Zalando Forecast Raises Concern Retailer's Margins May Decline

  • Sales growth to be close to 25%; analysts' consensus is 26%
  • Online retailer invests in distribution as Amazon expands

Zalando SE’s forecasts for this year raised concern that Europe’s biggest online fashion retailer is expanding at the expense of profitability, sending the stock lower.

Earnings before interest and tax will be 3 percent to 4.5 percent of sales, below some analysts’ estimates, the Berlin-based company said in a statement Tuesday. The margin narrowed to 3.6 percent in 2015 from 3.7 percent the prior year. The stock fell as much as 3 percent.

“Zalando’s valuation looks to capture greater profitability than we believe they can achieve,” wrote Graham Renwick, an analyst at Exane BNP Paribas who said the consensus for 2016’s Ebit margin is 4.5 percent.

Zalando has been increasing spending on marketing, distribution and information technology to gain more clients. The company is among a handful of European online retailers such as Ocado Group Plc and Yoox Net-A-Porter Group SpA trying to gain a stronghold in Europe as Amazon.com Inc. increasingly expands abroad, selling everything from food to fashion.

Money Making

"We are earning money despite a very high level of investment," managing board member Rubin Ritter said on a call with reporters. Zalando will accelerate the opening of a new distribution center and is spending on software to integrate the brands it sells with its e-commerce store, he said. 

Revenue growth will be at the high end of the company’s medium-term target of 20 percent to 25 percent, the company said. Analysts have been expecting 26 percent growth this year, according to the consensus compiled on Bloomberg. Sales rose 34 percent in 2015.

The stock fell 1.5 percent to 28.38 euros as of 10:12 a.m. in Frankfurt.

Uber Technologies Inc. could be an interesting method of delivering goods from Zalando’s partners’ stores to customers’ homes, Ritter also said, without giving specifics.

The company, spun out of the German Samwer brothers’ Rocket Internet SE startup incubator, also said Cristina Stenbeck will step down from her seat as the head of Zalando’s supervisory board at the end of May. She is chairwoman of Kinnevik Investment AB, which holds 31.7 percent of Zalando shares and also has investment ties to Rocket Internet.

Zalando nominated supervisory board member Lothar Lanz to replace Stenbeck and said Jorgen Madsen Lindemann, CEO of Kinnevik portfolio company Modern Times Group AB, will join the board.

(A previous version of this story was updated to correct the spelling of the chairwoman’s name.)

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