Jul 20, 2016
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Zalando shrugs off Amazon threat to lift profit forecast

Jul 20, 2016

Zalando, Europe's biggest pure online fashion retailer, raised its full-year profit forecast on Tuesday after posting strong second quarter results, easing concerns about the threat posed by Amazon to its business.

Zalando's shares, which have tumbled this year as investors have expressed fears it is more exposed to Amazon's foray into fashion than British rival Asos, soared more than 17 percent to 31.40 euros by 0745 GMT, while Asos rose 0.9 percent.

"Concern has been growing on EBIT margin development and threat from Amazon and this upgraded guidance will provide a good relief rally," said UBS analyst Adam Cochrane.

Zalando said its preliminary second-quarter adjusted earnings before interest and taxation (EBIT) margin jumped to 7.5-9.5 percent from 2.5 percent in the first quarter, beating a Thomson Reuters Smart Estimate of 5.4 percent.

That prompted the company to raise its guidance for the full year to a margin of 4.0-5.5 percent from 3.0 to 4.5 percent. It reports full figures on Aug. 11.

Analysts see Asos as better placed to compete with Amazon as it has a targeted audience of fashion-conscious twentysomethings and offers more own-label goods, while Zalando and Amazon both offer a broad range of brands to a broad clientele.

Asos last week posted stronger-than-expected results and said it expected sales growth for 2015-16 at the upper end of the 20-25 percent range it previously estimated.

Zalando managing board member Rubin Ritter said the improvement in profitability was due to increased efficiency in operations as well as a fall in the percentage of sales spent on marketing, even though the absolute spend kept rising.

He said the figures showed that Zalando was doing a good job to see off rivals by offering free and fast delivery to all its customers and added it could consider introducing a membership programme with extra benefits like Amazon's Prime.

"We can be very confident with the numbers we put out that, even though there is a lot of competition, we are doing great in terms of executing our strategy," Ritter told Reuters.

Ritter also said Zalando will keep investing in Britain even though the fall in the pound since the vote to leave the European Union has dented the value of sales there. He noted Britain accounts for a "very small" portion of total sales.

Zalando said quarterly revenue came to 909 million ($1.01 billion) to 924 million euros, compared to a Smart Estimate of 915 million and equivalent to growth of 24-26 percent.

It reiterated a forecast for full-year sales to grow at the upper end of a 20 to 25 percent range.

($1 = 0.9032 euros)

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