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The company, which is listed on the DAX, has therefore now lowered its annual targets and expects at most a modest increase in sales in 2022. Already in the first quarter, Berliners felt the effects of the return of stationary retail after the koruna pandemic, worsening consumer sentiment and rising costs. The environment deteriorated further in the second quarter of the year and consumption sentiment declined, according to the communiqué at the beginning of Thursday evening. Shares fell in after-hours trading.
For gross goods volume (GMV), management now expects an increase of 3 to 7 percent to 14.8 to 15.3 billion euros in 2022. So far, it has been targeted at growth of up to 23 percent. In this context, sales should at best only increase by three percent to 10.7 billion euros, Zalando announced. However, revenues may also remain stagnant at € 10.4bn after the management assumed an increase to 19 percent in early May.
Earnings before interest and taxes (EBIT), adjusted for special effects, should now be between EUR 180 million and EUR 260 million in 2022, after previously estimated EUR 430 million and EUR 510 million. And this despite the fact that the company now wants to significantly reduce investment compared to the original plan.
This reduction in annual targets is not surprising, but the scope, analyst Sherri Malek of Canadian RBC bank wrote in a first reaction. Overall, after a pandemic, the industry needs to find a better balance between growth and profitability. Therefore, Zalando will probably have to limit its development ambitions. Thanks to its leading roles in Europe and the platform’s strategy, the group still has everything it takes to grow faster than the sector.
For the analyst Georgina Johanan from the American bank JPMorgan, the only surprising thing is the scope of the target reduction. He even sees the risk that Zalando will have to go back even further in the course of the year. The company emphasizes that the revised forecast assumes “an acceleration in growth and a significant improvement in profitability in the second half of 2022”.
This is to be achieved by adapting the offer to the changing needs of customers. The company also wants to save. The first steps for this purpose were implemented already in the second quarter. These included reducing marketing investments, adjusting logistics infrastructure investments to increase capacity utilization, and introducing a minimum order value in 15 additional stores.
Nevertheless, according to Zalando, the situation in the second quarter was worse than analysts expected. They expected GMW to grow 5 percent, sales increase 1.5 percent and an operating profit of EUR 104 million. “The second quarter is profitable but weaker than expected,” Zalando said. Zalando will publish the results on August 4, 2022.
Zalando has not made clear whether the “profit” relates to operating profit or net profit. Zalando has already dealt with a deficit of a good 61 million euros in the first quarter of this year. Customers either chose goods from a more expensive range or switched from the mid-price segment to cheaper, lower-end products. There have also been supply chain disruptions and higher advertising costs to attract customers.
Zalando’s share is declining – reconstruction possible over time
After the online clothing store Zalando cut its annual sales and earnings targets, stocks came under considerable pressure in pre-market trading on Friday morning. On Tradegate, they lost around eleven percent to € 22.70 and fell to their lowest level since early 2019. They then fell by 3.35 percent to 22.49 euros. According to marketers, it could also lower the prices of competitors like ASOS and boohoo.com.
Analysts then lowered their stock targets one by one, but most of them were still well above the current price level thanks to the new target prices. Bank of America itself has identified further strong downside potential for the paper with its price target lowered to just € 18.
From a record high of almost € 106 in July 2021, Zalando’s share price has already dropped almost 80 percent. At the current level on Tradegate, the share is also approaching the issue price of EUR 21.50 during the fall 2014 IPO.
“A profit warning and a weak second quarter were expected, but this is even worse than feared,” one trader noted. However, the price may recover as you trade. Because sellers who bet on falling prices could close these positions ahead of the weekend and take a profit.
FRANKFURT (Dow Jones) / BERLIN (dpa-AFX) / FRANKFURT (dpa-AFX broker)
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