Zalando's Strategic Turnaround and EPS Growth Potential: A Deep Dive into Operational Efficiency and Market Positioning

Zalando (ETR:ZAL), the European e-commerce giant, has embarked on an ambitious strategic turnaround to reignite earnings per share (EPS) growth and solidify its dominance in the fashion and lifestyle sector. With the successful integration of ABOUT YOU in 2025, the company is recalibrating its operational model to leverage synergies, enhance efficiency, and drive long-term value creation. However, recent financial results and inventory challenges underscore the delicate balance between growth and margin preservation.

Strategic Turnaround: Synergies and Operational Efficiency

Zalando's merger with ABOUT YOU, finalized in summer 2025, marks a pivotal shift in its strategy, according to a Zalando press release. The combined entity aims to generate €100 million in annual EBIT synergies through streamlined logistics, shared software infrastructure, and expanded B2B operations. This integration has already spurred a dual-brand strategy in the B2C segment, allowing Zalando and ABOUT YOU to retain distinct customer identities while leveraging a unified pan-European ecosystem.

Operational efficiency improvements are evident in Zalando's Q2 2025 results, where adjusted EBIT rose 8.1% year-over-year to €185.5 million, driven by a 6.5% margin. The company attributes this to cost optimization initiatives and the consolidation of supply chains post-merger. Additionally, Zalando's investment in a next-generation e-commerce operating system-integrating ZEOS, Tradebyte, and SCAYLE-positions it to offer advanced multi-channel solutions to brands and retailers, further solidifying its market leadership.

Financial Performance: Revenue Growth vs. EPS Pressures

While Zalando's Q2 2025 revenue surged 7.3% to €2.84 billion, EPS growth remains muted. The company reported an EPS of €0.37 for the quarter, flat compared to €0.37 in Q2 2024, missing analyst expectations by 7.8%, according to a Simply Wall St analysis. This stagnation is partly due to a 14.9% increase in inventory, which raises concerns about potential markdowns and margin compression in the coming quarters.

The operating profit margin also dipped to 3.4% from 3.6% in the prior year, reflecting higher expenses tied to integration costs and inventory management. Despite these headwinds, Zalando revised its 2025 guidance upward, projecting GMV growth of 12–15% and revenue growth of 14–17%-a significant upgrade from earlier forecasts of 4–9%. This optimism is underpinned by the anticipated €550–600 million adjusted EBIT range for the year, reflecting confidence in the merged entity's scalability.

Strategic Initiatives: Diversification and Customer-Centric Innovation

Zalando's long-term EPS growth hinges on its ability to diversify beyond fashion. The company is expanding into beauty and sports segments while enhancing its Zalando Plus loyalty program across European markets, as noted in an ecommercegermany article. Personalized digital tools and partnerships, such as the collaboration with UK retailer NEXT, are expected to drive customer retention and cross-selling opportunities.

However, the path to sustained EPS growth is not without risks. The inventory buildup in Q2 2025, coupled with downward revisions to GMV guidance (from 4–9% to 4–7%), highlights vulnerabilities in demand forecasting and supply chain agility, a point underscored by industry analyses. Analysts at Morningstar caution that overstocking could force price discounts, eroding margins and diluting the value of Zalando's premium offerings.

Conclusion: A Calculated Bet on Operational Resilience

Zalando's strategic turnaround is a calculated bet on operational efficiency and ecosystem-driven growth. While the merger with ABOUT YOU has unlocked tangible synergies and revised financial targets, the company must navigate inventory challenges and margin pressures to translate revenue growth into meaningful EPS expansion. Investors should monitor Q3 and full-year 2025 results for signs of improved inventory turnover and margin stabilization. If Zalando can execute its cost-optimization initiatives while scaling new segments, its EPS trajectory could align with the ambitious guidance set by management.