It's time to start the earnings briefing for the full year financial results of FY25 ending March 2026. We will only be offering live streaming this time.

We plan to have the session until 5:40 PM. After that, we will have a Q&A session with institutional investors on a separate Zoom channel from 5:50 PM.

I'd like to introduce the presenters: Representative Director, President and CEO Kotaro Sawada.

Hello.

Director, Executive Vice President and CFO Koji Yanagisawa.

Hello.

There will be two presenters today. First, CFO Yanagisawa will take us through the business results.

I'd like to walk you through the full year financial results for FY25 ending March 2026. The presentation document we will use today has already been uploaded to our website's investor relations page, please take a look.

First, I'd like to walk you through the highlights of the full year financial results of FY25. As for the full year, GMV increased by 8.4% year-on-year to ¥666 billion, GMV excluding other GMV increased by 12.4% year-on-year to ¥646.1 billion.

Total GMV for the ZOZOTOWN business, LINE Yahoo! Commerce, and BtoB business combined increased by 5.1% year-on-year to ¥602.9 billion, EBITDA increased by 10.2% year-on-year to ¥76.9 billion.

EBITDA margin was 11.9%, down 0.2 points from the same period last year. Progress against the revised company's plan announced on July 31st is as follows: GMV excluding other GMV 98.3%, and total GMV for the ZOZOTOWN business, LINE Yahoo!

Commerce, and BtoB business all combined 100.1%, and EBITDA 100.3%. Regarding GMV, strong performance during the winter sales in the fourth quarter enabled us to achieve growth that offset the shortfall from the event of the third quarter.

As a result, the combined total for the ZOZOTOWN business, LINE Yahoo! Commerce, and BtoB business met the target.

On the other hand, LYST fell short of its target due to factors such as the slump in the luxury industry and changes to the tariff system, resulting in the overall business failing to meet its target. EBITDA met its target primarily due to reductions in logistics-related expenses and shipping costs.

Both GMV and EBITDA reached new all-time highs. Let's now go to page 7 of the handout.

This is the quarterly trend in consolidated performance. As I mentioned, for the fourth quarter accounting period, GMV excluding other GMV increased by 14.2% compared to the same period last year for the same reason I mentioned.

ZOZOTOWN business saw strong customer traffic, particularly in January, and with ample inventory available for the sales period, and sales during this period grew. LINE Yahoo!

Commerce also grew steadily, partly due to an increase in the number of days of Honki no ZOZO Matsuri. Moving on to the next page.

This does not exist in the handout. As announced in today's press release, we have acquired all shares of HighLink and made it a wholly owned subsidiary.

Founded in 2017, HighLink operates COLORIA, a comprehensive fragrance platform, as its primary business under the mission of enriching the world with fragrance. By welcoming HighLink, a company engaged in businesses centered on fragrances which have a highly high affinity with fashion into ZOZO Group, we aim to branch out into new areas related to fashion.

Regarding the details of the transaction, we have acquired all outstanding shares of HighLink for ¥4.95 billion, funded entirely with our own capital. The company will be consolidated starting in May 2026, and then this acquisition is already reflected in our full year consolidated earnings forecast for the full year.

That will be explained later. Let's now go to page 8 of the handout.

We will analyze the changes in EBITDA compared to the previous year's results at the end of fourth quarter. EBITDA increased by approximately ¥7.14 billion from ¥69.78 billion in the previous year to ¥76.92 billion in the current fiscal year.

Factors attributable to the increase in EBITDA are as follows: gross profit increased due to higher GMV in the ZOZOTOWN business and LINE Yahoo! Commerce, +¥9.32 billion; net sales increase due to growth in advertising business, +¥3.7 billion; gross profit increase due to consolidation of LYST and other businesses, +¥6.86 billion; reduction in variable costs, +¥270 million—this is driven by the containment of logistics-related personnel expenses resulting from the streamlining of logistics centers.

Factors that reduced EBITDA are as follows: increase in fixed costs due to a rise in consolidated headcount associated with the consolidation of LYST; occurrence of one-time expenses related to M&A in the first quarter, -¥3.15 billion; increase in actual PR expenses to attract customers, promote sales, and cover LYST standalone expenses, -¥9.97 billion; and lastly, increase in other expenses due to success fees paid to M&A related to M&A in the first quarter, -¥920 million. Here are the cash flow trends.

Cash flows from operating activities were driven by an increase in profit before income taxes, as well as increase in payments of corporate income taxes and others. Cash flows from investing activities for the current period included expenditures associated with the acquisition of LYST and the replacement of equipment at existing logistics centers.

Cash flows from financing activities included expenditures related to the acquisition of treasury stock. Next, page 21, breakdown of SG&A.

The SG&A ratio relative to GMV was 22.2%, a decrease of 1 percentage point compared to the same period last year. While GMV expanded following the consolidation of LYST, certain SG&A items do not occur or are minimal on a standalone basis for LYST, contributing to the decline in the SG&A ratio.

Factors that drove up the SG&A ratio are the following: as we have been explaining from before, amortization of goodwill related to the acquisition of LYST, and also there was an increase in actual expenses due to higher web advertising spending for ZOZOTOWN. Factors contributing to the decrease in the SG&A ratio include the following: lower shipping costs resulting from the improved economic terms with the delivery contractors starting October 2025, driven by both external consolidation factors and delivery efficiency initiatives, -0.6 points; a decrease in logistics-related labor costs driven by improved operational efficiency, including intro-optimization at logistics centers and labor savings from automation initiatives, -0.5 points; a decrease in payment collection commissions, -0.2 points.

In addition, as we have achieved our full-year targets for operating profit and EBITDA, we have decided to pay a year-end bonus, and consequently we have recorded relevant expenses in the fourth quarter under payroll costs for employee logistics-related expenses. Let's go to page 24.

We show our actual promotion-related expenses here. These expenses include advertising costs and point-related expenses that are deducted from sales.

As we have explained before, in Q4 actual promotion expenses amounted to 5.5% of GMV. The 0.7 point increase in the ratio of actual promotion expenses to GMV compared to the same period is due to the following factors: one, an increase in online advertising spending on ZOZOTOWN; second, an increase in promotional expenses rose due to initiatives aimed to acquire new members and reactivating dormant members; and third, the recognition of expenses on a standalone basis of LYST.

In particular, for the ZOZOTOWN business in Q4, we invested additional expenses on top of the remaining amount from Q3 to achieve our GMV targets, and as a result, actual promotion-related expenses for the full year amounted to 4.8% of the GMV, which is slightly higher than our initial plan that we announced at the start of the year, and we expect the budget for the current fiscal year to remain at the same level as FY25 at 4.8% of GMV. Moving on to page 25 of the handout, the following are the ZOZOTOWN KPIs.

Please note that the following indicators do not include results from LINE Yahoo! Commerce, LYST, or BtoB businesses.

The number of total buyers increased by 260,000 from the previous quarter to 13.17 million. The number of active members increased by 300,000 from the previous quarter to 12.47 million, and the number of guest buyers decreased by 40,000 from the previous quarter to 690,000.

In Q4, we continued to successfully acquire new members by increasing our web ad and friend referral campaigns year-over-year. In addition, re-engagement initiatives for dormant members have delivered positive results, with the impact of reactivation now becoming visible.

During the fiscal year, new member acquisition remained strong in every quarter, resulting in a significant increase in the number of total buyers. Next, this is page 28 of the handout, the number of shops on ZOZOTOWN.

At the end of the fourth quarter, the number of shops stood at 1,710, a net decrease of 12 shops from the previous quarter. The number of new stores opened in the fourth quarter was 46, including stores like the outdoor brand Salomon and SANRIO HOUSE, a brand supervised by Sanrio and operated by Mash Style Lab, and TAKARAJIMASHA STORE, an apparel store operated by the publishing company Takarajimasha, and more.

Please note that in the fourth quarter, as we have explained before, there were a relatively large number of store closures, particularly due to brand discontinuations, and as a result, the total number of stores decreased compared to the previous quarter. Nevertheless, we successfully achieved our full-year target for new store openings for FY25, and we aim to maintain a similar pace of new store openings in the current fiscal year as well.

With respect to average retail price, which is on page 30, it came to ¥3,974, a 1.6% year-on-year decrease. Price increases for new fall and winter merchandise have moderated, with prices now roughly in line with last fiscal's.

The average retail price fell due to a higher proportion of sale items compared to the previous year. As a result of this, our average order value stood at ¥8,854, -1.3% year-over-year.

The number of items purchased per order rose, supported by an improved cross-selling skill, which was driven by a higher markdown rate. Still, however, the decline in average retail price that I just talked about outweighed these effects, leading to lower average order value.

Also, the volume of promotions offering free shipping on purchases of ¥12,000 or more remained at the same level as the previous year, and the effect of this promotion on increasing the number of items purchased per order was limited, although the volume promotions offering free shipping on purchase of ¥12,000—I apologize for the glitch—or more was lower than the same period of last year. The campaign was implemented effectively, therefore the reduction in the frequency of these promotions did not result in a decrease in average purchase.

Let's go to page 33. I'd like to explain the changes of our key disclosure indicators starting from the next fiscal year, FY26.

From the perspective of representing our group's underlying earnings power, we have adopted EBITDA as our management indicator that excludes the impact of amortization related to goodwill and other items arising from M&A. However, the group has consistently been making capital investments in logistics centers and allocate resources to the internal development of software, and the depreciation associated with these investments is recognized as an essential cost of our business operations.

Accordingly, to more appropriately reflect our group's underlying earnings power, we have decided to adopt Adjusted EBITDA, and under this metric, only amortization of goodwill and intangible assets arising from M&A as well as acquisition-related costs will be adjusted, while all other depreciation and amortization expenses will be reflected. Starting from this current fiscal year, we are going to adopt EBITDA instead of EBITDA, please bear that in mind.

I'd like to share the full-year consolidated earnings forecast for the current fiscal year, FY26. Total GMV is expected to increase by 2.0% year-over-year to ¥679.6 billion, and GMV excluding other GMV are expected to increase by 5.0% year-over-year to ¥678.6 billion.

Net sales is expected to increase by 5.9% year-on-year to ¥241.9 billion. OP is expected to increase by 7.3% to ¥74.3 billion, and the OP margin 30.7%.

Adjusted EBITDA is expected to increase by 7.2% year-over-year to ¥77.9 billion, and Adjusted EBITDA margin is expected to be 11.5%. Regarding dividends, we continue to target the payout ratio of 70% or higher, and plan to pay a dividend of ¥40 per share.

Moving on to page 35, these are the targets by business segment for FY26. For ZOZOTOWN business, we will continue to aim for sustained growth by increasing the number of buyers, primarily through enhanced efforts to acquire new users and raising ZOZOTOWN's share of fashion consumption.

For LINE Yahoo! Commerce, assuming that large-scale promotional events such as Honki no ZOZO Matsuri and those on Yahoo!

Shopping are implemented at levels comparable to the previous year, we expect growth driven by new member acquisitions and increased contributions from users acquired in prior years. For LYST, we expect approximately 10% growth, mainly driven by an increase in the number of lines included in the consolidated accounting.

We view the current and next fiscal years as a critical investment phase for achieving future nonlinear growth, and we're focusing on building new business models that go beyond existing frameworks. We consolidated in May, and then starting from FY26, we will be able to have the impact of it on the full-year basis.

Then we expect to have a par level GMV growth as the previous fiscal year. Regarding ZOZO Ads, which I talked about before, the majority of our advertising business, our plan is based on conservative assumptions for key advertising-related metrics.

In addition, revenue from advertising menu offerings other than ZOZO Ads is expected to decline, reflecting our plan to discontinue certain advertising. As a result, we project a slight year-over-year increase in the overall advertising business.

Go to page 42. I'd like to share our logistics base's extension plan.

First, regarding DPL Tsukuba-Chuo, which we began leasing in April 2024 and has been operational since August of that year, the leased area will be expanded starting in May 2026. Furthermore, we will begin leasing ZOZOBASE Narashino 3 starting in March 2027.

Operations are scheduled to begin in August of 2027, with full-scale operations planned for October of '27. Operation will take place in FY27.

ZOZOBASE Narashino 3 is positioned as a facility that will transfer, revamp, and rebuild the functions of ZOZOBASE Narashino 1. As a facility designed to accommodate future growth in GMV, we will promote further automation to aim for a workforce reduction of approximately 50% compared to the existing spaces.

Okay. Lastly, this page—sorry that I must ask you to go back several pages, this is page 11.

This is the CapEx and capital expenditures. Capital expenditures for FY25 were largely in line with our plan.

For FY26, which is our current fiscal year, due to the cash outflow related to ZOZOBASE Narashino 3, Narashino 3 CapEx, which I explained earlier, we're planning capital expenditures of ¥11.5 billion. Additionally, regarding goodwill amortization, as I explained, our plan is based on the assumption that it will begin to be recognized starting in May 2026.

Amortization of goodwill related to HighLink is expected to commence in May 2026, and based on the assumption, it is projected at ¥510 million for the current fiscal year and ¥670 million for the following fiscal year, reflecting a full-year impact in the next fiscal year. The amortization period of this goodwill is planned to be 7 years.

This concludes my part of the presentation. Now I'd like to hand over to Kotaro Sawada, our CEO.

Hello everyone, thank you for your participation. What I would like to do is to walk you through our medium-term business plan.

Why are we talking about medium-term business plan now? Actually we haven't had the opportunity to share our midterm business plan to external parties, but when we think about the rapid changes of the external factors, which is inclusive of how people work in the era of AI and the services we provide, we need to think about how we fight in the world of the internet and at what scale going forward.

In order for us to have a healthy battle, our resources—money, people, and information—we're starting to gather all this valid information, and we needed to come up with a clear path going ahead. What I'd like to do today is to share our medium-term business plan with you.

Here is the agenda. Next slide, please.

This is a really brief summary of our business plan. This is the period.

This is a 4-year plan, and this is until FY29 ending March 2030. In terms of our objective for Adjusted EBITDA, which Mr.

Yanagisawa explained as our new indicator, we will aim for ¥90 billion, and that is 123.8% of FY25. Just to give you the background of this, we operate this giant service called ZOZOTOWN, and we have been allocating a lot of our resources there, but we know that this is not something that we can rely on 100% in the future.

Of course, we're going to continue to grow our ZOZOTOWN, but we also have to think of other services so that we can have incremental revenues. We are detecting internal and also external changes of the market and would like to see these are opportunities.

By the way, our midterm business plan, sometimes or oftentimes I believe that companies come up with a catchphrase or a tagline, and we thought of our tagline as well, and then we came up with a really simple tagline of Chu-kei, which is a really simple word, chu being the sound of a mouse... chu being the sound a mouse makes in Japan, and also the first part of the word medium-term that represents our medium-term business plan, and then we came up with this character of a mouse.

This is our plan for the upcoming years. This is how we have grown so far, and then in the next 4 years, we'd like to grow to ¥90 billion.

When you look at FY21, we achieved ¥50 billion, and we are here in fiscal year '25, and then this is where we want to get to by fiscal year ending March 2030. We identified three different domains that we'd like to focus on: More Fashion, Near Fashion, and Global domain.

More Fashion, this is where our core business of ZOZOTOWN goes into, and also WEAR as well, but basically please think of it as our core business. This alone, we'd like to do ¥80 billion.

If you turn to the left bar, which is Near Fashion domain, this means peripheral domain of fashion, we'd like to do ¥5 billion, and with Global domain, ¥5 billion. Right, please...

For each domain, how are we going to make progress? Let's start with More Fashion domain.

This is our core driver of this growth, and we want to have even more solid growth here. Next slide.

Has different pieces of information here that I have already shared with you, what are the growth engines for our existing business? It is the new user acquisition.

Our share is quite high, do we still have potential to grow? That might be the question, but looking at the numbers, we do believe that there's more potential for us to grow.

Last year, we invested ZOZOFES, and then recently, I think it was in March, we did a pop-up store. We know that there are segments of new users that we have not yet engaged with, what we would like to do is to really expand into offline touchpoints to reach to those.

Then, because of these efforts that we've made so far, and we've been observing this for quite some time already, we conducted surveys to our consumers, and we asked about their top-of-mind places to buy fashion. This is for men and women 15 to 59—sorry, no, women only, 15 to 59.

Then we asked what they would think of as a place to buy fashion products, and we are the lead—we are in the leading position, as you can see. Then now I want to talk about More Fashion further, and I'm sure this is of your interest as well, and want to talk about Musinsa.

We've been able to enjoy an increased number of brands on ZOZOTOWN. Now we handle 11,247 brands, and then there was a notable increase of the number of brands driven by Musinsa.

Musinsa have been very proactive in cooperating with us for the pop-up store. Musinsa is a large-scale Korean fashion mall, and we will continue to deepen our relationship with them as we engage in different activities.

I want to continue on to talk about More Fashion domain. What is the impact of AI agent?

For the next coming years, this is going to be our policy. Next slide, please.

You can see here that people go through this very simple funnel until the purchase of fashion items. It's quite simple: so there's the need and interest, and then currently, search engines play an important role there.

The wave, the new wave of AI agent is huge there, as you all know. What sort of impact would that have on e-commerce?

I do believe that there could be an impact to e-commerce. We don't know yet which operator will be mainstream, but what we would like to do is to work with them so that we can utilize them as our touchpoints.

At the same time, the AI agent, I believe, are very good at answering generally. I'm sure many of you use this already, and you should understand what I'm talking about.

If it's something really specific as a jungle, the answers that you may get from these AI agents may not always be correct, and that is what is happening around the world. We don't think that it will be able to adapt that feature.

We have abundant amount of data in fashion. We run a fashion e-commerce mall, and that is what had made—that is what has made us strong and characteristic, and we believe that our AI agent, which is fashion-specific, will also be valid.

What we'd like to do is to develop our fashion-specific AI agent to cater to more specific needs. Then a press release has been announced already.

ChatGPT is a leading company of AI agent, we're already working with ChatGPT app to propose wear styling or wear outfits. Then just the other day, finally, this was our long-awaited aspiration, we were able to use LINE, and we were able to release a LINE official account that supports users to decide their outfits through conversational AI.

I hope that you use this so that you can feel firsthand what we aim to do in this world of AI. Our data is very original, and we've been developing data to train AI, and we are using this data to come up with different features on WEAR, and it's been advancing quite well.

Such data, we'd like to utilize them through the poll list, so that on WEAR... We've been using this to the fullest, and then the next-month user revisit rate has gone up to 1.1 times already.

We believe that the revisit rate could go up even higher as we utilize data this way, and then we are rolling out to different channels, and then we want to bring those on board to ZOZOTOWN in the future. We cannot give you a timeline for it, but please understand that this is what we aim to do in the future.

These are some of the initiatives that would like to implement so that we can enhance our More Fashion domain. Let's go to Near Fashion domain next.

Next slide, please. What is the concept of Near Fashion?

What exactly is that domain? ZOZOTOWN users also buy different categories of things, and we want to start proposing to those people different areas of merchandise.

We want to branch out into other fashion areas outside of ZOZOTOWN. What do we mean by that exactly?

These are examples of quote-unquote Near Fashion domains that may resonate with ZOZOTOWN users. Hair salons make up for about ¥2 trillion market size, and also fitness and gym, that's ¥700 billion, and teeth whitening, which is really trending right now, is ¥45 billion, and we call it, internally, as ways to quote-unquote polish yourself, to fit—to stick into yourself.

Then we're not trying to sell them on EC. We could also consider offering physical services.

We're not just sticking to the idea of selling this online on our e-commerce platform. These are some of the new services that we consider to dive into.

I just wanted to give you more color on this. We're thinking of two levers for expansion.

HighLink is an example of the left one, this is actually a first example of the left one. This is partnerships, M&A—maybe doesn't go that far as M&A, it can be, by having partnerships or capital alliances with different companies.

Then there's another lever, which is to create something in-house from scratch. This is another approach we'd like to take in order to expand into Near Fashion domain.

For HighLink, let me turn to the next slide. As Yanagisawa mentioned, we acquired HighLink as a wholly owned subsidiary, and they have been operating a fragrance platform, COLORIA, and then they offer a subscription model.

For the interest of time, I won't go into details today, but it's very close to fashion in terms of this area, fragrance. What we'd like to do is to find a way to conquer without using EC.

I hope that you continue to pay attention to what we do with COLORIA. Go to the Global domain.

Next slide, please. Of course, in Japan we operate ZOZOTOWN, and last year we acquired LYST, and then that's based in the UK, but in terms of the commercial areas, they're not just operating in the UK, they're also operating in the US and other areas as well.

Then in the US, we've already launched ZOZOFIT, and it is growing as a seed of our service. These are some of the drivers that we'd like to use in order to grow our overseas footprint.

I want to talk about ZOZOFIT. We surpassed 1 million downloads.

Actually, last year this grew significantly, and we do believe that this has a big potential. This app is quite Americanized, and the market has been accepting this quite well.

By the way, the total downloads, the total number of downloads of WEAR is at about 12 million, compared to that, it is still small, but we believe that, it's a great achievement how we were able to surpass the 1 million downloads. Let's talk about LYST.

There are many things that we need to do, but in the long term, what are we aiming for for LYST? I wanted to share that with you.

We just mentioned that we're going to make our own AI agent as a category killer, and we're going to operate this AI agent, and then we are also aiming to create a similar funnel using LYST. The know-how and the data expertise that we have to create that sort of a fashion-specific AI agent, we believe that we can plant that to LYST as well.

That was a brief explanation of our medium-term plan business plan. Lastly, this is outside of the medium-term business, but I wanted to share some things with you.

This is about internal use of AI. It is progressing quite steadily internally, and we have adopted ZOZO's own AI utilization metric, and we have already set up an objective for this.

As you can see, you can take a look at it later. Level 3, we believe, is going to have a business impact or solid business impact.

We want to first get to level 3, and then ultimately to level 4. Next, this is about responding to geopolitical risks.

I'm sure you're quite interested in this topic. The impact of this is as of today still limited.

Regarding items supplied by brands, we haven't seen a significant increase in prices yet. We may start to see impact sometime in fall, but so far we haven't seen a significant increase in prices.

For indirect materials like packaging and cardboard, some cost impact is expected, but impact on FY26 is expected to remain limited. We are doing a lot of analysis.

Of course, the chance of us having negative impact is greater than having no impact, but still it remain and we expect this to remain limited. Lastly, this is about SDGs.

We are looking at different external assessment methods, and so far we've been well received by multiple external assessors. We want to really define and identify which metrics that we're going to focus on as we make progress in this field.

This brings us to the end of the earnings briefing. Thank you for your participation.