March 1, 2018 / 7:43 AM / 9 months ago

UPDATE 2-Zalando to enter two new markets in Europe

* Sees sales growth at 20-25 pct in 2018

* Sees EBIT margin at 4-5 pct

* Location of two new markets not yet decided (Adds co-CEO comment)

BERLIN, March 1 (Reuters) - German online fashion retailer Zalando said on Thursday it would keep growing rapidly in 2018, expanding to another two countries and adding 2,000 jobs, although heavy investment would weigh on profitability.

Zalando’s shares were down 4 percent at 0836 GMT, putting them among the biggest fallers in the European retail index , which was down 0.9 percent.

“Net income was below our forecast due to a combination of higher share-based compensation, interest expenses and taxes,” RBC analysts said in a note, rating the stock “sector perform”.

“Management’s outlook for 2018 is also in line with estimates, although capex guidance is higher than expected.”

Launched in Berlin in 2008, Zalando has grown fast to sell almost 2,000 brands in 15 countries, mostly in western Europe, but has not added a new market since Luxembourg in 2013.

Zalando said the two new markets would be adjacent to its current ones but co-Chief Executive Rubin Ritter told journalists it did not want to say yet which they would be.

As Amazon has made a big push into fashion, Zalando last year pared its profit forecast as it spent on logistics and technology, prompting analysts to question a longer-term target to improve its operating margin to 10 percent.

Zalando said it again aimed for sales growth of 20 to 25 percent in 2018 after a 23.4 percent rise in 2017, and expects to add about 2,000 jobs to its total of 15,000, most in Berlin, where it is due to open a new headquarters later this year.

It is targeting a margin on adjusted earnings before interest and taxation (EBIT) of around 4 to 5 percent, compared with the 4.8 percent it recorded in 2017.

“Our priority remains on growth,” Ritter said, noting Zalando is adding a new brand to its site every day, with Inditex’s Massimo Dutti and Swarovski jewellery and accessories among the next to join.

Zalando said it would keep investing heavily, including in building new warehouses and automating existing ones as well as increasing the personalisation of its website. It also plans to add beauty products to its offering from late March.

It expects capital expenditure in 2018 of about 350 million euros ($427 million), up from 244 million in 2017, excluding mergers and acquisitions.

British rival ASOS last month beat expectations for sales growth over Christmas and said it sees potential for e-commerce to expand to as much as 40 percent of all clothing sales in developed markets as it stuck to a target for sales growth of 25 to 30 percent. ($1 = 0.8191 euros) (Reporting by Emma Thomasson Editing by Maria Sheahan and David Evans)

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