The rapid recovery he’s showing Inditex Regarding its sales levels, even without having 100% of its network of stores or all the commercial hours available, it is also recognized by those who tend to be more critical of the performance of the Galician textile giant. Morgan Stanley, habitually demanding in his analysis of the company, admits in his latest report that Inditex is one step ahead of the rest of the operators in the sector in the long-awaited return to activity prior to the pandemic.
The financial entity begins its analysis by ensuring that Inditex “is one of the most attractive business models” in all its business coverage. “It has a leading operating model and supply chain that provides it with significant competitive advantages and the ability to safely navigate the times of Covid-19,” he describes.
The company registered in the first quarter of its fiscal year 2021, between February and April, sales 50% higher than those of a year ago and 16% lower than those of 2019, with a profit of 421 million. But it also reported growth of the order of 5% in the first weeks of the second quarter. “The short-term recovery is pretty clear,” says Morgan Stanley. For this year, it calculates close sales that will be close to 26,000 million, 8% lower than those of the last year prior to the pandemic, with a net profit of 3,310 million, close to 3,639 in 2019. The ebitda would also once again exceed 7,000 millions.
This will be the first step towards a full recovery during 2022. When that year ends, the investment bank estimates that revenues will already be at the level of 2019, over 28,000 million, and with an already higher profit, approaching 4,000 millions. For the following years, it estimates a sales growth per year of between 4% and 6%.
However, Morgan Stanley also expresses its doubts. It explains that, without a substantial growth in its sales area, the door can be opened to a possible cannibalization of sales between online and offline, although it continues to have good medium-term prospects with share gains and with an online business “as an element key differentiator ”, thanks to a positioning“ of suitable products and prices, with a proposal linked to fashion and a strong marketing power that, we think, may allow it to gain more market share ”.
In addition, and despite what you may think, Morgan Stanley believes that the growing weight of the group’s online sales [del 32% en 2020] it won’t affect your margins. Quite the opposite.
“The progressive improvement in profitability should also be supported by the change in habits towards online shopping. Inditex has already exceeded its goal of representing more than 25% of its revenues, and although the growth of this channel will slow down in the post-Covid world, we believe that penetration will continue to grow in the long term, which should support the margins of the group”.
On the other hand, Morgan Stanley values Inditex at a target price of 31 euros per share, slightly below its current price and in a baseline scenario. In one of very accelerated acceleration, it would raise that target price to 45 euros.