Nov 10, 2016
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Zalando earnings beat forecasts, shares rise

Nov 10, 2016

Zalando, Europe's biggest online-only fashion retailer, reported higher profit in the third quarter despite a slowdown in sales growth as unusually warm weather put shoppers off buying winter gear.

Zalando confirmed it expects sales growth for 2016 to come in at the upper end of a 20-25 percent range and managing board member Rubin Ritter said he was optimistic for trading around the Black Friday sales event on Nov. 25 and the Christmas season.

Zalando confirmed it expects sales growth for 2016 to come in at the upper end of a 20-25 percent rangeZalando - Zalando

"We are looking forward to a great fourth quarter," he told journalists on a conference call.

Germany's HDE retail association this week gave a bullish forecast for the Christmas period, forecasting e-commerce sales would rise 12 percent to 12.3 billion euros.

Zalando reported third-quarter adjusted earnings before interest and taxation (EBIT) of 19.5 million euros ($21.3 million), beating average analyst forecasts for 15.7 million and giving an adjusted margin of 2.3 percent.

Zalando shares, which were hit on Monday by a downgrade to "sell" by UBS analysts, were up 2.5 percent by 0830 GMT.

"Margin was slightly better than we had expected at 2.3 percent versus our expectation of 2.0 percent and we expect investors will be reassured by the reiteration of full year sales guidance," said Bernstein analyst Jamie Merriman, who has an "Outperform" rating on the stock.

Zalando confirmed a new forecast it gave last month for a 2016 adjusted EBIT margin of 5.0 to 6.0 percent, with profitability helped by more efficient logistics and marketing.

UBS analysts warned this week that Zalando will need to increase marketing to maintain sales growth as Amazon steps up investment in fashion, especially given the U.S. ecommerce giant's strong brand, more categories, bigger scale and its Prime membership scheme.

Ritter dismissed those concerns on Thursday, saying that Amazon was more focused on older season and basic items, compared with Zalando's offering of the latest fashions.

"We are serving a much more fashionable customer looking for a curated assortment and recommendations... not an 'everything' store," Ritter said,

Zalando's quarterly sales rose 17.1 percent to 835 million euros, down from 25 percent the previous quarter, with the growth rate slowing sharply in its core Germany, Austria and Switzerland region to 9.7 percent from 34.4 percent a year ago.

($1 = 0.9145 euros) 

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