Zalando Shares Decline Despite Solid Q3 Results

Investing.com — Shares of Zalando (ETR:ZALG) fell on Tuesday following what J.P. Morgan analysts described as "solid" third-quarter results but lacking the momentum to inspire a positive shift in stock performance.

At 4:03 am (0903 GMT), Zalando was trading 2.7% lower at €27.29.

The results themselves showed growth across key metrics, with gross merchandise volume up 7.8% year-over-year and a modest revenue increase of 5%, complemented by an earnings before interest and taxes (EBIT) margin of 3.9%.

> “We believe ZAL's growth will accelerate from here, as the company continues to spend on marketing and enhance its competitive advantage on services. Its improving unit economics, particularly for Wholesale orders, should allow it to invest incrementally while still delivering margin improvement,” said analysts at RBC Capital Markets in a note.

These numbers reflected the earlier updates provided by Zalando, leaving little room for surprises. While the gross margin benefitted from an improved mix of full-price sales, elevated marketing costs offset some of this gain.

Marketing expenditures were high, rising to around 9.1% of revenue, a level J.P. Morgan notes may persist as the company pursues growth investments.

The analysts also mentioned that current trading remains tepid, particularly with an anticipated flat GMV growth for October, which aligns with broader market data.

> “Despite headline figures being pre-released, we see the positive development on Group gross margin and fulfilment alongside the improving B2C business are likely to be taken positively especially in the wake of conservative Q4 adj. EBIT guidance,” said analysts at UBS in a note.

Although November and December are expected to show some year-over-year improvement, this month’s flat growth is a potential drawback.

Zalando continues to stress investment in long-term growth areas like customer engagement initiatives and logistics expansions, yet J.P. Morgan analysts believe these may not immediately impact stock valuation.

For instance, marketing costs might remain high into next year as Zalando adapts its loyalty programs and expands its European logistics network.

> “We expect ZAL to return to GMV and top-line growth in FY24E, which should further accelerate from FY25E as retail stabilises, while the partner business and services (ZEOS and ZMS) gain even more pace,” said analysts at Stifel in a note.