Inditex Net Income Rises Most in Two Years on Zara Expansion

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Shoppers pass a Zara fashion store, operated by Inditex SA, in Nice, France, on Thursday, May 14, 2015. The European Commission and the International Monetary Fund both see expansion of more than 1 percent this year, more than twice the annual pace recorded since President Francois Hollande came to power in 2012.

Photographer: Andrey Rudakov

Inditex SA, the world’s largest clothing retailer, reported the fastest profit growth in more than two years as the Zara owner opened more stores and benefited from the weak euro.

Net income rose 28 percent to 521 million euros ($589 million) in the first quarter, which ran through April, Inditex said Wednesday in a statement. Analysts surveyed by Bloomberg had predicted 504.6 million euros. The company signaled that revenue growth has accelerated slightly so far in the second quarter.

Inditex has opened more than 400 stores annually on average over the past five years. Sales in Spain, Inditex’s largest market, continue to rise after a 5 percent increase in the past financial year, Chief Executive Officer Pablo Isla said. The 3.1 percent growth that the International Monetary Fund forecasts for the Spanish economy is set to bolster sales in a market where Zara offers 15.95-euro Jacquard woven dresses and 17.99-euro high-heel sandals.

“What is really pleasing is current trading,” Anne Critchlow, an analyst at Societe Generale in London, said by phone.

Revenue rose to 4.37 billion euros, exceeding the consensus for 4.33 billion euros, gaining 13 percent excluding currency shifts. On that basis, sales rose 13.5 percent in the Feb. 1 to June 7 period.

Beating Buffett

A surge in Inditex’s stock price this year has inflated 79-year-old founder Amancio Ortega’s fortune to $71 billion. That makes him richer than Warren Buffett and second to Bill Gates, according to the Bloomberg Billionaires Index. The stock dropped 2.1 percent to 29.38 euros at 10:52 a.m. in Madrid, bringing the gain this year to 24 percent. Among rivals, Hennes & Mauritz AB shares are little changed in 2015.

Inditex’s gross margin widened to 59.4 percent from 58.9 percent, helped by currency shifts. The dollar was 25 percent stronger against the euro on average during Inditex’s first quarter compared with the year-earlier period, while the Chinese yuan was up 24 percent and the Japanese yen 7.3 percent. That boosted the value of revenue from those markets when translated into euros.

That was offset by the ruble, which was 23 percent lower against the euro on average. Inditex has more than 500 stores in China and 450 in Russia. The company operates in 88 countries.

The company’s forecast is for a stable margin for the full year. The margin will probably be a bit higher in the first half and lower in the second due to foreign exchange moves, Isla said, adding that the company defines “stable” as up to 0.5 percentage point higher or lower.

Among the brands that opened most stores in the quarter are Zara Home with 19 and Zara with 15. The company’s brands also include Bershka and Massimo Dutti.

The company proposed adding former Carrefour SA CEO Jose Luis Duran as a board member. In January, the 50-year-old Spaniard resigned as CEO of Lacoste, the clothing brand known for the crocodile logo. He started there in 2009, and in 2012 Maus Freres, a Swiss retail investment company, bought the remainder of the company from family shareholders.

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