German fashion e-tailer Zalando expects to report an adjusted loss before interest and tax of up to EUR110m (US$95.9m) for the first quarter on the back of lower sales growth and an exceptional inventory write-down.
According to preliminary figures for the first quarter, the Berlin-based firm said it expects gross merchandise volume (GMV) to have grown by between 13.1% and 14.3% to EUR1.98bn-EUR2bn, up from EUR1.75bn last year.
Group revenues are forecast to rise by 10.1%-11.6% to a range of EUR1.52bn to EUR1.54bn, compared to EUR1.38bn a year ago.
Zalando expects an adjusted loss before interest and tax of between EUR90m and EUR110m as a result of lower sales growth in the first quarter and an exceptional inventory write-down of EUR40m as a result of the revised sales expectations for the current season. This compares to a profit of EUR6.4m in the prior-year period.
In a statement today (16 April), the firm said after strong growth in January and February this year, it initially noticed a significant decrease in customer demand as a consequence of social distancing measures that were taken across Europe. In the three weeks following 9 March, GMV was down 8% year-over-year but started to grow again in the two weeks after 30 March.
“We look back at a challenging quarter. Nevertheless, we have managed to grow our business, and the first weeks of April make us optimistic for the second quarter. We have initiated the right response in order to safeguard the financial success of our business in challenging times and continue to build our strong position in the market,” says Zalando CFO David Schröder.
The update comes after the e-tailer said at the end of last month it expects its first-quarter results to be “significantly” below analysts’ consensus of 11 March, due to lower discretionary spending by European consumers as a result of the measures taken by European governments to limit the spread of Covid-19.
The median of the analysts’ consensus was 19% for revenue growth, 22.8% for GMV growth, and an adjusted loss of EUR28m.
Meanwhile, Zalando has introduced several new initiatives to support fashion brands and retailers during the coronavirus crisis. This includes waiving the commission fee for all new and existing physical stores that are participating in its Connected Retail Program and supporting brand partners in its the Partner Program by helping those in need of immediate cash relief to benefit from faster pay-out terms until the end of June. The firm also plans to further improve the visibility for small to midsize partners in its shop.
Aneesha Sherman, analyst at Bernstein, notes while revenue and GMV growth beat consensus and the firm’s expectations, EBIT is softer than its estimate of a EUR43m loss.
“We believe this is driven primarily by a much softer gross margin, from two one-time effects: a EUR40m write-down on inventory and a clearing of excess stock from Q4. In addition, we expect that there were two other effects on OpEx: (1) a gradual decline in basket size which inflated fulfilment costs as a percent of sales, and (2) the implementation of extensive Covid protective measures in warehouses.”
She adds: “Overall, the softer EBIT may spook investors this morning, but we believe that the bulk of it is from one-time effects and that the strong sales numbers and ongoing Partner Program transition bode well for the remainder of the year.”
Zalando will publish the financial results for the first quarter of 2020 on 7 May.