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BREAKING NEWS

Zara owner Inditex shakes off currency drag to post strong profit growth

Zara owner Inditex shakes off currency drag to post strong profit growth
FILE PHOTO: The logo of a Zara store, an Inditex brand, is seen in central Madrid, Spain, December 13, 2017. REUTERS/Susana Vera -
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Susana Vera(Reuters)
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By Sonya Dowsett

MADRID (Reuters) – Spanish fashion group Inditex reported a 10% rise in first-quarter profit on Wednesday, as foreign currency effects moved back into favour for the owner of Zara and Massimo Dutti after two years of nibbling away at margins.

However, sales growth at the world’s biggest clothing retailer was lower than analysts expected during the quarter due to adverse weather conditions in the latter part of the period when it was wet and cold across much of southern Europe.

The world’s biggest clothing retailer reported net profit of 734 million euros (£654 million)for the three months from Feb. 1 to April. 30, on sales up 5% at 5.93 billion euros.

Sales at constant exchange rates for the first six weeks of the second quarter were stronger, up 9.5% as shoppers snapped up items like jewel-toned blazers and long printed dresses from Zara’s spring collections.

Inditex maintained its full-year guidance of 4-6% growth for like-for-like sales.

RBC Capital Markets estimated it had booked like-for-like currencies of around 6.5% during the first weeks of the second quarter, against around 2% in the first quarter.

Inditex generates over half of its sales in other currencies that have to be converted back into euros for the financial report. Those currencies have strengthened slightly against the euro compared to a year ago, on average, helping reported sales.

Societe Generale and Credit Suisse estimated sales at Inditex were reduced 3.5% last year by this effect, moving to a positive effect this quarter.

Gross margin grew 6% on year to 59.5% in the quarter in which Inditex launched online sales for Zara in Brazil. Zara will launch online sales in a further eight markets in May, including Israel, Saudi Arabia and Indonesia.

With the adverse foreign exchange effects removed, Inditex is under pressure to show it can deliver strong like-for-like sales without the margin dilution that has affected others in the apparel sector, plagued by out-of-season sales as shoppers wait for discounts or hunt for bargains online.

“With less impact from foreign exchange, this will be an important year to prove the concept,” said UBS in a research note.

(Reporting By Sonya Dowsett; Editing by Paul Day and Jan Harvey)

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