Zalando Gains on Unexpected Profitability

BERLIN, Germany — Zalando rose to a seven-month high after the German online fashion retailer unexpectedly said it was profitable in the first quarter, improving its track record of beating analysts' estimates.

Adjusted operating profit was in the single-digit millions of euros, while analysts that the company surveyed had a consensus for a loss of 10 million euros ($11 million), Zalando said late Monday. The stock rose as much as 11 percent in Frankfurt on Tuesday.

Zalando’s fortunes are turning even amid recent stumbles of traditional rivals such as Hennes & Mauritz (H&M) and Inditex, which have been suffering amid pressure to discount. The 11-year-old German retailer had been struggling to boost profit in recent years as Amazon.com Inc. encroaches in the European market.

The stock has surged 84 percent this year, spurred by Zalando’s new target to become as big as Swedish clothing retailer Hennes & Mauritz in five years, and more profitable at the same time. For this year, Zalando has said it expects operating profit to grow slightly.

“We expect sales momentum to accelerate in the course of 2019,” wrote Volker Bosse, an analyst at Baader Bank, citing an ad campaign for beauty products Zalando started this month.

This is the fourth consecutive time Zalando’s operating income has beaten analysts’ estimates, according to data compiled by Bloomberg. Prior to that, the Berlin-based company had a string of five misses.

Zalando stock can be volatile given that short sellers have bet against more than a fifth of the retailer’s freely traded shares. That can lead to short squeezes, when a bit of good news leads short sellers to buy back the stock to cover their positions.

The company is scheduled to report full earnings on May 2.

By Thomas Mulier, with assistance from David Verbeek; editors: Eric Pfanner and John J. Edwards III.