Inditex, ahead of ‘the quarter of the coats’: 25% of sales and 30% of profit at stake

Inditex reviews the quarter of coats. The fashion distribution company will present next Wednesday the results belonging to the third quarter, the most important period of the year for its accounts, as generally full price sales and winter clothes of higher average price coincide. In a complex year for the sector, which Inditex has started scoring moderate peaks, and in full transformation of the company itself, the coat quarter is more than ever a litmus test.

Inditex produces 25% of its sales during the third quarter (period that goes from August to October) and 30% of its profit, compared to the 19% that represents, for instance, the first one. It is also the period that provides a greater gross margin (valued in 59.4% last year) and that comprehends the majority of openings (144 in 2016 and 99 in 2017).

During this fiscal year, the third quarter will undoubtedly be of huge importance for sales and profitability but, if the trend of recent years is maintained, it is likely that the margin will reduce its figure again (it reached the 60% during the third quarter of 2015) and there will not be as many net openings as in previous fiscal years, and that is in spite of the fact that once October ends, Inditex’s third quarter dodges the impact of Black Friday.

The group is immersed in a transformation of its business model, reducing the network of stores to commit fully to the digital channel, having stores as support. In that sense, the fourth quarter of 2017 was the first in its history to register net closures, a trend that has been maintained for the first and second quarter of this year.

And sales? Analysts such as Renta 4 are optimist in their predictions due to the fact that the comparative base is less exigent than in previous years and that the impact of exchange rates is also lower. In 2017, Inditex grew a 5.91% during the third quarter, reaching 6.29 billion euros. During this year’s take off, rises have stood at 1.53% during the first quarter and 4.41% during the second.

Renta 4 forecasts an interannual increase of income of 6.6% for the period between August and October due to the positive evolution of comparable sales. Santander, on the other hand, estimates an income growth at constant exchange rate of 8%, spread equally among comparable growth and the contribution of a new commercial space.

Santander predicts a growth of 6.4% and Renta 4, of 6.6%

The Spanish bank predicts a negative exchange rate of 1.6% regarding income, with which the growth rate of the third quarter would stand at 6.4%. Both predictions rank above the peak registered during the third quarter of 2017 (of 5.91%), but below the ones from the two previous years, when the group grew in a double digit. As per the gross operating profit (EBITDA), Santander anticipates a rise of 9.5%, reaching the figure of 1.67 billion euros.

“The sectorial dynamic for autumn-winter season remained to be complicated due to the transfer of store sales to internet orders, as well as to adverse weather conditions in many markets”, claims Santander in its report.

“In this current context, we believe that the model of Inditex continues to be the best positioned one amongst the names involved to ride out successfully this structural change thanks to: its central and multichannel inventory model, the limited erosion among channels, the non-existent cost of customer attraction, the economies of scale in international online segment, a reduced intensity of investment expense growth and its progressive technologic strategy”, concludes the bank.