Feb 12, 2015
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Zalando quarterly profit jumps, shares soar

Feb 12, 2015

BERLIN, Germany- Europe's largest dedicated online fashion retailer Zalando smashed fourth-quarter profit forecasts as it reined in marketing spending and grew sales.

Management board member Rubin Ritter told a conference call for journalists that Zalando had rushed out preliminary figures ahead of full results due on March 5 because they significantly exceeded market expectations.


Zalando's shares, which had sagged in recent days after listing in Frankfurt in October at 21.50 euros, jumped 12 percent to 25.20 euros by 0902 GMT, while shares in its biggest investor, Sweden's Kinnevik, were up 5.3 percent.

"A well-funded 'land grab' strategy has paved the way to sustainable, profitable growth at Zalando," said Jefferies analyst David Reynolds, who rates the stock a "buy".

The Berlin-based firm which began selling shoes in 2008, now ships 1,500 brands to customers in 15 countries, gaining widespread visibility with its "scream for joy" slogan and ads showing delighted customers tearing open Zalando packages.

However, it made a concerted effort to rein in costs ahead of its initial public offering, helping it achieve its first annual group profit: adjusted earnings before interest and tax (EBIT) came in at 82 million, well ahead of a Thomson Reuters Smart Estimate for 45 million.

The bulk of that profit -- 66 million -- was made in the last quarter, when sales grew 21 percent to 666 million, slowing slightly from 24 percent in the third quarter, giving an adjusted EBIT margin of 9.9 percent from 2.4 percent a year earlier.

Ecommerce fashion sales are growing rapidly worldwide and could eventually account for at least a quarter of the market, prompting major players such as Inditex and H&M to invest heavily in online operations.

Kepler Cheuvreux analyst Juergen Kolb, who rates Zalando "buy", said the firm's continued strong sales growth showed it could keep attracting new customers and returning customers despite lower marketing spending.

"The sector has to accept that a customer traffic decline in stationary stores was not mainly driven by weather related topics. It is a structural shift," he said.

Ritter said all cost lines -- logistics, overheads and marketing -- had contributed to the margin gains, but said Zalando did not expect its margin in 2015 to exceed the 2014 level as it invests in technology to fuel future growth.

The group affirmed a target for 2015 sales to increase by 20 to 25 percent.

€1 = $1.13/£0.74

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