Inditex Profit Beats Estimates as Revenue Growth Accelerates
Inditex SA (ITX), the Spanish owner of the Zara and Massimo Dutti chains, said sales have accelerated since July and reported first-half profit that beat analysts’ estimates helped by expansion in emerging markets.
Net income climbed 32 percent to 944 million euros ($1.23 billion) in the six months through July, the Arteixo, Spain- based company said today in a statement. The average estimate of 13 analysts compiled by Bloomberg was 893.5 million euros.
Inditex, the world’s largest clothing retailer, increased the pace of sales growth in the start of its third quarter while Hennes & Mauritz AB (HMB)’s same-store sales fell 4 percent in August as a heat wave kept European shoppers away. Inditex is adding stores in markets such as China as its domestic market faces its biggest economic crisis in decades. The company is also driving revenue growth by expanding sales via the Internet.
“Inditex was able to react much faster to the heatwave in August in Europe than H&M did thanks to its business model, which allows the Spanish retailer to adapt to new trends and dramatic weather changes very quickly,” Francisco Salvador, a Madrid-based strategist at FGA/MG Valores, said.
The retailer said sales outside Europe represented 34 percent of total sales, compared with 29 percent a year earlier.
Inditex rose 2.1 percent to 93.84 euros as of 11:01 a.m. in Madrid trading. The shares have climbed 48 percent this year, valuing the company at 58.4 billion euros. It’s the second-best performer in the benchmark IBEX 35 Index this year.
First-half sales gained 17 percent to 7.24 billion euros, or a 15 percent increase excluding currency shifts. Since the end of the period, store sales expressed in local currencies have gained 17 percent, it also said, compared with growth of 9 percent in the same period a year earlier.
After introducing Internet sales for Zara in China earlier this month, Inditex said today it will start online operations in the U.S. for Zara Home and Massimo Dutti in October. Inditex plans a gradual online expansion for all its brands around the world, Chairman and Chief Executive Officer Pablo Isla said on a webcast conference call today.
“They are rolling out online sales very quickly, giving them access to more people and markets, which is also driving sales and margins up,” Critchlow said.
Inditex said store openings are in line with the company’s target set up in March to add 480 to 520 shops this year. The company opened 166 stores in 39 markets during the six months, bringing the total to 5,693. Revenue at outlets open at least a year rose 7 percent in the first half, it said.
Inditex also sees “strong” growth potential in all markets where it operates, Isla said.
Earnings before interest and taxes climbed 35 percent to 1.24 billion euros, Inditex said, also beating the average estimate of 1.17 billion euros in a Bloomberg survey.
“At some point Ebit will have to slow down as this growth pace cannot carry on indefinitely, but for now the drivers are there,” Critchlow said.
Gross profit rose 19 percent to 4.31 billion euros, or 59.6 percent of sales compared with 58.4 percent a year earlier.
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