Inditex: Warm weather and FX to impact Q3
October’s ‘unseasonably’ warm weather in Europe has already claimed a number of ‘victims’ among apparel retailers this quarter and Inditex should be no exception despite its more flexible business model. We forecast its LfL to slow from 5% in Q2 to 4% in Q3 despite a 2pp easier comp, which, coupled with a 3% FX headwind, should prevent sales from growing more than 6% YoY. The gross margin should fall 40bp YoY, mostly on the adverse FX, and the expense ratio should deteriorate c.30b YoY on the slower topline growth, leading EBITDA to rise by just 3%. As for earnings, we expect them to grow 2% YoY to Eur970m. In this Q3 preview we also finetune our estimates, with a small cut to sales being offset by an equally small upgrade to the gross margin and thus EBITDA and EPS have been left broadly unchanged. Likewise our FV stays at Eur30.0 and we reiterate our Neutral rating. Our FV implies a 1-yr Fwd P/E of 25.7x, in line with the 25.5x 5-yr avg.
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