Zalando SE

Patrick Kofler - IR Rubin Ritter - Co-CEO Birgit Haderer - SVP, Finance

Volker Bosse - Baader Bank Simon Irwin - Credit Suisse Jurgen Kolb - Kepler Cheuvreux David Gardner - Morgan Stanley Anne Critchlow - Societe Generale Dan Homan - Citi Michelle Wilson - Berenberg Andreas Inderst - Macquarie Rocco Strauss - Arete Research Chris Chaviaras - Bloomberg Intelligence Andrew Hughes - UBS Andreas Riemann - Commerzbank Tushar Jain - Goldman Sachs

Good morning, ladies and gentlemen, and thank you for joining us on our conference call today to review the Second Quarter 2018. As always, with me are Rubin Ritter, one of our three co-CEOs responsible for the Zalando Fashion Store as well as Birgit Haderer, our SVP Finance.

This call is being recorded and webcast live on our Investor Relations website and the replay of the call will be available later today. With that, let me now turn the call over to Rubin.

Yes, thank you, and good morning, also from my side. Thank you for joining our earnings call.

As always the call has four parts, we will start with the business highlights. We'll then talk about our financials and then about our guidance before turn over to your questions.

So let me start with the result highlights of the second quarter. I think in the second quarter, we once again achieved a really strong revenue growth in line with our target corridor.

Revenues increased by about 21% to EUR1.3 billion. I think we were able to execute well in a fairly challenging market environment.

We saw the fashion markets actually declining in the second quarter, so I think in that context we really continued to significantly outperform the market overall and continue to gain market share as is it in line with our long-term growth strategy. This development was really supported by another quarter of strong customer KPIs.

Order volumes grew massively by about 30% to 29 million orders which is very clearly a new all-time high. Also visits, we saw growing with strongly by about 23% to more than 730 million visits just in one quarter.

We will have it translated to that deeper active customer numbers and frequency numbers. But I think we can really say that the growth engine is still intact and running well.

When you look at these numbers, is that also already suggest that we had a negative development in the basket also that is something we'll have in the presentation a little bit later. If we turn to profitability, we saw a very solid growth year-over-year.

Adjusted EBIT grew to EUR94 million above last year levels of EUR82 million. And we also saw that the partner program continues to be one of the key drivers of our growth which reached now for the first time 10% of GMV and this is actually something I would like to go into a bit more detail on because I think it's really important has been one of the main themes also of our last calls, that we want to really focus on bringing the platform and bringing the partner program to live.

So now it's at 10%, we see that's really the top partners have been growing quite strongly because we gave them more and more opportunities to trade on our platform. So to onboard more, merchandise even faster and therefore also take better trading decisions and therefore driving growth.

We put a special emphasis on taking the partner program to more international setting. In the second quarter alone we created 65 new combinations of brands and countries.

And we were able to launch Poland, so now the partner program is live in 14 markets. Also the services that we drive around the partner program were able to add a lot of value supporting our partners in driving the growth.

So for example, under fulfillment services is now live in all 13 countries of the European Unions that we operate in and we were able to add about 10 brands to the program and also have a strong pipeline to continue to grow it in the second half of this year. In general, we also of course invested a lot in driving our customer proposition.

We increased the reach of our platform by adding Ireland and Czech Republic so the first two new markets for a number of years adding 15 million potential new customers to our reach. We [indiscernible] the shopping experience for example we realized that we have many customers that come for example to the German workshop with English language browser settings and we know to said these customers tend to have a lower conversion rate, so we decided to offer multi-language options to our customers in Germany and Switzerland and depending on how the reception is, that is also something where we have the option to roll it out to even more markets.

We started to offer more convenient payment methods for example, we launched Pay Later in Denmark and Italy which is essentially a soft try before you buy mechanism where customers' credit cards are charged only after these customers have really made their buying decision in terms of what they wish to keep and we see that, this drives conversions and also net baskets. And then we have continued to work of course on our on-time delivery through AI-enabled delivery prediction.

We were able to reduce the size of the delivery time window by 15%, which was has a very positive impact on customer satisfaction and also on conversion. At another business highlight, I would like to talk about our off-price segment for the first time in a bit more detail.

The off-price business started as an emerging business in 2010 and since then it has shown outstanding growth performance and now it has actually reached a size and the level of the success that we were reported as an independent segment going forward. You will also see this in the following financials.

Now off-price for us is an additional way to connect customers and brands. It consists of two parts, Zalando Lounge and ZALANDO outlet stores and clearly lounge is the much bigger part of this.

If you look at the proposition of the lounge towards the customers. It is a shopping club that is offering attractive deals and specifically targeting very [ph] discount affine customers.

So you'll get daily sales campaigns with very high discounts of 50% to 70% where we are selling leftover and old season merchandise. Lounge actually has 15 million members and is operating in 14 markets.

For the brand that allows us to offer additional services, it allows them to manage their excess inventory in a way that is respecting and maintaining their brand item, but with international distribution. So also able to drive quite high volumes and this model is highly synergistic to our platform overall because it allows us to target additional discount affine customer segments and it helps us to solve the overstock problem both for our brands, but also for our own wholesale merchandise.

Overall this proposition has led to very strong financials. So we saw about 45% growth since 2016 lounge off-price is trending towards EUR500 million in 2018 and during that time, it always has been operating profitably.

Now let's move onto our financial update for the second quarter. As always starting with growth, so year-to-date, our growth has a bit above 21% also in the second quarter it has been around 21%.

Actually if we look at the second quarter and if we were to account partner program at full revenues and if we also were to adjust for FX developments, actually the growth would have been around 25% for the group overall. The page also outlines the growth of the different segment, so you see the growth in the fashion store for our core business, you see the off-price segment and you see the other business units.

If we dive deeper into the fashion store, I think you see a very similar pattern compared to previous quarters. You see the DACH region growing faster than 15% and you see rest of Europe region going close to 30%.

Now if we dive deeper into the customer KPIs behind this growth, we see that active customers have been growing by about 16% to close to 25 million active customers, who actually placed in the second quarter around 29 million orders and this already hinges at the very strong trends that we see in frequency, so frequency is up about 14%. We're now at 4.2 orders per 12 months which is clearly new all-time high and this is also the strongest driver behind the growth of GMV per active customer.

At the same time as mentioned before, we see that the average basket is declining by about 6% year-over-year and behind that, I think we have two sort of two major reasons. The first region is the continuation of the longer term trends that we have also described on previous earnings call, so they include the shift towards mobile which now makes up about 80% of our traffic and more than 60% of our revenues.

It's refers to the higher mix of low price points especially driven by Fast Fashion and it also refers to the shift that we see from DACH to rest of Europe, where rest of Europe tends to have lower net baskets. So those are more the longer term trends that drive down the basket, but also help us to really drive frequency.

On top of that in the second quarter, we have seen a more seasonal effect. So given the temperatures that we observed in the second quarter, this led to significantly lower share of sales in transitional items.

So for example summer jackets which again led to a negative effect on the baskets and we expect that effect to be seasonal and therefore temporary. In terms of order of magnitude, we would estimate that those effects have a fairly similar magnitude in the second quarter.

Now moving to profitability, you see here that profitability is slightly down for the first half and you see that profitability is by about 15% for the second quarter and specifically in the core business, profitability has increased by about 23% compared to the second quarter of last year. When we look one level deeper, we see that profitability in the DACH region is at a similar level compared to last year and we see that profitability in rest of Europe has increased quite meaningfully in absolute terms it has actually almost doubled compared to last year.

If we look at the profitability trend by cost line, as an introduction there once brief reminder. I would like to make because as we said already on the Q1 call in the context of our updated management and reporting structure.

We also have reallocated some cost, with that we wanted to increase cost accountability and speed of decision making in the business by shifting some cost from the admin cost line into the respective operating cost lines where we think that they ultimately belong. So in terms of the shift, you see that same dynamics as we pointed out in the first quarter which means admin expenses is about 1 percentage point lower because that has been shifted from admin cost to fulfilment cost and to a smaller extend also to cost of sales.

So the increase in those two operational cost lines would have been less pronounced without the shift and of course the decrease in admin cost line would also have been significantly less pronounced. Now if go through the different cost lines, we see that cost of sales is down by 1.2 percentage points in the second quarter which is due to increased price investments and to some extent also consequence of the seasonal dynamic that we have seen in the season overall.

The fulfilment cost are down by 1.4 percentage points which continues to be driven by our investments on our convenience proposition. It continues to be driven by the fact that we are ramping up significant warehouse capacity.

Right now we have five warehouse locations that are in ramp up which obviously also incurs extra cost and it is also impacted by the basket size development that I've described is also impacted by the shift in cost lines that I've alluded to in the beginning. When we look at marketing cost, we continue to see operating leverage even though our absolute spending has increased compared to last year, it has increased less than our sales growth, so we see our marketing cost 0.9 percentage points lower compared to last year and admin expenses we see a decrease which is primarily driven by the reallocation of cost into other cost lines.

As a result of that, adjusted EBIT margin is fairly similar, fairly close to the prior year period. Now let's take a quick look at working capital and CapEx.

You see that working capital for the second quarter is at EUR16 million or 0.3% of sales so fairly neutral. Actually inventory development is at the level of prior year, if you account for the growth which I think is a good result and we expect, we continue to expect slightly negative net working capital at the end of the year.

If we look at CapEx in the first half of this year, we spent EUR109 million on CapEx in the second quarter we spent EUR67 million. CapEx this year will be very meaningfully back end loaded which is related to the timing of our projects, which are all progressing in line with plan, but will be very concentrated in the second half of the year and we continue to expect EUR350 million CapEx for the full year.

Now with that, I would like to come to the outlook. Given that we are seven months into the year, we want now to specify our guidance and the make the ranges a bit more narrow.

So in revenues, as we know our top line growth continues to be our main priority. In the first half of the year, we were able to realize strong revenue growth of 21.4% in an overall challenging season with a very late season start and then a very fast change into extremely hot weather, which significantly reduced our sales of transitional merchandise.

We see that the extreme summer conditions continue into July and August. Today I heard it's going to be 37 degrees in Berlin and I think that is one of the drivers why we expect for the full year revenues to be in the lower half of the annual growth corridor of 20% to 25%.

I would also like to point out that this is in line with the mid-term communication that we gave at our last Capital Markets Day. Where we said that, for the next year we expect revenue growth to be potentially in the lower half of our growth corridor, while GMV growth we expect to be in the upper half of our 20% to 25% range.

If we come to profitability, so as you know why we're very focused on growth. We want to maintain a solid level of profitability despite our high levels of long-term investments.

So far in 2018 we have achieved an adjusted EBIT of EUR94 million which is a bit behind last year's level, if we look at the full first half. On this basis, we expect to come in at the low end of the EUR220 million to EUR270 million range that we communicated at the beginning of the year.

This will translate into still very solid adjusted EBIT margin of around 4% at the midpoint of the revenue range. For the cash flow metrics, we expect net working capital guidance and CapEx guidance remains unchanged.

If we look at the current trading of the third quarter. I would like to point out that as you know, the third quarter is a seasonally very mix quarter July and August are offseason months which means low margins due to discounts on spring summer merchandize which is even more pronounced due to the ongoing heat wave that we observe in July and August and then September is typically the time of the season star, but of course as always the exact timing depends on when fall, winter actually starts and I think overall I also would like to say that we're in a very excited, to head into a new season.

I think we have a number of exciting activities lined up, we will have Bread & Butter coming up at the end of the month, we will then have the season start where we'll really celebrate the 10th Anniversary of Zalando in a way that I think will be also very impactful from a customer perspective, we then are heading into the Cyber Days. We're then heading into the Christmas business, so the coming months really will be very important for our business and I think it's also months where the entire team is looking forward to deliver the best possible outcome for the fall, winter season.

And with this, I would like to conclude the presentation and continue with your questions.

First question would be on the partner program, 10% of GMV so what was the driver of the above average growth increased assortment any specific brands worth to mention, any new brands you mentioned 10 new brands, so perhaps some names here and some background would be helpful. Thank you very much.

And final one on the tax rate, just for clarification what would be the tax rate for the full year, you would expect? And perhaps finally on the beauty segment and update on the expansion plan here out of Germany, any new brands would also be helpful.

Thank you very much.

So on the partner program. I think the predominant drier of growth as we that we continue to internationalize the program, so we rollout more and more brands across more markets.

Which obviously gives them more customer reach and the second big drivers of course the assortments. So in there I think predominantly we have been able to grow with the large accounts that we already have by giving them more opportunity to onboard merchandize even faster to onboard more merchandise.

So we see that many of our large accounts like Mango, like Adidas, like Esprit, like mixed [ph] they have really been able to drive very efficient growth on this basis. And I think that's also going to be the main driver going forward.

Then a quick comment on beauty, so there really the expansion is running and we have a number of ideas for the coming quarters on how to further growth beauty. So very recently we have started our first offline beauty location here in Berlin.

We were able to onboard Mac, which is a very important brand and we also have a really good pipeline of brands to come online in the second half of this year, but as you know we typically comment on brands once we've really signed and launched them, but clearly extending our assortment even further will be one of the core drivers of our growth and you also see a lot of interest from brands to work with us.

And briefly on the tax rate, so we expect similar to what you see in Q2 on an unadjusted earnings before tax basis of 40% tax rate on adjusted basis obviously below and the drivers, that drive it above 30% statutory rate is differences in tax accounting treatment for example for SBC [ph].

Couple of questions. With beauty, I know obviously you mentioned you've opened a store.

Are you going to have to open a store in each country in order to get physical access to product, is that the principal reason for opening a store?

Yes, good morning, Simon. So no, we don't expect that we will have to open stores in every country and we expect to open potentially some more stores in Germany or maybe some will also be outside of Germany, but we don't expect to do that in every market.

Two questions, the partner program you said its 10% of GMV in the second quarter. Maybe you could share with us, where it was last year at the same time and with the growth rate it was obviously here.

And then secondly, you referred to the CapEx line saying that you continue to expect EUR350 million, that's about if we go to the lower end of your sales guide about 6.5% of Group sales, is that the level we should also punch in for the coming year. Would it stay on the 6.5% for eight, 19 and 20?

Thank you.

So I will take the first question on the partner program and as you know we don't disclose with partner program share on an ongoing basis and we also don't intend to do that going before, but before that this 10% milestone is one that is important to share to give you some transparency on what part of our business it is currently driving. Partner program growth has been significantly above average growth, as you would expect because we continue to onboard new partners, we continue to internationalize, we continue bring on much more assortment.

So clearly it is a very fast growing portion of our business mix.

And then briefly on CapEx, so as you might recall during Capital Markets Day this year, we gave CapEx guidance for '19 and '20 saying it should be around 6.2% of revenue so how we derived at that, at that point in time was to look at bottom up the projects that we see coming up, so EUR1 million amount and so for the time being please assume that we stay with the EUR1 million amount depending on what growth we will see in the next two years, that then translates into the respective percentage of sales.

Two question from me. Partners per actives into keep increasing, I mean where does this max out and how does this vary between DACH and rest of Europe?

And then secondly with the expansion into Ireland, does this indicate that perhaps the UK could be more of a focus going forward. Thank you.

So in the first part of the question, where do orders packed is mixed out. To be honest, I think that is fairly difficult to foresee because already we're driving activity rates to above four orders per years.

There's maybe something that a couple of years ago, would not necessarily have expected, but I think it is really great sign because typically a high frequency also means lower churn and higher loyalty. So that is a development that we definitely want to continue to drive.

I think more high level, if you don't look at the orders active, but if you look at the GMV active customer, we are at a bit more than EUR250 per year and as we communicated before, if we look at the average spending per European consumer on fashion. You're talking about something like EUR1,000 per year, even a bit more and I think for the more fashion-steady customers that we're addressing is probably going to be somewhere around EUR1,500.

So if you compare to those overall budgets per customer. I think that suggest that with EUR250 we're not yet close to the end.

I think there's still opportunity to drive our share of wallet. I just think it's very difficult to forecast, if that will be driven by orders per active or it will be driven at some point also be higher baskets.

But I think overall there is more leeway to drive sales back to customer. And then on your question regarding UK, I think the launch in Czech Republic and Ireland; it doesn't mean any shift of priorities in the other markets.

I think in the case of UK, it is still important for us to see how this will [indiscernible] topic plays out and the fact that we launched two markets, I think it's a great sign and also the team enjoys it and it's great to be again entering new markets, but it has not really altered the way that we set priorities in the existing markets.

Morning, thanks. Two questions from me, please.

The German market did seem a bit stronger in the second quarter compared to the first. So I was just wondering whether it was pushed more offline into physical stores in the quarter and whether you saw that all or whether there are any particular weak KPIs to mention in the DACH region.

And then my second question is on marketing, it did raise a bit in the second quarter. I'm just wondering how it might pan out for the full year and whether you're seeing good opportunities now to invest in marketing.

So according to the numbers that we see and the second quarter in Germany was actually down year-over-year which I think includes the fashion market overall, so it includes offline and online. Of course there is always the question how precisely that can be measured in the short-term, but those are the steps that we have available and it's also, I think in line with what we in general from our brand partners on how the second quarter has been going overall.

Specifically on marketing, I think in general our strategy to bring marketing down relative to sales, but to continue to increase is an absolute terms. And I think specifically in the second half of the year, we would like to actually drive a bit more of marketing spending so specifically for the season start we have a, I think really great campaign in the pipeline that sort of celebrates 10th Anniversary of Zalando and really communicate quite well, what we stand for and what we bring to the customer so that we will play very prominently and I think for us, also like in the competitive environment overall, it will be important in the next seasons to be again a bit more present in terms of marketing, so definitely we hope to see some investments opportunities at good our eyes [ph].

Couple of questions from me. First of all just on the decreasing average basket sizes it's been going on for a couple years now.

Can you comment on any trends in items per basket this is average selling price per items? And essentially items per basket still going out.

And then, is there any future solutions that you could help us with around whether there's possibility of increasing that average basket size and if you looked at. And then the second question was just, I noticed you've got a new long-term incentive plan which is going to push the share based payment cost up to EUR55 million this year, is that level of cost that we should be expecting for the next few years.

Thank you.

Sure. So on the baskets; I'm afraid we don't break down basket trends in even more detail.

However on your question on what can be done about them. I think there are two parts to the answer.

I think one part is, that as we've seen this being a continuous trend that is driven by very important consumer shifts like a shift towards mobile, a shift towards lower our price points and since we want to leverage these shifts in order to drive more frequency and to drive more growth and more customer loyalty. I think to some extend the pressure on the net basket is something that we will have to accept and that we have to loyal to work with and really fine tune our proposition in terms of the cost structure, in terms of our customer acquisition strategy to reflect that shift overtime, but of course the second part of the answer yes there are ways to also work on the basket and work on it on a way that can be also positive from a customer perspective, so for example in the way that we drive cross-selling or in the way that we use also upselling opportunities.

I think that is something where we are definitely are not doing everything possible yet and where there's options to actually also improve our customer proposition for example, we have started recently to offer full outfits to our customers also now remains on under destination, which I think is great from a customer perspective because that's exactly the advice and the inspiration they're looking for along the other hand that also tends to lead to have basket because customers then decide to buy cheaper outfits. On the LCI [ph] and the stock based compensation, I think that is important to keep in mind that accounting for stock-based compensation is always front loaded.

So in the first years of the program you incur significantly higher cost than in the last years of the program.

Two questions from me please. First of all to summer fulfilment costs, that are up 220 bps in H1.

Did you get a break down of how much of that drug is caused by the rollout of new distribution centers or any sort of details you can give on the labor cost per unit of the new distribution centers versus build and when that should kind of start to drop out? And then second question, you mentioned on the growth margins and price investments that you've been making over the last I think 12 months or so, how long should we expect that to continue for and how will you kind of gage that you're happy with your price positioning versus competitors.

So I think on the fulfilment cost, we have commented also in the past about the FX driving up our fulfilment cost relative to sales, which continue to be related to increased convenience offering to our customers by even faster delivery return pick up proposition and all these elements which - a significant driver in our net promoter score and also significant driver in getting retention up and to make sure that, as we explained on our last Capital Markets Day, cohorts really are growing their spending overtime and are increasing their loyalty overtime. So we think that has been a very good investment for the company to make.

In terms of warehouse ramp ups, we can comment on the magnitude of the ramp up, which affects five warehouses, so almost half of our warehouses are currently in ramp up and of course that incurs additional cost. And given that, we have really been pre-poning [ph] some of the warehouses to be ready for future growth, so we don't expect that pressure from warehouse ramp up to increase going forward, actually it should help us slightly as we grow into that footprint.

And then as I mentioned basket size also has been the driver in that development. In terms of cost of sales, you're right that for a number of seasons we have been putting a bit more emphasis on price investments because we saw it at a - actually more effective driver in some cases to get additional growth and also to target younger customers and to make sure that we also win younger customers, that we then expect to be serving for very long period of time.

So I think also there, we have really tried to look at the our eye [ph] and see what the effects are and how we can drive it. I think also in the context of the discussion around the basket size, we're currently reviewing, as to what extent we wanted to continue with that shift or if there comes upon in time where we say actually now we are at the right spot and we don't need to continue into that direction, but I think that is really something we will play season by season and you've seen also over the past, the investments we've been making into pricing.

I think also have been quite measured and this is how we also intend to drive it going forward to continue to take little steps but then also to revisit, if these steps have been value creating for the company overall and value creating from sort of growth, efficiency of growth perspective.

I've two questions. The first one, on your online delivery.

You mentioned you improved it by 15%. Can I ask you how much of your orders are actually arriving on time or earlier and maybe you comment how you think, you perform versus the overall market when it comes to order fulfilment?

And the second question is, maybe a clarification on your inventory position. Rubin, how do you see your inventory position right now?

Is it clean, current? Maybe you can elaborate a bit more?

Thank you.

Sure on the first topic in terms of on-time delivery. Maybe that is a slightly misunderstanding, so in the presentation I talked about the size of the delivery window.

Right so if we tell a customer look your parcel will arrive, if you order today it will arrive Wednesday or Thursday, so we give a two-day window. And the size of that window, we have been able to reduce by 15%, so we make our prediction more narrow which customers like because then they know more clearly what to expect.

All right, so the size of the window has gone down by 15% or improved by 15%. If we look at our on-time delivery, that's of course a different question that's under question in how many percent of the cases, do we manage to fulfill within that window.

And that number of course is very high, so our internal benchmark is always 97% on-time delivery. Actually we've frequently outperformed that internal benchmark and trend more towards 98%.

So 98 out of 100 parcels, will be delivery as promised. In terms of the inventory position, the inventory position grew in line with sales so from that perspective I think it is fairly clean.

Of course there are still some spring summer stuff that we're now selling off, but it grew in line with sales, so it is developing according to plan and we don't see any major underlying issues in our inventory position.

Two questions from me. One of your British competitors have called out GDPR to negative impact on growth given that some customers could not be properly targeted as some before.

I was wondering if you saw any disruptions from the GDPR coming into effect, in May of this year. And secondly, more in general, I mean given the 25 million active customers on the platform by now and I know you generally do not talk about churn, but could you share us any insights on how many European customers you have seen overall in recent years and how much room is left to grow customers that have not tried ZALANDO before?

Thank you.

Sure on the GDPR question, I mean of course GDPR has been complex and cumbersome to implement so it has taken of some internal resources to get to the place where we need to be, but really on the customer side, we have not seen any meaningful impact and it hasn't changed the way that we do our business that we are able to target customers, that we are able to address customers, there we really have not seen impact. In terms of churn, we have shared some steps with you on the last Capital Markets Day and I think that is of the level of detail that we're comfortable to share, of course we have sort of seen more European customers than the currently 25 million active customers.

But you know, Europe is very large I think clearly there is more opportunity to grow and quite frankly ever customer that has shopped with us, but then churned away or did not buy again of course we're eager to win these customers back and we have seen many cases in the past where that was possible. So actually I would look at this population that has become inactive for whatever reason actually has seen growth opportunity that we quite actively try to re-target and win again and convince that ZALANDO is the right place for them to shop fashion.

Two questions from me as well please. The first question, just a clarification Rubin from well you said it was the end of your presentation about the third quarter.

Did you say that because of the whether there is going to be more discounting on the transitional merchandizing? And if that's the case, if I haven't understood wrongly.

If that's the case, has that already being baked into the guidance that you're given or is there a risk for a bit more gross margin deterioration in the third quarter? And the second question on the average basket size I'm afraid.

Given the reasoning that you've given on what causes the average basket size that goes down. It seems like unlikely that this will reverse anytime soon.

Is there a level, if we assume that there isn't any upselling that's going to be materialized, but well that's a possibility as you say, but is there a level where you could be potentially alerted and you will have to bake smaller average basket size into your longer term EBIT guidance. Thank you.

Sure, so on your first question. I think you correctly understood my comments on July and August, where I just wanted to emphasize that in those quarters, we see a very high share of spring summer merchandize driven by sort of the current temperature, in the current environment and as a result, that also leads to a higher share of spring, summer discounted merchandize in the overall mix of the quarter.

Of course we tried to reflect in our guidance what we currently see, of course for us it is difficult to fully reflect for example when exactly the new season will start. We don't know yet really how September and October are going to play out because that is to some extent also really driven by events that we cannot fully foresee, but to the extent that we can, we have tried to give a fair and reasonable forecast.

In terms of the average basket, as I said in the presentation. I think there is one element which is sort of a structural more long-term trend and then the other element is a more seasonal effect that we've seen specifically in the second quarter and then also of course in July and August.

And I think the second one, like the [indiscernible] trying to something where we don't expect that to continue in every season naturally. So I think based on that, the trend will be less pronounced in the coming quarters compared to what we saw in the second quarter.

ideally, our idea would be really to try to influence this change in a way or shape this change in a way, that this transition to lower baskets is sort of in line with our proposition and that is in line and can be sort of reflected and absorbed by the way, that we manage our overall financials and our overall strategy to acquire customers and to grow that spending. And I think that can be achieved by a number of the measures that we discussed and as we pointed out and maybe also additional wants to make sure that this development, even if we cannot fully revert it because then we would stop our growth, that this continued trend is really well absorbed by our financial profile overall.

Could I just try and get a bit more color on the profit swings in fashion store just by region? So obviously you mentioned that rest of Europe almost doubled in the second quarter, but it was pretty flattish in Q1.

So what sort of special factors happened in Q2 and the same thought for DACH region? I mean that pretty much halved in Q1 and it was up in Q2.

So if you got any - just any broad comments on those areas. Second question is really going back to the average order value.

I think you said at the Capital Markets Day the cost per parcel delivery was rising by about 3%, is that still the case and is that the sort of key metric we should be looking at, your average order value down 6% or so in the overall average delivery cost up 3%, is that really where the squeeze affects you most? Thanks.

So on the rest of Europe segments. I think there are number of factors contributing to it.

One was the way that we drove for example marketing specifically in the second quarter, but I think besides that there are no really bigger structural shifts. On the average order value and the pressure on fulfilment cost, I think you're - I mean the observation is correct, that we see sort of baskets sort of coming down and at the same time we see that we invest more into our fulfilment proposition and that we invest more into this really big ramp up of our capacity.

So I think directionally you're right that we see both factors coming together in this fairly large impact on fulfilment cost in the first half of this year.

Two questions. First topic, personalization.

How many ZALANDO customers do already have done individual landing page today? Or is there target for 2018 or 2019 on other words, when can we assess the benefits from personalization?

And the second topic, private label given the high relevant of the partner program that's obviously bad for private label business, is it fair to assume that the revenue contribution from private label should decrease steadily overtime or are there any plans to give private label additional push in the future. Thanks.

Sure, so on the personalization question. I think it is difficult to see how many customers have a personalized landing page because it really depends on what entry points customers choose into the assortment and depending on what that is, it might be personalized or it might not be.

I think in general what we're trying to do, I mean to assess the impact on personalization is very difficult to do. The way that we try to assess is it through AB testing and that we already do quite continuously and we look at the different measures and we look at the different touch points and prior to assess from this test set up, what impact and more personalized experience customers have and we see that actually the impact can be quite meaningful.

I think in the global KPI's, it is not easy to fully assess it. I think one data point I can give you is that conversion rate year-over-year was actually up 5% to a level of 3.9% conversion rate which is quite high and which is quite strong and I think that gives an indication that we're trending into the right direction in terms of making the digital experience and the front end more and more successful and more and more interesting to our customers.

On the partner program question, you're right this affects our private label business because essentially by onboarding more and more partners and giving them more and more space. We are creating more and more competition for our own private label and obviously that is not in line with a strategy where you would expect private label share to increase.

So that has been a strategic decision to say, actually we see the bigger value to create the platform for all the European fashion brands and then our private labels can be one brand on this platform and hopefully it's very successful. But of course in that environment it's difficult to see the private label share to grow overtime.

So we would rather expect it to be constant or even decreasing, which means the private label business can still grow in absolute terms, but in share of the platform, it might well be that it decreases or continues to decrease overtime.

Two questions, can you just give us an update on the loyalty program and share some KPIs how many people are there, is that also a drag a slight drag tier basket size. And the second question, I was just wondering if you can remind me what is your open-to-buy in currencies and at this stage.

And are you planning to increase that given the volatility in the weather and the impact on the gross margin? Thanks.

Sure so on the loyalty program, we continue to drive and grow that program and the effort in what we see is that specifically with customers that already were very active and that especially live in urban areas where with our local delivery network we can offer a far superior service, that once we get them to sign up to the program their revenues increases actually quite substantially and also their profit contribution goes up. So this is really the type of customer group that we're currently targeting the program towards.

In terms of open-to-buy, we have about 20% to 25% of merchandize that we always buy within the season and on top of that, as you know, we have now an increasing share of partner program sales and I think both elements really help us more and more overtime to manage our inventory risk more and more efficiently and I think also when you look at this season and the trends that we saw and the market environment overall. I think we're able to really manage our inventory position quite well due to these levers that we have.

Thank you very much for joining us today. We're looking forward.