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INDITEX: FY2020 RESULTS (ANÁLISIS BANCO SABADELL)

4Q'20 vs. 4Q'19 Results
Sales: € 6.317 Bn (-25.4% vs. -23.8% BS(e) and -18.8% consensus);
EBIT: € 561.0 M (-54.2% vs. -42.2% BS(e) and -26.1% consensus);
Net Profit: € 335.0 M (-63.5% vs. -42.1% BS(e));
FY2020 vs. FY2019 Results
Sales: € 20.402 Bn (-27.9% vs. -27.4% BS(e) and -25.9% consensus);
EBIT: € 1.507 Bn (-68.4% vs. -65.4% BS(e) and -61.2% consensus);
Net Profit: € 1.006 Bn (-72.4% vs. -66.9% BS(e));

The company has released poor results below our estimates, affected by store closures linked to Covid-19 restrictions, which have been toughened up since mid December. As of 31 January 2021, 30% of the stores were fully closed (vs. 8% as of 31 Dec 2020) and 52% were subject to restrictions. Thus, total sales fell -28% over the year, and by -24% at constant exchange rates. Online sales remain strong, rising +77% at constant exchange rates over the year.
The gross margin improved +50bps in 4Q’20 on a standalone basis, which is worse than expected (+320bps BS(e)), bearing in mind that last year the company charged an impairment equivalent to -339bps on the margin. The gross margin was hit by FX, and adjusted for this effect it would have grown +170bps. Operating costs have performed better than expected (-16% vs. -13% BS(e)), but it was not enough to offset the drop in sales, and thus EBIT fell -54% (worse than expected). Net Profit plunged -63%.
As for the start of 1Q’21, the figures are also poor, although in line with forecasts (February -15%, March -4%; we expected -10% in total) for the same reasons (21% of stores closed in February; 15% as of the 8th of March), although we can see a strong improvement as stores begin to open and the company outlined that excluding the 5 most relevant markets totally or substantially closed at the moment (Germany, Brazil, Greece, Portugal and the UK), sales grew +2%. In this regard, ITX estimates that by mid-April all its stores could be open.
We reiterate our SELL recommendation. We believe that the share price is fairly valued, trading at a 12-month P/E’12 ratio of 30x, very close to the top end of the 15x-35x historical valuation range despite its low visibility in EPS’21e. SELL. T.P. € 25.77/sh. (-11.32% potential).