Zalando swaps profit for expansion
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Zalando swaps profit for expansion

Zalando, the German online fashion retailer, released earnings last week that demonstrate its inward investment is paying off – but (predictably) at the cost of profit. The fast growing company saw shares slip by around 5% on Thursday as it reported a fractional slowdown in sales growth and muted earnings as a result of high spending. The company has made no secret of the fact that – for now, at least – it is pursuing excellence and market share at the expense of profit. But investors were still unhappy with the news.

Zalando’s share price has appreciated by 17% over the last 12 months

graph 0503 zalando

SOURCE: Yahoo Finance

Rubin Ritter, Zalando’s co-chief executive, released a statement to the press that reiterated the company’s long-term strategy. It said:

“In 2017 we made significant headway and won market share in all our markets. In 2018, we will target our 20-25 per cent growth corridor for the fourth consecutive year, underlining our conviction that focus on growth and market share wins is the right path to maximise long-term value.”

For the fourth quarter of 2017, Zalando saw sales rise to 22.2%, year on year; an impressive figure, but less than the full year’s results (+23.4%, year on year) and a fraction below analysts’ expectations. Net earnings were hit harder by Zalando’s inward investment, falling from €120.5 million to €101.6 million.

Zalando was upbeat, as any company experiencing sales growth in the 20% range should be – even if the figures revealed weren’t quite in-line with consensus estimates. Profit may have taken a hit, but that was always the plan – and it looks like it’s working. The company said it plans to add “beauty and cosmetics” products to its platform, and enter two new European markets “adjacent to its existing markets” by the end of March.

Disclosure

Dominion holds Zalando in its Global Trends Luxury Fund. 


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