March 1, 2017 / 10:44 AM / 5 months ago

Zalando buys streetwear retailer Kickz, outlook dents shares

4 Min Read

A Zalando label lies on an item of clothing in a showroom of the fashion retailer Zalando in Berlin October 14, 2014.Hannibal Hanschke/File Photo

BERLIN (Reuters) - Germany's Zalando (ZALG.DE) announced the acquisition of streetwear retailer Kickz on Wednesday, bolstering its plans to shift from being a pure fashion e-commerce player to becoming a provider of logistics, technology and marketing to key brands.

The company's shares, however, were dented by a relatively conservative outlook for 2017 as heavy investment in infrastructure and software keeps a lid on profitability.

Founded in Berlin in 2008, Zalando has grown rapidly to become Europe's biggest online fashion retailer, delivering 1,500 brands in 15 countries from huge out-of-town warehouses.

It now wants to complement that business by offering more services to brands and retailers, including delivering items directly from their stores - a field analysts say should be more profitable than pure e-commerce.

Zalando said the purchase of Munich-based Kickz, which runs 15 stores in Germany and websites that deliver worldwide, fits into that strategy, combining Kickz' expertise in basketball and lifestyle with Zalando's technology and logistics.

Zalando, which did not disclose the sum paid for Kickz, will integrate the brand into its online shop and help it to expand to more countries while retaining the Kickz stores, situated in prime locations in major German cities.

"Zalando customers will get access to the newest products, which are otherwise only available at selected retailers, as well as exciting content in a basketball world curated by Kickz," said David Schneider, Zalando managing board member.

Sportswear Push

The move fits with Zalando's push into the booming sportswear market, including last year's launch of the Ivy Park label co-founded by pop star Beyonce and its work on a pilot project to deliver directly from Adidas (ADSGn.DE) stores in Germany.

Amazon (AMZN.O), which is expanding rapidly in fashion and is seen as the biggest threat to Zalando, has also been experimenting with physical retail, albeit mostly in food and books so far.

Zalando forecast sales growth of 20-25 percent in 2017, against 23 percent in 2016. Its estimate for the margin on adjusted earnings before interest and tax (EBIT) was 5-6 percent, compared with 5.9 percent in 2016, in line with its medium-term guidance.

However, that was below analyst forecasts for a 2017 EBIT margin of 6.2 percent, according to Thomson Reuters SmartEstimates, sending Zalando shares down 2.7 percent to 36.75 euros by 1028 GMT, the biggest drop among European retail stocks .SXRP.

Zalando said it expected to invest 200 million euros ($211 million) in 2017, up from 182 million in 2016, primarily in infrastructure, increased automation and software, with new warehouses planned in France, Sweden and Poland.

It plans to add 2,000 jobs in 2017 to its 12,000-strong workforce, having already added 1,000 positions to its tech team in 2016.

British rival ASOS (ASOS.L) in January lifted its expectations for sales growth to 25-30 percent for its financial year to Aug. 31, saying it would accelerate infrastructure investment, while adding 1,500 jobs at its London headquarters.

Zalando, which reported preliminary fourth-quarter results in January, said that sales in the period rose 26 percent to 1.09 billion euros. It said that adjusted EBIT came in at 96 million euros, ahead of average analyst forecasts.

Editing by David Goodman

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