Inditex, With €7 billion In Cash, To Resume Dividend (€0.7 Per Share)

Inditex results

Inditex earned 421 million euros in the first quarter of its fiscal year (1 February to 30 April) compared to a loss of 409 million euros a year earlier. The company’s sales were 4.942 billion euros, up 50% from 3.303 billion euros in the first quarter of 2020. Online sales at constant exchange rates grew by 67%.

Key figures compared to Bloomberg consensus: Sales €4.942bn (+49.6%) vs €4.880bn (+47.7%) expected. At constant exchange rates +56%, still -11.5% vs Q1’19. Online sales at constant exchange rate increased by 67%.

Gross Margin €2.962bn (+47.9%) vs €2.855bn(e), giving a margin of 59.9% vs 59.4% in Q1’20 and 58.5% expected. EBITDA €1.235bn (+155%) vs €1.113bn (+130%) expected; EBIT €569mn vs -€508mn in Q1’20 and €494mn(e); NAB €421mn vs -€409mn in Q1’20 and €359mn(e).

The Q1’20 result included a €308mn provision for the completion of the shop optimisation programme. Excluding this provision, NAB would have been €-175mn. Net cash increased 25% to €7.176mn. Operating costs increased 18.5% and inventory was up 5% in the quarter.

According to Bankinter analysts: The results amply beat expectations in terms of growth and margins. Sales are gaining traction during the quarter, although they continue to be impacted by the restrictions in markets such as the UK, France, Germany, Italy, Portugal and Brazil. On average, 24% of commercial hours were not available in the quarter. Q2’21 got off to a strong start. Between May 1 and June 6, sales increased 102% vs the same period of 2020.

Q1’20 is still marked by restrictions, although they have eased over time. At the beginning of the quarter, 30% of shops were closed (and 52% had restrictions), in February 21% were shut, and at the end of the quarter 16% of shops were still closed. Gross Margin, which was expected to be flat, increased 50bp in Q1’20 when the impact of Covid-19 was not yet significant after the inventory write-downs carried out in 2019.

Now the restrictions have been lifted, the outlook for growth is positive in an environment of a return to normality that is particularly favourable for the textile sector, as shown by the start of Q2’21. Although the results are still affected by Covid-19, the model is solid and this is demonstrated by strong cash generation, increased margins and inventory containment. And growth in online sales, and physical sales when there are no restrictions.

The 2020-2022 strategic plan insists on the integrated model of shops and online sales and will result in higher profitability and lower capital intensity. The group does not mention long-term sales growth targets (+4%/+6% previously) and resumes its dividend policy, consisting of a 60% ordinary payout and extraordinary dividends. The Board of Directors of Inditex will propose to the Annual General Meeting of Shareholders a dividend of 0.70 euros/share for the FY2020. It will consist of an ordinary dividend of 0.22 euros/share and an extraordinary dividend of 0.48 euros/share.

About the Author

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.