Companies Reporting: Inditex, TUI and Currys

Our regular look at the FTSE 350 and a selection of other companies reporting from 12– 16 December 2022.

• Inditex is hoping to continue its recent success
• TUI bookings are near their pre-pandemic levels
• Wage hikes are likely to eat into Currys’ margins

Inditex, Third Quarter Results, Wednesday 14 December

Sophie Lund-Yates, Equity Analyst: “Inditex is the parent company of well-loved high street brands such as Zara, Pull&Bear and Bershka, to name a few.

Inditex released a seriously impressive set of results for the first half of the year, with net sales up 24.5% and profits up 42% compared to the same period last year. This highlights that Inditex’s strategy is working. The group has focused on improving their product offerings as well as investing in key stores and online sales channels. It will be good to see whether these investments are continuing to produce results. While the retail sector is facing a lot of challenges, many are cautiously optimistic that Inditex can deliver on its targets.

Last quarter, Inditex increased its Autumn/Winter inventory levels ahead of schedule, a move that runs contrary to the recent optimization strategy. With this higher level of inventory, the group is ensuring that product availability remains high in the face of supply chain tensions. But this strategy comes with risks. If sales stall, the group could be left in a worse financial position. Many will be looking to see how well these products are shifting when results are released.”

TUI, Full Year Results, Wednesday 14 December

Sophie Lund-Yates, Equity Analyst: “In the third quarter, TUI expected Markets & Airlines to return to “significant profitability” for the full year. That came as the group’s summer bookings were almost within pre-pandemic levels. It is expected that winter bookings were just over three quarters of 2018/19 levels, and therefore there’s optimism that the group’s likely to have hit this target.

One aspect that will be watched closely is pricing. So far it seems TUI has been able to increase the prices it charges customers by double digits, which helps offset the group’s own soaring costs. Many would like to see what TUI predicts for further price hikes in the new financial year – a belief that customers will continue to swallow further increases suggests consumer sentiment is holding strong. Should the opposite ring true, this could have implications for TUI’s margins next year.

Of course, TUI is more than just an airline and investors will be keeping a watchful eye on the Hotels & Resorts business. Average rates have been trending above pre-pandemic ranges and cruises have been recovering well. It would be good to hear some more detailed expectations of how things are shaping up for next year.”

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• Companies Reporting: Ashtead, Currys, TUI

Currys, Half Year Results, Thursday 15 December

Sophie Lund-Yates, Equity Analyst: “It’s fair to say that most people are feeling the pinch of this cost-of-living crisis, and Currys are no different. Due to selling a lot of big-ticket items such as TVs, mobile phones and washing machines, the group are very exposed to a reduction in consumers’ discretionary income. Currys have resorted to reducing the brightness of TVs on display in its stores, as well as turning off every other light on the shop floor in a bid to reduce energy costs.

Back in July, Currys downgraded its medium-term operating margin guidance from 4% to 3%, reflecting the challenging outlook ahead. Since then, amidst soaring inflation and chronic staff shortages, Currys have been forced to increase staff wages twice to prevent their staff getting poached by other retailers. With roughly 32,000 employees on their books. Many are keen to see just how much pressure these wage rises have put on margins.

The group impressed last year by largely mitigating the effects of inflation through a combination of cost cuts and price rises. The group hopes to continue doing this, but investors think there must be a limit to these tactics. Currys also set out guidance for adjusted profit before tax of £130-£150m for this financial year. It will be interesting to see whether the group are on pace for this target as the mid-year point is approaching.”

This article has been brought to you in association with Hargreaves Lansdown. All opinions expressed in this article are from the analysts and do not necessarily represent the opinions of The Armchair Trader.

FTSE 100, FTSE 250 and selected other companies scheduled to report