Zalando SE — Earnings Release 2018

Nov 6, 2018

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

Q3/2018 EARNINGS CALL

N O V E M B E R 6 , 2 0 1 8

HIGHLIGHTS AND BUSINESS UPDATE

HIGHLIGHTS AND LOWLIGHTS Q3/2018

HIGHLIGHTS LOWLIGHTS

>25m

Strong customer KPI development: active customers represent 6% of European population Active customers Slow topline performance

+12% Revenue growth +17% GMV growth

below target corridor

NPS at all-time high

Customer satisfaction improving with better product selection and advancing onsite experience

>60% Partner program growth

Platform transition unfolding: building the ecosystem for European fashion

-€39m Adj. EBIT

Negative adj. EBIT below prior year and expectations

BUILDING THE ECOSYSTEM FOR EUROPEAN FASHION

FINANCIAL UPDATE Q3/2018

S L O W T O P L I N E P E R F O R M AN C E I N F AS H I O N S T O R E W H I L E OFFPRICE CONTINUES STRONG GROWTH

(1) YTD/18 (YTD/17) contains -€362m (-€256m) reconciliation of internal revenues. Q3/18 (Q3/17): -€125m (-€90m).

(2) All other segments including private label offering zLabels and various emerging businesses.

6

G R O W T H R AT E I M P AC T E D B Y P AR T N E R P R O G R AM , S T R O N G P R I O R -Y E AR G R O W T H AN D D E L AY E D F / W S E AS O N S T AR T

• GMV growth significantly stronger than revenue growth, driven by Partner Program
• Compares against very strong Q3/2017 growth of 29%
• Delayed season start in September created difficult environment for growth

S T R O N G C U S T O M E R K P I D E V E L O P M E N T DESPITE BASKET SIZE IMPACT

8 (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 €).

N E G AT I V E AD J . E B I T B E L O W P R I O R Y E AR AN D E X P E C T AT I O N S

(1) Excluding equity-settled share-based payment expense ("SBC"), restructuring costs and non-operating one-time effects of €39.0m in YTD/18 (YTD/17: €17.2m). Q3/18: €16.8m (Q3/17: €6.3m).

9 (2) YTD/18 (YTD/17) contains €1m (€0m) reconciliation of internal adj. EBIT. Q3/18 (Q3/17): -€1m (€0m).

E AR N I N G S C H AL L E N G E D B Y B O T H T E M P O R AR Y AN D S T R U C T U R AL H E AD W I N D S

COSTS AND MARGINS¹

(1) Excluding equity-settled share-based payment expense ("SBC"), restructuring costs and non-operating one-time effects.

10 (2) Changes resulting from new segment structure. Prior year figures not restated.

C AP E X S P E N D B AC K -E N D L O AD E D I N 2 0 1 8

S O L I D L I Q U I D I T Y P O S I T I O N T O P U R S U E O U R 2 0 2 0 S T R AT E G Y

(1) Both Q1/18 and Q2/18 liquidity include investments into short-term deposits with maturity of more than 3 and less than 12 months of -€20m.

(2) Includes investments in fixed and intangible assets and payments for acquisitions and change in restricted cash and a fixed a sset sale of +€57m in Q3/18.

12 (3) Includes financing cash flow (-€64.7m) and effect of exchange rate on cash and cash equivalents (-€1.9m).

OUTLOOK

REVENUE GROWTH OF AROUND 20% AND ADJ. E B I T O F € 1 7 0 M AT M I D -P O I N T

REVENUE GROWTH AROUND THE LOW END OF 20 – 2 5 % R A N G E

A D J . E B I T ¹ : € 1 5 0 - 190M ²

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 R O U N D € 3 0 0 M C A P E X ³

(1) Excluding equity-settled share-based payment expense ("SBC"), restructuring costs and non-operating one-time effects of ~€55m for FY/18E.

(2) Implies an adj. EBIT margin of ~3.2%.

14 (3) Excludes investments into M&A.

I S S U E D S H AR E C AP I T AL

SHARE INFORMATION (AS OF SEP 30, 2018)

Issued Share Capital	€250,488,963
Total Number of Shares Outstanding	250,488,963
Index Listings	MDAX
Market Segment	Regulated Market (Prime Standard)
Stock Exchange	Frankfurt Stock Exchange
Type of Shares	Ordinary bearer shares with no-par value (Stückaktien)

SHARE STOCK OPTION PROGRAMS (AS OF SEP 30, 2018) EMPLOYEE INCENTIVE PLAN (AS OF SEP 30, 2018)

EMPLOYEE INCENTIVE PLAN (AS OF SEP 30, 2018

Program	# Options outstanding	Weighted average exercise price (EUR)
Various	57,970	1.00
SOP 2011	1,346,400	5.65
SOP 2013	9,445,771	15.37
SOP 2014	4,311,750	20.07
Total	15,161,891	15.79

Program	# Options outstanding	Weighted average exercise price (EUR)
EIP 2016	814,431	24.86
EIP 2017	1,048,845	36.78
EIP 2018	1,631,553	41.23
Total	3,494,829	36.08

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

€m	FY/141	FY/151	FY/161	FY/171	Q3/171	Q3/18
Revenue	2,214.0	2,958.2	3,639.0	4,489.0	1,074.7	1,200.2
% growth	25.7%	33.6%	23.0%	23.4%	28.7%	11.7%
Cost of Sales	(1,255.3)	(1,624.0)	(2,029.6)	(2,529.6)	(636.2)	(726.5)
Gross Profit	958.7	1,334.1	1,609.4	1,959.4	438.5	473.7
% margin	43.3%	45.1%	44.2%	43.6%	40.8%	39.5%
Selling and Distribution Costs	(793.8)	(1,118.9)	(1,223.7)	(1,530.8)	(384.0)	(459.7)
Administrative Expenses	(109.1)	(129.0)	(191.3)	(242.9)	(62.6)	(70.4)
Other Operating Income	12.2	10.2	16.7	11.8	3.2	1.4
Other Operating Expenses	(5.8)	(7.0)	(4.1)	(9.9)	(1.0)	(0.7)
EBIT	62.1	89.6	207.0	187.6	(5.9)	(55.7)
% margin	2.8%	3.0%	5.7%	4.2%	(0.5%)	(4.6%)
Net Financial Result	(4.5)	(3.0)	(14.1)	(12.4)	(3.7)	(1.7)
EBT	57.7	86.6	192.9	175.2	(9.6)	(57.3)
% margin	2.6%	2.9%	5.3%	3.9%	(0.9%)	(4.8%)
Income and Other Tax	(10.5)	34.9	(72.5)	(73.6)	(1.5)	15.6
Net Income	47.2	121.5	120.5	101.6	(11.1)	(41.7)
% margin	2.1%	4.1%	3.3%	2.3%	(1.0%)	(3.5%)
Depreciation & Amortization	25.8	34.2	48.2	58.7	15.2	21.9
EBITDA	88.0	123.8	255.2	246.4	9.4	(33.7)
% margin	4.0%	4.2%	7.0%	5.5%	0.9%	(2.8%)
Share Based Compensation (SBC)	19.8	17.9	19.9	27.5	6.3	16.8
Adj. EBIT2	82.0	107.5	216.3	215.1	0.4	(38.9)
% margin	3.7%	3.6%	5.9%	4.8%	0.0%	(3.2%)
Adj. EBITDA2	107.8	141.7	264.5	273.8	15.7	(16.9)
% margin	4.9%	4.8%	7.3%	6.1%	1.5%	(1.4%)

17 (2) Excluding equity-settled share-based payment expense ("SBC"), restructuring costs and non-operating one-time effects.

S H AR E B AS E D C O M P E N S AT I O N

€m	FY/14	FY/15	FY/16	FY/17	Q3/17	Q3/18
Per Income Statement Line Item
Cost of Sales	4.4	4.5	5.0	6.9	1.7	1.0
Selling and Distribution Costs	9.6	9.0	9.9	13.7	3.4	3.6
Administrative Expenses	5.8	4.5	5.0	6.9	1.2	12.2
Share Based Compensation	19.8	17.9	19.9	27.5	6.3	16.8
As % of revenue	FY/14	FY/15	FY/16	FY/17	Q3/17	Q3/18
Per Income Statement Line Item
Cost of Sales	0.2%	0.2%	0.1%	0.2%	0.2%	0.1%
Selling and Distribution Costs	0.4%	0.3%	0.3%	0.3%	0.3%	0.3%
Administrative Expenses	0.3%	0.2%	0.1%	0.2%	0.1%	1.0%
Share Based Compensation	0.9%	0.6%	0.5%	0.6%	0.6%	1.4%

S E G M E N T S¹

€m	FY/14	FY/15	FY/16	Reported FY/17	Restated FY/17	Restated Q3/17	Q3/18
Revenue	2,214.0	2,958.2	3,639.0	4,489.0	4,489.0	1,074.7	1,200.2
Fashion Store					4,150.5	994.0	1,101.3
thereof DACH	1,234.0	1,580.1	1,813.8	2,145.6	2,150.0	498.4	542.4
thereof Rest of Europe	862.6	1,211.6	1,570.2	1,973.6	2,000.5	495.5	558.9
Offprice					345.3	80.4	112.8
Other	117.4	166.5	255.1	369.9	345.3	90.6	111.4
Reconciliation					(352.0)	(90.3)	(125.1)
As % of total	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%
Fashion Store					92.5%	92.5%	91.8%
Fashion Store – DACH	55.7%	53.4%	49.8%	47.8%	47.9%	46.4%	45.2%
Fashion Store – Rest of Europe	39.0%	41.0%	43.1%	44.0%	44.6%	46.1%	46.6%
Offprice					7.7%	7.5%	9.4%
Other	5.3%	5.6%	7.0%	8.2%	7.7%	8.4%	9.3%
Reconciliation					(7.8%)	(8.4%)	(10.4%)
Adjusted EBIT	82.0	107.5	216.3	215.1	215.1	0.4	(38.9)
Fashion Store					213.7	1.2	(40.9)
thereof DACH	83.0	101.9	226.3	188.5	193.5	17.6	(7.8)
thereof Rest of Europe	(11.6)	(3.3)	(3.3)	21.6	20.3	(16.3)	(33.1)
Offprice					27.6	7.8	8.1
Other	10.5	8.9	(6.7)	5.0	(26.3)	(8.6)	(4.7)
Reconciliation					0.0	0.0	(1.3)
% adjusted margin	3.7%	3.6%	5.9%	4.8%	4.8%	0.0%	(3.2%)
Fashion Store					5.2%	0.1%	(3.7%)
Fashion Store – DACH	6.7%	6.4%	12.5%	8.8%	9.0%	3.5%	(1.4%)
Fashion Store – Rest of Europe	(1.3%)	(0.3%)	(0.2%)	1.1%	1.0%	(3.3%)	(5.9%)
Offprice					8.0%	9.7%	7.2%
Other	9.0%	5.3%	(2.6%)	1.3%	(7.6%)	(9.4%)	(4.2%)
Reconciliation					0.0%	0.0%	(1.0%)

B AL AN C E S H E E T

		Q3/17		Q3/18
€m	Q3/17	(% of total assets)	Q3/18	(% of total assets)
Total Non-Current Assets	567.4	18.9%	679.7	21.4%
Thereof: Property, Plant and Equipment	352.2	11.7%	462.9	14.6%
Other Financial Assets	27.2	0.9%	21.3	0.7%
Non-Financial Assets	2.3	0.1%	3.8	0.1%
Other Non-Current Assets	185.8	6.2%	191.7	6.0%
Total Current Assets	2,435.9	81.1%	2,492.3	78.6%
Thereof: Inventories	859.3	28.6%	1025.3	32.3%
Trade and Other Receivables	260.1	8.7%	323.8	10.2%
Other Assets1	231.9	7.7%	266.2	8.4%
Cash and Cash Equivalents1	1084.6	36.1%	877.0	27.7%
Total Assets	3,003.4	100.0%	3,172.0	100%
Total Equity	1,474.9	49.1%	1,486.9	46.9%
Thereof: Issued Capital	247.3	8.2%	248.0	7.8%
Capital Reserves	1,178.0	39.2%	1,148.0	36.2%
Other reserves	5.7	0.2%	(3.7)	(0.1%)
Accumulated Profit	44.2	1.5%	94.7	3.0%
Minority Interests	(0.3)	(0.0%)	(0.1)	(0.0%)
Total Non-Current Liabilities	60.0	2.0%	65.4	2.1%
Thereof: Financial Liabilities	8.9	0.3%	6.3	0.2%
Other Non-Current Liabilities	51.1	1.7%	59.1	1.9%
Total Current Liabilities	1,468.5	48.9%	1,619.7	51.0%
Thereof: Trade Payables and Similar Obligations	1234.7	41.1%	1,356.5	42.8%
Other Current Liabilities	233.7	7.8%	263.2	8.2%
Total Equity & Liabilities	3,003.4	100.0%	3,172.0	100%
Net Working Capital	(115.3)	(2.7%)	(7.4)	0.2%

C AS H F L O W S T AT E M E N T

€m	FY/14	FY/15	FY/16	FY/17	Q3/17	Q3/18
Net Income	47.2	121.5	120.5	101.6	(11.1)	(41.7)
Non-Cash Expenses from Share-Based Payments	19.8	17.9	19.9	27.5	6.3	16.8
Cash Settlement of Claims from Share-Based Payments	0.0	(2.3)	0.0	0.0	0.0	0.0
Depreciation & amortization	25.8	34.2	48.2	58.7	15.2	21.9
Income Taxes	10.5	(34.9)	72.5	73.6	1.5	(15.6)
Income Taxes Paid, Less Refunds	0.0	(0.0)	(33.8)	(49.4)	(15.1)	(10.9)
Change in Provisions	1.0	(0.5)	0.1	(1.5)	0.1	0.0
Other Non-Cash Income	(0.2)	(1.0)	1.2	6.5	(1.1)	0.1
Change in Inventories and Receivables	(68.7)	(154.2)	(147.4)	(251.0)	(209.1)	(225.0)
Change in Trade Liabilities	94.9	154.9	264.3	198.4	287.0	250.1
Change in Other Assets/Other Liabilities	44.6	(16.2)	(69.7)	29.2	18.6	(21.6)
Cash Flow from Operating Activities	174.9	119.4	275.8	193.7	92.3	(25.9)
Payments for Investments in Fixed and Intangible Assets	(51.1)	(60.0)	(181.7)	(243.9)	(45.7)	(3.6)1
Payments for Acquisitions	0.0	(16.8)	(30.4)	(34.9)	(6.7)	(0.8)
Cash Paid for Investments in Term Deposits	0.0	(155.0)	(65.0)	180.0	70.0	0.0
Change in Restricted Cash	(0.8)	35.3	0.0	10.4	2.7	(0.4)
Cash Flow from Investing Activities	(51.9)	(196.5)	(277.1)	(88.3)	20.3	(4.8)
Payments Received from Capital Increases	510.1	6.4	1.1	3.9	0.0	32.2
Cash Received from Loans	3.9	0.0	(0.7)	0.0	0.0	0.0
Repurchase of treasury shares	0.0	(1.7)	0.0	(11.3)	0.0	(0.4)
Cash Repayments of Loans	(3.2)	(3.2)	(3.2)	(3.2)	(0.5)	(0.7)
Cash Flow from Financing Activities	510.8	1.5	(2.9)	(10.6)	(0.5)	31.1)
Change in Cash & Cash Equivalents	633.8	(75.7)	(4.1)	94.8	112.0	0.4
Effects of Exchange Rate on Cash & Cash Equivalents	0.0	0.9	0.5	(1.9)	(2.5)	1.8

KPI DEVELOPMENT

	FY/15	FY/16	Q1/17	Q2/17	Q3/17	Q4/17	FY/17	Q1/18	Q2/18	Q3/18
Site Visits (m)1	1,656.4	1,991.6	617.6	595.2	615.6	735.1	2,563.5	713.5	734.3	728.7
Mobile Visit Share (in % of Site Visits)2	57.1%	65.6%	68.8%	69.7%	71.8%	72.1%	70.7%	76.6%	78.4%	80.0%
Active Customers (m) 3	17.9	19.9	20.4	21.2	22.2	23.1	23.1	23.9	24.6	25.1
Number of Orders (m) 4	55.3	69.2	19.9	22.2	22.5	25.8	90.5	25.4	29.0	27.7
Average Order per Active Customer	3.08x	3.48x	3.60x	3.69x	3.80x	3.92x	3.92x	4.02x	4.18x	4.30x
Average Basket Size (in €) 5	67.8	66.6	63.0	64.5	62.0	67.8	64.5	60.3	60.4	57.5
Fulfillment Cost Ratio (in % of revenue) 6	25.8%	23.2%	24.9%	26.8%	27.0%	24.9%	25.9%	28.1%	28.2%	30.1%
Marketing Cost Ratio (in % of revenue) 7	11.7%	10.3%	9.4%	7.3%	8.4%	7.0%	7.9%	6.9%	6.4%	8.0%

(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.

FI NANCI AL CALEND AR 2018 & 2019

				November 2018		December 2018					Date	Action
	M	T	W	T	F	M	T	W	T	F	Tuesday, Nov 6	Frankfurt: Roadshow
Q 3 / 1 8				1	2	3	4	5	6	7	Wednesday,
	5	6	7	8	9	10	11	12	13	14	Nov 7	London: Roadshow
	12	13	14	15	16	17	18	19	20	21	Monday, Nov 12	New York: Roadshow
	19 26	20 27	21 28	22 29	23 30	24 31	25	26	27	28	Tuesday, Nov 13	San Francisco: UBS Global Tech Conference
			January	2019			February		2019		Thu + Fri, Nov 15 + 16	Barcelona: Morgan Stanley TMT Conference
	M	T	W	T	F	M	T	W	T	F	Tue + Wed, Nov 27 +28	Singapore: Roadshow
		1	2	3	4					1	Thursday, Nov 29	Hongkong: Roadshow
	7	8	9	10	11	4	5	6	7	8
	14	15	16	17	18	11	12	13	14	15 Q 4 &	Friday, Nov 30	Berlin: Warburg Meet the Future Conference
	21	22	23	24	25	18	19	20	21	F Y/ 1 8 22
	28	29	30	31		25	26	27	28

Z AL AN D O I N V E S T O R R E L AT I O N S T E AM

Patrick Kofler – Team Lead IR Patrick.Kofler@zalando.de

Nils Pöppinghaus – Manager IR Nils.Poeppinghaus@zalando.de

Dorothee Schultz – Junior Manager IR Dorothee.Schultz@zalando.de

Christoph Rump – Senior Manager IR Christoph.Rump@zalando.de

Team Contact T: +49 3020 9681 584 Zalando Tamara-Danz-Straße 1 10243 Berlin investor.relations@zalando.de https://corporate.zalando.com/en

D I S C L AI M E R

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.