Release Date: May 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Zalando SE (ZLDSF) reported a strong Q1 performance with a 6.5% year-on-year growth in Gross Merchandise Volume (GMV) and a 7.9% increase in revenue. The company achieved an adjusted EBIT of 47 million, representing a margin of 1.9%, with a year-on-year improvement of 0.7 percentage points. Zalando SE (ZLDSF) successfully rolled out its upgraded loyalty program, Zalando Plus, to 13 markets, with more than 15% of the customer base participating. The B2B segment recorded a revenue growth of 11.6%, significantly ahead of group revenue growth, driven by logistics and software solutions. The proposed acquisition of About You is progressing as planned, with regulatory approval anticipated by summer, which aligns with Zalando SE (ZLDSF)'s strategy to build a leading ecosystem in fashion and lifestyle e-commerce.

Negative Points

Despite the growth, the spend per customer remained flat at around 296, indicating challenges in increasing customer spending. Marketing costs increased by 0.5 percentage points, reflecting higher investments in performance marketing and brand visibility campaigns. The company's cash and cash equivalents decreased by 600 million from Q4 2024, partly due to inventory purchases and restricted cash related to the About You tender offer. There is a potential risk of overstocking as inventory levels increased, reflecting preparations for the spring-summer season. The geopolitical and macroeconomic environment remains fast-changing, posing potential risks to future performance despite no notable impact observed so far.

Q & A Highlights

Warning! GuruFocus has detected 6 Warning Signs with ZLDSF.

Q: Can you provide an update on current trading and whether the strong momentum at the end of the quarter has been maintained? A: David Schroeder, Co-CEO and Interim CEO, stated that they are pleased with the start of the year, particularly with a strong March. There have been no major changes in consumer demand, and they expect to deliver mid-single-digit growth in Q2, aligning with their full-year targets.

Q: How much of the gross margin increase was due to underlying factors versus ZMS revenue growth? A: Woland Lou, VP Finance, explained that the gross margin increase was driven by improvements in the underlying retail gross margin, growth in the partner program, and a strong quarter for ZMS, which has a high gross margin profile. The loyalty program had a minor impact on revenue growth and gross margin for Q1.

Story Continues

Q: What are your expectations for profitability trends in the rest of Europe, and can you comment on the AR acquisition? A: David Schroeder noted that growth was recorded in all 25 markets, with stronger growth in the rest of Europe compared to the DACH region. The AR acquisition will enhance product detail pages with 3D technology and virtual try-on capabilities, contributing to better visual content on Zalando's platform.

Q: Are you seeing any impact from Shein and Temu in the EU, and what is your current market share in online apparel? A: David Schroeder mentioned no specific impacts from Shein and Temu, as Zalando focuses on high-quality, multi-brand fashion. Zalando holds approximately a 3% market share in the total European fashion market and is gaining share by growing faster than the overall market.

Q: Can you provide insights into the inventory levels and the potential impact of social commerce on your platform? A: Woland Lou stated that inventory levels are well-positioned for the spring-summer season, with a focus on new mid-season inventory. David Schroeder sees social commerce as an opportunity, with Zalando's ecosystem strategy enabling transactions both on and off their platform, benefiting brand and retail partners.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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