He sector retail is becoming strong on the stock market in a year in which inflation, against which a hard and arduous battle has been waged, is gradually decreasing. The European retail segment that includes the Stoxx 600 has increased by 19% over the year and is already the second most bullish index of the Old Continent’s benchmark index, behind the banking sector. After the latest increases (in the week it rebounded by 6%), On Thursday, the index surpassed the all-time highs it reached in 2021. and is gaining ground compared to the luxury segment, with the largest difference in profitability between the two sectors since the beginning of January, up to 20 points, with a drop of almost 2% for the high-end sector.
He retail Also puff up your chest compared to the Stoxx 600, the benchmark index, with a profitability doubled over the year (the European index is up around 8.9% in 2024). Retail trade was already showing particular strength in August, as it was the Old Continent segment that led the recovery after the sharp setback suffered by the market in the first days of the month, when fears of a recession in the United States set off all the alarms.
Within the Stoxx 600 Retail, the British Next and Kingfisher and the Spanish Inditex are those which They mostly pull the cart, with increases of 39% and 31% over the year (see chart). Among the 11 companies that make up this sub-segment, B&M European, a discount food and general goods retailer based in Luxembourg, is the only one to have accumulated a double-digit decline over the year (21.6%), after current activity results below estimates.
Experts who monitor the behavior of companies in the segment expect a little more room for revaluation on the stock market in the coming months, with a potential increase of 5% for the segment. Regarding the recommendation, seven of the 11 companies in the sector have the best possible advice (purchase), according to the algorithm used by this media with FactSet data. Among these, only Kingfisher was the only one to raised the sign to sell its shares, but earlier this week analysts upgraded their advice to hold them.
“Falling inflation and cost pressures appear to be leading to a resurgence of some of the big consumer names, such as Inditex, Zalando and OVS. But the picture is not black and white. Brands such as ASOS, Superdry, JD Sports and SMCP continue to struggle since the pandemic, helped by changes in shopping and fashion habits. Some of these struggling businesses may be looking the other way. puddle “We look for inspiration from companies like Abercrombie, which have turned things around by going back to basics, cutting costs and understanding their customers better,” says Sam North, an analyst at eToro in the UK, in a report comparing the behaviour of consumer goods companies to luxury companies.
Diego Morín of IG highlights the evolution of consumer preferences and investor expectations with the “great dynamism” that the sector is experiencing retail European, as evidenced by its recent stock market revaluation, even surpassing the luxury sector. “Several factors explain this trend: the post-pandemic recovery has boosted consumption and many companies have improved their e-commerce platforms, increasing sales and efficiency. In addition, competition has led to more agile and flexible business models. “, thanks to mergers and acquisitions, also generates efficiency gains. Although inflation and rising rates present challenges, some companies are well positioned to face this unfavorable economic environment,” adds the expert.
Inditex’s weight in this segment is more than essential for a good performance of the year, with a capitalization of around 158 billion dollars, 85% more than the rest of the companies combined. Not even H&M, which is the second brand in retail the largest European market in market value, is approaching. The current difference between the two companies by capitalization amounts to almost 137 billion euros. The Galician textile company has reached a new milestone after presenting the results of its second fiscal quarter and its price has already reached the level of 50 euros, with which it revalidates its position as the sixth company in the Eurozone by stock market size.
“Inditex is restarting its physical expansion, with the aim of increasing its annual net square footage by 2%, and adding logistics infrastructure to ensure its multichannel offering does not face capacity limitations. The new flagships in the United States, which would strengthen the brand’s profile and help online sales, could confirm the country as a growth engine after becoming the second largest market in terms of turnover, although with fewer than 100 stores, the expansion implies more capital expenditure, including €1.8 billion in warehouses in two years. , although cash generation is likely to remain high, with inventory days – an important metric – falling below 90, better than most of its peers,” they explain. BloombergIntelligence.
Overall, the expert group’s forecasts suggest that Inditex will surpass the profits recorded last year, when it had already set a record by reaching 5 billion euros in net profit. Thus, the retail segment generally has good estimates for the year, with sales increasing by 2024 in eight of its 11 companies, compared to what was estimated at the beginning of the year, according to FactSet data.
The British company Next is the one that is experiencing the biggest increase in this regard, with a 6.5% increase in sales compared to what was expected in January. Today, experts expect its turnover to reach 7 billion euros. This upward revision by analysts is not surprising, since the company itself has increased its profit forecast by 15 million pounds ($20 million), to 995 million pounds (from 980 million previously), for the 2024 financial year, confirming that sales for the first six weeks of the second half of this year have exceeded expectations.
