After forecast change: Zalando share collapses

Status: 06/24/2022 10:53 a.m

The recent forecast cut has triggered a sell-off at Zalando. The shares of the online fashion retailer at times slipped below their issue price at the IPO eight years ago.

After slashing annual targets at the online fashion retailer Zalando, the DAX company’s shares have come under severe pressure. The paper fell in the morning by up to 18 percent to 20.94 euros and thus below its issue price of 21.50 euros at the IPO in 2014. Most recently, the minus was around 11.5 percent.

Zalando fears a prolonged slump in demand due to the recent clouded economic prospects. As a result, the company, which was still one of the big winners during the corona pandemic, is now cutting its annual targets and expects, at best, small sales growth in 2022.

Outlook worse than feared

The times when the online fashion retailer was able to convince with double-digit growth rates seem to be over for the time being. High inflation, fears of recession and a gloomy mood among many consumers are currently causing the DAX group to be in the doldrums. Zalando now wants to put the brakes on costs.

While analysts weren’t surprised by the drop, they were surprised by the extent of it. A retailer said Zalando’s new outlook is much worse than feared. Similarly, analysts at JPMorgan said the magnitude of the forecast cut was larger than expected and said they could not yet recommend entering the sector despite the sell-off.

In the first quarter, Zalando had already felt the effects of the return of brick-and-mortar retail after the lifting of the corona restrictions, deteriorating consumer sentiment and rising costs. The environment deteriorated further in the second quarter and consumer sentiment fell, according to a statement from yesterday evening.

Stock market value shrunk from 28 billion to six billion euros

The steep downward trend in the Zalando share is thus continuing. The Corona course boom had been history for a while. During the peak phase of the pandemic, Zalando had long benefited from the flourishing online trade. In the summer of last year, the price reached a record high of EUR 105.90, which means that the company was worth almost EUR 28 billion at the time. It is now just under six billion euros.

The company is struggling with customers’ declining desire to buy. Last night, Zalando announced that in the best-case scenario, sales in 2022 should only increase by three percent to 10.7 billion euros. However, the proceeds could also stagnate at 10.4 billion euros after the board of directors had assumed growth of up to 19 percent at the beginning of May. At that time, the Management Board had already adjusted the forecast to the lower end of the original outlook.

The current challenges could now last longer and be more intense than expected, it said. Zalando also massively cut the earnings forecast. Earnings before interest and taxes (EBIT), adjusted for special effects, are likely to fall to between 180 and 260 million euros in 2022 – after 468.4 million euros in the previous year. So far, management had set a goal for this year at the lower end of the range of 430 million to 510 million euros.

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