Analysis Department of Bankinter offers analysis of the latest news on the Spanish company:

Inditex

• Recommendation: Buy
• Closing: 25.0 euros
• daily variation: 7.06%

4T’17 results will loose

The results for the fourth quarter of 2017 , which will be published on March 14 , will be loose. We highlight the following:

1. Maintain sales slowing trend seen in the last two quarters, penalized by the strong euro  during the quarter. Sales in the fourth quarter 2017 increase tight ~ + 6% (including a currency effect of -4%) to 7,322 million euros, bringing revenue for the year at 25,285 million euros, + 8.5%.
2. Gross margin fell 120-125 basis points over the fourth quarter of 2016 , also impacted by the currency effect and because the group delayed the entry of the new Spring-Summer collections, both in stores and online, which has been less product sold at full price, not lowered in the quarter. Thus, we expect the gross margin will stand at 3,925 million euros, 53.6% of sales compared to 57.4% reported in the first nine months of 2017.
3. The operating expenses grow more than sales , around 7%. Looking forward these expenses reflect the increase in physical stores leases after the operation have been carried out in the fourth quarter of 2017 Sale & Leaseback of 16 centers in Spain and Portugal. This  EBITDA for the fourth quarter 2017 will be at ~ 1,468 million euros, 0.6% lower than the fourth quarter of 2016 and representing a margin of 20.0% of sales versus 21.8% in the first nine months of 2017 . For the full year will be EUR 5,300 million (+ 4.5%), 21.0% of sales versus 21.8% in 2016.
4. No expected tax rate (22.5%) changes , net profit will be around 1,000 million euros in the fourth quarter of 2017 and 3,365 million euros in the full year, + 5.7% and +6.6 % respectively. Without the impact of gains from the sale of these 16 centers, net profit would have fallen around 2%.

Opinion

The Friday the value deducted these results, which are below the consensus, with a fall of 7.06% , -13.9% YTD. These results, although penalized by a currency effect, reflecting a slowdown in sales and a decline in margins , in a very competitive market environment, seems to be becoming structural trend. After the cumulative decline, with a fundamental value perspective, we maintain the recommendation to buy, but after a deeper understanding of the company and analysis of these structural trends, could move to neutral.