Zalando sees potential for growth after dry spell

The digital fashion giant Zalando heralds golden times: Despite the lingering consumption slump in Europe, which is expected to remain noticeable until 2024, the company predicts a vigorous resurgence of business operations with increasing profitability in the years that follow. As a result, Zalando shares gained momentum on a spring-like Wednesday morning, climbing a considerable 13 percent, setting a glimmer of hope in the currently subdued stock market climate. In the German capital, the DAX-listed company announced it aims to achieve a gradual growth of five to ten percent per year in Gross Merchandise Volume (GMV) and revenue over the next six years. By 2028, Zalando has set a precise target: the EBIT margin, adjusted for special effects, is to grow to six to eight percent, thus celebrating a dazzling comeback after the rather lean recent past. Industry assessments of the ambitious plans differ: Volker Bosse, an analyst at Baader Bank, praises the mid-term targets as "encouraging." In contrast, Georgina Johanan, an analyst at JPMorgan, criticizes Zalando for now abandoning the previously propagated double-digit growth rates – a step that became apparent at the beginning of 2023 when slim consumer budgets started to weigh on the business. In the current year, the market environment remains challenging: Zalando expects that, in the worst-case scenario, revenue and gross merchandise volume might only brush the level of the previous year. However, CEO Robert Gentz and CFO Sandra Dembeck also speak of the optimism of a possible revenue growth of up to five percent. At the same time, efficient profitability should increase the adjusted operating profit to 380 to 450 million euros. An organizational reorientation is also on the horizon: the previous division by sales channels will give way to a dual structure that unites the business worlds for business-to-business (B2B) and private customers (B2C). In the B2C sector, Zalando not only consolidates online sales with large customer business, but also outlets and the "Lounge by Zalando," thus covering the majority of business activities. In 2023, Zalando had to cope with some harsh declines in gross merchandise value and revenue of the online fashion stores, both in the DACH region and the rest of Europe. However, the outlets and the online lounge, known for their rich sales, experienced more customer popularity. The overall picture shows: the gross merchandise value fell by 1.1 percent to 14.6 billion euros; the group revenue by nearly two percent to 10.1 billion euros. However, Zalando was able to double the adjusted operating profit to approximately 350 million euros through cost savings, among other things in logistics, which was significantly above market forecasts. In the end, Zalando recorded a profit of 83 million euros, a considerable increase over the previous year's 16.8 million euros. Meanwhile, Zalando's rival Inditex can boast solid profit and revenue growth, and H&M will provide insights into its business quarter at the end of March.