change in restricted cash.
• (3) Includes financing cash flow (€1.0m) and effect of exchange rate on cash and cash equivalents (€1.5m).

O U T L O O K

O U T L O O K F O R F Y 2 0 1 7

Slightly negative working capital at year-end and ~€250m capex 2

(1) Adjusted EBIT margin excludes stock-based compensation of 0.4%.

(2) Excludes investments into M&A.

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 (2.3% share1)

Total Number of Shares Outstanding 247,383,028

Issued Share Capital €247,383,028

SHARE INFORMATION

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

As of 30-June-2017

SHARE STOCK OPTION PROGRAMS

As of 30-June-2017

EMPLOYEE INCENTIVE PLAN²

As of 30-June-2017

17 (1) Average July-2017.

Program	# Options outstanding	Strike price	Program	# Options outstanding	Strike price
Various	65,450	1.00	EIP 2016 – Summer Tranche 2016	107,616	1.00
SOP 2011	2,440,350	5.65	EIP 2016 – Summer Tranche 2016	545,989	27.10
SOP 2013	9,817,500	15.63	EIP 2016 – Summer Tranche 2016	171,196	32.52
SOP 2014 – Tranche pre IPO	4,946,863	17.72	EIP 2016 – Winter Tranche 2016	17,023	1.00
SOP2014 – Tranche Mar 2015	607,489	22.79	EIP 2016 – Winter Tranche 2016	67,388	36.83
SOP 2014 – Tranche May 2015	222,230	25.03	EIP 2016 – Winter Tranche 2016	36,368	44.20
SOP 2014 – Tranche Aug 2015	190,812	29.92	EIP 2017 – Summer Tranche 2017	143,896	1.00
SOP 2014 – Tranche Nov 2015	58,900	30.48	EIP 2017 – Summer Tranche 2017	599,210	41.03
SOP 2014 – Tranche Mar 2016	326,216	31.60	EIP 2017 – Summer Tranche 2017	230,938	49.23
Total	18,675,810		Total	1,919,624

(2) The AGM of 31-May-16 authorized the Management Board to grant options under the Employee Incentive Plan .

$\epsilon$ m	FY/14
Revenue	2,214.0
% growth	25.7%
Cost of Sales	(1,255.3)
Gross Profit	958.7
% margin	43.3%
Selling and Distribution Costs	(793.8)
Administrative Expenses	(109.1)
Other Operating Income	12.2
Other Operating Expenses	(5.8)
EBIT	62.1
% margin	2.8%
Net Financial Result	(4.5)
EBT	57.7
% margin	2.6%
Income and Other Tax	(10.5)
Net Income	47.2
% margin	2.1%
Depreciation & Amortization	25.8
EBITDA	88.0
% margin	4.0%
Share Based Compensation (SBC)	19.8
Adj. EBIT (adj. for SBC)	82.0
% margin	3.7%
Adj. EBITDA (adj. for SBC)	107.8
% margin	4.9%

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

€m	FY/14	FY/15	FY/16	Q2/16	Q2/17	YTD/17
Revenue	2,214.0	2,958.2	3,639.0	916.4	1,100.5	2,080.7
% growth	25.7%	33.6%	23.0%	25.0%	21.5%	21.5%
Cost of Sales	(1,255.3)	(1,624.0)	(2,029.6)	(483.2)	(585.0)	1,159.8
Gross Profit	958.7	1,334.1	1,609.4	433.3	515.5	920.9
% margin	43.3%	45.1%	44.2%	47.3%	46.8%	44.3%
Selling and Distribution Costs	(793.8)	(1,118.9)	(1,223.7)	(310.0)	(377.7)	(717.0)
Administrative Expenses	(109.1)	(129.0)	(191.3)	(48.9)	(60.4)	113.2
Other Operating Income	12.2	10.2	16.7	3.5	1.5	4.3
Other Operating Expenses	(5.8)	(7.0)	(4.1)	(0.7)	(2.7)	(3.8)
EBIT	62.1	89.6	207.0	77.2	76.3	91.2
% margin	2.8%	3.0%	5.7%	8.4%	6.9%	4.4%
Net Financial Result	(4.5)	(3.0)	(14.1)	1.7	(2.3)	(5.9)
EBT	57.7	86.6	192.9	78.9	74.0	85.3
% margin	2.6%	2.9%	5.3%	8.6%	6.7%	4.1%
Income and Other Tax	(10.5)	34.9	(72.5)	(28.0)	(26.5)	(32.8)
Net Income	47.2	121.5	120.5	50.9	47.4	52.6
% margin	2.1%	4.1%	3.3%	5.6%	4.3%	2.5%
Depreciation & Amortization	25.8	34.2	48.2	10.1	13.6	26.1
EBITDA	88.0	123.8	255.2	87.3	89.8	117.3
% margin	4.0%	4.2%	7.0%	9.5%	8.2%	5.6%
Share Based Compensation (SBC)	19.8	17.9	19.9	3.7	5.5	10.9
Adj. EBIT (adj. for SBC)	82.0	107.5	216.3	80.9	81.8	102.1
% margin	3.7%	3.6%	5.9%	8.8%	7.4%	4.9%
Adj. EBITDA (adj. for SBC)	107.8	141.7	264.5	91.0	95.3	128.2
% margin	4.9%	4.8%	7.3%	9.9%	8.7%	6.2%

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	FY/16	Q2/16	Q2/17
Per Income Statement Line Item
Cost of Sales	4.4	4.5	5.0	0.9	1.4
Selling and Distribution Costs	9.6	9.0	9.9	1.9	2.7
Administrative Expenses	5.8	4.5	5.0	0.9	1.4
Share Based Compensation	19.8	17.9	19.9	3.7	5.5
As % of revenue	FY/14	FY/15	FY/16	Q2/16	Q2/17
Per Income Statement Line Item
Cost of Sales	0.2%	0.2%	0.1%	0.1%	0.1%
Selling and Distribution Costs	0.4%	0.3%	0.3%	0.2%	0.2%
Administrative Expenses	0.3%	0.2%	0.1%	0.1%	0.1%
Share Based Compensation	0.9%	0.6%	0.5%	0.4%	0.5%

Per Income Statement Line Item

$\epsilon$ m	FY/14
Revenue	2,214.0
DACH	1,234.0
Rest of Europe	862.6
Other	117.4
As % of total	100.0%
DACH	55.7%
Rest of Europe	39.0%
Other	5.3%
EBIT	62.1
DACH	72.3
Rest of Europe	(18.6)
Other	8.4
% margin	2.8%
DACH	5.9%
Rest of Europe	$(2.2\%)$
Other	7.2%
Adjusted EBIT	82.0
DACH	83.0
Rest of Europe	(11.6)
Other	10.5
% adjusted margin	3.7%
DACH	6.7%
Rest of Europe	$(1.3\%)$
Other	9.0%

S E G M E N T S

€m	FY/14	FY/15	FY/16	Q2/16	Q2/17	YTD/17
Revenue	2,214.0	2,958.2	3,639.0	916.4	1,100.5	2080.7
DACH	1,234.0	1,580.1	1,813.8	471.4	542.9	1,017.9
Rest of Europe	862.6	1,211.6	1,570.2	383.2	469.8	898.1
Other	117.4	166.5	255.1	61.8	87.8	164.7
As % of total	100.0%	100.0%	100.0%	100.0%	100%	100%
DACH	55.7%	53.4%	49.8%	51.4%	49.3%	48.9%
Rest of Europe	39.0%	41.0%	43.1%	41.8%	42.7%	43.2%
Other	5.3%	5.6%	7.0%	6.7%	8.0%	7.9%
EBIT	62.1	89.6	207.0	77.2	76.3	91.2
DACH	72.3	92.2	221.4	63.8	54.0	86.8
Rest of Europe	(18.6)	(10.2)	(6.2)	14.4	15.0	(6.4)
Other	8.4	7.5	(8.1)	(1.0)	7.3	10.7
% margin	2.8%	3.0%	5.7%	8.4%	6.9%	4.4%
DACH	5.9%	5.8%	12.2%	13.5%	9,9%	8.5%
Rest of Europe	(2.2%)	(0.8%)	(0.4%)	3.8%	3.2%	(0.7%)
Other	7.2%	4.5%	(3.2%)	(1.6%)	8.3%	6.5%
Adjusted EBIT	82.0	107.5	216.3	80.9	81.8	102.1
DACH	83.0	101.9	226.3	65.7	56.7	92.1
Rest of Europe	(11.6)	(3.3)	(3.3)	15.9	17.3	(1.7)
Other	10.5	8.9	(6.7)	(0.6)	7.8	11.7
% adjusted margin	3.7%	3.6%	5.9%	8.8%	7.4%	4.9%
DACH	6.7%	6.4%	12.5%	13.9%	10.4%	9.1%
Rest of Europe	(1.3%)	(0.3%)	(0.2%)	4.1%	3.7%	(0.2%)
Other	9.0%	5.3%	(2.6%)	(1.0%)	8.8%	7.1%

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

€m Q2/16

		Q2/16 (% of total		Q2/17 (% of total
€m Total Non-Current Assets	Q2/16 323.4	assets) 14.7%	Q2/17 527.6	assets) 19.5%
Thereof: Property, Plant and Equipment	169.4	7.7%	331.8	12.2%
Other Financial Assets	38.7	1.8%	22.1	0.8%
Non-Financial Assets	3.6	0.2%	2.6	0.1%
Other Non-Current Assets	111.6	5.1%	171.0	6.3%
Total Current Assets	1,878.6	85.3%	2,182.9	80.5%
Thereof: Inventories	445.3	20.2%	663.4	24.5%
Trade and Other Receivables	164.4	7.5%	247.0	9.1%
Other Assets1	233.0	10.6%	297.0	11.0%
Cash and Cash Equivalents1	1,035.9	47.0%	975.1	36.0%
Total Assets	2,202.0	100.0%	2,710.5	100.0%
Total Equity	1,332.5	60.5%	1,473.6	54.4%
Thereof: Issued Capital	247.1	11.2%	247.3	9.1%
Capital Reserves	1,148.9	52.2%	1,171.7	43.2%
Retained earnings	(0.9)	(0.0%)	(0.6)	0.0%
Accumulated Gains (Loss)	(62.5)	(2.8%)	54.6	2.0%
Minority Interests	-	-	0.6	0.0%
Total Non-Current Liabilities	29.0	1.3%	55.8	2.1%
Thereof: Financial Liabilities	12.8	0.6%	9.8	0.4%
Other Non-Current Liabilities	16.2	0.7%	45.9	1.7%
Total Current Liabilities	840.5	38.2%	1,181.1	43.6%
Thereof: Trade Payables and Similar Obligations	675.3	30.7%	947.3	35.0%
Other Current Liabilities	165.2	7.5%	233.8	8.6%
Total Equity & Liabilities	2,202.0	100.0%	2,710.5	100% (21.
Net Working Capital	(65.5)	(3.0%)	(37.0)	(1.4%)

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

$\epsilon$ m	FY201
Net Income	47
Non-Cash Expenses from Share-Based Payments	19
Cash Settlement of Claims from Share-Based Payments	$\overline{0}$
Depreciation	25
Income Taxes	10
Income Taxes Paid, Less Refunds	$\overline{0}$
Change in Provisions	$\mathbf 1$
Other Non-Cash Income	(0.2
Change in Inventories and Receivables	(68.
Change in Trade Liabilities	94
Change in Other Assets/Other Liabilities	44
Cash Flow from Operating Activities	174
Payments for Investments in Fixed and Intangible Assets	(51.
Payments for Acquisitions	$\Omega$
Cash Paid for Investments in Term Deposits	$\overline{0}$
Change in Restricted Cash	(0.3
Cash Flow from Investing Activities	(51.9)
Payments Received from Capital Increases	510
Cash Received from Loans	$\mathcal{S}$
Repurchase of treasury shares	$\overline{0}$
Cash Repayments of Loans	(3.2
Cash Flow from Financing Activities	510
	633
Change in Cash & Cash Equivalents
Effects of Exchange Rate on Cash & Cash Equivalents	$\bf{0}$

€m	FY2014	FY2015	FY/16	Q2/16	Q2/17	YTD/17
Net Income	47.2	121.5	120.5	50.9	47.4	52.6
Non-Cash Expenses from Share-Based Payments	19.8	17.9	19.9	3.7	5.5	10.9
Cash Settlement of Claims from Share-Based Payments	0.0	(2.3)	0.0	0.0	0.0	0.0
Depreciation	25.8	34.2	48.2	10.3	13.6	26.1
Income Taxes	10.5	(34.9)	72.5	28.0	26.5	32.8
Income Taxes Paid, Less Refunds	0.0	(0.0)	(33.8)	(4.5)	(15.5)	(19.4)
Change in Provisions	1.0	(0.5)	0.1	(4.0)	(0.0)	(0.2)
Other Non-Cash Income	(0.2)	(1.0)	1.2	(1.0)	2.3	3.0
Change in Inventories and Receivables	(68.7)	(154.2)	(147.4)	144.1	53.5	(103.7)
Change in Trade Liabilities	94.9	154.9	264.3	(69.3)	(101.1)	25.3
Change in Other Assets/Other Liabilities	44.6	(16.2)	(69.7)	(1.2)	47.0	35.0
Cash Flow from Operating Activities	174.9	119.4	275.8	156.9	79.1	62.4
Payments for Investments in Fixed and Intangible Assets	(51.1)	(60.0)	(181.7)	(44.5)	(52.1)	(130.0)
Payments for Acquisitions	0.0	(16.8)	(30.4)	(28.3)	(26.7)	(26.7)
Cash Paid for Investments in Term Deposits	0.0	(155.0)	(65.0)	10.0	20.0	7.7
Change in Restricted Cash	(0.8)	35.3	0.0	(0.0)	7.3	90.0
Cash Flow from Investing Activities	(51.9)	(196.5)	(277.1)	(62.7)	(51.5)	(58.9)
Payments Received from Capital Increases	510.1	6.4	1.1	0.5	0.6	0.6
Cash Received from Loans	3.9	0.0	0.0	0.0	0.0	0.0
Repurchase of treasury shares	0.0	(1.7)	(0.7)	0.0	(0.7)	0.7
Cash Repayments of Loans	(3.2)	(3.2)	(3.2)	(0.8)	(0.8)	(1.6)
Cash Flow from Financing Activities	510.8	1.5	(2.9)	(0.3)	(1.0)	(1.0)
Change in Cash & Cash Equivalents	633.8	(75.7)	(4.1)	93.9	26.7	1.8
Effects of Exchange Rate on Cash & Cash Equivalents	0.0	0.9	0.5	0.8	(1.5)	0.7

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

2015
1,656.4
57.1%
17.9
55.3
3.08x
67.8
26%
12%

	2015	Q1/16	Q2/16	Q3/16	Q4/16	2016	Q1/17	Q2/17
Site Visits (m)1	1,656.4	479.5	480.2	468.6	563.2	1,991.6	617.6	595.2
Mobile Visit Share (in % of Site Visits)2	57.1%	62.3%	64.7%	67.0%	68.1%	65.6%	68.8%	69.7%
Active Customers (m) 3	17.9	18.4	18.8	19.2	19.9	19.9	20.4	21.2
Number of Orders (m) 4	55.3	15.6	17.5	16.4	19.6	69.2	19.9	22.2
Average Order per Active Customer	3.08x	3.20x	3.32x	3.39x	3.48x	3.48x	3.60x	3.69x
Average Basket Size (in €) 5	67.8	66.5	66.2	62.8	70.2	66.6	63.0	64.5
Fulfillment Cost Ratio (in % of revenue) 6	26%	24%	23%	24%	22%	23%	25%	27%
Marketing Cost Ratio (in % of revenue) 7	12%	10%	10%	10%	10%	10%	9%	7%

• (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.
• 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.

(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

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

		August 2017					November 2017
	M	T	W	T	F		M	T	W	T	F
		1	2	3	4				1	2	3
	7	8	9	10	11		6	7	8	9	10
	14	15	16	17	18		13	14	15	16	17
	21	22	23	24	25		20	21	22	23	24
	28	29	30	31			27	28	29	30
Date		Action
Tuesday, 5-Sep				NDR San Francisco
Wednesday, 6-Sep					Goldman Sachs Global Retail	Conference, New York
Thursday, 7-Sep		Citi Global Tech Conference, New York
Tuesday, 12-Sep		NDR Geneva
Wednesday, 13-Sep		NDR Zurich
Thursday, 14-Sep		NDR Milan
Wednesday, 20-Sep		Berenberg & Goldman Sachs Annual German Corporate Conference, Munich
Thursday, 21-Sep			Baader Investment Conference, Munich
Tuesday, 7-Nov			1 Q3/2017 Results (a trading update will be published in October )
Wednesday + Thursday, 15 + 16-Nov		Morgan Stanley European TMT Conference, Barcelona

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