Beauty products gloss over Zalando earnings squeeze

Europe’s biggest online fashion retailer Zalando said the launch of beauty products in Germany had made a promising start and its active customer numbers jumped in the first quarter but a late start to spring hit profitability.

Unseasonally cold weather across Europe in March delayed sales of spring and summer fashions and prompted more discounting to shift stock, denting profits, co-Chief Executive Rubin Ritter told reporters.

But customers responded well to Zalando’s move to sell 4,000 beauty products from 130 cosmetic and skin care brands online. Zalando’s active customer numbers rose 17 percent to 24 million, while average orders per active customer also hit an all-time high.

Zalando shares, which were hit in March when it said heavy investment would dent profitability this year, were up 4.2 percent at 0744 GMT, making them the biggest gainer on the German mid-cap index.

“We see an opportunity to build the leading beauty destination,” Ritter said, noting that only about 5 percent of beauty products were currently sold online, compared to about 15 percent for the fashion industry.

He said that more than 70 percent of orders for beauty also included fashion garments. Zalando expects eventually to expand beauty products to other markets and also add male grooming ranges, Ritter said.

Quarterly sales rose 22 percent to 1.196 billion euros ($1.43 billion), slightly ahead of average analyst forecasts for 1.18 billion.

But adjusted earnings before interest and taxation (EBIT) fell to 0.4 million euros, falling short of forecasts for 11.5 million. Zalando’s core German, Austria and Switzerland region compensated for a loss in the rest of Europe.

Ritter said Zalando would keep investing heavily in its logistics infrastructure and marketing, but declined to say to which two markets it plans to expand later this year.

British rival Asos said last month it would also have to step up spending on technology and logistics to help maintain its lead in the online fashion pack, with the extra costs taking a toll on its elevated share price.

Zalando kept its forecast for around 20 to 25 percent reported sales growth for the year unchanged, along with its target of an adjusted EBIT of between 220 million and 270 million euros.