Zalando Rises as Minimum Order Rule Stops the Rot in 3Q

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Zalando Rises as Minimum Order Rule Stops the Rot in 3Q
Credit: © Reuters.

By Geoffrey Smith -- Zalando (ETR: ZALG ) stock rose nearly 5% in morning trading in Frankfurt on Thursday as the online German fashion company's third-quarter numbers suggested it had stopped a worrying decline in profitability.

After having to downgrade its forecasts earlier in the year due to soaring logistics costs and other problems, Zalando upheld its guidance for the full year, although it said it expects earnings before interest and taxes to come in at the lower end of its forecast range of €180 million to €260 million ($180 million-$260 million).

That would imply a drop of over 50% from last year in terms of core operating profitability, a stark reflection of how online retailers have struggled since the reopening of Main Street clothes stores as the pandemic eased. The company is also challenged by the broader squeeze on household incomes this year due to inflation.

Straitened circumstances had forced Zalando to introduce a new rule requiring customers to pay for delivery below a certain value threshold. This has now stopped it from losing money on low-value orders, an important development given that average order size actually fell by around 2% on the year to €56.20. The decline in order size was partly offset by a 5.4% rise in order volumes, with the total number of active customers rising nearly 10% to top 50 million for the first time.

As a result, adjusted EBIT rose to €13.5 million from €9.5 million a year ago.

Gross merchandise value rose 7.1% to €3.28 billion while revenue rose 2.9% to €2.35 billion. A big rise in capital spending to €77 million, however, meant that the net loss widened to €35.4 million from €57.7 million a year earlier.

The group sees full-year GMV growing by between 3% and 7%, with revenue growing up to 3%.

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