Inditex: Earns 2% more but with slower growth

Inditex results

The first quarter 2018 results of Inditex published on Wednesday failed to meet forecasts on income. But analysts at Renta 4 stressed that they exceeded expectations on the other main measures, supported by the improvement in gross profits and the containment of costs.

Inditex registered sales of 5.654 billion euros in the first quarter. Sales at constant exchange rate increased 7%. Net profits were 668 million euros, and increase of 2% over first quarter 2017.

In first quarter 2018 Inditex opened stores in 36 markets. By the end of the quarter Inditex was operating stores in 96 markets.

Gross profits rose to 3.328 billion euros, and increase of 3% over the same period last year, placing it in 58.9% of sales (58.2% in Q1 2017 – an increase of 68 bp).

Operating costs have been kept under strict control during the quarter, increasing 3%, principally as the result of the increase in sales and the new commercial premises opened.

The operational results (Ebitda) for first quarter 2018 are 1.125 billion euros, an increase of 1% over first quarter 2017, and operating earnings (EBIT) reached 861 million euros, an increase of 2% over Q1 2017.

On the other hand, the Board will propose a dividend of 0.75 euros per share, 10% more than in 2017. The payment of the second dividend (0.375 euros/share) is foreseen for 2 November.

The shares of Inditex have recovered 22% since their minimums following the publication of the Q4 2017 results, and 17% since the euro began to depreciate in mid April. The analysts at Renta 4 believe that, in the short run, the continuation of this trend in the value of the euro will be the principal support for the value of the shares.

In concrete terms,  the experts at Bankinter signal that exchange rates continue to penalise Inditex, and have cost it about 5 bp of growth in sales in Q1 2018 (the average exchange rate for euro/dollar was 1.0682 in Q1 2018 as opposed to 1.2322 in Q1 2018). According to their analysis, this negative impact will reduce in the second half of the year.


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