Zalando SE

Rubin Ritter - Chief Executive Officer Birgit Haderer - Senior Vice President Finance

Charlie Muir-Sands - Deutsche Bank Andrea Ferraz - Morgan Stanley Volker Bosse - Baader Bank Jurgen Kolb - Kepler Cheuvreux Simon Irwin - Credit Suisse Adam Cochrane - UBS Philipp Frey - Warburg Research Rocco Strauss - Arete Research

Yes, thank you, and good morning, also, from my side. Thank you for joining our call, which will have four parts as always.

So we will start with the results and business highlights of the first quarter. We will then go into the financial performance in more detail, followed by the guidance, and then last but not least, we have time for your questions.

Yes, so let's get started. I think clearly we had a successful start into 2017.

Both in growth and profitability, we are on track. In revenue, we grew by more than 23%, which is well within our target corridor, and we continued to significantly outperform the growth of the online fashion market, and gain market share quite aggressively.

At the same time, we achieved a solid level of profitability of 2.1% adjusted EBIT margin, which is also well in line with our guidance as we continue to invest into the long-term growth of our business. And when we look at the free cash flow, we see that the first quarter was a quarter of increased levels of investments as the free cash flow is impacted by an increased level of CapEx, which is also in line with our full-year guidance.

The major driver in this is our investment into our logistics infrastructure, mostly related to our fulfillment centers in Poland and in Lahr. Now, let us take a closer look at the operational investments which we made in the first quarter.

So as always, we worked to expand our convenience offering to our customers across Europe to drive customer satisfaction and to drive retention and activity of our customer base. So very importantly, we took the bag-sorter system live in Monchengladbach.

We have talked about this before, so you will remember that this is a goods-to-man system which has the capacity to store 0.5 million items, which makes it one of the biggest installations of this kind in Europe, and from the first tests and the first weeks of operation, we are quite confident that this system will deliver the efficiency and the improvement in lead time that we have expected. We will introduce a very similar system in Lahr, which is currently in ramp-up, and actually will have the chance - if you join our Capital Markets Day, you will have the chance to visit this facility in Monchengladbach and see it live in operations on June 19.

At the same time, we continue to invest into several local improvements. So as some examples, we have been able to reduce the lead time for our Norwegian customers for a full day by improving the line haul in our delivery to Norway.

We continue to scale same-day delivery. We have added two cities, which brings us to a total of eight cities where we already today deliver more than 1,000 orders per day in a same-day mode.

At the same time, for returns, which is a very important piece of our convenience proposition, we have started to test return on demand, where we offer customers to schedule a return pick-up. While we have launched four additional cities in Germany, and we have announced that we intend to start the service, also, in Stockholm, where we will allow customers to order a return pick-up within 60 minutes.

We have actually - in Paris, we have seen that we can drive pick-up time down quite significantly, so the fastest pick-up we have seen was within 13 minutes after ordering the pick-up. So I think we get quite close to the speed of ordering an Uber car.

Similarly, we have launched, in Paris, our new satellite warehouse, which significantly shortens lead times for our customers in Paris by two days, and for customers in France overall by one day. Already, 35% of our orders are fulfilled from the satellite, and we continue to work to also bring live our satellite in Sweden later this year.

At the same time, we have introduced the sizing chat, so our convenience is not only focused on fulfillment, but also on making sure that customers get support from specially trained customer care agents when it comes to selecting the right size. We have scaled Shop the Look as a feature to more than 100,000 SKUs, so to the majority of our assortment, which we use to drive cross-selling by encouraging customers to also buy items that sit well with another item that they're currently looking at.

As you know, our proposition is not only around convenience. It is also around fashionability to really excite the customers that are looking for a fashionable experience, and here we continue to invest in three areas; communication, on-site experience and assortment.

So when it comes to communication, we have launched, in the first quarter, a campaign - a brand campaign that is specifically targeted at male customers. When we look at our customer demographics, we see that the vast majority of our customers, around 75%, are female customers.

So we see a huge potential to actually increase our business with male customers, who are quite a profitable and loyal customer segment. As part of this effort we have launched a campaign together with U.S.

actor James Franco, who we feel is the perfect voice to communicate our proposition to our male audience. We launched this campaign in March.

It has been going on for five weeks. We played it, again, 360 degrees, so including TV, out of home content, and also social media, and it has generated quite significant reach with 60 million PR clippings and more than 200 million social media impressions.

Then, in terms of on-site, the team has generated a concept and actually implemented in the first quarter for a new homepage. So, the new start screen that you see when you come to our site.

The concept was aiming to both make the experience more fashionable and more inspirational, but at the same time to drive more commercial success. The concept is a lot around blending together content, products and campaigns, and putting a special emphasis on personalization.

So when we show individual items to the customer already on the start page, of course we have to make sure that these items are highly personalized. What we see already, from the first A/B tests, is that this new start page is giving us a positive commercial impact in terms of increasing revenue per user, decreasing bounce rate - so decreasing the amount of customers that come to the site and then directly close it again.

And thirdly, increasing the frequency of users. So, users that have seen the start page have a higher likelihood to come back quickly to our site.

Then, the third area is, of course, the assortments. As you know, we continue to work to broaden our assortment and make it even more fresh and even more exciting season-by-season.

We have been able to launch the first Inditex brand, Oysho, through the partner program, and also on premium we have been able to add brands like Sandro and Maje, so we continue to really deliver on our high-to-low promise, which means that we offer everything fashionable, starting with very commercial price points, but also going up into the premium segment. All of these initiatives together have helped us to deliver a new all-time high in terms of traffic, which is quite remarkable since we are talking about a first quarter, which is seasonally relatively weak, where we have been able to attract more than 600 million visits to our site and apps.

As another area I would like to highlight, the Vizions conference that we have been able to host in Berlin for the first time. This conference is really around digital platforms, and how digital platforms can be successful and can scale in Europe, and this conference was a great success.

We had more than 1,300 visitors, a lot of interesting speakers, which created a lot of buzz, not only on Twitter but also on different tech blogs. For us, I think this is a great way to position ourselves within Europe as one of the leading tech platforms that comes from Europe, and also to increase our profile as a tech employer, and really differentiate as a place for people to work in a tech and platform environment within Europe.

Now, I would like to come to the financial update, and talk about our most important figures in a bit more detail. So, as always, starting with the growth.

Clearly, our growth story remains on track. When we look at the overall numbers, we see strong growth, well within our target corridor.

Actually, when we look at the growth in GMV, which as you know accounts for the partner program at the full spend of the customer, we actually grew by more than 25%, which shows that as our partner program share increases, the revenue growth actually underestimates the true growth of our business. When we look into detail at the different regions, we see that in DACH we continue to gain market share at scale, growing 17% in revenues, which is actually a reacceleration compared to last year when we grew around 15%.

Also, here, when you look at the GMV growth, it's actually around 20%, so also here we see that we have an additional uplift from the partner program. When we look at the rest of Europe, the numbers continue to be very strong.

Growth around 30%. We see that the rest of Europe and DACH are coming quite close in terms of size, yet we still have a lower market share in the individual markets of rest of Europe, which we talked in more detail on our last earnings call, and also means that we see in rest of Europe still great growth opportunity, and momentum to gain additional market share.

If we look one level deeper at the drivers of the growth, we see that as always, the growth is driven by active customer growth and spending per active customer growth. So our active base increased by 11%.

We were able to add 500,000 additional active customers compared to Q4, which is, I think, a very healthy level, especially given that Q1 is a seasonally weak quarter. When we look at the economics per customer, we see that the frequency continues to climb quite significantly.

So we have a new all-time high, with 3.6 orders per active customer. At the same time, we see that the average basket size has slightly decreased.

This has a couple of reasons. The first reason is that we continue to attract a younger audience, which tends to shop smaller baskets but with a higher frequency, which is driven by them using, specifically, the app, which encourages customers to come more often, but also to make purchases at smaller baskets.

Also, these customers tend to buy fast fashion, which is, of course, a very different shopping behavior. So these customers don't come once per season to buy, but these customers really look at new stuff every month, and therefore also make purchases with a higher frequency.

I think in the basket size there's also a particular effect from the first quarter where we had a very strong March, and therefore a higher impact of the lower price points that come from the Spring/Summer season. If you take those two effects together, so increased frequency and slightly lower baskets, I think the important message is that GMV per active customer continues to increase at a quite healthy rate, even though it is now really approaching already a quite significant level of close to €230 of spend per year.

Now, if we take a look at the profitability, we see that profitability has been quite stable, in line, also, with our guidance. So we continue to invest, as you know, into the long-term growth of our business.

When we look at the Group profitability, I would like to also point out that you should keep in mind, in the first quarter of 2016 - so the comparison quarter - profits benefited from a €7 million write-up, which was related to allowance releases for trade receivables for previous quarters. If we exclude this effect on a first quarter 2016 basis, the margin would have been 1.7%.

So if you take that into consideration, you actually see that our profitability slightly improved compared to last year. If you look at the different regions, you see in DACH that we are operating still at a very high level of margins.

So I think that 7.5% in the first quarter is actually still a very healthy level. However, the EBIT margin decreased by around 2.2 percentage points.

This is, for one, an effect of the write-up in the comparison period that I just explained, which was mainly related to DACH business, but it's also related to the fact that we said in our last earnings calls that, given the very high level of profitability in the DACH region, we're actually looking to increase our investment levels to continue to foster growth, because we want to continue to grow in DACH despite the high penetration that we already have reached. We have been able to invest, in the first quarter, in additional discounts and promotional activity to drive growth, and we also invested in additional convenience offers.

I already mentioned the ramp-up in Lahr, the same-day expansion and the return pick-up that we are scaling, and of course all of these are investments that we are making. I think the nice thing is that we see this also impacting the growth in DACH positively.

In rest of Europe, our margin increased slightly or improved slightly to a negative 4.5%. I think this is a positive development, but we have also said in the past that we want to stress that rest of Europe continues to be an area of investment and of fast growth, and we expect that this will also continue in the quarters to come.

Now, if we look at our P&L by line item, we can briefly go through the different developments. So in gross profit, I think we see it's relatively stable.

In a seasonal business, of course, you always have a bit of volatility in the gross profit. I already mentioned that we did some more promotional activity in the DACH region to win additional customers, but I would say that gross profit is broadly in line with the levels of last year.

On fulfillment costs, we see a decrease by 0.8 percentage points. I already mentioned, if we adjust for the one-off effect that we had in the last quarter, this would have been rather stable, but of course, underlying the additional profitability improvements that we have in terms of additional efficiency and logistic, we have also commented already on the previous stages on the additional investment that we are doing in this area that clearly also drive cost.

When we look at marketing, we see that the trend that we had in all of the quarter since the IPO continues. So we see operating leverage, which gives us around 1 percentage point in terms of margin, and then the admin cost is relatively stable at last year's level.

On the next page, we take a closer look at working capital and CapEx. On the working capital, it's pretty obvious from the numbers that the development is very strong.

We have negative working capital close to €100 million, or 2.5% in terms of relative to sales. And this is to some extent, a seasonal pattern, but it's also to some extent really operational improvements that we continue to drive in our supply chain.

Then, on the right hand side, you see some more detail on the capital expenditure. Our investments have been in the first quarter at quite a high level, close to €80 million, and the vast majority has been invested into property, plant, and equipment, mainly related to Lahr, the bag sorter and our new facility in Poland.

But this is in line with the guidance that we have given for the full-year to spend around €200 million on CapEx. On the next page, you see some details on our liquidity, which remains to be very strong.

Cash and cash equivalents is at €950 million when we start at the right-hand side of the waterfall, and then if we add short-term investments, we get to the full liquidity of €1.1 billion. So with this I would like to come to our outlook.

As I explained, Zalando has been off to a very good start in 2017, and we have been able to deliver in line with our plan. As a result, we are well on track to deliver on our promise of strong, profitable growth also for the full-year.

Based on this, we want to reconfirm our full-year guidance. We continue to expect new growth of 20% to 25%, and adjusted EBIT margin of 5% to 6%, and we continue to expect slightly negative working capital at the year-end, with some movement during the year as we go through the seasons.

On CapEx, we continue to plan with €200 million of CapEx, excluding M&A with a higher portion of CapEx in PP&E as we build out our fulfillment footprint to be ready for the growth of the coming years. Yes, and with this, I am at the end of my presentation and would now like to hand over to your questions.

Yes, good morning. I've got three questions, please.

The first one is a little bit technical, but I think last year for Q1, you cited you had fewer shipping days because of the calendar effect of Easter. I know this year, you're annualizing against the leap year, of course.

So I just wondered whether you felt the timing of Easter was a significant benefit or drag to Q1 this year, and therefore what we might be expecting in terms of the flip side of that in Q2. The second question is - I just want to understand a little bit more, because the gross margin is down despite the partner program, which is, I assume, when you were talking about it in accounting terms, significantly margin percentage accretive, and indeed the [indiscernible] more profitability up a lot.

So, were full price sales quite a lot lower than total sales growth? And then finally, I know you don't formally guide, but I wondered if you'd give a rough indication of what you think the full-year tax rate would be at the midpoint of your guidance.

Thanks.

Yes, thank you for your questions. I would take the first two, and then I would hand over to Birgit for the question around tax.

So on the first question around Easter, yes the timing of Easter of course has also some impact on the numbers, and in this case the impact for 2017 is slightly positive. However, this impact is not very significant.

This is also why last year we did not break it out, and this year we don't break out the exact impact. It's also difficult to really name it exactly, but it is not a significant impact that changes the numbers.

On your second question, with respect to the partner program, so you are right that the increased share of the partner program has a positive effect on the gross margin, but as I mentioned when I talked about DACH, for example, we also saw the opportunity to invest a bit more into commercial activity and to win additional customers. I also said, I think, on the last earning calls, that in 2016 we felt that we could have been a bit more aggressive in terms of our pricing strategy to win customers, also, by offering good price.

But I also want to be clear. This doesn't mean at all any change in our pricing strategy.

We continue to be full price, and we continue to not put an overly high emphasis on discounting to win customers. But of course, when you want to build a big customer base, pricing is also a relevant lever, and we have made some additional investments.

Now I would like to hand over to Birgit.

Yes, very quickly on the tax rates. When you look at Q1, you see from the P&L a very high implied tax rate.

That is due to only about half of the tax expenses being cash taxes. So the implied cash tax rate is around 16% when you include SBCs, or stock-based compensation, or a little bit higher around 24% when you exclude stock-based compensation.

That view continues for the rest of the year. So as you know, we're continuing to use up the NOLs that we have.

At year-end 2016 it was about €100 million that we capitalized, put on the balance sheet and are now using up against year-end positive income. So for the full-year tax rate, the statutory rate in Germany is around 30.5%, as you know.

However, the cash tax rate will be somewhat lower as we continue to use up those NOLs.

Hi, good morning. I have two questions, please.

The first one is around orders per active and marketing spend. The trend in orders per active have been looking really healthy for some time now, as you've made those improvements that you were talking about in terms of delivery and website, and so on.

I was wondering if you were tempted to increase your marketing spend, perhaps try to recapture some of the customers that would have come to your website a couple of years ago when you hadn't made all these improvements, to sort of make sure that new actors sort of get access to it. Then the second question is, I've seen in the press that you're looking at opening - you're potentially looking at opening more physical stores, so I was wondering how you were thinking about that.

Thanks.

So, on your first question, I would agree that the development of orders per access is really promising, and encourages us even more to really invest into our proposition, because we see it really working as a growth lever. In terms of marketing spending, the great thing is that really, over the last years, and also in the first quarter of 2017, we have been able to decrease our spending relative to sales, but to increase our absolute level of spending, and this has also been true in this first quarter.

I think that is really a great position to be in, because when you see that a lot of your growth is driven by the activity of existing customers, it gives you additional leeway, also, to spend on new customers. We hope that we can continue this trend also, going forward.

So also going forward, I would expect us to spend more on absolute terms, but to spend less in relative terms. On your second question regarding the offline stores, I think we have said in the past quite clearly, and we've also actually said it in this interview that was often quoted when people talked about potential physical stores, that really our expertise lies in the digital sphere, and that we do not look to heavily invest into a dedicated offline strategy.

What we do think is that off-line is very interesting, as you see digital and off-line merging more and more. But I think our approach to this really should be around providing, for example, data infrastructure, or providing other digital infrastructure for our brands to use to drive the convergence of offline and online.

As an example, you know that we have piloted off-line integration with a number of stores here in Berlin, with Adidas as a partner, but also with a number of other brands, where we tried to find mechanisms to offer the merchandise that is in physical outlets, also, on our web shop. We think that this is really where we can make a big contribution, but we do not intend to significantly invest into our own off-line infrastructure.

As you know, what we do have is a number of offline outlets, but those are really just a few locations, which is a more opportunistic approach, as we see the opportunity to sell leftover merchandise at good prices, and make a good margin on this business. But I would not call this a real offline strategy.

Hello, Volker Bosse, Baader Bank. First of all, to Birgit, welcome back on board and congratulations to your new role within Zalando.

Second, I have three questions. Perhaps you could give us an idea about the sales split by brand, by product segment; which brand segment showed the best momentum?

What is worth to be highlighted? In the past, you mentioned athleisure.

Is that trend continuing or some words on that would be helpful? Thank you.

Second question would be on the partner program. So, how many brands are participating as of today, and how many brands are using the Fulfillment by Zalando option?

How is the progress and sales contribution developing? And finally, on your Capital Markets Day, thanks for your invitation in June to Berlin, could you please give us a sneak preview here about what we can expect, what will be the topics to be discussed and to be focused on?

Thanks.

Sure. So, on your first question we have seen really good progress across the segments.

We continue to see good progress in the categories that are yet smaller, where we can drive a lot of growth, like underwear or now, for spring/summer, specifically beachwear, just the same for accessories. What we continue to see is that we grow nicely, both in the high price and also in the lower price segment.

So I mentioned some of the premium brands that we on-boarded, but at the same time we really put an additional emphasis on fast fashion, which continues to develop really nicely and also drive a lot of the frequency, as I explained. We also - when we look at the genders, we see that we continue to grow really well with female customers, even though that has been our home turf for a long time.

But I also mentioned that we specifically now take measures to grow in the male segment, where we feel we are still underrepresented and where we see a very good opportunity for growth in the coming seasons. In terms of the partner program, we continue to onboard new brands.

I mentioned Oysho as a major new addition of, yes, a really impactful brand which has also performed really well. Fulfillment by Zalando is an important topic which we continue to work on because we feel that it makes sense for the industry to build one fulfillment footprint that is highly efficient and can also benefit from the ability to bundle many items into one order instead of sending different parcels which all have just one item in them.

So significantly - significant cost leverage, but also speed leverage because in our network we can now reach a lot of customers with a very high speed. So we think that this will be a super-interesting proposition for our brand partners and we continue to work on Fulfillment by Zalando and continue to onboard brands to further test this.

Of course, this also means that we have to continue to build out capacity, and the team is actively looking for new locations which we might be able to launch. On your third question, yes, the Capital Markets Day, so what I can say is that it will be very exciting.

I think there are many interesting topics where we'll have the chance to explain them to you in more detail and also give you a chance to see the fulfillment locations, but also meet additional members of the team. So I think it will be a great day.

The agenda will be communicated four weeks before the event, but yes, I hope you already have marked your calendars.

Thank you very much. Coming back to the gross margin part, you mentioned obviously the trends that affected the gross margin.

But if I'm not mistaken, last year in the first quarter obviously, it was a low base, plus last year I think we had a negative FX impact in there. Maybe you could also break out a little bit more in detail what the drivers were of this 50 basis point decline in the first quarter.

I think FX probably or currencies, did not play a big role this time. Secondly, on the interview that has just been mentioned already when it comes flagship stores, I think in this interview you also mentioned that you'd be interested in maybe looking at some 3D printing opportunities, which could be a little bit of a help for your smaller- and mid-sized brands.

Maybe some thoughts where you're coming from in terms of asset allocation, in terms of is that a real long-term project or what your thoughts were here? And lastly, given on the - your comments that you were putting more rebates out, I would have expected maybe that the conversion rate would have increased, but conversion rate rather stayed unchanged at about 3.2%.

Is that a level you think we should be looking at going forward? Is that a more sustainable level you feel comfortable with or is that something you're driving and trying to drive up there?

Thank you.

I'll take the FX question first. So as you all know, we have pretty much a natural hedge on most of what we do.

So 90% plus on the cost and on the revenue side match each other in euros, so we don't see a lot of impact. And that is true for Q1 last year, just like Q1 this year.

Yes, you do see some movement within the individual currencies. However, when you look at from a portfolio effect, the impact really has been marginal in both quarters.

Yes. And on your second question with respect to 3D printing, well, I think this is actually a very interesting technology for the fashion industry overall.

And I think anything that is interesting for the fashion industry overall is also interesting for us. And as it relates to technology and as it relates to potentially also significant investments that could be made in this area, I think we are really in a great position to potentially drive this change also for the industry because we have these tech capabilities which I think surpass the tech capabilities that any individual brand has.

And I think we also have the investment capabilities. So I think wherever there's a chance to build infrastructure that the entire industry can benefit from, this is a topic that is potentially interesting for us.

Now, of course, I think this is all still very far out. I think we are still in the very early days of this whole development.

And I cannot tell you specifically how it will play out, but the question was raised in this interview and I just wanted to convey the message that, among others, this is one technology that of course we are looking at and of course we are thinking about how it could be an opportunity for Zalando. On your third question with respect to conversion rate, so you are right that the conversion rate was stable compared to last year.

First of all, I would like to say that our conversion rate is already at a pretty high level, especially when you compare it with competitors. So I think the conversion rate is already really at a very healthy rate and continues to be at this rate.

I think specifically for Q1 we also have to keep in mind that traffic was very high. And of course, that also relates - for example, when you have a lot of new customer traffic, which in principle is a very positive thing, and when you have more engagement and people come to your site more frequently, that may mean that your conversion rate on a visit level goes down.

But of course, your conversion rate, for example, on the customer level might still go up. So I think this is also one trend that you have to keep in mind.

In general, I think the development of significantly more traffic and a stable conversion rate is actually quite positive.

Good morning, everyone. Just two questions, firstly in terms of the mini hubs as these ramp up.

Do you have a sense of what percentage of orders for individual markets you can deliver out of these mini hubs now that Milan is, what, a bit over a year old now? The second is, in terms of all the infrastructure that's going in this year, can you just help us through some of the moving parts in terms of when we would expect to see the maximum impact, say, from the ramp up of costs as we go through the quarters this year?

Sure. So on your first question with respect to the satellites, so we have seen in Italy that one-year after opening the facility we have ramped up the share of orders to roughly 70% and we see further potential.

And actually the long-term target for the team is to get to something like 80%, which requires some more optimization in terms of how we allocate stock and how we forecast demand. But I think you see that already after one-year I think 70% is quite a high share.

And this also has encouraged us to continue to build these satellites in Paris and then hopefully later this year also in Stockholm. In terms of your second question, I'm not sure I fully captured it, so if you could maybe repeat it.

Good morning. A couple of questions.

When you talked about the price promotion in Q1, was that all largely planned? And I think when you talked about the drivers of gross margin within Q1, can you just say that the bought-in gross margin versus markdown, how that would split out if there was no impact from currency, please?

And then I think just following from Simon's question there, what I was - I think is how is the split of OpEx growth going to come through by quarter? So you've given the €200 million of CapEx and €78 million in Q1, so clearly a high weighting of CapEx to Q1.

How do you think your OpEx investments are going to phase over the course of the year? And then thirdly, the 11% growth in active customers, is there a big regional difference between DACH and the other regions within that 11%, please?

Sure. So on your first question, the discounting activity that we do is of course to some extent a reaction to how a season goes.

So, for example, if we have more leftover stock we'll discount more; if we have less we'll discount less. But to a large extent, and this was also the case in the first quarter, it is also a planned development.

So of course, what we look at is how reactive are customers to a change in price point and how much new business do we think we can acquire by offering an attractive price on a part of our assortment, versus how effective is it to spend, for example, more marketing. And what we have seen in the first quarter is that we felt it is actually more effective to give a bit more discount to drive growth as opposed to give more marketing spending.

And this is why we also consciously made the choice to be a bit more active in promotional activities. But at the same time, because this is now I think the third or fourth question on this topic, I also would like to underline that we are talking about a change of half a percentage point in terms of margin.

So it's not a fundamental shift in our pricing strategy, but it is, to some extent, a bit of a reallocation of marketing or other investment into price investment. And this development was not a particular surprise to us, so to also answer that part of the question.

With respect to your second question, I hope that also answers the question that Simon posted. So I think here you have to differentiate a bit between CapEx and OpEx.

So CapEx of course can be a bit lumpy because then in one quarter you maybe get some more invoices that we have to pay. I remember, for example, last year, Q1, I think that was relatively low.

So there you will have a bit of volatility, so it's not equally distributed across the four quarters of the year. But we are still planning to be around €200 million for the full-year, and it was also clear for us before the quarter that CapEx in the first quarter would be elevated, so this was not a particular surprise.

When you look at OpEx, there I would say the development is a bit more granular, so a bit more layered because, for example, right now we have ramp-up costs for the bag sorter in Monchengladbach and we have ramp-up costs for Lahr, which will go down over time. But then in the third quarter we will start Stettin in Poland, which will then have ramp-up cost for the, roughly, 12 months following that opening.

Then later this year we'll have Stockholm going live. So in terms of OpEx, that is a bit more layered over time as we continue to add warehouse by warehouse.

On your third question in terms of active customer growth, well, of course you will have a, for example, higher new customer growth in markets where your overall market penetration is lower. So typically, we have higher active customer growth, for example, in rest of Europe, where also our growth rate is higher.

And that is just mainly a function of the maturity of the market. However, we also see that we have active customer growth in the DACH region.

Hello. Just, basically, two questions.

Firstly, can you elaborate a bit on the cost benefit analysis of your same-day deliveries, meaning how much are you gaining, basically, in order frequency and how much cost do you have? And is there a way that you can basically limit a kind of free-rider effect, meaning you offering same-day delivery for someone who has actually - who is not ready to implicitly pay for it?

And secondly, more technically, just to comment on your current number of tech employees and should we expect growth to level off there a bit as well?

Sure. So on the first question, of course what we try to do is that we look at same-day delivery as a growth investment.

Just we look at - just like we look at any other growth investment, so, for example, marketing or pricing, which I just mentioned. Specifically what we try to do in terms of same-day delivery is that we A/B test, so that we look at cohorts that have used same-day delivery versus cohorts that have not used it and try to then infer the level of churn reduction that it brings us or, potentially, an increase in spending or an increase in baskets or an increase in NPS and then try to really put that into a relationship to the additional cost of same-day delivery, which of course also goes down as we scale the program.

I don't want to break out the specific results, but this is how we think about it and this is how we test it and how we measure the impact. Of course, the goal is to offer such an outstanding service, either to great customers, where we think they have shown great patterns and we want to reward them and make sure that they stay and order even more, or to customers that are willing to pay for it.

Of course, we would try to not offer it to customers that don't want to pay for it and also are not really good customers for us. So this is how we try to steer this.

With respect to our tech employees, so we by now have more than 1,700 tech employees. We continue to grow in this area as we continue to see numerous projects that we would like to implement and would like to work on with even faster speed.

So our focus on tech hiring is still very high.

Yes. Good morning, everyone.

Three questions from me, please. Regarding the partner program, you touched on GMV versus sales today, which is a much-appreciated disclosure I think.

But in terms of the interest that you have been receiving for the partner program, I'm trying to get some sense of how much of the partner program is actually driven by brands fulfilling orders and how much is driven by other online shopping sites, thinking of Planet Sports or Outfitter here. Second question, with several discussions around expanding into new markets, could the partner program, when fully ramped up, be an opportunity to do some, say, asset-light rollout of Zalando's demand aggregated strategy into other markets, potentially also outside of Europe, before actually building the wholesale offering in those regions?

And lastly, with the current setup of warehouses, and you have invested quite heavily into infrastructure in recent years with Lahr, Poland and satellites here, I'm trying to get a sense of what amount of sales after returns you are able to handle with the current setup of warehouses and the current status of the partner program combined. Thank you.

Sure. So on your first question, on the partner program and how - our partners are really the brands themselves or retailers.

So our philosophy really is that our first priority is to be the destination for the brands. So our first priority is really to onboard brands that want to do direct business on Zalando and that want to position themselves on Zalando as a platform, both in terms of content, but also in terms of positioning their brands and also in terms of driving commercial success.

And this is also the focus of the partner program and therefore the majority of the volume in the partner program is done by brands themselves. Of course, we also offer this service to retailers.

And there we are always mindful that we want to onboard retailers that really have something to offer, either in terms of specific assortment that they can bring or in terms of great content or in terms of a great delivery experience. So, for example, in terms of sports, we have some partners where we feel they are offering really a great service and therefore we are also happy to make them part of the partner program.

And they also do quite a good business there, but the focus is really on the brands. On your second question, with respect to new markets, yes, I think the partner program potentially can be a way to enter into new markets with a more asset-light strategy.

On the other hand, we also have to keep in mind that we have actually made quite good experience by scaling wholesale and partner program in parallel because it allows you, especially in the earlier days of establishing a new destination, to really make sure that, through wholesale, you can guarantee a really attractive assortment from the start. But clearly, the partner program must be scaled at offers as more opportunities to also enter into new markets or actually also new categories with an asset-light approach.

On your third question, with respect to the warehouses, so if we take all of the warehouses together that we are currently building, so that includes the facility in Poland, the potential of our footprint is around €7 billion in revenues. And then, of course, partner program which is not done through fulfilment by Zalando would come on top.

Hi. I just wanted to follow-up on my original question about the balance between satellites and RDCs since it has quite a bit impact on your capital.

If you can get 80% of your volumes into Italy out of a satellite hub, then does that have implications in terms of the rollout of the big RDCs going forward? We had been thinking before about potentially you might be doing one of each per annum, but if you can get 80% of a reasonable sized market out of a satellite, does this mean actually you can do a lot more through satellites and need less capital-intensive hubs?

Yes. Thank you, Simon, for following up.

So it's a good question, and right now the approach is that we say we have the hubs that can do big volume and that are highly automated and that carry a lot of assortments and therefore also reduce the need for mixed orders, that we locate those quite centrally in Europe and then we build the satellites in the local markets, like we did, for example, in Italy. Now, when we can do 80% of the local volume in a satellite and when the market that the satellite is in is growing, for example, like Italy is growing, I think eventually what we could think about is to extend the satellite into a hub in terms of the size.

And then all of a sudden you have really a structure where, at least in the bigger markets, you start to serve them more and more from local hubs. And then, of course, for the merchandise that you cannot have locally, you can also rely on merchandise that is more centrally located.

And of course, these then sort of local hubs could also start to serve other markets that are around them. So in the case of Italy, it could serve also Switzerland and Austria and the South of France.

So this is just as one example. The same could be true for France or for any other market.

But I think if the share of delivery of the local warehouse is very high and the market becomes very large, I think that is like an upgrade strategy that we could potentially follow, also given that the large facilities of course have an advantage in terms of being more automated and holding more inventory and being really built for scale.

Thanks for participating in today's conference call. If you have any follow-up question, we are happy to have them and shoot them back to you on answers.

And yes, enjoy your day and talk to you soon. Thanks.