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Zalando sees revenue flat, higher profit in 2023 as post-pandemic hangover fades

By Geoffrey Smith

Investing.com -- Zalando (ETR:ZALG) stock rose in morning trading in Frankfurt on Tuesday after the online German retailer said it expects to squeeze more profit out of a largely stagnant fashion market this year.

The group said it expects underlying earnings before interest and taxes to rise to between €280 million and €350M (€1 = $1.0666) this year, the midpoint of which would represent a 70% increase from €184.6M last year. That's despite expectations for another year of little or no revenue growth.

Like many online retailers, Zalando suffered in 2022 as consumers made use of their newly regained freedom to visit brick-and-mortar stores as soon as pandemic-related restrictions were lifted. That led to revenue stagnating at €10.34B, after growing 34% in 2021.

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Zalando's forecasts suggest the group doesn't expect a return to its pandemic heyday any time soon. It noted that "consumer demand is hard to predict in the current environment" and has set itself a goal of relative outperformance vis-à-vis the rest of the online fashion sector.

The group said that while it expects gross merchandise value (GMV) - which measures the total value of sales processed through its platform - to grow by as much as 7%, revenue growth will only be in a range between -1% and 4%, due to the fact that the GMV is being driven more by the sales it processes for third parties, which generate less revenue for it.

The company expects to approach the higher end of its 3-6% adjusted EBIT margin goal by 2025, while the goal of generating margins over 10% remains a long-term one.

Despite the subdued outlook, online retailing - in Germany as elsewhere in Europe - is still holding on to a good part of the market share gains it made during COVID. In 2022, e-commerce accounted for 19.6% of all German retail sales, up from only 14.6% in 2019, the last year before the pandemic.

Zalando stock was up 4.4% by 05:05 ET (10:05 GMT) in Frankfurt and is now up 23% year-to-date. After that rally, analysts at Barclays say the company will have to make good progress toward the 6% EBIT margin target in order to be considered cheap.

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