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UPDATE 1-Zalando lifts earnings forecast, Q3 sales disappoint
October 19, 2016 / 7:31 AM / in a year

UPDATE 1-Zalando lifts earnings forecast, Q3 sales disappoint

* 2016 adjusted EBIT margin target lifted to 5-6 pct

* Q3 sales up 16-18 pct, down from 25 pct in Q2

* 2016 target for sales growth at upper end of 20-25 pct

* Shares up 2.9 pct (Adds details, comment from managing board member)

By Emma Thomasson

BERLIN, Oct 19 (Reuters) - Zalando, Europe’s biggest online-only fashion retailer, reported an improvement in quarterly profitability on Wednesday, even as sales growth slowed, as it managed to prepare for unseasonably warm weather by ordering less stock ahead of time.

That allowed Zalando to raise its profitability forecast for 2016 for the second time in just a few months, lifting its shares by 2.9 percent by 0714 GMT, compared with a 0.1 percent weaker European retail sector.

Zalando is now forecasting a 2016 margin on adjusted earnings before interest and taxation (EBIT) of 5.0-6.0 percent, up from a previous forecast for 4.0-5.5 percent.

“We would have preferred to see stronger top-line growth in Q3. However, below the line better than expected profitability is more than compensating the sluggish sales performance,” said DZ Bank analyst Thomas Maul, who rates the stock “buy”.

Zalando said third-quarter sales rose 16-18 percent, slowing from 25 percent in the second quarter as the fashion industry in Europe suffered from shoppers delaying purchases of winter gear due to unusually warm weather in August and September.

That compares with the 33 percent growth rate that British rival ASOS reported on Tuesday for the two months to Aug. 31.

Managing board member Rubin Ritter said Zalando’s move to buy less stock ahead of time had helped it cope, given September was the warmest on record in its biggest market Germany, with industry sales down 15-20 percent.

“The flexibility that we have built into our supply chain is really paying off,” Ritter told Reuters.

“We can observe the weather trends and customer behaviour and shift our order intake so we can reduce the leftovers we have after season and therefore also reduce the amount of discounting we have to do.”

Ritter said margins had also been helped by an increase in efficiency across the business and a shift towards more commission-based sales for partner brands.

Despite the profitability drive, Ritter said Zalando was still investing heavily in new warehouses, technology and marketing, such as a big brands event in Berlin in September.

Zalando, which reports full third-quarter figures on Nov. 10, said it expected an adjusted EBIT margin of 1.0-3.0 percent, and reiterated it expects sales growth for 2016 to come in at the upper end of a 20-25 percent range. (Reporting by Emma Thomasson; Editing by Tina Bellon and Mark Potter)

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