BERLIN — Zalando boosted net income 10.9 percent and grew sales 23.1 percent in the first quarter of 2017, but earnings before interest and taxes were down 9.4 percent for the period.
In final figures released Tuesday for the three months ended March 31, the Berlin-based e-tail giant reported net income of 5.1 million euros, or $5.4 million, compared to 4.6 million euros, or $5.1 million, for the same prior-year period.
EBIT came in at 14.9 million euros, or $15.9 million, down from 16.4 million, or $18.1 million. This corresponds to an EBIT margin of 1.5 percent compared to 2.1 percent for the same period in 2016.
Zalando noted that to better evaluate its operating performance, it was important to consider adjusted EBIT and the EBIT margin before expenses for equity-settled share-based payments (which rose by 1.6 million euros, or $1.7 million, in the quarter) and non-operating one-time effects. Under these conditions, adjusted EBIT for the quarter was flat, with an adjusted EBIT margin of 2.1 percent against 2.5 percent in 2016.
Sales for the group reached 980.2 million euros, or $1.04 billion, versus 796.1 million euros, or $877.2 million, for first-quarter 2016.
Dollar figures are converted at average exchange for the period to which they refer.
For the year ahead, Zalando again confirmed its full-year guidance, which calls for sales growth of 20 percent to 25 percent and an adjusted EBIT margin of 5 percent to 6 percent. Zalando is also continuing to invest heavily, with 200 million euros, or $21.8 million at current exchange, in CAPEX slated for the full year.
During a conference call with journalists on Tuesday morning, cochief executive officer Rubin Ritter enthusiastically outlined Zalando’s ongoing investments, arguing the pressure on operative earnings is well offset by higher traffic and a growing market share, which “requires continuous investments and will pay off in the future.”
He also suggested the company’s traditionally heavy investment strategy is clearly paying off now. He noted Zalando’s growth is significantly outpacing the online fashion market norm of 5 percent to 10 percent, and taken on a yearly basis, doing so with a steady level of profitability.
Recent investments and key activities revolve around improving the consumer experience, the company’s technological and logistics infrastructure, and the offer for brand partners.
The first quarter’s high points included the implementation an automation system in the company’s Mönchengladbach, Germany-based logistics center that can carry half a million items; steps to reduce lead time, for example, now down to one day in Norway, and the rollout of same-day delivery in Germany, currently available in eight cities, and the scaling up of scheduled return pick-ups now in four German cities and soon to be implemented in Stockholm.
There was also the opening of a satellite warehouse in Paris; communications and marketing campaigns, such as the 360-degree Man Box campaign starring actor James Franco, which has already generated 200 million social media posts. Ritter said about 75 percent of Zalando’s customer base is female, “and we see a big potential to increase our men’s business.”
In terms of enhanced assortment, first quarter saw the first Inditex range, Oysho, come on board as a Zalando brand partner.
Operating in 15 European countries, Zalando grew sales in the Germany, Austria and Switzerland (DACH) zone by 17 percent to 475 million euros, or $505.8 million at average exchange, while sales for the rest of Europe jumped 28 percent to 428 .3 million euros, or $456.1 million.
Adjusted EBIT for the DACH market was down 3.8 percent, although Zalando said the zone showed solid profitability with an EBIT margin of 6.9 percent. Year-over-year, however, the margin decreased by 2.3 percentage points compared to the prior-year period primarily due to higher investments in infrastructure, plus consumer and brand experience.
The remainder of Europe booked an adjusted operative loss of 19.1 million euros, or $20.3 million, compared to an adjusted operative loss of 17 million euros, or $18.7 million, in first-quarter 2016. That, too, reflected ongoing investments.
“Our market share and penetration in the rest of Europe is significantly lower (than in DACH), which also means we see significantly higher potential there and are investing,” Ritter said.
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