HelloFresh faces earnings setback

Stocks in the food delivery firm HelloFresh have fallen by over 40% after it warned its profits would drop below anticipations.

Earnings Forecast Revised Downward

German meal-kit provider HelloFresh announced a downward revision in its earnings forecast for the year, expecting earnings between €350m (£298m) and €400m (£341m). 

This figure is significantly lower than the previous analyst estimate of €568m (£484m), signaling challenges for the company in the current operating environment.

Scrapping Revenue and Profit Targets

In addition to revising its earnings forecast, HelloFresh also decided to scrap its revenue and profit targets for the next year. 

The decision was prompted by higher costs associated with the development of its “ready-to-eat” business segment, indicating potential difficulties ahead for the company.

Spam Email Fine Impact

HelloFresh’s warning about its revenues comes in the wake of a fine it received for sending millions of spam emails and texts to customers. 

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The company was fined £140,000 following an investigation by the UK’s Information Commissioner’s Office in 2022. This regulatory action could have contributed to the company’s challenges in maintaining customer trust and loyalty.

Pandemic Boom Fades

Like many meal-kit providers, HelloFresh experienced a surge in business during the height of the COVID-19 pandemic. However, as restrictions eased and the cost of living rose, customer numbers declined. 

The company’s subscriber base dropped to 7.1 million, down from over 8.5 million in 2022, reflecting changing consumer behavior in response to evolving economic conditions.

Reevaluation of Business Plan

Given the shifting landscape, HelloFresh announced a reevaluation of its business plan. It now appears unlikely to achieve its previously announced mid-term revenue target of €10bn by 2025 due to the challenging operating environment. 

This setback underscores the need for the company to adapt its strategies to navigate current market conditions effectively.

Investor Sentiment

HelloFresh’s struggles have impacted investor sentiment, with shares trading significantly lower than their peak during the pandemic. 

Investment bank JP Morgan noted a lack of reliability in HelloFresh’s guidance, leading investors to be cautious about the company’s prospects until it demonstrates improved results.

Industry Challenges

HelloFresh’s challenges reflect broader difficulties faced by the meal-kit industry, as evidenced by rival Gousto’s recent valuation cut. 

Gousto slashed its valuation and offered discounted shares to investors, indicating similar struggles across the sector. 

These developments highlight the need for meal-kit providers to innovate and adapt to evolving consumer preferences and market dynamics.