Sep 22, 2010
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Inditex H1 profit leaps, Q3 sales slower

Sep 22, 2010

Inditex, Zara
TRF for Zara for Inditex Group - A/W 2010
MADRID, Sept 22 (Reuters) - Spanish group Inditex (ITX.MC), the world's biggest clothing retailer, beat forecasts with a 68 percent rise in first-half net profit, driven by a pick-up in consumer demand it said had slowed in recent weeks.

Cash-rich Inditex, which launched online shopping for its flagship fashion brand Zara earlier this month, reported a net profit of 628 million euros ($825 million) on Wednesday, compared with a forecast for 573 million in a Reuters poll.

Its shares, which had risen 36 percent this year to a record high of 59.29 euros on Tuesday, slipped, partly on news current sales growth had slowed.

"Current trading performance is not on fire," said Fraser Ramzan, retail analyst at Nomura. "It is slightly slower relative to the first half, and that is despite the online launch that has generated a lot of anticipation."

Inditex said sales at constant exchange rates rose 10 percent in the first seven weeks of the third quarter, down from first-half growth of 11 percent.

Its shares were down 2.9 percent to 56.44 euros by 1125 GMT. They have outperformed the STOXX 600 European retail index .SXRP by 16 percent this year and were trading at 22.7 times forecast earnings, above H&M (HMb.ST) on 21.7 times, Reuters data showed.

Net sales rose 14 percent to 5.525 billion euros in the first half, in line with a 5.538 billion forecast, showing the profit outperformance was due to richer margins.

"The surprise is in the gross margin," said Anne Critchlow, retail analyst at Societe Generale. "It is partly currency ... but it also indicates a recovery in consumption."

Gross margin rose to 59.4 percent of sales from 55.3 percent. The company's fast-fashion business model, that speeds catwalk designs to its stores worldwide, allows it to respond quickly to recovering demand.

Europe's retailers are seeing a tentative recovery in consumer demand, which is proving stronger in emerging markets. But many are also wary that steps to rein in government debt could crimp spending in the months ahead.

Inditex said it was satisfied with the response to its initial six-country launch of Zara online sales, adding it would extend the offer to Austria, Belgium, Ireland, Luxembourg, and the Netherlands during the second half.

Inditex management would not elaborate further on sales performance at the Zara online venture during a conference call for analysts, saying it was too early to give details.

The number of searches for Zara.com has more than doubled since online shopping at the site was launched at the start of September, according to Google Trends.

At a Zara store in an upmarket Madrid shopping centre, displaying its autumn range including cashmere overcoats at 239 euros and faux sheepskin gilets at 99.95 euros, 25-year-old student Angela O'Connor said she would use the online site to look at what was on offer, but would continue visiting stores.

"It is a great idea, you can see the clothes first even if you come and buy them physically in the shop," she said.

(Reporting by Sonya Dowsett; Additional reporting by Sarah Morris in Madrid and Mark Potter in London; Editing by Dan Lalor) ($1 = 0.7614 euro)

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