ZOZO,Inc. Q2 FY2027 earnings call

• Sales Environment & Seasonality: July and August sales were moderate compared to last year's hot weather, but September performed strongly due to colder temperatures driving sales of expensive winter items like sweaters.
• AI Strategy Shift: Management announced a shift from a defensive platform strategy to a more offensive AI-driven approach. The goal is to utilize AI for precise styling recommendations to increase GMV and purchase amounts, moving beyond human stylists.
• Offline Initiatives: The 'niaulab' offline service, where stylists assist customers, doubles the purchase amount for participants. YouTube programs also drive significant site traffic and sales.
• Collaborations & IP: The Pokemon collaboration (T-shirts) is performing extremely well, exceeding initial expectations and providing an upside surprise. A comprehensive team is dedicated to managing collaborations and IP partnerships.
• ZOZOUSED Growth: The secondary market business (ZOZOUSED) is outpacing the growth rate of ZOZOTOWN. The company leverages its data on new product sales to optimize inventory and costs in the used goods sector.
• Cost Drivers: SG&A expenses in 'Others' increased due to higher packing material costs (effective June) and increased AWS/cloud server usage.
• Security Measures: Following security incidents at group company ASKUL, ZOZO has significantly enhanced cybersecurity efforts. No additional costs are expected in H2 for these initiatives.

The provided transcript does not contain specific financial data, revenue figures, or percentage contributions for individual product segments. Management discusses performance qualitatively, noting that ZOZOTOWN slightly fell short of plans while LINE Yahoo (LY) Commerce exceeded expectations due to increased frequency of 'ZOZO Festivals'. Additionally, ZOZOUSED is reported to be growing faster than the core ZOZOTOWN business.

• Margin Outlook: Management expects operating margins in the second half of the fiscal year to return to levels similar to the past, as no further unexpected cost increases are anticipated. However, advertising expenses will increase in H2.
• Fall/Winter Sales: While October was warmer than usual (a headwind), management believes brand inventory adjustments over the last 4-5 years have mitigated risks. November events (ZOZOWEEK, Black Friday) are key focus areas.
• ZoZOTOWN vs LY Performance: ZOZOTOWN underperformance was partly due to fewer planned festivals compared to LINE Yahoo, which had unplanned festival increases driving higher sales.

• Weather Volatility: Unseasonably warm weather (El Nino effects) poses a risk to fall/winter apparel sales, though inventory adjustments may mitigate this.
• Cybersecurity Threats: Despite enhanced measures, cyberattacks remain a global urgent matter, and complete immunity cannot be guaranteed.
• Brand Price Increases: Brands continue to raise prices, which could potentially impact demand if average retail prices rise dramatically.
• Cross-Border Uncertainty: The MUSINSA pop-up test in Korea showed promise but brand awareness remains low; future strategic decisions depend on these results.

Q: Analyst asked about the gap between ZOZOTOWN's underperformance and LINE Yahoo's strong results in Q2, and whether payment regulations in the US/Japan would impact AI strategies. / A: Hirose explained that LY outperformed because it hosted more 'ZOZO Festivals' than planned, boosting sales. Regarding payments, Sawada noted that determining who collects payment data (EC vs agent) is critical for acquiring detailed user attributes to fuel AI recommendations. Owning the transaction data allows for superior predictive marketing compared to relying on delayed data.