Jan 17, 2017
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Zalando plans Nordics base for speedier deliveries as sales disappoint

Jan 17, 2017

Zalando, Europe's biggest pure online fashion retailer, announced a plan to open a new distribution centre in Sweden later this year to speed up delivery to the Nordics as it reported slower fourth-quarter sales growth than expected.

Zalando said on Tuesday that sales in the quarter rose 25-26 percent to 1.086 billion-1.094 billion euros (962.98 million pounds to 971.28 million pounds), a recovery from the 17 percent growth rate in the third quarter, but shy of analysts' forecasts for 1.12 billion, according to Thomson Reuters Smart Estimates.


Zalando's shares, which have risen 9 percent this year on expectations for a bumper Christmas quarter, were indicated down 4 percent in pre-market trade.

"Though consistent with what many other retailers reported, this suggests that the relatively easy Q4 comp was not as helpful as investors would have hoped," said Bernstein analyst Jamie Merriman, who rates Zalando "outperform".

Zalando expects to achieve adjusted earnings before interest and tax (EBIT) of 81-104 million euros in the quarter based on preliminary figures, compared with analyst forecasts for 86 million. It reports final results on March 1.

Zalando said fourth-quarter sales rose 25-26 percent to between 1.086 billion and 1.094 billion euros (955 billion pounds). That was an improvement on the 17 percent growth rate in the third quarter, but shy of analysts' forecasts for 1.12 billion, according to Thomson Reuters Smart Estimates.

"Q4 sales were up less than expected which was surprising given revenue beats from Boohoo and ASOS as margin looks to have been traded for revenue growth," said UBS analyst Adam Cochrane, who rates Zalando "sell".

Co-Chief Executive Rubin Ritter reiterated a medium-term forecast for sales to grow 20-25 percent a year and said Zalando would keep investing in improving its service to keep pace.

Berlin-based Zalando, which operates from four giant logistics centres in Germany and one satellite hub near Milan, is building new warehouses in France and Poland, both due to open later this year.

Zalando is looking for a site about 20-30,000 square metres in Sweden -- about the size of its Italian hub -- and is prepared to invest a sum in excess of 10 millions euros.


Zalando is facing growing competition as Amazon makes a big push into fashion and invests in logistics with its Prime Now service that offers deliveries within one hour in some cities, a service Zalando is also testing.

British rival ASOS is also encroaching on Zalando's home territory, building a new hub south of Berlin that is due to open soon.

Zalando said the new Nordics hub, which it hopes to be up and running by the end of the year, should cut standard delivery times in Sweden to 1-2 days from a current 2-5 days.

"We have taken the decision to make our footprint much more pan-European to get closer to the customer," Ritter told Reuters. "Customers come to us because they fell in love with one specific fashion item and ideally they want to get it as fast as possible."

Fashion retailer H&M's delivery time in its home market of Sweden is 3-5 days. H&M offers next-day delivery in Germany for 7.99 euros.

Zalando does not break out sales for the Nordics, but Nordics head Kenneth Melchior told Reuters he was optimistic the region could reach 1 billion euros of sales in the coming years.

Analysts forecast total Zalando sales will almost double to reach 6.7 billion euros by 2019 from the 3.6 billion it expects to record for 2016.


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