Zalando says profits hit by generous customer payment terms

* Q2 operating margin 3-5 pct vs 6.4 pct year-ago

* Q2 EBIT 22-37 mln euro vs 35 mln year-ago

* Full quarterly results due on Aug. 13

* Says has ended riskier customer payment terms (Adds quote, share reaction)

BERLIN, July 21 (Reuters) - Europe's largest dedicated online fashion retailer Zalando (Berlin: ZAL.BE - news) said profitability in the second quarter suffered because the group temporarily offered more generous payment terms to customers which resulted in a higher rate of defaults.

Zalando, which listed in Frankfurt last October, was founded in 2008 and ships to 15 countries. It expects to have about 10,000 staff by the end of 2015, up from about 8,000 now.

"Over a few months we granted more generous payment terms to a wider range of customers, but that went wrong, so we have stopped it," a spokesman said with regard to the lower profitability in the second quarter.

Zalando's operating margin fell to within 3-5 percent from 6.4 percent a year earlier. Its earnings before interest and tax (EBIT) fell to between 22 million euros ($23.83 million) and 37 million euros, the company said in preliminary second quarter results on Tuesday. The Berlin-based company reported EBIT of 35 million euros in the April-June period last year.

Sales growth remained on track as revenues in the period jumped 33-35 percent to between 727 million euros and 738 million euros, compared with 546 million in 2014.

Final quarterly results will be released on Aug. 13, along with a possible adjustment of full-year forecasts, the Berlin-based company said.

Zalando has outperformed European sector rivals with a share price rise of almost a third so far this year.

The stock, which listed at 21.5 euros, fell three percent to 32.4 euros at 1019 GMT on Tuesday, underperforming a flat market.

In May the retailer lifted its full-year target for an adjusted operating margin to 4.5 percent and said that it expects sales to rise at the top end or slightly above an earlier predicted corridor of 20-25 percent.

Earlier this month, British rival ASOS (LSE: ASC.L - news) forecast full-year sales at the higher end of its 15-20 percent growth range and a pretax profit of 47 million pounds, up from 45 million previously.

($1 = 0.9233 euros) (Reporting by Andreas Cremer and Kirsti Knolle; Editing by Ken (Shenzhen: 300126.SZ - news) Wills and Elaine Hardcastle)