In the third quarter of 2024, Zalando SE (ETR:ZALG) (ZAL.DE) reported robust financial results, with significant growth in gross merchandise volume (GMV) and revenue, alongside an improved adjusted EBIT margin. The company experienced a notable increase in active customers and launched a new fulfillment center in Paris, emphasizing its commitment to enhancing logistics and customer experience. Zalando's strong cash position and upgraded full-year guidance reflect its positive performance and strategic initiatives.
Key Takeaways
- Zalando's Q3 2024 GMV increased by 7.8% year-over-year to EUR 3.5 billion, with revenues up 5% to EUR 2.4 billion.
- Adjusted EBIT for Q3 improved to EUR 93 million, resulting in a margin of 3.9%.
- Active customer base grew by 0.5 million, surpassing 50 million.
- B2C segment revenue grew by 4.3%, while B2B segment revenue saw a double-digit growth of 11.1%.
- Full-year guidance upgraded to 3%-5% GMV growth and 2%-5% revenue growth, with an adjusted EBIT of EUR 440 million expected.
- New fulfillment center launched near Paris to enhance logistics, with further expansions planned.
- Cash position remains strong at approximately EUR 2.4 billion.
Company Outlook
- Zalando targets a compound annual growth rate (CAGR) of 5% to 10% through 2028.
- Adjusted EBIT margin is expected to reach 6% to 8% by 2028.
- The company's ecosystem strategy is anticipated to drive continued growth into 2025.
Bearish Highlights
- Negative net working capital reported for Q3 2023 due to improved inventory management.
- Capital expenditures for 2024 have been revised down to around EUR 200 million.
Bullish Highlights
- Inventory levels decreased by 2.3% year-over-year, reflecting efficient management.
- The ZEOS platform's expansion and integration with ASOS (LON:ASOS) aim to capture more market share.
- Plans to enhance customer engagement with the Plus loyalty program and the Zalando Fashion Assistant.
Misses
- The Frankfurt distribution center's launch has been delayed to 2026, although this allows for deferred costs.
Q&A Highlights
- Marketing spend increased to about 9% of revenue, with normalization expected in 2025.
- Customer engagement initiatives are gaining traction, with 1 million users for the Zalando Fashion Assistant.
- The company is strategically targeting a B2C gross margin of 45%.
- ZMS is growing at double-digit rates and is planned to account for 3%-4% of B2C GMV by 2028.
Zalando SE's third-quarter performance demonstrates its ability to navigate the current market landscape effectively, with strategic initiatives in place to sustain growth. The expansion of its logistics network and the focus on customer engagement and experience are set to bolster its position in the European market. With a strong cash reserve and an upgraded outlook, Zalando is well-positioned for the upcoming fiscal periods.
Full transcript - None (ZLDSF) Q3 2024:
Patrick Kofler: Good morning, and welcome to our Q3 2024 Earnings Call. Today, I'm joined by our CFO, Dr. Sandra Dembeck. Sandra will briefly walk you through the financial developments of the quarter and discuss our outlook. She is available for questions afterwards. As usual, this call is being recorded. The live webcast as well as the replay of the call will be available on our Investor Relations web page later today. Sandra, I will now hand it over to you. Please go ahead.
Sandra Dembeck: Thank you, Patrick. Hello, and good morning also from my side, and thank you for joining today's call. So today, I'll do a bit of a recap of our prerelease in October before we dive into the full set of results. Let's get started. On October 10, we shared our preliminary headline numbers for Q3 as well as an updated guidance as our performance in the quarter had exceeded our initial expectation. Consumer demand had increased across the industry, and we saw a strong start to the autumn/winter season compared to last year's slow beginning. The third quarter has shown that our updated ecosystem strategy positions us very well to see such demand upticks. And this is also reflected in the number of active customers, which continued its positive trend from Q2. We increased active customers by EUR 0.5 million quarter-on-quarter from now again above EUR 50 million. And with the strong Q3 results, we report a solid 9 months performance. In the first 9 months, the Zalando Group delivered GMV growth of 4.4%. Our adjusted EBIT came in at EUR 293 million, and the adjusted EBIT margin improved by 1.7 percentage points to 4%. In our announcement on October 10, we also upgraded our full year outlook to reflect the stronger performance in the third quarter, while keeping our expectations for the fourth quarter largely unchanged. Today, we are confirming that we are on track to deliver the upgraded full year targets. So let's now turn to #4 and 5 of the executive summary to share some facts on the execution of our updated ecosystem strategy, which we presented to you in March. We remain really excited about our updated strategy and the material progress we continue to make with the execution of it across both segments. In our B2C business, we have now started to increase our investments into key growth initiatives to support top line acceleration in 2025 and beyond. And this includes the introduction of a loyalty program. I'll talk about some of the growth initiatives later in the presentation. In our B2B business, here, we are continuing our trajectory of double-digit revenue growth. And in Q3, we enabled ASOS as a sales channel for ZEOS that we're expanding the value proposition for partners. With ZEOS, we are now serving 9 marketplaces as well as brands own e-commerce channel. So let's now dive deeper into our Q3 performance. Turning to Page 3. In Q3, we strongly accelerated our top line growth quarter-on-quarter. Our GMV came in at EUR 3.5 billion and is up 7.8% year-over-year. Revenues up 5%, translating into EUR 2.4 billion. The significant quarter-on-quarter acceleration in growth was entirely driven by the B2C segment and the aforementioned strong start into the autumn/winter season. On profitability, we continued to deliver margin expansion in the third quarter. Adjusted EBIT reached EUR 93 million, which represents a significant increase of EUR 70 million year-over-year. Our adjusted EBIT margin improved year-over-year by 2.9 percentage points to 3.9% on the back of higher gross margins and a lower fulfillment cost ratio. So looking at the first 9 months, our financial performance translated into a 4.4% GMV growth and 2.6% revenue growth. We delivered a significant year-over-year improvement in our adjusted EBIT of EUR 125 million to EUR 293 million. So with these results, we keep delivering on our ambition for 2024 of top line growth coupled with continued margin expansion. Let's turn to Page 4, our B2C segment performance. Starting with top line growth. In Q3, GMV and revenue growth accelerated to 7.8% and 4.3%, respectively. The acceleration was mostly driven by strong autumn into season start in Q3 on soft comparatives. Our Sports, Beauty and Kids propositions delivered strong growth, supported by our strategy to elevate these assortment areas into powerful lifestyle proposition. Likewise, we saw strong growth across all our business models. Our partner business continued to outperform our own retail business showing double-digit growth. And our ZMS business continues to grow following its return to growth in the second quarter. Now moving to the bottom line. We're also pleased with our progress on margin expansion in the B2C segment. In Q3, we delivered a significantly better gross margin, and this was mostly driven by better-than-expected sell-through in our retail business supported by the strong season start. Our partner business as well as ZMS also contributed to the strong gross margin development. And as in previous quarters, we continue to see lower fulfillment costs albeit to a lesser extent, which were partly offset by higher marketing investments. Our adjusted EBIT reached EUR 87 million. The adjusted EBIT margin increased year-over-year by 3.5 percentage points to 4%. So looking at the first 9 months in our B2C business, we delivered GMV growth of 4.4% and revenue growth of 1.8%. Adjusted EBIT came in at EUR 275 million, a doubling of our adjusted EBIT margin year-over-year to 4.2%. Let's move to Page 5, the B2C customer metrics. Starting on the left, our active customers grew by 0.5% to EUR 50.3 million. With that, we return to year-over-year growth. In terms of quarter-on-quarter growth, we served 0.5 million additional customers compared to the end of last year -- sorry, of last quarter. Moving over to the right, average basket size increased by 3.8% to EUR 61.10, as a result of a higher average item value more than offsetting the decrease in order frequency. And as a result, GMV per active customer increased by 1.8% to EUR 300. Let's now turn to Page 6, our B2B segment performance. So in Q3, the B2B business continued on its trajectory of double-digit revenue growth, with revenue growth of 11.1%, it is significantly ahead of group revenue growth. And as in previous quarters, the growth of B2B was predominantly driven by sales fulfillment and our more mature ZFS business. Adjusted EBIT in Q3 amounted to EUR 7 million with a margin of 2.8%. The year-on-year lower profitability is driven by front-loaded investments into future growth across ZEOS and Tradebyte. And these investments are primarily overhead, but in the case of ZEOS also include higher fixed costs. Looking at the first 9 months, we've delivered revenue growth of 11.5%. Adjusted EBIT came in at EUR 19 million with an adjusted EBIT margin of 2.8%. So let's now move on to the group P&L on Page 7. And here we look at the Q3 performance on the right-hand side. Our group gross margin improved strongly year-over-year by 4 percentage points to 40.7%. All 3 business models in our B2C segment, for retail partner business and ZMS contributed to this significant increase with the better inventory management in our retail business contributing the most. Supported also by the strong start to the autumn/winter season, we saw improved sell-through rates and an increase in our share of full price sales. And as always, the positive and strong gross margin development in B2C was partly offset by the scaling of our B2B business, which comes with a structurally lower gross margin. Moving on to fulfillment costs. They improved by 1.2 percentage points. We continue to benefit from favorable order economics, which is reflected in the high average basket side as well as from the scaling of our sales fulfillment business. Coming to marketing. Similar to Q2, our marketing costs increased by 2.1 percentage points. Here, we deliberately raised our investments in performance marketing to capitalize on better top line momentum in the third quarter. And at the same time, we continue to scale our brand marketing campaigns to play a greater role in our customers' lives. So we engage consumers all across Europe in various brand-building campaigns, including our latest brand positioning campaign called What Do I Wear. Administrative and other expenses declined by 0.6 percentage points. And so to conclude on the bottom line for Q3, the strong improvement in gross margin, combined with the lower OpEx delivered an adjusted EBIT margin of 3.9%, a year-over-year improvement of 2.9 percentage points. So let's now move on to Page 8. And here, I would like to make some general remarks around some of the growth initiatives, which we have launched to support top line growth in 2025 and beyond. But during our strategy update in March, we mentioned that we see ample growth opportunities in the market as reflected in our new midterm top line guidance. And then in our earnings call in August, we mentioned that we are starting to increase our investments in strategic growth initiatives to support top line acceleration in 2025 and beyond. So let me give you a brief overview of some of these initiatives. First up, in our B2C business, we aim for driving customer loyalty. So here, we are evolving our Plus program from a paid membership program into a free points-based system, the loyalty members can unlock various benefits. And while the current Plus program mostly focuses on convenience benefits, the updated version will revoke customers with a much broader set of benefits based on their engagement with us. So this new experience was successfully tested in Spain in July. And in Q4, we expanded it to France and Austria. And it is planned to be further rolled out to the majority of our markets by the end of 2025. The incremental increase in top line will more than offset any running costs, apart from the launch of the program triggering a revenue deferral during the rollout phase. Second, in B2C, we are expanding our customer experience beyond the transaction, and we aim to make fashion discovery more inspiring and entertaining. Efforts to get more eyeballs and time of our customers and users on our platform will deliver growth. We are, for example, investing in self-produced content such as live shows and teaser content as well as external content creators. And we are also progressing fast with the ramp-up of our new tech hub in China which allows us to tap into local expertise in social e-commerce. And we have already hired key leadership roles and further recruitment is well underway. And then lastly, on our European logistics network, which supports the future growth in B2C and B2B. Here we remain committed to improving our logistics network by focusing on localized and personalized convenience for our customers. So we went live with our new fulfillment center outside of Paris at the beginning of October and adding additional capacity. France is one of our fastest-growing markets and the go-live of the fulfillment hub will drive faster lead times across France and neighboring countries, with the added capacity of Paris and in 2026 with the added capacity of Frankfurt, we have sufficient capacity to support growth in the midterm. We are excited about these growth initiatives, and that will support us to achieve our midterm targets, which are growth of 5% to 10% CAGR through 2028 as well as adjusted EBIT margin of 6% to 8% by 2028. So you can see we are executing our ecosystem strategy at full force. Now turning to Slide 9 for net working capital. In Q3, our net working capital continued to be negative, benefiting from our improved inventory management. Our inventory levels are 2.3% lower than last year as a result of the improved inventory management. And going forward, we will gradually increase our inventory position to support our growing retail business. For the full year, we continue to expect negative net working capital. Trade receivables increased driven by the strong B2C business performance and the favorable season start towards the end of the quarter. This development was more than offset by higher trade payables due to the overperformance of the Partner Business and higher inbounds in September. So moving to Page 10, the development of cash and cash equivalents. Our cash and cash equivalents remained strong at about EUR 2.4 billion, almost EUR 500 million higher than last year. The main driver was a higher operating cash flow as a result of higher net income and improved net working capital. Compared to the second quarter of 2024, we recorded a decrease of around EUR 180 million in cash and cash equivalents. And this is primarily due to the seasonal net working capital increase of over EUR 240 million as we inbounded inventory for peak trading around Cyber and Christmas. Cash CapEx amounted to around EUR 40 million as we continue to invest in key capabilities like logistics and technology, albeit at a lower speed. So this concludes the financial update for Q3. Let's move on to the outlook on Page 11. We confirm our upgraded full year guidance as published on October 10. For the first 9 months, we have improved GMV and revenue growth to 4.4% and 2.6%, respectively. And as a result, we expect GMV to grow for the full year between 3% to 5% and revenue to grow between 2% and 5%. This improvement is driven by a strong start to the autumn in the season in the third quarter. And the strong start brought forward some of the demand to the third quarter, especially when we compare to last year, where we experienced a delayed start to the season. Nevertheless, current trading is fully on track and makes us confident that we will land within our updated top line ranges for the full year. In terms of profitability, in the first 9 months, we achieved an adjusted EBIT of EUR 293 million, EUR 126 million above last year, largely driven by an extraordinarily strong Q3 result of EUR 93 million. And this development led us to upgrade our adjusted EBIT outlook to EUR 440 million to EUR 480 million, compared to EUR 380 million to EUR 450 million previously. As already mentioned earlier, the positive business momentum reinforces our commitment to increase our investments into key growth initiatives, leading to more modest EBIT development in the fourth quarter. With regards to cash, we managed to further adjust the speed of our investments in our logistics network to optimize network utilization. And consequently, our CapEx investments for 2024 were lowered from an initial range of EUR 250 million to EUR 350 million to now around EUR 200 million. Our net working capital guidance remains unchanged. So this concludes the outlook for 2024. Let's move to the summary. So let's wrap up with the key takeaways of today. First of all, we are making material progress on the execution of our ecosystem strategy across both segments, B2C and B2B. In the first 9 months of 2024, we accelerated top line performance and delivered strong margin expansion. We are fully on track to deliver the upgraded full year targets. For 2025, we expect an acceleration of growth over 2024, in line with our midterm guidance as we increase our investments into key growth initiatives. So let's now open up for Q&A.
Operator: [Operator Instructions] The first question came from the line of Luke Holbrook from Morgan Stanley (NYSE:MS).
Luke Holbrook: My question is on the inventories, which increased about EUR 450 million quarter-on-quarter compared to the half year period. The upswing is about twice what we saw last year. I just wondered why that was the case. I know it's down a couple of percent year-on-year, but on a quarter-on-quarter basis, it would be interesting to hear your opinion. And when you're discussing maybe less -- more selling of high -- or full-priced items. Is this a conscious decision here to basically do less clearance, do less sell-through resulting in that higher inventory levels into Black Friday, into the Christmas holiday season, just be really interested to hear your thoughts there. And then the second question is just on the Plus program. You discussed some of the early success that you've seen in Spain. It's just be really interesting to hear some of the frequency uptakes that you saw from customers adopting that program and some of the learnings that you're building into then Austria and France.
Sandra Dembeck: Thank you. So on inventory, yes, so year-over-year, the inventory is down. But yes, the -- you can see that we are inbounding more inventory now as we are returning or have returned to growth in our retail business. And that's one of the reasons why you would have seen this significant increase versus last year. A second reason was timing. The issue with the Suez Canal and constraints on the containers had shifted some of the inbounds from Q2 into Q3, which would have also increased there for the inventory year-over-year. On the higher black price share, that's intentionally our strategy. We had seen higher discount rates over the recent years. As we -- as per our midterm guidance, want to increase our B2C gross margin to 45%. One of the main drivers is improving our retail gross margins. And within there, we have, on the one hand, inventory management. But on the other, it's also around trading like increasing the black price sell-through share. And what now the timely autumn/winter start has shown us that we actually can deliver against that. So then coming to the Plus program. So we launch Plus in July in Spain and just recently in France and Austria and for us now, it's too early to talk about actually the increase in frequency and anything, it's all about people opting in and there we see very good traction.
Operator: The next question comes from Adam Cochrane from Deutsche Bank (ETR:DBKGn).
Adam Cochrane: A couple of questions, if I can. Firstly, in terms of the sales performance that you saw during the third quarter, differences by -- or material differences by region within your sales performance? And I know there's a bit of during the quarter with September seeing a decent uptick, have you noticed any indications of a pull forward from your sales in October pulled forward into September? Or how are you thinking about what that might mean for the Black Friday and the key trading period ahead in terms of that strength in the end of the third quarter? And then secondly, EUR 2.4 billion is a decent amount of cash to sit on the balance sheet given a sort of relative size of your market cap. Can you just remind us what your policies on capital distributions might be, how much cash do you think you need in the business and what an excess cash might look like and what you would do with it?
Sandra Dembeck: Thanks, Adam. So on the sales regional performance, we saw growth across all regions in the third quarter. So -- and also then the significant uptick in September happened across all of them, so not really much of a difference to point out there. Yes, definitely, it will be a bit of a pull forward when you have an early season start. And that's also something that we really appreciate to have because the early in the season, we sell the merchandise, the better margin we are selling it. So therefore, definitely, there would have been a bit of a pull forward from October into September. Nevertheless, what is important to say, putting the 2 months together, September and October, we do see significant growth across the total business. So the growth of September is continuing, not at the same level, but into the fourth quarter. And I guess, that's also what you see in our guidance. Black Friday, we don't believe that the good season start will be impacting Black Friday because the start of the season is usually need-based transactions. You need a new coat, you need the warmer coat, et cetera. I think Black Friday then is very much transactional. And what deal can you make and also then into Christmas, where we sell a lot of accessories. So for us, really -- and that is what has led to the upgrade of the GMV and the revenue guidance, the strong September has basically supported that. On our capital allocation, so EUR 2.4 billion. We have still EUR 900 million of the convert outstanding. So net cash is EUR 1.5 billion. Our policy says that roughly 10% of our revenue we should hold as a safety buffer, any short-term cash requirements. So that leaves you still with a good amount of cash that we can consider to primarily invest in the business to accelerate growth along our ecosystem strategy and that one either organically or inorganically. And then of course, regularly, we also consider shareholder returns. But for the time being, we have no dividend policy in place.
Operator: The next question is from Monique Pollard from Citi.
Monique Pollard: Just a few for me, if I can. The first one was just whether there was anything that you could help us with in terms of the comp effect for the different months as we go through the fourth quarter. Last year, at the third quarter update, you talked about October trading having started positively to. And obviously, the 4Q GMV was down 2.5%. So I'm thinking that the comp November, December gets materially easier as we go through the fourth quarter. The second questions was just on ZEOS. Obviously you've added ASOS. so brands can now use Zalando the multiplatform fulfillment across 9 major e-commerce platforms, including ASOS, including Amazon (NASDAQ:AMZN), et cetera. I'm just wondering how you're finding the take-up of that offer, that kind of multi-platform fulfillment because presumably, that could be quite nice and sort of easy, simple solution for brands. And then just a final question. Obviously, you mentioned you've accelerated investments in performance marketing to drive the top line, but you're going to be investing more in brand marketing as well to sort of keep customers sort of sticky to the side. So I just wondered if you have increased out further your payback period for new customers or whether it still stands at 1.5 years?
Sandra Dembeck: So maybe taking the last question first. So on our upgraded marketing activities. Performance marketing still stands at 450 days, so 1.5 years now. On the performance of Q4 and what do we expect? I think the easiest is to look at the guidance that we have issued. It implies growth in Q4 and I think you can also extrapolate what like identified the implied growth that we can get, to which the midpoint is around the 3% and the upper end around 6%, and that should help you to calculate, I would say, what to expect and what we expect for Cyber and for Christmas peak trading period. And then on ZEOS, yes, ASOS is new, so 9 channels now present in 12 markets. For us, we -- as we explained it as a strategy update with our B2C business in the past, we always talked about 10% market share. But there was 90% that we couldn't tap into basically, and ZEOS now really allows us to tap into those 90%. So it also helps us to accelerate growth and add additional market share opportunity. For brands, of course, it is a very valuable tool because with one solution, you get access to several markets and you get access to several channels. And that naturally should result in an acceleration or that should result in additional growth for the brand? So I hope that gives a bit of an idea, but yes, happy to comment further if there are more questions around ZEOS.
Operator: The next question comes from the line of Sarah Roberts from Barclays (LON:BARC).
Sarah Roberts: So just a quick follow-up on the loyalty program. It would be interesting to hear your decision-making behind removing the paid subscription and implementing the loyalty program. And are you able to help us think about the size of the impact to next year's EBIT that we should expect, both from the deferred revenue impact and the one-off costs associated with the payback of the subscription fees? And then secondly, at the Q2 results, you sounded fairly confident about the Frankfurt distribution center going live in early '25. And this has now been pushed out to '26. I just wanted to understand what has changed since Q2 that made you revise down your capacity expansion plans a little bit? And then just finally on competition, can you provide an update on what you're seeing in terms of competition in key markets? One of your peers mentioned recently, they have started to see Google (NASDAQ:GOOGL) advertising costs come down slightly, and that they saw competition with easing, particularly in Western Europe. So just curious to hear your thoughts there.
Sandra Dembeck: Thank you. So on loyalty, it's basically the logical consequence of the ecosystem strategy of the updated strategy. In the strategy, we said that on the one hand, we want to move into more lifestyle propositions. And at the same time, we also want to not just focus on transactions, but also inspire and entertain our customers. And so the Plus program purely offered a convenience benefit. So you were paying the membership fee and in return, you were getting convenience benefit like faster shipment or free shipment. The strategy now has evolved beyond just convenience. And therefore, the loyalty program we have amended accordingly. So this loyalty program now basically rewards customers for transactions, but it also rewards customers for engagement. Like, for example, if you sign up to the newsletter or you engage in specific questionnaires. So you can gain points on several levels. And so that was for us, I would say, a necessary and consequent next step to do. On the financial impact that, that will have, so there are one-off costs in the form of us having to pay back the membership fee to Plus members, yes, a lot of that is already part of the Q4 guidance. And then next year's impact is primarily around the revenue referral that happens as we roll out that program, and that will be somewhere in the mid-double-digit million. In -- coming to the warehouses, so the delay in the Frankfurt warehouse, so actually, this is something that we are really happy about. I think early in the year when we discussed -- the 2 warehouses going live, Frankfurt and Paris, we also discussed about the overcapacity that we will then face into. And therefore, the additional costs we will have to carry in starting now in the second half of this year and into 2025. With the delay in the go-live of Frankfurt, we have managed to defer some of these costs out of 2025 into 2026. So it's our -- we're basically signaling here also to everyone how we are actively managing on the one hand, our CapEx investment as well as our cost base. So there hasn't been any consideration around, do we not need it or anything, yes. So when we launched the strategy with the guidance that we have given around the top line growth, we will need both warehouses to fulfill that growth. And then on competition, we haven't really seen much of a change, the cost per click and everything is, you're right, there's less -- it's a little bit less competitive. There's less of the Temu, but there is no significant change.
Operator: The next question is from the line of Georgina Johanan from JPMorgan (NYSE:JPM).
Georgina Johanan: I've got 2 questions, please. The first one was just going back to some of the moving parts on 2025, obviously very clear that you've got lots of growth investment opportunities. I guess just trying to understand if you'd actually expect to see margin expansion year-on-year in full year '25, please? That was my first one. And then my second one, I sort of appreciate all of the comments on current trading and comp getting easier and so on and so forth into November, December. But just so we're sort of absolutely clear, was current trade is -- was October positive or negative, please, in terms of growth year-on-year?
Sandra Dembeck: Maybe on current trading, we usually don't comment on months in isolation. I think we always say about -- talk about the season and the quarter. But to reassure you, we are talking growth, yes. So we had a really strong start into the autumn/winter season. So that elevated our Q3, and we continue to see positive development of the autumn/winter season as we enter the fourth quarter. On the -- on 2025, as long as we will use the full year results to discuss in more detail the 2025 guidance for now, what we would like to just emphasize is the acceleration on the top line that we will see into 2025. And then we have a midterm margin ambition that is 6% to 8%, and we are well on track to get there, also including those growth initiatives.
Operator: The next question comes from Mia Strauss from BNP Paribas (OTC:BNPQY) Exane.
Mia Strauss: I just want wanted to talk back about the marketing spend. So obviously, we've seen an increase now in both quarters. What is the outlook for marketing spend going forward for this year and then maybe into 2025 as well? And then just on ZEOS with the onboarding, I think previously, you spoke about the actual onboarding from signing the partners to go live, talk about 18 months. Has there been any improvement in this time line? And then just maybe lastly, if you can talk about some of the customer engagement or retention from your AI initiatives such as your fashion assistant and your trendspotters and those sorts of things?
Sandra Dembeck: Yes. So starting off with the customer engagement. It's really -- so all the investments that we are making into those content formats now the trendspotters, the Zalando Fashion Assistant, which, by the way, now is available in all markets and also in local languages, have created, for example, Zalando Fashion Assistant, 1 million users. What we currently observe is, people really engage with it. So the weekly engagement with the platform has increased. We also see that on like the trendspotters people like to share, to save and then also even to transact. So there are early indications that this is really improving the time spent on the platform as well as delivering growth. Again, these are all the experiments that we're currently doing. So we can't really extrapolate that on to like a group level to tell you exactly how much growth we envisage come from that. But positive signals on all fronts on the investments we are taking there. On the ZEOS onboarding, well, there is -- it is still lead times within the time frame, as you mentioned, of like the 18 months or so. Most importantly, it's not just about onboarding a brand for the first time. It's then also about internationalizing them or moving then onto another channel. So therefore, there's a lot of activity that is happening beyond just the initial onboarding, that's what's adding to the ZEOS growth. And then on marketing spend outlook for Q4 and 2025, yes, we have significantly stepped up marketing this year. We are around the 9%, compared to the 7.4% last year. For next year, we do expect that more in line with the midterm guidance that we provided where we said like there will be an initial investment in marketing that then later on will start to normalize. So we do not foresee a further uptick in marketing next year.
Operator: The next question comes from the line of Yashraj Rajani from UBS.
Yashraj Rajani: Couple of questions from my side, please. The first one is on ZMS. I just wanted to understand how is this baked into your guidance for Q4, are you expecting Q4 to grow ahead of Q2 and Q3? The second question, again, relating to that is, on the B2C side of things, can you quantify what the margin improvement in Q3 has been if we exclude the ZMS contribution, please? And then the third question is on retail gross margins. Can you give us some color on where we stand versus 2019 levels, please? Because we're just trying to understand how much more room for improvement we have on the retail gross margin side.
Sandra Dembeck: So on the retail gross margins, first up, let's not compare it to previous years because it is a very different portfolio now, like we have for example, significantly grown beauty, which comes at a significantly lower gross margin. So I think what is important to use is really what we showed in March, our ambition for the B2C gross margin is to get to 45%. Within there, we see the partner business share grow significantly and ZMS grow significantly. And the retail gross margin, especially in the early years, improved based on the better inventory management, the better -- like as we go into growth, better sourcing conditions and then also us reducing the level of discounting. So that slide that is in that strategy that is really important because we will need to continue to get back to that -- refer back to that one. So therefore, on retail gross margin, let's not go back to any of the previous data. Let's use this slide. On the B2C -- and the group gross margin progression in the third quarter. This was, by far, the largest component, driven by the retail gross margin, yes. So pretty much 75% of the gross margin expansion came from retail. So therefore, also then, when you look into the size of ZMS, it's not material in the third quarter compared to the overall gross margin expansion. ZMS will continue to grow. So we are back in growth. Q4 is an important quarter with Cyber and Christmas. So it's -- I would say, it's good to see ZMS back in growth.
Operator: Next (LON:NXT) question comes from the line of Manjari Dhar from RBC.
Manjari Dhar: I just have 2 additional questions, if I may. The first is on promotions. I wondered if you could give some color on how you see the social environment currently and how it compares to last year? And then my second question is on France. I wondered if you could give some color on how you're thinking about the proposition and sort of expectations for marketing spend or investment as we move forward and as the warehouse is fully up and running?
Sandra Dembeck: So on France, France was a country that we invested in a lot last year, especially around assortment, bringing onboard local French brands. And this year now, with the warehouse, it really helps us to localize the convenience aspect. And with that also speed up the delivery time to the French customer and more in line with what they would expect. So it's a two-pronged approach of last year really having both on the assortment and now going live at the Paris warehouse. On promotions, given the industry-wide strong season start, it's a less intense promotional environment this year compared to last year, September and October. I think everyone was happy to see the season starting early and with that being able to drive more full price sales.
Operator: Last question will be from Benjamin Kohnke from Stifel.
Benjamin Kohnke: First would just be a follow-up on ZMS, if I may. And Sandra, I mean the -- this product line seem to go very well across the industry and everybody is focusing on it quite a bit. And I was just wondering if you could specify the growth rates a little more than you've done. I mean is it still single-digit growth, can it come back to double-digit growth kind of? And maybe alongside that? Could you talk a little bit more about the initiatives that you've taken there and the sort of product innovation, the new products that you've launched that may lead to a further acceleration in that growth? The second one would just be -- just wanted to touch on categories a little bit more. I mean sports has obviously been a very strong contributor to your growth in Q2 and probably also into Q3, and it's probably fair to assume that this will sort of normalize going into Q4 into next year and so on. So maybe if you could quantify or try to quantify the impact here on that category sort of spike. And the last one was just I noticed in your P&L, you mentioned some arguably small but sort of some M&A-related one-off costs. And I could -- I was just wondering if you could let us know what this is about and maybe to that question and back to the capital allocation. Would you -- I mean what's your current view on M&A? Is it still sort of bolt-on technology stuff? Are you -- have you changed that view on M&A in any sort of way?
Sandra Dembeck: Yes. So Retail Media, ZMS, big topic across the industry. Our ambition is to get to 3% to 4% of B2C GMV with ZMS. So that's the midterm guidance that we have provided in order to get there, ZMS has to grow double digit. So ZMS is growing double digit at the moment, and ZMS will have to continue to grow double digit in order to get to the 3% to 4% by 2028. . The measures we have taken. One is we have several propositions. And also going back again to the strategy there where we showed ZMS been a bit concentrated in countries and in proposition. So the levers that we have is to really now bring ZMS to other propositions like Beauty, for example, is a very strong propositions on ZMS to bring it to other countries, yes. So really elevating it to the levels that we see in DACH, or in Germany. So these are the measures that we are taking on the one hand. On the other hand, it's also about not just offering or using it for PM, but also like for upper funnel marketing. So that's a little bit on ZMS. On sports, sports has seen double-digit growth. It's a very strong proposition for us this year. We focused a lot, of course, on Eurosport, but also on elevating the customer experience within the running segment, yes? So there, we created a very strong assortment with On, with HOKA, et cetera. We see that customers really engage in that one also in the live streams that we do, but also in the type of products they are buying. And so we can generate very high price points on that one. And we have invested in the product quality of product data quality. So when you look for running shoe, you get a lot more detail around that shoe now whether it will fit you for which purposes or what type of foot, et cetera. So that was that whole package basically around running was a real good driver, an example for how you can drive growth within the sports category. The good thing about sports is, it has many other categories, yes. So for example, football, that's another category that we are now tackling and so in order to sustain this growth going forward and into next year and throughout, we will just bring that experience that I just explained on running to other subcategories of sport, yes, like for example, football. And then on M&A, what you have on the adjustments in our P&L is related to Highsnobiety and Fision. So the 2 bolt-on acquisitions we did a couple of years back. And therefore to -- coming to our M&A strategy, correct. Historically, we have primarily done bolt-on acquisitions. Nevertheless, of course, we are screening the market for bolt-on and capabilities, but also other opportunities which can help us to accelerate growth in our B2C or B2B segments.
Operator: Ladies and gentlemen, that was the last question. I would like to turn the conference back over to Mr. Kofler for any closing remarks.
Patrick Kofler: Yes. Thanks, everyone, for joining. This concludes our Q3 2024 conference call. As always, you can reach out to IR if there's any questions that you still would like to ask. We are very much looking forward to seeing and meeting many of you over the next couple of weeks on a couple of conferences or roadshows. And with that, thank you very much for your participation. All the best and bye-bye. Take care. Bye-bye.
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