Buy/TP:€25.80/CP:€21.87
Spanish retail sales fell 0.4% nominal/rose 0.4% constant rices in August, seasonal and calendar adjusted, INE data show. This compares with -1.0%/-0.5% respectively in July (YTD average +0.2%/+0.2% vs. July's +0.2%/+0.1%). Excluding service stations, sales fell 0.8% nominal/0.3% constant (vs. July's -0.8%/-0.5%). Within this, food sales fell 0.6% nominal and grew 1% constant (-0.9% and +1% July) taking food YTD growth to 0.2% and 0.4%, vs. 0.3% and 0.3% in July.
Non-food sales were flat nominal/+0.7% constant (down 0.9%/ 0.5% July). Apparel outperformed at +1.8% nominal/+1.9% constant (July +0.3%/+0.5%). In contrast, Home decreased 0.6% current/0.1% constant (July -0.4%/+0.2%), while "Other" (including expenses such as utility bills) fell 0.8% nominal (-0.1% constant). By distribution class, large chain store sales increased 0.4% nominal/0.9% actual, suggesting a reversal of the previous two months' underperformance (July -2.1%/-1.6%), perhaps thanks to the end of more intense promotional activity at the smaller chain stores and independents over the summer sales period (rebajas).
In terms of the read-across to Inditex, ITX's current trading update (1 Aug to 12 Sept), at its 1H14 results on 17 Sept, showed constant currency sales up 10% (SANe 3.5% LfL vs 4.5% 1H14). We note this period extends beyond the INE data, which is, therefore, somewhat backward looking. That said, incorporated within the +10% CC growth, we estimate that the 1H14 Spain strength (6% LfL) continued, albeit at a slightly more moderate pace given the tougher comp. More broadly, at group level we expect a stronger-than-average August and a slightly weaker-than-average first two weeks of September, as has been the case in many apparel markets, given the warm weather. We note that Inditex's comps ease significantly in the second half of 3Q.
Although there is nothing particularly new to take from this INE update, the continued momentum in Spanish retail sales is encouraging and contributes to our constructive view on ITX (Buy TP EUR25.80/share).
Inditex: Strong August Spanish Apparel Sales