Zalando back in fashion after strong end to 2018

Berlin

ZALANDO, Europe's biggest online-only fashion retailer, said it expected solid growth this year after sales rebounded in the fourth quarter and it won 1.3 million new customers, the biggest quarterly increase in five years.

Shares in the German company jumped 6 per cent in early trade on Thursday after it reported that sales rose by 25 per cent in October-December to 1.7 billion euros (S$2.6 billion), while adjusted operating profit came in at 118 million euros, both ahead of average analysts' forecasts.

Zalando shares had plunged 44 per cent in the last year after the company cut its outlook twice, blaming slower sales growth on the unusually long, hot summer in Europe, with logistics costs rising as it faces rising competition from players such as Amazon.com.

For 2019, Zalando said it was targeting growth in gross merchandise volume (GMV) - the value of products sold on its site - of 20-25 per cent, with revenue growth at the lower end of that range, and an adjusted operating profit of 175 million euros to 225 million euros.

Revenue growth has slowed in the past two years from more than 25 per cent annually to 20 per cent last year.

Morgan Stanley warned this week that the European online fashion market was more mature than previously thought, cutting its price targets for both Zalando as well as its British rival ASOS.

"The days of profitable 20-25 per cent topline growth are long gone. With the maturation curve steeper than previously thought, we think market forecasts for both topline growth and operating leverage are too ambitious," Morgan Stanley analysts wrote.

In December, ASOS cut its sales growth forecast for the 2018-19 year to 15 per cent from a previously cited 20-25 per cent and its operating profit margin target to around 2 per cent from 4 per cent.

Zalando said its sites had close to one billion visits in the fourth quarter and attracted 1.3 million new active customers.

It said it would roll out to more markets its membership programme called Zalando Plus, which offers extra convenient delivery for an annual fee - its answer to Amazon Prime - in the next few years, adding another two countries in 2019.

According to Zalando, it wanted to triple GMV to 20 billion euros by 2023/2024 from 6.6 billion in 2018 as it encourages more brands into its "partner" programme, offering them logistics and marketing services.

It is also shaking up the responsibilities of its co-chief executives. REUTERS