Ladies and gentlemen, welcome, and thank you for joining the Zalando SE publication of the Q2 2023 results. Throughout this recorded presentation, all participants will be in listen-only mode. There will be a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press star and zero for operator assistance. I would now like to turn the conference over to Robert Gentz, Co-CEO. Please go ahead.
Hello, good morning. This is Patrick. Good morning, ladies and gentlemen, and welcome to our Q2 2023 earnings call. I'm joined by our Co-CEO and founder, Robert Gentz, and our CFO, Sandra Dembeck. Robert will kick us off with a business update, then Sandra will walk us through the financial development of the quarter, and Robert will discuss our outlook. Robert and Sandra are available for your questions afterwards. As usual, this call is being recorded and webcast live on our investor relations website, and a replay of the call will be available later today. Robert, I will now hand it over to you. Please go ahead.
Thank you, Patrick. Hello, as well, from my side, and thank you for joining today's call. 2023 is clearly a year of transition for us. In the economic environment, we are focusing on profitable growth. At the same time, we continue investing with confidence into several exciting areas to set us up for future growth. We also started a program to reduce complexity, simplify the organization, and increase our ability to execute fast. Overall, we're making great and steady progress on our overall strategy to have an even bigger impact for our customers and partners and deepen our relationships with them. They continue, as always, to be at the heart of everything that we do.
We deliberately decided to not push for more short-term growth at higher incremental costs. For example, through even more promotion and marketing spending. Instead, we continued our focus on long-term value creation and boosting future growth. Even as today's financial results rather reflect our focus on profitability in the current environment. Now, let me move on to the executive summary. In the first half, we continued to face headwinds on our top line.
This is the result of reduced discretionary spend and the ongoing normalization between offline and online spending, following the exceptional dominance of online during the pandemic. At the same time, we delivered a significant year-over-year improvement in our adjusted EBIT, rising by over EUR 100 million to EUR 144 million. This results in a margin progression of 2.5 percentage points to 3%. We are also continuing to invest selectively in our strategy vision to be the Starting Point for fashion and boost future growth. Let me highlight three areas.
First, we launched new brands, new brand high-profile partnerships. For example, with the global athleisure, athleisure brand, lululemon, and many more to excite our customers and engage them across our propositions. Second, our partners continued to further embrace our logistic infrastructure and scale their businesses. The partner business share of Fashion Store GMV grew 7 percentage points in the first half of the year, driven by increased adoption of the launch fulfillment solutions.
At the same time, our so-called Multi-Channel Fulfillment, which is now out of the pilot phase, is being prepared for wider market launch, is proving successful with more partners signing up. Third, we are also unlocking the potential of new tech innovations. In July, for example, we launched a new tool that enables customers to receive size recommendations based on their unique body measurements. We remain committed to our ambition for this year to deliver profitable growth and to continue selective investment through the cycle.
We also are narrowing our full year guidance. As a result of improved profitability for the first year, we now expect the full year adjusted EBIT to be in the range of EUR 300 million-EUR 350 million. To reflect the temporarily subdued demand for online fashion, we expect GMV and revenue for 2023 in the lower half of our initial guidance ranges. Let me now touch on the mentioned highlights in more detail to show you how we are progressing on our strategy. First of all, we are excited that we are attracting and launching more high-profile brands on the line across our propositions. In sports, we have a new partnership with lululemon in 11 of our European markets.
Lululemon has been an amazing success in North America, we look forward to being their only multi-brand partner of choice, allowing them to reach millions of European customers. To enable their story to be told, we're going to launch a premium campaign of a really innovative digital mindful experience and have brilliant curatorial collections. Next, to sports and beauty. We have made further progress in offering a bigger and smart selection to our customers. In Q2, we've added key brands like Lancôme, Mugler, Shiseido, in several of the markets. We also continue to make progress to better serve our customers with more local, locally specific and relevant choices. For example, in France, we added sought-after brands like Claudie Pierlot or Le Slip Français. Progressing further on our brand portfolio across all propositions is our flywheel.
The more exciting and relevant our portfolio of brands is, the deeper the relationship with our more than 50 million customers get, and the more Zalando becomes this place to be for professional lifestyle brands in Europe. We're really excited about the progress. Next, let me talk about helping our partners building their business and reaching their full potential. We're not just connecting partners with the target audience, we're also adding great value by boosting their digital business and supporting them with our capabilities, like logistics. We're very proud that we can support our partners in so many ways. The growth of our partner business and ZFS is a great example of how partners use our reach and infrastructure to successfully sell to their customers via Zalando.
In the first half of 2023, the share of the business, the partner business contributing to Fashion Store GMV was up 7 percentage points compared with a year ago. During the same time period, the share of partner items shipped by Zalando Fulfillment increased by 3 percentage points year-over-year. Since last year, we've taken ZFS now one major step further. Our partners can now also use our logistics backbone beyond our Partner Program to drive their e-com business outside of Zalando. This is what we call Multi-Channel Fulfillment, and it has great growth potential. With 100,000 items shipped since launch, it's growing quickly in size. Our pipeline for this new service is well filled, and we convert more and more partners into new Multi-Channel Fulfillment partners. Partners can use Multi-Channel Fulfillment already in six markets, and we will add Finland and Denmark now very soon.
By the end of 2023, we plan to serve many more partners. In the medium term, we expect this recurring business to be pos-- positively contributing to our group margin. Now, let me also mention a few things that really excite us about how we are using and experimenting with new technologies to serve our customers better and offer them a top-notch experience. First, our advances in size and fit technology, something that can really make a dramatic difference for our customer experience. Thanks to the work of our in-house team, we already have reduced the size-related returns through our own algorithmic size advice by 10%, compared to items without any size advice. It's clear that this helps our customers to make, to make even better choices.
Now we are applying even more technology to the problem. We started to help customers find the right size and fit using their own body measurements. We're able to do that with only two pictures that customers have to take from themselves, and these pictures never leave their phone. The measurement data then allows us to predict the right sizes for them, and we roll it out in that for customers shopping for women's dresses, jumpsuits, and tops. Dresses and jumpsuits represent some of the biggest pain points for customers when it comes to selecting the right sizes. For us, this is truly exciting as it shows the way of how one of the core challenges in fashion e-commerce can be solved, can be solved in the future at scale.
This new experience also demonstrates how we're using the technology from our 2020, 2020 company acquisition in Switzerland, Fision. Second, we're very excited about the potential that AI has on our ability to build great experiences for our customers. We see exciting use cases for us in the area, such as recommendation engine or personalized fashion discoveries. For example, we recently launched a beta version of a fashion assistant powered by ChatGPT. While still in beta, it gives us a very important insight into how fashion discovery, based on large language models, will develop going forward.
It will be simpler and smarter than traditional search engine filter. It is much more scalable and accessible than human advice as well. We believe there are exciting things to come in the next few years. With that, I will hand over to Sandra, who will give you more details around the financial performance.
Thank you, Robert, and good morning, everyone. Robert talked about some of the exciting core dimensions of our strategy that we are investing in. With that, we will unleash our next growth phase on our way to being the Starting Point for fashion. Let me now focus on our Q2 financial results, which in this temporarily subdued morning moment, reflect our continued effort to deliver profitable growth. It allowed us to narrow our adjusted EBIT guidance range to EUR 300 million-EUR 350 million, from previously EUR 280 million-EUR 350 million. Let's start with the group details on page 8. For Q2, we report a muted top-line performance as inflation continues to weigh on consumer wallets and normalization between offline and online continues.
Our GMV came in at EUR 3.7 billion, and it's down 1.8% year-over-year. Revenue at EUR 2.6 billion is down 2.5%. In Q2, we again significantly improved our profitability. Adjusted EBIT almost doubled from EUR 77 million to EUR 145 million, and this corresponds to an adjusted EBIT margin of 5.7%, which is a year-over-year improvement of 2.7 percentage points. The improvement was largely as a result of continued efforts to drive efficiencies in fulfillment costs, as well as a lower marketing spend. Looking at H1, our financial performance translates into flat TMB and revenue growth, while adjusted EBIT came in at EUR 144 million, or 3% margin, an increase of 2.5 percentage points compared to last year.
Let's turn to our customer metrics on page 9. Starting on the left, our active customer base stands at 50.5 million. On a trailing 12-month base, we grew it by 2.4%. Moving over to the right, order frequency decreased by 3% from 5.2 to 5.0, and average basket size increased by 3.9% to EUR 58.10. It's more than offsetting the declining average order. GMV per active customer slightly increased by 0.8% to just over EUR 293. Similar to Q1, this development is driven by an increase in average basket size as a result of higher average item value. Let's turn to our segment performance. This is on page 10.
Let's start with top line. I'll walk you through the chart from left to right, starting with the Fashion Store. Fashion Store GMV is down 4.2%, while revenues declined 6.2% as the partner business share continued to increase. In DACH, we recorded negative 7% revenue growth, performance was particularly impacted by continued weak consumer confidence as inflationary pressure continues to weigh on consumer wallets, but also the ongoing normalization of e-commerce adoption, especially in Germany. Rest of Europe revenue decreased by 5.5%, here we see quite diverse performance across the 22 markets, with some of them demonstrating significant positive development, for example, our AGU markets. Just as a reminder, apart from macro factors, growth rates of individual markets are also a function of market-specific factors, maturity profile of the market, and also different comparison bases.
Moving on to Off Price, similar to Q1, the Off Price segment continues to show a strong development with double-digit revenue growth of 16%. With our Lounge by Zalando proposition, we successfully capture the current demand for great deals and continue to support the clearance of overstock from our Fashion Store. This dynamic underlines the strength of Zalando's business mix, where our Off Price segment is partly offsetting the temporarily subdued environment for full price space. The All Other segments revenue grew by 18.5% as a result of the inclusion of Highsnobiety. Let's turn to the segment profitability on page 11. Here you can see that all of our business segments and regions are profitable.
Looking at Fashion Store, adjusted EBIT increased more than 80% to EUR 111 million, and thereby strongly improving adjusted EBIT margin from 2.7% to 5.3%. Both regions, DACH and Rest of Europe, show a similar positive development. Adjusted EBIT in Off Price reached EUR 25 million, with margin more than doubling from 2.3% to 5.8%. The significantly improved profitability in Fashion Store as well as in Off Price are the result of our continued focus on driving efficiencies in fulfillment, as well as lower marketing spend. The All Other segments delivered adjusted EBIT of EUR 8 million, which is in line with last year. Let's now move on to page 12, the P&L, and let me explain the major cost drivers in a bit more detail.
Let's focus on the Q2 development, which is the one on the right-hand side of the table. Starting off with gross profit. Gross profit margin ended the second quarter at 40.6%, a slight decrease of 0.4 percentage points compared to last year. The market environment continued to be very promotional, as inventory levels in the industry remained high, and it wasn't helped by the late spring, summer season start either. Besides, we see a small mix effect from the growing Lounge by Zalando business, which operates on a lower gross margin. Our partner business continues to be gross margin accretive. Let's look at the two major profit improvement drivers, fulfillment and marketing costs. We see continued improvement in fulfillment costs.
They declined by 1.6 percentage points to 24.4%. The reasons here are twofold: favorable order economics and the scaling of our partner program with the growing ZFS business. On order economics, we benefited from higher basket sizes, also improved due to efficiency measures like order bundling and the average delivery options. Additional cost improvements more than offset inflation-related cost increases in energy, packaging, and wages. Marketing costs decreased by 1.1 percentage points to 6.8%. While we continue to invest into future growth, we do so with a focus on improving return on investment. In addition, the higher scale of our Off Price business, which operates at a low marketing cost ratio, further contributed to the improvement. Admin expenses came in flat at 4.8%.
Let me explain the other operating expenses, which increased to EUR 36 million. Within here, EUR 33 million relates to the program to reshape our organization. These one-off costs are reported outside of adjusted EBIT. To conclude, looking ahead, we expect to deliver sustainable year-over-year profitability improvement also in the second half, while we continue to invest in future growth. Let's move on to networking capital and inventory on page 13. Networking capital ended the quarter with a cash inflow of EUR 114 million, compared to a cash outflow of EUR 207 million in the previous year. This development is the result of a relatively larger increase in trade payables, primarily driven by the continued strong growth of our partner business, as well as an increase in DPO. Coming to inventory.
Our inventory position has further improved to EUR 1.7 billion, and it is now 1.6% lower than last year. The Fashion Store inventory is significantly below last year, and so it clearly paid off that we stayed focused on effectively reducing our overstock through in-season clearance and through our Off Price channels, as well as taking a conservative approach to our spring/summer 2023 wholesale buy. On the Off Price inventory, the additional quality stock we bought in the second half of 2022 is journeying in line with expectations and supporting our Lounge growth. Turning to page 14, the development of cash and cash equivalents. Our cash and cash equivalents remain strong at about EUR 2.1 billion. Compared to the first quarter, our cash position improved by around EUR 300 million, mainly resulting from a higher net income and the typical seasonal trading patterns.
The strong cash position provides us with financial flexibility and allows us to invest in organic or inorganic future growth opportunities. On investing cash flow, we invested roughly EUR 45 million, of which EUR 39 million relate to CapEx spend for logistics infrastructure. The CapEx spend of EUR 77 million in H1 reflects our financial discipline in the current environment, while we continue to selectively invest in setting us up for future growth. Moving on to page 15. With this said, let's conclude the finance section with a quick check-in on the progress we have made along our three main objectives for 2023. The first objective is to strengthen growth margin. We adjusted our approach to wholesale buying, and we increased flexibility to scale up via our growing partner business.
The benefit of this is already visible in our reduced Fashion Store inventory position and in the strong growth of the partner program. We also continue to improve the relevance of our assortment, which increases engagement towards full price sales. We introduced an updated commission table. The second step became effective now in July, so we will start to see sorry. We will start to see related margin benefits in the second half of 2023. All of these measures have already and will continue to strengthen our growth margin. The second objective is to simplify our organization for speed of execution, and here we have followed through on making changes to our organizational setup. Last but not least, as Robert highlighted, already earlier, we continue to selectively invest in key platform capabilities for future growth. With that, let me hand back to Robert to talk about the outlook.
Thank you, Sandra. At the beginning of 2023, we predicted that this year would be challenging, especially with regards to uncertainties around consumer demand. We made sure that our GMV and revenue forecast ranges are broad enough to reflect these uncertainties. Given the subdued demand environment and our trading in the first six months of 2023, we now expect GMV and revenue for 2023 in the lower half of our initial guidance ranges of 1%-7% for GMV and of -1%-4% for revenue, respectively. The picture is different in regards to our in regards to our bottom line. Already last year, we started to take decisive steps, and this year we continued to implement a range of efficiency measures. The numbers confirm our successful focus on profitability.
For the full year, we are able to narrow our adjusted EBIT guidance to EUR 300 million-EUR 350 million, from previously EUR 218 million-EUR 350 million. For the second half of the year, we expect an improvement in our top line. As I said earlier, we are laser focused on putting an attractive assortment in place for our customers. At the same time, we are investing into large scale for winter and holiday marketing campaigns and preparing ourselves for cyber and Christmas trading. In regard to CapEx, we already mentioned that we adjusted the speed of investment to the current macroeconomic situation. As a result, we will end up at the lower end of the CapEx range of EUR 300 million-EUR 380 million. Our networking capital guidance remains unchanged in negative territory.
This concludes the outlook. Before we jump into the Q&A, let me, let me just wrap up with the key takeaways of today. Our H1 performance reflects our continued focus for profitable growth in a temporarily subdued demand environment. At the same time, we continue investing with confidence into several exciting areas to prepare for the future growth. In H1 2023, we launched new brand partnerships, for example, with the global accessory brand, lululemon, to excite our customers. In 2023, our partners continued to further leverage our logistics infrastructure to scale their businesses. In first half year, we continue to embrace new technologies to enhance our customer experience, this time in the area of size and fit and the artificial intelligence. We're narrowing our guidance for the year 2023.
Let me finish by saying we are excellently positioned in the European fashion and lifestyle space. The European consumer may need more time to fully embrace again the e-commerce, the e-commerce fashion space. The current conditions are the same for everyone in our industry. While we cannot change them, we can be the best to capture the opportunities that come with them. The key advantages of technology-powered e-commerce over offline retail are structural, and these advantages will get stronger over time with the new advancements and technology breakthroughs that we see.
The share of e-commerce and fashion lifestyle will continue to grow at a rapid pace, even if 2023 is still a year where consumers are holding their breath after the rallies in the years before. The rally will come back soon. That's why we continue to invest in our core dimensions of our Starting Point strategy. That's why we are confident to return to double-digit growth in the mid-term. With that, we're very happy to take on your questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. In the interest of time, please limit yourself to two questions only. If you're using speaker equipment today, please leave the handset before making your selections. Anyone who has a question may press star followed by three at this time. Our first question comes from Nicolas Katsapas from BNP. Please go ahead.
Hi. Hi, everyone. Thank you for taking my questions, and well done on the good developments on margins. Speaking about margins, I have a question on the adjustments that you put through to EBIT. You mentioned the EUR 33 million restructuring charges, but then there were also EUR 5 million acquisition costs. Could you explain in a bit more detail what those related to? Because I think they certainly took the quantum at least took me by surprise.
The second question is, really on your guidance for the second half. On the top line, you're implicitly still expecting to inflect back to growth. Could you give us a sense of the balance of growth between the regions and Off Price? You know, is off-price gonna run, run at the same run rate as the first half, or would it be more balanced between Fashion Store, and the off-price channel? That's all. Thank you.
Hi there. Thank, thanks a lot for the question. On the margin, you, you were asking about the adjustments that we were taking to, to EBIT. On the one hand, it is the restructuring, as you said, like, the program that we launched to reshape the organization. Here, we, we adjusted for EUR 33 million, which is in, in relation to severances. We are about to now finalize the program, this is the largest part now that we have put there. The EUR 5 million acquisition cost still relates to Highsnobiety, the acquisition that we took last year, this is the amortization, and some other smaller elements. In regards to our top-line guidance, let me just first of all, take a step back.
The one thing to say there is, we do expect an improvement in growth in our top line in the second half. It is more balanced across the regions. When we're talking about the segments, Fashion Store versus Off Price, we currently do see, an improvement, I would say, in the consumer sentiment, and with that, we do expect that the Fashion Store, performance will improve. With that, we do believe that Off Price will continue to see a good performance, but don't forget that they have stronger comparatives, especially in the fourth quarter.
Our next question comes from Adam Cochrane from Deutsche Bank. Please go ahead.
Good morning. Two, two questions from me. Firstly, on ZMS, can you just talk about how ZMS evolved during the second quarter, in terms of looking at your, the marketing budgets from your partners and things? Do you think you're taking more of their marketing budgets? I'm assuming that they haven't been spending lots of money during the period. Just an update on ZMS, please. Secondly, when you're talking about the change in, in online penetration, offline versus online, that, that you saw in, in the first half.
Would you be able to point to any sort of large differences by market? So to give us some comfort that we're going to see online sales recovering at some stage, can you point to any of your markets where, where you've already seen some evidence that, that this is happening? I know you called out Germany as being one where maybe it's, it's a bit worse than average, but are there others that are, are better than average on that? And with regards to that point, are you waiting to see evidence of the, that shift back to online before you pull the trigger on, on increasing your marketing budgets, you know, in, in Q3 or Q4? Is that something you're going to do irrespective of whether the online penetration is recovering? Thank you.
Yeah, thank you for your question. Maybe I'll start with the second one first. I think when we actually look at the moment, I think at the, of the last couple of years, I think there's been like an artificial, you know, the, the artificial tailwind, I think, in the pandemic. As now, there's some artificial headwinds that we see now on the, on the online, on the onwards. I think what we can say with very confidence that the rally towards e-commerce will come back because it's grounded in so many structural advantages that actually e-commerce has when, when it comes to, you know, being, being grounded in technology innovation, being grounded in data, being grounded in, in, in a lot of things that are happening on a global scale that will further improve the e-commerce experience that we're able to build.
Don't forget that in Europe, we're already. We're, we're still, like, very much behind in our penetration rates of e-commerce and fashion than in comparison to China and the U.S. There is a lot of growth is going to come. That's what we can say with 100% confidence in the long term. We can't say with 100% confidence when this is going to be exact, when the starting is coming exactly. What we do until then is, you know, as you pointed out in our presentation, is we're not chasing artificial growth in the very short term at very, very high cost.
What we, however, do is we invest into the long term when it comes to our customer experience. Bringing on new brand portfolios, investing into the storytelling elements on our digital experience, investing into localization of our experiences even more, investing into the partner perspective, yeah? How they can engage with our platform, the Multi-Channel Fulfillment in the long term.
Maybe a third element as well, investing into tech capabilities that in the long term will even more, provide us the future of growth. When we talked about artificial intelligence, we talked about size and fit, yeah? This is how we, how we see it. When it comes to the market, like how markets are, are, are penetrate, we don't see like a very different pattern across the 25 markets that we're operating in. When it comes down to H2, The second half, the second half of the year, we will already increase our marketing spend.
We will increase our, you know, the, the, we will decrease the, the expectations on the ROI on our performance marketing spend, because we already have, I think, some more, some more evidence with regards to how we see the, the, the, like the automn/ winter merchandise being performed. We as well, just have as well a bit more data to understand, like, how our customers are performing. That's why we are, why we're looking, like, you know, to a, to, to a better top line in the second half of the year. To your other question on ZM S.
I think what we have seen in, with ZM S generally is, like, you know, it, it has, it does not have like the biggest tailwinds in these times. Because of like, you know, what, in line with the overall sentiment that we've seen in the fashion sector to rather focus on, on the profitability aspect. That being said, it's still like in the same 2% ra- ranges of our of our GMV, and we continue to, yeah, to focus it to grow in, in the course of this year.
Our next question comes from Andreas Riemann from ODDO. Please go ahead.
Yes, good morning. Two topics. One, the reshaping program. How shall we think about the savings? Is it mainly headcount related, and is it coming like a hockey stick effect, or is it gradually rising over a few quarters? When should the full savings be visible? That's topic number one. Then on returns, what could be the new target for the return rate going forward? Or how much can you improve on the returns with the new technology to provide better advice on five? Thanks.
Thanks a lot. I think I, I, I caught both questions, but if not, please have a follow-up. On the reshaping program, we said that we would save several hundred roles, but the main ambition of this program was not around actually the cost saving of it. It was about being able to reinvest in the areas where we see the future growth. It really is about reshaping our organization, making it more efficient in some areas, while investing in others. Net, net on an FTE base, you can already currently see in the numbers that we have started to reduce our FTEs. We are very efficient on how we deploy our, our people.
In terms of savings, I would say the stabilization of the admin cost line is more the ambition as a cost ratio, is more the ambition that we see here. This was not meant to be a restructuring to save costs. This was meant to be a reshaping to really help us to invest in the right areas that help us to deliver that future growth. In terms of return rates, so in the first half of this year, we now have seen a, a stabilization on return rates. We do believe that we have now reached a normalized level. It is in a similar region than it was pre-COVID. We see a slight improvement, which is similar to what we said already, with areas where we offer the size advice, we have that 10% improvement in return rate.
I think what we expect now on return rates going forward is two things. One, there will always be an impact from us, scaling in, in regions and categories with the different return rates, so there will always be mixed effects. On the other hand, of course, with what we're just launching now, the efforts on size and fit, that we will be able, in the long term, to see some improvements on size-related returns.
Our next question comes from Georgina Johanan from J.P. Morgan. Please go ahead.
Hi, I've got three questions, please. The first was just around your comments on seeing some improvements in consumer sentiment, and if I heard correctly, I think you said that you're already seeing some signals that give you, you know, encouragement for autumn/winter. I guess, can we just get a bit more color on, like, what metrics you're actually seeing around that? Indeed, should we presume, therefore, that current trading is, is back in That GMV is back in positive territory in July? That was my first one, please. My second one was just looking ahead to next year, if you could just give an update on your, your thinking for full year 2024 and the sorts of levels of, of growth that are kind of reasonable to expect at the moment.
Like, would you still expect a double-digit exit rate in Q4, for example, on top line? Then finally, appreciate you made some comments around working capital in the presentation, but could you give a bit more color on the trade receivables number, please? Indeed, like, are you seeing any change from customers in how quickly they're paying off their invoice balances? Is there any change in either direction in bad debt, for example? That would be really helpful. Thank you.
Thank you. I take the first and the third one, and then hand over to Robert. In regards to current trading, which I think summarizes the first question. Well, we are guiding to an improvement in our top line in the second half, yeah? As always, the degree of it will depend a lot on the strength of the full winter season spot, as well as the strength of the key trading events like Cyber. When we then therefore now zoom into Q3, we do see signs of an improving consumer sentiment, yeah? We do see it's very, very early days, but we do see in the sales data for our fall with the merchandise promising results, yeah? As such, July for us was a better month.
It was better than Q2, and it was also in line with what we now would expect, that gradual quarter-on-quarter improvement throughout the second half. Just to be clear, as always, of course, Q4 is the more important and stronger quarter for us in the second half, yeah? Coming to the third one, trade receivables. The movement here is actually not driven by the B2C receivables, it's driven by actually the B2B trade receivables, which has to do with the growth of the partner program and some small changes we made that we elaborated on at the full year. On the B2C side, the bad debt and all of that, because of the algorithms that we apply, hasn't really increased, yeah? We still operate, of course, with a large share of Buy Now, Pay Later, but, we, we still see, not material movement on bad debt.
yeah, and with regards to, to your question on, on next year, I think, you know, we're, we're just in the middle of, of, of 2023, and our focus is now very much, I think, on the, on the second half of the year and, and, and, and, and, trading through, I think in a, in a good way and for the second half of the year. I think in defense what is important is that we stay very closely, to the details of what we see in the consumer, on the consumer side. As, as Sandra was commenting on, there is, I think some, you know, some more positive, things that we are seeing when we, with regards to the, to, to the next season. That makes us, I think, more, slightly more positive.
And then as I think as well in this, in this, in this view of being very close to this, as well be as flexible as we can towards the future. Clearly, our midterm ambition is getting back to double-digit growth. As I was commenting in my, in my, my remarks, like, we are very clear that the, the e-commerce rally will come back in the future because it's so much grown and so many structural advantages, yeah? It will come back, and it will come back, it comes back next year, we will see, yeah. We, we don't yet know, but it will come back, and that's what we are working.
The next question comes from Monique Pollard from Citi. Please go ahead.
Hi, morning, everyone. Just two questions from me, please. The first is on the gross margin progression. Obviously, that was 40 basis points down year-on-year. I just wondered if you could give any sense of how much of that was mix versus clearance activity, and what we should expect for the margin progression as we go through 2 H, given, you know, your inventory, you're feeling is in a better position now.
The second question is just on CapEx. Obviously, appreciate 4 Q is a bigger CapEx quarter, but it also seems a bit of a stretch to get to even the bottom end of that CapEx guidance, given what you've done in the 1 H. Maybe you could just outline sort of, you know, what the big ramp-up is gonna be in the CapEx, and whether we might end up coming in below the lower end of that CapEx range for the full year.
Thank you. Starting off with the CapEx question, maybe first. As per the current plan, especially the plan around our logistics network expansion, we do believe that we will spend that CapEx and come in towards the lower end of the range. Yeah. We have three major projects. That is Paris, that is Germany, that is Poland. There has been a shift timing between the first half and the second half as some milestones have moved. As per the current plan, we do expect for this to happen.
On the gross margin, I mentioned on the call that the objective really is to strengthen our gross margin, and to be honest, we have been very busy with that already, and I talked about it with like improving the buy, which then, as you mentioned, also has helped the inventory. We launched a new commission table. We are working hard on improving the relevance of the assortment to drive the full price sales. What we cannot forget is that we're currently operating in what is an extremely promotional environment, given the high levels of inventory in the industry, and so we, we need to cater to that environment. Therefore, the asking about the mix, that you would see that it is heavily driven by clearance, so by discounts, yeah.
That's what really hindered us from showing a positive gross margin in the second quarter. Looking into the future, we will continue these, these efforts on, like, strengthening our gross margin also in the second half. When you look into our guidance, then I think it is important to understand that this will allow us to really move with the market. If we see this intense promotional environment continue in the second half, we will have flexibility on the gross margin, and if it returns to more normalized trading, we will of course, see all the efforts come through and see the positive upside. The way we have to conclude is, is that we, we are improving structurally our gross margin. It's just at the moment, not yet visible in the numbers, given the environment that we're operating in.
The next question comes from William Wood, from Bernstein. Please go ahead.
Good morning. I just want to follow up on a previous question. You said that obviously you chose to reduce marketing spend, to not chase growth in the quarter. In order to grow in H2, do you need to increase marketing spend? How will you think about that trade-off? The second one is around the health of your customer base. Obviously, quarter on quarter, customers declined. Can you comment on cohort behavior, retention, and which customers are you losing? What, what type of customers are they? Thank you.
I'm, I'm happy to, to take them. In, in regards to the marketing, may, maybe let me come back to our, our EBIT guidance in the second half. Yeah. We, we say that we, we are aiming for an improvement in our year-over-year profitability, and that will be primarily driven by continued improvements on the fulfillment cost line. With that, we will be able to increase our marketing spend and fund that increase. I think that is important to understand, in terms of the dynamics. In regards to the, the customer metrics, yes, we have seen, a small decline in the active customer numbers, but don't forget, we also added 20 million over the last three years. When we look into the details here, then it is really driven by the new customer acquisition. Yeah?
That was a conscious decision from us, given the current slowdown in the online segment. When we look into the existing customers, we can see that the retention rates here are still ahead of ahead of pre-COVID, so we are still having better retention rates than what we had prior to the pandemic. Of course, the COVID cohort, they are part of what we currently see, that rebalancing between online and offline.
The next question comes from Jürgen Kolb, from Kepler Cheuvreux. Please go ahead.
Thank you very much. Two questions. Also, I think in your prepared remarks, you mentioned that you want to be more cautious in buying into spring/summer 2024. This more caution buying, is that related rather to your initial thinking, or would that be on a comparable basis with spring/summer 2023, which I think, where you have already reduced your, your buying? Secondly, we notice obviously, that there's a lot of talk about, potentially, letting customers pay for returns. I know that in the, in the past, you've, you've mentioned and you said that, this is not really how you think this business should develop. Is that still the case, or are you maybe currently rethinking if you may want to charge, customers for returning merchandise? Thank you.
Let me answer the first question. About the, the more cautious approach to our buying. What we think here is, what we really want to leverage more and what we have done already in this year for spring/summer and for, also for, for winter, is we want to use the flexibility that the Partner Program injects to scale up. That is very important for us. Secondly, on wholesale, we want to better leverage in-season management of stock, because there is a lot of in-season ordering feasible, we want to be able to leverage that more rather than making the too early commitments.
Also, what, what goes into that is the category mix. Yeah? It's a question around which categories are you really buying deep versus which ones are the ones where you, where you also, kind of like, split it with the partner program. Yeah? This is for us, the, the, the level of caution that, that we are applying, yeah. Then maybe to over to you, Robert Gentz.
Yeah, I think on the, on the, on the return proposition, your question there, like, like, you know, for, for us at the moment, we don't have any, any plans to, to, to change this, this customer position because, like, our fundamental logic is like, you know, nobody really likes returns. The customers as well don't like returns. They don't really enjoy to go back to postal office and send back and return. We don't like it, customers don't like it, the environment doesn't like it. It's more for us to enable customers to the right choices.
Therefore, we talk so much about all the technology that we're investing into helping customers to make better to prevent unnecessary returns. This is for us, I think, the much more, much, much, yeah, much better way to drive CLVs and at the same time, to reduce returns. We have had quite some success over the last couple of years in that, and I talked about that, I think it's on my, my remarks.
The next question comes from Anne Critchlow from Société Générale . Please go ahead.
Good morning. I've just got one question, please. It's about the performance of product by segment, by price segment. Just wondering if you still see opportunities for premium and affordable luxury sales growth. Currently, or in the second quarter, how do the various segments perform if you look at, say, premium, mid-market, and value fashion? Thank you.
Yeah. We, we it's, we, we saw two similar patterns of what we, we, what we saw last year. The trends are continuing to be very similar. There is, there is momentum in streetwear, in the whole premium segment, and there is a more intense environment in, I would say, the, the young fashion environment, but that's also what you would expect. This is the area where our partners, I would say, really come into play. Compared to last year, also sports, yeah. I think, that is, is also on, on a, on a positive path again. Yeah, in terms of price point, of course, recommended retail prices have, have gone up, high single digits, low double digits. So of course, you do see an, an, an increase in, in the price point as such.
The next question comes from Volker Bosse from Baader Bank. Please go ahead.
Yeah, hello, thanks for taking my question. Volker Bosse, Baader Bank. First question is on the order economics, which improved. How much can be explained by the introduction of the minimum order values? Minimum order values are now introduced in all of your countries? First question. Second question is on Connected Retail. You did not mention that. Can you give us an update on how the role or which how important the role of Connected Retail will be in the future, and how do you look at Connected Retail at the moment? Thank you.
Yes, on order economics, MOV and order bundling are two main levers for improving order economics, but they're not the only ones. Yeah. It is a basket full of initiatives, and therefore, we don't really isolate out the single impact of it. The reason why we always mention it is because it's the most visible one, when you go onto our webpage or when a customer experiences. You have to keep in mind that we also worked on increasing the average item values, that we also worked on countering the inflationary cost increases through improvements in packaging, et cetera, et cetera. There's a lot, a lot happening beyond that, including return rates, yeah. On Connected Retail?...
I would say, as you know, we updated the commission table. With that, I would say we see the expected development within Connected Retail. For us, Connected Retail remains important, as part of our platform business. We see very positive development on the average item values on Connected Retail, which is great, because that means that our strategy of Connected Retail partners adding locally relevant assortment is really working. I, I think that, that will be our update on Connected Retail.
Our last question comes from Anubhav Malhotra from Liberum. Please go ahead.
Good morning, guys. Can I just ask on your Multi-Channel Fulfillment, can you give us an update on how many partners you are working with at the moment, and how many more are in the pipeline coming soon? Secondly, on the same, Multi-Channel Fulfillment, you mentioned that you expect it to positively contribute to your group EBIT margin. Can I just clarify if that's on the basis of what you charge your partners, or is that also including the efficiency this brings to your fulfillment cost? Thank you.
Yeah, thank you for your question. Yeah, I think, like, Multi-Channel Fulfillment is, is something that we, yeah, that we, we started to talk a little bit more about as we are excited, quite excited about, like, the, the, the, you know, the rollout and as well the feedback that we get from partners. We have 11 partners at the moment. We have live with many more in the pipeline that are onboarding onboarding to it. When it comes to the margin person, as I was commenting on in the midterm, yeah, it's going to be margin accretive to our business, and this includes all costs that we charge that that are that are relevant for for managing this this this business.
It's referring as, as these, these contracts are very, very long-term oriented, oriented contracts. Thanks, everyone, for joining today's session. I think that concludes the Q&A session. If there are any further follow-up questions, do not hesitate to contact us. Otherwise, we wish you a happy Thursday. Thanks, everyone.
Thank you very much. Thank you.
Ladies and gentlemen, the conference is now concluded. You may now disconnect. Thank you for joining, and have a pleasant day. Goodbye.