Inditex disappoints market and drags Ibex into the red

Inditex has dragged the Spanish benchmark index into the red after presenting results that although record, have been too adjusted to the market expectations. Shares of textile giant in Madrid lost 3.32, pushing the other companies in the Dow

to a close in red.

"Inditex has posted results that were in line with our estimates but slightly below the consensus," summed up the general feeling analysts at Banesto Bolsa in a note to investors issued shortly after learning the results of Inditex. In the same vein, Daniel Pingarrón, an analyst at IG Markets, claimed that "The market was expecting more, expected a profit of 2,390 million euros."

Inditex results left a sour taste among investors as in first thing in the morning of Wednesday, punishing the stock with a decrease of 3.37 percent - the highest drop within the index. In contrast, Inditex shares closed Tuesday up by 1.26 percent, encouraged by the high expectations that the market had put in the Galician group.

The high trading volume in shares of Inditex, 22 of the 47 million traded in the morning, set the Ibex to the losses, stresses 'La Vanguardia'. In addition, the textile group closed with a loss of 2.58 percent on the stock exchange, the fifth biggest drop in the Ibex 35 companies.

Also, both analysts and investors expected that the accounts presented by the largest fashion retailer in the world would provide new stimulus to revive the stock’s market rally, as has been happening in the past.

But the results have now posed a bearish trend on the stock, analysts who are suspicious of the subtle slowing the empire created by Amancio Ortega has experienced in the last quarter of last year said. In this breath, analysts at Renta 4 indicate that the results of the empire founded by Amancio Ortega "fail in their forecasts", thus advancing to expect "a negative reaction from the titles after breaking the results."

Optimistic about the future market action

Investment firm Citigroup is more optimistic though, and recommends buying, but lowered its price target to 115 euros per share. Citi analysts highlighted the risks that could undermine the achievement of the price target focus on a change in consumer patterns. They also stressed that the new store format launched during the past year can "become less successful."

"The problem comes after Inditex shares strongly rose last year (+68 percent), at prices that reached already discounted future growth that is not easy to fulfil. Put a ribbon market high for the company” IG Markets’ Pingarrón noted.

UBS, which last Friday reiterated his rating as 'neutral' with a price target at 105 euros on the stock, on Tuesday expected an improvement in the fourth quarter comparable sales of up to 5 percent and that the impact of the weakness of the dollar against other currencies was "small" in total sales. Also, before the results of Inditex, the Swiss broker expected "gross margin falling 30 basis points to the strength of the euro (...) All this leads to an expected profit growth of 13 percent."

The Arteixo based group achieved a net profit of 2,361 million euros in fiscal year 2012. Despite record growth (+22 percent), this figure is below the analyst consensus, which placed the group's net profit over 2,390 million euros. Sales rose 16 percent and amounted to 15.946 million euros, driven by the good performance of the group's brands in China and America.

The fiscal fourth quarter turned out weaker than the previous one, finishing with a net profit of 705 million euros, and to be compared with 712 million in the third quarter and 777 million euros expected by analysts at Renta 4. "The results are not up to our forecasts" they said.

Meanwhile, the group's sales reached 4.584 million euros, up from 4.123 million in the previous three months and slightly below the 4.753 million provided by this firm. Meanwhile, Ebitda stood at 1,135 million euros, up from 1.276 million estimated by Renta 4 and 1.157 million in the third quarter previous fiscal. At the same time, Ebit was 932 million euros, slightly below the 947 million the previous three months.