Inditex SA (ITX), the Spanish owner of the Zara clothing chain, reported accelerating revenue growth in the first six weeks of the fiscal year, spurring optimism over prospects for the coming spring fashion season.
Store sales in local currencies rose 12 percent from Feb. 1 to March 15, Inditex said in a statement today as it reported full-year revenue and profit in line with estimates. That compared with an 8 percent gain in the fourth quarter, according to Allegra Perry, an analyst at Cantor Fitzgerald Europe.
The performance so far this year “was achieved during a primarily full-price selling period and bodes well for a strong spring/summer season,” Perry said in a note.
Inditex rose as much as 4.3 percent in Madrid, the biggest gain in more than nine months. The retailer is capturing growth by expanding online and adding stores in countries like Brazil, China and Russia to help offset sluggish spending at home. This fiscal year, it expects to open as many as 500 new outlets.
“We are encouraged by both the sales performance in the start of 2014, and management’s guidance that space contribution will return to its long-run average,” Jamie Merriman, an analyst at Sanford C. Bernstein in London, said in a note.
The shares were up 3.3 percent at 106.5 euros as of 11:04 a.m. in Madrid, trimming this year’s drop to 11 percent.
Inditex said capital expenditure this year will be about 1.35 billion euros as it adds new retail space. In addition to the store opening plans, the retailer expects to merge as many as 100 small stores into neighboring ones.
The strategy is sensible “given the growth of online and profitability of larger stores,” analysts at Exane BNP Paribas, including Ben Spruntulis, said in a note.
Inditex, controlled by billionaire Amancio Ortega, said its online operations now cover most of the Northern Hemisphere. The retailer will start Web-based sales for Zara in South Korea and Mexico this year, bringing its online presence to 27 markets. In the third quarter, brands including Zara and Bershka introduced online sales in Russia, where the company has 386 stores.
“We regard Inditex as one of the few beneficiaries of the ongoing, rapid channel shift to online from store-based apparel sales given that store-based sales cannibalization remains minimal,” wrote Citigroup Inc. analyst Richard Edwards.
Inditex, which has increased profit every year since its 2001 initial public offering, today reported its slowest earnings growth in five years. Net income rose less than 1 percent to 2.38 billion euros in the 12 months through January, weighed down by 30 million euros of losses on foreign exchange.
Sales rose 4.9 percent to 16.7 billion euros, in line with the average of 27 analysts’ estimates. Revenue gained 8 percent at constant rates of exchange, while comparable sales rose 3 percent. Net income also met estimates of 2.39 billion euros.
The gross margin, a measure of profitability, shrank to 59.3 percent of sales last year from 59.8 percent a year earlier. Inditex forecast a “stable” margin in 2014.
The retailer has built its popularity on the ability to bring new products from design table to stores in as little as two weeks. That’s helped it offset the economic crisis that gripped its home market for years and outpace Swedish competitor Hennes & Mauritz AB. (HMB) Earlier this week, H&M reported an 11 percent increase in February sales.
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