Shares in Zalando tumbled by nearly a fifth on Friday after Europe’s largest online fashion retailer cut its outlook for the year as consumers cut back on spending amid deepening recession fears.
The Berlin-based company warned that revenue may not increase at all this year after the second quarter fell well short of expectations, an abrupt reversal from just four months ago. Zalando An increase of 12% to 19% is expected.
In a dismal warning issued after the market closed on Thursday, Zalando said that “management now expects macroeconomic challenges to be more protracted and more intense than previously anticipated.” The group added that its “rebound in consumer confidence in the near-term” is the result of Hope has been dashed.
Zalando has been one of the beneficiaries of the pandemic forcing more shoppers online over the past two years, and Zalando’s admission is one of the clearest signs of damage to date higher inflation are attracting consumers.
While Zalando is still on track to be profitable, its woes stand in stark contrast to the benign backdrop it has enjoyed since it went public in Frankfurt in 2014.
Since listing in Frankfurt, Zalando has boasted a 25 percent increase in annual revenue. Last year, its revenue soared 30%, fueled by the pandemic.
However, even before Thursday’s warning, Zalando’s shares were under pressure, making it the worst-performing member of Germany’s Dax 40 blue-chip index, as investors anticipated that shopping habits during the pandemic may not last.
Friday’s drop took the group’s shares below its 2014 IPO price of 21.50 euros. After peaking at 26.4 billion euros in July 2021, its market capitalization has fallen to around 6 billion euros. The stock fell as much as 17% to 21.10 euros on Friday before recovering, falling 15%.
The bleak outlook for Zalando has also hit shares of U.K.-listed fashion retailers Asos and Boohoo, which have been hit by a return to pre-pandemic shopping habits, rising costs and consumer pressure.
In early London trade, Asos shares fell 4.5% and Boohoo shares fell 3.6%. Like Zalando, these companies have had to contend with more competition, especially Shein from China.
Zalando expects an operating profit of just 180 million euros to 260 million euros this year, well below its forecast earlier this year. However, the company said the forecast was based on a “significant improvement in profitability in the second half of 2022,” adding that it had embarked on a cost-cutting program. In the second quarter, it lowered marketing spending, cut infrastructure investment and introduced minimum order volumes in 15 countries.
According to Deutsche Bank analysts, the company’s new guidance means its full-year earnings will be about 90% lower than previously expected.
Analysts remain bullish on Zalando over the long term, warning investors not to “throw away the baby with the bathwater” because Zalando is “a quality asset with realistic earnings expectations and a cheap valuation.”
“While this new environment has negatively impacted our financial performance, our strategy and long-term goals have not changed,” said the co-CEOs Robert Gentz.
Jonathan Eley in London