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Online fashion retailer Zalando braced for supply squeeze

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FILE PHOTO: The logo of fashion retailer Zalando is pictured at the new headquarters in Berlin
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By Emma Thomasson

BERLIN (Reuters) -German online fashion retailer Zalando reported a slump in quarterly profit on Wednesday after it cut prices to keep customers shopping online as stores reopened, but said it was well positioned to cope with a supply crunch.

With many fashion brands hit by the closure of Asian factories due to coronavirus lockdowns, finance chief David Schroeder said Zalando was well stocked for the next few months, with inventories up 41% compared to last year.

However, Schroeder said the company could see delays to deliveries of items for next spring/summer, not just for sneakers, with the sportswear industry particularly hurt by factory closures in Vietnam.

"Would we want to have even more stock, especially in the sneaker category? Yes," Schroeder said. "But thanks to our platform model, we think we will find better answers to these challenges than many of our competitors in the industry."

Zalando shares were down 2.3% at 0935 GMT.

Founded in Berlin in 2008, Zalando has grown rapidly to become Europe's biggest fashion e-commerce player, selling clothes, shoes and cosmetics from 4,500 leading brands in 23 countries on its platform.

"The inventory position is reassuring ahead of peak (season)," Credit Suisse analysts wrote in a note.

British rival ASOS, which sells far more of its own-label goods than Zalando, warned last month that supply chain pressures and consumers returning to pre-pandemic behaviour could reduce 2022 profit by over 40%.

Zalando said there was a "fierce promotional environment" in many European markets as reopened stores offered deals to shift stock, adding that unusually warm weather in September had increased sales of discounted spring/summer fashion.

However, as temperatures dropped in October, it saw demand recover for full-priced fall/winter wear.

"We are off to a very good start to Q4," Schroeder said.

Third-quarter adjusted operating profit fell to 9.8 million euros ($11.35 million) from 118 million a year ago, while sales rose 23% to 2.3 billion euros, slightly ahead of analysts' average estimate of 2.24 billion.

British clothing retailer Next beat forecasts on Wednesday with a 17% rise in third-quarter full-price sales compared with 2019.

Zalando said its operating profit was in line with the number it posted in the third quarter of 2019, before the pandemic helped the company post exceptional results.

Zalando spent more on marketing on the period, also due to its recent launch in six new markets in eastern Europe.

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

It also reiterated a target for gross merchandise volume (GMV) - sales on its site made by the company or its partners - to exceed 30 billion euros by 2025, almost triple the 10.7 billion euros in 2020.

($1 = 0.8636 euros)

(Additional reporting by Elizaveta Gladun in Gdansk; Editing by Riham Alkousaa and Ramakrishnan M. and Louise Heavens)

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