- Online fashion platform downgrades estimates as macro picture deteriorates
- Second quarter trading proved weaker than expected
- Broker sees negative read-across for ASOS, Boohoo
Shares in Zalando (ZAL:ETR) plunged 13% to €22.19 after the German online fashion platform posted a monster profit warning following a much weaker than expected second quarter.
Sales and earnings came in well below analysts’ estimates with cash-strapped shoppers cutting spending on non-essential clothing amid rising inflation and growing recession risks.
MONSTER DOWNGRADE
The online shoes, fashion and beauty retailer has lowered its full year 2022 guidance as macroeconomic conditions are deteriorating and the company ‘no longer assumes a rebound of consumer confidence in the short term’.
Zalando is now guiding towards flat to 3% revenue growth to between €10.4 billion and €10.7 billion this year, well below prior guidance for growth of 12% to 19% and consensus of €11.45 billion.
Annual adjusted earnings before interest and tax (EBIT) is now seen at between €180 million to €260 million, a massive downgrade from earlier guidance of €430 million to €510 million and the €333.2 million the market had been looking for.
Zalando’s Co-CEO Robert Gentz explained: ‘While this new environment is creating a negative impact on our financial performance, our strategy and long term goals are unchanged. Our vision remains to be the starting point for fashion in Europe.’
Gentz insisted: ‘There are many untapped opportunities in the fashion market that we can capture and are committed to change the industry for the better. By driving efficiencies across the company and selectively investing through-cycle, we will be even better positioned long-term to execute against our strategy. We are embracing the challenges and adapting to emerge stronger.’
NEGATIVE READ-ACROSS
Shore Capital highlighted a negative read-across for ASOS (ASC) and Boohoo (BOO:AIM), Zalando’s UK fast fashion rivals whose shares have slumped amid a cycle of downgrades.
ASOS recently delivered yet another profit warning while Boohoo reported a weak start to its 2023 financial year with news of its first-ever sales decline in the UK market.
With only two months to go until ASOS’ August year-end and considering ‘the magnitude of Zalando’s downgrade after only two months’, Shore Capital thinks ASOS’ full year 2022 adjusted pre-tax profit could be ‘towards the lower end’ of the £20 million to £60 million guided range.
And while Boohoo’s first quarter trading update was in line with expectations, with full year guidance reiterated, the analysts are less optimistic about Boohoo’s near-term earnings prospects than the market with their full year 2023 EBITDA forecast pitched some 15% below the £113 million implied by the mid-point of guidance.