Earnings call transcript: Zozo’s Q1 2025 profitability beats expectations

Zozo Inc. reported its Q1 2025 earnings, revealing a mixed performance where profitability exceeded expectations despite a slight underperformance in Gross Merchandise Volume (GMV) due to extensive promotions. The company’s stock experienced a minor decline of 1.07%, closing at 1,359.5 yen, reflecting investor concerns over future growth prospects. According to InvestingPro data, Zozo maintains impressive gross profit margins of 93.24% and has achieved revenue growth of 7.56% over the last twelve months. The stock is currently trading near its 52-week low, with an overall financial health score rated as "GREAT" by InvestingPro’s comprehensive analysis system.

Key Takeaways

• Profitability exceeded expectations due to deferred promotion expenses and operational efficiencies.
• The company launched ZOZO Match, a new matching service with monetization potential.
• Active member numbers and online advertising showed strong growth.
• The LIST subsidiary remains in a loss-making phase, impacting future guidance.

Company Performance

Zozo’s Q1 2025 performance was characterized by strong profitability driven by cost-saving measures and deferred promotion expenses. Despite falling short of its original GMV plan due to large-scale promotions, the company managed to improve its operational efficiency, which contributed to better-than-expected profits. The company is actively working to enhance its logistics center efficiency and reduce inventory volumes, which has positively impacted its financial results.

Financial Highlights

• Revenue: Not specified
• Earnings per share: Not specified
• Profitability: Exceeded expectations due to operational efficiencies
• Advertising business: Grew by 10%

Outlook & Guidance

Zozo’s future guidance reflects a cautious approach due to the ongoing loss-making phase of its LIST subsidiary. The company is focusing on scaling top-line growth and improving sales promotion efficiency. The development of an AI shopping agent is also underway, indicating Zozo’s commitment to innovation and platform development.

Executive Commentary

• "We’re still at a stage where it’s less likely that [LIST] will make a profit," stated the CFO, highlighting the challenges faced by the subsidiary.
• "We want to drive more efficiency for sales promotions and increase our top line," the CFO emphasized, pointing to the company’s strategic focus.
• Management expressed interest in exploring AI shopping agent development, indicating potential future innovations.

Risks and Challenges

• The LIST subsidiary’s ongoing losses could impact overall profitability.
• Market competition, particularly from platforms like TikTok Shop, poses a threat.
• Economic pressures and consumer spending trends could affect sales growth.
• Dependence on successful monetization of new services like ZOZO Match.
• Execution risks associated with operational improvements and logistics efficiency.

Zozo’s Q1 2025 earnings call highlighted its strategic focus on profitability through operational efficiencies and innovation. While challenges remain, particularly with its LIST subsidiary, the company’s proactive steps towards improving logistics and exploring new revenue streams provide a cautiously optimistic outlook.

Full transcript - ZOZO Inc (3092) Q1 2026:

Moderator: It is time to start Zozo’s Q and A session for institutional investors for the ’5 ending in March 2026. We have on the call Director, Executive Vice President, CFO, Koji Anna Isawa and also Director, CEO, Humino Dihirosei and General Manager of Corporate Planning, Yusaku Kobayashi. Hello. The three of them will be answering your questions. The session will last until six p.

M. If you have questions, please raise your hand with a button. When you’re appointed, please unmute and inform us of your company your name followed by your questions. Mr. Kazahaya?

Hello, Kadahya from UBS Securities. Thank you for allowing me to attend this Q and A session. I have three questions, and I apologize in advance that they’re quite basic. First of all, for the first quarter, you mentioned earlier during your presentation, qualitative aspect of it. But would you be able to give us more information about the progress against the original plan, please?

That is my first question. Sure. Mr. Kotahya, thank you very much for your question. So about GMV, as Yanagisawa reported to you, for Zozotown, we were we did undershoot slightly our plan.

And then that is because we had large scale promotions, which is Zodo Matsuri that we did not have in the original plan at the beginning of the year. And we surpass the plan. But all in all, it is in line with the plan. That’s how we expressed it. And then for the profit, against the year beginning plan, we are overshooting.

And the reason for this is that when we created our budget, the promotion expenses that we had for the first quarter will be deferred into the second quarter. We didn’t use all of it. And also, the operational efficiency turned out to be much higher than what we expected at the beginning of this year. And therefore, labor cost of the logistics related expenses have been improved greatly. And for other items, we didn’t have significant improvements.

Thank you. I believe that in the first quarter, you I remember vaguely you saying that it was okay for you to have loss of profit. But yes, we did mention that. But we were able to do a positive growth. And okay, and then you revised the plan.

I’m a little confused. So at the beginning of this period, what did you expect from this? And then how is this revision different from the original plan? Would you just walk me through that, please? Sure.

So at the beginning of this year, M and A expenses related to list was the only item or I should say on top of that, there was goodwill amortization that were recorded. And we didn’t expect any positive impact of List GMV, but we modified our view on the goodwill and also List stand alone business performance, we were able to add that this time around. I see. I understand. So if that’s the case, I believe that the goodwill is just a slight change from 20.5 sorry, it used to be 21, and it’s now 20,500,000,000.0.

And then the others is going to be coming from the performance of list, yes. So that means that excluding lists, so for the original plan, there is not much change. Right. And my third question is your list plan, I don’t know how to put this in words, but this is the very first time for us to experience this. So as a CFO, Mr.

Yanagi Sou san, how do you see this? I mean, are you a bit aggressive on this? Or are there any risks of having a downward trend on this one in the future? How do you see this? So about the plan, all in all, our plan is flat, meaning it’s not aggressive, but it’s not too conservative either.

So it’s rather natural or organic, I should say. So the bottom line, which is the OP, and with respect to OP, relatively speaking, I don’t think there’s going to be much variance. But on the other hand, for GMV, I believe that this could be a fluctuation point because we’re going to be greatly impacted by the market environment as well. So this may fluctuate. But we can control the advertising expenses so that we can progress the bottom line as we plan.

So that is the image I have in mind. I see. Thank you. Okay. So just to build on, so it’s about 50 something billion and you have KRW 600,000,000 worth in RENT Inc.

Is it correct for me to understand that the OP is going to improve? Do you think that I should think of the risk for further exacerbation of the loss? Well, so for next year’s I can’t really give you specific numbers here, but I believe that we should expect further loss. So that so it may be a little bit higher than this year or a little less, but I don’t think this will mean significant loss. Okay, got it.

Thank you. That’s all from me. Next, Hirai san. Hello. Hirai from Narura.

I have two questions. First is about the logistics costs. So I believe that you were able to drive efficiency once again. And when you look back, I believe that this improvement started in the second quarter last year. So I think it’s going to start to level off.

So how do you see the improvement of operational efficiency going forward in the second quarter? On in second quarter and onward, I don’t think we’re going to have that much positive impact of the improvement of operational efficiency. We don’t really expect that. We don’t really incorporate that into our plan. I see.

And my second question is about the list promotional expenses. So you have excluded some, and then it’s it seems like when you calculated, you would use about 8% of GMV for the sales promotion. So currently, we’re still in the phase to improve the platform. And then is that correct for me to understand that it would still be 8% when you’re still in the phase to improve the platform? Or do you think that when the platform improves, you will be able to, like, decrease the amount of the promotional fees against the GMV?

And then how do you see this going forward for less? So promotional expenses. For this period, we have been working to make it more efficient. So promotional expense against GMV has been suppressed a little more than the previous year. And next year and onward, I mean, I can’t say anything definitive at this stage, but by improving the platform, well, so I don’t think we can have, the effect of the improvement of the platform in a short period of time.

And next year, I think we need to spend some time to do that. So for next year as well, I believe that it will be around the same level as well. All right. Thank you. I ask you a follow-up question?

So you mentioned that the amount of loss could be the same level as this year or could be a little bit more. Is that because there will be more sales promotion expenses that you need to incur for next year? Well, this is not so much about like individual items. But when it comes to business management, there is going to be renewal of the platform. And then we also need to invest in the development.

And then that’s going to be, upfront investment that we need to make. I learned a lot. Thank you. Next, from Nomura Securities, Yamalka san. Go ahead.

Hello. Yamalke from Nomura. I do have a couple of questions. The first one, sorry, it’s really detailed. The first quarter sales promotion, I believe, includes M and A expenses and onetime expenses.

How much is that exactly, please? I’d like to answer that. So for the annual final financial results announcement, we mentioned this already. We said that we are expecting CNY 800,000,000 approximately, and then it was in line with that. So for outsourcing or contracting, that was 20,000,000,000 and others are a little over JPY 600,000,000.

And just kind of building on what the other person asked. When it comes to improving the operational efficiency of the logistic centers, could you elaborate on that? What have you been successful at? Would you and how did this work? Okay.

So we received the items from the brands, and there are some that are slow moving. So what we do is to actively sell them during sales period or we return them to the brands. And by doing so, we can reduce the volume of the inventory. That’s what we’re working on. And by doing so, we will be able to have reduced capacity that will help us to do better picking.

And then this also leads to improving the operational efficiency. And also, there is a Tsukuba three CapEx that we incurred for, and then we’ve been able to reduce the manpower there, and then that had a positive impact as well. Okay. So if that’s the case, I feel like that sort of effect can last a little longer or no? So we started that around October.

And I believe that another person asked this question. It’s going to start to like taper off sometime. Okay. I have two more questions, sorry. Dozo Town’s active number of members, you mentioned that, that is solidly increasing.

And then that’s because you’re spending on sales promotions. What are the initiatives that you’re doing differently? It seems like active the number of active members is growing quite strongly this year compared to other periods. Are you spending money differently? Are there any changes you experienced this first quarter?

So it’s the advertisement. As Yanagisao mentioned, web ad or online ad is going well, and we are investing our expenses there. And then that is leading to the increase of the number of active members. So we didn’t really drastically change the way we do this. Of course, we’re fine tuning what we do, but we didn’t do anything fundamentally different or drastically different.

So you’re basically using the expenses within your budget, but you’re still making it effective. Exactly. So we are allocating it differently. So we’re, you know, putting more on the web app, for example. Okay.

I’m sorry, I’m asking a lot of questions. About the list. Corporation. So you mentioned about the loss. Is that because you’re spending your expenses for future growth?

And is that why you’re recording loss there? Or Because earlier, you said that you might spend more on development and then but basically, is it correct for me to understand that this can be more lucrative or profitable if you didn’t invest? Or is it more correct for me to think that it’s just not profit making yet at this stage as a business? How should I think of this? So of course, list growth.

In terms of the growth stage of LIST, they’re still in the loss making phase. And then that’s why this business is still in the loss, and that is because of the size of the business. And then this is affiliate service. Half of the SG and A for them is sales promotions. So if they narrow down on the sales promotions and narrow down the labor, then I believe that we can generate more profit.

But we need if we try to scale up the top line, yes, we need to spend a certain level of sales promotions, and we also need to invest in labor. So we’re still at a stage where it’s less likely that they make a profit. And then but going forward, as we mentioned before, what we want to do is to drive more efficiency for the sales promotions and also increase our top line so that we can improve the margin. So that’s what we like to do in the midterm. I see.

I understand. Thank you. Next. Go ahead. Okay.

Hello. Do you hear me okay? My name is Yonishima. Yes. So I have, two questions.

First, I I I apologize. So this is the basic question. But

Koji Anai Sawa, Director, Executive Vice President, CFO, Zozo: the

Moderator: cost of goods sold has come up. Why is this the case? So our business that requires cost of goods sold, CRGS, there is outright purchase and sales in ZOZO used. For ZOZO used, We offer a service to buy the items from the buy from the users and let them use that proceeds to buy new items, and then that has been improving. I see.

So is it correct for me to understand that you’ve been driving efficiency in that field as well? Yes. And another one is, I think, Yaniviso was on explained this to you. So there was a delay of the spending of the sales promotions. What did you defer in terms of the spending?

Could you walk me through that again, please? Sure. I’d like to answer that. So we deferred some of the expenses in different fields, actually. Just to give you one example, DOSO Match was launched in June, and we decided to have promotions for that service.

But it is a service that creates a lot of buzz. So we decided to be a little bit careful and cautious about doing promotions. So we decided not to spend that much promotion fees there. And then there’s category promotions. There are some categories that went well then without the sales promotions.

So that’s why we deferred those expenses. Okay. Got it. Thank you. That’s all for me.

Next, Kumura san, go ahead. Hello. My name is Okumura from Okusan Securities. Do you hear me? Yes.

Yes. Thank you. So just quickly, two questions for confirmation. So this is about the list plan. So his audio is really choppy.

I can’t hear. Sorry. Do you not hear me? No. It’s choppy.

Your voice is really choppy. Sorry, we can’t really follow what you’re saying. Do you hear me now? Yes. Yes.

So the g the premise of GMV was that when you, like, compare on a pro bono pro bono base, what is the year on year compares, like, analysis? Sorry. I what So you mean list stand alone Y o Y growth of GMV? Is that what you were asking? Yes, yes.

Sorry, we do not disclose last year’s business performance of list. So we like to refrain from giving you specific numerics, but it’s probably around the same level as last year. Yes. Okay. Got it.

So I’d like to ask you the second question, but it seems like my audio is not in a good state. So I won’t ask you my second question. I apologize. Next. Nagao san?

Hello? Nagao from b o a do you hear me? Nagao Ka from BOA. I have three or maybe four. Going so going to my first question.

This GMV, it’s disclosed in pounds. How much are you expecting in pounds? And Kobay san, I’m sorry, I’m asking you like a difficult to answer question. So when you purchased it, you we do have the business performance of theirs. It was about GBP 5,000,000?

Wait, hold on. So for FY ’twenty five, we don’t have the number. Oh, now I follow you. Got it, Kobayashan. I solved this question myself.

Sorry. So you don’t disclose it after all. But when you look at it in town, I I wanna know how much it is. And then, know, because we need to think of the forex. I don’t know if you call that a risk, but anyway, we’re gonna be impacted by that.

So how do you see the premise of this? You know, the fact that this is recorded in pound. Okay. So maybe I need to divide this. So how much is the forex you’re using?

Okay. So one pound to a 190 yen or was it 160 yen? No, 109 yen. This is in dollars. So we disclosed the U.

S. Dollar based one? Sorry. So the plan we have, we didn’t make it in pound. And then we are we have requested list to come up with their business performance forecast in U.

S. Dollar and not pound. But in dollar, it’s a 140 yen. No. A 140 approximately, a 143 yen to a dollar.

Okay. I understand. And my second question, sorry, it’s really detailed. So we looked at your plan for this time and last time. And then OP had impact on amortization.

But EBITDA of minus 200,000,000, is that the loss for this period? I just wanted to understand better how much loss this is making. Am I correct? Yes, you’re in line. I think you’re on track in your understanding.

So we have the previous plan and the plan that we disclosed this time. We review the goodwill amortization. And then that one, goodwill amortization recalculation is going to be slightly different from the loss of list. Okay. And my third question is the following.

So at the beginning of this period, you were conservative about the advertising business, and then it landed at plus 10%. Is this the gap of what you expected? How should we how should I think of it on an annual base? Sure. So about the advertisement business, as you mentioned at the beginning of this year I mean last year, we increased the unit price of the clicks, but that tapered off, we believe.

And then that’s why we gave it a low growth forecast. But the click through rate worked well, and we were able to exceed the plan. But I think there are more moving pieces there. So would it would we be able to stay in the high level like we are achieving right now? We are not sure.

So what we would like to do is just kind of continue to make the effort. Okay. So lastly, just quickly, I think I’m the only one who asked this. Zozo match, how do you plan to monetize this? And then when would it start to contribute to the profit?

I know that it’s early to ask this, but how do you, like, plan your business model for this one? So those will match. There are other matching services in the market where you are looking at them. And so when men so what we’d like to do is to receive a subscription fee or usage fee from mails. And so in terms of monetization, that will be the source of the revenue.

And then when it comes to profit, I think it’s too early for me to make any comment on that. Next, Mr. David Gibson?

David Gibson, Analyst, MST Financial: Thanks. David Gibson from MST Financial. On List, could you just talk about the strategy? I mean this is a very different business from consignment. You don’t hold inventory.

Could you outline what is the business strategy to improve this business over the next coming years? Thank you.

Koji Anai Sawa, Director, Executive Vice President, CFO, Zozo: Thank you. Thank you. Oliver Matthew from Cieloce. Three questions. Number one, could you tell us about AI agents?

There’s been a lot of talk. Are we going to have AI shopping agent from Zozo? Got it. Thank you. Could you comment briefly on the trajectory of cosmetics versus fashion?

What’s the kind of GMV growth you’re seeing there? Congratulations. Very good. Final question. I think TikTok shop has started in Japan.

Are you watching that? Do you see that as a source of rising competition? Thank you.

Moderator: So of course, we are.

Koji Anai Sawa, Director, Executive Vice President, CFO, Zozo: K. Thank you very Thank you.

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