Zalando Lowers Revenue Guidance Amid Multiple Headwinds
Zalando reported third-quarter revenues shrank 3.2 percent to 2.27 billion euros amid “low consumer sentiment,” declining online sales and the warmest September on record in Europe.
Gross merchandise value, or GMV, declined 2.4 percent to 3.2 billion euros in the three months ended Sept. 30.
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During a conference call on Thursday, Zalando’s chief financial officer Sandra Dembeck trumpeted a “significant step-up” in the business in October while warning that the company faces “strong comps” in November and December, plus a volatile, promotional environment.
She noted that accessories, footwear and travel items — which are less dependent on climate — performed well in the third quarter, with streetwear doing better than “young fashion.”
Its partner share of the business, where brands and retailers directly connect their warehouse inventory to the platform, also gained as Zalando reined in wholesale inventories.
Last month Zalando launched business-to-business brand ZEOS, an acronym for Zalando E-commerce Operating System, that allows brands and retailers to manage their multichannel business across Europe within one platform.
Meanwhile, Dembeck cited a “normalization” in the off-price channel amid a dearth of in-season merchandise to command stronger pricing.
The German e-commerce giant dialed down GMV and revenue guidance “on expectation of continued pressure on demand for the rest of the year.”
It now expects GVM to amount to between 2 percent down to 1 percent up and revenue to contract between 3 percent and 0.5 percent in 2023. Previously, the company had expected GMV and revenue to come in at the lower half of the guidance ranges of 1 to 7 percent for GMV and negative 1 percent to plus 4 percent for revenue.
On the plus side, the company reported gains in profitability by containing fulfillment costs, even as pressures on its gross margin continue.
It said adjusted earnings before interest and taxes in the third quarter zoomed 72 percent to 23.2 million euros, and noted full-year guidance for adjusted EBIT would be maintained at between 300 million euros and 350 million euros.
To meet a plethora of headwinds, Zalando said it is “laying further foundations for future growth with strategic initiatives such as inspiring customers with new content and storytelling formats, introducing a luxury boutique-style space in Fashion Store to improve the experience for designer brands and customers, and growing the company’s logistics offering.”
Dembeck reiterated that Zalando’s chief objectives remain profitable growth, and selective investments, with a rebound in consumer demand the main uncertainty looming.
“We’re really getting so we can return to growth next year,” she said.
Zalanda plans to maintain marketing investments to acquire new customers — and entertain and inspire the ones it already has.
Dembeck noted that 70 percent of Gen Z make purchasing decisions while scrolling through social media “and being inspired.”
Zalando aims to do the same with its new Fashion Stories content about new trends, fashion personalities and exclusive brand collaborations.
Tie-ups between Tommy Jeans and Avirex and MM6 Maison Margiela and Chenpeng currently are featured, along with a spotlight on American singer Dorian Electra, and guides to winter boots and blousons for him and her.
Analysts grilled Dembeck about the payback on such content, but she said it’s hard to quantify, stressing the aim is to “deepen customer relationships.”
“It’s still early days on our discovery journey, but the first results have been very encouraging,” she told analysts. “Firstly, we want to capture the attention of our customers so that ultimately, they spend more time with us, and they come back more frequently. Secondly, we also want to attract customers, those that have a higher discretionary spending. And thirdly, the experience creates a strong halo effect also for brands.”
In a research note, RBC Capital Markets’ analyst Wassachon Udomsilpa said Zalando remains its preferred player in online apparel retail “given our higher confidence in its ability to capture growth once consumer demand returns.”
“We are encouraged by Zalando’s ability to navigate a volatile and challenging backdrop. This increases our confidence in its FY EBIT guidance. However, Street expectations still need to come down for next year,” she added.
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