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INDITEX: 1Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

1Q'20 vs. 1Q'19 Results
Sales: € 3.303 Bn (-44.3% vs. -38.8% BS(e) and -43.1% consensus);
EBIT: € -508.0 M (€ 978.8 M in 1Q'19 vs. € -279.0 M BS(e) and € -340.0 M consensus);
Net Profit: € -409.0 M (€ 734.0 M in 1Q'19 vs. € -243.0 M BS(e) and € -212.0 M consensus);

The results, hit hard by Covid-19, are slightly better than expected at first glance thanks to the gross margin and lower operating costs (sales are lower). There is a € 308 M provision for store optimisation that distorts the comparison. The start of Q2 has been very much in line with expectations (sales at constant currency -48% vs. -50% BS(e)).
Sales fell -44% (the company has not disclosed the LfL sales figure, but it would be more or less at the same level) due to Covid-19 having brought about mass store closings over the period. The gross margin fell -107bps, slightly better than we expected (-145bps). We also believe that the sharper drop in operating costs than we expected is positive (-21% vs. -8% BS(e)), and thus EBIT adjusted for the provision outlined would have exceeded our estimates (€ -200 M vs. € -279 M BS(e)) and those of the consensus.
The company announced it expects online sales to account for 25% of total sales in 2022, maintaining its long-term LfL growth target of between 4% and 6%. The group will pay a € 0.35/sh. DPS (-60%; 1.3% yield vs. € 0.58/sh. BS(e)), postponing the extraordinary payment one year. Notwithstanding, we believe this is already priced in at current levels. We reiterate our SELL recommendation. Conference call at 9:00 (CET). T.P. € 25.77/sh. (upside +0.35%).