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INDITEX: 2Q'19 RESULTS (ANÁLISIS BANCO SABADELL)

2Q'19 vs. 2Q'18 Results (applying IFRS 16 in 2019):
Sales: € 6.893 Bn (+8.2% vs. +8.0% BS(e) and +8.3% consensus);
EBIT: € 1.061 Bn (+13.9% vs. +17.9% BS(e) and +17.0% consensus);
Net Profit: € 815.0 M (+10.0% vs. +11.6% BS(e) and +11.8% consensus);
1H'19 vs. 1H'18 Results:
Sales: € 12.82 Bn (+6.6% vs. +6.5% BS(e) and +6.7% consensus);
EBIT: € 2.04 Bn (+14.3% vs. +16.5% BS(e) and +16.0% consensus);
Net Profit: € 1.549 Bn (+9.9% vs. +10.8% BS(e) and +10.9% consensus);

The company has released a set of 2Q’19 results slightly below forecasts in EBIT (-3% vs. BS(e)) due to the drop in gross margin in 2Q’19 (-30bps vs. 0bps BS(e)) and higher operating costs (+7% in 2Q’19 excl. IFRS16 vs. +6% BS(e)). However, LfL sales came in slightly above expectations (+5% in 1H’19 vs. +4% BS(e)), whereas the FX has not had a significant impact on sales over the period. The new accounting standard for leases (IFRS16) makes a comparison difficult, but we can see (according to the company’s indications) that, excluding this impact in 2Q’19 on a standalone basis, EBITDA would have slowed its growth vs. 1Q’19 (+7% in 2Q’19 vs. +9% in 1Q’19).
3Q’19 has got off to a good start, with sales growing +8% at constant currency over the period (which goes from 1 August to 8 September). The data suggests LfL sales of ~5% (vs. +4% BS(e) for the entire year). The company reiterates its guidance of +4%/+6% LfL sales in 2019.
With all this in mind, we think the results should not have a big impact on the stock, although looking at the solid performance YtD (+28%), we would not rule out the possibility of profit taking. BUY. T.P. € 30.76/sh. (upside +7.51%).