Zalando Lowers Profit-Margin Forecast Amid Customer Fraud, Costs

BERLIN, Germany — Zalando SE lowered its profit margin forecast for the year as higher delivery costs, marketing spending and lower-than-expected debt collection related to earlier customer fraud weigh on its profitability. The stock fell in pre-market trading.

Earnings before interest and tax will be 3 percent to 4 percent of sales this year, compared to an earlier forecast of 4.5 percent, Europe’s largest online fashion retailer said in a statement Thursday. Revenue will increase 33 percent to 35 percent, up from a previous range of 28 percent to 31 percent, the Berlin-based company said.

Zalando, the most prominent spinout from the Samwer Brothers’ Rocket Internet startup incubator, has stumbled recently in its quest for growth. Profit in the second quarter fell after an 18.5 million-euro charge for fraudulent purchases on its site as part of a bill-me-later plan. Today the company said those bad orders “triggered lower-than-expected debt collection rates" in the third quarter in a "single-digit million amount."

Zalando also said it’s seeing higher fulfillment costs and making "significant technology investments.”

"We remain committed to our profitable growth path, but are willing to trade in some profitability to accelerate our growth and gain market share," Managing Director Rubin Ritter said in the statement.

Third-quarter sales will be 707 million euros ($812 million) to 717 million euros, compared with 501.4 million euros a year ago, topping the average 636.8 million-euro estimate of analysts surveyed by Bloomberg. Its loss before interest and taxes and adjusted for stock-based compensation will be 18 million euros to 32 million euros, missing analysts’ estimates for 3.1 million euros in earnings.

Zalando shares have risen 42 percent since the company’s initial public offering a year ago.

By Aaron Ricadela; editors: Kenneth Wong, Paul Jarvis, Phil Serafino.