Warm autumn cools sales growth at Zara owner Inditex

Return to more seasonal weather across Europe at end of year sees sales increase 13%

A Zara store, an Inditex brand, in central Madrid, Spain, The world’s biggest clothes retailer reported a slowdown in sales growth in its third quarter as Europe’s warm autumn kept shoppers away. Photograph: Susana Vera/Reuters

A Zara store, an Inditex brand, in central Madrid, Spain, The world’s biggest clothes retailer reported a slowdown in sales growth in its third quarter as Europe’s warm autumn kept shoppers away. Photograph: Susana Vera/Reuters

 

Inditex, the world’s biggest clothes retailer and owner of Zara, reported a slowdown in sales growth in its third quarter as Europe’s warm autumn kept shoppers away, though it pointed to a brighter end of the year.

Fashion retailers such as Next and John Lewis have already reported a hit from warmer-than-usual weather as shoppers ignored new winter ranges. Inditex’s biggest rival, Sweden’s H&M , will report fourth-quarter sales on Friday.

Inditex said on Wednesday that sales between August and October rose 6 per cent year-on-year to €6.3 billion in line with analysts’ forecasts, while net profit rose 2.7 per cent to €975 million. The sales growth was down from 9.2 per cent in the previous quarter and 11.6 per cent a year ago.

“The top line is showing a big deceleration versus previous quarters,” analysts from Kepler Cheuvreux wrote in a note. Most of the lower growth is already priced into the shares, they added.

Inditex shares have fallen about 2 per cent this year, against a decline of more than 20 per cent for H&M.

However, colder weather arrived in November, and Inditex said sales at its more than 7,500 stores and online increased 13 per cent at constant exchange rates between November 1st and and December 11th, as shoppers snapped up items such as oversized sweaters and puffer parkas from new collections.

Shares in the company closed up 1.7 per cent.

Strong euro

“A return to more seasonal weather across Europe has allowed the group to step up top line gains considerably,” Jefferies analysts said in a note.

Analysts said the lower sales growth and a strong euro helped to push the company’s gross sales margin for the quarter to 58.4 per cent, down 33 basis points from a year earlier.

Inditex’s profits are sensitive to fluctuations in the euro because it makes most of its clothes in the euro zone to respond quickly to fashion trends but generates more than half of its sales in countries outside the currency bloc.

The business model has kept Inditex ahead of rivals such as H&M. By keeping its manufacturing bases close to its distribution centre in the northern Spanish region of Galicia, it can shift new designs from catwalk to shop window within weeks. – Reuters