Zara parent company, Inditex, shares surged 7% on Wednesday after it reported strong momentum heading into the autumn season but reported first-half sales slightly below forecasts.
First-half sales came in at €18.4 billion, slightly under the Visible Alpha consensus of €18.6 billion, while operating profit and pretax profit were €3.6 billion, in line with estimates.
Earnings per share reached €0.90, just below forecasts of €0.91, according to RBC Capital Markets.
Analysts attributed softer net income to lower contributions from Inditex’s footwear associate Tempe in the second quarter. “H1 sales look a little below consensus expectations, with EBIT in line and net income a little softer than expected,” RBC said.
Jefferies described the second-quarter results as “largely as expected,” with sales of €10.083 billion and EBIT of €1.931 billion, against consensus of €10.272 billion and €1.933 billion.
The brokerage noted “ex fx growth of +5.8% (vs cons of +7.2% and buyside closer to 6%) and the 6% of current trading disclosed for 1 May to 9 June.”
Margins remained resilient in a challenging seasonal backdrop. Gross margin fell 4 basis points year over year to 56.5%, better than the 15 basis-point decline consensus had projected.
EBIT margin was 19.2%, down 6 basis points, yet ahead of the forecasted 40 basis-point contraction.
“A largely unchanged gm underscores the group’s ability to trade through a tricky S/S season across Europe, with the industry likely overstocked for a weather (and macro) disrupted season,” Jefferies said.
Regional performance was uneven. Spain led growth with 7.1% in the first half, other European markets gained 3.2%, while the Americas declined 3.8% and the rest of the world fell 2.1%, Jefferies reported.
RBC noted that “Inditex looks like it’s outperformed in its home market Spain … but the Americas and Asia/RoW are softer than expected.” By brand, all formats grew year over year except Massimo Dutti.
Cash generation remained strong, with net cash of €10 billion, slightly below expectations due to a larger working capital outflow.
Jefferies said, “Strong cash generation resulted in ex IFRS 16 net cash of €10.012bn despite the second year of exceptional cash capex of €0.9bn. Inventory remains well controlled, with stocks +3.1% YoY inc fx.”
Momentum continued into the autumn season. Between Aug. 1 and Sept. 8, sales rose 9% in constant currency, above the consensus of 7%.
“Importantly sales in cc for the most recent period … are up +9% in cc vs consensus at +7% yoy, reflecting more favourable industry conditions in major markets,” RBC said.
Jefferies added, “A very healthy start to Q3 with ex fx gains of 9% between 1-Aug and 8-Sep (vs cons of 6.8% for Q3 as a whole).”
Foreign exchange remains a key headwind. Inditex forecast a 4 percentage point full-year hit on sales versus its prior 3-point estimate.
Jefferies noted, “Elsewhere, fx guidance for FY goes from c.-300bps to -400bps (after -3.5% in H1), cons is currently estimating -3.2%.” Gross margin for the full year is expected to remain broadly flat within plus or minus 50 basis points.
RBC maintained an “underperform” rating with a €43.00 price target. “Following a very strong post-pandemic period, its sales base is now larger and its operating margin has reverted to above its long-term average,” RBC said.
Jefferies added, “But it is ITX’s ability to cope with strong FX dilution and still deliver flat operating margin which highlights the attractions which should materialise in the months ahead.”
Source :
https://www.investing.com/news/earnings/inditex-first-half-sales-miss-forecasts-but-strong-autumn-start-lifts-momentum-4232647
