Thank you. Good morning, everyone, and thank you for joining us again for our conference call for Q1 2016. As usual with me today are Rubin Ritter, one of our three co-CEOs responsible for finance and operations, and Jan Kemper, SVP Finance. Each will be available for Q&A following today's call. Also, as usual, the quick disclaimer up front. I'd like to remind you that we'll be making forward-looking statements during this call regarding future events and financial performance. These statements are based on assumptions that are believed to be reasonable at the time they're 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, changes in general economic conditions, in particular, economic conditions in Europe, changes affecting interest rate levels, changes in competition levels, changes in laws and regulations, or the potential impact of legal proceedings and actions, and Zalando's ability to achieve operational synergies from past or future acquisitions. As you know, this call is being recorded and webcast live on our investor relations website, and a replay of the call will be available later today. With that, I'll hand it over to Rubin.
Yes. Thank you, Birgit, and good morning, everybody. Welcome to our earnings call. As always, the call will have four parts. Secondly, we'll look close at our financials. Thirdly, we'll talk about guidance, and we'll go to your questions. Let me get started with the result highlights and business update. When we look at the numbers, we see a very good start into the year, which is very much in line with our expectations. We show you again the three dimensions, revenue growth, profitability, and free cash flow. On the revenue growth, we have been growing at the upper end of our long-term growth corridor of 20%-25%.
We achieved a growth of 24% in the first quarter, which actually, in terms of absolute growth, represents EUR 153 million in additional revenues, which is actually higher absolute growth than we achieved last year. We achieved this result despite Easter being in the first quarter in this year as opposed to the second quarter where it was last year. This means we continue to outperform the market, we continue to outpace competition in terms of growth, and we also continue to gain market share. On the second dimension, profitability. Here we continue to invest, but we are spot on where we plan to be, and I think we are also the market and the analysts expected us to be with an adjusted EBIT margin of 2.5%. This is in line with our full-year guidance and also our internal plan.
Despite a lot of investments that we continue to make, which I will talk about in a second, we continue to be profitable even in an off-season quarter like Q1. We have commented before, when you compare to last year, that Q1 2015 was unusually high, driven by back-end loaded investments in the last year and also driven by a particularly strong seasonality in 2015. Then on the third dimension, free cash flow was driven by continued investments. So for the operating cash flow, we have, of course, the earnings. We have an improved net working capital year-over-year but driven by seasonality, leading to an expected outflow in terms of net working capital in the first quarter. Then we had some tax payment that affected our cash flow for prior years, but which were also planned for.
Then we have the investing cash flow, which is mainly driven by CapEx, which we will comment in more detail later on the call. Let's talk about the operational highlights. As always, it was our goal to continue to drive NPS, which we did very successfully. We reached a new all-time high in terms of NPS. Then secondly, to continue to drive our platform strategy, where we also continued to make progress. The first topic I would like to point out is our co-branded campaign with Ivy Park. We made great progress in becoming the digital strategy of our brand partners with this co-branded campaign. After Topshop and Calvin Klein last year, we started this season being the launch partner of Ivy Park, the new label by Beyoncé. We are an exclusive partner for Continental Europe, and we launched this brand with a joint campaign.
The impact of this campaign for us has been quite positive. I think Beyoncé clearly is right now one of the most powerful, if not the most powerful influencer of our time. We have driven, again, a very localized approach in the campaign, especially on social media, which was very successful. We had about 100 million impressions just in the first seven days of the campaign. It has been by far our most successful social media campaign. We sold 25,000 items of Ivy Park just on the first day. We are all very happy with this, and I think this type of campaign is really one big piece of what differentiates us from competitors, specifically competitors like Amazon, that we are able to do these type of projects together with our brand partners.
A second topic I would like to touch on is our fulfillment footprint, which we continue to invest in. The first topic is our first satellite warehouse for the Italian market in Stradella, which fulfills already around 50% of our Italian orders and has reduced lead time for our Italian customers by one and a half days, which has led to an all-time high in NPS in Italy. We continue to assess and measure the impact on long-term shopping behavior and CLV. Based on those results, we'll make decisions on future local satellite projects. Then with respect to our next big hub warehouse in Lahr, in Southern Germany, you can see on the picture, construction is progressing very quickly, and we are on track to take manual operations live in the fall of this year.
By doing so, continuing to improve our customer proposition, especially for Southern Germany, Austria, and Switzerland. The team is working to finalize the planning for the next hub which potentially can go live in 2017. We continue to test and pilot new innovative delivery and return proposition to our customers. We started our instant return product in Berlin as a pilot, which means as a customer, when you want to make a return, you can go to the website and order a return pickup, within one hour, a driver arrives and picks up the parcel. I tried this beginning of the week myself, I think it's quite a good addition to our service proposition to the customer. As a third topic, I would like to point out how we progressed on our platform strategy.
We have discussed in a lot of detail in our Capital Markets Day, how we want to grow beyond being just an online retailer, but really to continue to build the platform and the infrastructure that our brand partners can use to be successful to grow online and to digitalize their business. In that respect, we have made, again, a lot of progress in the first quarter. We have continued to scale our tech team to now around 1,150 tech employees, which represents an almost 17% growth year-over-year, the team continues to grow quickly. We have connected 150 brand partners to our partner program and are showing more than 20,000 SKUs on our site. We have connected the first offline store, Bodycheck in Berlin, to our platform.
As you know, this is one of the big and long-term projects that we have started to not only connect the inventory that we have in our own warehouses or in brand warehouses, but also all the inventory that is sitting in offline stores into our system and make it digitally available to our customers and shoppable on our platform. Last but not least, we're very happy to announce today the acquisition of a marketplace software company called Tradebyte. It is a company that offers brands very easy solutions to connect to online marketplaces. Tradebyte also in the past has been one of the integrators for our own partner program.
We know the team very well for quite a time, we are convinced that together we can find even better solutions and better ways for our brand partners to digitalize their business and to connect their stock and their business to the online world. We are very happy about this partnership and are eager to start together with them to continue to build the business and to continue to become the online strategy of our brand partners. With that, let us move ahead to the financial update in some more detail. You see here the revenue development in a bit more detail, as you're used to in aggregate, broken down by the different segments. I already commented that we are very happy with 24% growth, continuing to capture market share.
In the DACH region, we are growing 17%, which given the scale that we have in the DACH region, still is very fast growth. It is not as fast as we have seen in the last quarter. I think the main reason for that is that effects like Easter tend to affect more mature markets, even in a more pronounced way. Also, you remember the fraud impact that we had from last year, which of course, was also more pronounced in the DACH region because here we have the highest share of invoice-paying customers. For rest of Europe, we grew 26%, which I think is very strong and continues to be the fastest-growing part of our business in terms of the fashion store.
There's one segment that we typically don't show on this page, because in terms of scale, it is by far the smallest segment, but I want to mention it on this call because it has been making quite good progress in terms of growth in the first quarter of this year. That's our other segment, which mainly comprises the Zalando Lounge, which is our own shopping club. They have been growing by more than 75% in the first quarter, which is extremely strong, which has been driven by the new Zalando Lounge app which we have launched, but also by externally sourced inventory.
As you know, the fall/winter season was difficult for many brands because of the mild weather, and so we're able to take on quite a bit of this last season inventory and sell it off at discounts, which is great for brand relations because it shows brands that we are also able to help them with respect to getting rid of old merchandise in a very good way. In terms of what has been driving the growth, let's take a look at our customer KPIs. We continue to grow, driven by both active customer growth and GMV per active customer growth. Active customers have been growing by 20% year-over-year to an active customer base of 18.4 million. Quarter-over-quarter has increased by half a million actives.
This is driven continuously by the app taking more and more share and also having a significant share in the number of new customers that we acquire, especially young customers. It's driven by a reduced churn and the successful campaigns that we have been driving in the first quarter, both in terms of branding but also in terms of performance marketing. At the same time, we see that we make progress in GMV per active customer. I think very positively, we have a new all-time high in terms of average order per active customer, which has gone up to 3.2, increased by about 15%, which I think is very strong. We see that the average basket size after return has been fairly stable, has been slightly going down.
This is driven by the fast growth that we have in the lower price points that we have been discussing continuously over the last calls, which help us to grow, but which, of course, over time, also have some effects on our average basket size. For us, I think most importantly, the GMV per active customer is going up quite significantly year over year by 10%. It's great to see that active customers shop even more with us, which is clearly driven by the extensions we have been making to our assortment, but also by the improved customer satisfaction ratings that we have been able to achieve. Now let's take a look at the profitability picture. As expected, we are at 2.5% adjusted EBIT for the first quarter. In the DACH region, I think the result is very strong.
We have seen that payment costs have been coming back to normal, which is very good. We have been improving the margin compared to last year. This is also driven by the fact that we have actually kept some powder dry in terms of marketing spending. Since in the first quarter, we did not see so many opportunities to effectively accelerate growth in the DACH region in the first quarter. We have actually reduced slightly the level of marketing spending, which has also driven some of the margin improvement we have seen in the DACH region. In Rest of Europe, we have increased our investment levels. I have mentioned before when we talked about the last year, that we think, in general, the profitability level in the Rest of Europe is probably too advanced given the growth opportunities we have in many of those markets.
We are ready to increase our spending whenever opportunities come up, and we have been actually spending slightly more in terms of marketing, also in terms of pricing invest, in order to drive growth in this region for the long term. We take a look at our cost lines. The first thing that comes to mind on this chart is the gross profit, which has been reduced by about 3 percentage points year over year. I think at first when you look at it's quite a large decrease. I think overall Q1 has been weak in the industry, and of course, after the mild season, discounting overall has been the topic in the industry. When you ask me about this number, I think we are not so worried about it, and I think you shouldn't be either.
I think the effect can be explained in general, first of all, by having, I think a normal season start in this year versus a very strong season start in the Q1 of last year, where we had, I think almost a perfect quarter with a very early season start. That, of course, has driven a higher share of on-price sales in the first quarter. Secondly, FX has had an impact. I think this is not surprising. We have been commenting on it a number of times. Mostly the US dollar, which is related to how we buy at least part of our assortment. This had an impact in the first quarter. I mentioned that the Zalando Lounge has been growing very over-proportionally by driving some additional campaigns.
Of course, the Lounge is operating at much higher discount levels, so this also had an impact on gross profit. In addition to that, also Tech investments, which we increasingly are also doing on the brand integration side, which is also allocated to gross profit. Then we come to the fulfillment cost here. I think we have a very positive development. Even though we continue to invest quite heavily into our fulfillment proposition and convenience proposition, we had a positive development by 0.6 percentage points. Here, the biggest driver is really the payment cost improvement, which has gone back to a normal level that we would expect and which has driven this improvement year-over-year. In terms of marketing costs, we see almost 1.5 percentage points improvement.
Here, I think it's the picture that we have been seeing over the last year extremely consistently. Plus, I think in the first quarter, given the seasonality, we did not see a lot of reason to accelerate at the efficiency levels we would like to see. We have not been pushing marketing so much in the first quarter. In admin expenses, I think you see the general continued scaling of the business, especially in technology, but I think we are still at a very reasonable level in terms of administrative expenses. Let's briefly talk about capital efficiency. In terms of net working capital, I already said we saw a relative to sales, a very positive development compared to last year. We are around neutral on net working capital, which for first quarter, I think is a quite good result.
In terms of CapEx, we see that CapEx has increased to about EUR 25 million in the first quarter, half going in intangibles, specifically Tech developments that are being capitalized and then half going into property, plant, and equipment. The EUR 25 million is not quite at the level that we guided to. If you take the EUR 200 million that we guided to for the full year and divide by 4, of course, you get to roughly EUR 50 per quarter. This is really driven by how we exactly time the investments in the year. We believe that the payouts will actually increase, especially for the warehouse-related ops projects. Very quick comment on liquidity. It has remained at about EUR 1 billion.
If you take the cash and cash equivalents that you see on the balance sheet, you have to add the short-term deposits, which shows you then our total liquidity position of about EUR 1 billion. With that, let's come to the outlook. As we have talked about, Q1 has been going very much according to plan and according to expectation. The early visibility that we have on the second quarter is also in line with our planning and in line with our expectation. I think for that reason, the guidance really remains unchanged for the full year. We continue to believe that we will grow at the upper end of our target corridor of 20%-25%.
We continue to aim for an EBIT margin corridor of 3%-4.5%, and we continue to aim for neutral working capital at year-end and around EUR 200 million in CapEx. I think for the year, we continue on track. There is just a small comment I would like to make on cost of sales. I have mentioned the FX rate effect in the first quarter. We expect that to continue in the second quarter, but to a lesser extent in the second half of the year. With respect to the tech investments, I briefly mentioned that we are sort of over-proportionately increasing our tech investments that is allocated to the cost of sales lines. This has started in Q1 and I think will also continue throughout the year. All right. Those were the comments I wanted to make.
Let us turn over to, yeah, I think the most interesting part of the call, which is, of course, your questions.
Thank you. Now we will begin our question and answer session. The first question is from Jamie Merriman, Bernstein. Your line is open. Please go ahead.
Thanks. Good morning. My questions are about the partnership and what you have announced this morning about 150 brands or 150 brands plus that you have signed so far. First, I was wondering if all of them are existing brands with Zalando. If you can give us any sense of what % of revenue they represent today and whether all of them will handle all of their own fulfillment or if any of them will do a Fulfilled by Zalando type partnership. Thanks.
Sure. Out of the 150 brands, I cannot give you an exact breakdown how many of them are new or existing, the majority of them are existing. There are also some brands that we have been able to acquire specifically for the partner program, that don't work with us in terms of wholesale. There are also many brands that have been working with us on wholesale for a long time and now start to do both ways of doing business on Zalando. In terms of the revenue share, it continues to be fastly growing, but single digit. In terms of Fulfillment by Zalando, we are actually starting this year to test the Fulfillment by Zalando solution, which we then will start to roll out. We expect it to be quite well received by many brands.
So far all the brands that are working on partner program are shipping through their own fulfillment center or through their own fulfillment partners.
Thank you. The next question is from Claire Huff, RBC. Your line is open. Please go ahead.
Yeah, morning. Thanks for taking my questions. I have three, please, if that's okay. The first one, just wondering if you could possibly quantify the negative impact from the earlier Easter this year and perhaps provide a bit more color on how trading has started in the second quarter, particularly since, I believe the cold weather in Germany continued into April and other parts of Europe as well. Second question, just wondering if you could give some color on KPIs by region. I appreciate you don't officially report them, just wondering whether you're seeing an increase in the number of orders per customer outside of the DACH region as well. Then third question on U.K. growth. I think you had said previously you've been prioritizing U.K. orders in the warehouse for faster delivery times.
Just wondering what the response has been to this, whether there'll be more of a push into the U.K. going forward, and how your thinking towards marketing has changed in the U.K., please. Thank you very much.
Sure. On the first question, in terms of the Easter impact, I think it's difficult to quantify it very exactly. I think since the overall first quarter has been very much in line with our expectation, we have not broken that effect out very specifically. When you look at Easter, it's a long weekend. It's four days where business of course is a bit slower because people are on vacation or go for a brief holiday. Those days were sort of in Q1 and not in Q2. It had some impact, but also not an enormous impact. On your second question in terms of KPIs by region, Yeah, you're right, we don't disclose specific KPIs by country or by region.
In terms of the general trend, that number of orders per customer is increasing, and that we do see fairly consistently across the two regions, DACH and rest of Europe. With respect to your third question, U.K. As you said, we have been making some convenience improvements in the last year, and that has increased the NPS quite significantly in the U.K. We are now able to offer, I think, a convenience proposition that has improved very significantly. We have, on this basis, also increased our performance marketing spending, and U.K. is growing quite fast for us. I think on this basis, we continue to evaluate what our next step should be.
I think in general, in the U.K., we right now still have the challenge that our brand is not as well known as it is in continental Europe because we have always held back on brand marketing. I think that is a commercial debate that we have to what extent we should increase our spending in the U.K. over the next quarters.
Thank you. The next question is from Charlie Muir-Sands, Deutsche Bank. Your line is open. Please go ahead.
Yes, good morning. I had several brief questions. The first is on the gross margin and currency. Could you just help quantify how much of the decline in the margin was due to currency? What proportion of your purchases are in U.S. dollars, and what your hedging policy is, please?
Yes. With regards to gross margin, maybe starting with the hedging effect or the hedging policy we have in place, it's like we hedge a certain portion of the sourcing volumes we actually do in the currency, where we do not have an actual hedge in place. That actually helped us also with regards to the currency fluctuations we've seen in the past. As some of those hedges are rolling off now, we see the impact also in the first quarter. As Rubin mentioned, we see that impact mainly in Q1 and also coming in Q2. There shouldn't be a major impact coming on in Q3 and Q4. On the gross margin side, the major impact. Sorry.
Yeah. The major impact?
The major impact, we do not break it out specifically. The major impact was actually coming from discounts from the shop, but also from the Lounge. The second one was coming from that.
Great. Thank you. The second question is, you've called out the annualization of the change in payment method weighting and fraud for Q1. Can you just remind us whether that was a bigger factor in Q2 that we need to take into consideration? How that faded out in Q3 as well?
Yes. The majority of the fraud wave actually occurred in the first quarter and only some of it in the second quarter. In terms of revenue impact, the impact last year was larger on the first quarter than the second quarter. In terms of EBIT impact, it was actually larger on the second quarter because that is when we accounted for the majority of the fraud losses.
By Q3, no impact really at all?
Smaller portion.
Yes. I think for Q3, it was fairly negligible in terms of impact.
Great. Thank you very much.
Thank you. The next question is from Benjamin Holman, Citi. Your line is open. Please go ahead.
Morning, all. A couple of questions from me. First of all, on Tradebyte, could you just give us some guidance on how much this has cost, particularly the impact on cash flow for 2016? Secondly, just so I understand, with the Zalando Lounge and the other businesses, is that stock a completely separate file to your main stock file, or do you transfer in-stock as trading conditions have been difficult in the quarter?
Yes. On your first question on Tradebyte. We have agreed with Tradebyte that we're not going to disclose specific facts about the transaction. In general, I think from that you can already see that, I think from a Zalando overall perspective, the amount was not super large. Somewhere in the area of a low double-digit million EUR amount, which I think makes a lot of sense for us. We think it's going to be a great addition in terms of one additional capability that we add to our portfolio. With respect to the second question, maybe you could repeat it because I didn't quite catch it.
Just to understand, during a season where you've mentioned that January and March were difficult months, do you transfer stock from your main Zalando websites onto your Zalando Lounge website? Therefore, has some of the growth of Zalando Lounge been through the same stock file that you'd ordinarily be trying to sell at full price?
Yes. In terms of how we clear stock on Zalando, there's a multi-layered approach in terms of stock that we can send back to our suppliers, stock that we can discount, and also one lever is to actually sell fashion store inventory through the lounge. That has been one part of Q1, but actually the bigger part of the growth in the lounge has been additional inventory that the lounge has purchased from brands that had a lot of leftover from the last season or from previous seasons, and to sell this portion on the Zalando Lounge. We do actually both.
Thank you. The next question is from Adam Cochrane, UBS. Your line is open. Please go ahead.
Good morning. Firstly, on Italy, when you talk about the improvement in net promoter score, et cetera, can you just give a little bit more around how the Italian customer is reacting to it, the reduction in lead time? Just some sort of feedback around that, please. In terms of the margin being, or the investment you talked about in rest of Europe, is the Italian distribution center a material contributor to that? Does it, in the short term, impair the margin of the products sold in Italy? On Tradebyte, can you just give us one or two minutes on what Tradebyte is actually adding to your platform strategy, please? Thanks.
Sure. On your first question, the reaction by the Italian customer, I think, has been extremely positive. I mentioned an increase in NPS. Also, the qualitative feedback that we get from customers is very positive. I think you have to keep in mind that Italy is a market that is not yet very used to online shopping, and where people have not yet, I think, fully appreciated the amount of convenience you can gain by e-commerce that is functioning on a very efficient infrastructure. Of course, the infrastructure includes also last mile delivery and all of these pieces. The improvement that we have been able to deliver to the customer is quite notable and significant on the orders that are affected.
We hope that it really can change the way that people think about e-commerce and think about proximity of delivery, because in Italy, offline shopping overall is still very prominent compared to other European markets. On your second question, in terms of EBIT impact of the Italian satellite. It had some impact because obviously it is costly to launch such a project, even though we are doing it with a partner. As you know, the workforce on the ground is not our own team, but the team of a partner. The cost impact has been very much according to plan. When you look at it for the whole rest of Europe segment, the impact has not been so large. I think it's very much in line with what we thought we would see.
Also from a cost perspective, it looks like it's going quite well. On your third topic, what does Tradebyte acquisition mean for our platform strategy? I think on the Capital Markets Day, we talked quite a bit about how the platform strategy also includes us wanting to become really an essential part of our brand partners' online strategy. I think this is what we're achieving more and more. Tradebyte is one important piece to this, because in order to be successful online, brands need to connect their stock and digitalize their stock and make it available online to be able to do business on our platform and also on other platforms.
I think that is why Tradebyte is a very important point in this whole system, where, of course, we are also working on these types of projects on how to better integrate brands into our systems. This is where it adds a lot of capabilities, a lot of experience, and this is why we are very happy to have them on board.
Thank you. The next question is from Georgina Johanan, JPMorgan. Please go ahead.
Oh, hi. Morning, everybody. Two questions from me, please. First of all, just on the release of the bad debt allowances that you flagged going through fulfillment costs in the first quarter. Apologies if I've misunderstood. Can you just talk to that a little bit and, A, perhaps quantify the release and, B, just explain whether we should be expecting that going forward. I appreciate that there'll be a helpful annualization effect in Q2, but should we also expect to see some further provision releases in Q2? Then secondly, just a question on the Ivy Park brand that you're selling. Noticed that you're also selling that in the U.K. where obviously you don't have Topshop distribution rights. Does this mean that this could potentially open the door for you to actually selling the Topshop brand in the U.K. as well, please? Thank you.
Let me briefly comment on the second part of the question. Jan Kemper will comment on your first question regarding the allowances. Ivy Park has been successful in the U.K. as well, and we are very happy that we were able to sell it almost across the board. In terms of what it means for Topshop for the U.K., of course, we are discussing this continuously with Topshop. I think a lot of the success that we have had together in continental Europe, of course, opens up many possibilities to do additional business in the future, together with Topshop. Let's see where it takes us. Of course, it is something that we continue to discuss with our partners, because from a customer perspective, we just really want to be able to offer as many brands in as many markets as possible.
Yes, with regards to the bad allowance release in the first quarter, we are talking about EUR 7 million, as you can also find in the Q1 accounts. That is due to the fact that, with the payment issue we had last year, we obviously also went a bit more conservative in our allowance building process. Given the fact that towards the end of the year, now also in Q1, we have a better vision and better grip on the respective KPIs and see how they trend. It gave us the confidence then to release a bit of that provision build over the last weeks and months. With regards to the next quarters, we feel quite comfortable that at the moment our valuation of the provisions in a way, or the building of the provision, is right.
We do not anticipate, at the current stage, any further release.
Thank you. The next question is from Volker Bosse, Baader Bank. Your line is open. Please go ahead.
Hello, Volker Bosse, Baader Bank. First, I would like to know what the market growth in e-com in the fashion segment was in Q1 from your point of view. Thanks. Second, I would like to give it another try on the gross margin, minus 320 basis points. How much was related to currencies? Is it fair to assume 100 basis points, or is it even too high just to get an indication here? Also, a third question related on growth drivers in the first quarter, which product segment or brands provided the best growth momentum or additionally on regional specifics, what is worth to highlight here? Where do you see the best momentum outside the DACH region?
Finally, trading update, how was your run in April and beginning of May, as you mentioned in the report, that you had a slow start into spring, summer season so far? Perhaps a word on that. Thank you very much.
Sure. On your first question, I think it is always very difficult to get very precise short-term data on how the online market is growing. The numbers that we believe in most, a bit more for the mid to long term, is that the growth is somewhere between 5% and 10% for online fashion in Europe. Of course that can fluctuate quarter by quarter, but it's difficult to say how exactly that's been fluctuating. In any case, I think it's very clear that we are outpacing the market by something between a factor of two and three. On your second question, with respect to gross margin, how big has the FX impact been? It has been a bit less than the 100 basis points that you mentioned. It has had some impact, but it's also not a huge impact.
I think everything that we do with respect to hedging and being careful in terms of managing currency risk has been paying off, to keep this, the impact very limited. Of course we cannot hedge away every impact over the long term. On your third question, in terms of growth drivers. Where do we see the best momentum outside of DACH? As you know, we don't comment on specific markets. I think the momentum is quite good. In the Nordics, they have been performing quite consistently. Actually, we see across our portfolio very high growth rate, especially now in the U.K. I also commented that the basis is relatively small. In Italy, we have seen a lot of positive momentum related to our satellite warehouse. I think every market is really developing very much in line with what we would like to see.
We are happy pretty much with the development across the board. With respect to your fourth question, I would actually need to ask you to repeat it. I just see in my notes Q2 trading update. The question is, if we do a Q2 trading update?
No, no. I would be curious, how was your run sales-wise in April and May?
Okay.
the second quarter, as you mentioned in the report, a slow start in spring, summer season. What do you mean with saying that? Perhaps a hint here. Thanks.
Yeah. Makes sense. Sorry, I thought you were referring to our trading updates with the preliminary numbers.
No, no
publish.
Sure.
As I said, I think the second quarter from the early visibility that we have, has been going in line with plan. I think some questions earlier, somebody made a comment about weather in April and then May. I mean, yeah, the weather, it is how it is. It's going back and forth. I think, in general, we are lucky that we are digital and online and can react, I think much quicker than competition to such changes. Overall we think Q2 is going in line with how we would like it to go.
Thank you. The next question is from Graham Renwick, Exane. Your line is open. Please go ahead.
Good morning. Just two questions from me, please. Firstly, you previously highlighted a campaign in reactivating customers that had previously become inactive. I just wanted to know how that has progress into Q1. How do you, in general, approach reacquiring these customers? What is their purchase behavior after being reacquired? What are the acquisition costs associated to these cohorts versus brand new customers to Zalando? Secondly, I just saw that orders were up 30%, average basket was down 2%, revenue was just up 24%. I just wondered whether this implies a higher returns rate now across the business. Thank you.
Sure. On your first question, the reactivation campaigns that we have been doing in the past, we continue to do them. Of course, I think they have become now really a regular part of our business. We do them continuously, although typically we do it more in season. We don't do it, for example, early in the first quarter in an off-season time. There can be several approaches. One is really by emailing, and then we even go so far that we do also physical mailings. We do some without vouchers. We do some with vouchers. There's a pretty sophisticated system in terms of optimizing these reactivation campaigns. The cost of these reactivation, of course, lies in the mailing cost themselves. Also potentially cost for reactivation vouchers.
Overall, it is a very efficient way to drive active customers because people that have bought with us before are, of course, easier to convince to shop with us again than people that have never tried Zalando. With respect to the growth in terms of orders and in terms of revenues, well, I think there are a number of effects that can drive this difference. The return rate actually has not been impacting it. The return rate is fairly stable. There are a number of effects like revenue shifts between quarters. There are effects like marketplace going over proportionally that are impacting this gap.
Thank you. The next question is from Magnus Råman in Handelsbanken. Your line is open. Please go ahead.
Thank you. Two questions from me. Can you comment on the development of competition in Rest of Europe region, and if that has affected you in terms of pricing or if your more aggressive pricing is only an effect of your own priorities? Secondly, in the major uptick in volumes in Zalando Lounge, should you view that as only a one-time effect of your opportunity here to source externally purchase merchandise? Or is there also something that we could put into our models? Thank you.
Sure. On your first question with respect to competition and the impact on pricing, I think in the first quarter we have not seen any unusual effect of competition on pricing. Of course, in a quarter that is following a season that's in general, by the industry was perceived as too warm or adverse in terms of weather, you have in the market, of course, more and more people that are driving higher discounts. I think to a large extent, we can actually decouple from such developments driven by the flexibility that we have in our own supply chain and the very advanced pricing algorithms that we are using. It is very much a result of our own priorities. We are driving different campaigns in different markets, and some markets are very reactive to discounts. Markets also have different return rates.
There is, of course, a different rationale in each market on how you set prices. We have commented before that the DACH region tends to be less discount affine. This difference is, of course, even more pronounced in off-season quarters where discounting plays a bigger role. With respect to your second question on the lounge. Well, it has been a nicely growing business in the past, and it has now really accelerated in the first quarter. I think to some extent, this was a specific opportunity that presented itself in this particular market environment, which the team did a very good job to make use of and to execute on. I think we shouldn't sort of expect this very high level of growth now continuously.
On the other hand, the lounge is clearly a fast-growing business, and it's just started to really use the advantages of the new app. Shopping clubs, as you know, are very heavily driven by app usage because it has this every morning you get a new campaign. Every morning you get a new push notification. It is very engaging for customers. We expect the lounge to continue on a very good growth trend. Although it may not be as pronounced as it was in the first quarter.
Thank you. We are coming to the last four questions in the queue. The next question is from Jürgen Kolb, Kepler Cheuvreux. Your line is open. Please go ahead.
Thanks, good morning. Two questions. First, you mentioned, I think, that you did not find real compelling marketing initiatives in the first quarter. Has that changed, or do you see anything on the short-term horizon where you may want to increase marketing in order to push maybe sales in the second quarter currently? Secondly, I see that, Rubin Ritter, you made a comment here saying that you hope to make further acquisitions this year. Maybe a word on where you see these acquisitions adding to your expertise. Maybe a little additional comment on that front. Thank you.
Sure. Yeah, it is right that in the first quarter we did not see many opportunities to really increase marketing spending, especially on performance marketing to drive growth over proportionally. This does not mean that we have to spend this money in Q2. I think we will continue to do it like in the past. When we see opportunities, we are ready to spend, we can do it quite fast. If we do not see them or if we think the return on investment is not good enough, we will not do it. To be honest, I can only tell you after Q2 if we have seen these opportunities or not, because we are continuously evaluating them.
On your second question, in terms of acquisitions, I think like last year, we are ready and more than willing to do acquisitions, and also numerous acquisitions if we are able to find capabilities that we can use to build our platform and to become stronger in the core. I think also in terms of what we have done last year, these capabilities can be around how to integrate brands into our platform. Like in the example of Tradebyte, they can be around buying technologies, around advertising technologies, where we are building a very exciting product. There, we did some acquisitions last year. It could also be in the form of consumer-facing apps that we find interesting to acquire. It could be companies related to mobile in general. It could be companies related to advanced data analytics, related to artificial intelligence.
I think there are numerous fields where we are looking, and luckily, we are equipped with capital in a way that we can, at any time, execute on these opportunities.
Thank you. The next question is from Christian Schwenkenbecher, Hauck & Aufhäuser. Your line is open. Go ahead.
Yes, good morning, everyone. Also, three quick questions from my side. The first one on Tradebyte and potentially further M&A. I'd just be curious how you see yourself well-equipped in terms of managing the connectivity of the brands and digitalization, i.e., I guess that most of the brands that show quite a strong demand of logging on to that services might not always have the right supply chains to connect. Obviously, Tradebyte helps you now. Just be curious if you see further M&As needed to get up to speed where you want to be. Secondly, just on Ivy Park and sportswear. If I'm right, the initiative started in Q2 in terms of Ivy Park. Should we expect sales to somewhat accelerate or benefit from that in the second quarter? Thirdly, related to that, your Fashion Meets Sportswear campaigns, I guess that's split into three parts.
If I'm right, the third part has started in May. Here, just be curious again how you see the phasing of that. Would it be the strongest emphasis on the third part here? What are you planning in particular as this trend seems to be quite strong in this year? Thank you very much.
Sure. On the first question with respect to Tradebyte. Of course, for brands to digitalize their business and to really connect their stock into the offline world, there are different parts that they have to get right. One is, of course, the technology systems they need to build in any case on their end. For example, to have visibility on their own stock. There's the second part, how to connect this data then into platforms or into marketplaces, which is the area where Tradebyte is active. Then, of course, there are many things around supply chain, like being able to, of course, supply the goods and then also to fulfill them to the customer, which is also an area where we are doing a lot of work in terms of fulfillment by Zalando. We are already today obviously able to integrate brands into our system.
This is why a partner program, for example, is working. We already can do it. We just think we can get a lot better at it and make it even easier for our brand partners, that is what we are working on. There, Tradebyte is one piece. There might be additional pieces that we will either build ourselves or acquire or both. To your second question, Ivy Park. Yes, hopefully, there's going to be a benefit in Q2. Obviously, I think the campaign has been very successful. On the other hand, of course, this is also reflected in our planning. To your third question, Fashion Meets Sportswear. I think there has been a very interesting trend over the last seasons and even more pronounced in this year. In terms of emphasis, yes, you're right. We have actually three phases of brand marketing.
We have the season start, then we had Ivy Park, and then we have the sort of remix, so to speak, of Fashion Meets Sportswear. Actually, they have fairly similar emphasis. Maybe with a slight pronunciation on Ivy Park, also in terms of the attention that this campaign has been getting. In general, the emphasis is also similar to how we have been managing it over the last seasons.
Thank you. The next question is from Rocco Strauss, Arete Research. Your line is open. Please go ahead.
Good morning. Two questions from me. One on marketing spend. You said you plan to raise marketing spend later on through the year. Some more color here on how that will go along with higher adjusted EBIT guidance will be appreciated. Second one, taking another look at the other segment and the strong growth, which you explained partly by more third-party inventory on the flash sale side. Guess just curious here if there are some early revenue gains from Fleek, MOVMNT, ZipCart, et cetera, and some of those initiatives.
I see the real question behind that is how will we see platform-driven revenues like also shop in shop on the main Zalando page or app coming through over time to differentiate between the main bread-and-butter wholesale part, as well as what you drive through the new platform initiatives. Thank you.
Sure. In terms of marketing costs, I think that the comment I tried to make is that in the first quarter, we did not spend all the marketing that we could have spent, given that we did not think it makes a lot of sense at this point. That, of course, doesn't mean that marketing has to increase over the course of the year. There, we have flexibility in how we see our marketing, which of course then will impact how growth and how margins develop throughout the year. We will manage it in a way that we think is most value-creating. All in all, I think that leads to the guidance that we have given, and our marketing spending will be in line with that guidance. As you know, we also have ways to trade investments in different cost lines.
You can decide to invest more into fulfillment or to invest more into marketing, depending on where you see the best payoff. On your second question, with respect to the other segment, the increase in revenues that we have seen is mainly related to Zalando Lounge. Of course, also the new apps start to contribute revenues, but given they have just been launched, I think it is way too early for them to have such a notable impact, given that the fashion store and also the Zalando Lounge actually are very meaningful businesses. In terms of having an impact on the overall top line, you have to generate, of course, quite meaningful numbers. Of course, many of our platform initiatives or the initiatives of having brands doing their business directly on Zalando also involve the fashion store or our main Zalando proposition, including the app.
That is, of course, already happening. I think a big part of the impact of integrating additional partner stock will come through the fashion store because it is the proposition that we have with the broadest reach and the most customers. A lot of the impact obviously will also come from this part of the business.
Thank you. The last question comes from Andreas Riemann, Commerzbank. Your line is open. Please go ahead.
Yes, good morning. Three questions. Sourcing and dollar again, but a different question. Is it fair to assume that the negative Euro-dollar impact at gross margin level is related just to the private label business, or are you sourcing a material part of the third-party brand in US dollars? Question one. Question two, the pilot test with Bodycheck in Berlin. In what way was it successful and can we expect that you take on more brands on board? Or will it take more time? Do you want to test more things? If it takes more time, why and what do you need to improve? Third one, maybe I missed this one. The operating margin in the DACH region was up. Was it just better full price sell-through in the DACH region or anything else that can explain the EBIT margin increase? Thanks.
Sure. I would ask Jan to comment on the first question. I will first take the number 2 and 3. On Bodycheck, it has been successful in the sense that we have successfully integrated the first store, which I think is quite an achievement in such a short time, because you have to think about all the complexities that come with such a project. Many stores don't even have a proper system of measuring what type of inventory and what specific items they have in the store and if they are available at the time. Then to connect them into our system to make sure that they can fulfill actually from store to consumer, that they're able to handle outbound shipments.
There's a lot of complexities, which is also why we always have said this is one of the projects that probably has the longest lead time because there are many topics to be solved. This is why we are super happy that we managed within a couple of months to launch the first pilot store, and it is working, and they can fulfill orders, and we see the inventory in our system. This is why we think this is a big success. On your third question, operating margin in the DACH region, the improvement that we have seen here comes from two effects, the payment cost and increased marketing efficiency.
Yes, to make it quick on your first question, it's fair to assume that the major impact comes from private label sourcing. Yes.
Thank you. There are no further questions for today.
Well, with this, thank you for joining us today. As you know, our next touchpoint will be our Q2 trading update, the date we will let you know a little bit in advance. Then the following touchpoint will be for our regular Q2 reporting, which will happen on August 12th, 2016. Talk to you then. Thank you. Good morning, everyone, thank you for joining us again for our conference call for Q1 2016. As usual, with me today are Rubin Ritter, one of our three co-CEOs responsible for finance and operations, and Jan Kemper, SVP Finance. Each will be available for Q&A following today's call. Also, as usual, the quick disclaimer up front. I'd like to remind you that we'll be making forward-looking statements during this call regarding future events and financial performance.
These statements are based on assumptions that are believed to be reasonable at the time they're made and are subject to significant risks and uncertainties. You should not rely on these forward-looking statements as predictions of future events, 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, changes in general economic conditions, in particular, economic conditions in Europe, changes affecting interest rate levels, changes in competition levels, changes in laws and regulations, or the potential impact of legal proceedings and actions, Zalando's ability to achieve operational synergies from past or future acquisitions. As you know, this call is being recorded and webcast live on our investor relations website, a replay of the call will be available later today.
With that, I'll hand it over to Rubin.
Yes. Thank you, Birgit, and good morning, everybody. Welcome to our earnings call. As always, the call will have four parts. First, about the results and business highlights. Secondly, we'll look close at our financials. Thirdly, we'll talk about guidance, and we'll go to your questions. Let me get started with the result highlights and business update. When we look at the numbers, we see a very good start into the year, which is very much in line with our expectations. We show you again the three dimensions, revenue growth, profitability, and free cash flow. On the revenue growth, we have been growing at the upper end of our long-term growth corridor of 20%-25%.
We achieved a growth of 24% in the first quarter, which actually, in terms of absolute growth, represents EUR 153 million in additional revenues, which is actually higher absolute growth than we achieved last year. We achieved this result despite Easter being in the first quarter in this year as opposed to the second quarter where it was last year. This means we continue to outperform the market, we continue to outpace competition in terms of growth, and we also continue to gain market share. On the second dimension, profitability. Here we continue to invest, we are spot on where we plan to be. I think we are also the market, and the analysts expected us to be with an adjusted EBIT margin of 2.5%. This is in line with our full year guidance and also our internal plan.
Despite a lot of investments that we continue to make, which I will talk about in a second, we continue to be profitable even in an off-season quarter like Q1. We have commented before, when you compare to last year, that Q1 2015 was unusually high, driven by back-end loaded investments in the last year and also driven by a particularly strong seasonality in 2015. On the third dimension, free cash flow was driven by continued investments. For the operating cash flow, we have, of course, the earnings. We have an improved net working capital year-over-year, driven by seasonality, leading to an expected outflow in terms of net working capital in the first quarter. We had some tax payment that affected our cash flow for prior years, which were also planned for.
We have the investing cash flow, which is mainly driven by CapEx, which we will comment in more detail later on the call. Let's talk about the operational highlights. As always, it was our goal to continue to drive NPS, which we did very successfully. We reached a new all-time high in terms of NPS. Secondly, to continue to drive our platform strategy, where we also continued to make progress. The first topic I would like to point out is our co-branded campaign with Ivy Park. We made great progress in becoming the digital strategy of our brand partners with this co-branded campaign. After Topshop and Calvin Klein last year, we started this season being the launch partner of Ivy Park, the new label by Beyoncé. We are an exclusive partner for Continental Europe, and we launched this brand with a joint campaign.
The impact of this campaign for us has been quite positive. I think Beyoncé clearly is right now one of the most powerful, if not the most powerful influencer of our time. We have driven, again, a very localized approach in the campaign, especially on social media, which was very successful. We had about 100 million impressions just in the first 7 days of the campaign. It has been by far our most successful social media campaign. We sold 25,000 items of Ivy Park just on the first day. We are all very happy with this, and I think this type of campaign is really one big piece of what differentiates us from competitors, specifically competitors like Amazon, that we are able to do these type of projects together with our brand partners.
A second topic I would like to touch on is our fulfillment footprint, which we continue to invest in. The first topic is our first satellite warehouse for the Italian market in Stradella, which fulfills already around 50% of our Italian orders and has reduced lead time for our Italian customers by one and a half days, which has led to an all-time high in NPS in Italy. We continue to assess and measure the impact on long-term shopping behavior and CLV. Based on those results, we'll make decisions on future local satellite projects. With respect to our next big hub warehouse in Lahr in southern Germany, you can see on the picture, construction is progressing very quickly, and we are on track to take manual operations live in the fall of this year.
By doing so, continuing to improve our customer proposition, especially for southern Germany, Austria, and Switzerland. The team is working to finalize the planning for the next hub, which potentially can go live in 2017. We continue to test and pilot new innovative delivery and return proposition to our customers. We started our instant return product in Berlin as a pilot, which means as a customer, when you want to make a return, you can go to