Victor & Rolf's 'Recycle' Zalando

BERLIN Having broken the 4 billion euro sales barrier in 2017, Zalando expects to continue its revenue surge this year, targeting sales growth of 20 to 25 percent in the year ahead.

The Berlin-based online giant said in addition to adding about 1 billion euros to its sales coffers, it is looking to generate adjusted earnings before interest and taxes (EBIT) of 220 million euros to 270 million euros in 2018. That represents an operative gain of about 15 percent at midrange.

In the final 2017 figures released today, Zalando reported sales of 4.49 billion euros, reaching the upper half of its guidance range. Sales growth was primarily driven by a larger customer base, which grew from 19.9 million to 23.1 million active customers by the end of 2017, and increased order numbers and frequency.

An ongoing investments offensive, mostly in the areas of capacity and customer experience, negatively impacted net income and adjusted EBIT margins. Net profit dropped 16 percent to 101.6 million euros, while adjusted EBIT was essentially flat at 215.1 million euros compared to 216.3 million euros in 2017.

Margins dropped to 4.8 percent from 5.9 percent in the previous year.

Zalando said a lower marketing cost ratio could not fully offset a higher fulfillment cost ratio as investments continued in capacity and customer experience. These investments included the ramp-up of fulfillment centers in France, Italy, Sweden, Poland and southern Germany, as well as expenditures in same-day delivery, return pick-ups, and the group’s service for brand partners, Zalando Fulfillment Solutions.

Expansion will continue to be the name of the game for Zalando in 2018, with investments planned in assortment, digital experience, convenience and emerging businesses. New brands like Swarovski and Massimo Dutti will join the Zalando range, which added some 350 names in 2017. Moreover, as previously reported, Zalando is launching the beauty category with approximately 100 brands at the end of this month.

Selling to 15 European markets, Zalando is gearing up for its first new country entries since 2013. While co-chief executive officer Rubin Ritter would provide no details, he said the company is planning to enter two adjacent European markets in the coming year.

The digital focus will be on a more personalized customer experience that provides each shopper with their own Zalando shop. Mobile continues to drive traffic, accounting for 70 percent of sales.

While Ritter acknowledged the average basket size was down slightly, reflecting mobile’s younger and fast-fashion-oriented audience, average orders per active customer were up about 10 percent year-over-year.

Zalando’s logistic footprint will undergo further expansion and automation, aimed at providing capacity for revenue growth and improved customer convenience. Zalando is building fulfillment hubs in Lodz and Verona, ramping up Szczecin and the satellite warehouse in Stockholm, and planning for further automation in Lahr.

Zalando also plans to create 2,000 additional jobs this year, about half in Berlin. Last year, Zalando upped its employee numbers from 12,000 to 15,000. Capital expenditure in 2017 amounted to 243.9 million euros, excluding M&A, and is expected to hit around 350 million euros, excluding M&A in 2018.

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