Inditex: Warm weather, tepid growth
Inditex will publish its Q3 results on December 12 and we forecast both sales and earnings to grow 6% YoY, held back by a 2% FX headwind and by unseasonably warm weather in October. We forecast a Q3 LfL of 5.0%, which is some 50bp below our estimate post Q2, but we leave our 2H18e 5.0% and FY18e 4.5% forecasts unchanged as we think ITX can still recover from the weak start to the A/W season, benefiting from some pent-up demand and from some FX-driven gross margin fire power. In this note we fine-tune our model to incorporate spot FX rates, which led to a reduction of the FX headwind to sales from -3.5% to -3.0% in FY18e and from -1.0% to -0.6% in FY19e. This has lifted our ‘18e-‘20e sales, EBITDA and earnings by an average of 1% but our new EPS assumptions remain on average 3% below BBG consensus for this period, which is mostly driven by our more negative view on operating leverage. As we said before, we expect the structural gap between clothing and general CPI (100bp 10y avg) coupled with the need to service a more demanding omnichannel consumer to make it more difficult for ITX to convert its still relatively high LfLs into opex savings. On the valuation front, our FV has also nudged up 1% to Eur26.1 (was Eur25.8) but we reiterate our Neutral rating.]Industria de Diseno Textil Inditex is the parent company of a group engaged in apparel and footwear manufacturing and retailing. The Group is made up of fashion retail chains, textile manufacturing, purchasing and fabric treating companies, logistics and construction companies which are responsible for store refits and manufacturing structure. Products include men's, women's and children's wear collections, footwear, and women's lingerie which are sold through the Group's retail store chains of: Zara, Kiddy's Class, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, and Oysho and Zara Home.
Haitong is the first international Chinese investment bank and our goal is to be the primary channel for capital flows into and out of China. During 2015 the Senior Management Team in London was expanded significantly to focus on this objective and to provide a full-service cross-asset markets business coupled with sector-focused investment banking. We work closely with our world-wide network of offices to bring a true depth of understanding to all client situations.
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