Morning Note: Market news and an update from retailer Inditex.

Market News

US equity markets rose last night – S&P 500 (+0.5%); Nasdaq (+0.7%) – as investors awaited the Federal Reserve’s last decision this year, with recent data reinforcing speculation policymakers will be in no rush to claim victory over inflation just yet. US inflation for November came in as expected, with CPI at 3.1% year on year and Core CPI at 4.0%. The 10-year Treasury yield fell to 4.20%, while gold trades at $1,980 an ounce.

This morning in Asia, markets were mixed: Nikkei 225 (+0.3%); Hang Seng (-0.9%); Shanghai Composite (-1.2%). The FTSE 100 is currently trading 0.2% higher at 7,553.

UK GDP fell by 0.3% in October, worse than expectations of a 0.1% decline. The pound dropped to $1.2530 and €1.1610. For the fourth quarter as a whole, the economy is expected to eke out a small gain at best, with some predicting the start of a shallow recession.

The oil price slipped to $72.80 a barrel as the US upped its 2023 production forecast to an average 12.93m b/d this year — an increase of 300,000 b/d from the previous estimate, the EIA said. The uranium (U3O8) spot price rose to a 15-year high of $84 a pound as the US ban of Russian imports passed through the House of Representatives. The Senate has yet to vote.

Argentina cut the value of the peso in half, overhauled its crawling peg and announced massive spending cuts to eliminate the primary fiscal deficit next year. The exchange rate was lowered by 54% to 800 pesos to the dollar, and the central bank will target a monthly devaluation of 2%. Fiscal spending will be cut by the equivalent of 2.9% of GDP, a senior official said. The IMF welcomed the measures, saying they’ll help stabilise the economy.

Source: Bloomberg

Company News

Inditex has today released results for the first nine months of its financial year to 31 January 2024 (known as FY2023). The figures were in line with market expectations and, in response, the shares have been marked up by 1% 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 last nine months, there were openings in 36 markets. Online sales are expected to exceed 30% of total sales by 2024.

In the nine months to 31 October 2023, sales grew by 14.9% in constant currency to €25.6bn, with the Autumn/Winter collections very well received by customers. Sales were positive in all geographic areas and in all concepts.

Gross profit increased by 12.3% to €15.2bn and the gross margin rose by 67 basis points to 59.4%. The group has continued to ‘rigorously’ manage its operating expenses, which grew by 10.6%, below the rate of sales growth. Net income increased by 32.5% to €4.1bn, slightly better than the market forecast.

Due to the strong operating performance and normalisation of supply chain conditions, inventory was 5% lower at 31 October 2023 than last year. Free cash flow generation was strong and the group ended the period with net cash of €11.5bn, up 15%. At the AGM in March, a dividend of €1.20 was approved, up 29% on last year, and a yield of 3%. The final 60c payout was paid in November.

The company has continued to trade well in the current quarter – between 1 November and 11 December, store and online sales rose by 14% year on year and Autumn/Winter collections remain “well received” by customers. For the full financial year, the growth of gross space will be around 3%, with space contribution to sales expected to be positive. The gross margin is now expected to be up by 75 basis points.

Source: Bloomberg