Operator: It is time to start the ZOZO Q&A session for institutional investors for the third quarter of FY '25 ending in March 2026. We have on the call Director, Executive Vice President and CFO, Koji Yanagisawa, who presented the earnings results. And there will be Director and COO, Fuminori Hirose; and General Manager of Corporate Planning Office, Yusaku Kobayashi. The session will last until 6:00 p.m.
Operator: [Operator Instructions] Yoneshima-san, go ahead.
Unknown Analyst: My name is [indiscernible] Securities. I have 2 questions. One, is about ZOZOTOWN consignment business. I feel like it was a bit weak. That's my impression. And then you did mention that the fall and winter merchandise was slower. And then from January to March, you undershot plan. So my question is, do you think it is possible for you to reach to a 5% level for your growth? . And my second question, it's not so much about the earnings results, but it's really about your future direction. So inflation is happening. Cost of goods is also increasing as well. And I believe that costs are coming up as well. So cost of goods and also easing of taxes, how would they affect you? So, yes, it is true that, that could be both a headwind and tailwind for you. So what do you think about the country's financial situation and how that will affect you?
Koji Yanagisawa: Okay. So the first question will be answered by Hirose and I will answer the second question. First of all, thank you for your questions. So this Q3, it is true that November and December were big -- were weak. And then last year, Black Friday took place, and then we also had the sales. So we started off from quite a high benchmark and then the situation changed quite dramatically. Last year, we didn't have so much outerwear. And then in the third quarter, we sold a lot of outerwear in order to accelerate the growth. On the other hand, this year, we did have outerwear inventory, but the brand did not do markdowns. And then we couldn't really sell down the inventory. And you asked about the fourth quarter as well. So the inventory of outerwear, we have plenty of that as we got into the winter sales in January. So, so far, January has been doing well. So there has been some time difference. So there is the GMV budget, so consignment business for ZOZOTOWN as well as LINE Yahoo! So what we'd like to do is to continue to aim so that we can achieve the target. So we've been talking about the increasing cost of goods. So in that context, the salary is not coming up. The actual income needs to come up. I believe that, that is the fundamental event that we need to see happening. And how does cost -- increase of cost of goods affect us, our business? So, so far, it hasn't affected us much, but we are starting to see that the young segment is starting to be affected slightly by the increase in cost of goods. So there is a young segment that loves apparel. So it seems as though that segment is starting to be impacted slightly by this And then -- and we hope that the lower tax will affect us positively if it happens.
Unknown Analyst: So just kind of building on my question about increase of cost of goods. As you mentioned, the young segment is being affected by this. Do you have numerics that proved it? Maybe that is showing in LYST. But for ZOZOTOWN, when you look at your overall business, do you feel like young people are starting to be more hesitant to make a purchase?
Unknown Executive: LYST doesn't have so much -- LYST doesn't have to do with it, but for ZOZOTOWN. And it's not actually evident or prominent impact, it seems like that is starting to show a little bit but may be starting to show.
Operator: Okay. Let's go to Nagao-san.
Yoshitaka Nagao: Nagao from BoA. I have 3 questions. First, just kind of building on Yoneshima-san's question, I think this is a really interesting topic. So if young segment is starting to have an effect of that, what is the evidence of that? Do you think that's going to affect you in the average retail price or frequency of purchases? What would that show in? And my second question is GMV growth rate fell short of plan, but EBITDA achieved the highest to date number. So do you think that you'll be able to sustain this momentum for EBITDA? Or do you think that this was a one-off result? And my third question is, so there's outerwear, so heavy garments and you will be affected by the inventory level of heavy garments. Do you think that your strategy was not enough to meet the demand because of your product mix? Or do you think that you're starting to see structural change there? So that's 3 questions from me.
Unknown Executive: Okay. So I would like to answer them. So demand of the youngsters -- well, I actually didn't want the investors to react too much to that comment I just made. But the image that I have, the impression that I have is that it's not really going to the area of us seeing an impact on average retail price, but it's more about the sensitivity. So I'm not saying that the average retail price or the frequency or conversion are coming down significantly among the young people. But it seems like it's getting. We're seeing like little signs of these -- this segment weakening. That's my nuance. I'm sorry, that was a little ambiguous, no problem. And the second question is about the delivery cost. I think that's going to continue. Okay. The third question, I'd like to answer that. So changes in the product mix, the lineups. So compared to last year, the amount of outerwear did increase. But when it comes to the number of SKUs, we're seeing a decrease in the breadth of SKUs. So basically, brands are giving us more volume of the same SKU. So that is the change we're seeing this year from last year.
Yoshitaka Nagao: Sorry, can I ask additional questions? So what you're saying is that you're getting more volume of some SKUs, but it still didn't contribute.
Unknown Executive: So basically, we are -- our strategy was to sell down the inventory with the same strategy as last year, but the SKUs that had -- that were offered with markdown prices, the number of those SKUs came down for this year.
Operator: Okay. Let's go to Kazahaya-san.
Takahiro Kazahaya: Hello. This is Kazahaya from UBS. My first question is about ZOZOCOSME update. May I ask Hirose-san to give me an update on ZOZOCOSME?
Fuminori Hirose: Sure. So it's going well. So third quarter, we have the holiday season. It's going quite well. It's had a good start for the third quarter. And then the brands are starting to understand how they can better sell on our platform. So they're doing discounts, markdowns. So it's going quite well.
Takahiro Kazahaya: I see. So ZOZOCOSME, is it growing faster than the plan?
Fuminori Hirose: Yes -- it's going well.
Takahiro Kazahaya: Okay. My second question is about LYST. So you mentioned before that adding a card function is going to be important. How is that going?
Unknown Executive: Sure. I'd like to answer that. So about the card function. So we are working to implement that feature. And in the third quarter, we've been able to implement that in to some companies or brands. So this is something that we need to continue to work on in the next period as well.
Takahiro Kazahaya: So about LYST, you mentioned when you purchased the company that you wanted to be in profit from the next -- from next fiscal year in the long term?
Unknown Executive: So I think what I said was that it will be flat for this year and next year. So there might be a recording of a slight loss.
Takahiro Kazahaya: So is it correct for me to understand that, that outlook hasn't changed?
Unknown Executive: Right.
Operator: Let's go to Yamaoka-san.
Hisahiro Yamaoka: Hello. Yamaoka from Nomura Securities here. I have 3 questions I'd like for you to answer. My first 2 questions is about SG&A. The logistic-related personnel costs improving and then the inventory operation improving. Do you think you'll be able to sustain this momentum going into the future periods?
Unknown Executive: Thank you for your question. So yes, it is continuing into the third quarter. And then I believe that we can sustain this momentum as well. I may have mentioned this before, but in our warehouses, there is slow-moving inventory. And with the permission from the brands, we are engaged in the operation to return such inventory. So that we can optimize our inventory, and we believe that we'll be able to continue to do this.
Hisahiro Yamaoka: Got it. And my second question is about your shipping costs. And then in your handout, it said that as a result of the delivery cost improvement, the financial terms have improved. Could you elaborate on this?
Koji Yanagisawa: Sure. So I won't be able to go into details, but basically, at ZOZO's logistic basis, we have implemented the facility and then Yamato has been using that. And then now the load efficiency of the Yamato trucks has improved significantly, and then they were able to -- and then we were able to improve the financial terms.
Hisahiro Yamaoka: So what you're saying is that your operational efficiency has improved and then it had a positive impact onYamato?
Koji Yanagisawa: Yes, I think that's the right image. So it was not an effort made just by us, they also collaborated.
Hisahiro Yamaoka: Okay. My third question is about the effect of MUSINSA and how you see the future -- next fiscal period?
Unknown Executive: So MUSINSA is not strong enough to have an impact on the overall GMV yet.
Hisahiro Yamaoka: Where should I expect positive value impact of GMV will show up in?
Koji Yanagisawa: So MUSINSA, the impact to the overall GMV, I think you asked the same question in the second quarter. So obviously, the GMV generated with MUSINSA is not big enough to have an effect on the overall GMV, but there is Korean business customs, and we're still kind of learning our way to work with them. So we'd like to continue to communicate with the Korean brands so that we can explore the best way to work with them. And then in terms of website UI. I believe that there is a lot of room for us to improve. So by working on that, we are going to work to generate more sales -- more GMV with MUSINSA.
Hisahiro Yamaoka: So what you're saying is that the third quarter -- in the third quarter, this has just started. So is it correct for me to understand that I can accept a little more positive effect of MUSINSA in the fourth quarter and onward?
Unknown Executive: Yes, I mean, we just started our collaboration with them in the third quarter. So we want to make it full throttle in the fourth quarter and onward.
Operator: Okay. Let's go to Kanamori-san.
Kuni Kanamori: Hello, Kanamori from Nikko. I just have one question about LYST. If you can kindly tell me about list. So during the earnings call, you said that there was industry headwinds and the changes in the U.S. tariff. What do you exactly mean by that when you said headwinds of the industry and changes of the U.S. tariffs? I mean, if it's U.S. tariffs, do you think that, that's going to continue? And we also have to ask ourselves whether that's actually legal anyways. Earlier, you said that LYST was not going so well. Do you think that we are in a situation where we need to start reviewing and changing our strategy for LYST?
Unknown Executive: I'd like to answer that. So the situation of high fashion MUSINSA I mean, some are doing well. But actually, when it comes to luxury industry, my understanding is that it's not going so well, and then we are negatively impacted by that. So there are luxury EC sites that are on LYST. They are not doing so well and some have decided to exit from the business. And then U.S. tariff has changed when they're exporting to the U.S. and then LYST is negatively impacted by that. So GMV is doing below the plan. And then we believe that in terms of GMV, it's going to continue to struggle. But in terms of profit, we believe that that's going to be flat. But for LYST the advertising fee makes up for most of the promotion fees. So we can control that to control profitability or margin. So what I mean by that is that GMV is not growing as much as we hope. So what we'd like to do is control the advertising cost so that we can have a certain level of profit. Any other questions?
Operator: Nagao-san go ahead, please.
Yoshitaka Nagao: So Yamaoka-san asked this partially. I wanted to also ask about MUSINSA. So you mentioned that it could have about 1,500 brands, but I think you had a really great vertical start. Now you have 2,015 brands. And then that -- and then from the fourth quarter, you'll be able to enjoy the effect of that for the full term. So I'd like to ask you about how you plan to spend advertising expenses for that? And you also talked about exploring ways to work better with a Korean company. So is it correct for me to understand that MUSINSA continues to be positioned in your company as something that you'd like to continue to focus on?
Unknown Executive: It is definitely a focal area for us. And this is one of our efforts in enhancing different categories. So the pillar of what we are doing is to strengthen different categories. And then MUSINSA is one of the things that we are doing in order to enhance categories. And then for MUSINSA, it doesn't mean that the more number of brands we have, the more successful because some brands do not have traction power. So what we'd like to do is to work with those Korean brands and collaborate in a better way so that we can generate more GMV.
Operator: Sato san, go ahead.
Hiroko Sato: Sato from Jefferies. I just have one single question about the number. So Korean brands, so you started out with 140 brands. And then did you say that you have 250? No, no, no. Did I hear it wrong?
Unknown Executive: Yes, you heard it wrong. So we started out with 140, and then we have 2,015 brands.
Hiroko Sato: Oh, I'm sorry, 2,015. I understand. And then the contribution of sales, when is that going to show in a prominent way. Do you think that, that can show up not in the next term, but afterwards because there are many things that you need to make adjustments?
Koji Yanagisawa: Well, I'd like to answer this, sorry. So the question is how much impact do you define as a prominent impact? If your expectation is that MUSINSA does JPY 20 billion or JPY 30 billion, if that is your outlook, that's not the level that we are expecting. It is true that they have a lot of number of brands. But I wouldn't call it just a single shop, but it is an addition of one incremental category. I want to use COSME as an example to explain this. So this is our fifth year. And then finally, in the sixth year, we generate JPY 15 billion with this category. So that's the type of speed.
Hiroko Sato: So for some reason on my app, it's not showing up. MUSINSA is not showing up maybe because I'm older, I don't know. So I was wondering how that was like. And then before, previously, you -- you were saying that you're considering to increase the number of categories that you handle. Can you give me an update on that?
Unknown Executive: So MUSINSA is the first addition of a new category. And -- so increasing the number of categories in terms of that, so MUSINSA is the very first example of marketplace model that we implemented. And now we have the right foundation in place for such business model, a marketplace model. So -- and then now we're able to have companies and brands do business without sending their inventory to our warehouse.
Hiroko Sato: My third question is that when you do shopping on ZOZOTOWN, you oftentimes come across like announcements, notifications, pop-ups that said, we'll give you 10% discount if you buy apparel and cosmetic at the same time. Do people buy that way?
Unknown Executive: Yes, there's a lot of cross purchases. So there are users that are willing to buy an apparel item, and then we engage in a promotion to promote cosmetics so that they can buy cosmetics with apparel. So it's not the other way around. Right. So that's what we need to strengthen for ZOZOCOSME because now apparel plays the main role and then -- and COSME comes as a secondary category. So what we want to do going forward is to create a cycle so that the users can start to come to our platform looking and wanting to buy cosmetics.
Hiroko Sato: Okay. So you started out with guidance of 2% and then your -- you've been making upward revision. So for sales and GMV, it's a little bit lower. So is it correct for me to understand that this is something that you want to enhance? Or is it more going to be organic growth?
Unknown Executive: You said 2%, where is that?
Hiroko Sato: Well, your annual guidance was at 2-point-something percent. That's only for advertising business.
Unknown Executive: Oh, no. It's the advertising revenue. Okay. Sorry, yes, you're right, 2%. Sorry, what was your question?
Hiroko Sato: So in the fourth quarter, do you want to step on the gas for advertising business? And then in the Q&A section, when you came up with the guidance, I think someone mentioned that this was a little conservative or weak. So I thought that and then some thought that -- this is something that you could strengthen by to reply that, you said that there aren't so many places you can place an add. So it seems as though the number is growing more than we expected. Although it's in the later part of the single digit. So is this something that we can have high expectations. So -- like sorry, spots to place in ad.
Unknown Executive: I mean we don't have so many places to put as I mean -- because it's basically listing ad. So the number of places -- placements -- places we can have those ads is limited or it's fixed. And it is true, but as you mentioned, that it's going well. It's going steadily. So far, we don't expect to see a prominent growth of our advertising business because -- and then we need to find another opportunity. Otherwise, I don't think we can have a significant growth there. Okay. We're getting close to the closing time. Let's go to the last question.
Operator: [indiscernible] san go ahead.
Unknown Analyst: So I just wanted to ask one question. So when you divide this November -- sorry, October, November and December. So I believe that for a particular month, there are colder days. Shimamura and other players have had weaker results. So if you separate October, November and December, how does demand look like? And then you said that the number of SKUs came down. I'm sorry, I'm not so good in Japanese and Korea. So I didn't quite understand that part. So coats and like heavy garments, you carried them as your inventory, but the product mix was different. Is that what you're saying? Or are you saying that some SKUs turned out to be weak.
Unknown Executive: Okay. So to answer your first question, which is about the situation of October, November and December. So in -- so November, we were on plan. And with October and December where we undershot the plan. So in November, we had ZOZOWEEK, so that's a sales event. And -- we didn't -- we had lower-than-expected GMV from that. And then in December, it did pick up in the latter part, but it wasn't enough to offset. And you asked about the SKU. So let me rephrase it so in a way that it's easier to understand. So the number of styles, I guess, of outerwear turned out to be less. But the inventory volume was higher. Does that make sense?
Unknown Analyst: Yes.
Unknown Executive: Really, did you. Did that make sense? All right. Thank you.
Operator: It is time to end the Q&A session. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]