It's time, so we would like to begin. Good evening. Good afternoon. This is Kobayashi from ZOZO.
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Thank you very much for taking part in the conference call for ZOZO's FY 2026 second quarter earnings.
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From ZOZO, we have the Executive Vice President and CFO Koji Yanagisawa, as well as myself, Kobayashi taking part.
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We would like to jump right in and have Yanagisawa take you through the earnings results.
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Good evening everyone. I would like to take you through our results for FY 2026 second quarter.
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First, starting with the overview. The GMV for FY 2026 Q2 declined by 1.0% year-on-year, landing at JPY 309.4 billion. GMV excluding other GMV increased by 5.7% to JPY 309.2 billion. Adjusted EBITA increased by 5.1% year-on-year to ¥34.6 billion, and the adjusted EBITA margin was relatively flat, landing at 11.2%.
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We achieved 45.6% of our plan with respect to GMV excluding other GMV and 44.4% of our adjusted EBITA plan.
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GMV decreased year-on-year, but this is because as of the end of September 2025, we ceased recognizing GMV generated by stores operating under ZOZO Option agreements on Yahoo! Shopping.
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GMV excluding other GMV fell slightly below plan for ZOZOTOWN, but LY Corporation Commerce overachieved our plan. Thus in total, our performance broadly in line with our expectations.
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On the other hand, regarding the adjusted EBITA, we improved the efficiency of our shipping and logistics center operations, resulting in packing and shipping costs, as well as logistics cost savings. Moreover, some actual promotion expenses planned for Q1 remain unconsumed. Thus, we are tracking slightly ahead of plans.
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Here are the quarterly trends in the consolidated results. Please refer to page nine of the presentation materials.
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GMV excluding other GMV for this fiscal year second quarter increased by 6.3% year-on-year.
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The ZOZO business was impacted by lower summer temperatures, which resulted in lower demand for summer products. Therefore, its performance fell short of plans.
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On the other hand, the GMV excluding other GMV for LY Corporation Commerce was largely in line with expectations due to increased investment in promotion activities.
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The adjusted EBITA increased 7.0% year-on-year, and the adjusted EBITA margin was 10.4%. This surpassed our expectations due to cost savings in packing and shipping as well as logistics.
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Next, please refer to page five of the presentation materials. I would like to explain about the initiatives we undertook in the second quarter towards achieving our mid-term management plan.
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First, starting with More Fashion, we took pre-orders of the T-shirt collection commemorating 30 years of Pokémon.
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Moreover, with WEAR, we began offering a new feature, niauroom by ZOZO, which helps users find styles that suit them.
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The feature comes with Fashion Core Assessment, which finds the most suitable style from out of 28 styles, and users can also virtually try on clothes using Gen AI.
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Next, with respect to Near Fashion, in the second quarter, we accelerated our efforts to direct ZOZOTOWN users to HIGH LINK's key service, Coloria.
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We also opened a Coloria shop on ZOZOTOWN where they sell their own private label products and selected perfumes.
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Lastly, regarding our global initiative, the key initiative for this year was to add the checkout function on LYST, and we are continuing to onboard new partners.
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For ZOZOFIT, we started offering the B2B service, ZOZOFIT Pro, which enables trainers, clinics, and other businesses to manage and use their customers' body measurement data.
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Now I would like to take you through some details about the business results.
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Please turn to page 10. This is the year-on-year comparison of the increase/decrease analysis of the adjusted EBITA。
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Four factors contributed to the increase in the adjusted EBITA. First, the ZOZOTOWN business and LY Corporation Commerce GMV grew, resulting in an increase of gross profits by JPY 3.75 billion. Second, the advertising business sales contributed JPY 0.31 billion. Third, longer LYST consolidation period and HIGH LINK consolidation resulted in an increase in gross profit by JPY 0.97 billion. Lastly, we have also successfully been impacting shipping costs due to improved economic terms agreed with our logistic partner since the third quarter of last year, and we also improved the efficiency of our logistic center operations, thereby driving down logistic related payroll, reducing the variable costs by JPY 0.53 billion。
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On the other hand, there were three factors that drove the adjusted EBITA down. First, depreciation of material handling equipment began in existing logistics centers, and HIGH LINK consolidation added the number of consolidated employees, resulting in an increase in fixed costs by JPY 1.41 billion. Second, acquisition and promotional costs increased, and so the actual promotion expenses increased by JPY 1.58 billion. Thirdly, higher consumable expenses driven by rising packaging materials costs along with communication expenses led to an increase in costs of JPY 0.88 billion.
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Moving on to page 11 of the presentation material, I'd love to take you through our balance sheet.
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Compared with the end of the previous fiscal year, cash and deposits under current assets decreased due to share repurchases, transfer of funds to a securities account in preparation for further share repurchase, and payments of dividends and corporate income taxes among other factors. In addition, treasury stock increased within shareholders' equity because of the share repurchases.
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Regarding the share repurchase, we are making steady progress, and as of the end of September 2026, we have completed JPY 19.1 billion.
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Moving on to page 12 of the presentation material. Here are the changes in cash flow.
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Cash flow for business activities increased by JPY 4.2 billion year- on- year, primarily due to an increase in profit before income taxes for the first half of the fiscal year.
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Cash flow from investing activities decreased by JPY 16.3 billion year- on- year since expenses related to the acquisition of HIGH LINK was relatively lower than that spent for LYST.
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Lastly, cash flow from financing activities increased by JPY 19.1 billion as we repurchased our shares.
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Next, turning to page 23 of the presentation material, I would like to take you through the changes in the SG&A expenses.
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SG&A expenses as a percentage of GMV was 22.6%, decreasing by 0.4 point.
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There are two key reasons why. First, we improved our shipping efficiency as we were able to agree on more favorable economic terms with a logistics partner in October of last year, and we saw the ratio of smaller packages, Nekopos, increase as well as AOV resulting in a 0.5 point decrease.
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Secondly, we also optimized the inventory levels in the logistics centers and improved operational efficiency, reducing logistics related payroll by 0.2 points.
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On the other hand, there are also two reasons why the SG&A expenses increased. First, in addition to the increase of web ad expenses for ZOZOTOWN, the longer LYST consolidation period and HIGH LINK consolidation led to an increase of 0.2 points. Secondly, Goodwill amortization expenses increased by 0.2 points due to the longer LYST consolidation period and HIGH LINK consolidation.
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Moving on to page 26 of the presentation material. Here are the trends in actual promotional expenses.
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Actual promotional spending in the second quarter, which includes advertising and promotional expenses as well as point related costs and other incentives recorded as deductions from revenue, was 5.0% as a percentage of GMV.
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Year- on- year, this percentage rose by 0.3 points because of mainly three reasons. First, free shipping campaigns and strengthening of personalized discount initiatives on ZOZOTOWN. Second, increase in advertising for LYST. Third, recognition of HIGH LINK advertising expenses.
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The spending for the second quarter was largely in line with our plans, but we still have unspent budget from the first quarter. The spending in the first half fell slightly short of plans. We do plan to spend those funds in the third quarter onwards, so the spending for the full fiscal year will be similar to that of last year, around 4.8% as a percentage of GMV.
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Next, moving on to page 27, you will find the number of total buyers.
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The annual buyers increased by 130,000- 13.55 million. If we break this down, active members increased by 120,000 - 12.84 million and guest buyers increased by 10,000 - 710,000.
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We have seen steady acquisitions in the second quarter for ZOZOTOWN, and especially in September, ZOZOWEEK, which we did not organize the same period previous year, contributed to new acquisitions.
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Next, moving on to page 32 of the presentation material, you will find our average retail price trends.
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The average retail price was JPY 3,640, increasing by 1.6% year- on- year.
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Although the prices of new fall/winter items increased slightly, overall price levels of new products remain largely unchanged year- on- year. We organized the ZOZOWEEK campaign in September, thus the discounted sales ratio increased marginally, but as the average discount rate declined, the average retail price increased.
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Turning to page 33, the average order value was JPY 8,388, up by 2.5% year- on- year.
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We conducted more frequent free shipping campaigns, thus the number of items purchased per order increased. This, combined with the increase in average retail price, led to a higher increase in the average order value than the average retail price.
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Next, no change to the consolidated earnings forecast.
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From here on, I would like to briefly take you through the content that Sawada explained earlier today.
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This slide explains our thoughts about the widespread of AI agents.
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We basically think that there will be two scenarios. The first scenario involves a consumer's AI agent directly communicating with the supplier to purchase products. This means that the traditional EC player's role will be more marginalized. But this usually will apply to generic products or products that are quite similar, such as sundries.
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Scenario two involves not only the consumer AI agents, but the AI agent on the supplier side. This will be applied to products where you would need supplier AI agents as well to be able to provide the optimal recommendations. So in this case, the consumer AI agent and the supplier AI agent will be communicating with one another and thereby proposing the optimal product.
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The main difference would be whether the information is very clear and also straightforward, and whether a lot of this information will be publicly available. In that case, scenario one would apply. Scenario two would involve more complicated, complex, ambiguous information, and oftentimes this information is not publicly available. Scenario two would most often apply to the fashion industry. Since ZOZO has a wealth of data, we will be well positioned to take advantage of scenario two.
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Our niau initiative attempts to do just that. Traditionally people would actually search for products or gather product information on social media, or we would conduct promotions and people who are exposed to that would come to our website service to purchase.
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So on top of that, we are trying to implement niau initiatives so that we can improve our acquisition and retention through services such as those that you see on the right-hand side. For example, we have the niaulab TV on YouTube, and we also have WEAR and its Fashion Core Assessment service here.
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Lastly, this is a more detailed image of what I just described.
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Right now we already offer niaulab TV on YouTube where you can find how-to-wear videos for styling. And we also have WEAR online where we are actually proposing different styling and outfits.
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On top of that, on ZOZO, we are trying to embed features such as having our AI learn about styling through machine learning. We are proposing the optimal styling as well as helping people select the products that would look best on them. In the physical stores we are currently developing, for example, a virtual mirror, which will enable people to virtually try on clothing. Across all these touchpoints, we are implementing initiatives so that people can enter from various different touchpoints.
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That concludes my presentation. Apologies about the lengthiness.
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Now we would like to begin the Q&A. If you have any questions, please use the icon to raise your hand.
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When called upon, please unmute yourself. Please make sure to state your name and company name as well before asking your questions. Thank you.
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If you have any questions, please raise your hand.
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Any questions?
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UBS, Takahiro Kazahaya[Non-English content]
UBS Securities. Thank you for today.
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I have two questions. First question, thank you for your explanation about the first half. It was very clear where you are, but can you talk about your industry outlook for the second half of the year?
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In terms of the second half, we believe that the climate will be the biggest impact. It's been discussed El Niño will result in a warm winter this year, so many brands are feeling a little bit anxious and cautious.
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Many brands have learned from the warm winters that they have experienced in the past. In terms of the inventory levels, we do not believe that many brands will overproduce and be left with a large quantity of inventory surplus.
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Is it okay to assume that the current risks are already incorporated into your plans?
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Not extensively. If it does become a very warm winter and we end up not being able to sell any heavy items, then we would be impacted to a certain extent.
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I understood that if everything goes as planned, it should be okay. In terms of LYST, you touched upon its performance, but can you talk about the business environment as well as forecast?
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This fiscal year, in terms of NMV and GMV, LYST is doing relatively well. We believe that the high-end brands have started to recover somewhat, and the trends that we have seen before seem to have bottomed out.
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This current business, or traditional business, the affiliate business is doing well. However, in terms of its new business, meaning adding a checkout function and having the payment take place on its platform, in terms of that, acquisition of new brands is slightly behind our plan. We need to accelerate efforts in the second half so that we can see more adoption.
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Thank you very much. That's it from me.
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Thank you, Mr. Kazahaya. Any other questions, please raise your hand if you have any.
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Any questions?
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We would like to wrap up today's conference call. Thank you very much for taking part today.
Thank you very much.