Zozo Earnings: Maintaining Cost-Control and Focus on Shareholders’ Returns; Shares Fairly Valued

Zozo’s March-quarter results were largely in line with our expectations. Although gross merchandise value, or GMV, growth in the Zozotown business was lower than expected, the shortfall was mainly offset by higher-than-expected GMV growth in Line Yahoo Commerce (previously Yahoo Shopping). As well, tighter cost control helped Zozo achieve its full-year operating income guidance of JPY 60 billion. For the new fiscal year (ending March 2025), management guided for GMV growth of 7% for consignment sales and an operating margin of 11.2%. We previously forecast GMV growth of 8% and operating margin of 10.8%, assuming that the company would increase promotional spending to boost GMV growth. We believe that the company’s guidance indicates a more disciplined spending policy. Accordingly, we trimmed GMV growth assumptions for the next five years but kept operating margins at around 11% through the midterm, thus maintaining our fair value estimate of JPY 3,400. We think shares are currently fairly valued. We are changing Zozo’s Uncertainty Rating to Medium, from High previously, as we think the company’s strong foothold in the apparel e-commerce market, as well as cost discipline, should help maintain stable profitability for the next 5 to 10 years.