Zalando faces 2015 with optimism: raises FY15 outlook and accelerates growth

Europe’s biggest online fashion group is enjoying a good year. Good proof of it is Zalando’s recently raised FY15 outlook, as the German e-tailer foresees its full-year revenue to keep increasing thanks to its plans to hire more staff and build warehouses to spur growth.

According to the company’s calculations, sales this year at Zalando will rise as much as 31 percent. That’s up from previous guidance for 20 percent to 25 percent growth, stressed the fashion group in a note issued Thursday.

On the wake of the news, the stock surged as much as 10 percent, the most since April, highlighted Bloomberg. Zalando’s shares rose 7.7 percent to 33.07 euros as of 12:13 a.m. in Frankfurt as second-quarter sales came in at 733 million euros, in line with the company’s July, 21 forecast.

Bernadette Kissane, Apparel and Footwear Analyst at Euromonitor International points out that “Despite the company’s occupancy of the top spot in internet retailing, Zalando continues to report impressive growth rates that are normally associated with successful start-ups.”

For Kissane, “Much of the retailer’s success has come as a result of rapid expansion into new markets and product diversification with the introduction of clothing. Furthermore, the company has remained focused on Europe, choosing to perfect what it does best in familiar territory, while its competitors set their sights further afield in the US and Asia.”

Despite the bright horizon, Zalando preferred to remain cautious and lowered its profit guidance for the second quarter while accelerating its expansion plans in Europe. In this regard, the Berlin-based company said Thursday it’s building a shipping centre in Germany to come online late next year, expanding another German warehouse, and opening a fulfilment centre in Italy.

Likewise, Zalando is enhancing its staff, hiring around 1,500 employees in the first half to reach more than 9,079 in total. “This is a robust statement from Zalando after the negative surprise of the second-quarter margin hit,” adds Graham Renwick, analyst at Exane BNP Paribas.

“Further growth lies ahead for the company, with untapped potential in both market expansion and product offering. With Germany, Switzerland and Austria accounting for a large proportion of sales, there is still plenty of scope for the retailer to increase its presence in markets such as the UK and France,” agrees Eurominitor’s Kissane.

Ritter also said fair weather in Europe this summer has helped sales. “Zalando continues to benefit from the general change in consumers’ shopping habits to shop more online,” stresses in a note to clients Volker Bosse, an analyst at Baader Bank. “This means that Zalando was able to even accelerate its already good top-line momentum” while the total German fashion retail market declined.

On the downside, the company’s profit fell due to an 18.5 million-euro charge in the second quarter for fraudulent purchases on its site in the first quarter, the company said. Managing board member Rubin Ritter admitted that “We saw an unexpected wave of systematic fraud.” “We are not very satisfied,” he added.

Second-quarter adjusted earnings before interest and taxes were also lower than the previous year, coming in at 30.2 million euros, below the 35.1 million euros a year earlier. Zalando said on July, 21 that earnings would be 22 million euros to 37 million euros, recalls Reuters.