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Saturday, March 6, 2021

Should you buy Inditex stock as Zara-owner returns to profit?

  • Inditex’s earnings report showed a second-quarter net profit of 214 million euros
  • The company registered a 74% surge in online sales in the H1 2020
  • Inditex share price gained nearly 15% in two trading days

Inditex (BME: ITX), the mother company of Zara, Bershka, and Massimo Dutti, returned to a quarterly profit from May through July, in spite of a 31% sales decline due to coronavirus lockdown measures. 

Fundamental analysis: Sales rebound

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Inditex said that 98% of its stores had reopened and pointed out that there are signs of progress as its online sales are growing rapidly and store sales are recuperating. The Spain-based giant said its quarterly in-store and online sales from August 1 to September 6 were constantly on the rise, but still 11% lower than the year-ago period. 

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Inditex’s earnings report showed a second-quarter net profit of 214 million euros ($253 million), higher than the 96 million euro mean estimates by Refinitiv’s SmartEstimate model.

Shares of the clothing company climbed 5% on Wednesday morning, extending its gains from Tuesday after its Swedish rival H&M beat quarterly profit estimates as well.

The company registered a 74% surge in online sales in the H1 2020, along with many other apparel retailers as people had to shop from home due to coronavirus-induced lockdown restrictions. 

Inditex said it experienced a net loss of 195 million euros on sales 37% in the red, for the first half of the year. It added it would have reported a profit if it didn’t have to pay 308 million euro to integrate its stores and online platforms.

Following the lifting of lockdown measures and reopening of the stores, people started shopping again. According to JP Morgan estimates, continental Europe fashion sales declined 15% in July on average compared to the 42% fall in May.

Technical analysis: Stock surges higher

Shares of Inditex closed more than 8% higher yesterday. It means that Inditex stock gained around 14% in just two trading days. Given this bullish move, investors who are looking to buy ITX should wait for a pull back before committing to a trade. 


screen shot 2020 09 17 at 12 41 02 pm
ITX stock daily chart (TradingView)

The former resistance, now supported, at 24.30 offers a good risk-reward ratio for ITX buyers. Any move below 23.50 is likely to invalidate the short-term bulishness from the stock, while the target on the upside is 25.90, followed by the six-month high at 27.20. 

Summary

The owner of Zara, Bershka and Massimo Dutty, Inditex, said it returned to a quarterly profit from May through July, even though its sales are 31% down as a result of the coronavirus crisis and closing of its stores. Hence, investors are likely to lean towards buying ITX stock following a strong performance report. 

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