Inditex Gains Most in Two Years as Profit Beats Estimates

Inditex First-Quarter Profit Rises 30% on Asian Store Openings
Inditex, the world’s largest clothing retailer, is adding stores in emerging markets and expanding its online offering to offset weaker consumer spending in its debt-ravaged home market. Photographer: Bartek Sadowski/Bloomberg

Inditex SA rose the most in more than eight years in Madrid, retaking the crown as Spain’s largest company, after the clothing retailer reported a 30 percent gain in first-quarter profit, beating analyst estimates.

The stock advanced 12 percent to 75.40 euros, the biggest intraday gain since March 25, 2004. That gave the owner of the Zara chain a market value of about 47 billion euros ($59.2 billion), compared with 44.6 billion euros for Telefonica SA.

Net income rose to 432 million euros in the three months through April, the Arteixo, Spain-based company said today. The average of 11 estimates compiled by Bloomberg was 381 million euros. Inditex, the world’s largest clothing retailer, is adding stores in emerging markets and expanding its online offering to offset weaker spending in its debt-ravaged home country.

“With what’s going on in the euro zone, it’s amazing to beat estimates on better like-for-like sales,” said Anne Critchlow, an analyst at Societe Generale SA in London who has a buy recommendation on the stock.

The Spanish company competes with Esprit Holdings Ltd., which fell 22 percent in Hong Kong before trading was suspended. Esprit said today that Chairman Hans-Joachim Koerber resigned, less than 24 hours after Chief Executive Officer Ronald Van der Vis quit, jeopardizing the retailer’s turnaround plans.

Volatile Market

“In a very volatile market environment, Inditex has a very flexible business model and is much better positioned than the likes of H&M and Esprit,” said Simon Irwin, an analyst at Liberum Capital. “That advantage will accelerate.” Irwin also cited rising e-commerce sales and the company’s sourcing model.

Inditex CEO Pablo Isla said today he has “full confidence” in the future of the Spanish economy, speaking on a conference call with analysts.

“Despite a softening market trend in Spain, we think Inditex continues to take share from independents on account of its newness,” Richard Chamberlain, an analyst at Bank of America Merrill Lynch, said in a note. “It should continue to benefit from its increasing online and Asia exposure.”

Inditex has reduced its dependence on its home market. Spain became the fourth euro member to seek a bailout since the start of the region’s debt crisis more than two years ago, with a request for as much as 100 billion euros to rescue its banks. About 22 percent of the company’s sales will come from Spain this year, compared with 45 percent from emerging markets, Societe Generale’s Critchlow said.

Store Openings

First-quarter sales rose 15 percent to 3.42 billion euros, Inditex said. That beat the 3.3 billion-euro average of 22 analysts’ estimates compiled by Bloomberg. Revenue in local currencies from Feb. 1 to June 10 was 14 percent higher than in the year-earlier period.

Inditex opened 91 stores in 26 markets in the quarter for a total of 5,618 outlets globally as of April 30. The retailer said in March it plans to open 480 to 520 shops this year, including its first Massimo Dutti stores in the U.S.

The first-quarter gross margin increased to 60.2 percent of sales from 58.8 percent a year earlier, beating the 59 percent average estimate of 11 analysts surveyed by Bloomberg.

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