On Friday, Deutsche Bank (ETR:DBKGn) increased its price target for Zalando SE (ZAL:GR) (OTC: ZLNDY) shares to EUR40.00, up from EUR36.00, while maintaining a Buy rating on the stock. The adjustment follows Zalando's announcement of robust trading during the third quarter and an upward revision of its full-year EBIT (earnings before interest and taxes) guidance.
Zalando, an online fashion retailer, recently released preliminary figures for its third quarter, leading to an improved financial outlook for the year. The company now expects its full-year EBIT to range between EUR440 million and EUR480 million, with the midpoint at EUR460 million, suggesting a roughly 2% increase from the consensus estimate of EUR448 million. The third-quarter EBIT of EUR93 million exceeded expectations by approximately EUR50 million, prompting Deutsche Bank to revise its full-year EBIT forecast upward by EUR25 million to EUR475 million.
The company's third-quarter performance highlighted a significant gap between sales growth, which was at 5%, and Gross Merchandise Volume (GMV) growth, at 7.8%. This discrepancy was attributed to the stronger demand being met through Zalando's partner program amid a shortage of wholesale inventory, a factor that likely contributed to the recovery of gross margins.
Despite the approximately 6% increase in the forecast for the fiscal year 2024 EBIT, Deutsche Bank has only slightly adjusted its fiscal year 2025 earnings estimate, by 0.5%. This conservative revision for the subsequent year takes into account anticipated higher marketing expenses and the absorption of new logistics costs.
In other recent news, UBS has revised its price target for Zalando SE, raising it from EUR26.00 to EUR27.50 while maintaining a neutral rating on the stock. This change follows a significant 30% increase in Zalando's share value over the past month. Investors seem to anticipate a substantial third-quarter earnings before interest and taxes (EBIT) beat, surpassing consensus estimates, and a potential upward adjustment to Zalando's full-year 2024 EBIT guidance of €450 million.
Zalando's robust September performance is attributed to increased engagement on its app, positive industry data from Textilwirtschaft, and strong current trading reports from H&M. However, UBS is awaiting October data to fully evaluate the growth trajectory, excluding any unseasonal weather effects.
The conversation among investors is predicted to shift towards Zalando's growth prospects for FY2025. Consensus estimates forecast a 7% increase in Gross Merchandise Volume (GMV) and a 6% rise in revenue. Despite Zalando's position as Europe's largest fashion platform with top-tier logistics, UBS remains cautious due to the lack of a clear mid-term recovery in business-to-consumer (B2C) app and web metrics.
UBS suggests that if Zalando does not provide reassurance concerning B2C recovery in the forthcoming October data, leading to positive revisions for fourth-quarter and full-year 2025 estimates, the stock may give up some of its recent gains.
InvestingPro Insights
Zalando's recent performance and Deutsche Bank's upgraded price target are further supported by real-time data from InvestingPro. The company's market capitalization stands at $8.39 billion, reflecting its significant presence in the online fashion retail space. Zalando's P/E ratio of 51.23 indicates that investors are willing to pay a premium for its shares, possibly due to growth expectations.
InvestingPro Tips highlight that Zalando holds more cash than debt on its balance sheet, which aligns with the company's ability to invest in growth initiatives and navigate market uncertainties. Additionally, net income is expected to grow this year, supporting Deutsche Bank's optimistic outlook.
The company's strong recent performance is evident in its impressive stock returns, with a 39.44% price increase over the last month and a 27.83% gain over the past three months. These figures corroborate the positive sentiment expressed in Deutsche Bank's analysis.
For readers seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Zalando, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.