Zalando SE — Earnings Release 2017

Mar 1, 2018

Q4 / FY 2017 Earnings Call

EUROPE'S LEADING ONLINE FASHION DESTINATION

0 1 - 0 3 - 2018

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

(1) Adjusted EBIT excludes stock-based compensation and non-operative one-time effects of €27.5m.

(2) Excludes investments into M&A.

W E C O N T I N U E T O D E L I V E R O N O U R M U L T I -Y E A R O U T L O O K

REVENUE GROWTH OF 20 - 25%

S O L I D P R O F I T A B I L I T Y

F R E E C A S H F L O W : N E U T R A L W O R K I N G C A P I T A L + S T R A T E G I C C A P E X S P E N D

O U R A S S O R T M E N T I S M O R E U N I Q U E T H A N E V E R

KEY HIGHLIGHTS 2017
EXPANDED ASSORTMENT	• More style choices: 2.000 brands • Increased selection & availability: 300k SKUs – supported by Partner Program
BOOSTED FASHIONABILITY	• Added 350 new fashion brands with highlights like Pull & Bear, Stradivarius (both Inditex) and Weekday (H&M)
REFRESHED OFFER	• In-season share of >95% • Increased Fast Fashion offer with positive impact on customer satisfaction

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

• (2) Share of visits that go beyond the landing page
• 5

KEY HIGHLIGHTS 2017
CONTINUED OPTIMIZATION	Conversion rate1 • : 5.7% (+0.6pp) • Site visits / traffic: +29% (+8.5pp) rate2 • Non-bounce : 76% (+3pp)
NEXT GENERATION DIGITAL EXPERIENCE	• Create more diverse and inspirational assortment entry points (e.g. outfits) • Clear focus for 2018 on personalization
CONTINUED MOBILE FOCUS	• 72% site visits from mobile devices • 1.3m app installs per month • Launch of new convenience and customization features

W E M A S S I V E L Y R A M P E D U P O U R F U L F I L L M E N T N E T W O R K

KEY HIGHLIGHTS 2017
INCREASED CAPACITY AND EFFICIENCY	• Capacity: >€10bn after completion • Efficiency: bagsorter in M'Gladbach at full speed processing >10m items in Q4
SCALING NEW FULFILLMENT OPTIONS	• Expanded Same Day Delivery & Return on-Demand offer • Zalando Plus: Positive customer KPIs
ACCELERATED ZALANDO FULFILLMENT SOLUTIONS	• Already ~10% of Partner Program through ZFS • Positive impact on customer satisfaction and unit economics

F I N A N C I A L U P D A T E Q 4 / F Y 2 0 1 7

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

GROUP REVENUE

in €m

DACH REVENUE

in €m

(1) Segment "Others" mainly including revenues from "Zalando Lounge", as well as three outlet stores and the new platform initiat ives.

V E R Y S T R O N G 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 €).

ACTIVE CUSTOMERS

AVERAGE ORDER PER ACTIVE CUSTOMER

R E S T O F E U R O P E P R O F I T A B L E F O R T H E F I R S T T I M E O N A F U L L Y E A R B A S I S

GROUP ADJ. EBIT (MARGIN)¹

in €m (in %)

DACH ADJ. EBIT (MARGIN) 1

in €m (in %)

(1) Excluding equity-settled stock-based compensation costs ("SBC") and non-operative one-time effects of €10.3m in Q4/17 and of €27.5m in FY/17, respectively.

C O N T I N U E D R E - I N V E S T M E N T O F M A R K E T I N G L E V E R A G E

COSTS AND MARGINS

excl. SBC¹in % of revenue

FY			Q4
2017		2016	2017	Delta
(56.2%)	0.6pp	(54.2%)	(54.8%)	0.6pp
43.8%	(0.6pp)	45.8%	45.2%	(0.6pp)
(25.9%)	2.7pp	(21.8%)	(24.9%)	3.1pp
(7.9%)	(2.3pp)	(10.3%)	(7.0%)	(3.3pp)
(5.2%)	0.1pp	(4.9%)	(4.9)	(0.0pp)
4.8%	(1.1pp)	8.8%	8.4%	(0.4pp)

W O R K I N G C A P I T A L A N D C A P E X I N L I N E W I T H G U I D A N C E

NET WORKING CAPITAL (END OF Q4)

in % of annualized revenue

CAPITAL EXPENDITURE¹

in €m

O U T L O O K

A W I N N I N G S T R A T E G Y : F O C U S O N G A I N I N G M A R K E T S H A R E

14 (1) Source: Market information from Euromonitor International, February 2017, values based on actuals and estimates; fixed exchange rates. Data for Europe (excl. Russia) incl. apparel and footwear, bags and luggage, jewelry and watches. All market figures inclusive of sales tax.

ZALANDO MARKET SHARE DEVELOPMENT b a s e d o n G M V

SEGMENT & TOTAL MARKET1	2013	2017
DACH ~ € 9 5 b n	~ 1 . 4 %	~ 2 . 8 %
R E S T O F E U R O P E ~ € 3 2 5 b n	~ 0 . 2 %	~ 0 . 8 %
		LONG-TERM TARGET: 5%
T O T A L Z A L A N D O ~ € 4 2 0 b n	~ 0 . 5 %	~ 1 . 3 %

OUR ASPIRATION: DOUBLE GMV FROM 2017 TO 2020

# 1 P R I O R I T Y T O F O C U S O N G R O W T H W I T H 2 0 - 2 5 % C A G R T H R O U G H 2 0 2 0

O U T P E R F O R M A N C E O F F A S H I O N O N L I N E M A R K E T B Y F A C T O R 2 - 3 X

N O M A R G I N E X P A N S I O N I N H I G H G R O W T H PHASE

2018: WE CONTINUE TO INVEST HEAVILY INTO OUR VALUE PROPOSITION

(1) Adjusted EBIT excludes stock-based compensation and non-operative one-time effects of ~€35m.

• (2) Implies adj. EBIT margin of ~4-5%.
• (3) Excludes investments into M&A.

2 0 1 8 G U I D A N C E R E F L E C T S S T R A T E G Y T O W I N M A R K E T S H A R E

L I Q U I D I T Y S T A B L E O N S O L I D L E V E L

CASH FLOW DEVELOPMENT (Q4/17)

In €m

(1) Both Q3/17 and Q4/17 liquidity include investments into short-term deposits with maturity of more than 3 and less than 12 months of €60m and €40m, respectively. (2) Includes investments in fixed and intangible assets and payments for acquisitions and change in restricted cash. (3) Includes financing cash flow (-€3.8m) and effect of exchange rate on cash and cash equivalents (-€0.1m).

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 (3.1% share1) Total Number of Shares Outstanding 247,384,898 Issued Share Capital €247,384,898

SHARE INFORMATION

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

As of 31-Dec-2017

SHARE STOCK OPTION PROGRAMS

As of 31-Dec-2017

EMPLOYEE INCENTIVE PLAN²

As of 31-Dec-2017

Program	# Options outstanding	Weighted average exercise price (EUR)	Program	# Options outstanding	Weighted average exercise price (EUR)
Various	63,580	1.00	EIP 2016	879,721	24.77
SOP 2011	1,851,300	5.65	EIP 2017	1,044,056	36.45
SOP 2013	9,817,500	15.63	Total	1,923,777	31.65
SOP 2014	6,296,912	19.58
Total	18,029,292

(1) Average February-2017.

(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	FY/17	Q4/16	Q4/17
Revenue	2,214.0	2,958.2	3,639.0	4,489.0	1091.6	1,333.7
% growth	25.7%	33.6%	23.0%	23.4%	25.7%	22.2%
Cost of Sales	(1,255.3)	(1,624.0)	(2,029.6)	(2,529.6)	(593.1)	(733.6)
Gross Profit	958.7	1,334.1	1,609.4	1,959.4	498.4	600.1
% margin	43.3%	45.1%	44.2%	43.6%	45.7%	45.0%
Selling and Distribution Costs	(793.8)	(1,118.9)	(1,223.7)	(1,530.8)	(353.5)	(429.8)
Administrative Expenses	(109.1)	(129.0)	(191.3)	(242.9)	(53.1)	(67.1)
Other Operating Income	12.2	10.2	16.7	11.8	10.4	4.3
Other Operating Expenses	(5.8)	(7.0)	(4.1)	(9.9)	(1.6)	(5.1)
EBIT	62.1	89.6	207.0	187.6	100.7	102.3
% margin	2.8%	3.0%	5.7%	4.2%	9.2%	7.7%
Net Financial Result	(4.5)	(3.0)	(14.1)	(12.4)	(6.3)	(2.8)
EBT	57.7	86.6	192.9	175.2	94.4	99.5
% margin	2.6%	2.9%	5.3%	3.9%	8.6%	7.5%
Income and Other Tax	(10.5)	34.9	(72.5)	(73.6)	(34.4)	(39.4)
Net Income	47.2	121.5	120.5	101.6	60.0	60.1
% margin	2.1%	4.1%	3.3%	2.3%	5.5%	4.5%
Depreciation & Amortization	25.8	34.2	48.2	58.7	17.8	17.4
EBITDA	88.0	123.8	255.2	246.4	118.5	119.7
% margin	4.0%	4.2%	7.0%	5.5%	10.9%	9.0%
Share Based Compensation (SBC)	19.8	17.9	19.9	27.5	5.6	10.3
Adj. EBIT (adj. for SBC)	82.0	107.5	216.3	215.1	95.6	112.6
% margin	3.7%	3.6%	5.9%	4.8%	8.8%	8.4%
Adj. EBITDA (adj. for SBC)	107.8	141.7	264.5	273.8	113.4	130.0
% margin	4.9%	4.8%	7.3%	6.1%	10.4%	9.7%

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
Per Income Statement Line Item

€m	FY/14	FY/15	FY/16	FY/17	Q4/16	Q4/17
Per Income Statement Line Item
Cost of Sales	4.4	4.5	5.0	6.9	1.4	2.4
Selling and Distribution Costs	9.6	9.0	9.9	13.7	2.8	4.9
Administrative Expenses	5.8	4.5	5.0	6.9	1.4	2.9
Share Based Compensation	19.8	17.9	19.9	27.5	5.6	10.3
As % of revenue	FY/14	FY/15	FY/16	FY/17	Q4/16	Q4/17
Per Income Statement Line Item
Cost of Sales	0.2%	0.2%	0.1%	0.2%	0.1%	0.2%
Selling and Distribution Costs	0.4%	0.3%	0.3%	0.3%	0.3%	0.4%
Administrative Expenses	0.3%	0.2%	0.1%	0.2%	0.1%	0.2%
Share Based Compensation	0.9%	0.6%	0.5%	0.6%	0.5%	0.8%

$\epsilon$ 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	FY/17	Q4/16	Q4/17
Revenue	2,214.0	2,958.2	3,639.0	4,489.0	1091.6	1,333.7
DACH	1,234.0	1,580.1	1,813.8	2,145.6	529.4	630.0
Rest of Europe	862.6	1,211.6	1,570.2	1,973.6	478.4	585.8
Other	117.4	166.5	255.1	369.9	83.8	117.9
As % of total	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%
DACH	55.7%	53.4%	49.8%	47.8%	48.5%	47.2%
Rest of Europe	39.0%	41.0%	43.1%	44.0%	43.8%	43.9%
Other	5.3%	5.6%	7.0%	8.2%	7.7%	8.8%
EBIT	62.1	89.6	207.0	187.6	100.7	102.3
DACH	72.3	92.2	221.4	175.6	82.2	76.0
Rest of Europe	(18.6)	(10.2)	(6.2)	9.6	18.7	35.0
Other	8.4	7.5	(8.1)	2.5	(0.2)	(8.7)
% margin	2.8%	3.0%	5.7%	4.2%	9.2%	7.7%
DACH	5.9%	5.8%	12.2%	8.2%	15.5%	12.1%
Rest of Europe	(2.2%)	(0.8%)	(0.4%)	0.5%	3.9%	6.0%
Other	7.2%	4.5%	(3.2%)	0.7%	(0.2%)	(7.3%)
Adjusted EBIT	82.0	107.5	216.3	215.1	95.6	112.6
DACH	83.0	101.9	226.3	188.5	80.0	80.7
Rest of Europe	(11.6)	(3.3)	(3.3)	21.6	15.7	39.6
Other	10.5	8.9	(6.7)	5.0	(0.1)	(7.6)
% adjusted margin	3.7%	3.6%	5.9%	4.8%	8.8%	8.4%
DACH	6.7%	6.4%	12.5%	8.8%	15.1%	12.8%
Rest of Europe	(1.3%)	(0.3%)	(0.2%)	1.1%	3.3%	6.8%
Other	9.0%	5.3%	(2.6%)	1.3%	(0.1%)	(6.5%)

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

€m Q4/16

		Q4/16		Q4/17
€m	Q4/16	(% of total assets)	Q4/17	(% of total assets)
Total Non-Current Assets	392.6	15.5%	569.6	19.1%
Thereof: Property, Plant and Equipment	243.0	9.6%	350.5	11.8%
Other Financial Assets	44.1	1.7%	31.8	1.1%
Non-Financial Assets	3.0	0.1%	3.5	0.1%
Other Non-Current Assets	102.5	4.0%	183.8	6.2%
Total Current Assets	2,145.6	84.5%	2,410.7	80.9%
Thereof: Inventories	576.9	22.7%	778.9	26.1%
Trade and Other Receivables	216.0	8.5%	278.7	9.4%
Other Assets1	380.0	15.0%	287.6	9.6%
Cash and Cash Equivalents1	972.6	38.3%	1,065.5	35.8%
Total Assets	2,538.2	100.0%	2,980.3	100%
Total Equity	1,407.5	55.5%	1,539.0	51.6%
Thereof: Issued Capital	247.2	9.7%	247.2	8.3%
Capital Reserves	1,161.0	45.7%	1,177.5	39.5%
Retained earnings	(2.4)	(0.1%)	9.6	0.3%
Accumulated Loss	1.6	0.1%	104.8	3.5%
Minority Interests	-	-	(0.1)	(0.0%)
Total Non-Current Liabilities	32.5	1.3%	71.9	2.4%
Thereof: Financial Liabilities	11.2	0.4%	8.4	0.3%
Other Non-Current Liabilities	21.4	0.8%	63.5	2.1%
Total Current Liabilities	1,098.2	43.3%	1,369.5	46.0%
Thereof: Trade Payables and Similar Obligations	920.5	36.3%	1,120.0	37.6%
Other Current Liabilities	177.7	7.0%	249.5	8.4%
Total Equity & Liabilities	2,538.2	100.0%	2,980.4	100%
Net Working Capital	(127.6)	(5.0%)	(62.4)	(2.1%)

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

€m	FY2014	FY2015	FY/16	FY/17	Q4/16	Q4/17
Net Income	47.2	121.5	120.5	101.6	60.0	60.1
Non-Cash Expenses from Share-Based Payments	19.8	17.9	19.9	27.5	5.6	10.3
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	58.7	17.8	17.4
Income Taxes	10.5	(34.9)	72.5	73.6	34.4	39.4
Income Taxes Paid, Less Refunds	0.0	(0.0)	(33.8)	(49.4)	(4.6)	(14.9)
Change in Provisions	1.0	(0.5)	0.1	(1.5)	(0.6)	(1.3)
Other Non-Cash Income	(0.2)	(1.0)	1.2	6.5	1.9	4.6
Change in Inventories and Receivables	(68.7)	(154.2)	(147.4)	(251.0)	(4.7)	61.8
Change in Trade Liabilities	94.9	154.9	264.3	198.4	(20.7)	(113.9)
Change in Other Assets/Other Liabilities	44.6	(16.2)	(69.7)	29.2	(24.0)	(24.4)
Cash Flow from Operating Activities	174.9	119.4	275.8	193.7	65.2	39.0
Payments for Investments in Fixed and Intangible Assets	(51.1)	(60.0)	(181.7)	(243.9)	(65.9)	(68.2)
Payments for Acquisitions	0.0	(16.8)	(30.4)	(34.9)	(1.2)	(1.5)
Cash Paid for Investments in Term Deposits	0.0	(155.0)	(65.0)	180.0	0.0	20.0
Change in Restricted Cash	(0.8)	35.3	0.0	10.4	0.0	0.0
Cash Flow from Investing Activities	(51.9)	(196.5)	(277.1)	(88.3)	(67.1)	(49.7)
Payments Received from Capital Increases	510.1	6.4	1.1	3.9	0.0	3.3
Cash Received from Loans	3.9	0.0	(0.7)	0.0	(0.7)	0.0
Repurchase of treasury shares	0.0	(1.7)	0.0	(11.3)	0.0	0.0
Cash Repayments of Loans	(3.2)	(3.2)	(3.2)	(3.2)	(0.8)	(1.1)
Cash Flow from Financing Activities	510.8	1.5	(2.9)	(10.6)	(1.5)	(8.3)
Change in Cash & Cash Equivalents	633.8	(75.7)	(4.1)	94.8	(3.4)	(19.0)
Effects of Exchange Rate on Cash & Cash Equivalents	0.0	0.9	0.5	(1.9)	(0.4)	(0.1)

Cash Flow from Operating Activities	174.9	119.4	275.8
Cash Flow from Investing Activities	(51.9)	(196.5)	(277.1)

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

	2015	Q1/16	Q2/16	Q3/16	Q4/16	2016	Q1/17	Q2/17	Q3/17	Q4/17	2017
Site Visits (m)1	1,656.4	479.5	480.2	468.6	563.2	1,991.6	617.6	595.2	615.6	735.1	2,563.5
Mobile Visit Share (in % of Site Visits)2	57.1%	62.3%	64.7%	67.0%	68.1%	65.6%	68.8%	69.7%	71.8%	72.1%	70.7%
Active Customers (m) 3	17.9	18.4	18.8	19.2	19.9	19.9	20.4	21.2	22.2	23.1	23.1
Number of Orders (m) 4	55.3	15.6	17.5	16.4	19.6	69.2	19.9	22.2	22.5	25.8	90.5
Average Order per Active Customer	3.08x	3.20x	3.32x	3.39x	3.48x	3.48x	3.60x	3.69x	3.80x	3.92x	3.92x
Average Basket Size (in €) 5	67.8	66.5	66.2	62.8	70.2	66.6	63.0	64.5	62.0	67.8	64.5
Fulfillment Cost Ratio (in % of revenue) 6	26%	24%	23%	24%	22%	23%	25%	27%	27%	24.9%	25.9%
Marketing Cost Ratio (in % of revenue) 7	12%	10%	10%	10%	10%	10%	9%	7%	8%	7.0%	7.9%

• (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 8

		May 2018
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	31
Date
	Mon to Wed, 5-March –			7-March
	Tuesday, 20-March
	Wednesday, 21-March
	Tuesday, 8-May
	Wednesday, 23-May
	Tuesday, 5-June
	Tuesday, 7-August
	Tuesday, 6-November

T	W	T	F
	1	2	3
7	8	9	10
14	15	16	17
21	22	23	24
28	29	30	31
			August 2018

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.

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