ZOZO Inc

TSE:3092

Q1-2026 Earnings Call

[Yusaku Kobayashi, executive]

It is time to start the financial results announcement of the first quarter FY 2025 ending in March 2026 for ZOZO. We will only be offering live streaming this time. And we plan to have the session until 5:20 p.m. After that, we will have a Q&A session with institutional investors on a separate Zoom channel from 5:30 p.m.

Now I'd like to introduce the presenter, Director, Executive VP and CFO, Koji Yanagisawa. Now CFO, Yanagisawa, will take us through the business results.

[Koji Yanagisawa, executive]

Hello. I'd like to walk you through the first quarter financial results for the fiscal year ending in March 2026. And the presentation document we will be using today has been uploaded already to our website's Investor Relations page. So please take a look.

The concept for this year's financial statement is designed that makes the people who work at the company, the heroes and heroins, believing that a company's true uniqueness comes from its people. We focused on each employee's individuality, portraying them lifestyles and expressive croaky style Line drawings. The cover and opening illustration will change each quarter, reflecting our desire to make the report not just about the numbers, but also about the people behind them. We hope you'll enjoy noticing these little changes and feeling more connected to the people behind the report as the year goes on.

But first, I'd like to explain the details of the revision of the earnings forecast announced today. This is Page 33 of the handout. Regarding list, which has been consolidated since May 2025, we have disclosed revised performance forecast that incorporate the effects of the consolidation of the business plans and the allocation of the acquisition costs following the progress of these procedures.

Revised forecast includes the following: GMV, plus 9.7% year-on-year at JPY 673.9 billion. GMV, excluding other GMV, plus 13.8% year-on-year at JPY 653.7 billion. Net sales, plus 8.6% year-on-year at JPY 231.5 billion. Operating profit, plus 6.9% year-on-year at JPY 69.2 billion and operating margin, 10.6%. EBITDA, plus 9.9% year-on-year at JPY 76.7 billion and EBITDA margin, 11.7%. And compared to the performance forecast announced on April 30, GMV and GMV, excluding other GMV increased while OP and EBITDA decreased.

Next, this is Page 34 of the handout. The targets for each business segment are as follows. Starting this fiscal year, we have added a new business segment list. And the GMV target for the current fiscal year is JPY 50.3 billion for that. And there are no changes to the forecast of other business segments from those announced on April 30. Next is the trend of dividends per share and payout ratio. There are no changes to the annual dividend announced on April 30 and we continue to plan to pay a dividend of JPY 39 per share. And as a result of this, the payout ratio is expected to be 72.7%.

Let's go to Page 11 of the handout. This illustrates the trend in capital expenditures with further progress made in the consolidation of List business plan and in the allocation of acquisition costs, we have revised the projected figures for depreciation and goodwill amortization previously disclosed on April 30, incorporating additional information obtained following list consolidation as a subsidiary. We recalculated these figures. And as a result, depreciation increased from JPY 4.72 billion to JPY 5.16 billion, while goodwill amortization decreased slightly from JPY 2.1 billion to JPY 2.05 billion.

Next are the highlights of the first quarter of the fiscal year ending in March 2026. For the first quarter, GMV increased by 12.2% year-on-year to JPY 159.2 billion. GMV, excluding other GMV, increased by 12.4% year-on-year to JPY 149.1 billion. EBITDA increased by 8.9% year-on-year to JPY 18.5 billion. EBITDA margin was 12.5%, which is a decrease of 0.4 points compared to the same period last year. And progress against the revised company plan that I just explained is as follows: GMV, excluding other GMV, 22.8%, EBITDA 24.2%.

Current fashion demand remains robust. And GMV is progressing largely in line with plans. When looking at it by business segment, ZOZOTOWN business is slightly below the plan, while LINE Yahoo! Commerce is above the plan as you can see. And additionally, EBITDA surpassed the plan driven by factors, including unrecognized promotional expenses, logistics-related costs and freight and shipping charges. And both GMV and EBITDA reached record highs in the first quarter.

Next, I will present an overview of the key performance details. Let's go to Page 9. This is the analysis of the increase and decrease of EBITDA compared to the previous year's results at the end of the first quarter. EBITDA increased by approximately JPY 1.51 billion from JPY 17.06 billion in the previous quarter to JPY 18.57 billion in the current quarter.

And factors attributable to the increase of EBITDA are the following: First, gross profit increase of JPY 3.13 billion due to higher GMV in ZOZOTOWN business and LINE Yahoo! Commerce. Second, sales increase of JPY 240 million due to growth in the advertising business and gross profit increase due to the consolidation of List and others plus JPY 1.36 billion and a decrease in variable costs due to improvements in the efficiency of the logistics centers and the decrease in the ratio of packing and shipping costs due to an increase in average order value, JPY 50 million.

On the other hand, the factors that reduced EBITDA are as follows, and there are 3 of them. First, increase in fixed costs due to an increase in the number of consolidated employees and the occurrence of onetime expenses related to M&A, minus JPY 0.77 billion; second, increase in actual PR expenses to attract customers, promote sales and cover less stand-alone expenses, minus JPY 1.95 billion; and increase in other expenses due to success fee paid to FA related to the M&A and others, minus JPY 0.55 billion.

Let's go to Page 10. This is the balance sheet. First, with respect to cash and cash deposits under current assets, payments related to the acquisition of List shares, payment of the year-end dividends and disbursements of the acquisition of treasury shares have impacted the balance, resulting in a decrease of approximately JPY 55.2 billion year-on-year.

Next, under noncurrent assets, intangible assets have increased by approximately JPY 24.9 billion compared to the previous fiscal year-end, primarily due to the recognition of goodwill related to the acquisition of List shares. Additionally, within shareholders' equity of assets, treasury stock decreased by approximately JPY 3.8 billion, primarily due to the cancellation of the treasury stock in May and the ongoing acquisition of treasury stock. And by the way, the acquisition of treasury stock is currently progressing smoothly.

Moving on to Page 21 of the handout. This is the breakdown of SG&A expenses. The SG&A to GMV ratio was 22.7%, a decrease of 0.7 points from the same period of last year. While GMV increased due to the consolidation of List, incremental SG&A expenses were 0 or minimal for some items for List alone. This contributed to a decrease in the SG&A expense ratio.

Factors that drove up the SG&A ratio are the following. There are 2 mainly. First, in addition to expenses recorded for List alone, advertising expenses increased by 0.5 points due to an increase in web advertising spending for ZOZOTOWN. Secondly, as I mentioned, amortization of goodwill related to the acquisition List led to 0.3 point increase.

On the other hand, factors contributing to the decrease in the SG&A ratio include 2 elements. First, the expansion of the consolidated scope, along with the improvements in operational efficiency such as optimization -- such as optimizing inventory levels at logistics centers and labor savings through automation resulted in a 0.6 point decrease in logistics-related labor costs. Second, the expansion of the consolidated scope and higher AOV compared to the previous period led to a 0.6 point decrease in shipping costs.

Next, let's go to Page 24. This is the actual promotion expenses and its trend. In the first quarter, we used 4.2% of GMV as the actual promotion expenses, which is a sum of advertising and point-related expenses that are deducted from net sales. Compared to the same period of the previous year, the actual promotion-related expenses ratio increased by 0.9 points due to the following factors. There are 3 of them: one, increased spending on web advertising for ZOZOTOWN. Second, increased promotional expenses such as free shipping campaigns and point promotions. Third, list reported expenses separately with advertising and promotion expenses accounting for a large portion of SG&A expenses.

Additionally, due to the consolidation of List, we have revised the full year budget and increased the actual promotion-related expenses to GMV ratio to 4.7%. And furthermore, compared to the ZOZOTOWN business, List tends to have a higher ratio of advertisement -- sorry, higher ratio of advertising and promotional expenses to GMV. With respect to the actual promotion expenses for ZOZOTOWN business, excluding List, as explained at the beginning of the fiscal year, the ratio of GMV remains unchanged at 4.4%.

As noted on the opening slide of the financial results summary, certain promotional activities were delayed in the first quarter, resulting in lower promotional spending than planned. We expect to deploy the deferred portion in the second quarter and beyond, ensuring the full year budget is fully utilized.

Next, let's go to Page 25 of the handout. The following are the ZOZOTOWN's KPIs. And please note that the following indicators do not include results from LINE Yahoo! Commerce, List or B2B businesses. Let's look at the number of total buyers. The number of total buyers increased by 150,000 from the previous quarter to 12.36 million. And among them, the number of active members increased by 180,000 from the previous quarter to 11.58 million. The number of guest buyers decreased by 40,000 from the previous quarter of 770,000.

In the first quarter, we acquired new members through a range of initiatives leveraging web advertising and ZOZOTOWN's platform. We increased our web advertising budget year-over-year to enhance customer acquisition and improved targeting drove a higher return on investment compared to last year.

Next, let's go to Page 28 of the handout. This is the number of shops on ZOZOTOWN. At the end of the first quarter, the number of shops stood at 1,681, representing a net increase of 32 shops from the end of the previous quarter. The number of new stores opened in the first quarter was 43, including stores like Korea-based e-commerce fashion brands like AEAE and Sculptor, a Japanese home appliance brand, Hado, New York-based makeup brand, Maybelline New York and more.

Next let's go to Page 30 of the handout, average retail price. With respect to average retail price, it turned out to be JPY 3,744, an increase of 1.2% compared to the same period last year. The main factors contributing to this increase were an increase in the sales mix of spring outerwear and other items with higher unit prices compared to the same period last year and a decrease in the average discount rate for sales items. Additionally, price increases on new spring and summer items across various brands have leveled off and are now in line with last year.

Next, Page 31. This is the average order value. The average order value turned out to be JPY 8,543, up by 2.4% compared to the same period last year. The increase in the average number of items purchased per order drove the AOV growth rate to exceed the ARP growth rate. This was primarily due to greater use of free shipping policy for orders of JPY 1,200 or more compared to the same period of last year, which led to a higher proportion of combined purchases around the policy implementation date. So that is all for the numerics.

And lastly, I'd like to briefly share ZOZO's first matching service release on June 30, 2025. This is a new service that we launched. “ZOZOMATCH” is a service that's been in the works for about 3 years, and it was brought to fruition through the dedicated efforts of our staff. The concept stemmed from hypothesis formed during the COVID period. Reduced opportunities for going out and social interaction led to a contraction in the apparel market, underscoring a close link between meeting people and fashion demand. So that's when we started to consider this new service.

With “ZOZOMATCH”, we aim to foster new connections, broaden motivations and opportunities for people to enjoy fashion and ultimately help revitalize the entire fashion industry. What it means is that meeting people will lead to more fashion. And in fact, the results of our survey on Gen Z's views on romance and dating apps also confirmed a correlation between romance and fashion.

When asked, do you ever intuitively judge whether someone is a potential romantic interest based on their overall appearance, including their fashion style? 97.5% answered yes. And when asked, do you feel like buying more clothes when you're in a romantic relationship, 89.9% answered yes. These results suggest a tendency to intuitively perceive a person's personality and charm through their overall style, including fashion when meeting someone. It also indicates that many people place importance on fashion in romantic relationships and that their awareness of fashion increases when they're in a relationship.

And finally, here's an overview of the “ZOZOMATCH” service. “ZOZOMATCH” is a matching app powered by ZOZO's proprietary AI, which introduces users to people who share their preferred style, drawing on data such as fashion genre diagnostics. Profiles are designed to be easily understood at a glance using full body photos that highlight each user's personality and style. And this approach enables more intuitive connections compared to competitor services that rely more on filtering their users by specifications.

When we say specs, we're talking about their academic background. So rather than to focus on the specs, we focus on the style that they exute. And ZOZO's Proprietary AI analyzes users' preferred styles and recommends compatible matches, while, of course, robust safety measures and support systems ensure a secure user experience. As a unique service connecting people through fashion, we aim to deliver a fun, safe and high-quality matching experience. That is all.

[Yusaku Kobayashi, executive]

That concludes ZOZO's first quarter financial results announcement for FY '25 ending in March 2026. Thank you for your time and attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]