Jefferies | Impressive Q3 results… with group sales/EBIT of €9.81bn/€2.37bn (cons €9.71bn/€2.25bn) for Aug-Sep, this for ex fx growth of +8.4% (vs cons of +7.8% and buyside apparently somewhere between 7% and 8%) which follows the 9% of current trading disclosed for 1-Aug to 8-Sep. Gross margin landed at +79bps YoY to 62.2%, vs cons/JEFe of +8bps/+55bps. EBIT margin progress was good (in light of fx sales dilution of -3.5% and elevated capex feeding through the D&A line) at +137bps YoY to 24.2%, vs cons/JEFe +36bps/+81bps.
Strong cash generation resulted in ex IFRS 16 net cash of €11.27bn, broadly unchanged YoY despite annual exceptional cash capex adding €0.9bn through y/e. Inventory remains well controlled, with stocks +4.9% YoY inc fx (vs sales also at +4.9%).
… and a very healthy start to Q4 with ex fx gains of c.11% between 1-Nov and 1-Dec (vs cons of 7.8% for Q4 as a whole). Elsewhere, fx guidance for FY remains at c.-400bps, with cons already at -4.0%. FY GM is still expected flat within the usual -50bps/+50bps boundary (9M was +27bps) and compares to FY cons of -3bps (JEFe +22bps). As anticipated risks on this front are very much to the upside.
Conclusion
ITX’s Q3 update confirms very healthy market share gains in the current A/W season, with c.8% org growth in Q3 and c.11% so far in Q4 nicely ahead of market expectations (we presume the latter was largely unaffected by industrial action last Friday). Gm delivery has been firmer than (a surprisingly circumspect) sell-side cons had anticipated. This underpinned inc fx YoY Q3 EBIT progress of 11% (admirable at a time of heavy fx deflation and higher levels of capex feeding through to D&A), which was about 5% ahead of estimates (implying helpful earnings revisions to come once the current trading beat is also reflected). Inventory levels are well controlled, FC generation about to inflect sharply, and a number of top-down considerations bode well for the shares’ valuation prospects
