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We have updated our estimates for the publication of the annual report. We make minor changes to our working capital assumptions but our PandL is unchanged. We do not consider the changes to be material; our rating is unchanged.
Inditex Industria de Diseno Textil, S.A.
Full year in-line, current trading ahead Q4 results were closely in line with consensus, while the new financial year has started strongly with sales ahead of expectations. The company has accelerated capex to support its growth ambitions, and this allayed concerns that the pace of expansion could be slowing. Whilst our FY Jan-25 forecasts are broadly unchanged, the greater visibility on selling space expansion lifts our DCF-derived valuation to EUR 44. On CY 24 P/E of 22.7x this looks reasonable and is supported by a strong balance sheet and 4% dividend yield. A strong start to the new season For the first c.6 weeks of the quarter (1 Feb-11 Mar) constant currency sales growth was +11%, excluding the calendar benefit of the leap year. Consensus for the whole of Q1 was c.+8%, so even allowing for slightly toughening comps in the final weeks of the quarter, this was a healthy beat. Growth agenda confirmed Inditex added 4.5% gross new space in 2023/4, and inside we review how the store portfolio has rapidly evolved in recent years. Today, management guided to higher capital expenditure, including a two-year distribution centre investment programme. This should support c.5%pa gross space growth and further underpin the omnichannel business model. Store sales growth last year of +7.9% from +2% net space expansion, on top of 16% online growth, demonstrates the health of the model. Adjusting estimates, maintain Neutral rating Following the Q4/FY results, our full year Jan-25 estimates are broadly unchanged, but our medium-term forecasts rise with the store expansion programme visibility. Our price target increases to EUR 44 (from EUR 39). This is based on Inditex being able to sustain long-term EBIT margins of c.20%, given its margin expansion last year. With the shares close to this target price, we maintain our Neutral rating. Inside we benchmark Inditex against HandM in a series of charts.
Another beat, momentum continues Q2 EBITDA beat consensus expectations by 1%, while EPS was 4% ahead, primarily thanks to lower DandA and tax charges. Current trading for the start of Q4 has remained strong, ahead of consensus expectations and a little faster than previous months. Our forecasts rise by c.5% and target price rises to EUR39, but we maintain our Neutral rating on valuation grounds. High fashion Q3 profit margins were close to Inditex''s record, boosted by strong gross margins (+150bps yoy vs consensus +70bps). Throughout this year Inditex has demonstrated that it has been able to surpass its pre-covid performance metrics. This is down to many factors but includes its store optimisation, integrated online model, increased velocity of collections and collaborations, and operating cost discipline. Inside, we explore some of these performance metrics in historical context. Start to Q4 - strong sales growth, raised gross margin guidance Constant currency sales growth during the first c.6 weeks of Q4 was +14% yoy. Our expectation was +10% yoy albeit investor expectations were probably in the low-teens. Inditex increased its full year gross margins guidance from +/-50bps to +75bps, implying Q4 gross margins c.+100bps. Management said this was driven by the execution of the business model (e.g. healthy full price sales), normalising supply chains and improved EUR/USD rates. Raising estimates, maintain Neutral rating Following the Q3 earnings beat we raise our full year estimates by c.5% and lift our price target to EUR39 (from EUR37.5). This is based on Inditex being able to sustain long term EBIT margins of c.20%. With the shares close to this target price, we maintain our Neutral rating.
Another beat Q2 EBITDA beat consensus expectations by 3%, while EPS was 8% ahead, primarily thanks to a beat in finance income. Current trading for the start of Q3 was ahead of consensus expectations, albeit underlying growth appeared to be a little slower than previous months. Our forecasts and target price edge up as a result, but we maintain our Neutral rating on valuation grounds. Setting new records Inditex set a new record for its Q2 profit margins, just like in Q1. Gross margins reached a decade-high in the first half. Another record that stood out to us is the planned opening of a 9,000m2 Zara/Zara Home store in Rotterdam Coolsingel. This will be Inditex''s world''s largest. With a current Zara average store size of 1,500m2, this is a reminder of the growth potential through further relocations and openings. Heading into H2 Current trading (1 August - 11 September) of +14% growth in constant currencies was ahead of our expectations (+12%) albeit implies a slowdown in growth compared with 2019. Peer HandM reports sales later this week which will provide greater context. Inside we show that inventories look well set-up for Autumn/Winter. Our (and consensus) estimates do not assume that margins continue to exceed previous pre-Covid highs, and this remains an upside risk to earnings. Raising estimates, maintain Neutral rating Following the Q2 earnings beat we raise our full year estimates by c.2% and lift our price target to EUR 37.5 (from EUR 37). Nevertheless, the strong performance of the shares this year means they are pushing up against our target price and we maintain our Neutral rating.
Inditex announced another solid half year result (1 February to 31 July 2023), above consensus and our expectations. The positive momentum has continued to be driven by Zara, and Massimo Dutti, Stradivarius and Oysho have also gained pace. The group sees sales maintaining strong momentum between 1 August and 11 September, and confirmed its guidance of a maintained stable gross margin for the year ahead.
Inditex posted another better-than-expected quarter despite the challenging consumer environment in the US and Europe. The best-in-class omnichannel development and extremely flexible supply chain enabled the group to maintain the industry-leading new launch rate and diversity of offerings, which continue to drive the top-line growth and profitability. The group sees sales in the online and offline channels maintaining strong momentum between May 1 and June 4, and confirmed its guidance of a maintained stable gross margin for the year ahead.
A big Q1 earnings beat Q1 EPS was 14% ahead of consensus expectations. The bigger surprise was that sales growth had accelerated even further compared with the start of the quarter. This strong exit rate has continued into Q2, making mid-single-digit full year consensus EPS upgrades likely. We raise our EPS by c.8% and our target price to EUR 36. In our view this remains a stock to own within the sector. Outperform. Strong trends in current trading Back in March, Inditex had disclosed February/March sales trends which were well ahead of expectations. Today, it reported sales growth which accelerated in March/April and also accelerated into Q2 during May and early June. This contrasted with market expectations which allowed for fading growth. The result was the highest Q1 profit margins the group has ever achieved. This strengthens our conviction that Inditex has moved to a new, higher level of profitability and return on capital. Prospects looking as good as ever Management''s strategy remains to increase the differentiation of its customer proposition compared with the competition. It continues to upgrade the quality and size of its store estate, more than a decade after it began the journey. Zara will begin to remove security tags by Autumn/Winter, replaced by RFID embedded in garment fibres, speeding up customer transactions and improving the experience. Meanwhile store growth is back on the agenda, with selective net openings in future years signalled by management. Still the stock to own in the sector After a record Q1 we raise our full year earnings estimates by c.8% and lift our price target to EUR 36 (from EUR 33). Our forecasts assume a fade in the stellar growth rate and also assumes that profit margins fade throughout the rest of the year, although history would tell us that full year margins are almost always higher than Q1 margins. In our view it remains a key stock to own in the sector, and we maintain our Outperform rating.
Inditex’s FY22 results were broadly in line with the consensus but above our expectations. The group maintained double-digit sales growth throughout the year despite the challenging trading environment, highlighting encouraging growth in the Americas. The unique business model enabled the group to maintain a stable margin and to better control inventory. Although we expect the uncertain macro environment in the US and Europe to result in a challenging year ahead, Inditex will continue to outperform the market.
Inditex published a reassuring set of 9-month results, increasing our confidence for the quarter ahead despite the softer market trends. The gross profit for the first nine month reached €13.5bn, reflecting a gross margin of 58.7%, ahead of our expectations. The group confirmed that sales between 1 Nov and 8 Dec increased by 12% vs. same period in 2021, indicating an encouraging start for Q4 22.
Q3 beats on sales and stocks unwinding Q3 results were c.2% ahead of consensus expectations and current trading trends were particularly positive. High inventory levels at the end of the quarter reflected a prudent early build-up of peak inventories, in case of supply-chain shocks, but as of 8 December stock levels had normalised. We continue to view Inditex as one of the most attractive stocks in the sector, raising our forecasts further and reiterating our outperform rating. Nice trends: no fade in growth Inditex, and particularly Zara, has outperformed its end markets this year. This shows no sign of slowing, with constant currency sales growth in November and early December +12% yoy. We estimate this implies sales c.+23% versus 2019, in line with H1 and Q3 trends. As we show overleaf, excluding online sales, we estimate that store sales are higher than 2019 levels despite the exit from Russia and Covid restrictions in China. 2023 outlook improving Management has not provided guidance for 2023 but made no cautionary comments about the year ahead. Indeed we think the fading of certain supply chain pressures (Dollar, raw material and freight) will benefit it sooner than rivals who have longer and more hedged supply chains. This could provide a relative pricing benefit or more margin support for Inditex in the year ahead. Reiterate Outperform Banking the Q3 beat and the strong current trading drives a 5% upgrade to our FY Jan-23 EPS forecast (EUR 1.41 before Russia exit costs or EUR 1.36 after these). We flow this into our outer year forecast, which also rises c.5% to EUR 1.37. Our DCF-driven target price of EUR 28 (EUR 27 previously) implies total shareholder return of c.20%. At this level the stock would trade on CY23 P/E 20.4x and EV/EBIT 14.7x, still a material discount to where HandM currently trades.
Q2 beats, current trading beats too Inditex beat Q2 earnings consensus by c.5%, closely in line with our own forecasts, and reported a very strong start to Autumn/Winter, with constant currency sales growth +11% versus low single-digit expectations. Even factoring in a sharp fading in performance, it means we again raise our forecasts at a time when we are cutting across the sector. We maintain a quality-bias to our ratings in the sector, and continue to rate Inditex Outperform. What''s driving such strong sales growth? The results are remarkable given the context of the macro backdrop as well as the apparel sector''s issues, which range from currency and inventory to Shein and ESG. As we show inside, the key areas of outperformance have been in the Americas, in the stores channel, and at the Zara brand. Outlook for H2 Inditex reported strong trading for the start to Q3 (1 Aug - 11 Sep) of +11% yoy and commented that this was driven by the Autumn/Winter season product rather than Spring/Summer clearance. Encouragingly the company expects to raise prices this season by no more than it did in Spring/Summer (mid-single-digits) to maintain the stability of the gross margins. We expect sales growth trends to fade as the macro deteriorates, but continue to expect Inditex to take market share and to exit the crisis in a stronger competitive position as well as with high EBIT margins (16%) and net cash of over EUR10bn. Raising above-consensus estimates, reiterate Outperform rating We are below consensus for most companies in our coverage universe, and cut sector forecasts further recently in What happens after the fall, 9 September. However, for Inditex we remain ahead of consensus, having raised forecasts by c.2% today. We expect quality stocks to outperform within the sector, and with high margins, a strong balance sheet, and attractive valuation, we continue to rate Inditex Outperform. We set out 15 Questions for Management inside.
Inditex released better-than-expected H1 22 figures, benefiting from its flexible business model and industry-leading online-offline integration. More importantly, the group said sales between 1 August and 11 September increased 11% vs. the same period last year and it maintained its expectation of keeping a stable gross margin (+/-50bp) for FY22. The group has accelerated inventory inflow to prepare for potential supply-chain tension and indicated further price hikes to offset cost inflation.
º Q2 sales beat CS expectations by 3% as trends remained robust throughout the quarter Minor GM miss more than offset by a c.7% beat at EBIT level Current still grows in double-digits between 1st Aug and 11th Sep (+11%)
Inditex has published its FY21 figures which miss consensus expectations. The re-imposed COVID-related restrictions in some markets during the year-end season have significantly affected the group’s top-line momentum and profitability in Q4 21. The group saw an encouraging start to the year with sales from 1 February to 13 March increased 33% yoy, which enhanced the group’s confidence to deliver a stable gross margin (56.6%-57.6%) for FY22 despite the uncertain trading environment.
The group has published its Q3 figures, with the top line in line with expectations and EBIT slightly below the consensus. The group confirmed that the positive trend in both online and offline continues. Benefiting from the group’s flexible supply chain and industry-leading online-offline integration, Inditex sees no concern over the inventory position for the year-end trading period.
Inditex has maintained its strong momentum since this spring. Total sales in Q2 21(May-July) were 7% higher than the same period in 2019 despite some ongoing pandemic impacts in Asia, beating consensus expectations. While the Swedish peer H&M released a trading performance for the three months to August that was below market expectations and still lower than the pre-pandemic level. As we expected, the flexible supply chain and industry-leading online-offline integrated model have continued to enable Inditex to expand its competitive advantage.
The group has released an encouraging start to the year, benefiting from its industry-leading online-offline integrated model. With vaccinations ramping-up and the gradual easing of social restrictions, sales between 1 May and 6 June more than doubled compared to Q1 20 and exceed the pre-pandemic level (+5% vs. Q1 19), which leads to a strong recovery trajectory. We believe the group’s flexible business model and the strengthening both online and offline development will make it best placed to benefit from the post-pandemic world.
The second wave of the pandemic has more heavily impacted the group’s most relevant markets. Consequently, the weaker than expected year-end performance has led the group to finish the year with both the top line and EBIT below consensus and our expectations. However, the group’s industry-leading flexibility of its business model (proximity sourcing and single inventory position) and accelerated online business expansion (32% of total sales) have led us to look beyond the pandemic.
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