Fashion retailer: Strong corporate customer business drives Zalando's profits

Frankfurt. Zalando increased sales and profits, supported by robust corporate customer business. This division grew by 28 percent in the last third quarter, said Anna Dimitrova, the chief financial officer of Europe's largest online fashion retailer, on Tuesday. Zalando provides other companies such as the British department store chain Marks & Spencer with software for online shops and logistics infrastructure.

A downside, however, was the surprisingly significant decline in the gross profit margin, wrote DZ Bank analyst Thomas Maul. Compared to the second quarter, it fell by around two percentage points to 38.7 percent. Zalando shares then fell by up to 6.6 percent, as sharply as last three months ago.

“We consider the gross margin development in the third quarter to be temporary,” emphasized Dimitrova in a conference call. One of the burden factors is the costs for the accelerated growth of the corporate customer division. Investors reacted with relief to these statements and pushed the online retailer's stocks into the black.

Apart from the margin development, things went better than expected for Zalando in the last three months. The gross merchandise volume (GMV) traded via the platform rose by 7.5 percent to 4.5 billion euros and group sales rose by 5.1 percent to 3.2 billion euros. The adjusted operating result increased by 10.6 percent to 107 million euros. The number of active customers reached a high of 63.2 million.

In addition to the corporate customer business, Zalando will benefit from savings in connection with the takeover of competitor About You as well as lower costs for processing orders. In addition, the increased use of artificial intelligence (AI) has had a positive impact on the balance sheet for several quarters. The Berlin-based group uses it to create, among other things, product images and descriptions. Zalando is now also selling this technology to other companies such as Hugo Boss, said Dimitrova.

The online retailer is expecting a further boost in growth from “Zalando Extended”. Online shops from other providers are also integrated into the Zalando app. In the future, customers will be able to order other products in addition to fashion items, it said. The first cooperation partner is the furnishings retailer Westwing. Starting next year, an AI agent will independently handle the purchase process on behalf of the customer without the customer having to leave the Zalando app.