The online fashion retailer Zalando had to accept falling sales and profits in the second quarter.
profit below expectations
A weaker consumer mood, inflationary pressure and individual supply bottlenecks were responsible for this, as the company announced on Thursday in Berlin. Sales fell by four percent to 2.6 billion euros, the adjusted operating result (EBIT) slipped to 77.4 million euros after a year earlier a good 184 million euros had been achieved.
The bottom line was 14 million euros as a profit and thus a fraction of the 120.4 million euros achieved in the previous year. The numbers were even worse than analysts had expected. This means that Zalando continues to be affected by the slump in consumption in German online retail.
Zalando also has to be measured against a high basis for comparison from the previous year, when the company benefited massively from the internet order boom in the wake of the Corona crisis. Customer behavior is now turning again. In the course of the difficult economic environment, there is also changing purchasing behavior: customers either shop in the premium segment, which is still relatively unimpressed by the crisis, or turn to inexpensive products. The middle price segment is the loser.
Increased delivery costs and returns are a burden
Zalando has therefore adjusted its offer accordingly. The company expanded the premium segment by acquiring a majority stake in Highsnobiety, an online shop and fashion blog. In order to improve profitability, Zalando introduced a minimum order value in 15 markets, which now applies in all 25 Zalando markets. The company also reduced its marketing and logistics expenses.
“We are focused on measures to improve our efficiency and margin – these will help us strengthen our profitability in the second half of the year, Zalando’s CFO Sandra Dembeck said in a statement on Thursday.
The adjusted EBIT margin that Zalando generates with fashion online fell to minus 0.6 percent in the first half of the year. In the previous year, 4.9 percent was achieved. The reason given by the online fashion retailer for the reduced profitability is that the average shopping basket size has decreased in view of the increasing returns.
In addition to weak demand, persistent delivery bottlenecks and increased fulfillment costs also weighed on earning power. Extended and more discounts to reduce excess inventories also weighed on the margin.
Aiming for a return to growth
For the second half of the year, Zalando is forecasting growth in gross merchandise volume of 6 to 13 percent, and the company has 154 to 234 million euros on the slip for adjusted EBIT. The fourth quarter in particular, with its Christmas business, is traditionally strong.
Zalando had already lowered its forecast at the end of June and stated that the figures for the second quarter were well below market expectations. In terms of sales, Zalando believes that stagnation at EUR 10.4 billion is possible in 2022, and in the best-case scenario a small plus of three percent could result. Last year, thanks to the online boom, Zalando exceeded the 10 billion mark in sales for the first time. In previous years, the company regularly spoiled investors with robust double-digit percentage growth.
Zalando also massively slashed the earnings forecast. EBIT adjusted for special effects is likely to fall from EUR 468.4 million in the previous year to between EUR 180 and 260 million. Zalando co-boss Robert Gentz confirmed the medium-term forecast “from today’s perspective”. (FashionUnited/dpa)
This post was updated at 12:38 p.m. on August 4, 2022 with additional information from Zalando.