Market news and an update from Zara owner Inditex.
Market News
US equity markets fell last night – S&P 500 (-0.6%); Nasdaq (-1.0%) – on speculation inflation data due today may show price pressures remain sticky, adding to risks policymakers will keep interest rates higher for longer. Consumer prices are expected to have risen by 3.6% year on year and 0.6% month on month in August, thanks to rising energy prices. But core CPI may rise just 0.2%, the kind of evidence the FOMC needs to stay on hold at least this month. The 10-year Treasury yield edged up to 4.29%, while gold drifted to $1,910 an ounce. Apple fell as it unveiled its new product line-up.
This morning in Asia, markets were also soft: Nikkei 225 (-0.2%); Hang Seng (flat); Shanghai Composite (-0.5%). The FTSE 100 is currently little changed at 7,525. BP announced that CEO Bernard Looney has resigned with immediate effect. He had been instrumental in steering the company towards cleaner energy. The company’s CFO will act as CEO on an interim basis. The shares are unchanged in early trading.
The euro was steady after an overnight rally following a Reuters report that the ECB expects inflation in the bloc to remain above 3% next year. That prompted traders to raise bets on a rate hike tomorrow, though most economists expect no change. StanChart’s Steven Englander reckons the central bank will probably hold with a hawkish stance, which would be negative for the euro.
The UK economy shrank at the quickest pace in seven months, with GDP falling by 0.5% in July versus expectations for a 0.2% decline. Industrial output fell 0.7% while manufacturing production dropped 0.8%. Sterling moved lower to $1.2457 and €1.1603.
Brent Crude extended its recent rally to $92 a barrel as the recent OPEC+ production cuts set up the tightest market in a decade.
Source: Bloomberg
Company News
Inditex has today released results for the first half of its financial year to 31 January 2024 (known as FY2023). The figures were better than market expectations and full-year guidance was reiterated. In response, the shares have been marked down 2% in early trading.
Inditex is the world’s leading apparel retailer, with annual sales of more than €32bn. Through brands such as Zara, Pull & Bear, and Massimo Dutti, the group has more than 5,700 managed and franchised stores and a strong online presence.
The company’s strategy based on fast fashion at attractive prices has met with headwinds on environmental grounds and, in response, the group is transforming towards a fully integrated, digital, and sustainable business model. With a low share of a highly fragmented market, the company sees strong growth opportunities, with sales productivity in its stores increasing. The group is undertaking an ongoing store optimisation plan – in the latest six months, there were openings in 20 markets. Online sales are expected to exceed 30% of total sales by 2024.
In the six months to 31 July 2023, sales grew by 16.6% in constant currency to €16.9bn, with the Spring/Summer collections very well received by customers. Sales were positive in all geographic areas and in all concepts.
Gross profit increased by 14.1% to €9.8bn and the gross margin rose by 27 basis points to 58.2%. The group has continued to ‘rigorously’ manage its operating expenses, which grew by 12.5%, below the rate of sales growth. Net income increased by 40% to €2.5bn, slightly better than the market forecast.
Due to the strong operating performance and normalisation of supply chain conditions, inventory was 6.9% lower at 31 July 2023. Free cash flow generation increased markedly (+76%), and the group ended the period with net cash of €10.5bn, up 14%. At the AGM in March, a dividend of €1.20 was approved, up 29% on last year, and a yield of 4%. The final 60c payout will be paid in November.
The company has continued to trade well in the current quarter – between 1 August and 11 September, store and online sales rose by 14% year on year and Autumn/Winter collections have been “very well received” by customers. The group has reiterated its guidance for the current financial year. The growth of gross space will be around 3%, with space contribution to sales expected to be positive. The gross margin is expected to be stable (+/-50 bps).
Source: Bloomberg