Equities Update: Lululemon, Inditex, Workspace Group, B&M…

Latest steer on US economic strength may give Fed pause, with Lululemon results on tap later

Adam Vettese, analyst at investment platform eToro, says: “In spite of sticky inflation and repeated declarations from the Fed that their stance will fit the incoming economic data, investors continue to hold hopes of a forthcoming rate cut, fuelling US stock advances, such as today’s new record high for Nvidia.

“The inconvenient truth of the data, however, is that the economy stands on a firm footing and there is no compelling case as yet for the Fed to risk stoking inflation with a stimulatory move. The latest indication suggests the economy may even be heating up: the widely followed ISM services PMI gave a stronger-than-expected reading for May, pushing deep into expansionary territory with the highest reading of the year so far, with notable strength in business activity and new orders.

“Away from the macro level, investors will find out after the close on Wall Street how athletic apparel retailer Lululemon has been faring, when the company reports for its fiscal first quarter. Lululemon has done a good job of exceeding expectations in recent quarters and the consensus expectation for Q1 is for EPS of $2.38, compared with $2.28 for the same quarter a year ago.”

Inditex: heading towards the 50 euro mark

Javier Molina, analyst at investment platform eToro, says: “Inditex surprises the market with its first fiscal quarter results, corresponding to the period from February 1 to April 30, 2024. The company has reported a 10.8% growth in net profit, reaching EUR 1.294 bn. In addition, sales have increased by 7.1%, up to EUR 8.150 bn, and sales at constant exchange rates have improved by 10.6%. This strong performance has been driven by the excellent reception of the Spring/Summer collections.

“Looking ahead, the company continues to present good prospects with a strong start to the second quarter, both in physical store and online sales. This positive trend is evident from May 1 to June 3, 2024, where a year-on-year increase of 12% has been achieved, excluding exchange rate effects. The company stated that it believes there are significant growth opportunities in the future and is implementing several initiatives to further develop its business model. Objectives for 2024 include a 5% increase in store space from 2024 to 2026, investments of EUR 1.8 bn, including EUR 900 million to expand logistics capacity, and a dividend of 1.54 euros per share.

“Given this scenario, the shares are heading towards 50 euros as the target price. However, despite these positive results and market optimism, we must not overlook the economic environment and its potential impact on a possible reduction in spending that could affect the company. It is crucial to monitor how the economic environment evolves and how Inditex adapts to these potential challenges.”

Workspace Group ups dividend as rent prices surge

Mark Crouch, analyst at investment platform eToro says: “Workspace Group’s full year earnings will add credence to the growing belief the UK commercial property market is on the road to recovery. London’s leading owner and operator of flexible workspace reported strong rental income growth with net rental income up 8.2% for the year, delivering a 9% increase in trading profits after tax. As a result shareholders have been rewarded with a dividend increase of 8.5%.

The commercial property market suffered more than most during the pandemic. Work from home models remained in place, and with business owners choosing to downsize to accommodate the hybrid model and cut costs, Workspace Group found themselves in a tight spot.

Despite these challenges, demand in the capital has remained strong and although shorter leases have resulted in frequent turnover, Workspace Group have capitalised, using the breaks to nudge rents higher while maintaining an occupancy rate of 88.1%.

Interest rate hikes may have put the brakes on the property bull market, which is reflected in Workspace Group property valuations falling nearly 10%. However, with inflation easing the pressure is mounting on central banks to cut interest rates. And while no one can predict when the cuts will happen, Workspace Group is well-equipped to wait it out until they do.”

B&M keeps up momentum with new stores

Adam Vettese, analyst at investment platform eToro says: “B&M’s latest update has shown no signs of letting up with an almost 10% hike in profit. The firm which gives consumers well-known brands at the lowest possible prices has the perfect audience when consumers may be feeling the pinch from higher cost of living.

“Not only that, they are looking to capitalise by stepping up new store openings to get to a long term target of 1200 in the UK, adding no less than 45 by the end of next year. This is set to compound the firm’s gains on its current trajectory. There is always a risk that opening too many will spread themselves too thin, but given the resilient performance we have seen in these more difficult times, it’s arguably difficult to bet against them. With more benign financial conditions potentially on the horizon, it is possible that maintaining this momentum may prove more challenging.”