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The company, which is listed on the DAX, has therefore reduced its annual targets and expects, at best, a small increase in sales in 2022. By the first quarter, Berliners had already felt the effects of the return of retail. stationary after the corona pandemic, deteriorating consumer sentiment and rising costs. The environment further deteriorated in the second quarter of the year and consumer sentiment declined, according to a prime time statement on Thursday. The shares fell in after-hour trading.
For gross volume of goods (GMV), management now expects an increase from 3 to 7 percent to € 14.8-15.3 billion in 2022. So far it has been targeting growth of up to 23%. Against this backdrop, sales are expected to increase by only three percent to € 10.7 billion at best, Zalando announced. However, revenues could also stagnate at € 10.4 billion after the board of directors predicted growth of up to 19 percent in early May.
Earnings before interest and taxes (EBIT), adjusted for special effects, should now be between 180 and 260 million euros in 2022, after the previous 430-510 million euros. And this despite the fact that the company now wants to significantly reduce investments compared to the original plan.
It is not the reduction in annual targets that is surprising, but the magnitude, wrote Canadian RBC bank analyst Sherri Malek in a first reaction. Overall, after the pandemic, the sector needs to find a better balance between growth and profitability. Therefore, Zalando will likely have to scale back its growth ambitions. Thanks to its leading roles in Europe and the platform’s strategy, the group still has what it takes to grow faster than the industry.
For analyst Georgina Johanan of US bank JPMorgan, only the magnitude of the target reduction is surprising. You also see the risk that Zalando may have to retrace his steps later in the year. The company points out that the adjusted forecast assumes “an acceleration of growth and a significant improvement in profitability in the second half of 2022”.
This must be achieved by adapting the offer to changing customer demands. The company also wants to save. The first measures to this effect have already been implemented in the second quarter. These included reducing marketing investments, adjusting investments in logistics infrastructure to increase capacity utilization, and introducing a minimum order value in 15 additional stores.
However, according to Zalando, things went worse in the second quarter than analysts expected. They expected GMW growth of 5%, sales increase of 1.5% and operating income of 104 million euros. “The second quarter is profitable, but weaker than expected,” Zalando said. Zalando will publish the results on August 4, 2022.
Zalando did not specify whether the term “profitable” refers to the operating result or the net result. Zalando had already had to deal with a deficit of 61 million euros in the first quarter of the year. Customers have opted for high-end products or have moved from the mid-price segment to cheaper entry-level products. There have also been disruptions in the supply chain and higher advertising costs to attract customers.
The Zalando title falls, recovery possible over time
After online fashion retailer Zalando slashed its annual sales and profit targets, the shares came under considerable pressure during pre-market trading on Friday morning. On Tradegate, they lost around 11% to EUR 22.70 and fell to their lowest level since the beginning of 2019. They subsequently fell 3.35% to EUR 22.49. According to stockbrokers, this could also drive down the prices of competitors like ASOS and boohoo.com.
Analysts subsequently reduced their price targets for the stock one after another, but most of them were still well above the current price level with their new price targets. Bank of America alone has identified further strong downside potential for the stock with a lowered price target of just € 18.
From the record of just under € 106 in July 2021, the price of Zalando shares has already fallen by almost 80%. At the current level of Tradegate, the stock is also approaching the issue price of EUR 21.50 at the IPO in autumn 2014.
“A profit warning and weak second quarter were expected, but this is even worse than feared,” noted one trader. However, the price may recover over the course of trading. Because short sellers, who would have bet on falling prices, could close these positions before the weekend and take profits.
FRANKFURT (Dow Jones) / BERLIN (dpa-AFX) / FRANKFURT (dpa-AFX Broker)
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