German e-retailer Zalando is on target to boost sales more than 20% this year

July 19, 2016 02:54 PM

(Bloomberg)—German online apparel retailer Zalando SE on Tuesday raised its full-year margin forecast and doused concern over falling profitability.

Sales in the second quarter rose as much as 26% to between 909 million euros and 924 million euros (US$1.00 billion-$1.02 billion), Zalando said, maintaining its full-year forecast for growth at the upper end of a 20% to 25% range. The company reports final second-quarter results on Aug. 11. Zalando is No. 7 in the Internet Retailer 2016 Europe 500, with estimated 2015 web sales $3.31 billion.

Zalando has been investing in warehouse capacity and technology designed to get apparel into shoppers’ hands more quickly, including an initiative in Berlin to ship goods from an Adidas AG store directly to customers who order from the online retailer’s site. It’s also moved past a problem with payment fraud that sapped profit in the year-earlier period.

“Zalando has a number of opportunities to gain further market share in Europe as the online apparel market continues to grow and as Zalando improves the speed and scope of its delivery options,” Claire Huff, an analyst at RBC Capital, said in a note.

The company estimated that Q2 earnings before interest and taxes and adjusted for some items were in a range of 68 million euros (US$75 million) to 88 million euros. Analysts had on average expected 48 million euros.

The stock gained as much as 20%, a record, as the company also reported second-quarter earnings that beat estimates. “This is particularly good news as Zalando’s margin has been declining in the last four quarters,” said Joerg Philipp Frey, an analyst at Warburg Research. “This positive surprise should boost the credibility of its long-term margin target.”

Concern had been growing about Zalando’s dwindling profitability, which has been depressed by increased spending on technology and marketing. Before Tuesday, Zalando stock had fallen 27% this year, while U.K. competitor ASOS Plc Holdings (No. 22 in the Europe 500) had jumped 24%. Short-sellers, seeking to profit from a falling share price, held a record 18% of Zalando’s free float as of last week, according to Markit Ltd. data.

In areas such as marketing, spending rose less in relation to revenue, managing board member Rubin Ritter said in an interview.




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