by Florian Hielscher, Euro on Sunday
The old advertising slogan “Scream with happiness” is currently out of the question at Zalando. The operator of the online platform for fashion and lifestyle is feeling the effects of the market environment. The Berliners have just lowered their annual forecast significantly. The company cites deteriorating macroeconomic conditions in the second quarter and lower consumer confidence in the EU as the reason. Although the challenges were taken into account in the outlook published at the beginning of May, the Berliners believe that these will last longer and be more intense than initially expected.
Zalando had previously forecast sales growth of twelve to 19 percent for the 2022 financial year. In terms of sales, the company expects growth of three percent at the top end, and zero growth at the bottom end. The previously expected operating result (EBIT) of 430 to 510 million euros is also a thing of the past, Zalando has now reduced its expectation to 180 to 260 million. In view of the tightened market conditions, the company also wants to turn the screw on costs. Instead of 400 to 500 million euros, investments of 350 to 400 million euros are now planned.
No surprise
The stock initially slipped significantly into the red, but quickly recovered. One reason might be that the lowering of the forecast came as no surprise. After weaker figures for the first quarter, Zalando had already pointed out the ongoing uncertainties such as inflation, disrupted supply chains and subdued consumer sentiment. In the case of financial key figures such as gross merchandise volume (GMV), sales and EBIT, however, the lower end of the range was still the target.
Accordingly, analysts were by no means shocked. Although the warning was expected, the extent surprised negatively, such as Georgina Johanan from the US bank JP Morgan. Some analysts lowered their price targets, Johanan cut from 55 to 32 euros. Nevertheless, the majority of analysts surveyed by Bloomberg currently recommend buying. Adam Cochrane from Deutsche Bank sees the forecast adjustment as a necessary step. Zalando’s goals are now realistic and investors can adapt to them. Cochrane considers the stock to be cheap, its reduced price target: 42 euros.
No bargain yet
Since the beginning of the year, the share has lost around two-thirds in value. After the special boom caused by Corona, is it now valued fairly or even a bargain? A look at the price performance shows that the share is even listed well below the pre-pandemic level. Zalando has significantly expanded its business during this time. Based on the consensus of the analysts surveyed by Bloomberg, Zalando’s stock is still trading at a price-to-earnings ratio of over 50 for 2022. It is expected to drop significantly in the years to come. It remains questionable whether analysts will maintain their earnings estimates after the lowered forecast. Zalando will present figures for the second quarter on August 4th.
Daring: The adjusted forecast creates clarity. Possibly there is potential for positive surprises. For the brave.
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