Inditex’s 1Q13 more moderate growth means a net income increase of 2%

The Spanish textile giant Inditex  reached a net income of €438 M in 1Q13,  which means €6M more than those gained in last year some period, and consequently a 2% growth for the company. As reported on Wednesday by the group, its net sales rose by 5% to €3,59 Bn in 1Q13 against  €3,41 Bn in the first quarter of previous 2012. At midday, markets rewarded Inditex with an increase of 3% in Madrid Stock Exchange and a value that returned to € 100 per share.

The Spanish company’s results in year 2012 have been creating a very elevated expectations environment because of its record nature: net profit was 22% over 2011’s one, and sales beat by 16%. The financial media and analysts houses commented today on the company’s  figures that they imply “more moderate growth”. Some of them even consider them as “disappointing” or “little weak”. The truth is that market estimations pointed out a a net profit near € 441M in 1Q13 and sales around € 3,62 Bn. It is also truth that Inditex’s sales have grown by 20% and 30% in previous quarters, and according to the own company’s data, store sales in local currencies increased by 8% at the start of the 2Q13, between 1 May and June 2013. On the other hand, the opening of stores slowed too from 91 new venues in 1Q12 to 49 in current year first quarter.

Some financial newspapers like the FT suggested that Inditex’s first-quarter earnings could be a reminder that “the company’s miracle is not invincible”, and also that the textile firm “has long been at risk of becoming a victim of its own success”. They also mentioned a combination of bad weather across Europe, unfavourable currency movements in markets like Brazil or Japan, and “particularly demanding comparisons with a 2012 financial year that exceeded all expectations” as one-off factors impacting on Inditex’s results. All Spanish analysts agree in that negative effect.

According to Banesto’s team “anticipated sales figures in 2Q13 could mean a short-term drop. We do not see significant drivers for the company either. However, there are not relevant risks for Inditex since it still remains a solid financial position of € 3,66 Bn as well as a tendency to positive growth, unlike many of its competitors (…) Calculating an average Like for Like sales (LfLs) near to 3.5-4%, they would register a record within the textile industry”, the analysts said.

Regarding the number of net store openings (49 vs 91), Bankias’ experts believe that “it is in line with the company’s annual goal. It may have been compensated by the opening of 25 new top flagship stores around the world, and also  the opening of bigger venues”. Renta 4 admits that “year 2012 was really extraordinary for Inditex in growth terms” and expects “the company to recover the opening pace through present year”. For Sabadell “ it is obvious that the year started badly, and consequently we will have to cut our estimations for whole 2013, which currently stand at +11,7%”. They recommend ‘Buy’ for Inditex.

The group’s flagship, Zara, launched online sales in Canada in April and plans to deploy its e-commerce platform in Russia this autumn. Inditex has created over 10,000 new jobs worldwide during the last 12 months.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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