BERLIN – A continued focus on investments pressured profits and pushed Zalando into the red in the third quarter, although the European online giant also continued to vigorously accelerate sales, which grew 28.7 percent in the period.
In final figures released on Tuesday, Zalando reported a net loss of 11.1 million euros for the three-month period ending Sept. 30, compared to net income of 5 million euros a year previously. Co-chief executive officer Rubin Ritter explained that interest expenses and taxes also figured in the quarter’s negative net income performance.
Adjusted operative earnings (EBIT) also plunged in the period, reaching 400,000 euros compared to 19.5 million euros in 2016. That corresponds to an adjusted group EBIT margin of 0.0 percent versus a margin of 2.3 percent for the same prior-year period.
Group sales, on the other hand, rose to 1.07 billion euros, up from 834.8 million euros in third-quarter 2016. The Germany, Austria and Switzerland (or DACH) region boosted sales 22.3 percent to 497.7 million euros, with the rest of Europe gaining 30.9 percent to 489.7 million euros. Active customers increased quarter-on-quarter by 1 million to reach 22.2 million, Zalando said.
For the full year, Zalando continues to forecast sales growth in the upper half of its 20 percent to 25 percent guidance. However, on the heels of a weaker than expected October, Zalando now expects the adjusted EBIT margin in the fourth quarter to be slightly below last year’s level and now eyes a full year adjusted EBIT margin of a bit under 5 percent.
It’s a “top-line bottom-line trade off,” Ritter noted. He said Zalando will continue to invest “through the fourth quarter and beyond” to support Zalando’s growth trajectory rather than specificially trying to optimize margins. Key expenditures in the quarter revolved around the further build-out of Zalando’s logistics and technology infrastructure. The new fulfillment hub in Lahr, Germany, is now live and will keep ramping up capacity, and new logistic sites in Gryfino, Poland, and Brunna, near Stockholm, started initial operations.
Zalando also recently announced construction will begin on a second fulfilment hub in Poland this month, as well as the opening of its third technology hub outside of Germany, which is expected at the beginning of 2018. In addition, as previously reported, the apparel e-tailer plans to enter the beauty market in spring of next year.
Other projects to improve the customer experience and provide the “world’s best digital experience in fashion e-commerce” include a new search function that provides faster and more relevant results, translating into increased buys. Zalando has further introduced new product pages with a greater number of entry points for consumers more interested in browsing, and to drive inspiration, is planning to launch its “Next Gen” project in 2018 that was successfully tested with active sportswear this year.
Zalando has piloted new delivery options, allowing consumers to choose a 60-minute window for their deliveries, and Ritter added the company continues to invest in brands and exclusive assortments. Pull & Bear went live in October, the second Inditex shop on Zalando, and with Me Adidas, Zalando customers will be able to customize selected Adidas products not only at the brand’s shop, but also on the Zalando site.