Zalando slumps after warning on profit margin targets

[FRANKFURT] Online fashion retailer Zalando on Thursday cut its 2015 profit margin target, citing increased spending on developing its business, sending its shares down as much as 13 per cent to their lowest level in about five months.

The Berlin-based company, which went public last year, also reported an adjusted third-quarter loss before interest and tax of between 18 million and 32 million euros (US$20.6-36.6 million), compared with a year-earlier profit of 4 million.

The group, which ships clothes, shoes and accessories to more than 16 million customers, blamed the loss on higher spending on a mobile app, a hit from fraudulent activities by bogus customers and an early start to the winter season that forced it to sell off summer fashion at steep discounts.

The retailer cut its forecast for its full-year operating margin to between 3 and 4 per cent from 4.5 pe rcent.

At the same time, it raised its sales forecast for a second time this year after third-quarter sales jumped. It now expects 2015 revenues to grow by 33 to 35 per cent, compared with its most recent forecast for growth of 28 to 31 per cent.

Shares in Zalando, the exclusive retailer for US clothing chain Gap and the British Topshop brand in Germany, were down 6.7 per cent at 28.435 euros by 0850 GMT. The company had floated at 21.50 euros a share in October last year. "Management hinted at growth investments but magnitude is clearly a surprise," Commerzbank analyst Andreas Riemann said. "Nevertheless, the guidance implies a profitable fourth quarter, which means the third quarter should not be seen as structural problem," he said, affirming a "buy" rating.

Zalando's margin on its adjusted core profit fell to between -2.5 per cent and -4.5 per cent in the three months through September, from a year-earlier figure of 0.8 pe rcent, the company said.

Zalando is due to publish full third-quarter financial results on Nov 12.

REUTERS