Zozo Earnings: Improvement in Efficiencies Should Offset Cost Pressures; Maintaining Our Fair Value

Zozo’s December-quarter 2023 total gross merchandise value year-on-year growth of 8.4% was commendable during a particularly difficult period due to a mild winter in Japan. Operating income of JPY 16.8 billion largely met our expectations, excluding one-off expenses of about JPY 1 billion for its new distribution center. We retain our view that Zozo should be able to meet its operating income guidance of JPY 60 billion for fiscal 2024. From 2025 onward, although shipping fee hikes and rental expenses for a new logistics center may pressure near-term margins, we believe that the company should be able to absorb cost increases gradually by improving operating efficiencies and passing on partial cost increases to brands and consumers. Therefore, we broadly maintain our midterm forecasts and maintain our fair value estimate of JPY 3,400. The stock is currently fairly valued.