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The Covid-19 will force Inditex to present the first losses in its history


The impact of the Covid-19 pandemic will force Inditex, the matrix of Zara, to present the first losses in its history as a listed company (debuted on the Stock Market in 2001), as anticipated by the market consensus. The fashion chain founded by Amancio Ortega will publish this Wednesday before the opening the figures of its fiscal first quarter 2020, which includes the months of February, March and April.

UBS analysts, who advise to buy the value, with a valuation of 27.33 euros, anticipate a organic sales drop of 38%, due to the forced closure of the stores, which will reduce their total sales to 3,616 million euros.

Also, they expect a gross profit of 2,126 million, which implies a drop of 70 basis points in the gross margin, up to 58.8%, which will reflect an increase in discounts. UBS forecasts a Negative EBIT of 51 million euros due to deleveraging of store closings.

As a result, he anticipates a net loss of 75 million euros, although its focus will be the directive's comments "on the current evolution of sales and about the trends registered in the reopening of its stores in Europe".

In the first fiscal quarter of 2019, Inditex increased its net profit by 10%, to 734 million euros. And sales advanced 5% to 5,927 million. The gross margin it rose 6% to 3,524 million euros; and represented 59.5% of sales.

Since Sabadell Bank, they anticipate "bad" results because "the stores in most of the countries where they operate closed for part of the period". Their forecasts are even more negative, since they anticipate a Negative EBIT of 249 million and one net loss of 243 million of euros.

Like UBS, its main interest is to know "how the following quarter has started". And although they consider it very difficult to make an estimate, they predict that during the first six weeks of the second fiscal quarter, which include all of May and the first ten of June, there has been a 50% drop in comparable sales. In their opinion, there is not enough upside potential from current levels, so they advise to sell the value.

On March 18, Inditex has already announced a provision of 287 million euros charged to 2019 in the face of the crisis caused by the coronavirus. In addition, it delayed the decision on the dividend distribution to the General Shareholders Meeting that will take place next July.

The company also confirmed that sales in stores and online at constant exchange rate between February 1 and March 16 they lowered a 4.9%. The impact was much greater between the March 1 and 16, since during that period a 24.1%.

So far this year, Inditex's shares have fluctuated in a wide range. They reached an annual maximum in 32.28 euros in February to slump up 18.50 euros in the worst moments of the March crash. The market consensus gives it a valuation of 27 euros, almost in line with its current market price of 26.31 euros.

Analysts like those of Morgan Stanley, who value Inditex at just 18 euros, expect it to occur an increase in online shopping and that visiting physical stores is much less attractive for consumers, due to pandemic limitations and fear of Covid-19. In general, they expect that sector earnings in 2020 and 2021 plummet 62% and 33% compared to 2019.

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