Zalando expects to grow revenue by 15-20% in 2020

Zalando expects to grow revenue by 15-20% in 2020

German fashion e-tailer Zalando has raised its full-year guidance after what it called exceptionally strong and profitable growth in the second quarter as consumers are increasingly turning to online amid Covid-19.

The Berlin-based firm expects to grow gross merchandise volume (GMV) by 20-25% and revenue by 15-20% in 2020. It is also forecasting an adjusted EBIT of EUR250 (US$285m) to EUR300m. 

The new guidance is significantly above the one that Zalando had published in May. Back then, the company had expected GMV and revenue growth of 10-20% and an adjusted EBIT of EUR100-200m as a result of the impacts of the coronavirus pandemic. 

The revision comes as preliminary figures for the second quarter of 2020 show Zalando has grown GMV by 32-34% to EUR2.67-2.71bn from EUR2.02bn last year.

Group revenues are expected to be up by 26-28% to EUR2.01-2.05bn from EUR1.6bn in the prior-year period. Adjusted EBIT is forecast in the range of EUR200-220m, up from EUR101.7m a year ago.

As part of its platform strategy, Zalando will continue to invest in its European logistics network and technology infrastructure and sticks to its Capex guidance of planned investments of EUR230-280m this year. In addition, the group expects a continued negative net working capital for the fiscal year 2020.

"The exceptional growth in the second quarter was enabled by the company's decisive crisis response and focused execution of the platform strategy on the one hand and the accelerated transition from offline to online on the other," Zalando said. "Due to the ongoing impact of the coronavirus pandemic, customers are increasingly turning to digital services."

As a result, the e-tailer has seen the number of new customers grow significantly over the past months. In the second quarter, more than 3m new customers shopped at Zalando. 

"The high number of new customers shows that we offer a compelling customer experience in these challenging times. Due to prevailing health and safety concerns, customers generally like to shop online, and they particularly like to shop with us," said chief financial officer, David Schröder. "As a result, we were able to successfully scale our platform business in the second quarter and to make significant progress in building the 'Starting Point for Fashion in Europe.'"

Additionally, Zalando saw stong growth in its partner programme as brands and retailers increased their online activities and connected more stock to the Zalando platform, in order to reach their customers across Europe.

Between April and June, around 180 new partners joined, with partner programme GMV growing more than 100% year-over-year. Zalando will further invest into its platform business in the second half of 2020, as well as into expanding its relationships with brands in the wholesale business.

In August, Swedish design brand Arket will become available for all Zalando customers. Arket joins Weekday and Monki as the latest H&M Group brand to bring its collections to the Zalando platform.

"Stellar" quarter

Aneesha Sherman, analyst at Bernstein Research, notes Zalando's "stellar" second-quarter numbers, with estimates coming in slightly above consensus, which were already managed up by the positive profit warning last month. 

GMV growth of 32-24% in the period was a slight beat on consensus estimates of 30.6%, as was the 26-28% revenue growth, she says.

"Q2 EBIT expectations of EUR200-220m are also on the upper end of consensus, implying a margin of 9.8%-12.4% this quarter. A huge improvement versus last year (6.4% margin), which can be most likely attributed to a higher GM and lower opex due to a more favourable returns profile (driven by the product mix).

"The company now expects 20-25% GMV growth, 15-20% revenue growth and EUR250-300m EBIT for the full year. All of these numbers are comfortably in the top end of consensus expectations for the year.

"If we assume the low end of Q2 performance range then H2 GMV only needs to grow 19% (on 24% last year) – slight slowdown versus last few years of 20-25%. H2 revenue needs to grow only by 12% (about half of last year's 23%). To match EBIT guidance, margin need to hit 3.8% for the year (vs. 3.3% last year and 2.8% the year before). Given profitability of 10-12% this quarter, we are confident FY20 EBIT can be achieved."

She adds: "Despite managing expectations up ahead of this trading update, Zalando has managed to outperform expectations, both for Q2 and FY20 outlook. The news on take-up of partner programme is especially encouraging in our view and we expect a positive stock reaction."

Zalando will report its financial results for the second quarter on 11 August.