German online fashion marketplace Zalando adjusted its 2025 guidance to include newly acquired About You, but signs of higher inventories and discounting amid sluggish consumer sentiment fueled concern for second-half growth.
Shares reversed course to trade down 5.6% at their lowest in almost a year, giving up gains earlier in the session. Including the drop, they have shed about a fourth of their value this year.
"Most investors own Zalando as a sort of revenue growth stock, helped by the margin expansion," Deutsche Bank Research analyst Adam Cochrane said on Wednesday.
"But the fact that the revenue growth has maybe got less chance of beating (expectations) to the upside is a disappointment."
The Berlin-based company said on Tuesday it now expected gross merchandise volume (GMV) in a range of 17.2 billion to 17.6 billion euros ($19.91 to $20.38 billion), including About You, which represents an increase of 12% to 15% over the previous year figure for the Zalando group.
It had previously expected GMV to grow between 4% and 9% this year compared with 2024.
"Consumer sentiment is not as strong," Co-CEO Robert Gentz said on a media call on Wednesday, adding however that the company was confident of delivering a very strong second half.
While second-quarter GMV, a key metric of the value of all goods sold, rose 5% on the year to 4.06 billion euros, analysts noted a steeper than expected decline of 80 basis points in gross margin in the quarter, dragged by higher discounting.
"The quality of the earnings beat in the second quarter was not maybe as good as hoped," said Cochrane, adding that the second-quarter consensus number had been falling before the release.
"It's still a little bit concerning to me that you're growing your inventory base at the same time as you are having to discount more and your implied sales outlook is a little bit more cautious," Cochrane said.
This could result in more discounts in the second half, putting pressure on gross margin, he added.
Inventories had increased 15% to 1.66 billion euros by June 30 from a year earlier, as the company prepared for the start of the autumn and winter season, it said.
In the current quarter, the company expects continuation of the mid-single digit growth of the second quarter, Co-CEO and interim CFO David Schroeder said on an investor call. "The quarter has started well for us."
Zalando is investing heavily in its European logistics network, which it has also opened up to partners as it seeks to drive growth amid faltering consumer spending and competition from fast-fashion retailers such as Chinese rival Shein.
The About You acquisition was completed in early July, valuing Zalando's smaller rival at 1.13 billion euros.
It forecast adjusted earnings before interest and taxes (EBIT) for the combined group to reach a range of 550 million euros to 600 million euros, helped by Zalando's strong performance in the first half of the year.
Zalando's previous forecast, excluding About You, was for an adjusted EBIT between 530 million euros and 590 million euros.
Gentz said that US tariffs would not directly impact the company, which operates in Europe, though they might hit consumer sentiment in the long term.
