Inditex sees “robust” first half of 2017
The world’s largest fashion retailer by revenue, Spanish fast-fashion expert Inditex, said that it had a “more robust” first half of 2017 than it was expecting. The company, best known for brands like Zara, Massimo Dutti, and Pull & Bear, said that sales and profit rose more than analysts had expected. However, currency fluctuations and a weaker margin took a little of the shine off the results. Nonetheless, investors are pleased: Andreas Inderst, an analyst with Macquarie Group, described the results as “very pleasing.”
The company saw a 9% rise in profit, to €1.37 billion, from the first half of 2016. Sales for the period jumped up 12%. Inditex also said that performance has continued to be strong at the beginning of its third quarter, with sales increasing by 12% between August 1 and September 17 against the same timeframe in 2016. This implies a 6% rise in like-for-like sales.
In the second quarter, like-for-like sales were almost as positive, showing a 5% jump year-on-year. Looking at the bigger picture, this is an extremely strong result: Inditex’s major competitor, H&M, reported a 4% decline in like-for-like sales during its second quarter.
Nonetheless, not everything was positive. Inditex reported that its gross margin fell to 54.8% in the second quarter, casting a shadow over the company’s profitability. Anne Critchlow, a Societe Generale analyst, said: "The weak gross margin in the second quarter will worry the market, particularly in terms of how it continues for the remainder of the year, with the market already well aware that the strong euro could continue to put pressure on sales".
Inditex is also exposed to currency effects. The majority of its sales come from outside of Europe, but it manufacturers primarily in Spain, meaning that the strengthening Euro has had a negative impact on the company’s bottom line.
Nonetheless, things look bright at Inditex. During the first six months of 2017, the company opened 113 new stores, including major Zara stores in Mumbai, Madrid, and Astana. At the end of July, Inditex was operating 7,405 stores. A year earlier, it had 7,096.
Dominion holds Inditex in its Global Trends Luxury Fund.
If you would you like to receive the Newsfeeds daily, please click here to sign up now!Help us make this Newsfeed better by rating this article. 1 star = Poor and 5 stars = Excellent
- Click here to print this story: Print
The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.