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Inditex Stakes 6% Of The Business And 8.5% Of The EBIT

Should Inditex leave Russia? The decision is by no means easy. The Galician textile giant closed its stores as a result of the invasion of Ukraine last March, without any certainty that it would be able to reopen them at some point. The company has 515 establishments in the country, in addition to the online channel, which together represent 7.9% of the network , between 5 and 6% of billing and 8.5% of EBIT (net operating profit).

They are establishments that, in all cases, are rented, so a significant investment in the country, but their maintenance is already costing 20 million euros a month.Inditex has already provisioned 216 million euros for all the estimated expenses for the 2022 financial year in Russia and Ukraine , but the problem is that it may fall short.

“We do not rule out new provisions in 2023, since Inditex could be extending rental contracts until the middle of next year,” Bankinter analysts explain in a report. In the bank they insist that “this, together with the deterioration that we foresee in consumption, as a result of an environment of global economic slowdown, leads us to maintain a Neutral recommendation, despite already trading with reasonable multiples and potential revaluation of 16% on our target price (26.5 euros per share) “.

The idea that the company is working on is to transfer its assets to partners in a “friendly” country in Southeast Asia or the Persian Gulf. Massimo Dutti, Oysho and Zara Home would thus completely abandon the Russian market, while the rest of the brands, especially Zara, would operate under other names and with new collections from spring 2023. In the Russian market, Inditex specifically has 106 Bershka stores, 86 Zara stores, 86 Pull&Bear stores, 74 Stradivarius stores, 62 Oysho stores, 60 Massimo Dutti stores and 41 Zara Home stores.

The closing of the operation could take from six months to a year. At the moment, Inditex already recognizes “conversations” to find a solution, taking into account that, although its dimensions are much smaller, the problem also affects the 84 stores in Ukraine (1.3% of the total) and the 12, perhaps , from Belarus, including the online channel.

Results
Since the new management took the reins, the results of the textile firm have not done more than surprise upwards the forecasts of the analysts, either due to an accounting strategy measure, or because, de facto, the model of storage and distribution chain of the company shines especially at times like the present.

The truth is that in the two quarterly results that the textile company has presented without Pablo Isla, its accounts are already comfortably above pre-pandemic data despite inflation (for which two price increases have been announced this year, also in the Spanish market) and despite the closure – which is felt to be permanent – ​​of Russia.

That hole in your accounts is now covered. Looking ahead to the third fiscal quarter of the company, the one that runs from August to October , the market forecasts net profits of more than 1,300 million euros, 13% higher than the pre-Covid result . Nor does another negligible fact have any influence, such as the high temperatures that are delaying the purchase of winter garments – more expensive for the consumer and, therefore, generating higher income.

With Russia out of the equation, the consensus already expects Inditex to achieve a profit of 4,000 million euros this year, a historic milestone that has been delayed for years. And that it touches 5,000 in the year 2025. With regard to income, at the end of January (the month in which its fiscal year closes) these should exceed 31,400 million euros, 13% higher than 2021 and 11% if compares to 2019.

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