Inditex Store Sales Growth Slows, Sending Stock Lower

Inditex SA, the world’s largest clothing retailer, said sales growth at its stores eased in the third quarter, sending the shares lower.

Store sales increased 10 percent at local currency rates from Aug. 1 through Sept. 20, the Arteixo, Spain-based owner of the Zara chain said today as it reported first-half profit that beat analyst estimates. Net sales increased 11 percent in the first half, stripping out exchange-rate shifts.

“Bears may point to the slower sales in the second half to date,” Simon Irwin, an analyst at Liberum Capital Ltd., said by e-mail. The slowdown should be viewed in the context of a stronger comparable period a year ago, he said.

Inditex fell as much as 3.2 percent in Madrid trading, having gained 34 percent this year before today. First-half profit rose 68 percent as Spain’s economic growth improved and consumers stepped up spending before July’s sales-tax rise. Achieving the same rate of profit growth in the second half will be “difficult,” Luca Solca, a London-based analyst at Sanford C. Bernstein, said before the earnings were released.

The start to the third quarter was “slightly” below estimates, said Cheuvreux analyst Daniel Ovin, who has an “outperform” rating on the shares.

Inditex Chief Executive Officer Pablo Isla attributed the slowdown to tougher comparisons, with sales having fallen in the first half of the prior year and risen in the second half.

‘Not Very Relevant’

“To look at the sales over a short period of time is not very relevant,” Isla said on a conference call.

Inditex was down 1.49 euros, or 2.6 percent, at 56.63 euros as of 12:48 p.m. in Madrid, giving the company a market value of about 35 billion euros ($47 billion).

First-half sales rose 14 percent to 5.5 billion euros. Net income advanced to 628 million euros from 375 million euros a year earlier. That compared with a 569 million-euro average estimate of seven analysts compiled by Bloomberg.

The Spanish retailer also said it expects “gross-margin drivers to return to normal in the second half,” after first-half gross profit as a proportion of sales increased to 59.4 percent from 55.3 percent a year earlier.

Purchasing is going to get more “difficult” over the next 12 months, said Liberum’s Irwin, citing rising raw-material expenses and labor costs in Asia. “Inditex is very well positioned relative to peers.”

Supply Structure

Inditex concentrates about half its production in Europe, 15 percent in Turkey and 35 percent Asia, and isn’t planning to change its supply structure, CEO Isla said.

Hennes & Mauritz AB, Inditex’s nearest rival in Europe, buys its goods from about 700 independent suppliers, mostly in Asia and Europe. H&M shares have risen 29 percent this year, near the 30 percent gain for Inditex.

Inditex has cut the weighting of its store sales coming from Spain to 28 percent from 32 percent, according to the statement. Asian store sales rose to 15 percent of the total in the first half from 12 percent last year.

Sixty percent of the company’s planned store openings for the year will come in the second half, compared to 50 percent in the year-earlier period, the CEO said. Selling-space will rise by as much as 10 percent annually in the coming years, he said, confirming earlier statements.

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