Morningstar | We Are Reducing Our FVE to EUR 37.50 per Share After No-Moat Zalando Issues a Profit Warning. See Updated Analyst Note from 18 Sep 2018
We are reducing our fair value estimate for Zalando to EUR 37.50 per share from EUR 39 after the company issued a profit warning. After a 16% drop in price at the time of writing, shares are trading at a slight discount to our fair value estimate, in 3-star territory.We reduce our full-year revenue growth expectations from 22.6% to 19.8% and adjusted operating income to EUR 155 million from EUR 230 million. We still expect a growth rate of around 20% over the next five years, as the company develops logistics capacities and onboards new brands and product ranges, helped by the broader shift of consumer buying towards online channels. We slightly reduce our margin expectations over the long term to account for worsening unit economics as consumers flock to cheaper fast-fashion items.
The profit warning was prompted by continued high temperatures across Europe that led to purchases of less expensive summer items versus full-priced, more expensive autumn ranges. Increased purchases of discounted goods have likely led to gross margin deterioration and poor fulfilment cost absorption (higher delivery costs as a percentage of purchase price). Hence, revenue is now expected at the lower end of the previous guidance of 20%-25%, while adjusted EBIT guidance came in significantly lower, at EUR 150 million-EUR 190 million, versus the previous target of EUR 220 million-EUR 270 million. We view this weakness as temporary.
Zalando is an e-commerce group based in Germany. Co. is engaged in the online retailing of clothing, shoes and accessories for women, men and children. Co.'s product offering include more than 1,500 brands, including global and local brands, as well as private labels, including shoes, clothing and accessores as well as sportswear and homeware designed especially for the Co. The Co.'s product offering is complimented by the Zalando Lounge and Zalon apps, which provides registered members special offers at discounted prices. Co. also provides a combination of services that include free delivery and returns.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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