Morning Note: Market news and an update from retailer Inditex.
Market News
US equities recovered late in the session to finish higher last night – S&P 500 (+0.5%); Nasdaq (+0.8%) – while bonds rose on growth concerns ahead of today’s US inflation report. CPI is expected to show a muted gain of 0.2% month-on-month in August. The 10-year Treasury yield slipped to 3.62%, while gold moved up to $2,525 an ounce. The 10-year breakeven rate fell to its lowest closing since 2021, suggesting investors see inflation coming in below the Fed’s 2% goal over the coming decade.
Oil stocks continue to fall on the back of the weak oil price. Brent Crude fell below $70 a barrel, before recovering this morning.
In Asia this morning, the Bank of Japan’s Nakagawa signalled a readiness to raise rates if inflation on track. In response, the yen strengthened to 141.4 versus the dollar. Equities fell in response: Nikkei 225 (-1.5%); Hang Seng (-0.9%); Shanghai Composite (-1.0%).
The FTSE 100 is currently little changed at 8,215. Rightmove has rebuffed a £5.6bn stock and cash offer from Murdoch’s REA. This morning, the shares are unchanged.
The UK economy stagnated in July – GDP was flat versus 0.2% expected, while Industrial Production fell by 0.8%, versus +0.3% forecast. Sterling trades at $1.3086 and €1.1847.
Source: Bloomberg
Company News
Inditex has today released first-half results that were ahead of market expectations. Current trading remains robust and guidance for the full year has been confirmed. In response, the shares have been marked up 4% in early trading.
Inditex is the world’s leading apparel retailer, with annual sales of almost €36bn. Through brands such as Zara, Pull & Bear, and Massimo Dutti, the group has around 5,667 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 H1 2024, there were openings in 34 markets.
In the six months to 31 July 2024, the group continued with a very robust operating performance and benefitted from spring/summer collections that were well received by its customers. Sales grew by 10.2% in constant currency to €18.1bn, with growth in all concepts.
Gross profit increased by 7.5% to €10.5bn and the gross margin rose by 19 basis points to 58.3%. The group has continued to ‘rigorously’ manage its operating expenses, which grew by 6.8%, below the rate of sales growth. EBIT increased 11.9% to €3.54bn, slightly better than the market forecast of €3.48bn
Due to the strong operating performance, inventory was 1.7% lower at 31 July 2024 than last year. Free cash flow generation was down 19% to €1.9bn, albeit the group ended the period with net cash of €10.9bn, up 3.5%. The board is proposing a half-year dividend of 77c, to be paid in November, made up of a 27c ordinary dividend and 50c bonus payment.
The company has continued to trade well in the current quarter – between 1 August and 8 September, store and online sales rose by 11% year on year and Autumn/Winter collections “very well received” by customers. The growth of annual gross space in the period 2024-2026 is still expected to be around 5%. The group expects a stable gross margin this year (+/- 50 basis points).
Source: Bloomberg