Zalando’s quest to gain over male shoppers is working: Q1 sales up 23 percent

The German online fashion retailer is harvesting the first of its male shoppers’ campaign. This strategic twist has resulted into a 23 percent sales increase over the first quarter of the current fiscal year.

Zalando, Europe's biggest fashion e-tailer, has bided strongly on attracting men, launching a highly targeted marketing campaign featuring U.S. actor James Franco. To date, the online retailer counts on more than 20 million active customers.

Despite being able to rapidly expand in the past years to deliver 1,500 brands across in 15 countries, Zalando’s growth has slowed down recently, pushing the company into new segments such as menswear and athletic apparel.

This new strategy is working for the company, which announced that first-quarter sales came in at 980 million euros. Adjusted earnings before interest and taxation (EBIT) was flat at 20.3 million euros, in line with analysts’ estimation collected by Reuters. Sales grow across markets, although slower at the firm’s more consolidated markets: Zalando sold 17 percent more in its home region (Germany, Austria and Switzerland), while sales jumped by 28 percent in its newer European markets.

Zalando resents from heavy expenditure in web improvements and delivery infrastructure

But, as Bloomberg Gadfly’s Andrea Felsted wrote Tuesday, “online growth doesn't come cheap.” The analyst highlighted how inevitable it is for retailers having to deal with the cost of fulfilling orders, coping with a high level of returns and the need to enhance customer service.

In Zalando’s case, this imperative translates into increased capital expenditure to build its delivery infrastructure. More precisely, capital expenditure was 78 million euros in the first quarter, as the company invested in new warehouses and improved customer service, such as same-day delivery and easier returns. Looking ahead, the online retailer expects to spend about 200 million euros over the full year, way up from last year’s 181.7 million euros.

In this regard, Zalando Co-Chief Executive Officer Rubin Ritter said earlier this year that the company was prioritizing increasing its market share over profit growth. On Tuesday the company showed it was doing everything required to deliver on that promise.

Looking ahead, the company reiterated its sales forecast for 2017, saying that expect sales growth of 20 to 25 percent and an EBIT margin of 5 to 6 percent and providing some reassurance to investors.

Soon after the company released its quarterly sales figures, analysts following the stock at DZ Bank updated their recommendation from "buy" to "hold" and set their target price at 42 euro per share. DZ Bank’s analyst Thomas Maul highlighted the efficiency gains in the marketing area as well as the further increased proportion of the side calls on mobile terminals. However, he doesn’t currently see any room for a higher target price for the stock.