Jan 19, 2016
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Zalando returns to profit despite warm weather

Jan 19, 2016

Europe's biggest dedicated online fashion retailer Zalando coped with an unseasonably warm end to 2015 better than many rivals, returning to profitability even though sales growth slowed somewhat.

After dipping to an operating loss in the third quarter, Zalando said adjusted earnings before interest and tax (EBIT) should come in at 61-78 million euros for the fourth quarter, compared with an average analyst forecast for 73 million.

Zalando's fulfilment center. - Zalando

Co-Chief Executive Rubin Ritter told Reuters Zalando had deals with suppliers that allowed it to tweak orders depending on the weather, and that he was very pleased with the figures given the difficult environment.

"It is not completely possible to decouple from the weather," he said, adding Zalando's ordering flexibility meant it could react both to changing fashion trends and the weather.

Shares in the company, which tumbled last week after investors were spooked by fashion retailers such as Next and Marks and Spencer reporting weak pre-Christmas sales, were 7 percent higher by 1114 GMT.

"While sales growth suffered somewhat from warm weather, profits recovered strongly from the third quarter alleviating concerns regarding future profitability of the company," said Commerzbank analyst Andreas Riemann, who rates Zalando a "buy".

Zalando's sales in the fourth quarter rose 30-31 percent to 865-872 million euros ($940-947 million), down from 42 percent growth in the third quarter and shy of an average analyst forecast of 883 million.

Its growth is outpacing Britain's ASOS, which is encroaching on Zalando's home turf by building a giant warehouse outside Berlin. ASOS reported sales in the European Union rose 29 percent in the September-December period.

Zalando said the expected full-year revenue growth rate of 33.5-33.8 percent and adjusted EBIT margin of 3.3-3.9 percent were within the range it was targeting.

Launched in Berlin in 2008, Zalando serves customers in 15 European markets with more than 1,500 brands, with big names such as Gap, Banana Republic and Topshop added in the last year.

It reports full fourth-quarter results on March 1.

$1 = 0.9206 euros


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