Zalando sales, profits rise in Q3, but backdrop is challenging

By

Sandra Halliday

Published
Nov 3, 2022

Zalando had a mix of news with its Q3 report on Thursday, some of it good, some less so, but overall it was a respectable performance given the economic backdrop. 

Revenue rose, but only by a small percentage, and profitability improved, while it confirmed its full-year forecast but expects that results will come in at the lower end of the range.

So let’s look at the details. Gross Merchandise Volume (GMV) was up 7.1% at €3.28 billion, but the revenue rise was just 2.9% to €2.35 billion (inflation in its domestic market is running well above that latter percentage), and adjusted EBIT increased to €13.5 million from €9.8 million a year ago.

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The guidance provided back in June was confirmed for the full year with GMV set to grow to between €14.8 billion and €15.3 billion. And revenue should grow 0%-3% to reach between €10.4 billion and €10.7 billion, with adjusted EBIT of between €180 million and €260 million. The company “expects to reach the lower end of these ranges”.

So, not exactly a stellar quarter (or year), but in the current retail environment, both periods could be chalked up as wins for the business as many of its peers are reporting sales and profitability going into reverse.

It shows that the German fashion e-tail giant is still a big-hitter on the international stage and its ability to win active customers underlines that. 

It said the number of active customers increased by 8% compared with a year ago, exceeding 50 million for the first time. Its loyalty programme — called Plus — almost tripled its membership. And it “took successful steps to drive profitability, contributing to an improvement in earnings and softening the impact of declining consumer sentiment”.

Co-CEO Robert Gentz said: “I am proud that we are reaching 50 million active customers and of our progress in deepening our relationships with them. We will continue to carefully navigate through these turbulent times, pushing forward with measures to improve profitability as well as strategic initiatives that inspire and engage with our customers.”

The firm said it “continues to be laser-focused on protecting profitability” and the introduction of a minimum order value has “encouraged customers to increase the size of their basket or pay the delivery fee”. 

As we all know, delivery costs are a major headache for e-tailers, but the result of Zalando’s move is that orders below the minimum order value “are now profitable”. 

It added that it “captured further marketing efficiencies” in the third quarter, reducing costs by almost €100 million so far this year. And the company drove efficiency improvements across its European logistics network including managing excess inventory.

ENGAGING CONSUMERS

As far as strategy is concerned, the business is “advancing on its mission to drive customer excitement around top brands and assortment”. Its first collaboration with Highsnobiety, three months after the acquisition of that operation, “improves storytelling, helping Zalando engage more with relevant audiences and creating deeper emotional bonds with customers”. 

It also deepened its Nike partnership, enabling customers to shop for Nike member-exclusive products on the site. And its partnership with Sephora grew, adding more beauty brands on the platform and expanding into Italy.

The company also said that the proportion of partner businesses contributing to Fashion Store GMV grew by seven percentage points compared with the same quarter last year, “underlining the attractiveness of Zalando’s platform for partners and the company’s progress against its strategic objective to grow its partner business share to 50% of Fashion Store GMV by 2025”.

CFO Sandra Dembeck said that with consumer confidence “at new lows and ongoing inflation, it was a prudent decision to start early with decisive action and measures to support profitability. Although it’s not crystal clear how consumer spending will play out in the final quarter, we are working hard to execute and deliver on our strategic priorities and financial outlook.”