Zalando SE (ZAL.SW) Q3 2026 Earnings Call Transcript

Operator: Good morning, ladies and gentlemen, and welcome to the Zalando Earnings Call. The conference will be recorded. [Operator Instructions] Thank you very much. And let me now turn the floor over to your host, Patrick Kofler.

Patrick Kofler: Good morning, everyone, and welcome to our Q3 2026 earnings call. Today, I'm joined by our CFO, Anna Dimitrova. Anna will kick off with a short business update before walking you through the financial developments of the quarter. Anna will then discuss our outlook and will be available for questions at the end. As each quarter, this call is being recorded. The live webcast as well as the replay of the call will be available on our Investor Relations web page later today. Now handing over to Anna. The floor is yours.

Anna Dimitrova: Thank you, Patrick. Good morning, everyone, and thank you for joining us today. In the third quarter, we regained business momentum and increased adjusted EBIT year-on-year. Our performance keeps us firmly on track towards our full year 2026 guidance, which we are confirming today. Let me start with the 5 key highlights reflecting our progress in the third quarter of 2026. First, in Q3, we delivered an improvement in growth and increased profitability. Reported GMV grew 7.5% and group revenue is up 5.1% year-on-year. On a pro forma basis, growth improved to 6.1% and 3.3%, respectively. Adjusted EBIT reached EUR 107 million, up 11% year-on-year, lifting our margin to 3.4%. Second, Agentic commerce is opening entirely new growth opportunities, and we are on the forefront. Zalando Extended is a great example. More on that shortly. Third, all 3 B2C apps carried solid momentum with Zalando and Lounge both improving. And the shift towards our more scalable, capital-efficient platform model is picking up speed. Partner business and Retail Media each grew double digits. Fourth, B2B grew almost 28%, driven by partner volumes in key merchant collaborations. ZEOS Fulfillment added key wins and SCAYLE broke through with major new customers in the U.S. and in the U.K. And fifth, we are confirming our full year 2026 guidance. We expect reported GMV and revenue growth in the lower half of the 12% to 17% range, adjusted EBIT in the range of EUR 680 million to EUR 720 million, CapEx between EUR 240 million to EUR 300 million and a negative net working capital position. Next, I will elaborate on the progress of our business, starting on Slide 3. Let me quickly remind you of why Zalando has a unique competitive advantage in the AI race. Remember that we see millions of customers a day and take hundreds of orders a minute. Over more than 15 years, we have built the richest data in fashion and lifestyle, whether it's assortment data or customer behavior data. No competitor has that, and none of them can buy it. Our B2C and B2B segments are powered by AI that's trained on and running on that data, driving growth and efficiency. Like we have done in the last 2 quarters, I will provide some examples of how our AI efforts have progressed this quarter, and this time, focusing particularly on agentic shopping. Everyone is talking about agentic shopping. Let me show you why Zalando is best positioned to thrive. Consumer behavior is changing. Consumers are interacting with AI agents everywhere. And this is why we see Agentic commerce as a great opportunity to create new seamless consumer journeys. We are approaching this shift from 3 angles. First, offering an agentic shopping experience in the Zalando app via the Zalando Assistant, and already more than 22 million unique users visited Zalando Assistant this year. Monthly active users are up 5x and high-value actions such as add to basket are up 7x compared to last year. Customers that use the Zalando Assistant during the shopping journey are twice as likely to complete the purchase. The assistant helps customers discover, evaluate and purchase fashion products more effectively. We make it our mission to ensure that Zalando is always the best place to start a fashion and lifestyle discovery journey. Second, we have what we call inbound agentic commerce when the customer is using a third-party agent. You will recall from previous calls that we lean into agentic commerce to meet customers where they are. We piloted ChatGPT Ads in the U.K. Initial results were encouraging, and we are now evaluating its long-term use. We are also a launch partner for Google Universal Commerce Protocol in the U.K. When our partners are with us, they automatically benefit from our agentic commerce integrations. Agentic is still a very small share of overall traffic, but it is increasing. Through early investments in generative engine optimization capabilities, we ensure Zalando is the top preferred platform for fashion and lifestyle questions by AI agents. By using direct integrations and targeted ads on external AI platforms, we can capture a new wave of shoppers who already know what they want and are ready to purchase. And third, we don't stop there. We are excited to pilot Zalando Extended, our outbound agentic commerce experience. Zalando Extended lets customers find and buy products that are not sold on Zalando from other online shops without ever leaving the trusted Zalando app. Zalando's own AI agent will securely buy them on their behalf. Partner shops benefit as well because the AI agent does the work. Partners reach Zalando customers and gain new sales without complex technical integration or changes to their logistics. It also takes Zalando's platform a step further, starting with complex categories such as bulky home goods. It will, over time, open up an ever-growing range of products from shops across the Internet, all in the secure environment of the Zalando app. Our launch partner is the furniture retailer Westwing, Europe's #1 premium destination for home and living. In selected markets, you can already find their furniture in our search results and product catalog. At the moment, when you click to buy an item, you will be redirected to their site like an affiliate deal from 2027. However, customers will be able to buy Westwing products directly within our Zalando app using our agent. We already are the leading fashion and lifestyle discovery platform in Europe, and now customers will be able to use Zalando to discover and buy a much broader range of lifestyle assortment from across the Internet. We are excited by this new opportunity. And with that, let me move to our second growth engine, our B2B operating system. Before the quarter's highlights, a milestone worth celebrating. 10 years ago, we launched Zalando Fulfilment Solutions. What began as a small pilot is now the go-to fulfillment solution for our partners with ZEOS Fulfillment as ZFS has evolved, set to cross EUR 1 billion in revenue and is increasingly recognized as a turnkey solution for our own e-com and marketplace fulfillment across Europe. I'm very pleased with the development across our B2B solutions. This quarter, Lascana, LC Waikiki and Champion chose ZEOS Fulfilment, cutting logistics complexity and maximizing inventory productivity via one stock pool. SCAYLE is building momentum internationally, especially in the U.S. and in the U.K. We recently secured major enterprise deals with Neighborhood Intelligence, whose portfolio includes Bed Bath & Beyond, Kirkland's and buybuy BABY and Rue Gilt Groupe in the U.S. In the U.K., N Brown Group decided to use SCAYLE. SCAYLE STUDIOS the new Software-as-a-Service platform that replaces traditional photo shoots with AI-generated content won HUGO BOSS as a major customer. These wins validate our B2B strategy. Our infrastructure and software are competitive globally and a powerful growth engine for the group. Our B2B operating system offers a unique end-to-end spec from the logistic layer with ZEOS Fulfilment to SCAYLE and Tradebyte to overarching services such as content. This concludes the business update. Now I will move over to our Q3 financial performance. As a reminder, our reported financial results incorporate ABOUT YOU from July 11, 2025 onwards. This is why reported numbers are still slightly higher even if we now lapped the inclusion of ABOUT YOU in the third quarter. To provide a like-for-like year-on-year comparison, I will refer to pro forma growth metrics that assume full ownership throughout the prior year period. Having now lapped the inclusion of ABOUT YOU and as with any individual business unit, we don't provide stand-alone figures for this quarter onwards. Moving forward, our reported figures provide the complete like-for-like picture of how our underlying combined business is performing. In Q3, we sustained our profitable growth trajectory. Group GMV reached EUR 4.5 billion, a 6.1% year-on-year improvement pro forma, an improvement compared to Q2 and from the first half of 2026. GMV increased across all 3 consumer apps. The improvement was driven by our Zalando app and the growth of the partner business alongside strong momentum in Lounge. Pro forma group revenue growth also improved to 3.3% year-on-year, reaching EUR 3.2 billion, driven by strong performance in Retail Media and B2B in particular. The gap between GMV and revenue growth reflects the strong momentum in our partner business. GMV, our primary top line KPI captures the full value of goods sold to customers, both by Zalando and by our partners. For partner sales, however, we recognize only our commission as revenue. We continue to deliver growth in adjusted EBIT. Adjusted EBIT rose 11% year-on-year to EUR 107 million. Adjusted EBIT margin expanded by 0.2 percentage points to 3.4%, supported by lower fulfillment costs, synergies and B2B growth, partially offset by targeted investments in attractive offers for our customers and higher marketing costs. And ABOUT YOU improved its profitability in line with previous quarters. In Q3, we also sustained our synergy momentum, delivering mid-teens millions in group synergies. Over the 9-month period, we recorded 16.2% year-on-year reported GMV growth and a 16% year-on-year increase in reported revenue. Adjusted EBIT reached EUR 376 million, up 14.5% year-on-year. Building on our performance through the first 9 months, we remain fully confident in landing within our guided top line ranges and in hitting the midpoint of our 2026 adjusted EBIT guidance. Turning to B2C. Q3 delivered solid financial results while accelerating our shift towards a platform-led model. On a pro forma basis, GMV increased 6.1% year-on-year and revenue reached EUR 2.8 billion, a 0.9% year-on-year growth. GMV increased across all 3 consumer apps, Zalando, ABOUT YOU and Lounge by Zalando. Performance on Zalando app was driven by continued acceleration in our partner business along with an improvement in our retail business. In terms of category performance, we saw strong growth in our fashion categories, directly benefiting from a higher partner share and driven by all types of partners on our platform. Additionally, our lifestyle categories such as beauty and sports grew strongly. Partner share increased by 2.9 percentage points to 33.6%. Now as we lap the ABOUT YOU inclusion, we are making meaningful progress towards our 2028 midterm target range of 40% to 50% partner business. Retail Media revenues increased by nearly 18%, a stable development compared to Q2 pro forma. In Q3, Retail Media reached 2% of B2C GMV. Zalando Plus, our loyalty program now has more than 22 million members, and we added new partner benefits with Spotify and Duolingo across all 17 Plus markets. In summary, our B2C business gained momentum while we continued our shift to a platform-led model. The shift weighs on revenue growth in the short term, but it builds a more scalable business for the long term. Turning to customer metrics. Top line growth in our B2C segment was primarily driven by 2 factors: more active customers and higher spending per customer. First, on the last 12-month basis, active customers grew 2.9% to 63.2 million, and we added more than 600,000 active customers quarter-on-quarter. Growth was driven by loyal, the returning customers whose share of our business continues to increase. Our Plus program is a key driver, Plus members order more frequently. Second, we are increasing our share of wallet as existing customers spend more with us. Average spend per customer increased 2.9% to EUR 308, mainly driven by larger average basket sizes as more customers shop across several categories. In summary, we continue to successfully expand our customer base across our consumer apps while deepening engagement and share of wallet with existing customers. Turning to B2C profitability. Our B2C gross profit margin reached 41%, representing a 0.7 percentage points decrease year-on-year. This decline was primarily driven by targeted investments in attractive offers for our customers in our retail business, especially in sneakers. At the same time, our gross margin continues to benefit from positive contributions from our partner and Retail Media businesses. We delivered in Q3 B2C adjusted EBIT of EUR 64.4 million, down from EUR 76.6 million in the prior year period. This corresponds to an adjusted EBIT margin of 2.3% compared to 2.8% last year. The margin decline by 0.5 percentage points was linked to 2 factors: first, the decrease in gross margin; and second, marketing spend was higher in the quarter due to an earlier start of our autumn/winter marketing campaign in Q3 rather than Q4 as well as our marketing activities around the World Cup. Both effects were partially offset by synergies from the integration of ABOUT YOU and lower fulfillment costs. The logistics network reshaping continues to progress as planned. Looking ahead, we expect further improvements in our fulfillment costs throughout 2027 and 2028. So now moving to B2B, where double-digit revenue growth translated again into a profitability increase. B2B revenue reached EUR 354 million, up 27.2% on a pro forma basis and accelerating again from last quarter. Zalando Fulfilment Solutions sustained its strong double-digit growth trajectory on the back of the growing partner business. Multi-Channel Fulfillment continued to grow strongly. This was primarily driven by major partner collaborations, such as our strategic partnership with a U.K. retailer NEXT, which launched last year, alongside the recent launch with Marks & Spencer in 22 markets in August. Solid momentum across SCAYLE and Tradebyte further drove higher-margin software revenue streams. The strong top line revenue growth in B2B generated higher bottom line earnings and strong margin expansion. B2B gross margin increased by 2.2 percentage points to reach 20.6%. Furthermore, B2B adjusted EBIT more than doubled to EUR 42 million, driven by overhead leverage and a higher gross margin from scaling ZFS. The gross margin also benefited from higher ZFS volume reducing shipping and packaging costs as more items could be combined into shared parcels. The corresponding adjusted EBIT margin expanded from 7.1% to 11.9%. Let me now walk you through the group P&L. Group gross margin decreased 0.9 percentage points to 38.7%. This reflects a 0.6 percentage points decline in B2C and 0.2 percentage points mix effect from faster growth in B2B, which has a lower gross margin. We viewed the gross margin development in Q3 as transitory and continue to expect a broadly flat gross margin for the full year. Let's have a closer look at the cost lines, excluding adjustments. Fulfillment costs improved by 0.9 percentage points, driven by the lapping of ramp-up costs at our Paris and Giessen logistics sites alongside operational efficiencies in content production and customer service. Marketing costs remained flat on a group level. Admin costs remained broadly flat, reaching 3.6%. On an unadjusted basis, the cost line improved by 0.7 percentage points due to a reversal of office impairments as we bring our employees back to the office next year. Other operating income and expenses also remained flat. As I told you in the Q2 call, on an unadjusted basis, we increased by 0.7 percentage points, reflecting restructuring expenses, mainly relating to costs associated with the closure of our fulfillment center in Erfurt. Furthermore, we recorded additional restructuring costs for an organizational efficiency measures, specifically at our headquarters in Berlin. And as usual, those one-off costs are reported outside of adjusted EBIT. Overall, our adjusted EBIT margin reached 3.4%, up from 3.2% a year ago, driven by lower fulfillment costs. In Q3, total adjustments to EBIT amounted to EUR 93.4 million. As mentioned last quarter, we expect around EUR 380 million of total adjustments for 2026. Let me now turn to our balance sheet and cash flow development. We continue to operate with a negative working capital position. Negative working capital reached EUR 424 million by the end of Q3, driven by an increase in payables due to strong momentum in our partner business development. This reflects a EUR 283 million improvement compared to the EUR 141 million reported in Q3 2025. Inventories were slightly down year-on-year, while retail GMV grew. Looking forward, supported by the solid performance of our autumn/winter merchandise, with improving sell-through rates, we expect full year inventory to stay at these healthy levels. We continue to see strong GMV growth in our partner business, which leads to higher trade payables. Now to our cash position, which remains solid. We closed the quarter with EUR 1.2 billion in cash and cash equivalents, down from EUR 1.4 billion at the end of Q2. This position remains fully consistent with our capital allocation target of maintaining a cash reserve equal to roughly 10% of our trailing 12 months revenue over time. Let me walk you through the movements during the quarter. As most of you know, Q3 typically sees a cash outflow from seasonal net working capital changes. Furthermore, cash outflows from the Erfurt restructuring and the ABOUT YOU integration partially materialized in Q3, reflecting costs already provisioned for in the earlier quarters of 2026. As a result, operating cash flow decreased by EUR 57 million quarter-on-quarter. CapEx of EUR 61 million was driven by investments in fulfillment centers and further automation, particularly in Sweden and Germany as well as continued investment in internally developed software. This concludes our financial performance review. Let me now move to the outlook. In Q3, our business improved, and we saw a good start into the fall/winter season. Our full focus is now on executing a successful Q4 to maintain the solid momentum, driven by our plans for the upcoming Cyber Week and Christmas holiday season. Current trading remains on track, reinforcing our confidence that full year top line results will land within our updated target ranges. Regarding profitability, we remain committed to deliver the midpoint of our adjusted EBIT guidance range. We expect margin expansion predominantly due to improvements in our OpEx lines as well as continued synergy delivery. With that, we fully reiterate our financial year 2026 guidance as updated in August. Let me now turn to the key takeaways before we open for the Q&A. We are advancing our agentic capabilities and are excited about the new opportunities they bring. In business-to-consumer, we delivered a growth improvement compared to H1. In business-to-business, we are delivering strong double-digit growth and a significant margin expansion. The integration of ABOUT YOU is progressing well. So now let's open up for your questions.

Operator: [Operator Instructions] So our first question comes from David Nolan from Morgan Stanley.

David Nolan: Two from me. So the first is just on the trade-off between B2C growth and profitability. With GMV growth accelerating in Q3 with B2C margins declining, how should we kind of think about the balance between sustaining this growth momentum and B2C profitability going into Q4 and into next year? And then the second is just on B2B margins. So obviously, adjusted EBIT margins remained strong in Q3. It would be great to get any further color on how much this reflects improving fulfillment economics versus a growing contribution from SCAYLE and how we should think about the mix evolving into 2027 and the sustainability of low double-digit margins in Q4 and also in 2027 as well.

Anna Dimitrova: Thank you, David, for your questions. Let me start with your questions around B2C growth and profitability. So in Q3, you saw that we regained momentum in the top line and the revenue growth is stemming from the growth of the partner business and slow improvement in retail. 2/3 is related to the partner business growth and 1/3 to our retail improvement. In partner business, we are managing the transition very well, and we saw growth in different categories, jerseys, trousers, dresses. And here actively, we are investing less, and this is how we balance growth and profitability. And in our retail business, we used Q3 as a quarter of end-of-season sales campaigns and back-to-school campaigns to offer attractive offers for customers here, especially in sneakers, as I told you in Q2 that we had a softer momentum. So this is stabilizing now. The gross margin development is particularly affected by targeted investments in these customer offers in our retail part and the gross margin in B2C continues to benefit from the growth of our partner business in Retail Media. So Q3 gross profit development, we see as transitionary. And looking into Q4, we expect an improvement. And as I told you before, for the full year, we are expecting a flat year-over-year development of the gross margin. And looking into the next year, we continue to improve the gross margin, obviously, as well supported by the growth of our high-margin partner business and Retail Media business, but as well given the healthy inventory position and disciplined management which we have on the retail side. So now to the second question on B2B margins, the contribution from fulfillment or our software revenues and how do we see the development going into 2027. First of all, we are very pleased with the development of the B2B business in terms of revenue growth and margins. The growth comes through scale and efficiencies in our fulfillment business on the back of a very fast-growing partner business. We as well benefit and increase margin. And as I said as well in the presentation, given that our partner business is growing very fast, we have a higher share of parcel sharing, which as well reduces then the unit cost and increases all the economics. And of course, scale is contributing with the higher margins for the increased profitability. I told you as well last quarter that we have as well some small temporary effects, which we level out in the next quarters so that the margin, which we are expecting is around 9% to 10% going forward. And we will take this momentum as well in 2027.

Operator: So the next question comes from Adam Cochrane from Deutsche Bank.

Adam Cochrane: A couple of questions from me. First of all is on inventory. You exited the quarter with a broadly flat inventory position. I think you're expecting it to be down for the full year, I think, previously. So what I really want to know is how clean is your inventory position heading into the fourth quarter compared to where you'd like it to be? And as you look at the Black Friday and things like that, is that the time where you should be able to clear out any old inventory to end the year with a lower and cleaner inventory position? And the second question is the Zalando Plus loyalty scheme, you haven't really talked about it that much. I think there's one bit in the slide deck. Is this delivering the benefits that you are hoping to see from the scheme? And do you think that this is contributing to your increased spend per customer or the increased number of returning customers into your sales mix?

Anna Dimitrova: Thank you, Adam, for the 2 questions. Let me start with inventory. Just to remind us, we closed last year on the Zalando side with 12% inventory year-over-year. And in later of the year, we reduced it. So now we are broadly flat compared to growing retail revenues. So this is in line with my expectations, and we are heading to the inventory position, which we want to see at the end of Q4. We as well leverage now Q3 as an end of season sale quarter to reduce old stock. So we are starting in Q4 in the autumn/winter season with a good inventory position. And as you know, we are now preparing for Cyber, preparing a strong execution, and we will capture demand and be very balanced, balancing supply and demand and as well aligning with the growth of the partner business. And as I told in the previous answer from the question from David is that we are consciously investing less in categories where partners are growing and have more attractive offer. So on Zalando Plus, indeed, we are pleased with the development in the contribution of Zalando Plus. We see orders of Zalando Plus customers going up, GMV per active customer is going up. Profit contribution is going up. This is where we measure our customer lifetime value. And indeed, as you pointed out, as well our loyal and returning customers are Plus customers. So this is why we keep working and keep adding benefits for those customers. You saw now we added Duolingo. This is another attractive offer to even attract more of those Plus customers and to increase GMV going forward.

Operator: Our next question comes from Yashraj Rajani from UBS.

Yashraj Rajani: I have 2, please. So first one is on the Q4 implied revenue guidance. I mean, your guidance does imply a very big step-up into Q4. And given the fact that you said Q3 is transition, can you please help us understand what are the moving parts in Q4 that will help bridge you to your implied level of revenue growth guidance? So that's the first one. And then the second one is just a question on next year, please. So given you've already started to see a very nice improvement in your fulfillment line, are you confident that maybe that accelerates on a year-on-year basis into next year? And then does that imply alongside your comments with the gross margin that you feel comfortable with the EUR 810-odd million adjusted EBIT consensus for 2027?

Anna Dimitrova: Thank you, Raj. So first to your question regarding the revenue implied in Q4. As you all know, we in August, we refined our top line guidance to the lower end of the corridor of 12% to 17% reported GMV and revenue growth. And we told you that we expect to land in the lower end, and we expect to accelerate in H2 compared to H1. And this is what we delivered in Q3. We improved revenue growth and regained business momentum in retail alongside a very good development in the partner business. So now in Q4, as you know, this is our peak trading season. We are gearing up the teams to be prepared to have a very strong Q4 in B2C and B2B. And as well worth mentioning is that usually Retail Media has as well the highest absolute contribution in Q4 given that brands as well would like to present their products to our customers. Then moving to your question on 2027 and the development of our fulfillment costs. Yes, as we have told you before, we are now in the process of reshaping our logistics networks. On the one hand side, ramping up modern automated sites in Paris and Rotterdam. And on the other side, we closed Erfurt at the end of September. And as well, we are executing on the logistic cost synergies with the integration of the logistics network of ABOUT YOU. So yes, we will see improvement of the logistic cost in '27 and in '28. And we expect to close the year on a strong note and to take this momentum into 2027. And 2027 definitely is another stepping stone, very important year towards our midterm target ranges for 2028. And we will share with you the details regarding the guidance and how we will get there in our call in March.

Operator: [Operator Instructions] So the next question comes from Anne Critchlow from Berenberg.

Anne Critchlow: I've got 2, please. The first question is on the home products. Please, could you talk about the customer reaction to the launch of home products on the site and whether you've actively marketed this or whether it's just more of a soft launch? And is it significantly contributing to partner business growth in the quarter? And then my second question is about the outbound agentic commerce. How will the additional products from outbound AI appear to the customer? Will they have equal status to -- in a partner program products that you earn a commission on or the own retail products? And in other words, will they crowd out products on which you can earn a margin?

Anna Dimitrova: Thank you, Anne, for the 2 questions. Regarding our home and lifestyle proposition, we launched it last quarter, and it is progressing very well. We have around 30 partners in the home category. This is in a majority partner business model. And it is so we are very keen to onboard more and more partners. So we are targeting next year around 50 and as well increasing the number of items sold as well strongly. So far, it's -- yes, very young proposition and still with not material contribution to the partner business growth. So the partner business growth is coming from the core fashion categories. On Zalando Extended, Zalando Extended is our outbound agentic commerce experience and how you should think about it, it lets customers find and buy products which are not on our Zalando platform, but without leaving the Zalando app. And the agent will buy on behalf of the customer. And so how does it appear to the customer? It appears on the platform as a [indiscernible] normal item sold on Zalando. In terms of economics, there are 2 revenue streams. One is a commission. So this is not a retail product. This is a product sold for somebody from a shop off Zalando, but it appears on the page. Commissions and the second is Retail Media, which is very exciting because this as well expands the inventory for us and brings products from off Zalando to Zalando and will contribute as well to the Retail Media growth.

Operator: Our next question comes from Andrew Ross from Barclays.

Andrew Ross: I've got 2 as well, please, both about exceptional items. Can you give us an update as to what level of exceptional you now expect for the full year, including stock-based comp? And also what you have any line of sight on for 2027? And then the second question is more specifically. I think in the report, it talks about the reversal of impairment of right-of-use assets for buildings that helped EBIT, I think, by EUR 9 million in the quarter. Can you just tell us what that is and some of the assumptions?

Anna Dimitrova: Yes, sure. Andrew, thank you for the questions. So as I told in the call, we expect exceptional items or adjustments around EUR 380 million. And as well as I told you in the August call, the cash impact is around 40%. And in terms of 2027, as we now get the closure of the fulfillment center in Erfurt and as well restructuring measures, we expect lower adjustments in 2027. Regarding the question about the impairment, this is the fact that we decided to bring our people back to the office. So in the past, we didn't use some of our office spaces and we recorded an impairment, but this now is a reversal as we start 1st of January using it.

Operator: So the next question comes from Georgina Johanan from JPMorgan.

Georgina Johanan: I've got 2 as well, please. The first one was just for Q4 in terms of like the overall customer proposition because I understand that you're talking to gross margin improvement year-on-year in Q4, which I assume is kind of the reversal of the excess inventory provisions that you took at this time last year. But I'm just trying to understand like on an underlying basis, is all the kind of promotional activity and excitement that you're going to try and drive around Black Friday period? Is that kind of flat year-on-year? Or how would you kind of -- how would you describe that, please? And then my second question was just on the marketing costs. So see that your marketing spend is obviously higher year-on-year in absolute terms and a flat ratio. But we've obviously heard from some other players that the cost efficiency in marketing has actually gone up where some of the Chinese players are a bit more subdued in their growth at the moment. So should we actually see that as like the volume of your marketing spend being higher year-on-year? And is that going to be similar in Q4 to kind of drive performance around peak? Anything on that would be really helpful, please.

Anna Dimitrova: Thank you, Georgi, for the question. So on margin in Q4, so to remind you, I shared with you at the beginning of the year that we expect for the full year a broadly flat margin, yes. So H1, if we look at H1, we finished -- we closed H1 with a flat margin year-over-year for the group at 40% despite the fact that ABOUT YOU was diluting the margin and about B2B, it has a structurally lower margin, yes. Then in Q3, we use the momentum of end of season quarter. And we invested in attractive offers for our customers to capture demand elasticity for sneakers. And this is a transitionary impact. So now in Q4, we expect an improvement of this. Q4 is a full 3 months autumn/winter season. We have as well the peak trading in the Cyber Week and in the Christmas holiday. And particularly your question on promotions, as always, we will capture optimal demand, and we will use our toolbox, which consists as well from our loyalty program, what Adam was asking about, we as well leverage that in order to deliver this profitable growth and capture the demand in the market. On marketing cost, in particular, yes, the marketing ratio is flat as reflects as well the B2B growth separately on B2C. For the quarter, we had a higher ratio, which was driven by the fact that we preponed our autumn/winter campaign to Q3 to September. Usually, it is in Q4. And as well, we had during the summer, the World Cup activations. So reflecting on your comment about the less intensity of the Chinese players for Q3, we use the moment, as I said, to capture demand. For Q4, we need to see. So we are very agile, very flexible. We are e-comm company with a lot of data, and we will use it to capture the demand. So no further comment on that.

Operator: So our last question of today comes from Jie Zhang from Baader Europe on AlphaValue.

Jie Zhang: Actually, part of my question has been already answered in marketing. But I find a little difficult to understand that you are clearly in the advanced position in terms of AI integration and development, et cetera. But still, I want to know that the AI integration, when the AI integration will show a clear benefit, especially in the marketing side. That is first question. And secondly, so we have been seeing this impact from the promotional environment, particularly in sneakers for already several months now. So any improvements you have started to see or it's really due to the customer environment or more due to the brand side? And when do you expect this situation to improve?

Anna Dimitrova: Thank you very much for your questions. So on AI, as I said, we are very excited about the opportunities agentic commerce is offering. And we are addressing them threefold to our Zalando Assistant on the Zalando app, where we see high engagement for the customers. Secondly, to the inbound agentic AI. And I believe this is as well part of your question. How do we see this integration going forward and what are the impact here? As I said, the inbound agentic traffic is still very low, under 1%. What we are doing is we are making sure that we collaborate with the major players with third-party AI agents and that given our very structured data and our strong foundation on search engine optimization, but as well generative engine optimization to make sure that we are the platform, which is #1 in referrals, what we are. And with this, we make sure that our partners can leverage and present their -- leverage this position and present their products. And with this, we will capture new customers, which we don't have today. And as well, this is a good platform for increasing our Retail Media revenues because we will help our partners to get visible -- to be visible as well in the third-party agentic channels. And the third topic is Zalando Extended, our outbound agentic offer, which as well as I was explaining before, has 2 revenue streams. One is commission and the second is Retail Media. And the second question was on sneakers. Yes, of course, on sneakers. So listen, we saw in Q4 a soft sneaker market. Now we are seeing gradual recovery in the sneaker demand compared to Q1 and Q2. This we saw in the last few months. We expect a more meaningful improvement in demand trends going into the next year. And in general, the consumer demand persists, but the consumer in Europe is still very price sensitive and cautious.

Operator: So as this was the last question, I will hand over to Anna Dimitrova again for some closing remarks.

Anna Dimitrova: Thank you very much for joining the call today. And Q3 proves that we are improving top line growth, driven by the strong growth of the partner business, Retail Media and ZMS and supported by improvement in our retail business. We are now focused on executing a strong Q4 peak trading season and are very well on track to deliver our 2026 guidance. Thank you.