ZOZO Aktie

[Interpreted] It is time. So, we would like to begin. Good evening, good afternoon. This is Kobayashi from ZOZO. Thank you very much for taking part in the conference call for ZOZO's FY 2026 Second Quarter Earnings.

[Interpreted] From ZOZO, we have the Executive Vice President and CFO, Koji Yanagisawa, as well as myself, Kobayashi, taking part. We would like to jump right in and have Yanagisawa take you through the earnings results.

[Interpreted] Good evening, everyone. I would like to take you through our results for FY 2026 second quarter. Starting with an overview of the GMV for FY 2026 Q2 declined by 1% year-on-year, landing at JPY 309.4 billion. GMV excluding -- other GMV increased by 5.7% to JPY 309.2 billion. Adjusted EBITDA increased by 5.1% year-on-year to JPY 34.6 billion, and the adjusted EBITDA margin was relatively flat, landing 11.2%. We achieved 45.6% of our plan with respect to GMV, excluding other GMV, and 44.4% of our adjusted EBITDA. GMV decreased year-on-year, but this is because as of the end of September 2025, we ceased recognizing GMV generated by stores operating under ZOZO Option agreements on Yahoo! Shopping.

GMV excluding other GMV fell slightly below plan for ZOZOTOWN, but LINE Yahoo! Commerce overachieved our plan. In total, our performance broadly in line with our expectations. On the other hand, regarding the adjusted EBITDA, we improved the efficiency of our shipping and logistics center operations, resulting in packing and shipping costs as well as logistic cost savings. Moreover, some actual promotion expenses planned for Q1 remain unconsumed, thus we are tracking slightly ahead of plans. Here are the quarterly trends in the consolidated results. Please refer to Page 9 of the presentation materials. GMV, excluding other GMV for this fiscal year second quarter increased by 6.3% year-on-year.

The business was impacted by lower summer temperatures, which resulted in lower demand for summer products. Therefore, its performance fell short of plan. On the other hand, the GMV excluding other GMV for LINE Yahoo! Commerce was largely in line with expectations due to increased investment in promotional activities. The adjusted EBITDA increased 7.7% year-on-year and adjusted EBITDA margin was 10.4%. This surpassed our expectations due to cost savings in packing and shipping as well as logistics. Next, please refer to Page 5 of the presentation materials. I would like to explain about the initiatives we undertook in the second quarter towards achieving our midterm management plan.

First starting with More Fashion, we took preorders of the T-shirt collection commemorating 30 years of Pok mon. Moreover, we began offering a new feature, niauroom by ZOZO, which helps us assess which finds the most suitable style out of 28 styles, and users can also virtually try on clothes using Gen AI. Next, with respect to Near Fashion in the second quarter, we accelerated our efforts to direct ZOZOTOWN users to HIGHLINK's key service, Coloria. We also opened Coloria shop on ZOZOTOWN where they sell their own private label products and selected perfumes. Lastly, regarding our global initiatives, the key initiative for this year was to add the checkout function on LYST, and we are continuing to onboard new partners.

For ZOZOFIT, we started offering the B2B service ZOZOFIT Pro, which enables trainers, clinics, and other businesses to manage and use their customers' body measurement data. Now I would like to take you through some details about the business results. Please turn to Page 10. This is the year-on-year comparison of the increase, decrease analysis of the adjusted EBITDA. Four factors contributed to the increase in the adjusted EBITDA. First, ZOZOTOWN Business LINE Yahoo! Commerce grew, resulting in an increase of gross profit by JPY 3.75 billion. Second, the advertising business sales contributed JPY 0.31 billion.

Third, longer LYST consolidation period and HIGHLINK consolidation resulted in an increase in gross profit by JPY 0.97 billion. And lastly, we have also successfully impacted shipping costs due to improved economic terms agreed with our logistic partners since the third quarter of last year, and we also improved the efficiency of our logistics center operations, thereby driving down logistics-related payroll, reducing the variable cost by JPY 0.53 billion. On the other hand, there were 3 factors that drove the adjusted EBITDA down. First, depreciation of material handling equipment began in existing logistics centers, and HIGHLINK consolidation added the number of consolidated employees, resulting in an increase in fixed cost by JPY 1.41 billion.

Second, acquisition and promotional costs increased, and so the actual promotion expenses increased by JPY 1.58 billion. And thirdly, higher consumable expenses driven by rising packaging materials costs, along with communication expenses led to an increase in cost of JPY 0.88 billion. Moving on to Page 11 of the presentation material, I would like to take you through our balance sheet. Compared with the end of the previous fiscal year, cash and deposits under current assets decreased due to share repurchases, transfer of funds to a securities account in preparation for further share repurchase, and payments of dividends and corporate income taxes, among other factors.

In addition, treasury stock increased within shareholders' equity because of the share repurchases. Regarding the share repurchase, we are making steady progress. And as of the end of September 2026, we have completed JPY 19.1 billion. Moving on to Page 12 of the presentation material. Here are the changes in cash flow. Cash flow for business activities increased by JPY 4.2 billion year-on-year, primarily due to an increase in profit before income taxes for the first half of the fiscal year. Cash flow from investing activities decreased by JPY 16.3 billion year-on-year since expenses related to the acquisition of HIGHLINK was relatively lower than that spent for LYST.

And lastly, cash flow from financing activities increased by JPY 19.1 billion as we repurchased our shares. Next, turning to Page 23 of the presentation material, I would like to take you through the changes in the SG&A expenses. SG&A expenses as a percentage of GMV was 22.6%, decreasing by 0.4 points. There are 2 key reasons why. First, we improved our shipping efficiency that we were able to agree on more favorable economic terms with the logistics partner in October of last year. And we saw the ratio of smaller packages, Nekopos, increase as well as AOV, resulting in a 0.5 point decrease. Efficiency reducing logistics payroll.

On the other hand, there are also 2 reasons why the SG&A expenses increased. First, in addition to the increase of web ad expenses for ZOZOTOWN, the longer LYST consolidation period and HIGHLINK consolidation led to an increase of 0.2 points. And secondly, goodwill amortization expenses increased by 0.2 points due to the longer LYST consolidation period and HIGHLINK consolidation. Moving on to Page 26 of the presentation material. Here are the trends in actual promotional expenses. Actual promotional spending in the second quarter, which includes advertising and promotional expenses as well as point-related costs and other incentives recorded as deductions from revenue, was 5% as a percentage of GMV.

Year-on-year, this percentage rose by 0.3 points because of mainly 3 reasons. First, free shipping campaigns and strengthening of personalized discount initiatives on ZOZOTOWN. Second, increase in advertising for LYST; and third, recognition of HIGHLINK advertising expenses. The spending for the second quarter was largely in line with our plans, but we still have unspent budget from the first quarter. The spending in the first half fell slightly short of plans. We do plan to spend those funds in the third quarter onwards. So, the spending for the full fiscal year will be similar to that of last year, around 4.8% as a percentage of GMV.

Next, moving on to Page 27, you will find the number of total buyers. The annual buyers increased by 130,000 to 13.5 million. If we break this down, active members increased by 120,000 to 12.84 million, and guest buyers increased by 10,000 to 710,000. We have seen steady acquisitions in the second quarter for ZOZOTOWN, and especially in September, ZOZOWEEK, which we did not organize the same period previous year, contributed to new acquisitions. Next, moving on to Page 32 of the presentation material, you will find our average retail price. The average retail price was JPY 3,640, increasing by 1.6% year-on-year.

Although the prices of new fall/winter items increased slightly, overall price levels of new products remain largely unchanged year-on-year. We organized the campaign in September, thus the discounted sales ratio increased marginally. But as the average discount rate declined, the average retail price increased. Turning to Page 33. The average order value was JPY 8,388, up by 2.5% year-on-year. We conduct a more frequent free shipping campaigns, thus the number of items purchased per order increased. This, combined with the increase in average retail price, led to a higher increase in the average order value than the average retail price.

Next, no change to the consolidated earnings forecast. And from here on, I would like to briefly take you through the content that Sawada explained earlier today. This slide explains our thoughts about the widespread of AI. We basically think that there will be 2 scenarios. The first scenario involves a consumer's AI agent directly communicating with the supplier to purchase products. This means that the traditional EC players' role will be more marginalized, but this usually will apply to generic products, products that are quite similar, so products such as sundries. Scenario 2 involves not only a consumer AI agent, but the AI agent on the supplier side.

This will be applied to products where you would need supplier AI agents as well to be able to provide the optimal recommendation. So, in this case, the consumer AI agent and the supplier AI agents will be communicating with one another and thereby proposing optimal products. So, the main difference would be whether the information is very clear and also straightforward and whether this information will be -- a lot of this information will be publicly available. And in that case, scenario 1 would apply. But the scenario 2 would involve more complicated, complex, ambiguous information. And oftentimes, this information is not publicly available.

Scenario 2 would most often apply to the fashion industry. And since ZOZO has a wealth of data, we will be well positioned to take advantage of scenario 2. And our initiative attempts to do just that. Traditionally, people would actually search for products or gather product information on social media, or we will conduct promotions and people who are exposed to that will come to our website to service to purchase. So, on top of that, we are trying to implement OMO initiatives so that we can improve our acquisition and retention through services such as those that you see on the right-hand side. For example, we have the niaulab TV on YouTube, and we also have WEAR and its coordinate service here.

Lastly, this is a more detailed image of what I just described. Right now, we already offer niaulab TV on YouTube where you can find how-to videos for styling. And we also have WEAR where we are actually proposing different styling and outfits. On top of that, on ZOZO, we are trying to embed features such as having our AI learn about styling through machine learning, we are proposing the optimal styling as well as helping people select the products that would look best on them.

And in the physical stores, we are currently developing, for example, a virtual mirror, which will enable people to virtually try on clothing. So, across all these touch points, we are implementing initiatives so that people can enter from various different touch points. That concludes my presentation. Apologies about the lengthiness.

[Operator Instructions] [Interpreted] Any questions?

[Interpreted] I have 2 questions. First question, thank you for your explanation about the first half. It was very clear where you are. But can you talk about your industry outlook for the second quarter or second half of the year?

[Interpreted] So, in terms of the second half, we believe that the climate will be the biggest impact. It's been discussed that El Ni o will result in a warm winter this year. So, maybe brands are feeling a little bit anxious and cautious. Having said that, many brands have learned from the warm winters that they have experienced in the past. So, in terms of the inventory levels, we do not believe that many brands will overproduce and be left with a large quantity of inventory surplus.

[Interpreted] Is it okay to assume that the current risks are already incorporated into your plans?

[Interpreted] Not extensively. So, if it does become a very warm winter and we end up not being able to sell any heavy items, then we would be impacted to a certain extent. If everything goes as planned, it should be okay.

[Interpreted] In terms of you touched upon LYST's performance, but can you talk about the business environment as well as forecast?

[Interpreted] So, this fiscal year in terms of NMV and GMV, LYST is doing relatively well. We believe that the high-end brands have started to recover somewhat. So, the trends that we have seen before seems to have bottomed out. And so this current business or traditional business, the fee business is doing well. However, in terms of its new business, meaning adding a checkout function and having the payment take place on its platform. In terms of that, acquisition of new brands is slightly behind our plan. So, we need to accelerate efforts in the second half so that we can see more adoption.

[Interpreted] Thank you, Mr. Kazahaya. Any other questions, please raise your hand if you have any. Any questions? We would like to wrap up today's conference call. Thank you very much for taking part today. Thank you very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

[Foreign Language]

[Interpreted]

It is time. So, we would like to begin ZOZO's FY 2026 second quarter Q&A session for institutional investors.

Sawada; Yanagisawa; as well as Fuminori Hirose, Director and COO; Yusaku Kobayashi, General Manager of Corporate Planning Office. These 4 will be responding to your questions today. We plan to finish this session at 6:10. [Operator Instructions]

Mr. Yamaoka from Nomura Securities. Please go ahead.

My name is Yamaoka from Nomura Securities. So, I have 3 questions. First, July, August, September, I would like to know about the sales environment. You mentioned that the summer demand was a little bit low. But on the other hand, when you think about last year, you mentioned that fall/winter products didn't sell as well in September. But when we compare the 2 quarters last fiscal year and this fiscal year, can you talk about the environment and how sales trended? Should I just ask you 3 questions at once?

Yes.

That's the first question. And the second question, at the very end, you mentioned the AI engine strategy. Until now, you have talked about keeping the platform's value. And I think you talked about -- you've been talking about a strategy that was a little bit more defensive. But if you have any initiatives that will, of course, help you achieve sales uplift a little bit more aggressive strategies, that will be great. And this is very detailed.

Second quarter's SG&A, Others. When we look at the 3 months in the second quarter, it looks like the SG&A expenses increased for Others this quarter. So, can you talk about that?

The first question, Hirose will talk about.

So, let me take that first question. July to September, sales environment compared to last year. Last year, as you mentioned, last year was hot. This year was more moderate. And so, July, August, Y-o-Y wasn't that great this fiscal year. But as you mentioned before, we did ZOZOWEEK this year, but we didn't do it last year. September as well was colder. In September of last year, we saw mainly summer items. But this September, we sold more expensive products such as sweaters, heavier items. So, September was great this year. September was the best and then July and August was -- if you rank the growth rate, that would be the ranking.

In terms of the GMV growth and AI strategy being more offensive, niaulab is an offline service that we offered. So, when people came there, a stylist was there to welcome you and would propose items that look best on you and people could physically try on clothes. ZOZO members who came to our niaulab, actually, their purchase amount doubles after coming to the lab. We also have a YouTube program as well. We see that many people who are viewing or watching that program are buying more on our site.

But it's important that people actually recommend what looks great on you. We believe that if we can make the optimal accurate recommendations, purchase amount will increase. People have played a role until now, but we want to utilize technology and AI. We're trying to use AI and technology to make as accurate recommendations. We believe that if we can make that happen, then GMV will grow.

The third question, Kobayashi, please go ahead.

I will take that. Others -- increase in Others is mainly 2 factors. The packing materials have increased from June of this year. The second reason is AWS and cloud server usage rate has also increased as well. So, those 2 factors contributed to the increase in Others. July, August, September, the first question. So, it's overall external factors didn't change drastically since last year. No. Of course, there were ups and downs. But if you average it, it's not very different from what we saw last year.

Next, Yoneshima.

My name is Yoneshima from Citigroup Securities. I also have 3 questions. First question is similar to what was already asked. Other expenses increased. And in terms of operating margin, it wasn't -- I felt like it wasn't that great last year, but it didn't grow as expected this fiscal year is my thought. So, you mentioned some prices going up and then you also consolidated LYST and HIGH LINK. So, those -- there are those factors. But in terms of cost increases, do you see any increase or decrease in cost that was outside of your expectations? So, that's the first question.

And the second question is not really related to the earnings briefing, but GMO as well, security is an urgent matter and yourselves as well in the first half of the year, you experienced some impact from security. But AI, what kind of efforts are you implementing to ward off such cybersecurity attacks? That's the second question.

And the third question, MUSINSA, you had a pop-up and -- pop-up with MUSINSA and Pokemon T-shirts as well. You mentioned that, that's doing very well. But in October, maybe not. Can you talk about October and tell us if you're doing better than you expected or you're broadly in line with your expectations? Please let me know.

First question, Yanagisawa, can you take that?

Yes. First question, in terms of margin increase, the second quarter, as Kobayashi mentioned, some factors and consolidation as well, we're seeing lower margins. But the second half, we don't foresee any factors that will drive the costs further up. We believe that we should see margins that are similar to the past. We're going to be using more advertising expenses in the second half. That's about it.

Then the second question, security. I will respond to that question. Globally, it's a urgent matter. For ourselves as well, we are putting all of our efforts into warding off such attacks, preparing. But last year or maybe 2 years ago, group company, ASKUL experienced some hardships. So, from that point, we have implemented security efforts until in the past. But unfortunately, learning from ASKUL's experience, we have put in a lot more effort into protecting ourselves. On top of -- we've employed extra efforts. I think it's impossible to say that we're completely fine, but we are doing our best to prepare.

In the second half, there are no costs. We won't see anything in the second half that will impact the PO or impact cost due to cybersecurity initiatives. But third point, Hirose, can you take that question?

Yes, I will respond to your question. First, about MUSINSA pop-up, that is a POC for cross-border efforts in the future. We didn't really do that expecting huge sales. It's just a test, marketing effort. And Pokemon, we're going to be delivering in the third quarter, but it's doing extremely well. This is something that we didn't expect in the beginning. That's an upside. And October, it was much warmer than last year. That's an external factor. We can't really sit back and relax yet. However, November, we have ZOZOWEEK and Black Friday as well. Those are some main events that we will have. We're preparing for those main events now.

This is a follow-up question. Cross-border, can you talk about what that was like? And also, I'm sure you haven't decided on the timing, but when will you have another effort?

So, we did a pop-up in Korea, and we are selling Japanese brands in MUSINSA but the brand awareness is not as high yet. But going forward, MUSINSA's power as a platform in Korea is great. So, we want to utilize their power as a platform to see what kind of results we will see, and we'll decide what we will do next depending on those results, and we haven't decided on the schedule.

Moving on to Mr. Kazahaya.

This is Kazahaya. Sorry, I couldn't catch the company name. I couldn't hear him, but I have 3 questions. Two questions about numbers. First question, finishing the first half, you talked about GMV before, but ZOZOTOWN slightly fell short of plans, but LY did great. But first quarter, you implemented similar initiatives, but why was there such a gap in the performance of those 2 businesses in the second quarter?

And the second question, it's a question about GMV as well, purchases, purchase stock is growing. And compared to the previous year, it seems like there's been a big change there. So, is there -- please ask now if there's anything worthy of mentioning there. And also third point, your -- from your point of view, fall/winter fashion industry, how is it trending? I'm sure you're converse with the brands. And when you look at the data, can you talk about the macro environment surrounding fashion?

Hirose, can you answer all 3?

Yes, I will do so. The first half GMV, ZOZOTOWN fell short, LY did well. The gap here, ZOZOTOWN fell short, but it's not a huge gap. We don't think that, that is a big problem. LINE Yahoo, LY Commerce, they actually had a lot more ZOZO Festivals. The frequency increased. Therefore, this wasn't included in the plan. Because they have more ZOZO Festivals, we saw greater sales. But Kobayashi, can you talk about the purchased stock, IP.

Are you talking about IP? Sorry about that. It's a collaboration with -- from Masuda san from news. So, we started shipment of those products, sorry. That's -- I have forgotten about that. That's why we've seen the increase. By the way, Pokemon as well, this is also purchase stock as well. The third quarter, we will see an increase of that. Lastly, fall/winter environment, as we mentioned before, October is hotter than usual. With El Nino, we're going to probably see a warmer winter this year. It's not a great environment for us. That's a lot of headwinds.

But on the other hand, brands product lineup over the last 4, 5 years, it's been -- the winter has been warm. The brands have also adjusted their offering. Merchandising and inventory levels, we believe, will be quite appropriate.

One follow-up. Thank you, Mr. Hirose. The ZOZO Festival, the decision to do so, the frequency changed. It wasn't initially planned, but can you talk about the decision-making process there?

LINE Yahoo and us, we discuss and decide whether we should have a ZOZO Festival. In the beginning, we do have a frequency in mind, but it's quite flexible. We might have ZOZO Festival together with ZOZOWEEK to further drive sales. But in terms of ZOZOTOWN then, it is underachieved. However, it's broadly in line with your plans.

Mr. Kawano, please go ahead.

This is Kawano from Goldman Sachs. I have 3 quick questions. First question is about fall/winter environment. Brands continue to raise their prices. But when you look at the inventory that you're currently receiving, have you seen any changes in the average retail price? I'm sure the average retail price is positive, and it is impacted by the sales that you have discounts that you offer. But can you talk about the average retail price as well as the price of goods that you've received so far? That's the first question.

Second question, ZOZOUSED, secondary market, there is a tailwind there, tailwind continues, but it is getting to a certain scale. So, can you talk about -- can you share your thoughts on the ZOZOUSED? And Mr. Sawada, you talked about AI. You talked about your plans for AI, and this is something that you need to do. But in the U.S. payments could become a barrier and could be an opportunity. So, in Japan and the U.S., payment regulations are different. But in -- of course, there's a lot of -- you already have members, but in terms of payment, any impact that payment can have on AI? Can you touch upon that? That's my third question.

So, I will answer all 3 questions. First, in terms of the fall/winter prices, when we look at the average, it's slightly higher, a few percentage points. That's the data. Sales price, we don't think that the retail -- average retail price has gone up dramatically. Therefore, we don't think that the demand should weaken and the average retail price, we don't think that it will drastically increase either. We don't see major movement -- major change this fall/winter season. When you look at each individual brand, it will vary by brand, but on average, no major change.

Second, with respect to ZOZOUSED, it is growing faster than ZOZOTOWN. That's our plan, and it is doing well so far. And this, too, we want to strategically strengthen this. We've said we try to do so over the last couple of years. Because we sell mainly new items, we can purchase and we can resell these items in a unique original way. Usually, when in the used business, you need to rein in costs. That's very important. But we have the data because we're selling these products as a new product, and we can predict -- we understand very well how much we should be buying these products for. So, we have a unique service.

And going forward, we want to create a used market around products that are not as expensive. That is a strategic theme that we want to continue to grow and address. And in terms of AI and payments, so that is the path splits there. So, from the EC -- with respect to payments, who should make the payment? Is it EC or agent? And of course, there's a payment collection impact, who's going to pay -- which will be better? Is it better if the EC players or the agents do it? Where -- who will benefit will be key. And it's very valuable data to know what people bought.

Nowadays, this person who's 37 male living somewhere and to be able -- the typical marketing initiative we don't do, bearing in mind the people's attributes, we quick data such as, he bought this yesterday, so he's going to buy this tomorrow. Payment data, purchase data is very important. It will be a huge gap whether we have data about what they bought today, 2 days ago. But of course, we want to find a way where we can have our users make the purchase on our site. That's it.

Next, Ms. Kanamori. Please go ahead.

My name is Kanamori from Nikko. I have 2 simple questions. First, Pokemon T-shirt is my first question. In the past, you've done very -- you had a collaboration with Tsuyoshi Domoto, but that collaboration was great, but Y-o-Y, you didn't do as great because you didn't have another great collaboration. And I think that's a shame that you can't keep the momentum going. And so, you have the Pokemon collaboration this year. But when you keep in mind the Y-o-Y comparison, are you implementing some plans so that the collaborations can continue to generate positive impact?

And second question is when you buy clothes, do they want to -- do people want to buy clothes that look great on you? Or -- because some people can feel aspirational, maybe they want to look like somebody else even if they -- it doesn't look great on them now. So, for women, I don't know about men, but for women, they actually try to -- try clothing that may not necessarily suit you, that's a little bit more aspirational. So, is there a market there in terms of aspirational dressing?

So, Hirose will answer the first question. Thank you.

So, I will respond to that question. Pokemon T-shirts are doing very well. Y-o-Y comparison-wise, might be tough next year like Tsuyoshi Domoto collaboration. But with respect to collaboration, we do have a team working on collaborations and sales teams as well as management team and production team. We have 3 different teams working on collaborations. We have a comprehensive team in place addressing this. Depending on the content, it might -- the positive uplift might be big or small, but we want to strengthen IPs as well as collaborations with different IPs. Content will impact the performance, but this is something that we want to continue to improve and enhance.

The second question about what looks great on you, the definition -- it might be a definition issue, but what looks good on you? Maybe sometimes it's not the best word to use, but if you just look -- think about what looks good on you, you might think about a service that a stylist provides, but what we're thinking about in the algorithm, as you mentioned before, it does include the aspirational aspect. What's big here is that what looks good on you from your point of view as well as other people's point of view. The perception will differ depending on who's looking at the styling.

It's important to know we will provide different patterns on how clothing looks great on you, and we're actually thinking about both or referring to both in -- with the word, what looks good on you, but we want to cover both aspirational as well as what looks good on you right now. There are people who love clothes and who don't love fashion as much. The balance between whether you think something looks good on you or what others think, you're trying to strike a different balance depending on their love for fashion. It's true for men, but men will be like we want to get recommendations about clothing where people won't diss you for wearing that. They don't know if it looks good on them, but they don't want to be dissed. So, it's a very wide ranging.

Thank you very much. Any other questions? So, it is a little bit early, but since there aren't any more questions, we would like to wrap up today's Q&A session. Thank you for joining us.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

It is time. So we would like to begin ZOZO's FY 2026 Second Quarter Earnings Briefing. This session is being live-streamed only. And this session will end at 5:30. Afterwards, from 5:40, on a different Zoom channel, we will have a Q&A session for institutional investors. .

Let us introduce the presenters today, President and CEO, Kotaro Sawada.

Thank you.

Executive Vice President and CFO, Koji Yanagisawa.

Thank you very much.

We have 2 presenters today. Without further ado, we would like to have the CFO, Yanagisawa, to take you through the results.

So I will take you through the FY 2026 second quarter earnings results. This presentation material has been already uploaded on the IR site, so please take a look.

Let me take you through our results for this quarter. The GMV for FY 2026 second quarter declined by 1% Y-on-Y, landing at JPY 309.4 billion. GMV, excluding other GMV increased by 5.7% to JPY 309.2 billion. Adjusted EBITA increased by 5.1% Y-on-Y to JPY 34.6 billion, and the adjusted EBITA margin was 11.2%, flat from last year.

We achieved 45.6% of our plan with respect to GMV, excluding other GMV and 44.4% of our adjusted EBITA plans. GMV decreased Y-on-Y, but this is because as of the end of September 2025, we ceased recognizing GMV generated by stores operating under ZOZO Option agreements on Yahoo! Shopping.

GMV, excluding this, fell slightly below our plan, but LINE Yahoo! Commerce overachieved our plans. So then in total, our performance was broadly in line with our expectations. On the other hand, regarding the adjusted EBITA, we improved efficiency of our shipping logistics center operations, resulting in packing and shipping costs as well as logistics cost savings.

Moreover, some actual promotion expenses planned for Q1 remain unused as we are tracking slightly ahead of plans. We have achieved record high GMV, excluding other GMV and adjusted EBITA for the second quarter.

Moving on to Page 9. Here are the quarterly trends and the consolidated results. GMV, excluding other GMV in the second quarter increased by 6.3% Y-on-Y. We talked about this a little bit already, but the ZOZOTOWN business was impacted by lower summer temperatures, which resulted in a lower demand for summer products. Thus, as I mentioned, its performance fell short of plans. On the other hand, the GMV excluding other GMV for LINE Yahoo! Commerce was largely in line with expectations due to increased investment in promotional activities.

The adjusted EBITA increased 7% year-on-year, and the adjusted EBITA margin was 10.4%. This surpassed our expectations due to packing and shipping and logistics cost savings.

Moving on to Page 5 of the document. Next, I would like to tell you about the initiatives we undertook in the second quarter towards achieving our midterm management plan.

First, starting with the key area, More Fashion. We took preorders of the T-shirt collection commemorating 30 years of Pokemon. The initiative worked extremely well and contributed to new acquisitions as well. Moreover, with WEAR, we utilized our proprietary data and AI and introduced a new feature, Niau Room by ZOZO, which helps users find styles that suit them. The feature comes with Fashion Core Assessment, which finds the most suitable style from out of 28 styles, and users can also virtually try on clothes using Gen-AI. So we hope that you will give this a try.

Next, with respect to Near Fashion, the one in the middle. In the second quarter, we accelerated our efforts to direct ZOZOTOWN users to HIGH LINK's key service, Coloria. We also opened Coloria's shop on ZOZOTOWN, where they sell their own private label products and selected perfumes.

Lastly, regarding our global initiative. The key initiative for this year was to add the checkout function on LYST, and we are continuing to onboard new partners. And we started offering the B2B service for ZOZOFIT -- ZOZOFIT Pro in the U.S., which enables trainers, clinics and other businesses to manage and use their customers' body measurement data. So we have started to offer the ZOZOFIT Pro service in the U.S. We will continue to make steady progress in initiatives across all business areas to achieve our midterm management plan targets.

Now I would like to take you through Page 10, but we'll take you through the business results. So here is the Y-on-Y comparison on the increase/decrease analysis of the adjusted EBITA. Compared to the same period last fiscal year, the adjusted EBITA increased by JPY 1.69 billion, from JPY 32.90 billion to JPY 34.61 billion.

Four factors contributed to the increase in adjusted EBITA. First, the ZOZOTOWN business and the LINE Yahoo! Commerce GMV grew, resulting in an increase of gross profit by JPY 3.75 billion. The advertising business sales contributed JPY 0.31 billion. Third, longer LYST consolidation period and HIGH LINK consolidation resulted in an increase in gross profit of other businesses by JPY 0.97 billion. And fourth, we have also successfully reined in packing and shipping costs due to improved economic terms agreed with our logistic partner since the third quarter of last year, and we also improved the efficiency of our logistics centers operations, thereby driving down logistics-related payroll, reducing the variable costs by JPY 0.53 billion.

Three factors drove the adjusted EBITA down on the other hand. First, depreciation of material handling equipment began in the existing logistics centers, and HIGH LINK consolidation resulted -- or added to the number of consolidated employees, resulting in an increase in fixed costs by JPY 1.41 billion.

Second, acquisition and promotional costs increased, and we also saw an increase in the expenses related to the LYST and HIGH LINK consolidation, resulting in an increase in actual promotional expenses by JPY 1.58 billion.

Third, higher consumable expenses driven by rising packaging material costs, along with increased IT and communication expenses due to greater use of cloud services, led to an increase in costs -- other costs by JPY 0.88 billion.

Next, Page 11. This is the balance sheet. Compared with the end of the previous fiscal year, cash and deposits under current assets decreased due to share repurchases, transfer of funds to securities account in preparation for further share repurchases, and payments of dividends and corporate income taxes, among other factors.

In addition, treasury stock increased with shareholders' equity because of the share repurchases. Regarding share repurchase, we are making steady progress. And as of the end of September 2026, we have completed JPY 19.1 billion of the maximum JPY 30 billion.

Next, Page 12 of the materials. Here are the changes in cash flow. First, cash flow for business activities increased by JPY 4.2 billion Y-on-Y, primarily due to an increase in profit before income taxes for the first half. Second, cash flow from investing activities decreased by JPY 6.3 billion Y-on-Y, since expenses related to the acquisition of HIGH LINK was relatively lower than that spent for LYST.

Lastly, cash flow from financing activities, this increased by JPY 19.1 billion as we repurchased our shares.

Next, Page 23 of the materials. I would like to take you through the changes in SG&A expenses. SG&A expenses as a percentage of GMV was 22.6%, decreasing by 0.4 points Y-on-Y.

There are two key reasons why. First, we improved our shipping efficiency as we were able to agree on a more favorable economic terms with the logistics partner in October of last year, and we saw the ratio of smaller packages, Nekopos, increase as well as AOV, resulting in 0.5 point decrease.

Second, we also optimized the inventory levels in the logistics centers and improved operational efficiency, reducing logistics-related to -- logistics-related payroll by 0.2 points.

There are also two reasons why the SG&A expenses increased. First, in addition to the increase of digital ad expenses for ZOZOTOWN, the longer LYST consolidation period and HIGH LINK consolidation led to an increase of 0.2 points. Second, goodwill amortization expenses increased by 0.2 points due to the longer LYST consolidation period and HIGH LINK consolidation.

Next, Page 26 of the materials. Here are the trends in the actual promotion expenses. Actual promotion spending in the second quarter, which includes advertising and promotion expenses as well as point-related costs and other incentives recorded as deductions from revenue was 5% as a percentage of GMV.

Year-on-year, this percentage rose by 0.3 points because of these three main factors: one, free shipping campaigns and strengthening our personalized discounts initiatives on ZOZOTOWN. Second, increase in advertising for LYST. And thirdly, recognition of HIGH LINK advertising expenses. So these are the three key factors.

The spending for the second quarter was largely in line with our plans, but we still have unspent budget from the first quarter. The spending in the first half fell slightly short of plans. We plan to spend these funds in the third quarter onwards. So the spending for the full fiscal year will be similar to that of last year or 4.8% as a percentage of GMV. These plans have not changed.

From here on, I would like to take you through ZOZOTOWN's KPIs. Page 27. Number of total buyers. From here onwards, the results of LINE Yahoo! Commerce and LYST or our B2B business are not included. The annual buyers increased by 130,000 to 13.55 million, comprised of active members, which increased by 120,000 to 12.84 million and guest buyers increased by 10,000 to 710,000.

Our digital ads and various initiatives within ZOZOTOWN contribute to steady acquisitions in the second quarter as well. Especially in September, ZOZO Week, which we did not organize the same period last year, contributed to new acquisitions. On the other hand, because we strengthened digital ad efforts and introduced referral campaigns last fiscal year, when compared to the recent couple of quarters, the increase in the number of active members was rather moderate. So there was an offsetting of positive and negative impact.

Next is the average retail price trends. This is Page 32 of the earnings material. The average retail price was JPY 3,640, increasing by 1.6% year-on-year. Although the prices of new fall/winter items increased slightly, overall price levels of new products remain largely unchanged year-on-year.

We organized the ZOZO campaign in September. Thus, the discounted sales ratio increased marginally, but as the average discount rate declined, the average retail price increased slightly.

And moving on to Page 33. This is average order value trends. The average order value was JPY 8,388, up by 2.5% year-on-year. We conducted more frequent free shipping campaigns. Thus, the number of items purchased per order increased. This, combined with the increase in average retail price led to a higher increase in the average order value than the average retail price.

Lastly, Page 36. Here are the consolidated earnings forecast and dividend forecast for this fiscal year. The forecast remains unchanged. We would like to continue to do our best to achieve our targets.

That concludes my portion of the presentation. I would like to give the floor to our CEO, Sawada.

So I would like to tell you about some of our strategies that we are considering going forward. What I will be talking about is AI or AI agents. I'm sure you hear AI, AI agents quite often nowadays. You probably hear those words every day. And I'm asked this question quite often. So I would like to talk about our thoughts regarding AI agents.

As you can see here, so this is a viable model. Internet services, this can be applied to most Internet services and, of course, this applies to us as well. What is written here is that supply and demand. The Internet services provide value by linking supply and demand. So there are many businesses that are helping connect supply and demand. But Step 1, this is from before, but differentiation through volume, many companies start there.

So we started there by welcoming a lot of brands. So we -- first step, we evolved through adding supply, increasing supply. And then the Step 2 differentiation through search convenience and recently, differentiation through personalized convenience as well. So have been providing services that enable consumers to find what they want, find things that are -- that match their preferences.

And I'm going to talk about AI agents now. But right now, AI agents are embedded in PCs and smartphones of our consumers. And AI agents, in terms of Scenario 1, they can actually directly contact supply to find items that would match the preferences of consumers. The Scenario 2 is something that we're also thinking about. Of course, consumers will, of course, AI agents will continue to recommend items that the consumers would want, match their preferences. But supplying usual agents will be a little bit more generic. The recommendations will be more generic.

So if we have the supply agent and the demand agents converse with one another, we would be able to provide even more optimal products to consumers. So that's Scenario 2. But it's not either/or. It depends on the product. Generic AI, AI agents and recommendations, as you can see below.

So Scenario 1, of course, where information on merchandise and services is clear and widely available as public information. So those kind of product Scenario 1 would apply. But on the other hand, if the service and product information is a little bit vague, ambiguous, and public information is not available, so supply side has proprietary data around such products. So we would like to -- we are developing agents that can reference our proprietary data and make even more sophisticated recommendations.

Fashion -- Scenario 2 would apply to Fashion. Of course, there's publicly available data. But depending on who wears it, the product will look different, fit different. So there's a lot of that kind of data. So we have that data on purchase history and various preference data as well. So we have a lot of different types of data. And right now, ZOZO is trying to head towards Scenario 2.

Moving on to the next page. So this is a more detailed diagram of what we just talked about. So through ZOZOTOWN, ZOZO has done basically the blue arrow portion. So we provide -- through touch points, we promote various products, and we have the users discover what they want and they can -- we invite them to ZOZOTOWN and they make purchases through ZOZOTOWN. And once they buy something, then we will continue to compile information or data about what they purchase, what they like. And so by running this cycle, of course, we continue to improve the customer's LTV. So that's something that we continue to do.

But our positioning of the AI agent, the blue loop. So one, the AI agents would actually -- we were trying to create the orange portion. This is a portion that the AI agents will play in. It's a loop that sits within this blue loop. So as I mentioned before, the way products look or the way consumers think about products, WEAR, fits differs depending on the person. So what looks best on them? So it's a lot of complicated information.

And we are creating algorithms and agents that will be able to tell you what will look best for them. And it's not just about buying products. People will be able to know what looks good on them, what's optimal for them, and they can make a purchase. And they can also learn about how better to wear the products that they have as well. So they can ask the algorithm or AI agents. So we want to create another loop around styling.

So what's included within this orange arrow is that, on the right, this is what we've done in the past couple of years. The most primitive way is to introduce how to wear the clothes that you have on YouTube. So we don't only introduce products, we, of course, wanted to tell -- show users how they can wear them. So we've done this over the last 3 years, and we have a lot of viewers now. So there is a lot of demand for how to wear the clothes.

And online as well, on our account, we have AI conversational styling proposal. So we call it AI Lab-kun, but we release this AI recommendation feature, so consumers can speak to this AI, and we're going to -- we're fine-tuning the style recommendations.

And WEAR, as well as Yanagisawa mentioned, we have the Fashion Core Assessment. So you can find something that you like very easily. And you can also see the style that would look best on you, suit you best. So we will be able to make an assessment -- do an assessment and propose the best styling for the user.

And in recent years, Gen AI or virtual fitting is becoming quite standard, but we are also offering a virtual try-on service as well. And also on ZOZOTOWN, we're still building this, but we are building an AI where people can talk about -- talk to that while they're selecting products. So we are trying to create these kind of agents right now. And we also believe that touch points outside of Internet is necessary, and we're also trying to create something that we temporarily coined Niau Mirror. So those kind of devices we're developing right now.

Going back to the proprietary data, we do have unique data, and we want to utilize that data to sophisticate our Niau styling algorithm so that we can continue to recommend the best styles for our consumers, our users.

So this is a summary of what I just explained. But as you can see here, the objectives are slightly different. However, how to -- we want to basically enable, empower people to find their style. So we want to create a system or engine service so that people can find their style. And we'll continue to fine-tune our services so that we can realize the orange loop that I touched upon before.

That concludes my explanation. Thank you very much.

That concludes ZOZO's FY 2026 second quarter earnings briefing. Thank you very much for joining us.

[Interpreted] It is time, so we would like to begin. All right. Good evening. This is Kobayashi. We would like to begin. Thank you very much for taking part in ZOZO's FY 2026 First Quarter Conference Call. From our firm, we have the Executive Vice President and CFO, Yanagisawa as well as myself, Kobayashi. Without further ado, we would like to have Yanagisawa to take you through the earnings results.

[Interpreted] Everyone, good evening. I would like to take you through the FY 2026 Q1 results. First, if you could turn to Page 6, I would like to start us off with an explanation of the repurchase of shares and their cancellation that we announced on June 16.

[Interpreted] This initiative will enable us to further strengthen our shareholder returns and improve our capital efficiency, thereby enhancing our corporate value.

[Interpreted] Since FY 2023 ending in March '24, we have aspired to achieve an average total shareholder return of 80% over the span of 5 years. Based on 70% dividend payout ratio, we have taken into account our cash position and share price levels and have flexibly bought back our shares so that we can further enhance our shareholder returns.

[Interpreted] We have decided to repurchase our shares from the market with a maximum total purchase amount of JPY 30 billion or 43 million shares.

[Interpreted] The repurchase period is scheduled to run from June 17, 2026 through December 30, 2026.

[Interpreted] Moreover, all the shares acquired will be canceled on January 29, 2027.

[Interpreted] By doing so, the ROE for FY 2026 will surpass 50%, significantly improving from 46.6% the ROE as of the end of FY '25.

[Interpreted] Now I would like to take you through the FY '26 Q1 results.

[Interpreted] GMV for this quarter decreased by 1.6% Y-o-Y to JPY 156.7 billion and GMV, excluding other GMV, increased by 5.1% Y-o-Y to JPY 156.6 billion.

[Interpreted] Adjusted EBITA increased by 3.6% Y-o-Y to JPY 18.7 billion. Adjusted EBITA margin was 12%, decreasing by 0.1 points Y-o-Y.

[Interpreted] The achievement rate against our plans for GMV, excluding other GMV, was 23.1% and 24.1% for adjusted EBITA.

[Interpreted] The GMV has decreased Y-o-Y as the GMV from the ZOZO Option contract store on Yahoo! Shopping are no longer included as of September 2025.

[Interpreted] GMV, excluding other GMV, have been impacted by less demand for summer products on ZOZOTOWN and LINE Yahoo! Commerce due to lower temperatures in June than the previous fiscal year but it landed in line with our plans for the quarter.

[Interpreted] On the other hand, adjusted EBITDA was slightly higher than our plans due to improvements in shipping efficiency and warehouse operations, resulting in lower cost in packing, shipping and logistics as well as unspent promotional expenses due to the promotional schedule being pushed back.

[Interpreted] We have achieved record high Q1 GMV, excluding other GMV, and adjusted EBITA.

[Interpreted] Now if you would turn to Page 5. Next, I would like to talk about the Q1 initiatives for achieving the midterm management plan.

[Interpreted] First, with respect to more fashion, proactive promotions have resulted in steady acquisition. Moreover, from July, we have started to provide ZOZO Niau [ coordinate AI Lab bot ] agent on the official LINE account. We will continue to improve our services to increase traffic.

[Interpreted] Second is Near Fashion. PMI with HIGH LINK that we have begun in May has been going well. And to further enhance synergy, we have included flyers in ZOZOTOWN's packages to direct customers to HIGH LINK's key service Coloria.

[Interpreted] Lastly, regarding global initiatives, an important undertaking for this year is to add the checkout function on LYST, and we are on track in terms of increasing the number of merchants opting into this service.

[Interpreted] We will continue to undertake various initiatives to achieve our midterm management plan.

[Interpreted] Now let me take you through some key results.

[Interpreted] On Page 10, you will find the adjusted EBITA decrease analysis for Q1.

[Interpreted] The adjusted EBITA has increased by JPY 650 million from JPY 18.09 billion to JPY 18.74.

[Interpreted] This is due to 4 reasons: ZOZOTOWN and LINE Yahoo! Commerce GMV has increased, resulting in a gross profit increase of JPY 1.47 billion. And second, advertising business grew and sales increased by JPY 70 million.

[Interpreted] Thirdly, LYST has been consolidated for a longer period of time and HIGH LINK has begun to be consolidated, resulting in a gross profit increase of JPY 500 million. And lastly, better terms negotiated with the delivery service provider has led to packing and shipping cost savings and better logistics center efficiency has resulted in payroll cost savings, thereby reducing variable costs by JPY 390 million.

[Interpreted] On the other hand, the adjusted EBITDA has decreased due to 3 reasons: first, higher depreciation expenses following the commencement of depreciation for material handling equipment used for shipping at existing logistics facilities as well as an increase in the number of consolidated employees resulting from the consolidation of HIGH LINK, and these have led to an increase in fixed cost by JPY 730 million. Second, higher customer acquisition and promotion expenses as well as increased expenses resulting from the longer consolidation period of LYST led to an increase in underlying promotion expenses by JPY 750 million and other expenses increased by JPY 300 million.

[Interpreted] Next, moving on to Page 11. This is our balance sheet.

[Interpreted] Compared with the end of the previous fiscal year, cash and cash equivalents decreased mainly due to funds transferred to a securities account for the share repurchase program and tax payments, while goodwill increased following the acquisition of HIGH LINK as a wholly owned subsidiary.

[Interpreted] Moving on to Page 22. I would like to talk about the SG&A expenses.

[Interpreted] The SG&A expenses as a percentage of GMV was 22.1%, down 0.6 points from the previous fiscal year.

[Interpreted] The SG&A expenses decreased due to mainly 3 reasons. By improving shipping efficiency, we were able to improve our economic terms with the delivery service partner as of October 2025, thus lowering the packing and shipping expenses by 0.6 points. Second, logistics-related personnel expenses decreased by 0.3 points due to improved operational efficiency, driven by initiatives such as optimizing inventory storage volumes at logistics facilities. And thirdly, due to the absence of the one-off expenses related to the acquisition of LYST that were recognized in the same period of the previous fiscal year, the cost decreased by 0.3 points.

[Interpreted] On the other hand, the SG&A expenses increased due to 2 reasons: one, depreciation expenses increased by 0.2 points following the commencement of depreciation for shipping-related material handling equipment at existing logistics facilities; and second, amortization of goodwill increased by 0.2 points due to the longer consolidation period of LYST and the beginning of the consolidation of HIGH LINK.

[Interpreted] On Page 25, you will find the trends in the actual promotion-related expenses.

[Interpreted] In the first quarter, actual promotion-related expenses, or the sum of advertising expenses and point-related expenses deducted from net sales, was 4.5% of GMV.

[Interpreted] The reason why this percentage against GMV has increased by 0.3 points Y-o-Y are: one, we strengthened web advertising and free shipping initiatives for ZOZOTOWN; and second, the consolidation period of LYST was 1 month longer than in the same period of the previous fiscal year.

[Interpreted] Although the actual promotion-related expense percentage has increased, the consumption fell slightly below our plans. The unused budget will be utilized in Q2 onwards and the full year spending against the GMV will be 4.8% around the same level as last fiscal year.

[Interpreted] Page 26 onwards, I would like to talk about the ZOZOTOWN KPIs.

[Interpreted] First starting with the number of buyers. The number of annual buyers increased Q-on-Q by 240,000 to 13.41 million. If we break this down, the number of active members increased Q-on-Q by 230,000 to 12.71 million and the number of guest buyers increased Q-on-Q by 50,000 to 690,000.

[Interpreted] As was the case last fiscal year, we increased our investment in web ads this quarter, resulting in steady increase in new acquisitions.

[Interpreted] Moving on to Page 31, the average retail price.

[Interpreted] The average retail price was JPY 3,682, down 1.7% Y-o-Y.

[Interpreted] Price increases implemented by brands for new spring/summer merchandise moderated with price levels remaining broadly in line with the previous year.

[Interpreted] On the other hand, the average retail price declined as both the proportion of sales from discounted items and the average discount rate increased.

[Interpreted] Moving on to Page 32. The AOV, average order value, was JPY 8,506, down 0.4% Y-o-Y.

[Interpreted] The number of items purchased per order increased as free shipping initiatives were implemented more frequently than in the same period of the previous fiscal year and the increase in the proportion of sales from discounted items led to a higher multiple item purchase rate. However, the decline in the average retail price had a greater impact than the increase in the number of items purchased per order, resulting in a decrease in the average order value.

[Interpreted] Lastly, on Page 35, you will find our consolidated earnings forecast and dividend forecast, and there have been no changes made to these numbers. This concludes my explanation.

[Interpreted] Now we would like to move on to Q&A. [Operator Instructions] David-san, please go ahead.

It's David Gibson from MST Financial. Just to clarify on LYST, what is the like-for-like sales growth in the first quarter, please?

[Interpreted] So basically, Q-on-Q or compared to the same period last year, the growth rate is flat. However, last year, they were only consolidated for May and June. And this year, they're consolidated for the full quarter. So in that sense, it would appear as though they've grown by 30%.

Sure. But if we just look at the -- to your point, the year-on-year and look at last year was 2 months, and we gross it up, I think it implies at about down 10%, 11% year-on-year. Is that not correct?

[Interpreted] So if we just look at the month of May and June, the growth rate is basically flat. So it hasn't negatively grown as you had mentioned.

No problem. And just what's your thoughts on the -- do you have any change for your expectations for this year for LYST and its losses for the year, given you said in the call and the presentation, you're working on improving the checkout. So I was just wondering whether you've changed your expectations for this year for this business.

[Interpreted] So with respect to this, we have announced from the very beginning that we will be focusing on adding the checkout function to their services, and we didn't disclose exactly how many merchants or what our target is, but we would like to significantly increase opt-ins. And with that in mind, we have estimated that the GMV will remain flat, and that was our initial plan, and this has not changed.

And just on the quarter, you said obviously it was a good April, May. June was soft because of the colder weather. And then obviously, July has picked up. But just overall, the quarter, is it right to say it was in line with your plan? Just with -- particularly with the consignment business, you did 3.6% growth. You've guided to 4.1%. So it looks like you're behind, but is it like perhaps July is that much better that you're back on target again?

[Interpreted] So yes, as I mentioned, June was a little bit colder. So the performance is a little bit lower than we expected, but we did pretty well in April and May. So overall, for the quarter, we are on track with our plans.

[Interpreted] And June was a little bit softer, but July, the weather has gotten hotter, so we are seeing improvements.

[Operator Instructions] No questions.

[Interpreted] Thank you very much. It is a little bit early, but as there seems to be no additional questions, we would like to wrap up. Thank you for taking part in today's conference.

Thank you very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

[Foreign Language] We would like to begin ZOZO's FY 2026 first quarter Q&A session for institutional investors.

As was the case for the earnings briefing, we have on the call Director, Executive Vice President, and CFO Koji Yanagisawa and also Director and COO, Fuminori Hirose; as well as the General Manager of Corporate Planning Office, Yusaku Kobayashi here with us.

These three will be answering your questions. We plan to wrap up the session at 6:00 p.m. [Operator Instructions]. Please go ahead.

My name is Terai from JPMorgan Securities. I have two questions. First question, ZOZOTOWN businesses and LINE Yahoo! Commerce GMV. So, you mentioned that it was lower than expected because of the lower temperatures, but how do you plan to achieve the fiscal year targets? And what's the forecast going forward?

Koji Yanagisawa, please go ahead.

Thank you very much for your question. ZOZOTOWN and LINE Shopping GMV forecast going forward, June, as I mentioned before, we were impacted by climate. However, July is doing well. Last year, from June, we saw higher temperatures and those temperatures and then in July was a little bit cooler, but it's been reversed this year, but July has been doing well for now.

And as I mentioned before, the number of buyers has been increasing as well. Promotions, mainly web advertising, we will be investing proactively. So, we will continue to increase the number of new users. And with respect to at ZOZOTOWN business, we aim to achieve the fiscal year target. And LINE Yahoo! Shopping, we will use ZOZO Festival to try to achieve the fiscal year target. That's it.

The second question is about LYST. First quarter, the top line grew by 30%. But what's the currency impact and as well as the organic growth, taking into account the different timings for the fiscal year wrap-up.

So, we are seeing some impact from the currency, but organically, GMV is growing a little bit more positively, but we don't disclose specific numbers, but we are seeing better performance than last fiscal year.

I have one more follow-up question. So, the pick-up function is on track. And if you proceed on track, do you believe that the trend should improve in the second half of the year?

This fiscal year, this business plan, the numbers include, increasing the number of merchants using the pick-up feature. And if we can progress on track, we should be achieving our fiscal year target, but we don't know if we will overachieve those targets, but we should be able to achieve our targets.

That's it from my end. thank you very much for your question.

Moving on to Yoneshima from Citigroup Securities.

I also have two questions. First question, the number of buyers is growing quite steadily, but the average retail price and average order value, Yanagisawa, you did explain that earlier, and we understand the factors impacting those KPIs. But even if we are doing promotions, AOV and ARP continues to decline, and this trend hasn't really changed. But I don't know if it's AOV or ARP or maybe both. How do you try, what kind of issues are you thinking of to try to reverse the downward trend?

Koji Yanagisawa, please go ahead.

The average retail price, honestly, it's out of our control. Actually, it's hard for us to control because the brands set their retail prices and also set the discount as well. So, we cannot control the ARP at least. In terms of AOV, though, we have set a JPY 12,000 or above free shipping threshold. And those free shipping campaigns we conducted regularly, and we'll continue to do so to increase the AOV, but we don't have a clear initiative to further enhance or improve the AOV.

This is a follow-up question, but consumers as well, do you feel like they're spending less or is there any impact from the consumer trends? Or is it just mainly based on the free shipping campaigns, or the prices set by the brands?

We don't know if they're unwilling to spend. Clearly, the data doesn't show that clear trend, but the inflation does continue. So, there are many places where they're spending money and they have to spend more as well. So maybe the users are thinking about their total spend. It would be great if the inflation wouldn't work in your favor, but the purchasing power and also if the brand's ARP increases as well, of course, if that matches up very well, then we'll see a positive impact.

Second question is not about the earnings results. You said that you're going to buy maximum of JPY 30 billion and quite a sizable repurchase amount. And you bought HIGH LINK as well. And of course, even with that in mind, you have announced a very sizable share repurchase. And of course, you'll be spending money on M&A going forward. But I know that you're trying to improve your ROE. So, I thought that it was a little bit early to conduct the share repurchase, but can you share background as to why this was the right time for you?

There are multiple reasons. First, cash flow-wise, it's not a problem to do so. And M&A, we might, we will more M&A in the future. But even with that in mind, we still have sufficient funds. So, we wanted to efficiently use the cash on hand and also share prices are relatively reasonable right now. Therefore, we thought that it would be a good time to conduct share buyback. And the third reason is the ROE. We wanted to improve the ROE, stop it from falling any further as quickly as possible. So, 80% is a five-year average of total shareholders' return. And in order to achieve that, that's why we decided to undertake the share repurchase at this point in time. So, capital wise, there's no issue.

That's great to hear and reassured.

Moving on to Kuni Kanamori.

This is Kuni Kanamori from Nikko Securities. I have two questions. The payroll, logistic-related payroll and packing and shipping expenses have dropped. In the presentation material, you explained this to a certain extent. However, could you give more color why is this happening in second quarter onwards? Will this continue? That's the first question.

Koji Yanagisawa, please go ahead.

In terms of the logistic-related expenses, we have made many improvements, small improvements in improving operational efficiency, especially in terms of, we have spent a lot, invested in improving education when receiving inventory and that has produced great results as well. And in terms of cost, of course, the inventory levels, it will be key to see if we can maintain the optimal inventory levels. And if we can actually continue to have a well-balanced inventory level, we should be able to see better efficiencies, cost savings in comparison to the previous fiscal year.

So that's the first question. And in terms of shipping, so generally speaking, 2025 of November, Nekopos is a very compact shipping option and the size has become bigger actually. So as a result, we've seen we can ship more items using the very compact shipping fee. Therefore, we're seeing great cost savings from the bigger compact size shipping option available.

And 2025, October, since then, we have been enjoying lower shipping fees due to better terms. And so, from halfway through the third quarter, of course, it will be one year since we started enjoying those lower costs. So, Y-o-Y, we shouldn't see that much of an impact.

Understood. About the Nekopos, it has worked positively for you. That happened from before, right, not just for first quarter. So the fourth quarter, you were enjoying benefits from that as well, and you're actually using Nekopos even more heavily. Is that right?

Compared to the fourth quarter, the first quarter, we can send summer or spring/summer products and that fits more of those products fit within the Nekopos. So of course, we are enjoying benefits from Nekopos this quarter than the previous quarter.

And Yamato's contract hasn't changed since, right?

No.

And the second question, ZOZOCOSME update achievement rate against the budget. Can you talk about the cosmetics business?

We are doing well against the budget. So we are welcoming more and more brands and more brands are taking part proactively in different promotions. And then there is, we also had Anastasia as well. So our recognition is increasing. First quarter, we've done quite well in cosmetics.

So it's on track with the budget or are we overachieving, underachieving?

We're on track.

Next, Hisahiro Yamaoka from Nomura Securities.

My name is Hisahiro Yamaoka. Basically, one question, GMV, I just wanted to double check. Just double checking, but the first quarter, the total GMV was on track with the plan, total GMV. So June, it was a little bit weak. But April, May, we did well. So if you look at the whole entire quarter, we're on track, yes. And it's related to that a little bit, but the number of members are increasing. And on the other hand, the average retail price has come down. Therefore, even though the number of members are increasing, but GMV hasn't changed all that much. But how do you connect the increase in membership to higher GMV? I don't know if the connect is the right word, but is it more advertising or how do you plan to expand GMV? What kind of initiatives are you thinking of to increase the GMV?

So new acquisitions, it's been growing since last year, last fiscal year. But in the first year, people won't buy, even if we try hard, they won't really buy as much the first year. So, second, third year will be more key. So, they're not going to convert right after they become a member. So that's a given. But we want to make sure that they stay with us and buy more. And in order to encourage them to buy more, we need to add categories, brands. And we want to offer them an AI agent niaulab service and fully utilizing those services so that users can discover and we can provide products that the users want. So that is first and foremost important.

Next, moving on to Yoshitaka Nagao.

My name is Yoshitaka Nagao from BofA. I have two questions. One, GMV, I don't think it's a direct competitor with you, but Mercari is doing quite relatively well, and they're selling more men's and women's categories as well. I think those categories are growing for Mercari. But your users, the purchase amount, frequency, do you think in addition to that, do you think, are you seeing any impact from competitors? Do you feel that there is a threat?

We don't really think about competitors. But brands, physical stores, of course, we keep track of how their monthly performance are doing. And I talked about June not being that great for us, but other brands are underperformed in June. So we don't really, we're not too concerned about Mercari, for example.

And second question is about advertising. You said that, the base comparison for advertising is quite similar to the previous year. And I think that you're on track with your internal plans. But second quarter onwards from last fiscal year, the hurdle is not that high. And the advertising is doing okay. So what's the forecast for the advertising business going forward? And is there any changes in the initiatives for the advertising business?

I can answer that. I can take that as well. Advertising, ZOZO Ads is actually listing ad and also banner ads as well as advertising to include flyers within the packaging. But the packaging advertising isn't actually increasing. But the other types of advertising, so the banner and also search ads are not growing as much, but the packaging ads are actually growing well. And I don't think that it will be quite tough to grow the ads with the current products that we have. So we are considering other types of products, but we don't think that we'll see explosive growth for the advertising business.

And lastly, about costs, you mentioned the economic terms being more favorable from October of 2025 with the delivery partner. But going forward, for example, do you foresee any additional improvements in the economic terms? Any changes you foresee in terms of shipping or any kind of other efficiency gains, any initiatives around that?

In terms of shipping cost, shipping costs for now, we don't expect any changes in the economic terms. So, it will stay at the current level. But in terms of the operational efficiency, as Kobayashi mentioned, cost should be coming down to a certain extent. But over the midterm, as I mentioned before, next fiscal year onwards, 2028, we have a new logistics center that will be made available, and we will automate that to improve our shipping efficiency. So we want to make sure that we can make that happen. So that's some of the key big things for us logistically.

And related to that, I have a follow-up question. Material handling equipment, you invested in that and you have to pay more depreciation because of that. And you said that increased by 0.2 points this quarter. But when you look holistically, of course, can we expect that the investment has actually worked in your favor, improving efficiency?

Yes, we already calculated and simulated that when we implemented those equipment, we won't see a benefit right away. But over the long term, we believe that it will contribute to cost savings. That's why we decided to invest in these kind of equipment.

Kuni Kanamori, please go ahead.

This is Kuni Kanamori from Nikko Securities. I just have one big question. The midterm KPI is More Fashion, Near Fashion and Global, but of course, I understand that we shouldn't be keeping track of your progress yet, but your progress is still unclear. And with respect to LYST, you have disclosed your top line sales by HIGH LINK. I didn't know where it was included in the sales. And qualitatively, can you talk about the contribution? And I think operating profit and EBITDA would be better, but what's the uplift that is contributing to, for example, if you can give us more details about HIGH LINK as well.

In terms of disclosures, as you just mentioned, More Fashion, yes, we have some numbers, but Near Fashion and Global, we don't have anything to disclose yet. So we have included qualitative updates for Near Fashion and Global. So that's the status in terms of midterm plans and KPIs at the moment, we probably may be able to offer some progress update at the end of this fiscal year.

And Yanagisawa, can you talk about the detailed numbers for HIGH LINK?

So, with respect to HIGH LINK, in terms of sales, other sales, it's included in other sales. And sales target for HIGH LINK, it's about JPY 2 billion or JPY 3 billion. We've announced that already. So from the total, if you consider the total, it's not going to have a huge impact. The contribution will be quite minimal. And in terms of contribution to profit, compared to the total sales contribution is going to be limited. And as you can calculate from that, it's not going to significantly impact the consolidated profit. That's the current status. Company-wide profit is after or before goodwill either way.

And you talked about this, and organic growth was positive, you mentioned that, but HIGH LINK growth, what's the status of the growth for HIGH LINK?

Sorry, I'll respond to that question as well. So, no change from the previous year is the current situation. But going forward, second quarter onwards, we will enhance our synergy or integration with ZOZO, and we believe that, that will help the HIGH LINK sales grow.

You mentioned including advertising within the ZOZO packages. And you started to do that at the end of the first quarter. So, we'll see results in the second quarter.

The first quarter, we tested the ROI and tested which users will respond more positively to the advertising. So yes, the results will come further down the line.

Thank you very much. Any other questions? It's a little bit early, but we would like to wrap up the Q&A session. Thank you very much for joining this session.

It is time. So we would like to begin ZOZO's FY 2026 First Quarter Earnings Briefing. The earnings briefing will be live-streamed only. And we plan to end the session at 5:20, and at 5:30 on a separate Zoom channel, we will have a Q&A session for institutional investors.

I would like to introduce the presenter for today, Executive Vice President and CFO, Koji Yanagisawa.

Thank you.

We will jump right into the earnings briefing.

So I will take you through the FY 2026 first quarter results. The presentation materials are available on our IR site. So please take a look.

This year's fiscal -- this fiscal year's theme for the presentation materials and design, Our Place, follows in the first steps of last fiscal year's theme or design: Our Talent. So this year, it has been designed around our place where we work. And this is a sketch of our headquarters in Nishichiba. The design embodies our belief that talent and companies are shaped by the atmosphere and culture of the location and the connection that we form with people in the community. So we hope that you'll enjoy our theme throughout the fiscal year.

Moving on to the explanation. Please refer to Page 6. I would like to start us off with an explanation of the repurchase of shares and the cancellation we announced on June 16. This initiative will enable us to further strengthen our shareholder returns and improve our capital efficiency, thereby enhancing our corporate value.

Since FY 2023, ending in March 2024, we have aspired to achieve an average total shareholder return of 80% over the span of 5 years. Based on 70% dividend payout ratio, we have taken into account our cash position and share price levels and have flexibly bought back our shares so that we can further enhance our shareholder returns.

We have decided to repurchase our shares with a maximum total purchase amount of JPY 30 billion or 43 million shares from the market. The repurchase period is scheduled to run from June 17, 2026 to December 30, 2026. All of the shares acquired will be canceled on January 29, 2027. By doing so, the ROE for FY 2026 will surpass 50%, significantly improving from 46.6% the ROE as of the end of FY 2025.

Now I would like to take you through the FY 2026 Q1 results. The first quarter FY 2026, the GMV decreased by 1.6% Y-on-Y to JPY 156.7 billion. GMV, excluding other GMV, increased by 5.1% year-on-year to JPY 156.6 billion. Adjusted EBITA increased by 3.6% Y-on-Y to JPY 18.7 billion. Adjusted EBITA margin was 12%, decreasing by 0.1 points Y-on-Y. The achievement rate against our plan for GMV, excluding other GMV, was 23.1% and 24.1% for adjusted EBITA.

GMV as a total has decreased Y-on-Y by 1.6% as the GMV from the ZOZO Option Contract Store on Yahoo! Shopping are no longer included as of September 2025. Therefore, from September 2025, the GMV from the ZOZO Option Contract Store are no longer included. That is why you're seeing a negative here.

On the other hand, GMV, excluding other GMV, actually, our actual performance has been impacted by less demand for summer products in ZOZOTOWN and mainly LINE Yahoo! Commerce due to lower temperatures in June than the previous year. But in April and May, for the quarter, it landed in line with our plans for the quarter. So we landed at 5.1% Y-on-Y -- plus 5.1% Y-on-Y.

On the other hand, adjusted EBITA was slightly higher than our plans due to improvements in shipping efficiency and warehouse operations, resulting in lower cost in packing, shipping and logistics as well as unspent promotional expenses due to the promotional schedule being pushed back. So those are the key factors. So we slightly overachieved the plan.

We have achieved record high Q1 GMV, excluding other GMV, and adjusted EBITA. So these are both record high for the first quarter.

Next, moving on to Page 5. I would like to talk about the Q1 initiatives for achieving the midterm management plan. There are 3 areas. First, with respect to More Fashion, proactive promotions have resulted in steady new acquisitions. Moreover, from July, we have started to provide ZOZO's [ new coordinating ] AI Lab-kun agent on the official LINE account. And we have talked about this from the past, but this is an AI agent that we have embedded into our official LINE account. And we will continue to improve our service to further increase traffic.

Second is Near Fashion. From May, we have started consolidating with HIGH LINK. The PMI with HIGH LINK has been going well. And to further enhance synergy, we have included buyers in ZOZOTOWN's packages to direct customers to HIGH LINK's key service, Coloria. So we have begun these initiatives.

Lastly, regarding Global initiatives, an important undertaking for this fiscal year is to add the checkout function on LYST. And we are on track in terms of increasing the number of merchants opting into this service. So this is on track with our plans. We will continue to undertake various initiatives in each area to achieve our midterm management plan.

Now let me take you through some specific results. If you could go to Page 10. First, the adjusted EBITA increase-decrease analysis as of the end of the first quarter. The adjusted EBITA has increased by JPY 650 million from JPY 18.9 billion to JPY 18.74 billion. The adjusted EBITA has increased due to mainly 4 reasons.

First, ZOZOTOWN and LINE Yahoo! Commerce GMV has increased, resulting in a gross profit increase of JPY 1.47 billion. Second, advertising business grew and sales increased by JPY 70 million. Third, LYST has been consolidated for a longer period of time, and HIGH LINK has begun to be consolidated, resulting in a gross profit increase of JPY 500 million. And fourthly, better terms negotiated with the delivery service provider has led to packing and shipping cost savings and better logistics center efficiency has resulted in payroll cost savings, thereby reducing variable costs by JPY 390 million.

On the other hand, the adjusted EBITA has decreased due to 3 reasons. First, higher depreciation expenses, following the commencement of depreciation for material handling equipment used for shipping at existing logistics facilities as well as increase in the number of consolidated employees resulting from the acquisition of HIGH LINK have led to an increase in fixed cost by JPY 730 million.

Second, higher customer acquisition and promotional expenses as well as increased expenses resulting from the longer consolidation period of this, leading to an increase in underlying promotional expenses by JPY 750 million and other expenses increased by JPY 300 million.

Now turning to Page 11. Here is the balance -- consolidated balance sheet. Compared with the end of the previous fiscal year, cash and cash equivalents decreased mainly due to funds transferred to a securities account for the share repurchase program and tax payments, while goodwill increased following the acquisition of HIGH LINK as a wholly owned subsidiary. The share repurchase program, as I mentioned before, is progressing as planned.

Next, Page 22. Here is the breakdown of SG&A expenses. The SG&A expenses as a percentage of GMV was 22.1%, down 0.6 points from the previous fiscal year. The SG&A expenses decreased due to mainly 3 reasons.

One, by improving shipping efficiency, we were able to improve our economic terms with the delivery partner, thus lowering the packing and shipping expenses by 0.6 points, and this has come into effect as of October 2025. Second, logistics-related personnel expenses decreased by 0.3 points due to improved operational efficiency driven by initiatives such as optimizing inventory storage lines on logistics facilities. Third, due to the absence of one-off expenses related to the acquisition of LYST that were recognized in the same period of the previous fiscal year, the cost decreased by 0.3 points.

The SG&A expenses increased due to mainly 2 reasons. First, depreciation expenses increased by 0.2 points following the commencement of depreciation for shipping-related material handling equipment at existing logistics facilities. Second, amortization of goodwill increased by 0.2 points due to the longer consolidation period of LYST and the commencement of the consolidation of HIGH LINK.

Moving on to Page 25. Here are the trends in the actual promotion-related expenses. But I forgot to explain that the sketches here have also been updated. So please pay attention to the new sketches as well. Sorry about that.

But here are the trends in actual promotion-related expenses. In the first quarter, actual promotion-related expenses or the sum of advertising expenses and point-related expenses deducted from net sales was 4.5% of GMV. In comparison to the previous fiscal year, the percentage of GMV has increased by 0.3 points. There are 3 reasons.

We strengthened web advertising and free shipping initiatives for ZOZOTOWN. And second, the consolidation period of LYST was 1 month longer than in the same period of the previous fiscal year. So although the actual promotion-related expenses -- expense percentage has increased. As I mentioned before, the consumption fell slightly below our plans and the unused budget will be utilized in Q2 onwards. And the full year spending against the GMV will be 4.8%, around the same level as the last fiscal year. So that is the budget for this fiscal year.

Now Page 26, I will talk about ZOZOTOWN's KPIs from this point forward. These numbers do not include LINE Yahoo! Commerce, LYST and the B2B business performances. It's only ZOZOTOWN.

The number of annual buyers increased Q-on-Q by 240,000 to 13.41 million and the breakdown of this is the number of active members increased by 230,000 Q-on-Q to 12.71 million, and the number of guest buyers increased Q-on-Q by 50,000 to 690,000 (sic) [ 699,692 ]. As was the case last fiscal year, we increased our investment in web ads this quarter, resulting in steady increase in new acquisitions.

Next, Page 31. This is the average retail price trend. The average retail price was JPY 3,682, down 1.7% Y-on-Y. Price increases implemented by brands for new spring/summer products moderated with price levels mainly broadly in line with the previous year. On the other hand, the average retail price declined as both the promotion -- proportion of sales from discounted items and the average discount rate increased compared with the same period of the previous fiscal year.

Page 32, this is the average order value, which was JPY 8,506, down 0.4% Y-on-Y. The number of items purchased per order increased as free shipping initiatives were implemented more frequently than in the same period of the previous fiscal year and the increase in the promotion of -- proportion of sales from discounted items led to a higher multiple item purchase rate. However, the decline in the average retail price had a greater impact than the increase in the number of items purchased per order, resulting in a slight decrease in the average order value.

Lastly, here are the consolidated earnings forecast for this fiscal year and dividends. We have not made any changes to these numbers. This concludes my explanation.

This concludes FY 2026 first quarter earnings briefing for ZOZO. Thank you very much for joining us.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Good evening, everybody. This is Kobayashi from ZOZO. Welcome to ZOZO's conference call for the full year financial results of FY '25 ending March 2026. There will be 2 presenters from ZOZO today, Director, Executive Vice President and CFO, Koji Yanagisawa; and me, Kobayashi. First, CFO, Yanagisawa, will take you through the financial results.

Good evening, everybody. I'd like to walk you through the full year financial results for FY '25 ending March 2026 and also share our forecast for FY '26.

So our handout is pretty dense. So I'd like to just briefly walk you through some of the pages. For the first one, we don't have a specific page, but I'd like to give you the results of the earnings. As for the full year, let's go to the second item.

GMV, excluding other GMV increased by 12.4% year-over-year to JPY 64.1 billion. And if you go down to the third item, you have the total GMV for the ZOZOTOWN business, LINE Yahoo Commerce and B2B business all combined. This one increased by 5.1% year-over-year to JPY 603.9 billion.

EBITDA increased by 10.2% year-on-year to JPY 76.9 billion and EBITDA margin was 11.9%, down 0.2 points from the same period last year. And the progress against the company plan announced is as follows: GMV, excluding other GMV, 98.8% and total GMV for ZOZOTOWN, LINE Yahoo Commerce and B2B business combined 100.1% EBITDA, 100.3%.

Regarding GMV, strong performance during the winter sales in the fourth quarter enabled us to achieve growth that offset the shortfall from the end of the third quarter. And as a result, the combined total for ZOZOTOWN, LINE Yahoo Commerce and B2B businesses met our target.

And for EBITDA, this one met its target primarily due to the reductions in logistics-related expenses and shipping costs. And as announced in today's press release, we have acquired all shares of HIGH LINK and made it our wholly owned subsidiary. HIGH LINK operates Coloria, a comrehensive fragrance platform and under the mission of enriching the world but fragrance And we have acquired all outstanding shares of HIGH LINK for JPY 4.95 billion funded entirely with our own capital.

And let's now go to Page 8 of the handout. We will analyze the changes in EBITDA compared to the previous year's results at the end of the fourth quarter after the full year was completed. So there were mainly 4 factors attributable to the increase in EBITDA.

First, gross profit increase due to higher GMV in XOXOTOWN business and LINE Commerce plus JPY 9.6 billion. And the second one was sales increased due to the growth in the advertising business of plus JPY 670 million. Thirdly, gross profit increased due to the consolidation of LYST and other businesses of plus JPY 6.86 billion.

And fourthly, reduction in variable costs driven by containment of logistics-related personnel expenses resulting from the streamlining of logistics centers of plus JPY 290 million. And on the other hand, there were 3 factors that reduced EBITDA.

First, increase in fixed costs due to a rise in consolidated headcount associated with the consolidation of LYST, the occurrence of onetime expenses related to M&A in the first quarter and others at minus JPY 3.5 billion. Second, increase in actual PR expenses to attract customers to promote sales and cover LYST as stand-alone expenses that's minus JPY 5.97 billion.

And thirdly, increase in other expenses due to success fees paid to related to M&A and others. In the first quarter, that's minus JPY 920 million. Let's look at the cash flow trends. I'd like to highlight the big one. So cash flows from investing activities for the current period included expenditures associated with the acquisition of LYST and the replacement of equipment at existing logistics centers. and there was also cash flows from financing activities, which included expenditures related to the acquisition of treasury stock.

Now let's go to Page 21 of the handout. This is the breakdown of SG&A.. The SG&A ratio relative to GMV was 22.2%, a decrease of 1.0 percentage points compared to the same period last year. There are mainly 2 factors that drove up the SG&A ratio.

First, amortization of goodwill related to the acquisition of LYST, that's plus 0.4 points. And second, in addition to expenses recorded for LYST alone, there was increase in the advertising expenses due to higher web advertising spending for ZOZOTOWN that's plus 0.3 point. And the main factors contributing to the decrease in the SG&A ratio are mainly logistics related.

First, lower shipping costs resulting from the improved economic terms with the delivery contractors driven by both expanded consolidation scope and delivery efficiency initiatives, that minus 0.6 points; and second, a decrease in logistics-related labor costs driven by improved operational efficiency including inventory optimization and logistics centers and labor savings coming from automation and also expanded scope of consolidation of minus 0.5.

In addition, as we have achieved our full year target for operating profit and EBITDA, we have decided to pay year-end bonus. And consequently, we have recorded the relevant expenses in the fourth quarter under payroll costs for employees and logistics-related expenses.

Let's now go to Page 24 of the handout. Here, we show our actual promotion-related expenses. So in Q4, actual promotion expenses amounted to 5.5% GMV. So the 0.7 point increase in the ratio of the actual promotion expenses to GMV compared to the same period last year was due to the following factors. So there are mainly 3 reasons for this. One, there was an increase in online advertising spending on ZOZOTOWN.

And second, an increase in promotional expenses rose due to initiatives such as acquiring new members and reactivating dormant members. And thirdly, the recognition of expenses on a stand-alone basis for LYST, where advertising expenses account for a significant portion of SG&A expenses. And as a result, our actual promotion-related expenses for the full year amounted to 4.8% of the GMV, which is slightly more than our initial plan, and we expect the budget for the current fiscal year, FY '26 to remain at the same level as FY '25 at 4.8% of GMV. And from here on, I'd like to share ZOZOTOWN's KPIs.

Let's first go to Page 25. This is the number of total buyers. The number of total buyers increased by 360,000 from the previous quarter to 13.17 million. And here's the breakdown of it. The number of active members increased by 350,000 from the previous quarter to 12.47 million, and the number of guest buyers decreased by 4,000 from the previous quarter to 690,000.

So in FY '25, we continue to successfully acquire new members by increasing our web ad and friend referral campaign year-over-year. And during this fiscal year, new member acquisition remained strong in every quarter, resulting in a significant increase in the number of total buyers.

Now let's look at the number of shops on ZOZOTOWN. At the end of the fourth quarter, the number of shops stood at 1,710, a net decrease of 2 shops from the previous quarter. And the number of new stores opened in the fourth quarter was 46. And we successfully achieved our full year target for new store openings for FY '25.

Okay. Now I'd like to share ARP and AOV. Let's start with average retail price. ARP with respect to ARP it came to JPY 3,974, a 1.6% year-on-year decrease. The price increases for new fall and winter merchandise have moderated with prices now broadly in line with last year's levels, but the average retail price fell due to a higher proportion of sales items compared with the same period last year.

Let's now look at our AOV. So our average order value stood at JPY 8,864, minus 1.3% year-over-year. So the number of items purchased per order rose supported by an improved cross-selling ratio, which was driven by a higher markdown ratio. However, the decline in average retail price outweighed these effects leading to a lower AOV. So that was the earnings briefing of FY '25 ending March 2026.

And from here on, I'd like to share our business plan for FY '26. So I need to start off this part with an apology. There have been changes in our key disclosure indicators. From the perspective of presenting our group's underlying earnings power, we have adopted EBITDA as our management indicator that excludes the impact of amortization related to goodwill and other items arising from M&A. But in order to more appropriately reflect our group's underlying earnings power, we have decided to adopt adjusted EBITA.

Under this metric, only amortization of goodwill and intangible assets arising from M&A as well as acquisition-related costs will be adjusted, while all other depreciation and amortization expenses will be reflected. And based on that, I'd like to share our full year consolidated earnings forecast for the current fiscal year, which is FY '26. GMV, excluding other GMV are expected to increase by 5.0% year-on-year to JPY 678.6 billion and our operating profit is expected to increase by 7.3% year-over-year to JPY 74.4 billion, and our adjusted EBITA is expected to increase by 7.2% year-over-year to JPY 77.9 billion.

Regarding dividends, we continue to target a payout ratio of 70% or higher. And here are the targets by business segment. So for ZOZOTOWN, we aim to do the growth of 4.2%. And for LINE Yahoo Commerce, we aim to do JPY 86.6 billion, which is 9.7% year-over-year. And regarding ZOZO Ad, which accounts for majority of our advertising business, our plan is based on conservative assumptions. So you can see that our growth forecast is rather low.

Next, let's go to Page 42. I'd like to share our logistics bases expansion plan. First, regarding DPl TSUKUBA CHUO, which we began leasing in April 2024 has been operational and the lease area will be expanded starting in May 2026. Furthermore, we will begin leasing ZOZOBASE NARASHINO 3 starting in March 2027 and operations are scheduled to begin in August of that year with full-scale operations planned for October of the same year.

And consequently, let's go to Page 11 of the handout. This is about the trend in capital expenditures. Capital expenditures for FY '25 were largely in line with our plan. And for FY '26, which is our current fiscal year, due to the cash outflow related to ZOZOBASE NARASHINO 3, which I explained earlier, we're planning capital expenditures of JPY 11.5 billion.

So that is our business plan for FY '26. And then for this timing, we have also disclosed our medium-term business plan. So I'd like to briefly go through that as well. So here is the overview of our medium-term business plan. So this is a 4-year plan, which ends in FY '29 ending March 2030, we plan to have adjusted EBIT of JPY 90 billion, and that will be 123.8% of FY '25.

And then here's the background of this medium-term business plan. So of course, we're going to continue to grow our ZOZOTOWN, but at the same time, we'd like to expand into new markets. So what are those new markets that we might to branch out? So if you go to this slide, we have 3 domains. One is more fashion. So this is going to be the first revenue pillar that we'd like to strengthen. So this is inclusive of the existing ZOZOTOWN. We'd like to further grow this and aim for EBITA of JPY 80 billion from more fashion pillars. And we also have -- we also like to establish 2 more pillars of revenue.

One is what we call newer fashion. So these are peripheral areas to fashion, and we'd like to do JPY 5 billion in EBITA with this. And we also would like to have another revenue pillar that we call global domain, and we also like to do JPY 5 billion EBITA with this one as well. So if you combine all of these 3 domains, it adds up to JPY 90 billion in EBITA.

So I'd like to talk about each domain first, starting with the more fashion domain. So for this one, we really want to focus on new user acquisition by expanding into offline touch points to reach new users that we have not yet engaged with. So last year, we conducted ZOZOFES, which is actually a combination of fashion and music.

We've done this already last year, and we also launched a pop-up store, ZOZOTOWN NAGOYA last year. So these are the types of things that we would like to do, so reaching out to new segments through physical stores and events. And not only would we like to increase the number of users, we also want to increase the number of brands. So last year, we were able to bring on board MUSINSA. And this has really enabled us to increase the number of fashion brands significantly.

So we'd like to continue to engage in activities like this in order to increase the number of brands as well as category. And another thing that I would like to highlight that I have been mentioning previously is the launch of conversational AI. So I think it was just 2 days ago that we were able to adopt or implement this feature that allows us to propose WEAR styling or WEAR outlet through ChatGPT app.

So we implemented a conversational AI so that we are able to propose new output to our users through ChatGPT app. So finally, we've been able to launch our conversational AI. And then this is our approach to newer fashion domain. So what we would like to do is to offer spending experiences, new spending experiences to our ZOZOTOWN users outside of ZOZOTOWN so that we can offer pleasant consumption experiences to them. And here are examples of some of the newer fashion domains that might resonate with ZOZOTOWN users.

So we have been working in skin care and cosmetics area already. And aside from that, there are hair salons, there's fitness, there's aesthetic. So these are types of markets or areas that fashion lovers that we still have, as our user base, might resonate with. And we'd like to explore proactively our opportunities in these areas.

And of course, the way to approach this is to, first of all, try to make our services and business from scratch in-house. And there's another way to approach this, which is through partnership. Which brings me back to the topic of HIGH LINK that I mentioned.

So we acquired HIGH LINK as our subsidiary, hoping that we will be able to branch out into the fragrance area through the platform of Colaria so that we'll be able to drive traffic from ZOZOTOWN user base to them and also have the ZOZOTOWN users use their service, but at the same time, aim for positive impact to ZOZOTOWN cosmetics from them.

So in terms of global domain, we want to further expand what we already do. So for ZOZOFIT, this is a business that we are already operating in the U.S. So we'd like to further grow this. And this is a company that we acquired in Europe, we'd like to achieve growth with LYST.

So that was a very quick explanation of the earnings and also the forecast and our midterm business plan.

[Operator Instructions].

On DPL TSUKUBA CHUO expansion. So starting in May 2026, you are expanding the leased area at DPL TSUKUBA CHUO. So could you explain the reason for this expansion? And what positive effect do you expect from it going forward? And my second question is NARASHINO 3 expansion. So next year, in March 2027, the NARASHINO 3 will also be expanded. So what kind of positive impact do you expect from this?

And my last question is this earnings outlook. So regarding this, is it fair to assume that there will be almost no profit contribution in fiscal year March 2027? And should we expect that profit contribution to come from next year, I mean, March 2028 onwards. So could you share your view on the earnings outlook for this?

Thank you, [indiscernible] for doing the questions in both English and Japanese. So to answer the first part of your question, this is due to the sheer volume of the handling of the merchandise. So in order to secure a certain level of operational efficiency, that we had some extra space at the warehouse and then we thought that this was an opportunity and timing for us to stand. I also want to answer the second part of your question, which is about NARASHINO 3.

So first of all, we have, what we call NARASHINO 1 and where basically, is an outdated facility so we're renewing it into something that is similar to TSUKUBA 3. So we'd like to automate it to drive efficiency. So the difficulty, the biggest I have to say, NARASHINO 3 [indiscernible]. Correction, in Chiba area, NARASHINO 3 is going to be the biggest warehouse. But if you expand it into Ibaraki as well and TSUKUBA 3 will be slightly bigger.

And to answer the third part of your question, which is about this business performance, we position FY '26 as investment. So we are going to continue seeing the loss and the amount of the loss is going to be slightly higher than the amount that we had in FY '25.

Over the past 1 to 2 years, your cost efficiency has improved, thanks to automation and labor savings in logistics. With new warehouses coming, should we expect logistics efficiency to improve further? Could you share your view on this?

Thank you very much for your question. So naturally, yes, we would like to aim for that, and we're hoping to drive more operational efficiency in TSUKUBA 3 as we [indiscernible].

So this is [indiscernible] from UBS. I have one question. So you just made the announcement of another M&A, and it seems like you're quite eager to branch out into new businesses. What is your investment policy?

So it is quite difficult to have discipline in investments. But in newer fashion domain and the M&A in that domain, I would like to acquire companies that are already making profit so that we don't have to start absorbing their loss right after consolidation.

And in terms of the acquisition sizes of the companies, we don't have a specific idea in mind for that one, but we're not really intending to do large-scale acquisitions. So what I mean by that is that we want to be able to engage in M&A that we can pay with the current cash that we have. And I did briefly touch upon this during the earnings briefing.

But for the M&A in the newer fashion domain, we are intending to tolerate up to JPY 2 billion loss on an annual basis. But that said, as I mentioned, when it comes to M&A in the newer fashion domain, we're aiming to acquire companies that are already making profit. So I don't think we will get to that level of loss. Kobayashi, do you have anything you'd like to add to what I said?

So Mr. Yanagisawa basically said everything that we need to say. But just kind of building on that, if we can anticipate growth in the market, then we could consider buying companies that are currently posting loss.

Just to kind of add to what I said, not only is our approach going to be through M&A, but we can have an approach, which is to develop new services in-house. And then when we develop a new service, of course, we need to take time to bring up the awareness rate. So during that phase, we will naturally be in the loss.

Okay. So we'd like to finish our conference call. Thank you very much to all of you for your participation.

Thank you very much, everybody.

Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

It is time to start the ZOZO Q&A session for institutional investors for the full year financial results of FY '25 ending March 2026. So CEO, Sawada and CFO, Yanagisawa will continue to participate. And Director COO Fuminori Hirose; and General Manager of Corporate Planning Office, Yusaku Kobayashi will also be joining to respond to your questions [Operator Instructions]

Terai-san. Thank you. Go ahead.

This is Terai from JPMorgan. I have two questions. Both are about your midterm plan. What you disclosed today mention that you're going to focus on near fashion, more fashion and global [indiscernible]. May I have the breakdown of the EBITDA for FY '24 for near and more?

Sure. So I'd like to answer that. So I will not be able to close numerics around it, but those are for near and global -- we do not expect to have significant -- we do not expect to experience significant impact of near and global at -- sorry, FY '25 -- sorry in FY '26.

[indiscernible] to do JPY 80 billion in FY '29. And then I don't think that the more fashion is going to grow that much compared with how much you're doing now, is it correct for me to understand that you're going to pivot more into near than global?

[indiscernible] we are not expecting to have double digit growth in more fashion domain. But at the same time, we don't think that we're going to decrease that much of our GMV. So please understand that we have given it some leeway there. So what it means is that is near and global are going to do well. Overall, our number will be quite strong.

So I want to ask an additional question about the global domain. So any plans to do JPY 9 billion in EBITDA? Are you saying that you're confident with the sophistication of the service that you provide because of the [indiscernible]?

So for global domain, it's really about -- it will we depended on how [indiscernible] does. As Yanagisawa explained, we're still in a very important investment phase. And then from the next fiscal year, we want to complete the structural reform and so that we can be growing in the next fiscal year, but it doesn't mean that, that will be all of the global business. There could be a -- there is [indiscernible] and then there might be another M&A in the global domain.

We move on to [indiscernible].

Sorry, there's some trouble with the sound. Did you hear me? No?

We can hear you.

Good. I do have two questions [ for ] myself. First of all, this is about this year's guidance. It seems like the profit is only going to grow by 3.7% even though your JV growth is 7%. May I ask why you came up with [ this guide ] having relatively lower profit growth?

Let me explain that. So there was an increase in salary, and then we were able to have some preferential tax treatment that we were able to have this fiscal year. And then that's why there is a difference of the growth rate between adjusted EBITDA and this year's EBITDA.

Okay. Got it. And just kind of overlapping with what [indiscernible] asked, so there's adjusted EBITDA. So for adjusted EBITDA, you said that you did JPY 76 million and [ JPY 77.9 million ] for the fiscal year that just ended, so for near fashion and global domain, I thought that the global was still in the [ loss ] but in this JPY 72.6 billion unit this fiscal year, was that [ in profit ]? Or was that loss for [indiscernible]? And then you expect this to go up from JPY 72.6 billion to JPY 77.9 billion, are you expecting to see improvement also in global domain as well?

Thank you for your questions. So Yanagisawa will explain that.

So for this full year -- I'm frozen but you can still hear me. Now for Global, it's still in the loss and then for near fashion, we don't have anything yet. Like there's 0. So it's 0 basically, it's no.

Okay. And then when you say this year, are you talking about the previous fiscal year or this current fiscal year?

I'm talking about the previous fiscal year.

And then for FY '26, what is your direction?

For FY '26 for the near fashion domain there, there had been an M&A ready. So by consolidating this acquired company, we believe that we can be in a very small amount of profit. But during the period, if there is another M&A or if there was an establishment of a new business, we might be in a bigger profit. And then we also see that we're still in investment phase for global. So we expect to be in a slight loss for global.

Moving on to [ Nagaoka-san ].

Bank of America, Nagaoka here. I just wanted to quickly ask you about the numbers and also about the midterm plan? For this fiscal year, I wanted to kind of organize my head about the increased cost. So what you have expressly mentioned in the earnings briefing question, there's going to be an expansion of the logistics center. So the [indiscernible] is going to go up and also fragrance-related company has nearly joined your group. So amortization is about JPY 600 million or JPY 700 million. Any other incremental costs that I should be mindful of?

Sure. [indiscernible] So about the expansion of the warehouse and the cost increase related to it. So there is a very long period of [ free rent ]. So we don't expect a significant increase of the [indiscernible] and there will be increase of amortization and it's about the same level as [indiscernible] and then there will be variable costs that will go up along with our GMV. Aside from that, there is no [indiscernible] new costs. But that said, we need to be mindful of the impact of what is happening in the Middle East. So there may be a surcharge that could be included in our terms with the delivery company. So we have [indiscernible] thinking our plan.

Okay. So I want to ask about EBITDA so there is depreciation and due diligence and other M&A-related costs. Amortization is JPY 2.3 billion and combined with JPY 69.4 billion, that's JPY 71 billion and then we'll just say that JPY 1 billion will be going to due diligence and others? Because there is a difference of JPY 71 billion and JPY 69.4 billion. Can you hear me?

Yes. Sorry. But we lost your sound halfway through.

I apologize. Do you hear me now?

Yes.

I apologize. So EBITDA speculation. So your OP was JPY 69.4 billion, and then amortization of goodwill was JPY 2.3 billion. So if you combine them, it's JPY 71.6 billion. Would just say that approximately JPY 1 billion is M&A cost? And then for FY '26, there's OP and amortization and then aside from them, how much like due diligence related costs do you have for FY '26?

So Nagaoka, thank you for your calculation. So I wanted to hear the breakdown of that JPY 1 billion. So JPY 700 million is [indiscernible] and due diligence related to [indiscernible], and there is some variance. So there is acquisition allocation. So that's PPA. So we went through the process of PPA And then there's amortization that takes place under amortization, goodwill and also depreciation costs. So there's JPY 300 million that was reported as the depreciation fee. So all combined, it adds to JPY 1 billion. And then for this full year start we're going into details. So there will be additional JPY 700 million amortization.

So that's like [indiscernible] and then you expect to do JPY 74.4 billion and then FA-related cost, you expect that to be about JPY 500 million?

Yes. You're right. So there's [indiscernible] depreciated and high length depreciation cost. So that all amounts to about JPY 400 million.

I want to ask my last question to Mr. Sawada. For EBITDA, you are aiming to do JPY 90 billion. So when you calculate the CAGR, it's going to be 5%. And when I look at your past results, I feel like there's more potential for it to grow. So how do you look at the past waiting to that JPY 90 billion. Would you say that you expect to have some ups and downs there [indiscernible] and then you've given our guidance that our CAGR is 5%. So would it go up in a J-curve way? Or like how do you look at the path there?

Thank you. So our CAGR, it is true that we expect it to be about 5%. So basically, ZOZOTOWN that's inclusive of the Yahoo! Shopping. So we want to have -- we have a plan to do incremental JPY 20 billion [indiscernible] in a phased manner. And then that could be JPY 30 billion in the next year -- sorry, correction. So we don't expect this to be JPY 30 billion in the next year. So basically, we want to heavily stably add on JPY 20 billion every year to sell. And other domains -- plan is for those new domains to start generating profit in the coming years.

Moving on to Yamaoka-san.

I'm Yamaoka from Nomura Securities. No sound. Hello. Do you hear it? Sorry about that. I'd like to ask you a couple of questions. First, your 4Q ZOZOTOWN GMV and then also the actual promotion. You said that you used more than what remains in the third quarter. So is that correct for me to understand that you use that to promote expenses so that you can grow healthily in the fourth quarter?

So in the last fiscal year, we were a bit behind in our GMV up until third quarter. So in order to get incremental GMV growth, we needed to implement promotions. So the type of promotions we conducted from -- in FY '25 was slightly different from what we used to do in the past.

I see. And then there's consignment growth. Do you expect that to be [ 4.1% ]? And I feel like it is a milder growth that you expect than previous years. Is it correct for me to understand the [ performance ] of this is that you don't want to stretch yourself too much?

Right. So when you choose GMV alone, we are going to continue to -- we could -- on promotions. However, the efficiency may not be as great. We could do that, but we want to have a disciplined investment, and we came to the conclusion to do 4.1% growth.

Okay. Another question. So earlier, you mentioned that in the medium term, you want to constantly be -- incremental JPY 20 billion GMV. Is that ZOZOTOWN and LINE Yahoo combined on an annual base?

Right. So JPY 20 billion -- it's going to be a bit more than that, actually and it's also inclusive of Yahoo.

So you -- are you saying that it's not JPY 20 billion incremental? Because if it's only JPY 20 billion, I thought that you fully expect to do 3% growth, but it's going to be a little more than that? Would you say?

Yes. [indiscernible] JPY 200 billion, a little more than that, probably.

And then we've been talking about increasing the number of new users as well as activating [indiscernible] users and you used to do that with a chart of [indiscernible] Did that policy hasn't changed significantly?

That hasn't changed significantly, but what we have found out is that increasing the frequency of usage is quite costly. So actually, when it comes to GMV growth, it's more efficient for us to focus on new user acquisition. So compared to the chart that we have shown you in the past, I feel like I can say that we're shifting more towards new user acquisition.

Okay. And then for depreciation, as I was looking at the handout, it seems like that has plans to grow. Is that because of the new businesses that you want to establish?

Right. So I want to talk about last fiscal year versus this fiscal year. So at the end of last fiscal year, we adopted -- related automation equipment at the warehouse. And then the depreciation of that will start, and that's why we are expecting to have a slight increase of that.

So when I look at the handout, this is not -- if I'm not mistaken, I think for FY '25, it was JPY 5.3 billion. And then for FY '26, is it going to be JPY 6.7 billion for depreciation?

Yes, JPY 6.7 billion.

And then that increase is mainly coming from that equipment that you adopted [indiscernible]?

Well, the biggest one is that yes. But there are other [indiscernible] that are going to increase. But it's safe for you to think that it's mainly around the logistics center.

Yamaoka-san thank you very much for your question. Go ahead.

Kazahaya from UBS Securities. My first question is the following. This is about the CapEx. You said JPY 11 billion. Could you give me the breakdown of that? That's my first question.

All right. I'd like to answer that. So the JPY 8 billion is going to Narashino 3 that we are planning to newly establish. So we're investing into the material handling equipment of that warehouse. And on top of that, there is replacement or refurbishment of the existing ones. So [ less than ] JPY 2.5 billion and also a little more than JPY 1 billion for offices.

Okay. And then you shared the medium-term plan until FY '29. So in total, how much CapEx do you expect to invest in the next 4 years in total?

I could talk about that then. So please understand that this is based on the assumption that we're just going to look at the existing. So for existing businesses, so we expect to have a similar level of CapEx, meaning it's about -- approximately JPY 11 billion. And then we are not expecting to plan our logistics basis. So we believe that for others, we expect to do additional JPY 3 billion to JPY 5 billion.

Okay. And you acquired a fragrance company. So how much was it, JPY 4.9 billion that you disclosed? So how much do you plan to invest in M&A in the next 4 years? How much budget do you have for M&A?

Okay. Would you like to answer that?

Should I? Or do you think Kobayashi-san should go?

I can go. Okay. So on an annual basis, was it JPY 2 billion [indiscernible]? In terms of [ PL ], we are going to tolerate the loss of a total of JPY 2 billion on an annual basis because [indiscernible] you wanted to ask about how much investment we plan to make in M&A, right? That is really case by case. So you haven't really come up with a specific number on that. But basically, you are eager to -- and then you can also do borrowings, looking at your balance sheet. So if you want to -- if you're eager to grow, yes. But there is -- we put a cap on to it which is the [ P&L ] and tax of JPY 2 billion. So that's EBITDA plus.

Okay. Got it. And next question is about HIGH LINK. Before that, sorry -- I believe that you also have an option to establish a new business from scratch. May I ask why you needed to buy HIGH LINK, the background of that decision? And then how is their business performance and how is their fiscal year looking like for this year?

Sure. Sawada-san, would you be able to answer that?

So thank you for your question. So HIGH LINK what it basically does is to offer a subscription model business to like put perfumes into little bottles and send them to end users. And then they have a very deep expertise in putting perfumes into small containers. They have like a clean brew to do that, and it takes time for us to do something similar there. And we would have to invest a lot in creating a facility like that. So that's why we were interested in them. And [indiscernible] fragrances are the categories that are selling a lot. So we're offering vial sizes of fragrances, I believe that [indiscernible] is there. And then they will be able to compliment that part. And then when the user finds fragrants or smell that they like, then they'll be able to buy a full bottle. So we'll be able to build that synergy. So -- then they already generating about JPY 2 billion to JPY 3 billion in sales and then they are making hundreds of millions of profit now. And then they are starting to manufacture like diffusers, [indiscernible] fragrances and then they are [indiscernible] so they have a distribution channel that we don't own. They're going to expand their business using [indiscernible] it's not so much about ZOZOTOWN, but it's really more about like encouraging ZOZOTOWN users to use Coloria services. So it's really about like giving them the ZOZOTOWN traffic. And then when they find a fragrance that they like, they can come to ZOZOTOWN and buy a full bottle.

So you mentioned that they're already doing sales of JPY 2 billion to JPY 3 billion. What is your growth rate?

So they were founded in 2017 or so. And then this is a subscription business model. So are they growing significantly, that may not be the case. I mean they're not doubling or tripling their size, but they do have solid growth.

And then that JPY 2 billion or JPY 3 billion is included in GMV?

No, we are planning just to record partially this one to GMV. So the subscription delivery is more considered to be service outside of the GMV. So they also sell online their new fragrances and diffusers. It's not much, but that will be recorded in the other GMV for us, but the subscription revenue will be coming to [ others ].

And then that they incorporated into this plan already?

Yes.

Thank you very much. Kawano-san go ahead.

Kawano from Goldman Sachs here. So I feel like you received a lot of questions from different areas. So what I want to do is to just ask you a qualitative question. One is about AI, your initiatives around AIs, so ChatGPT and [indiscernible] collaboration for your proposed outfit and you also have [indiscernible] official accounts, so it's like styling account, right, you propose an outfit. So you're just starting these services. So I don't think a lot of people are coming from these channels, right, how is that going? And then when you propose outlet on ChatGPT and then Gemini is probably going to be strong in the future as well.

So are you concerned that maybe your data could [indiscernible] ChatGPT?

So talk about the traffic generation impact. So it is still quite limited -- you that. And then for ChatGPT, in order for us -- so the user need to come up with a specific command to reach our API. So usability wise, it's quite limited. And then will be able to improve that. And then when the UI becomes better, then I believe that the situation will improved quite recently. And then I also want to talk about LINE. So we're using our own account. But we haven't had like a full collaboration with LINE. So the impact is still limited. But why do we do this, you might ask, we have to be the first one to do that. And then we looked at the data transaction that happens on a daily basis so that we can continue to polish our offering. And then for the data part, we believe that we can continue to improve those and -- so the world that we envision is that the data that we have is literally owned by us and LLMs is going to come up with a way to access our API and we'll be able to reinterpret their command and come up with our proposal. So as long as we have that beta stores, the brand could be from anywhere, so that, that's really what we have in mind. And I believe that I partially answer to your second question. So this data, our proprietary data, I don't think there will be [indiscernible] that enables third party to steal our proprietary data because we reinterpret their command.

Okay. Got it. Makes sense. Can I ask another question? Now in your presentation deck, you said that you want to -- you have examples of like peripheral areas of fashion that will resonate with your ZOZOTOWN users I think where is another example of that. But when it comes to monetization of the areas. And I feel like there is no set formula or like set methodology. You talked about hair salons and tooth whitening and men's [indiscernible], et cetera. So for fragrance, you're going to use HIGH LINK as the fragrance world. But -- and then I think we need to closely observe what's going to happen in that field. But how do you plan to monetize these peripheral areas?

All right. So thank you for your question. So I guess the biggest thing here is that we have existing users of ZOZOTOWN, and then we want to bring that traffic over to peripheral areas that we already have 13 million. And of course, they're buying other categories than just for fashion. And as AI progresses as we speak, I believe that we will enter into an era where individuals can develop their own app. It's easy to make an app, but when it comes to asset generation other companies will start to copy what you do. But we already have a user rate of 13 million, that is a big difference. And then for us to enter and branch out into new markets and new areas, what we want to do is to fully utilize this user base of 13 million.

Okay. So the 13 million users of ZOZOTOWN, you want to start from that user base and then bring them out to other areas is that what you have in mind?

But if they go out to buy a fashion item, then that means that we'll eat up the GMV of ZOZOTOWN, so we don't want to do that. But if we are introducing them to new categories, then there will be no cannibalization from ZOZOTOWN. So that's what we aim to do.

So we're past the ending time. So from here on, please ask just one question each. [ Karamuri-san ] go ahead.

[ Karamuri from Nikko ]. I'm trying to decide one question.

I think I lost your audio. It's okay. You can ask your question.

Okay. I want to ask about logistics centers. So the impact on FY '26 will be leased and also depreciation, that would be additional JPY 1.4 billion. And then the gist of the main part of that will be coming to the logistics centers. And then there is Narashino 3 and then there's going to be new rent fee that will start. So for 2027, what is the impact -- year-over-year? And then for FY '28, there is going to be a full year impact. And then Narashino will be on. So may I ask how much logistic center basis impact do you plan for FY '27 and FY '28? And then because more fashion EBITDA growth seems to be quite small and that this could be a reason for that.

Yes. So thank you for your very long question. I want to talk about what we have in visibility. For Narashino 3, from March of '27, we're going to start renting it. And then for the 6 months, it's going to be free rent. And then from there, there is going to be event made to be recorded at JPY 160 million every month sale. So that's what we foresee for Narashino 3 And then Narashino 2, we are terminating the contract with them and we plan to terminate the contract in March of 2028. And we are incurring a little over JPY 100 million every month now. So that will be [ coming ] from March '28. And then Narashino 2 doesn't have shipping, ship outs, equipment, it's just store inventory. So by losing it, we won't have a significant reduction of the burden, financial burden. And the new logistics center is going to be over $20 billion. So there is going to be a generation depreciation as [indiscernible].

Okay. So my [ fifth ] question -- maybe I'm kind of building what -- So in the medium term, you have to generate sales from near and [indiscernible]. Would there be change to the investor return.

What did you say?

Investor return.

Okay. So no. So we are -- currently, we're not planning to change our investor return policy.

Next. Go ahead.

I just want to ask a quick question. I'm sorry. My first one is about the medium term. EBITDA margin, you're not going to tell me what that's going to be. But your organic growth rate, is that going to grow in hand with OP growth? Or are you planning to do new M&As and set up new physical stores to come up with the guidance for the midterm? So I want to differentiate organic and nonorganic growth rate separately.

Okay. And let me answer that. So far, near and Global domain, we already have some specific plans about possible M&A candidates. So we're not really considering the margin contribution of them so much. So when you think about the margin now, the basis of that is going to be the profit growth of ZOZOTOWN. Did I answer your question?

And for the global domain, you said 5 billion and with [indiscernible] only. This is a pretty big number. So my understanding was that you're going to also factor in other businesses. And then those [indiscernible] business model, how is that going to develop? That was what I was paying attention to [indiscernible].

[indiscernible] Is it like the old ZOZOSUIT where like you have a business model that enables you to sell clothes on the? Slide. I just wanted to check your business model for ZOZOFIT. And then out of that JPY 5 billion, how much will be coming from ZOZOFIT?

Sure. Yanagisawa will answer that.

I'm sorry, I didn't hear what you said, I couldn't really comprehend what you said.

I apologize. So ZOZOSUIT business model -- and then out of that JPY 5 billion that you'd like to do with global [indiscernible], how much of that will be coming from ZOZOFIT?

Okay. So look at this model, so far, it has been subscription model. So they pay a certain amount on a monthly basis. And then when they do that, they'll be able to [ move ] their body. And of course, you can do that free of charge. But if you'd like to get additional information, you have to pay a monthly fee and going forward there is to going to be like an affiliate type of model. So what we want to do is to start generating revenue by bringing traffic to our affiliate services. And then the breakdown of that JPY 5 billion, I'm afraid we cannot disclose that but in terms of the percentage, as of today, the percentage that we expect coming from that is quite limited.

Let's go to Oliver.

And it's good to see you have growth plans for the future. I'm curious, is there any reason why you decided to launch a midterm plan now? And any reason you chose 4 years?

[Foreign Language]

Okay. And just to clarify, Page 47, you have this AI readiness score. Where are you now? I think you said you aim to get to Level 3. And when do you think you will be at Level 3?

[Foreign Language]

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

It is time to start the earnings briefing for the full year financial results of FY '25 ending March 2026. So we will only be offering live streaming this time. We plan to have a session until 5:40 p.m. After that, we will have a Q&A session with institutional investors on a separate Zoom channel from 5:50 p.m.

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

Hello.

And Director, Executive Vice President and CFO, Koji Yanagisawa.

Hello.

There will be 2 presenters today. First CFO, Koji Yanagisawa will take us through the business results.

I'd like to walk you through the full year financial results for FY '25 ending March 2026. Presentation document we will use today has already been uploaded to our website Investor Relations page. So please take a look.

First, I'd like to walk you through the highlights of the full year financial results of FY '25. As for the full year, GMV increased by 8.4% year-on-year to JPY 666 billion. GMV, excluding other GMV, increased by 12.4% year-on-year to JPY 646.1 billion. Total GMV for the ZOZOTOWN business, LY Corporation Commerce and BtoB Business combined increased by 5.1% year-over-year to JPY 603.9 billion.

EBITDA increased by 10.2% year-on-year to JPY 76.9 billion. EBITDA margin was 11.9%, down 0.2 points from the same period last year.

Progress against the revised company plan announced on July 31 is as follows: GMV, excluding other GMV [ 9.8% ] and total GMV for the ZOZOTOWN business, LINE Yahoo Commerce and BtoB Business all combined 100.1% and EBITDA 100.3%.

Regarding GMV strong performance during the winter sales in the fourth quarter enabled us to achieve growth that offset the shortfall from the of the third quarter. As a result, the combined total for the ZOZOTOWN business, LINE Yahoo Commerce and BtoB business. On the other hand, fell short of its target due to factors such as the slump in closuring industry and changes to system resulting in the overall business failing to meet its target.

EBITDA met its primarily due to reductions in logistics-related expenses and shipping costs. Both GMV and EBITDA reached new all-time high. Let's now go to Page 7 of the handout. The quarterly trend in consolidated performance.

As I mentioned, for the fourth quarter accounting period, GMV, excluding other GMV, increased by 14.2% compared to the same period last year for the same reason I mentioned. ZOZOTOWN business saw strong customer traffic particularly in January and with ample inventory available for the sales period and sales during it grew. LINE Yahoo Commerce also grew steadily, partly due to an increase in the number of days of.

Moving on to the next page. This does not exist in the handout. As announced in today's press release, we have acquired all shares of HIGH LINK. and made it a wholly owned subsidiary. Founded in 2017, HIGH LINK operators Coloria, a comprehensive fragrance platform as its primary business under the mission of. By welcoming HIGH LINK, a company engaged in businesses centered on fragrances, which has a highly -- high affinity with fashion into ZOZO Group, we into a new area related to fashion.

Regarding the details of the transactions, we have acquired all outstanding shares of HIGH LINK for JPY 4.95 billion funded entirely with our own capital. The company will be consolidated starting in May 2026. And then this acquisition is already reflected in our full year consolidated earnings forecast at the full year. That will be explained later.

Let's now go to Page 8 of the handout. We will analyze the changes in EBITDA compared to results at the end of fourth quarter. EBITDA increased by approximately $7.14 billion from JPY 69.78 billion in the previous year to JPY 76.92 billion in the current fiscal year.

Factors attributable to the increase in EBITDA are as follows. Gross profit increased due to higher GMV in ZOZOTOWN business and LINE Yahoo Commerce plus JPY 9.36 billion sales increase due to sales from advertising business, JPY 0.6 billion, gross profit increase reduction in variable cost, plus this is driven by the containment of logistics-related personnel expenses resulting from the streamlining of the logistic centers. Factors that reduced EBITDA were as follows. Increase in fixed costs due to rising consolidated headcount associated with consolidation of. Recurrence of onetimes expenses related to M&A in the first quarter, minus JPY 3.15 billion, increase in actual PR expenses to attract customers from minus JPY 9.97 billion. Increase in other expenses Page 8 related to M&A in the first quarter minus JPY 920 million.

And here are the cash flow trends. Cash flows from opportunity for driven binding fees and profit before income taxes as well as increase in payments of corporate income taxes and others. Cash flows from investing activities for the current period included expenditures associated with the acquisition of and the replacement of equipment at existing logistics centers and cash flows from financing activities included expenditures related to the acquisition of treasury stock.

Next at Page 21, the breakdown of SG&A. The SG&A ratio relative to MD was 22.2%, a decrease of 1 percentage point compared to the same period last year. Well, GMV expanded following the consolidation of certain SG&A items do not occur or are minimal on a standalone contributed to the decline in the SG&A ratio factors that drove up, the SG&A ratio are the following. As we have been explaining as before, amortization of goodwill related to the acquisition of and also, there was an increase in average expenses higher with advertising spending for ZOZOTOWN and factors contributing to the decrease in the SG&A ratio include the following: lower shipment costs -- lower shipping costs resulting from the increased economic trends with the delivery contractors starting October 2025, driven by consolidation and deliver efficiency initiatives minus 0.6 points. a decrease in the logistics-related labor costs driven by the improved operating efficiency, including inventory optimization and logistics centers and labor savings from automation initiatives. 0.5 points. payment collection commission at 0.2 points.

In addition, as we have achieved our full year target for operating profit and EBITDA, we have decided to pay a year-end bonus and we have recorded a relevant expenses in the fourth quarter under payroll costs for employee logistics-related expenses that there.

Let's go to Page 24. We showed our actual promotion related -- these expenses include advertising costs and point-related expenses deducted from sales. As we have explained before, in Q4 asset promotion expenses amounted to 5.5% of GMV, the 0.7 point increase in the ratio of actual promotion expenses to GMV compared to the same period was due to the following factors.

One, an increase in online advertising spending on those accounts; second, an increase in promotional expenses through initiatives such as acquiring new members and reactivating dormant members. And third, the recognition of expenses on a stand-alone basis in -- in particular, for the ZOZOTOWN business in Q4, we invested additional expenses on top of the remaining amount from Q3 to achieve your GMV targets, and as a result, actual promotion related expenses for the full year amounted to 4.8% of the GMV which is slightly higher than our initial plan that we announced at the start of the year.

And we expect the budget for the current fiscal year, we remain at the same level as FY '25 at 4.8% of GMV.

Moving on to Page 25 of the handout. And the following are the ZOZOTOWN KPIs. Please note that the following indicators do not jinclude results from LINE Yahoo Commerce or B2B businesses. The number of total buyers increased by 360,000 from the previous quarter to 13.17 million. The number of active members increased by 308,000 from the previous quarter to 12.47 million, and the number of decreased by 4,000 from the previous quarter to 609,000.

In Q4, we continued to successfully hire new numbers by increasing our web add at an referral campaigns year-over-year. In addition, we engaged in -- in addition, reengagement initiatives for dormant members have delivered positive results with the impact of reactivation now becoming visible. During the fiscal year, member acquisition remained strong in every quarter, resulting in a significant increase in the number of total.

Next, this is Page 28 of the handout. The number of shops on ZOZOTOWN. At the end of the fourth quarter, the number of shops stood at 1,710, a net from the previous quarter. The number of new stores opened in the fourth quarter was 46, including stores like the outdoor brand And the brand to provide by and operator an apparel store operated by the publishing company, and more.

Please note that in the fourth quarter, as we have explained before, there were relatively large number of store closures, particularly due to brand discontinuation. And as a result, the total number of stores decreased compared to the previous quarter, but nevertheless, we succeed our whole year target for new store openings for FY '25, and we aim to maintain a similar pace of new store openings in the current full year as well.

With respect to average retail price, which is on Page 30, it came to JPY 3,974, 1.6% year-on-year decrease. Price increases for new fall and winter merchandise have moderated with prices now brought in with last year level. But the average retail price fell due to a higher proportion of sale items compared to the last year. And as a result of this, our average order value stood at JPY 8,864 minus 1.3% year-over-year.

The number of items purchased per order rose supported by an improved cross-selling which is driven by a higher markdown ratio. However, the decline in average retail price that I just talked about outplayed these effects leading to lower average order value. Also, the volume promotions offering free shipping on purchases of JPY 12,000 or more remain at the same level as the previous year. And the effect of this promotion and increase in the number of items purchased per order was limited. Although the volume promotions are being preshipping on purchase of JPY 12,000 or more was lower than the same period of last year, but are implemented effectively. Therefore, the reduction in the frequency of the promotions did not result in the decrease in average purchase.

Please go to Page 33. I'd like to explain the changes of our key disclosure indicators reporting from the next fiscal year FY '26. From the perspective of presenting our group's underlying earnings power, we have adopted EBITDA as our management indicator that excludes the impact of amortization related to goodwill and other items arising from M&A.

However, the group has consistently been making capital investments in logistics centers and allocates resources to the internal development of software and the depreciation associated with these investments is recognized as an essential cost of our business operations accordingly to more appropriately reflects our group's underlying earnings power.

We have decided to adopt adjusted EBITA. And under this metric only amortization of goodwill and intangible assets arising from M&A as well as the acquisition-related costs will be adjusted, while all other depreciation and amortizing expenses will be reflected.

So starting from this current fiscal year, we are going to adopt EBITA instead of EBITDA. So please bear that in mind.

Okay. So I'd like to share the full year consolidated earnings forecast for the current fiscal year, FY '26. Total GMV is expected to increase by 2.0% year-over-year to JPY 279.6 billion. And GMV, excluding other GMV are expected to increase by 5.0% year-over-year JPY 678.6 billion. Net sales is expected to increase by 5.9% year on year to JPY 241.9 billion. OP is expected to increase by 7.3% to JPY 74.4 billion and the OP margin to 11.0%. And adjusted EBITDA is expected to increase by 7.2% year-over-year to JPY 77.9 billion and adjusted EBITA margin is expected to be 11.5%.

Regarding dividends, we continue to target the payout ratio of [ 10% ] or higher and plan to pay a dividend of JPY 40 per share.

Moving on to Page 35. These are the targets by business segment for FY '26. For ZOZOTOWN business, we will continue to aim for sustained growth by increasing the number of buyers primarily through enhanced efforts in acquiring new users and by raising digital share passion consults.

For LINE Yahoo Commerce assuming that large-scale promotional those on Yahoo! Shopping or implemented at levels comparable to the previous year. We expect growth driven by new member acquisitions and increased contribution [Audio Gap] in prior years. We expect approximately 10% growth, mainly driven by an increase in the number of loans included in the consolidated financial statement.

We view the current and next fiscal year as a critical investment phase for achieving future nonlinear growth, and we're focusing on building new business models that go beyond existing framework. So we consolidated in May, and then starting from FY '26, we will be able to have the impact of it on the full year basis. and then we expect to have a par level GMV growth as the previous fiscal year.

And regarding ZOZO ad, which accounts for the majority of our advertising business, our plan is based on conservative assumptions for key advertising-related metrics. In addition, revenues from advertising menu offerings other than ZOZO ad line, reflecting our plan to discontinue advertising. And as a result, we project a slight year-over-year increase in the overall advertising business.

Go to Page 42. Like to share our logistics plan. First, regarding DTL which we began leasing in April 2024 and has been operational since August of that year. the leased area will be expanded starting in May '26. Furthermore, we will begin leaving starting in March 2027. Operations are scheduled to begin in August of 2021, with full single operation planned for October '27.

So operation will take place in FY '27 and is positioned as a facility that will transfer revamp and rebuild the functions of. And as a facility designed to accommodate future growth in GMV, we will promote further automation to aim more workforce reduction of approximately 50% compared to the existing bases.

And lastly, the that I must add but back several pages, which is Page 11. This is the trend in capital expenditures. Capital expenditures for FY '25 were largely in line with our plan. And for FY '26, which is our current fiscal year, due to the cash outflow related to CapEx, which I explained earlier, we're planning capital expenditures of JPY 11.5 billion. .

Additionally, regarding goodwill amortization, as I explained, our plan is based on the assumption that it will begin to be recognized starting in May 2026. And amortization of goodwill related to HIGH LINK is expected to commence in May 2026. And based on the assumption, it is projected at JPY 610 million for the current fiscal year and JPY 670 million for the following fiscal year, reflecting a full year impact from the next fiscal year and the amortization period of this it will is planned to be 7 years.

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

Hello, everyone. Thank you for your participation. So what I would like to do is to walk you through our medium-term business plan. Why are we talk about medium-term business plan now? Actually, we haven't had the opportunity to share our midterm business plan to external parties.

But when we think about the rapid changes of the external factor, which is inclusive of how people work in the era of AI and the services we provide, we need to think about how we fight in the world of the Internet, and that must change going forward in order for us to have a healthy battle, resources, money, people and information.

We're starting to gather all these valid information, and we needed to come up with a clear path going ahead. So what I would like to do today is to share our medium-term business plan with you. So here is the agenda.

Next slide, please. So this is a really brief summary of our business plan. The first level, this is the period. This is a 4-year plan. And this is until FY '29 ending March 2030.

And in terms of our objectives, for our adjusted EBITA, which Mr. Yanagisawa explained as our new indicator, we will aim for JPY 90 billion and that is 123.8% of FY '25. Just to give you the background of this. So we operate this giant service called ZOZOTOWN and we have been allocating a lot of our resources there, but we know that it is not something that we can rely upon 100% in the future.

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

And by the way, our midterm business plan, sometime or oftentimes, I believe that companies come up with a catch phrase or like a tag line, and we thought of our tag lag as well. And then we came up with a really simple tagline of which is a really simple word to be in the sound of a mouse -- to being the sound mouse makes in Japan and also the first part of the lower medium term that represents our medium-term business plan and then we came up with this.

And this is our plan for the upcoming year. So this is how we have grown so far. And then in the next 4 years, we'd like to grow to JPY 90 billion. So when you look at FY '21, we achieved JPY 50 billion, and we are here -- in fiscal year '25 and then this is where we want to get to by fiscal year ending March 2030, and we identified 3 different domains that we'd like to focus on near fashion, more fashion in global domain.

So for fashion, this is where our core business of ZOZOTOWN goes into and also where as well. But basically, please think of it as our And this alone, we'd like to add to JPY 80 billion.

And if you turn to left bar, which is near fashion domain. So this means peripheral domain of fashion would like to do JPY 5 billion and with global domain JPY 5 billion.

For each domain, how are we going make progress. So let's start with more fashion domain. So this is our core driver of this growth, and we want to have even more solid growth here. Next slide. and have different pieces of information here that I have already shared with you. So what are the growth engine for our existing business. It is the new user acquisition. Our share is quite high. So do we still have potential to grow?

That might be the question. But looking at the numbers, we do believe that there is more potential for us to grow. Last year, we conducted and then recently, I think it was in March, we did a pop-up store. So we know that there are segments of new users that we have not yet engaged with.

So what we would like to do is to really expand into offline touch points to reach to the. And then because of these efforts that we've made so far, and we've been observing this for quite some time already, so we conduct a survey to our consumers. And we asked about their top of mind places by fashion for men and women 15 to 59 -- sorry, no, women only 15 to 59. And then we asked what they would think of as a place to buy fashion products, and we are in the leading position as we can see.

And then now I want to talk about more fashion further. And I'm sure this is of your interest as well. I want to talk about So we've been able to enjoy an increased number of brands on ZOZOTOWN. So now we handle 11,247 brands. And then there was a notable increase of number of brands driven by and has been very proactive in incorporating us for the pop-up store. So is a large-scale Korean fashion mall. And we will continue to deepen our relationship with them as we engage in different activities. And I want to continue on to talk about more fashion domain.

So what is the impact of AI agents? And for the next coming years, this is going to be our policy on space. So you can see here people go through this very simple funnel until the purchase of fashion items is quite simple. So there is a need and interest. And then currently, search engine play an important role there. But a new wave of AI agents is coming there, as you all know.

And what sort of impact would that have on e-commerce? I do believe that there will be an impact on e-commerce. So we don't know yet which operator will be mainstream, but what we would like to do is to work with them so that we can utilize them as our touch point.

And at the same time, these AI agents, I believe, are very good at answering generally and I'm sure many of you use us already, and you can understand what I'm talking about. So is it something really specific as grew? The answers that you may get from these AI agents may not overstate the rest. And that is what is happening around the world. So we don't think that it will be able to advance that feature.

We have abundant amount of data in fashion. So we run a fashion e-commerce, and that is what had made -- that is what has made us strong and characteristic. And we believe that our AI agent which is fashion-specific will also be valid. So what we'd like to do is to develop our fashion-specific AI agent to cater to more specific needs. And then a press meeting has been announced already.

So is a leading company of AI agent. So we're already working with ChatGTP app. We propose we're styling or were output. And then just the other day, finally, this was our long-awaited aspiration. We were able to use line and we were able to release a line of account that support users to decide their output through conversational AI.

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

And such data, we'd like to utilize them to the fullest so that so we've been using this to the fullest and then the next month user revisit rate has gone up to 1.1x already. So we believe that the revisit rate could go up even higher as we utilize data this way. And then we are rolling out through different channels, and then we want to bring this onboard to those in the future.

We cannot give you a time line for it. Please understand that in the future. So these are some of the initiatives that we'd like to implement so that we can enhance our core fashion domain.

Let's go to near fashion domain next. Next slide, please. So what is the concept of near fashion? What exactly is that domain? So ZOZOTOWN users different category, those things. And we want to start proposing to those people, different areas of merchandise. So we want to branch out into other fashion areas outside of those accounts.

What do we mean by that exactly? So these are examples of near fashion domains that may resonate with those account users. So makes up for about JPY 2 trillion market size. and also fitness and gym, that's JPY 700 billion. And then also tooth brightening, which is really trending right now is JPY 45 billion. We call it internally as ways [Technical Difficulty] and then we're not trying to build them on. We could also consider our offering physical service, we're not just sticking to the idea of selling this online on our e-commerce.

These are some of the new services that we consider to. I just wanted to give you more color on this. So we're thinking of 2 levers for expansion. So HIGH LINK is an example of the last one, this is actually the first example of the last one. So this is partnership M&A maybe it doesn't go that far as M&A, it can be as having partnerships with capital alliances to different companies.

And then there's another lever which create something in-house from scratch. So this is another approach we'd like to take in order to expand into near fashion domain. So for HIGH LINK if you finally turning to the next slide, as Yanagisawa mentioned, we acquired HIGH LINK as a wholly owned subsidiary. And they have -- they've been operating a fragrance platform, Coloria and then they offer subscription model. For the interest of time, I won't go into details of it but it's very close to fashion in terms of this area.

So what we'd like to do is to find a way to without using EC. So I hope that you can take your attention to what we do with Coloria. And go to the global domain. Next slide, please. So of course, in Japan, we operate ZOZOTOWN. And last year, we acquired this and then that's based in the U.K. But in terms of the commercial areas, they're not just operating in the U.K., they are also operating in the U.S. and other areas of well.

And then in the U.S., we've already launched and it is growing at a speed of our service. So these are some of the drivers that we'd like to use in order to grow our overseas. I want to talk about ZOZOTOWN. So we surpassed the JPY 1 billion loads. Actually, last year, this grew significantly, and we do believe that this has big potential.

So this app quite Americanized and the market has been accepting this quite well. And by the way, the total download -- the total number of download is about JPY 12 million. So compared to that, it is still small, but we believe that it's a great achievement. Now we were able to surpass the 1 million downloads. Let's talk about this. So there are many things that we need to do. But in the long term, what are we aiming for, for list? I wanted to share that with you.

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

So that was a brief explanation of our medium-term plan business plan. And lastly, this is outside of the medium term business plan, but I wanted to share something with you. This is about internal use of AI. So it is progressing quite steadily, internally. And we have adopted those own AI utilization inventory. And we have already set out an objective for that. As you can see, you can take a look at it later.

So Level 3, we believe, is going to have a business impact for valid business impact. So we want to first to get to Level 3 and then ultimately to Level 4. And next, this is about responding to geopolitical risks. Thanks for you're quite interested in this topic. The impact of this is as of today, still limited.

So regarding items applied by brands, we haven't seen a significant increase yet. We may start to see impact sometime in fold, but so far, we haven't seen an increase in prices. And for indirect materials like packaging and cardboard, cost impact is expected, but impact on FY '26 is expected to remain limited. We are doing a lot of analysis.

Of course, the chance of us having negative impact is greater than in having no impact, but still remain -- and we expect this to remain significant.

Lastly, this is about. We are looking at different external assessments at this and so far, we've been well received by multiple external investors. We want to define and identify which metrics that we're going to focus on as we make progress in the sales.

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

Good evening, everyone. My name is Kobayashi, Yusaku. Thank you very much for joining in ZOZO's conference call for the third quarter of FY '25 ending in March 2026. And today, we have on the call from ZOZO Director, Executive Vice President and CFO, Koji Yanagisawa and me, and it will be the two of us who will be answering to your questions tonight.

First, CFO, Yanagisawa, will take you through the financial results.

Good evening, everyone. I'd like to walk you through the third quarter financial results for FY '25 ending in March 2026. First, I'd like to walk you through the highlights of the third quarter of FY '25. As for the third quarter, GMV increased by 9.1% year-on-year to JPY 502.9 billion. GMV, excluding other GMV increased by 11.9% year-on-year to JPY 483.1 billion. EBITDA increased by 9.5% year-on-year to JPY 60.6 billion, and EBITDA margin was 12.6%, down 0.2 percentage points from the same period last year.

And progress against the revised company plan announced on July 31 is as follows: GMV, excluding other GMV, 73.9% and EBITDA 79.1%. And regarding GMV, we were affected by lower demand due to persistently high temperatures in the second quarter. Furthermore, while we implemented aggressive promotions against a high base from the same period last year, the effect of some sales events fell short of expectations in the third quarter, resulting in a slight shortfall against plan. On the other hand, EBITDA exceeded the progress plan, benefiting from lower logistics and shipping costs and lower-than-budgeted promotional expenses.

And next, this is the quarterly trend in consolidated performance. For the third quarter accounting period, GMV, excluding other GMV, increased by 11.3% compared to the same period last year. And this overlaps partially with the early explanation of the third quarter cumulative results, but ZOZOTOWN's business fell slightly short of its plan as sales fall and winter products showed limited growth.

Meanwhile, LINE Yahoo Commerce exceeded our plan for having more days of [indiscernible]. And as for LYST, we fell short of our plan due to factors, including industry headwinds and changes to the U.S. tariff system. And EBITDA increased 14.9% year-on-year with the EBITDA margin reaching 13.6%. While GMV and gross margin were below plan, EBITDA improved faster than expected, primarily driven by shipping and logistics-related cost reductions.

Next, I'd like to share the main topics of the third quarter. The first one is about the termination of our production business. Our production business was designed around a made-to-order model to address chronic inventory problem in the apparel industry; however, demand from brands fell short of expectations, and we faced challenges in achieving profitability. And after a comprehensive review of the business' future viability, we have decided to discontinue this operation. In connection with this business liquidation, we recorded an extraordinary loss of JPY [ 700 ] million in the third fiscal -- in the third quarter.

And we have also suspended accepting new orders effective October 20, 2025, and we will continue to sell the existing inventory and plan to see sales once it is fully depleted. And next is about the K-Fashion Zone, which opened on November 6. On the same day, we also welcome the opening of MUSINSA, a leading Korean fashion platform. And at launch, it featured approximately 140 brands. And by the end of December, the set expanded to 2,015 brands with around 200,000 listed SKUs and further expansion is planned going forward.

And sales got off to a strong start, broadly in line with our initial expectations, and it's been gaining traction primarily among women in their early 20s with Korean brands known for their strong trend sensitivity showing particularly strong performance. And next, I'd like to present an overview of the key performance details.

Let's go to Page 9 of the handout. So first, we will analyze the changes in EBITDA compared to the previous year's results at the end of the third quarter. EBITDA increased by approximately JPY 5.25 billion from JPY [ 55.42 ] billion in the previous year to JPY 60.67 billion in the current quarter. And there are mainly 4 factors attributable to the increase in EBITDA. First, gross profit increased due to higher GMV in the ZOZOTOWN business and LINE Yahoo Commerce, plus JPY 6.68 billion. Second, sales increased due to growth in the advertising business, plus JPY 400 million.

Gross profit increased due to the consolidation of LYST and other businesses, plus JPY 4.97 billion. And fourth, the reduction in variable costs driven by the containment of logistics-related personnel expenses resulting from the streamlining of logistics centers, plus JPY 420 million. And on the other hand, there are mainly three factors that reduced EBITDA.

First, an increase in fixed costs due to a rise in consolidated headcount associated with the consolidation of LYST, the occurrence of onetime expenses related to M&A in the first quarter and others, minus JPY 2.59 billion, an increase in actual PR expenses to attract customers, promote sales and cover LYST stand-alone expenses, approximately minus JPY 3.9 billion. And there was an increase in other expenses due to success fees paid to FA related to M&A and others in the first quarter, and this was minus JPY 730 million.

And next, I'd like to go to Page 21 of the handout. This is the breakdown of SG&A. So the SG&A to GMV ratio was 21.8%, a decrease of 1.0 point from the same period of last year. While GMV increased due to consolidation of LYST, incremental SG&A expenses were either zero or minimal for certain items related to LYST alone, and this contributed to a decrease in the SG&A expense ratio. Mainly, there are two factors that drove up the SG&A ratio. First, amortization of goodwill related to the acquisition of LYST, that's plus 0.3 points.

And second, in addition to expenses recorded for LYST alone, advertising expenses increased due to higher web advertising spending for ZOZOTOWN, and that's plus 0.2 points. On the other hand, there are mainly four factors contributing to the decrease in the SG&A ratio. First, lower shipping costs resulting from improved economic terms with the delivery contractor starting October 2025, driven by both expanded consolidation scope and delivery efficiency initiatives. That's minus 0.7 points.

And second, a decrease in logistics-related labor costs driven by improved operational efficiency, including inventory optimization and logistics centers and labor savings from automation initiatives as well as an expanded scope of consolidation, and that's minus 0.5 points. And the other two are the following: one, a decrease in payment collection commission due to the expansion of the consolidation scope, minus 0.2 points and a decrease in rent expense due to the expansion of the consolidation scope, [ minus 0.2. ]

Next is Page 24 of the handout. Here, we show the actual promotion-related expenses. In Q3, actual promotion expenses amounted to 4.9% of GMV and the actual promotion-related expenses include advertising costs and point-related expenses that are deducted from sales. The increase was driven mainly by three factors. First, we increased web advertising for ZOZOTOWN and second, promotional expenses rose due to initiatives such as acquiring new members and reactivating dormant members. And third, we recognized expenses solely for LYST with advertising accounting for a large portion of SG&A.

The aforementioned three factors worked to increase the actual promotion expenses. The elimination of PGA Tour sponsorship expenses from prior fiscal years had a greater impact. And as a result, the SG&A ratio decreased by 0.4 points compared to the same period last year. Please note that the actual promotion expenses for the third quarter were largely used as planned; however, as mentioned in the opening slide of the earnings summary, the cumulative amount for the first three quarters remains below plan. And the remaining budget will be utilized in the fourth quarter. So on a full year basis, we expect to use the budget as planned.

And the following are ZOZOTOWN's KPIs, and please note that the following indicators do not include results from LINE Yahoo Commerce LYST or B2B businesses. Let's first go to Page 25 of the handout. This is the number of buyers. The number of total buyers increased by 280,000 from the previous quarter to 12.8 million. And here's the back -- and then this is the breakdown. The number of active members increased by 310,000 from the previous quarter to 12.11 million and the number of guest buyers decreased by 30,000 from the previous quarter to 680,000. In Q3, we continued to successfully acquire new members by increasing our web ad and friend referral campaigns year-over-year.

In addition, reengagement initiatives for dormant members have delivered positive results with the impact of reactivation now becoming visible. And moving on to Page 28 of the handout. This is the number of shops on ZOZOTOWN. At the end of the third quarter, the number of shops stood at 1,712, a net increase of 26 from the previous quarter. The number of new stores opened in the third quarter was 46, including stores like MUSINSA, which is the one that I mentioned earlier. This is Korea's leading fashion platform.

And there are "Toys "R" Us" and "Babies "R" Us" comprehensive specialty stores for toys and baby products and an apparel brand popular mainly among young consumers and more. Let's now go to Page 30 and 31 of the handout average retail price and average order value, starting with the average retail price. With respect to average retail price, it came to JPY 4,277, a 2.1% year-on-year decrease. Price increases for new fall and winter merchandise have moderated from the brands with prices now broadly in line with last year's levels, but the average retail price fell due to a higher proportion of sales items compared with the same period last year.

On the other hand, if you can kindly turn to Page 31, we have information about our average order value. Average order value stood at JPY 9,328, minus 1.0% year-over-year. The number of items purchased per order rose, supported by an improved cross-selling ratio, which was driven by a higher markdown ratio; However, the decline in average retail price outweighed these effects, leading to lower average order value. And also the volume of promotions offering free shipping on purchases of JPY 12,000 or more remained at the same level as the previous year. And the effect of this promotion on increasing the number of items purchased per order was limited.

Lastly, this is the full year consolidated earnings and dividend forecast for the current fiscal year. There are no changes to the earnings forecast. This concludes our presentation for today.

[Operator Instructions] It seems like there are no questions. And what we'd like to do is to go ahead and end this conference call. Thank you very much for your participation.

Thank you very much.

Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

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 Instructions] Yoneshima-san, go ahead.

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?

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.

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?

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.

Okay. Let's go to Nagao-san.

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.

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.

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.

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.

Okay. Let's go to Kazahaya-san.

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?

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.

I see. So ZOZOCOSME, is it growing faster than the plan?

Yes -- it's going well.

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?

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.

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?

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.

So is it correct for me to understand that, that outlook hasn't changed?

Right.

Let's go to Yamaoka-san.

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?

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.

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?

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.

So what you're saying is that your operational efficiency has improved and then it had a positive impact onYamato?

Yes, I think that's the right image. So it was not an effort made just by us, they also collaborated.

Okay. My third question is about the effect of MUSINSA and how you see the future -- next fiscal period?

So MUSINSA is not strong enough to have an impact on the overall GMV yet.

Where should I expect positive value impact of GMV will show up in?

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.

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?

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.

Okay. Let's go to Kanamori-san.

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?

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?

Nagao-san go ahead, please.

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?

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.

Sato san, go ahead.

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?

Yes, you heard it wrong. So we started out with 140, and then we have 2,015 brands.

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?

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.

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?

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.

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?

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.

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?

You said 2%, where is that?

Well, your annual guidance was at 2-point-something percent.

That's only for advertising business.

Oh, no. It's the advertising revenue. Okay. Sorry, yes, you're right, 2%. Sorry, what was your question?

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.

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.

[indiscernible] san go ahead.

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.

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?

Yes.

Really, did you. Did that make sense? All right. Thank you.

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.]

To start the financial results announcement of the Third Quarter FY '25, ending in March 2026 for ZOZO. We will only be offering live streaming this time. We plan to have the session until 5:20 p.m. After that, we will have a Q&A session with institutional investors on a separate Zoom channel from 5:30 p.m.

Now I'd like to introduce the presenter, Director, Executive Vice President and CFO, Koji Yanagisawa.

Hello.

Now CFO, Yanagisawa will take us through the business results.

I'd like to walk you through the third quarter financial results for FY '25 ending in March 2026. The presentation document we will use today has already been uploaded to our website's Investor Relations page. So please take a look.

First, I'd like to walk you through the highlights of the third quarter of the FY '25 period ending in March 2026. As for the third quarter, GMV increased by 9.1% year-on-year to JPY 502.9 billion. GMV, excluding other GMV, increased by 11.9% year-on-year to JPY 483.1 billion. EBITDA increased by 9.5% year-on-year to JPY 60.6 billion. EBITDA margin was 12.6%, down 0.2 percentage points from the same period last year.

Progress against the revised company plan announced on July 31 is as follows: GMV, excluding other GMV, 73.9% and EBITDA, 79.1%. Regarding GMV, we were affected by lower demand due to persistently high temperatures in the second quarter. Furthermore, while we implemented aggressive promotions against a high base from the same period last year, the effect of some sales events fell short of expectations in the third quarter, resulting in a slight shortfall against plan.

On the other hand, EBITDA exceeded the progress plan, benefiting from lower logistics and shipping costs and lower-than-budgeted promotional expenses. Both GMV and EBITDA achieved record highs in the third quarter.

Next, this is Page 8 of the handout. This is the quarterly trend in consolidated performance. For the third quarter accounting period, GMV, excluding other GMV, increased by 11.3% compared to the same period last year. And this overlaps partially with the earlier explanation of the third quarter cumulative results but ZOZOTOWN's business fell short of its plan as sales of fall and winter products showed limited growth, particularly in November and December. Meanwhile, LINE Yahoo! Commerce exceeded our plan for having more days of Honki-no ZOZO Matsuri.

As for LYST, we fell short of our plan due to factors, including industry headwinds and changes to the U.S. tariff system. EBITDA increased 14.9% year-on-year with the EBITDA margin reaching 13.6%. While GMV and gross margin were below plan, EBITDA improved faster than expected, primarily driven by shipping and logistics-related cost reductions.

Next, this is not included in the handouts, but I'd like to share the main topics of the third quarter. The first one is about the termination of our production business. Our production business was designed around a made-to-order model to address chronic inventory problem in the apparel industry. However, demand from brands fell short of expectations, and we faced challenges in achieving profitability. And after a comprehensive review of the business' future viability, we have decided to discontinue this operation.

In connection with the business liquidation, we recorded an extraordinary loss of JPY 700 million in the third fiscal quarter. And we have also suspended accepting new orders effective October 20, 2025. We will continue to sell the existing inventory and plan to see sales once it is fully depleted. We'd like to continue actively pursuing new business ventures, leveraging the insights and know-how we gained from the production business.

Next is about the K-Fashion Zone, which opened on November 6. On the same day, we also welcomed the opening of Musinsa, a leading Korean fashion platform. At launch, it featured approximately 140 brands. And by the end of December, this had expanded to 2,015 brands with around 200,000 listed SKUs and further expansion is planned going forward.

In terms of sales, sales got off to a strong start, broadly in line with our initial expectations. It's been gaining traction primarily among women in their early 20s with Korean brands known for their strong trend sensitivity showing particularly strong performance.

Next, I'd like to present an overview of the key performance details. Let's go to Page 9 of the handout. We will analyze the changes in EBITDA compared with the previous year's results at the end of the third quarter. EBITDA increased by approximately JPY 5.25 billion from JPY 55.42 billion in the previous year to JPY 60.67 billion in the current quarter. Factors attributable to the increase in EBITDA are the following 4 factors.

Gross profit increased due to higher GMV in the ZOZOTOWN business and LINE Yahoo! Commerce, plus JPY 6.68 billion. Next, sales increase due to growth in the advertising business, plus JPY 400 million. And gross profit increased due to consolidation of LYST and other businesses, plus JPY 4.97 billion; and lastly, reduction in variable costs driven by containment of logistics-related personnel expenses resulting from the streaming of logistics centers, plus JPY 420 million. And mainly there are 3 factors that reduced EBITDA.

First, increase in fixed costs due to a rise in consolidated headcount associated with the consolidation of LYST, the occurrence of onetime expenses related to M&A in the first quarter and others, minus JPY 2.59 billion, increase in actual PR expenses to attract customers, promote sales and cover LYST stand-alone expenses, minus JPY 3.9 billion. Thirdly, increase in other expenses due to success fees paid to FA related to M&A and others in the first quarter, minus JPY 730 million.

Next, let's go to Page 21. This is the breakdown of SG&A. The SG&A to GMV ratio was 21.8%, a decrease of 1.0 point from the same period of last year. While GMV increased due to the consolidation of LYST, incremental SG&A expenses were either 0 or minimal for certain items related to LYST alone. This contributed to a decrease in the SG&A expense ratio. Let's look at the breakdown.

There are mainly 2 factors that drove up the SG&A ratio. One, amortization of goodwill related to the acquisition of LYST, plus 0.3 points. Second, in addition to expenses recorded for LYST alone, advertising expenses increased due to high -- advertising increase due to higher web advertising spending for ZOZOTOWN, plus 0.2 points. And there are mainly 4 factors contributing to the decrease of SG&A ratio.

One, lower shipping costs resulting from improved economic terms from the -- with the delivery contract starting October 2025, driven by both expanded consolidation scope and delivery efficiency initiatives, minus 0.7 points, a decrease in logistics-related labor costs driven by improved operational efficiency, including inventory optimization of logistics centers and labor savings from automation initiatives as well as expanded scope of consolidation, minus 0.5 points.

Third, a decrease in payment collection commission due to the expansion of the consolidation scope, minus 0.2 points. Fourth, a decrease in rent expense due to the expansion of consolidation scope, minus 0.2 points.

Next, let's go to Page 24 of the handout. We are showing our actual promotion-related expenses. In Q3, actual promotion expenses amounted to 4.9% of GMV. The actual promotion-related expenses include advertising costs and point-related expenses that are deducted from sales. The increase was driven by 3 main factors.

First, we increased web advertising for ZOZOTOWN. Second, promotional expenses rose to -- rose due to initiatives such as acquiring new members and reactivating dormant members. And third, we recognized expenses solely for LYST with advertising accounting for a large portion of SG&A. While these 3 factors work to increase the actual promotion expenses, the elimination of PGA Tour sponsorship expenses from prior fiscal years had a greater impact. And as a result, the SG&A ratio decreased by 0.4 points compared to the same period last year.

And please note that the actual promotion expenses for the third quarter were largely used as planned. However, as mentioned in the opening slide of the earnings summary, the cumulative amount for the first 3 quarters remains below plan. The remaining budget will be utilized in the fourth quarter. And on a full year basis, we expect to use the budget as planned.

Next, I'd like to talk about ZOZOTOWN's KPIs. Let's go to Page 25. And please note that the following indicators do not include results of LINE Yahoo! Commerce LYST or B2B businesses. The number of total buyers increased by 280,000 from the previous quarter to 12.8 million. The number of active members increased by 310,000 from the previous quarter of 12.11 million. The number of guest buyers decreased by 30,000 from the previous quarter to 680,000. In Q3, we continued to successfully acquire new members by increasing our web ad and friend referral campaigns year-over-year. In addition, reengagement initiatives for dormant members have delivered positive results with the impact of reactivation now becoming visible.

Next, let's go to Page 28. This is the number of shops on ZOZOTOWN. At the end of the first quarter -- at the end of the third quarter, the number of shops stood at 1,712, a net increase of 26 from the previous quarter. The quarter -- the number of new stores opened in the first -- in the third quarter was 46, including stores like Musinsa that I just mentioned, Korea's leading fashion platform and Toys "R" Us and Babies "R" Us, comprehensive specialty stores for toys and baby products and ANDWANG, an apparel brand popular mainly among young consumers and more.

Next, this is Page 30 of the handout. Average retail price and average order value, let's go to average retail price first. It came to JPY 4,277, a 2.1% year-on-year decrease. Price increases for new fall and winter merchandise have moderated with prices now broadly in line with last year's levels. But the average retail price fell due to a higher proportion of sales items compared with the same period last year.

Let's now go to average order value. So our average order value stood at JPY 9,328, minus 1.0% year-over-year. The number of items purchased per order rose, supported by an improved cross-selling ratio, which was driven by a higher markdown ratio. However, the decline in average retail price outweighed these effects, leading to a lower average order value.

Also, the volume of promotions offering free shipping on purchases of JPY 12,000 or more remain at the same level as the previous year and the effect of this promotion on increasing the number of items purchased per order was limited.

Lastly, this is the full year consolidated earnings and dividend forecast for the current fiscal year, and there are no changes to the earnings forecast. This concludes our presentation for today.

This brings today's earnings call for ZOZO's FY '25 third quarter to an end. Thank you for your participation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

It is time to start the financial results announcement of the second quarter of FY '25 ending in March 2026 for ZOZO. We will only be offering live streaming this time. We plan to have the session until 5:40 p.m. After that, we will have a Q&A session with institutional investors on a separate Zoom channel from 5:50 p.m.

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

Hello.

Director, Executive Vice President and CFO, Koji Yanagisawa.

Hello.

Now, CFO, Yanagisawa, will take us through the business results.

Hello. I'm Yanagisawa. I'd like to walk you through the second quarter financial results FY '25 ending in March 2026. And by the way, this presentation document we will be using today has already been uploaded to our website's Investor Relations space. So, please take a look.

First, I'd like to share the financial results summary for the second quarter of FY '25. For the second quarter of FY '25, GMV increased by 11.9% year-on-year to JPY 312.4 billion. GMV, excluding other GMV, increased by 12.2% year-on-year to JPY 292.6 billion. EBITDA increased by 5.8% year-on-year to JPY 34.7 billion. The EBITDA margin was 11.9%, representing a 0.7 percent point decrease compared to the same period last year.

Progress against the revised company plan announced on July 31 is as follows: GMV, excluding other GMV, 44.8% and EBITDA, 45.3%. With respect to GMV, although measures to address the prolonged summer heat were in place on the inventory supply side during the second quarter, demand declined due to persistently high temperatures, resulting in a slight shortfall against plan.

On the other hand, EBITDA slightly exceeded plan, benefiting from lower-than-budgeted actual promotion expenses and a reduction in the cost ratio of logistics-related expenses and shipping costs. Both GMV and EBITDA achieved record highs for the second quarter.

Next, this is Page 8 of the handout, quarterly trend and the consolidated performance. For the second quarter accounting period, GMV, excluding other GMV, increased by 12.0% compared to the same period last year. This overlaps with the earlier explanation of the second quarter cumulative results, but the ZOZOTOWN business fell short of its plan, impacted by lower user demand due to persistently high temperatures, particularly in September.

Meanwhile, LINE Yahoo! Commerce saw limited effectiveness of its large-scale September initiative, Honki-no ZOZO Matsuri, because there was an overlap in the timing with the rush event of Furusato Nozei hometown tax program. However, strong performance in July and in August offset this, achieving higher results than the plan.

EBITDA increased 2.4% year-on-year with an EBITDA margin of 11.3%, while GMV and gross profit fell short of plan. We made progress more quickly than anticipated for EBITDA, primarily due to lower-than-budgeted actual promotion expenses and reduced logistics-related costs.

Operating profit decreased 2.9% year-on-year. This was due to the impact of factors such as goodwill amortization and depreciation expenses associated with the LYST consolidation, which were factored into the plan at the planning stage.

Next, I will present an overview of the key performance details. Let's turn to Page 9. First, we'd like to analyze the increase and decrease in EBITDA compared to the previous year's results at the end of the second quarter. EBITDA increased by approximately JPY 1.9 billion from JPY 32.85 billion in the previous quarter to JPY 34.75 billion in the current quarter.

Factors attributable to the increase in EBITDA are the following: gross profit increase of JPY 4.71 billion due to the increased GMV of ZOZOTOWN business and LINE Yahoo! Commerce and sales increase of JPY 210 million due to the growth in the advertising business. Thirdly, gross profit increased due to the consolidation of LYST and others, JPY 2.98 billion. And fourthly, decrease in variable costs due to improvements in the efficiency of logistics centers and a decrease in the ratio of shipping costs due to an increase in the average order value, JPY 60 million.

Factors that reduced EBITDA were as follows: increase in fixed costs due to an increase in the number of consolidated employees and the occurrence of onetime expenses related to M&A in the first quarter, minus JPY 1.78 billion. Secondly, increase in actual PR expenses to attract customers, promote sales and cover LYST stand-alone expenses, minus JPY 3.73 billion. Thirdly, increase in other expenses due to success fee paid to FA related to M&A and others, minus JPY 0.55 billion. That's for the increase and decrease analysis of EBITDA.

Let's go to Page 11. The cash flow trends are as follows: Cash flows from operating activities included increased payments for corporate income taxes and other taxes as well as increased goodwill amortization related to the LYST consolidation. Cash flows from investing activities included expenditures related to the LYST acquisition and equipment replacement at existing logistics centers during the current period. And lastly, cash flows from the financing activities included expenditures related to the acquisition of treasury stock. The treasury stock acquisition conducted from May 1 to July 31 concluded as planned and the total number of shares acquired was 6,541,500 shares, and the total acquisition cost was JPY 9,999,854,450.

Let's go to Page 22 of the handout. This is the breakdown of our SG&A. Our SG&A to GMV ratio was 23.0%, a decrease of 0.6 points from the same period of last year. While GMV increased due to the consolidation of LYST, incremental SG&A expenses were either 0 or minimal for certain items related to LYST alone, and this contributed to a decrease in the SG&A expense ratio.

Factors that drove up the SG&A ratio are the following: mainly there are 2 reasons for it. First, in addition to expenses recorded for LYST alone, advertising expenses increased by 0.5 points due to an increase in web advertising spending on ZOZOTOWN. And secondly, amortization of goodwill related to the acquisition of LYST resulted in a 0.3 point increase.

On the other hand, factors contributing to the decrease in the SG&A ratio include the following: First, the expansion of the consolidated scope, along with the improvements in operational efficiency, such as optimizing inventory levels and logistics centers and achieving labor savings through automation resulted in a 0.6-point decrease in logistics-related labor costs. Secondly, the expansion of the consolidated scope and higher AOV compared to the previous period led to a 0.6-point decrease in shipping costs. Thirdly, the expansion of the consolidated scope pushed down the payment collection fee ratio against GMV by 0.2 percentage points.

Next, this is on Page 25. The actual promotion expenses are as follows. In the second quarter, we allocated 4.7% of GMV to actual promotional expenses, which comprise the sum of advertising and point-related expenses deducted from net sales. Compared to the same period of the previous year, the actual promotion-related expenses ratio increased by 0.8 points due to the following factors.

There are 3 factors, mainly. First, increased spending on web advertisement for ZOZOTOWN. Secondly, increased promotional expenses to acquire new members, reactivate the dormant members and offer free shipping campaigns. And thirdly, LYST recorded expenses separately with promotion and advertising expenses accounting for a large portion of their SG&A expenses.

As mentioned in the opening summary slide, following the trend from Q1, the timing of some promotional spending has been postponed, resulting in the actual promotion expenses falling short of the plan. And we plan to utilize the unspent portion in Q3 and onward, and we plan to use the budget as intended on the -- on an annual basis.

Let's go to Page 26 of the handout. The following are ZOZOTOWN's KPIs. And please note that the following indicators do not include results from LINE Yahoo! Commerce, LYST or B2B businesses.

First of all, the number of total buyers increased by 160,000 from the previous quarter to 12.52 million. The number of active members increased by 210,000 from the previous quarter to 11.8 million. And then the number of guest buyers decreased by 50,000 from the previous quarter to 720,000.

In the second quarter, we continued to acquire new members through a range of initiatives that leveraged web advertising in ZOZOTOWN's platform. We increased our web advertising budget year-over-year to enhance customer acquisition. And in addition, measures to reactivate dormant members have proven effective with the results of their activation now becoming apparent.

Next, this is Page 29 of the handout. The number of shops on ZOZOTOWN. At the end of the second quarter, the number of shops stood at 1,686, representing a net increase of 5 shops from the end of the previous quarter. The number of new stores opened in the second quarter was 35 shops, including stores like COS a London-based fashion brand operated by the H&M Group and Love Chrome, a cosmetic shop specializing in hair combs and Olive Young Exclusives, the private label shop of South Korea's multi-branded cosmetic shop, Olive Young.

Next, Page 31. With respect to the average retail price, ARP, it turned out to be JPY 3,584, a decrease of 1.2% compared to the same period in the previous year. The average retail price declined as a result of an increased sales ratio due to the factors such as the summer sales period being longer than the previous year. And furthermore, price increases by brands for new spring and summer merchandise have now stabilized with prices remaining at levels comparable to the previous fiscal year.

Next, let's go to Page 32. This is average order value, AOV. AOV was JPY 8,183, down by 0.2% compared to the same period last year. This was primarily due to the great use of the free shipping policy for orders of JPY 12,000 or more compared to the same period last year, leading to a higher portion of combined purchases and a larger average number of items per order. In the meantime, the decline in AOV outweighed the impact of the increase in the number of items purchased per order, resulting in a slight decrease in the AOV.

Let's go to Page 34 of the handout, consolidated business forecast and dividend forecast for FY '25. There are no changes to the earnings forecast. And finally, I'd like to share 2 topics with you. First, I'd like to present the key topics implemented and announced during the second half of the fiscal year. First, we held ZOZOFES at K-Arena Yokohama on October 12 and 13.

ZOZOFES was a special event where fashion and music intersected, held with gratitude to connect the year 2004 when ZOZOTOWN was founded with the present themed around Y2K. Approximately 40,000 people attended over the 2 days and sales of collaboration products at the venue were strong, and we received many positive comments from attendees.

Next, we are pleased to announce the launch of a new K-Fashion Zone on ZOZOTOWN. On November 6, Musinsa, a leading Korean fashion platform will be launched on ZOZOTOWN. This will significantly expand the lineup of Korean brands available on ZOZOTOWN, creating a shipping space where people can enjoy trendy Korean fashion more conveniently than ever before.

At launch, the Musinsa ZOZOTOWN shop will carry approximately 140 brands with a phased plan to expand the number of brands to over 1,500. And looking ahead, while continuing to strengthen our K-Fashion offerings, we will further expand into other categories and brands to create a shopping destination that meets the diverse needs of our customers.

That's all from me. Now our Representative Director, Sawada, will take the floor.

Hello, everyone. My name is Sawada. What I'd like to do is to share a topic with you. As you can see in the title, I'd like to talk about AI agents. The age of AI agents is coming, and this is progressing day by day, as you know. And then, what I'd like to do today is to share ZOZO's competitive advantage as we operate our e-commerce.

So, just kind of going back to what I said, the regular keyword search is going to shrink or is expected to shrink. And we believe that the era of AI agents is going to come. And I also believe that it will come. But in Japan, the speed is not as high. But if you look to other countries, searches through AI agents is becoming mainstream apparently. So, for sure, this age will come.

And amid this environment, how should we act? Next slide, please. And of course, this is something that we take for granted now. AI agents will start to replace searches. And when that happens, this is going to be far more superior than search as an engine because the needs and the interest could be understood and acknowledged through chat. And then, it can bring the users instantly to the purchase phase. And whatever that is recommended to them, they will make a purchase of them.

So -- and also in the e-commerce territory, not only should we offer payment services, we also offer recommendations. We let them see what they might like. So, inevitably, we're stepping into that territory. And then there's going to be an overlap to -- of what we do as an EC platform and what AI agents are capable of doing. And I believe that this is not just for us, but for other players as well.

So, is this a risk for us or is this an opportunity? So, it's a matter of how we see this. We see this as an opportunity. And then there are mainly 2 reasons why we see this as an opportunity. First of all, there is a superiority of the merchandise that we handle, which is fashion. And then we also have superiority in the data that we hold.

So, when we have these 2, we believe that in the world of AI agent, we have far more opportunities to capture the users. So, what it means is that we want to step on the gas to enter into the era of an agent. So, I'd like to sort of elaborate on the advantage we have as a merchandiser of product and advantage as an EC commerce. So, this may sound quite normal to you how we have competitive edge because of the merchandise we carry.

So, for smartphones and detergents, for example, these are functional products. and commoditized products, yes, the price range are different between a smartphone and detergent, but they belong to the same group because they can be compared in a simple way. So, it's quite easy for AI agent to capture this data and then do a comparison. On the other hand, there's fashion. And this is a red sweater. And then yes, of course, everybody can pull the data about which brand this is from and the material, for example. But the question is, is this a trendy cardigan? Or should this be tucked in or tucked out? So is this good for summer or is it good for winter.

So, all these ambiguous intricate data is something that we need to handle in the world of fashion. So, these have not been verbalized yet. Even our consumers are not able to verbalize them. And what we'd like to do is to capture this data and accumulate such intricate data in our database.

And then recommending things like this -- in order for us to be able to recommend things like this, database is going to be key. And we expect that this is a territory that normal AI agents will not be able to play in. And another one is our competitive edge as an EC platform. So, I believe that this has been said already.

So, the purchase history of our customer is quite close to their purchases. So, let's say that they saw media news or they were exposed to social media articles, and compared to that, the customer information that we have is much closer to their purchases. So, there's complicated intricate fashion-related data. We have that. And we also have customer data that is quite close to purchases. So, we have both of them. And then we have our advantage and competitive edge with our data source. And then we have been spending several years to develop our AI agents.

And how would this turn out as output? So little by little on WEAR. So, WEAR is a styling information app. So, we're continuing to enhance that. In August, we celebrated the 10th anniversary. We upgraded this app. And then for those of you who use this, I think you know this already, we are embedding AI quite a lot in WEAR.

And another thing we'd like to take on the challenge with is to have a conversational UI because you already know, of course, that AI agent is very good at having conversations, and that's where we'd like to go into as well. So, we want to create a Line account with unique algorithms, so we'll be able to enable conversational experience that mimics their experience of speaking to human stylists.

And this is one example of what we can do with WEAR. So, we can use LLM to produce comments about this item and send it to the customers. So, we don't just simply describe this item. We tap into the consumer insight. For example, they may have some concerns or insecurities with their body. And then we can personalize our styling offering based on their concerns when we make proposals. So, this is the type of mechanism that is already in place. So, if you're interested in trying this out, please do.

And lastly, there's Line, WEAR and ZOZOTOWN. So, there's the online upstream. So, what we'd like to do is to connect it to the upstream of online. So, [ SB ] is our parent company, and they are closely working with OpenAI, and there is also adoption of offline that we're considering as well. So, this summer, we set up an offline store called ZOZO Yokocho. So, we can implement something like this in an offline store and consider if AI stylist is feasible. And we must create the algorithm for this, and it wouldn't be complete one day. How we envision this is to continue to develop and evolve this algorithm.

So, I hope that you pay attention to our further developments, handling AI agent and AI. Thank you. So, how do we think of the age of AI and AI agent is what I just presented.

That concludes ZOZO's second quarter financial results announcement for FY '25 ending in March 2026, and thank you for your time and attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]