August 1, 2019 / 5:28 AM / a month ago

Zalando profit guidance upgrade sends shares higher

BERLIN (Reuters) - Online fashion retailer Zalando raised its profit guidance on Thursday after a big jump in visits to its website, with the company citing efforts to provide a best-in-class fashion experience and more speedy delivery options.

FILE PHOTO: Zalando parcels are transported on a conveyor through an automatic coding device at the Schweizerische Post (Swiss Post) parcel distribution centre in Frauenfeld, Switzerland, June 3, 2019. REUTERS/Arnd Wiegmann/File Photo

Shares in the company, which delivers to 17 European countries, leapt by 12% in morning trade.

The Zalando news helped to lift other fashion stocks, such as H&M, while Next and Puma extended gains recorded on Wednesday when both reported strong results.

Zalando, Europe’s biggest online-only fashion retailer, has been trying to counter a squeeze on profitability as it has invested heavily in logistics to speed delivery. That has coincided with declines in average order size as customers shop more frequently from their smartphones but buy less each time.

The company has been taking steps to bolster average order size, adding beauty products to its range, making size recommendations to reduce the likelihood of returns and trialing a minimum order value.

It has also said it expects margins to receive increasing support from a move to expand its partner program, under which it charges fashion labels a commission to sell stock through its website rather than buying and selling them itself.

Finance chief David Schroeder said Zalando managed to slow the decline in average online basket size to 56.40 euros in the second quarter, helped by the introduction of minimum order values in several countries, with France next in line to join the scheme.

Average basket size was also helped by customers ordering more higher-value autumn and winter garments than expected, he told journalists on a conference call.

RISE IN ACTIVE CUSTOMERS

The number of active customers rose 15% to 28.3 million in the quarter, while site visits jumped by more than a third to almost 1 billion, 84% of which were via mobile devices.

Zalando doubled the number of parcels delivered on the same or next day in Germany, its biggest market, from the previous quarter and said it is testing same-day evening delivery in the Zurich region.

“Today’s update will only serve to underline why other online fashion retailers may be finding life so hard on the continent,” said Liberum analysts Wayne Brown and Adam Tomlinson.

Last month British rival ASOS issued its third profit warning since December, saying problems at warehouses in the United States and Germany had restricted product availability, hitting sales and raising costs.

Zalando’s adjusted earnings before interest and tax (EBIT) rose 8% to 102 million euros ($112.7 million) on sales that jumped 20.1% to 1.567 billion euros. Analysts had expected EBIT and sales of 95 million and 1.6 billion euros respectively.

Zalando raised its outlook for adjusted EBIT to the “upper half” of the previously targeted range of between 175 million and 225 million euros. It said it expects revenue growth “around” the low end of a 20-25 percent range, instead of “at” the low end.

German fashion house Hugo Boss is having a tougher time, meanwhile, despite strong growth in China. On Thursday the company said it expects full-year sales and earnings to come in at the lower end of its forecasts, citing challenges in the U.S. market.

Reporting by Emma Thomasson; Editing by David Goodman

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