Zalando Continues to Gain in Q3
● The third quarter of the year is going according to plan for Europe’s largest online fashion retailer.
BERLIN — Zalando confirmed its guidance — revenue growth of around 20 percent — and boasted that the site had seen 1 billion visits in the last three months, as it reported strong third-quarter results on Thursday.
That makes for around 14 million more visitors since June and is in line with Zalando's previously stated ambition to become “the starting point for fashion in Europe.”
“We really feel this is a very strong set of results,” the company's chief financial officer, David Schröder, told a press conference. “We continue to grab market share by growing several times faster than the overall European fashion market, and the European online fashion market. We are making progress with our strategic agenda and we continued the positive trajectory that really started in the fourth quarter of 2018,” Schröder said, referring to the difficult first half of last year.
Revenues grew 26.7 percent in the third quarter to 1.5 billion euros and gross merchandise volume rose 24.6 percent to 1.9 billion euros. Zalando started using the latter indicator — GMV for short — for the first time this year to show how much product it had shifted. As the Berlin-based company has transitioned to being more of a platform, developing logistics and marketing relationships with suppliers rather than making its own products, this metric makes better sense, the company has argued.
There are almost 29 million active users of the shopping site around Europe and Schroeder also spoke about how the company has been successfully expanding operations in the region, with a focus on “deepening the relationships with existing customers.”
In the Czech Republic, one of Zalando's newest territories, the company has already managed to capture 1 percent of the market, Schröder said, thanks to a viral marketing campaign. The company's move into cross-selling beauty is also working, with around two-thirds of all shoppers now buying a beauty product as well as apparel.
The Zalando Plus program, often described as the equivalent to Amazon's Prime loyalty program, is contributing around 10 percent to Zalando's sales in Germany. “Until early Q2, it was really only in pilot mode and [only] available to a small number of customers,” Schröder said. “Then we opened it up and it's started to scale very fast. It's an early signal of how important Plus can be. That is why it's a such a centerpiece of our strategy.”
Zalando will roll out the Plus program in France and Italy in the next six to 12 months, he confirmed.
The company's adjusted EBIT — earnings before interest and taxes, which show how well a company's core operations are going — didn't rise as much as other numbers, with Zalando achieving 0.4 percent growth in this area over the quarter, to reach 6.3 million euros. In the first half of the year, EBIT had been rising faster. The total rise in EBIT for 2019 so far is 2.5 percent, corresponding to 114.5 million euros.
That is an improvement on the first nine months of 2018, which saw EBIT rise 1.5 percent, or 55.5 million euros.
At the same time, the average customer's purchase — the value of their so-called shopping basket — has fallen slightly again compared to the same quarter last year, by 1.9 percent to around 56 euros. Net income also fell in the third quarter, by
13.6 percent compared to 2018.
Analysts described Zalando's results as positive and realistic. Based on thirdquarter results, the year's guidance is
“very reasonable to achieve,” Sherri
Malek of RBC Europe wrote in a research report. The company is well-positioned
“to continue taking market share,” Malek said, noting that the full-year results could even end up slightly better than expected. Tushar Jain at Goldman Sachs agreed, noting the third-quarter results were better than expected.
The latter numbers show how expensive running an ambitious behemoth like Zalando is. It's about to become more expensive too: the company announced on Wednesday that it would become carbon neutral, incorporate more sustainability-focused garments and people-friendly initiatives — including making its own environmentally friendly ZIGN line — and get rid of single-use plastic packaging within four years. About 90 percent of Zalando's power already comes from renewable energy sources, the company stated. Carbon emissions it cannot eliminate with improved efficiency and through other strategies will be offset.
Local analysts questioned how Zalando's primary goal of ongoing growth will align with its new goals in the area of sustainability. Schröder said the strategy was not expected to “materially impact profits” this year or the next, adding that some of the eco-friendly moves were not actually new and already part of Zalando's existing improvements.
“We really view it as an investment area and a business opportunity and not so much as [ just] adding costs,” Schröder explained. “We see it as a key enabler. There is obviously increasing customer consciousness around sustainability topics. While we are obviously investing heavily to make this happen, we are also certain it will lead more and more customers to use us more frequently to do more of their fashion shopping.”