Inditex Earnings Fail to Top Estimates for First Time Since 2010

Inditex Profit Gains on Emerging-Market Growth, Online Expansion
The retailer plans a gradual online expansion for all its brands around the world. Photographer: Angel Navarrete/Bloomberg

Inditex SA, the world’s largest clothing retailer, reported profit that failed to beat estimates for the first time in more than three years.

Net income rose to 1.66 billion euros ($2.2 billion) in the nine months through October, meeting the average of 19 analysts’ estimates compiled by Bloomberg. That was the first time since the first quarter of fiscal 2010 that the Arteixo, Spain-based retailer has failed to exceed predictions.

“We are used to very good results, always beating estimates, and today’s earnings weren’t that great,” said Jose Rito, an analyst at Banco BPI in Porto, Portugal. “They were actually slightly negative, mainly because of operating costs.”

The owner of the Zara and Massimo Dutti brands is adding outlets in markets such as China to keep up growth rates as its domestic market faces a decline in consumer spending. Revenue growth at the company’s stores slowed to 15 percent in local currencies from Aug. 1 to Dec. 9, compared with 17 percent growth in the first half of that period, Inditex said.

The shares slid as much as 1.9 percent and were down 0.2 percent at 103.4 euros as of 12:17 p.m., while the benchmark IBEX 35 Index rose 0.4 percent. The stock has gained 63 percent this year, making Inditex the most valuable company in Spain at about 64 billion euros.

Earnings before interest, tax, depreciation and amortization climbed 25 percent to 2.78 billion euros as sales rose 17 percent to 11.4 billion euros, Inditex said.

Store Openings

“Earnings are basically in line, showing a slight slowdown in the second half of the third quarter,” said Peter Farren, an analyst at Bryan Garnier in Paris. “Like-for-like sales will moderate during the second half of next year.”

Operating costs in the nine-month period rose 15 percent, mainly due to increased selling space “and the variable costs linked to the strong sales performance,” Inditex said.

The retailer added 360 stores during the nine months, increasing its total to 5,887 stores in 86 countries.

Inditex introduced Chinese Internet sales for Zara in September and started online operations in the U.S. for Zara Home and Massimo Dutti in October. Zara will start selling online in Canada in spring-summer 2013, it said today.

“We manage a diversified sales platform,” Chief Executive Officer Pablo Isla said on a webcast conference call, repeating a target to open 480 to 520 stores this year. “The current base offers huge growth potential for the coming years.”

The gross margin widened to 60.5 percent in the nine-month period, compared with 59.6 percent a year earlier.

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