Zozo Earnings: Plans to Improve Shareholder Returns Amid Slowing GMV Growth

For Zozo's fiscal 2023, as we expect domestic inflation and the reopening of physical stores to dampen apparel e-commerce sales, we lower our gross merchandise value, or GMV, growth forecasts to 5.6%, below the firm's guidance of 6.7%. We also lower our long-term outlook, based on a more conservative view of GMV growth as Zozo enters a more mature business stage. However, our fair value estimate for Zozo remains unchanged at JPY 3,400 after incorporating the impact of the new shareholder return policy, which aims to maintain a total payout ratio above 80% over the medium to long term. Specifically, for this fiscal year, Zozo will 1) raise the dividend payout ratio to 70% from 50% previously; 2) repurchase up to JPY 10 billion of its own shares; and 3) cancel 11.2 million treasury shares. Although Zozo’s share price reacted positively the next day after the earnings, we believe the stock is undervalued as the market is too concerned about the slowdown in GMV growth and overlooks Zozo’s solid dividend growth underpinned by its strong cash generation. We believe Zozo’s dividend yield of over 3% should be attractive to investors.