August 7, 2018 / 6:48 AM / a month ago

Zalando trims profit outlook as heatwave cools fashion demand

BERLIN (Reuters) - Europe’s biggest pure online fashion retailer Zalando (ZALG.DE) on Tuesday trimmed its full-year sales and profit outlook after the hot summer hit demand for some clothing ranges and a rise in shopping on mobile phones devices cut average transaction size.

FILE PHOTO: A Zalando logo is seen printed on a wall in a showroom of the fashion retailer Zalando in Berlin, October 14, 2014. REUTERS/Hannibal Hanschke/File Photo

Co-Chief Executive Rubin Ritter told reporters that sales of merchandise usually sold between spring and summer like lightweight jackets had been hurt after a late start to the spring season was followed by a sudden shift to hot weather.

For the third quarter, he expects traditional discounting at the end of the summer season to be more pronounced than usual due to the heatwave in Europe.

Zalando said active customers had reached a new record of 24.6 million in the quarter, but average “basket” size fell to 60.40 euros from 64.50 euros a year ago.

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Ritter said the fall in basket size was due to more people shopping on mobile devices, where they order fewer items than on a computer, but buy more often. He also noted a shift to a younger customer base and shoppers buying lower priced items.

He said customers were spending more in total, but split over more orders, which increases shipping costs for Zalando and dents margins.

To counter that, Ritter said Zalando was looking for ways to sell more products in each order, for example giving shoppers the option to browse full outfits and add beauty products.

Zalando, launched in Berlin in 2008, has recently started selling beauty products online and also been investing heavily in logistics and technology as competition in the online fashion market heats up.

The company has also opened its first beauty store in Berlin, which aims to help establish its reputation in cosmetics and skincare products. Other fashion retailers such as H&M (HMb.ST) and British online rival ASOS (ASOS.L) have also moved into cosmetics and skincare.

Zalando’s second-quarter sales rose 21 percent to 1.33 billion euros (£1.2 billion), while adjusted earnings before interest and taxation (EBIT) rose 15 percent to 94 million euros, both short of average analyst forecasts.

“We would expect consensus for adjusted EBIT to fall about 6 percent on back of this statement,” Citi analysts wrote.

Zalando’s shares tumbled 7 percent, on track for their worst day in 12 months and among the worst performers on the STOXX 600 .

Zalando said it now expects full year revenue growth in the lower half of its 20 to 25 percent target range, while adjusted EBIT should come in at the low end of the 220 to 270 million euro range it had previously guided for.

British rival ASOS also missed analysts’ forecasts for sales growth in its latest trading period, saying it had reined in marketing efforts as it focused on ramping up warehousing space in Germany and the United States.

Zalando is also spending heavily on logistics as it expands, with Ritter saying its launch of websites and Ireland and the Czech Republic had gone well.

Reporting by Emma Thomasson; Editing by Maria Sheahan and Jane Merriman

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