Zalando reported a slump in third-quarter profits after cutting prices in response to promotions made at physical stores after Covid lockdowns were completely lifted in Germany and other key markets. While sales rose by 23 percent to €2.3 billion as compared to a year ago, adjusted operating earnings (Ebit) for the three months to Sept. 30 declined to just €9.8 million from €118 million. The net result was a loss of €8.4 million against a profit of €58.5 million.
The Ebit margin thus fell to 0.4 percent from 6.4 percent, reflecting competitive discounting and a tough comparison with the exceptional result recorded in the same quarter of 2020 as online sales soared during the pandemic. The Ebit margin was the same as in the third quarter of 2019, the last one prior to the outbreak of the pandemic.
The gross merchandise value (GMV) – sales on its site made by the company and its partners – jumped by 25.3 percent to €3.1 billion, thanks to strong customer acquisition. Net revenues grew by 23.4 percent to €2.2 billion.
New collaborations were launched during the period with brands such as Adidas, Dr. Martens, Levi’s and The North Face.
Zalando cited a “fierce promotional environment” in many European markets as reopened stores cut prices to move inventories, while unusually warm weather in September increased sales of discounted spring/summer products.
With most lockdown measures easing across Europe, physical stores reopening and consumer mobility steadily increasing, growth rates started to normalize in the course of the third quarter, said Zalando, after the elevated levels achieved by the company during the first half of the year. The company had previously booked a sales increase of 34 percent in the second quarter.
The German-based online retailer boosted marketing expenses by 36 percent during the quarter in connection with its recent launch of dedicated web stores in six new markets in Eastern Europe.
In the company’s Fashion Store segment, revenues increased by 23.7 percent to €2.05 billion, due to the affiliation of new customers and a slight rise in their average order basket. However, the segment’s adjusted Ebit slumped to €10.9 million..
The more mature DACH region (Austria, Germany and Switzerland) saw sales increase by 19.9 percent to €917 million, generating adjusted Ebit of €52.5 million.
Fashion Store sales in the rest of Europe reached €1.1 billion, up from €899 million a year ago, with an adjusted loss of €41.6 million due to price promotions and the delayed start to the autumn/winter season.
The Offprice segment posted revenue growth of 38.4 percent to €360 million in the quarter, driven by the Zalando Lounge service, which offers customers discounted fashion products in daily sales campaigns.
The company reiterated expectations of full-year sales growing by between 26 and 31 percent to €10.1 to €10.5 billion and predicted that adjusted Ebit will hit the upper half of its previously forecast range of €400 to 475 million.
It also maintained forecasts for an GMV target exceeding €30 billion by 2025.
Site visits rose to 1.7 billion from 1.27 billion a year ago during the quarter. The number of active customers rose by 30.1 percent to 46.3 million and the number of orders increased by 26.8 percent to 55.8 million. Customers ordered more frequently, reaching an all-time high of 5.1 orders per customer over the past 12-month period.
