Zalando margins at risk from brands pushing up retail prices, says City broker

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Zalando has reiterated full-year guidance in its latest update, however recent growth has been achieved at the cost of lower gross margins and higher marketing spend.


Trading in the fourth quarter has started well and the company is well stocked for fall/winter 2021, but management noted that brands are suggesting high single-digit to double-digit increases in recommended retail prices for spring/summer 2022 collections.


Combined with high consumer price index, this could lead to slower volume growth next year, particularly in the first half said analysts at Liberum.


“Add in some delays and cancellations for spring/summer 2022, gross margin could come under pressure if sales growth were to be maintained,” they commented.


“We believe Zalando, helped by its Partner Program, should continue to be in a better position than the rest of the market on stock availability and forecast revenue growth of around 20% in financial year 2022, in line with the company’s medium-term targets. But we lower our underlying earnings (EBIT) margin expectations further towards the bottom of the 3-6% medium-term range, leading to a 9% cut on EPS.”


The City broker has a ‘buy’ rating on the stock, though it cut the target price to EUR90 from EUR100.


Analysts at Deutsche Bank, which also holds a ‘buy’ recommendation but with a higher target price of EUR120, said that the retailer reiterating guidance was “a relief”.


Gross merchandise value (GMV) for the full year is forecast at EUR14-14.6bn, so now Zalando needs to generate GMV of EUR4.3bn in the fourth quarter. The German bank said it is “feasible given upcoming events such as Cyber Week”.

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