Dec. 11 (Bloomberg) -- Inditex SA, the owner of the Zara and Massimo Dutti chains, fended off the effects of unseasonable weather and the strength of the euro to post a slight increase in nine-month profit that met analyst estimates.
Net income rose 1 percent to 1.67 billion euros ($2.3 billion) in the nine months through October, the Arteixo, Spain-based company said today. The average of 16 estimates compiled by Bloomberg was 1.7 billion euros.
Inditex is finding profit growth hard to come by this year as the euro’s strength weighs on earnings outside of Europe and a recovery in its domestic economy remains at an early stage. Cold spring weather and a mild fall also hindered the world’s largest clothing retailer, which has boosted profit by at least 10 percent in each of the last three years.
“The underlying model is on track and we should see continued healthy growth next year, but it’s hit a bit of a speed bump this year,” Rahul Sharma, managing director of Neev Capital in London, said on Bloomberg Television’s “Countdown.”
Inditex rose as much as 1.4 percent in Madrid trading and was up 0.7 percent at 115.10 euros as of 11:10 a.m.
The gross margin, a measure of profitability, widened to 59.9 percent in the nine months from 58.6 percent in the first half, Inditex said, without providing a reason. The improvement was “a positive surprise” Cedric Lecasble, a Paris-based analyst at Raymond James, said by phone.
Chief Executive Officer Pablo Isla expects the margin to remain “stable” in the second half of the year, he said on a conference call with analysts.
Inditex said it had 6,249 stores in 86 markets as of the end of October. Besides Western Europe, the company added stores in countries such as China, Canada and Brazil. It also started selling online in Russia and it said it will commence Web-based sales for Zara in South Korea and Mexico next year.
The expansion boosted sales, which rose 5 percent to 11.9 billion euros, or 8 percent in constant-currency terms. Revenue at the company’s stores has continued to gain since the end of the nine-month period, rising 10 percent in constant-currency terms through Dec. 8, Inditex said today.
The retailer is “totally on track” to meet its full-year space growth target of 8 percent to 10 percent from a year earlier, Isla said on the conference call.
China will be a “very, very relevant driver of our expansion in the coming years,” while in Spain “we are seeing positive sales growth” as the economy recovers, he said.
Currency shifts reduced nine-month profit growth by 3 percentage points on translation and the impact for the full-year is expected to be in line with that, Capital Markets Director Marcos Lopez said on the conference call.
Nine-month earnings before interest, tax, depreciation and amortization were little changed at 2.78 billion euros, in line with analyst estimates.
“The third quarter was broadly reassuring and very slightly better than what I expected,” Anne Critchlow, a London-based analyst at Societe Generale, said by phone. “There’s no significant damage for full-year estimates.”
For the year through January, net income at Inditex may climb almost 8 percent to 2.5 billion euros, according to the average of 28 analyst estimates compiled by Bloomberg.
“We continue to believe the group’s unique business model has created a strong competitive advantage with high barriers to entry which should support continued profitable growth,” Allegra Perry, an analyst at Cantor Fitzgerald, said in a note.
To contact the reporter on this story: Manuel Baigorri in Madrid at firstname.lastname@example.org