Ladies and gentlemen, Welcome to the Zalando SE publication on the Q2 results 2025 conference call. I am Sandra, the Chorus Cal l operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Patrick Kofler, Head of Investor Relations. Please go ahead, sir.
Thank you, and good morning and Welcome to our Q2 2025 earnings call. Today, I'm joined by our Co-CEOs, Robert Gentz and our Co-CEO and Interim CFO, David Schröder. Robert will kick us off with a business update before handing over to David to walk you through the financial developments of the quarter. Finally, Robert will discuss our outlook. Both will be available for questions afterwards. As usual, this call is being recorded, and the live webcast, as well as the replay of the call, will be available on our Investor Relations webpage later today. I will now hand it over to Robert. The floor is yours.
Thank you, Patrick. Hello everyone, and thank you for joining today's call. Last year, we announced our new ecosystem strategy and started to execute against it and successfully delivered on our growth and profitability ambitions. This year, we continue on this great trajectory by further advancing our B2C and B2B growth vectors and driving profitable growth. At the same time, we also keep investing in strategic growth opportunities, reflecting our ambition and conviction to serve an even larger share of the EUR 450 billion total European fashion market in the long term. Our strong H1 performance confirms that we are well on track and marks another step towards our midterm goals. Let me now move on to the overview of the five highlights of our presentation on page two. Number one, starting with our financial performance in the first half of 2025.
We achieved strong GMV growth of 6.2% and even stronger revenue growth of 7.6% year-on-year. This represents a significant accomplishment amidst a fast-changing geopolitical and macroeconomic environment. Profitability-wise, our business also performed well. Our adjusted EBIT reached EUR 232 million, representing a margin of 4.4%, an improvement of 0.3 percentage points year-on-year. Not only financial, at the same time, we're advancing steadily on our ecosystem strategy, creating value across both the consumer and the partner side of our business. Number two, in B2C, starting this week, actually, Zalando is launching a new AI-powered discovery feed, replacing the traditional home screen in our main app. This feed brings together some of Zalando's most powerful experiences: the curated lifestyle boards, the personalized product recommendations, the livestream shopping, inspirational campaign stories, and high-quality editorial content from brands, creators, and Zalando, all in one place.
I'll come back to some of our most exciting B2C developments later in this call. Number three, our B2B business maintains its double-digit growth, driven by ZEOS Fulfillment. We're excited to announce the launch of our ZEOS Shopify application. Alongside the collaboration with the boutique enterprise-grade ecommerce platform Scale, this reflects our ongoing commitment to building our software ecosystem and strengthens our support for our merchants' most strategic digital channel, their own ecommerce operations. With the launch, we enabled ZEOS multi-channel fulfillment to Shopify's massive small and medium-sized merchant base in Europe. The integration connects Shopify stores directly to ZEOS Fulfillment. Benefits for merchants include faster onboarding, reduced operational complexities, and costs. This marks another step for ZEOS towards a broader portfolio of ecosystem partnerships with leading ecommerce platforms. Highlight number four.
As already communicated on July 11th, the successful completion of About You transaction represents another significant milestone in our journey to build a pan-European ecosystem for fashion and lifestyle eCommerce. We received merger control clearance from the European Commission and acquired a 91.5% stake About You's share capital, excluding the treasury shares. As a next step, we now intend to complete a squeeze-out to acquire the remaining minority shares, thereby obtaining 100% of the share capital. We are thrilled to finally start executing our value creation plans and delivering on our ecosystem strategy together. Highlight number five. Following the recent closing of the transaction, we provide a first outlook for the full year 2025 for the combined business. On a pro forma basis, About You to allow for a like-for-like comparison as of July 11th, we expect 4%- 7% GMV and revenue growth year-on-year.
For the combined group, we expect an adjusted EBIT of EUR 550 million to EUR 600 million. This represents an increase of EUR 15 million compared to Zalando's previous standalone guidance at the midpoint. More details on this to follow later in this call. A lot of exciting highlights we have to share. Let me now touch on the progress of our B2C strategy in more detail on slide three. In early 2024, during our strategy update, we introduced the three strategic pillars that underpin our B2C growth ambitions: differentiation through quality, lifestyle expansion, and inspiration and entertainment. Since the update, we have relentlessly made progress on all of these three pillars. We have again made some exciting progress that we want to share today. Let's start with the quality differentiation.
One of the core initiatives, the rollout of the new loyalty program, has now surpassed 10 million members as of the end of the second quarter. Recently, we launched the program in four additional markets, bringing the total now to 17. Ultimately, we aim to serve the majority of our customers through this program, endeavoring to increase the average order frequency and our share of their spending. Already today, the members contribute more than a third of our GMV. Furthermore, we are on schedule now to expand our platform into some additional European markets. Portugal is nearing launch preparations and is expected to go live in August, followed by Greece later this year. We're also making progress on our second pillar, becoming a more holistic lifestyle destination for our customers.
In the first half of the year, we delivered strong growth in our sports, family, and kids' design and beauty propositions, all well above the B2C GMV growth rates. We successfully rolled out beauty propositions to Finland, to Norway, and to Spain. Additionally, our launch by Zalando proposition went live in Croatia and Slovenia, in Hungary, and in Estonia. Latvia will follow next week and Norway soon after. We continuously and successfully expand our role that we play in our customers' lives to serve many more aspects of their lifestyle. Let's now move to our third strategic pillar in B2C, inspiration and entertainment. We are happy with the performance of our advertising solution, ZMS, which saw a revenue growth of 45% in H1, yet on a weak baseline in the prior year.
Even more excited, we are that brands increasingly now use ZMS as a full funnel solution, leveraging as well our creative services. This is a further great signal that Zalando is considered as a destination that helps to elevate brand equity. I'll now dive deeper into the consumer-facing progress of our inspiration and entertainment pillar. First, as a recap, some of you may also recognize the slide as we shared it during our strategy update. We see the inspiration entertainment slide with actually coming through on our user engagement time spent on our platform and as well midterm on the advertising opportunities. Zalando's ambition is to continuously redefine passion and lifestyle shopping, and so we do. Starting this week, Zalando is launching a new AI-powered discovery feed, replacing the traditional home screen in the app.
This feed surfaces what is personally relevant and newsworthy to you from our most powerful experiences: the curated boards, the personalized product recommendations, the livestream shopping, the inspirational campaigns, and high-quality content from brands, creators, and Zalando, all in one easy-to-scroll personal feed. Our goal is to create the fashion and lifestyle gateway for European consumers. We want to offer them the most newsworthy and personally relevant access to fashion and lifestyle content, brands, and products. From the moment customers open the app, shopping becomes more immersive and entertaining. Fresh, relevant content updates appear in the feed, keeping customers engaged and coming back. At the same time, the feed creates new high-impact formats for partners to reach audiences through even more relevant organic and advertisement placements.
The concept blends the convenience of ecommerce, the entertainment of social media, the connection of idea sharing platform, and the inspiration of editorial content, all presented in a personalized, dynamic feed powered by AI. At the depth to individual tastes, increases usage frequency, and engagement. The feeds will go live in six markets with a gradual rollout to follow, extending the customer journey well beyond the transactional. We are truly excited about the launch and the opportunities this new form of experience now creates to Zalando. Now over to David for the financial performance.
Thank you, Robert, and good morning from my side as well. Let me focus on our Q2 financial results, starting with group-level figures, starting on page six. In Q2, we continued on our profitable growth trajectory. GMV saw mid-single-digit growth of 5% year-on-year, reaching EUR 4.1 billion, driven by a healthy performance in both our retail and partner business. Revenues increased even more by 7.3%, totaling EUR 2.8 billion, primarily driven by a strong performance of Zalando Marketing Services and ZEOS Fulfillment, both of which contribute revenues that are not included in our GMV figures. Our focus on driving profitable growth is also well reflected in our adjusted EBIT performance. Adjusted EBIT reached EUR 186 million, which is an increase of EUR 14 million year- over- year. This resulted in a flat adjusted EBIT margin of 6.5%. Looking at H1, our financial performance translates into 6.2% GMV growth and 7.6% revenue growth.
Partner business GMV remained stable at 34% in the first half of the year. While we see a continued strong momentum of brand partners on our platform, retailer volume was impacted negatively by our strategic decision to prioritize high-quality, high-equity brands. Our brand partners also continued to increase usage of Zalando Marketing Services, our advertising business, to increase their visibility on our platform and to drive more sales. The continued growth momentum is well reflected in an increase of ZMS revenues by 45% year- over- year, with ZMS revenues reaching 1.7% of B2C GMV, a significant expansion of 0.4 percentage points year- on- year, also supported by a relatively weak prior year baseline.
Our adjusted EBIT came in at EUR 232 million, and the adjusted EBIT margin improved by 0.3 percentage points to 4.4%, despite the volatile market environment and major growth investments, establishing a strong base from which to make further progress towards our 2028 margin target of 6%- 8%. These results demonstrate again our continued progress in driving profitable top-line growth while also enabling investments to create long-term value. Let's now turn to page seven and take a closer look at our B2C segment performance. Starting with top-line growth. In Q2, revenue grew by 6.8%, exceeding the GMV growth rate. Growth in B2C was supported by strategic growth investments such as our upgraded loyalty program, as Robert mentioned before. Additionally, on the back of successful commercial events across markets and propositions, we delivered particularly strong growth in our Lounge, Designer, and Beauty propositions.
Lastly, continued strong growth in Zalando Marketing Services drove revenue growth in B2C as well. In terms of bottom-line development, adjusted EBIT increased to EUR 174 million, resulting in a flat adjusted EBIT margin. A lower marketing and admin cost ratio offset a slight decline in gross margin. Looking at the half year, we delivered GMV growth of 6.2% and strong revenue growth of 7.2%. Adjusted EBIT came in at EUR 215 million, improving adjusted EBIT margin by 0.3 percentage points to 4.5%. B2C gross margin remained flat at around 43% in the first half. Let's now move on to page eight and dive deeper into the development of our B2C customer metrics. Starting on the left, GMV growth was once again primarily driven by an active customer growth of 6.1%.
By end of Q2, the number of active customers reached a new high of 52.9 million, an increase of more than 3.1 million customers year- on- year. Overall spend per customer remained flat at around EUR 298, with order frequency and basket size developments offsetting each other. This development is a result of an increased share of new customers, while the spend of existing customers continued to increase in the same period. Let's now turn to page nine and take a closer look at our B2B segment performance. In the second quarter of 2025, we achieved B2B revenues of over EUR 260 million. That corresponds to an increase of 12.2% compared to the previous year and continues to trend significantly above group level. Our B2B segment achieved an adjusted EBIT of EUR 11 million. The adjusted EBIT margin increased by 1.3 percentage points to 4.3%, driven by further efficiency gains.
Growth in our B2B segment continued to be primarily driven by ZEOS Fulfillment, encompassing both Zalando Fulfillment Solutions and multi-channel fulfillment. Regarding Zalando Fulfillment Solutions, since February, U.K.-based retailer Next has also been using our fulfillment infrastructure for its largest continental European market, Germany, following its prior use of Zalando Fulfillment Solutions for the majority of its Zalando-based business. The launch is part of the partnership signed and communicated last year. In the second half of this year, and as a result of the extended partnership, our collaboration will continue to expand and also include Next's own webshop and additional European marketplace business. Looking at the half year, we delivered strong revenue growth of 11.9%. Adjusted EBIT came in at EUR 17 million, improving adjusted EBIT margin by 0.6 percentage points to 3.4%. The improvement was driven by a higher gross margin, increasing by 1.5 percentage points to 13%.
Let's now move on to the group P&L on page 10 and focus on the Q2 performance on the right-hand side of the table. Group gross margin decreased slightly year over year by 0.8 percentage points to 40.8%, as we lapped the exceptionally strong prior year sell-through of inventory from previous seasons in our retail business. Despite a generally rather muted consumer demand, our commercial events across markets and propositions were well received. Additionally, business mix effects negatively impacted the gross margin. Fulfillment costs, with a cost ratio of 22.1%, remained stable. Higher fixed costs in our distribution centers, driven primarily by the ramp-up of our new Paris site, were counterbalanced by a positive one-time impact from customs reimbursement in Norway. Marketing costs saw a slight decrease to 8.7% of revenues.
This reflects our ongoing deliberate investment in performance and brand marketing, aimed at fostering active customer growth and building a lust brand. Admin costs improved by 0.3 percentage points, driven by increased operating leverage. Other operating expenses increased due to a EUR 15 million one-time effect. This is a direct result of organizational changes to our customer care and content production units to ensure high-quality service and production at lower costs through a combination of nearshoring and AI-based automation. These one-off costs are as usually reported outside of adjusted EBIT. Overall, we delivered a flat Q2 adjusted EBIT margin of 6.5%, as the decline in gross profit was counterbalanced by a reduction in marketing and administrative expenses. Turning to slide 11 now for Net Working Capital. Our Net Working Capital continues to be negative in Q2 at - EUR 108 million. Compared to last year, we see an increase of more than EUR 350 million.
Inventories were higher, reflecting our preparations for the upcoming autumn-winter season and a low prior year baseline. Digging deeper, the inventory increase was primarily driven by our strategic expansion into other lifestyle areas, with particularly strong growth in our lounge, sports, kids and family, and beauty propositions. In comparison to our fashion propositions, these propositions for now carry a relatively higher retail share, leading to a corresponding increase in inventory. Our ambition is to further expand our platform business, allowing us to reduce our reliance on inventory and strategically decouple business growth from inventory growth in the years to come, as presented as part of our ecosystem strategy a year ago. Let's go to slide 12 now. At the close of the first half of 2025, our cash and cash equivalents remained strong at EUR 2.2 billion. This marks a EUR 400 million decrease compared to EUR 2.6 billion last year.
The primary factor contributing to this change was the restricted cash linked to About You tender offer. Specifically, EUR 403 million were placed into an escrow account during the first quarter, reclassifying this amount from cash to other current financial assets. This amount represents nearly 40% of the EUR 1.03 billion consideration we transferred on July 11th for the acquisition of 91.5% About You shares. Talking about financial obligations, one of our two outstanding convertible bonds is maturing today. Because of our strong cash position, we decided to pay down the convertible with a remaining notional of EUR 400 million via cash. Including the consideration of About You acquisition, this brings us to a still very comfortable pro forma cash position of EUR 1.2 billion. This concludes the financial performance review. Let's now turn one more time to our acquisition About You on slide 13.
We are very excited about teaming up About You to lead the way in European fashion and lifestyle ecommerce. With the transaction finalized, we can now start to implement our plans and cultivate a shared focus on growth and long-term value creation. As part of our B2C growth strategy, we are establishing a dual brand approach. While both brands will maintain their distinct identities, they will collaborate effectively on logistics, payments, and commercial operations. This strategic alignment aims to enhance the delivery of personalized and unique shopping experiences, addressing a wider range of customer needs and preferences. On the B2B About You's Scale, the SaaS-based digital eCommerce platform, will perfectly complement Zalando's E-commerce Operating System, ZEOS, alongside ZEOS Fulfillment and Tradebyte.
This plays into Zalando's B2B growth strategy to establish an operating system for fashion and lifestyle brands and retailers, offering a comprehensive suite of logistics, software, and service solutions, unlocking digital growth opportunities. Beyond its clear strategic benefits, this transaction also offers significant value creation opportunities as both companies operate within the same industry. Let's therefore have a more detailed look at the expected synergy potential on slide 14. Following the joint value creation planning carried out by the Zalando About You teams over the past six months, we are happy to confirm significant group EBIT synergies of around EUR 100 million per annum from 2029 onwards. To recap, we expect these synergies to materialize in the areas of logistics, payments, commercial collaboration, and B2B by leveraging the combined strengths of both companies. A combined logistics network will enhance service quality, drive operational excellence, and increase warehouse utilization.
Logistics will contribute roughly half of the total synergy opportunity, with most of it stemming from optimization of the combined logistics network. Additionally, a unified payments infrastructure will reduce transaction costs, improve customer experience through better payment options, and open up additional monetization opportunities on the partner side of the business. Further value will be achieved through commercial collaboration in areas like buying and marketing. In buying, synergies will stem from unified purchasing strategy and volume aggregation, while in marketing, synergies arise from efficient campaigns, joint procurement, and the optimization of our go-to-market strategies. This will allow us to leverage economies of Scale and improve product and service offerings for both customers and partners alike. Integrating both companies more closely on the B2B software side unlocks cross-selling and upselling opportunities.
Combining Tradebyte's marketplace expertise with Scaled tailored solutions for a merchant's own ecomm will allow us to attract more B2B customers and increase take rates through comprehenive ecommerce operating system offerings. While we expect that near-term synergies will be accompanied by front-loaded integration costs, we expect a more pronounced impact from synergies in the medium term. On the back of these synergies, we also reiterate our midterm margin targets for the combined group. We continue to expect an adjusted EBIT margin in 2028 in the corridor of 6%- 8%, primarily driven by underlying margin improvements in both standalone businesses and further supported by the impact from synergies. This yields a significant increase in absolute profit by creating a combined group at larger scale. Overall, we are truly excited about the opportunities which lie ahead of us.
Both our teams are fired up and looking forward to collaborating and delivering on the significant strategic as well as financial opportunities. Now let's move to the outlook page on page 15, and for that, I'll hand it back to Robert.
Thank you, David. Yeah, with the closing of the transaction, we will begin consolidating About You. the initial consolidated P&L and balance sheet figures will be disclosed with our Q3 results on November 6th, 2025. Before we present a combined outlook, let's recap the individual guidance provided by both publicly listed companies. The initial standalone Zalando outlook guided for 4%- 9% on GMV and revenue growth, About You forecasted revenue to grow moderately. On profitability, Zalando's adjusted EBIT range was expected between EUR 530 million and EUR 590 About You, on the other hand, guided for strong growth of adjusted EBITDA. About You will continue to provide standalone guidance as long as the company remains publicly listed, we're providing you today with an updated combined guidance for the Zalando group.
Moving to the next page, we will outline this full year 2025 outlook for the combined Zalando group, which About You as of July 11th. We successfully delivered a strong performance in the first half of 2025. Our key priority remains the successful execution of our ecosystem strategy, effectively positioning the combined group to navigate any external developments in the fast-changing geopolitical and macroeconomic environment. Despite operating in a volatile market, we are confident in delivering a strong H2 performance. Our H1 performance shows that even in the environment, there are pockets of growth and that we're able to find them, also supported by continued growth in online retail demand across Europe. Let's now take a look at our combined guidance for 2025, About You as of July 11th, the closing date.
On a reported basis, we expect GMV to grow between 12- 15% year- on- year from Zalando's full year 2024 baseline to EUR 17.2 billion to EUR 17.6 billion of GMV in 2025. Revenue for the combined group is guided to EUR 12.1 billion to EUR 12.4 billion, a 14%- 17% increase as a result of About You inclusion. On a pro forma basis, About You from July 11th to allow for a like-for-like comparison, the combined guidance represents a 4%- 7% increase year- on- year. This growth is attributed to strong top-line performance in the first half of the year and an expected continued mid-single-digit top-line growth for the combined business in the second half. This also applies for Q3.
The combined company's adjusted EBIT is expected to be between EUR 550 million- EUR 600 million, exceeding Zalando's initial standalone guidance of EUR 530 million- EUR 590 million by EUR 15 million at the midpoint. This increase is driven by our strong performance in the first half of the year and also reflects our expectations to benefit from further efficiencies in our OpEx lines, as well as from early synergies in the second half of the year. It furthermore exemplifies our clear commitment to drive profitable growth at larger scales and demonstrates our ability to effectively manage trade-offs between growth and profitability, with the clear objective to maximize company value in the longer term. On cash-related items, CapEx investments for the combined group will amount to between EUR 200 million and EUR 280 million, mainly invested in our logistics infrastructure and internally developed software. Net working capital is expected to stay in negative territory.
Last but not least, let me provide some guidance on the reporting logic going forward. The combined company will maintain its B2C and B2B segment About You's ecommerce segment will be included into B2C and its enterprise digital commerce platform Scale into B2B. We continue to expect that our B2B segment significantly outperforms the B2C revenue growth rate on a pro forma basis. The new combined guidance reflects our continued focus on profitable growth and long-term value creation. This concludes our presentation for today. Before we jump into Q&A, let me just wrap up with the key takeaways of today. Number one, our ecosystem strategy is progressing very well. Number two, in the first half of 2025, we delivered strong growth and increased profitability. Number three, we continue to advance our strategy across both our B2C and B2B growth vectors.
Number four, the successful completion of About You transaction represents another significant milestone in our journey to build a pan-European ecosystem for fashion and lifestyle ecommerce. Number five, the new combined guidance reflects our continued focus on profitable growth and long-term value creation. Thank you very much, and now let's open up for Q&A.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only hands as well as asking a question. In the interest of time, please limit yourselves to two questions. Anyone who has a question may press star and one at this time. Our first question comes from Adam Cochrane from Deutsche Bank. Please go ahead.
Good morning. Thanks, thanks James. The first question I've got is, can you just deconstruct slightly the implied EBIT contribution About You within your adjusted EBIT guidance for the full year? I think we can work out the sales contribution, but I struggle slightly to work out what the EBIT contribution from or expectation About You is in the numbers. Secondly, in terms of those gross margin movements in the second quarter, can you explain the drivers of those, maybe between promotions and mixed benefits from ZMS within that, and maybe any impact from the revenue deferrals from Zalando Plus, the impact on gross margin? Thanks.
Good morning, Adam. On your first question regarding EBIT contribution About You, i think it's fair to assume About You also guided themselves that they are on track to further improve their profitability this year. As you know, they reached break even on EBITDA basis for the first time in their last calendar year, and they continue to further work on that trajectory. I think broadly speaking, if you take their standalone performance and the early synergies that we've accounted for, it's a rather neutral addition to the group absolute EBIT. On your gross margin question, I think first of all, it's important to zoom out a bit and understand that we are operating a seasonal business, where our spring-summer season typically starts in March, so end of Q1, and then goes all the way into early Q3.
I think the best indicators that we typically look at for sell-through development and also gross margin development in our B2C business are on a seasonal business. When we look at H1 performance, you can see that our gross margin is very much flat year over year, both on group level and on B2C level, where we reported 43% gross margin. When we look at Q2 in more detail, there are a few drivers that explain the slight decline year over year. The first one is definitely the exceptional sell-through that we've seen in the prior year, as well as some shift in seasonality. Please keep in mind this year we had an exceptionally strong March, which definitely shifted some gross profit from Q2 into Q1, and that's one effect.
The second is more the usual mix effects, positive contributions from partner business and ZMS for sure, but then overcompensated by the strong growth in B2B and also particularly Zalando Lounge, which have a structurally lower gross margin. Last but not least, as we already messaged last year, I think, in the Q3 call, we definitely also have the one-off impact from the loyalty rollout, which is proceeding very much as planned, as we've heard from Robert, and contributing to a healthy customer development and also top-line performance, but negatively impacting gross margin in the short term.
The next question comes from Luke Holbrook from Morgan Stanley. Please go ahead.
Thank you for taking my question. On the combined guidance, you're now guiding for 4%- 7% growth for this year, having lowered it slightly, but with the B2B business growing double digits, and I think consensus About You up 7% year- on- year in revenues on Visible Alpha. I'm just trying to unpick what that could imply for the Zalando B2C business, particularly on your comments that there's muted consumer demand at the moment. Is it fair to assume that's more like the low end of your guidance range you've now issued? The second question is just on inventories. You've ended Q2 with inventories up 15% year on year, but I'm wound a little bit Q on Q.
Can you just indicate a little bit on the promotional environment that you've seen since the end of Q2 and whether CPC rates have risen perhaps since the launch of TikTok Shop in France and Germany in Q2? Thank you.
Sure. If you look at our combined guidance, 4%- 7%, I think first of all, that obviously reflects the performance year to date. We reported 6.2% for the first half year. I think that's fairly close actually to the midpoint of the guidance that we had issued at the beginning of the year. We are very happy with the performance so far. As Robert indicated earlier, we expect Q3 as well as H2 very much on mid-single-digit level. I would see that as a continuation of the current performance trends and that in the end, yeah, leads us to the combined guidance of 4%- 7%.
I think it's also fair to say that if you look at the previous range of 4- 9, given the performance in the first half, the 9% would imply a more than 10% growth in the second half, and we just consider that less likely. That's what you see reflected in our combined group guidance as well, of course. On the inventory side, I think it's important to not just look at that year over year, especially given the exceptional sale-through last year, but also maybe have a look at the year over two year where we are actually down on inventory by about 4%. I think we consider our inventory position very healthy and also the right one to enable the growth trajectory that we are working towards for the second half and therefore also for the full year.
In regards to the market environment, we definitely see continued price sensitivity of consumers. We can see that in the success of our key commercial events in Q2 and also the end-of-season sale at the beginning of Q3. We also don't anticipate that to change anytime soon. We also see it in the strong traction of Zalando Lounge, which offers customers great value-for-money offers. I think it's good to see that actually our portfolio is able to cater to the current consumer demand in a very good way. We are not seeing any impact from TikTok Shop in France and Germany. I think you've all probably heard by now that the volume there is still very low, also compared to countries like the U.K. and the U.S., That's not really impacting the consumer and market landscape at the moment.
The next question comes from Sarah Roberts from Barclays. Please go ahead.
Hi, good morning. Thank you for taking my question. Just two from me. Firstly, it seems as if the upgrade in guidance, despite the fact you're kind of absorbing some losses on an EBIT level About You, implies maybe a $50 million upgrade to the underlying business at the midpoint. I just wanted to understand what the key drivers of this margin expansion of this underlying profitability improvement are, particularly given you're expecting slightly lower growth for this year. Secondly, I just wanted to understand with the rise of AI-generated overviews and Google search being more prominent, I just wanted to know whether you are seeing any impact on marketing efficiency, either in paid or organic search. Thank you.
Sure. Let me start with your question on the EBIT upgrade, and then Robert can follow up with the question on GenAI. I think the way to think about the EBIT upgrade is that it's primarily driven by three factors. One is that we've delivered a very strong development in H1 with clear EBIT improvements on an absolute basis, both in Q1 and Q2. That makes us confident that we are on the right track to also deliver a strong year in terms of absolute EBIT for the rest of the year. Secondly, we expect further gains from OpEx improvements in H2, OpEx meaning logistics, marketing, over, admin costs in our case. There we definitely see an opportunity to drive more efficiency and benefit from economies of Scale.
Last but not least, as we've mentioned also in our release, we also expect first benefits from About You and Zalando team up. Obviously not to the long-term extent that we have just confirmed with the 100 million, but I think, yeah, for us it's a good sign that even in the first few months we are already able to generate quite a few efficiencies there as well that help us in the overall group picture to achieve this higher EBIT level.
I think on the second question you had, which I understood, if we see actually what we see as impact on the market from the marketing side through advancement in AI, how we work with partners such as Google and Meta. I think probably two things here to share. One thing would be, in this collaboration that we actually have with our biggest marketing platforms as Google and Meta and the others, overall we see a good kind of traction up and ever increasing as for good marketing ROI, which is as well reflected in the increase in the active customer base that we've been reporting. We're very happy with the progress I think that we make on both sides of how we drive even further efficiencies in the marketing spending.
On a very smaller scale, what is interesting, what we see is that we now see a bit of incoming actually traffic from large language models that are actually deepening into our experience. We see, especially from ChatGPT, some referrals that actually will drive volume, drive volume, but this is still on a very, very small basis yet. It's not yet very meaningful.
The next question comes from Monique Pollard from Citi. Please go ahead.
Hello, everybody. Thank you very much for taking my questions. I've got two, if I can. I just understand your comments that on the trading, the 3Q should look similar to 2Q, but I just wondered if you could give us any further detail on how the current trading was specifically for July and how that compares to, say, June, given, I imagine, given the comments from last year that the comp for June would have been particularly tough. The second question just has to do with the outlook for the gross margin as we go into the second half. I understand the impact of the loyalty scheme and the drag that that's going to place on the gross margin.
As we think about the B2C and the B2B gross margin, we're seeing good improvement in the B2B gross margin, which I guess is partly driven by that strong growth in ZMS. The B2C, the comp, I imagine, is very tough there, particularly given the really strong sell-through we saw in the back half of the year. How should we think about the kind of underlying gross margin as we go through to the second half, please?
Sure. On current trading, as Robert already shared in the presentation, we basically expect a continuation of what we've seen in Q2, mid-single-digit growth. The quarter has also started well for us, so that makes us confident that we'll be definitely able to achieve that level. Yes, the market remains volatile, of course, but I think we showed that we can navigate and find these pockets of growth in the first half of the year, and that gives us the confidence that we'll be able to do the same in Q3 and also for the rest of the second half. Maybe as a last point, obviously, what always plays a role in Q3 is the season start in September. Last year, September was particularly strong. We already mentioned that when we presented our full year outlook in March.
That's maybe the one factor you should keep in mind when you also look at the year-over-year performance, because I personally feel a year-over-year mid-single-digit performance in Q3 is actually stronger even than what we achieved year-over-year in Q2 due to the strong baseline. Regarding gross margin outlook, I think I commented on the first half, and for me, the story is not so different on the second half. Broadly speaking, we expect a stable gross margin, excluding sort of the one-time loyalty effect and the business mix effect, particularly the lower gross margin from B2B. That is, as you said, against the backdrop of a significant improvement in gross margin last year. I would personally consider that a strong performance that we are aiming for also for the rest of the year.
The next question comes from William Woods from Bernstein. Please go ahead.
Good morning. The first question is just on your midterm GMV guide. Obviously, all of your kind of recent growth has come from new customers. Do you think this is the main driver over the next few years, or do you think you can actually see some improvement in kind of underlying buying trends? The second one is obviously you saw strong ZMS growth. Why doesn't that translate into higher margins, both on kind of an operating leverage perspective and just a structural question on the margin there? Thanks.
Yeah, let me answer your first question, and then I think for the ZMS contribution on EBIT, I would hand over to David. In the midterm, I think we actually said that the growth would come both from the active customer account, but as well from the expansion into more lifestyle propositions, so from the GMV per active customer. I think if you just look at the current result, it's a little bit there's some underlying things that we need to unpack. Yes, the GMV per active customer stayed the same and stayed rather flattish while the active customer count increased by 6%. This is actually a mixed effect because typically new customers spend less on GMV in the first year, while actually retained customers actually spend more. What we see underlying is actually that the GMV per active customer from retained customers likely as well grew like for like.
Therefore, this mixed effect rather doesn't reflect, I think, the underlying trends that we actually see. We actually have growth in both directions. The second area to focus on is actually what we as well have said that we actually have seen in the new lifestyle proposition, actually very strong growth or double-digit growth, like in sports, in lounge, in beauty, which is a good testament that we actually make very much progress on our journey to be a rather more complete lifestyle company for our customers. In the midterm, we expect both of these dimensions, the active customer and as well the active customer spending, both to contribute strongly to the midterm growth.
Yeah, on ZMS, let me start by saying again that we are very happy with the development that we are seeing there. As you know, ZMS is a key contributor to our margin, not just this year, but also will help us to reach our midterm margin of 6%- 8% in 2028, as well as our long-term margin target of 10%- 1 3%. It's just a very attractive revenue stream, next to being a great product for our partners, of course. That being said, especially when we look at Q2, the very positive ZMS impact was overcompensated by other mixed effects, especially the strong growth that we've seen in B2B.
Yes, gross margin in B2B has improved, but it's still only 13% compared to 43% in B2C, as you know. It was also overcompensated by strategic growth investments reflected in our gross margin, particularly the one-off revenue deferral associated to our loyalty program. That being said, obviously, the strong performance of ZMS is one reason why we are also upgrading the EBIT target for the group for the full year. It's not like we're not seeing that benefit. It's definitely supporting our profitability this year and for the years to come.
The next question comes from Frederick Wild from Jefferies. Please go ahead.
Good morning, Robert, David, Patrick, and team. Thank you for taking my question. My first question, which is really very exciting, is on the synergy delivery phase. In the bridge you provided about the breakdown of the synergies, the fulfillment cost, does this assume you About You cost structures in line with Zalando Group averages? On the synergy delivery timeline, obviously, it's backend weighted because as you move some of those About You distribution contracts into Zalando, is there any chance of some of these synergies being brought forward, maybe some deal to get About You orders into the Zalando ecosystem earlier? Thank you.
Sure. Thanks for your question. On fulfillment cost, obviously, our goal ultimately is to create one stock pool for the combined group and also one logistics network to hold all that inventory and to connect it between brands and customers. Just because we closed the transaction, that isn't true for now. We still have two separate networks for now that we need to integrate over the course of the next few years, both on an operational, technical, and also infrastructure level. What will ultimately result from that is that, yes, About You and Zalando will benefit from a very efficient and highly Scaled fulfillment setup. The input factor costs, if you want to put it this way, will be the same.
The actual cost rates in the P&L of both businesses will also obviously depend on other factors like the specific convenience offering of the two platforms, where we've told you in the past that the Zalando offering will be more premium service, About You will be a bit more basic service, and also obviously affected by order economics and country mix effects that will continue to be different between the two platforms. I think you cannot just say it's the same cost ratio, but you can definitely assume that they benefit from the same input costs. On the synergy delivery timeline, I think you're exactly on the right track there. The logistics cost synergies are more backend loaded due to the fact that we first need to unwind existing lease and 3PL contracts to really bring the two networks together. That takes a while.
You can definitely assume that we are always looking for ways to further optimize and bring synergies forward. What we've shown you here is our current best estimate of when we can deliver these synergies.
The next question comes from Richard Chamberlain from RBC . Please go ahead.
Yeah, thanks. Morning, team. Two questions for me, please. One, first of all, I wondered if you're assuming any improvement in the Germany consumer situation in the second half in order to maintain your expectation of mid-single-digit GMV trends, because I guess we're looking at slightly lower marketing spend by the sound of it, and obviously we've got tougher comps. I wondered if there's any improvement in any of your sort of top-down macro assumptions or unchanged. Thank you.
Yeah. We don't assume any kind of improvements on the consumer trends. I think the way we think about the drivers of our growth is actually that we focus on the things that we actually can control and which we roll out. We will continue to focus on the roll-off loyalty program. We will bring more payment methods as well in some countries. We will continue to bring some more content innovation pipelines with regards to 3D assets and videos on the PDP pages live. It's more of these kinds of strategic initiatives that we actually have some confidence will help the strategy with regards to all three pillars and as well will drive the overall baseline of our business. We don't really factor in any kind of very different changes of consumer sentiments.
The next question comes from Anne Critchlow from Berenberg. Please go ahead.
Morning. Thanks for taking my questions. I've got two, please. The first one is on Zalando Plus. I'm thinking about future costs of this because I think customers have to gain points to eventually get free express and premium delivery. Is there a danger that when they get to a certain level of points, the costs of this program will go up, perhaps more than you expect, or do the points reset every year and they have to regain points to reach that level again? The second question is on marketing. Just wondering how we should think about the marketing cost-to-sales ratio over time, given that you've got these engagement and loyalty initiatives coming through. In a sense, the marketing costs kind of switch into loyalty in that way. Thank you.
Yeah, happy to take your questions. On Zalando Plus, I think we don't share that concern because the way the program is set up, it's 12 months rolling point collection for all customers, meaning that they need to re-earn their status essentially every 12 months. There's always a clear incentive to continue being very active and engaged on the platform, and there's also no chance to just keep your status and enjoy benefits without continued spending and engagement. On marketing, very consistent with what we've communicated in the past, we obviously target that in the medium to longer term, our marketing cost ratio will go down and also contribute to an increased overall EBIT margin for Zalando, first to 6%- 8% in 2028, and then to 10%- 13% in the longer term.
I think it's fair to say that by making the experience stronger, not just with loyalty, but also, for example, with everything that we continue to do on the offering, on other customer experience elements like convenience, we are driving our growth more and more organically and become less and less dependent on marketing from our point of view. That's also why we're excited about it, because it makes business stronger, more sustainable, and more profitable over time.
The next question comes from Mia Strauss from BNP Paribas. Please go ahead.
Hi, good morning. Maybe just another one on the loyalty program. What sort of frequency of shopping are you seeing in those new markets? I think a few of them have now been live for at least, you know, seven, eight months. Can you maybe quantify what the deferral impact was in Q2? I think in Q1 you said it was about EUR 10 million. Obviously, as the point gets used through the year, when should we start seeing the revenue actually start to get recognized? Is that like a Q4 sort of thing? Maybe last year, if you can just give a bit of color on how the markets, the regional markets performed across the group. Thanks.
Sure. I might need to ask you to repeat one of your questions, but let me start with the three ones that I got, I think. Frequency developments in plus markets, I think, continue towards through what we said in the Q1 call. We see promising signs of increasing user engagement and also order frequency in the markets we are live in. Given how early we are, however, in the rollout, I think it doesn't make sense to quantify it at the moment. Obviously, we also see differences between the markets. So far, I think we can definitely confirm that the order frequency uplift is there and it's also building up over time.
On the revenue deferral, I think we said at the beginning of the year there would be a mid-double-digit million amount for the full year and that it would be more pronounced in the second half than in the first half due to the continued rollout and scaling of the loyalty program over the course of the year. In Q2, I think it's fair to assume a low double-digit million amount in terms of impacts on our gross margin. I also, I think, got your last question on the markets developments. Similar to Q1, growth in Q2 was very broad-based. I think we only had one smaller market out of our total 25 markets that didn't contribute to our growth. The market portfolio that we are looking at is very healthy and all markets are basically contributing to the growth that we are seeing.
Yeah, can you repeat your second question on the loyalty?
Sure. It was mainly to say that obviously the program has been live in some markets from the start of the year and those customers have been building up their points. When should we start to see those points getting utilized, i.e., the revenue starting to be recognized? Would that be more Q4 or could we even see that in Q3?
As you know, we've launched the markets at different times. First, Spain launched already in summer last year, so those points are already being utilized to a larger extent. The same will hold true for other markets where the first customers enrolled in Q1 and obviously are now advancing through the tiers and are able to enjoy the benefits of this program more and more. Keep in mind, however, that as long as the member base grows so strongly, the effect of new essentially deferrals will outweigh the offset of existing ones. Therefore, for the second half, as we said, you should continue to expect more revenue deferrals coming in and hitting the P&L. Once we reach a more, let's say, steady state, obviously those one-time effects will equalize and no longer impact our P&L. That's why we also talk about it as a one-off.
The next question comes from Andreas Riemann from ODDO BHF. Please go ahead.
Yes, good morning. Thanks for taking my questions. First one on cross-selling in B2B. I guess you know your ZEOS customers quite well. How many ZEOS customers would you say could become potential Scale customers going forward? Any insight here would be appreciated. Second one on B2B. The EBIT margin improved in B2B for the first time. Would you say we have seen the trough and ramping up this business is largely done so that the margins should improve from now? That's my second question. Thanks.
Yeah. On your ZEOS cross-selling question, I think what we are definitely seeing is lots of interest from existing Scale and ZEOS customers to discuss the enlarged offering and to understand what it can do for them. I think in the current situation, actually, we need to also ask these merchants for some patience because we first need to do the technical integration work to enable all the benefits that we aim to create. I think that is something we aim to achieve over the course of next year. From then on, we definitely think we have a very strong offering that essentially can serve all the channels a brand wants to potentially sell in, both marketplaces like Zalando, but also their most strategic digital channel, i.e., their own eCom.
In terms of the ultimate opportunity, I think the best way to think about it is given that Scale is still quite small and that most of the brands and retailers out there still rather use legacy systems like Salesforce, Commerce Cloud, or SAP Hybris, there's actually a huge potential to tap into this market and win over more customers for Scale as one key component of our B2B operating system. Regarding your B2B margin question, we are obviously happy with the development that we are seeing, and we definitely think there's even more potential in the longer term to grow that gross margin, particularly as we.
We have developed the software and service business within B2B. As you can imagine, the logistics component actually comes with the lowest gross margin because that's essentially based on all the fulfillment costs that we pass on with a margin to our merchants. On the software business, we obviously have structurally high gross margins in Scale, in Tradebyte, and also in other software solutions that we are in the process of building. I think what promises, from my perspective, the biggest gross margin potential going forward for B2B. That's also the reason why we obviously stay committed to what we said when we unveiled the strategy, which is that we think for B2B long-term, 10%- 15% EBIT margins are just as achievable as they are for B2C.
The next question comes from Georgina Johanan from JPMorgan. Please go ahead.
Hi, everyone. Thank you. Just three quick clarification questions, please. Firstly, I think you referenced that there was some one-off customs benefit in the fulfillment cost line. If you wouldn't mind quantifying that, please, and just also clarifying that that is included in the adjusted EBIT, that would be helpful. Second question, on the longer-term guidance for the combined group, if I heard correctly, you reiterated the margin guidance, but not the top-line guide. I just wanted to check if you were sort of formally moving away from top-line guide. Finally, just on the gross margin outlook, apologies if I misunderstood, but I just wanted to be clear because I think at the Q1 stage, you had guided to a pretty flat gross margin for the year.
If I understand correctly, you're now saying that once we're sort of taking all of the moving parts into account, actually expecting the gross margin to be down for the year is a more sensible assumption. If I think about the loyalty program drag and some of those mixed effects, are we sort of talking in the magnitude of around 50 basis points decline for the year? Any help on that would be great, please.
Sure. On the one-off customs benefit, I think it's a low double-digit million amount that impacted Q2 positively, and yes, it contributes to our adjusted EBIT. Second question, I did mention the top-line mid-term guidance, but that doesn't mean that we are moving away from it in any way. I was talking about synergies earlier, and that's why we wanted to help you understand how those synergies contribute to our mid-term margin target. Obviously, we are just as committed to the top-line ambition that we communicated as part of our mid-term guidance. I don't want that to be mistaken. Last but not least, on the GM side, I think, yeah, H1, we were flat year over year on group level. I think I told you that for the second half, we would also look at broadly flat, excluding some of these one-time and mixed effects.
I would also then say for the full year, that means we would come in around the same level as last year, potentially slightly shy due to these one-off effects.
The last question comes from Yashraj Rajani from UBS. Please go ahead.
Hi. Thank you for taking my question. I have two, please. The first one is just a follow-up on the synergies. Can you just quantify what's the exact synergy benefit you're baking for this year? Is it in the range of EUR 5 million- EUR 10 million? If so, where is that coming from? Maybe related to that, I mean, if you're already getting the benefits of synergies this year, I understand your point on the unwinding of the leases, but what's holding you back from expecting probably EUR 80 million- EUR 90 million already in 2027, right? That's the first question. The second question is more on the Shopify partnership. That's obviously a very promising partnership.
Maybe if we sort of dig into that a bit more medium term, if you think about Shopify and TikTok Shop both together, can this probably be on a three to five-year view a EUR 500,000,000-EUR 1,000,000,000 business? If so, does it cannibalize your own GMV? Thank you.
On your synergies question, this year, I think we're seeing some early synergies, but I think maybe the best way to think about it is to say single-digit million amounts, right? Not material from our perspective. Most of these are the typical early synergies that you would assume based on looking at the contracts that we both have with key providers, for example, and making sure that we get the same rates applied to the volume that Zalando is already benefiting from. That can happen in the payments area. That can happen in IT areas like cloud hosting and so on. That's really where these very early ones are coming from because there we don't need to do any integration work. Basically, just need to make sure About You can use the group framework agreements. On your question, can we accelerate?
As I said, we'll try to accelerate as much as possible, but keep in mind that the bulk of synergies is coming from logistics. Keep in mind that those logistics synergies depend on combining our network. If we can't move out of a site and ramp down operations and move the volume to the rest of the network, then there's also no way to get to these synergies. That's why I think you should just take the picture on the page that we presented in terms of synergy ramp-up as our best estimate for how these synergies will be realized. That obviously still means that we are over time building up to that considerable amount of EUR 100 million. On the Shopify partnership, yes, we are obviously excited.
We're excited because it shows that we really mean it when we say we provide brands with choice and also fully leverage the ecosystem approach. We don't expect every brand and every retailer to use Scale in the future. It's also not a prerequisite to take advantage of our B2B offering. It's great, and the benefits might be even higher, but they can also benefit from our offering if they use Shopify, if they use other shop software providers who we will over time all try to connect to our B2B offering to make it as easy and simple as possible to fully benefit from our suite of B2B solutions. Can that business scale to EUR 500,000,000 ? Yes, it can. Will it? We don't know. I think that's the honest answer.
We definitely think that the ecosystem that Shopify has built and continues to build in terms of merchants and also obviously the potential that TikTok Shop holds can definitely fuel our B2B growth. I think both are also great examples of how we can cover a larger share of the market with Zalando and play a role in even more transactions for customers and brands. We don't see it at all jeopardizing our plans in B2C. We rather see it as a means to increase our market coverage.
Ladies and gentlemen, this concludes today's question and answer session. I would now like to turn the conference back over to Patrick Kofler for any closing remarks.
Yeah, thanks everyone for joining today's quarterly earnings call. If you have any further questions, do not hesitate to contact us. Happy to see all of you probably after summer then on different occasions. With that, happy Wednesday. Thanks, everyone. Bye-bye.
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