Zalando trims sales target, but cost cuts keep profits up

Zalando has cut its sales forecasts for the full year after missing expectations with third-quarter revenues, with the online fashion retailer saying it expects "continued pressure on demand".

However, profits came in ahead of estimates, helping the share price up 3.3% to €22.99 in Frankfurt.

The Berlin-headquartered company said gross merchandise volumes (GMV) were down 2.4% year-on-year at €3.20bn in the three months to 30 September, while revenues were down 3.2% at €2.27bn. Analysts were expecting a revenue decline of 2.5%.

Zalando said it saw a delayed start to the fall/winter season as a result of adverse weather conditions, which partially pushed gross margins over the first nine months of 2023 down 1.2 percentage points at 38.5%, along with higher promotions.

Active numbers fell slightly from last year to 50.1m from 50.2m, due to a slowdown in new customer acquisition. The average basket size was up 4.8% at €58.90, but average orders per active customers fell to 5.0 from 5.2.

Nevertheless, the company reported adjusted earnings before interest and tax (EBIT) of €23.2m, up 72% on last year and ahead of the €20m consensus forecast, which it put down to a "continued focus on cost efficiency".

The company said full-year revenues are now expected to fall between 0.5% and 3%, compared with previous guidance of -1% to +4%. GMV growth is now guided to -2% to +1%, compared with earlier expectations of +1% to +7%.

However, guidance for adjusted EBIT remains unchanged at €300m-350m, helped by reduced capital expenditure expectations for the full year.

"While demand remains weak, we note Zalando continues to perform better than most other pure play online platforms like boohoo and ASOS in revenue terms thanks to its large active customer base of 50m and its platform model," said analysts at Liberum.

"We believe the group is correctly focusing on managing costs and profitability in the current environment and remains in a strong position to capture growth when demand improves."