This online retailer found new customers during the pandemic. Sephora could help her keep them.
Zalando’s logistics and fulfillment center in Erfurt, Germany. The online-only fashion retailer could see its inventory rebound in the new year.
Alex Kraus / Bloomberg
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The largest online-only fashion retailer in Europe
Zalando
has had a rough year as shoppers returned to physical stores after the pandemic lockdown restrictions eased.
The Berlin-based e-commerce player primarily sells clothing, beauty products and footwear from third-party vendors to customers in 23 countries. He also makes some of his own branded items.
Zalando (ticker: ZAL.Germany) has seen its shares fall 23%, to 69.96 euros ($ 78), in the past 12 months. It increased its marketing cost ratio by 4.6 percentage points to 9.8% in the second quarter to gain new customers and retain those who discovered it during the pandemic.
In November, Zalando reduced prices for the same reasons. Adjusted third-quarter profit before interest and tax, or EBIT, fell to 9.8 million euros, from 118 million euros in the same period a year earlier. Things are looking up, however, with Zalando saying the fourth quarter has started off strong and has been supported by a cold snap that has resulted in full-price winter clothing sales.
There are other growth catalysts that could see the stock rebound. Its scale is critical: it has 46 million active consumers, making it an attractive platform for brands to showcase their products. The company also manages payment processing, fulfillment, and customer service through its Zalando Partner Program, helping its partners save money.
Deutsche Bank analyst Adam Cochrane estimates the stock could jump 71.5% to ⬠120 as Zalando’s scale helps it stay relevant with major global brands. He says the company is able to meet its goals of gaining around 10% market share for European clothing and increasing profit margins in the long run.
“The valuation has fallen from its recent highs, but still deserves a justifiable premium over the European peer group,” he wrote in a client note. âWe think the shift to a platform model where it acts as a market for retailers hoping to get the reach that Zalando brings to the table⦠is the right one. “
Another driver of growth is the potential for expansion through partnerships. Sephora, the cosmetics retailer owned by
LVMH Moët Hennessy Louis Vuitton
(MC.France), said in June that it had agreed to sell high-end beauty products on Zalando’s platform.
Sherri Malek, analyst at RBC Capital Markets, has a price target of ⬠115 on the share and estimates adjusted profit could reach ⬠641.9 million by 2023 compared to ⬠420.7 million in 2020 headwinds create an opportunity to buy into a long-term, high-quality growth story at a more attractive price, âshe wrote in a note.
Founded in 2008, Zalando has a market value of 18 billion euros and employs around 16,000 people. It hits a significant multiple of 64.3 times this year’s expected earnings and is valued at a 10% premium over its peers. For 2020, Zalando recorded a current result of 421 million euros, compared to 225 million euros the previous year. The turnover amounted to 8 billion euros in 2020, against 6.5 billion euros.
Zalando has tried to differentiate himself from other fashion peers on sustainability initiatives. The company aims to reduce its total carbon footprint by 80% by 2025, according to RBC’s Malek.
In the third quarter, the current result amounted to 9.8 million euros for a turnover of 2.3 billion euros. Last month, the company said revenue for 2021 is expected to increase 26% to 31%, reaching ⬠10.1 billion to ⬠10.5 billion.
Co-CEO Robert Gentz ââsaid Barron in a statement that “we look with confidence to 2022, with several strategic initiatives underway that will excite customers and partners and advance our sustainability agenda.”