Zalando to Spend to Build Market Share This Year

BERLIN, Germany — German online fashion retailer Zalando said it would push ahead with a strategy of investing to gain market share in 2018 rather than seek to improve profitability even as it reported a recovery in fourth-quarter operating earnings.

As Amazon has made a big push into fashion, Zalando last year pared its profit forecast as it boosted investment in logistics and technology, prompting analysts to question a longer-term target to improve its operating margin.

"Our focus will remain on strong market share gains, facilitated through continued investments," said co-Chief Executive Rubin Ritter.

Shares in Zalando, which dipped late last year after weak third-quarter figures, were up 2.3 percent at 8:38am.

Zalando does not expect to increase margins in 2018 as it keeps spending on faster delivery, making its apps and website more personalised and the launch of beauty products on its site in spring or summer, Ritter told Reuters.

Zalando expects its adjusted earnings before interest and taxation (EBIT) margin to come in at 4.7 to 4.9 percent for 2017, well below a long-term target for 10 percent.

"We believe management will prioritise top-line growth over margins by continuing to improve the customer proposition, therefore we do not expect Zalando's margins to rise meaningfully in the mid-term," said RBC analyst Sherri Malek.

Zalando said quarterly sales rose between 21.2 and 23.2 percent to €1.323 billion to €1.345 billion ($1.62 billion to 1.64 billion), compared with average Thomson Reuters Eikon analyst expectations for €1.345 billion.

It said adjusted earnings before interest and taxation (EBIT) should come in between €107 million and €120 million, compared with mean analyst forecasts for 114 million. It reports full results on March 1 along with forecasts for 2018.

After sales in October were dampened by unseasonably warm weather, Ritter said Zalando had a strong end to the year, helped by marketing and pricing, especially around the Black Friday sales and for the Christmas season.

British rival ASOS, which reports on January 25, in October raised its sales growth forecast for the financial year from September 1 to 25-30 percent, and said it expected a stable operating profit margin of 4 percent.

By Emma Thomasson; editors: Ludwig Burger and Keith Weir.