Zara owner Inditex fashions a sales surge

Shoppers walk past a Zara fashion store, operated by Inditex SA, at Pitt Street Mall in Sydney, Australia, on Friday, April 29, 2016. Australia’s drive to balance the books will see the federal government’s debt pile top out within about five or six years and then start to shrink again, according to Treasurer Scott Morrison. Photographer: Brendon Thorne/Bloomberg©Bloomberg

Spanish fashion retailer Inditex has beaten market expectations with a 12 per cent rise in first-quarter revenues, on the back of strong like-for-like sales growth across all markets and new store openings in 31 countries.

News of this robust performance by the world’s biggest fashion retailer by sales — owner of the Zara brand — received a warm reception from investors, who sent Inditex shares up 3 per cent in morning trading.

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Inditex said its net sales in the three months to the end of April rose from €4.37bn last year to €4.88bn in 2016. Its gross margin fell slightly, from 59.4 per cent to 58.1 per cent, while net earnings rose 6 per cent to €554m.

Inditex, which also owns fashion chains such as Massimo Dutti, Bershka and Pull & Bear, said trading in the second quarter had slowed down marginally, with sales in constant currency terms growing 15 per cent between May 1 and June 13, compared with 17 per cent in the first quarter.

Analysts said the discrepancy between sales growth and earnings growth — as well as the decline in the gross margin — mainly reflected the rise of the euro against other leading currencies. Inditex continues to produce much of its stock in Spain and Portugal — which means far more costs than sales are booked in the single European currency.

“Inditex has had a huge negative currency translation effect . . . due to the weakness of several currencies (Turkish lira, Brazilian real, Russian rouble, Mexican peso . . .) against the euro,” noted analysts at Mirabaud, the investment bank, on Wednesday.

They added that the gross margin had now fallen to the lowest level since the first quarter of 2009, but praised the group for keeping “tight control on operating expenses” and “impressive growth” in sales.

By contrast, rival retailer Hennes & Mauritz on Wednesday reported its slowest sales growth in three years, and missed analysts’ expectations. Its sales excluding VAT in the quarter to the end of May were SKr46.87bn ($ 5.64bn), up only 2 per cent year-on-year. This fell short of the SKr48.13bn forecast by analysts polled by Reuters.

Inditex has achieved its growth by pioneering so-called fast fashion: designing and manufacturing clothes in small batches and as quickly as possible, to keep abreast of latest trends. Founded in provincial Arteixo in north-west Spain in 1963, it was floated on the Madrid stock exchange in 2001 and has grown rapidly ever since.

In the three months to the end of April, the group’s eight brands opened 71 stores in 31 markets, taking its global network to 7,085. Among the notable launches in the first quarter was a new Zara flagship store in New York’s SoHo district — part of a broader effort to concentrate on larger, iconic stores in high-profile locations.

In addition, Inditex continued the expansion of its online sales platform, launching in 10 new markets, mainly in eastern Europe.

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