Zalando shares hurt by marketing spend as lockdowns ease

FILE PHOTO: The logo of fashion retailer Zalando is pictured in Berlin, Germany, April 10, 2019. REUTERS/Hannibal Hanschke/File Photo

BERLIN (Reuters) - Shares in Zalando fell on Thursday after the German online fashion retailer said it had spent significantly more on marketing to keep its customers shopping online as stores reopened due to the easing of coronavirus lockdowns.

Europe's biggest fashion ecommerce player had 44.5 million shoppers at the end of June after winning customers during the first lockdown in 2020, but the company had to increase marketing spending by 4.6% in the second quarter.

"Zalando has been investing significantly more into customer acquisition and brand marketing to capture the full demand opportunity in the second quarter this year," it said.

Advertising prices have increased as demand has rebounded, including from the travel sector, and as people emerged from their homes, finance chief David Schroeder told analysts, adding he expects lower marketing costs in the long term.[nL8N2PC1ZO]

Second-quarter sales came in at 2.73 billion euros ($3.24 billion) and adjusted operating profit at 184.1 million euros, both in line with average analyst forecasts.

Investors, who have become used to Zalando beating forecasts in the last year, had hoped for more.

Analysts at JP Morgan said the results were "strong but disappointing in the context of expectations", while Credit Suisse analysts said unseasonal weather across much of Europe could potentially weigh on third-quarter results.

Zalando's shares were down 8% at 0846 GMT on XGMT.

Shares in British rival ASOS dropped last month when it warned that recent sales growth had slowed due to uncertainty over COVID-19 and poor weather.

Zalando will put more focus in future on driving sales of beauty products after it announced a strategic partnership with LVMH's Sephora in June, Schroeder said.

He said online sales of beauty products rose to 11% of the total market in 2020 from 8% in 2019, but was still far below the figure for fashion, noting that three out of five customers also buy clothes when shopping for beauty products.

Zalando reiterated it expects full-year sales to grow 26-31% to 10.1-10.5 billion euros and said it now forecasts adjusted earnings before interest and taxation (EBIT) to reach the upper half of its guided 400-475 million euros range.

Zalando has also connected 4,700 brick-and-mortar stores to its platform, an initiative it accelerated during the pandemic.

($1 = 0.8448 euros)

(Reporting by Emma Thomasson, editing by Anil D'Silva and Elaine Hardcastle)

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