Zara owner Inditex’s sales hot up despite warmer autumn

Inditex, the world's biggest clothing retailer and owner of Zara, reported a 9 per cent rise in nine-month profit on Wednesday, and sales growth accelerated in recent weeks, despite warmer than usual autumn weather in many European countries.

As its fashion peers struggle to adapt to changing consumer tastes, with Abercrombie & Fitch and Gap posting dismal fourth-quarter sales last month, Inditex's "fast-fashion" business and online prowess have kept it ahead. Inditex is known for speedily reacting to changing trends and weather by keeping its manufacturing bases close to its distribution centre in the northern Spanish region of Galicia.

Items are designed, made and shipped to stores often in less than a month, which boosts its profitability. Items such velvet dresses, military blazers and mini-skirts helped push sales up 14.5 per cent in local currencies in the nine months to October 31st.

Forecasts

Net profit was up 9 per cent at €2.2 billion, while earnings before interest, tax, depreciation and amortisation (Ebitda) were up 8.4 per cent at €3.6 billion, both results in line with analysts’ forecasts, according to a Reuters poll.

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With more than 7,200 stores in 93 national markets, the company has continued to shift away from many new store openings as its primary driver of growth, instead setting up large flagship stores in key locations and tying in its online business.

Other retailers have struggled to catch up with Inditex's online presence, which is now in 41 markets after launching in Turkey in October. Apart from Zara, its brands include younger fashion chain Pull&Bear and upmarket label Massimo Dutti. Analysts also expect it's next biggest rival, H&M, to have been hit by the warmer weather in autumn as it failed to swap out its collections of cold-weather items to attract shoppers.

Sales growth

Between November and mid-December, Inditex’s sales growth accelerated to 16 per cent from a year before, implying growth of 10.5 per cent once the effect of new store openings is stripped out, according to analysts from Bernstein. This compares with H&M’s reported 10 per cent year-on-year increase in local-currency sales in October.

H&M reports November sales on December 15th and fourth-quarter results on January 31st. So far this year Inditex's margins, reported in euros, have been affected by negative foreign currency swings in Britain, Mexico and China. But any impact was offset by the acceleration in its online sales and store expansion strategy, analysts say.

– (Reuters)