Inditex Earnings Beat Estimates as Zara Owner Expands Online

  • Sales increased 13% during first weeks of third quarter
  • Company to start Turkish online sales for all brands in Oct.

Inditex SA, the world’s biggest clothing retailer, reported earnings that beat analysts’ estimates as the company prioritized online expansion over store openings.

First-half operating profit increased 8 percent to 1.61 billion euros ($1.8 billion) in the six months through July, Inditex said Wednesday. Analysts expected 1.58 billion euros. Revenue rose 13 percent in the first weeks of the third quarter, excluding currency shifts, slowing down from growth of 16 percent in the first half. The stock rose as much as 1.6 percent in early Madrid trading.

Inditex, which operates Zara and other brands through more than 7,000 stores in 91 countries, this year lowered its target for retail space expansion as it focuses on bolstering online shopping. The strategy also includes bigger stores in key markets, as part of an attempt to maintain growth after revenue increased eight-fold since the company’s 2001 initial public offering. Its performance has bested industry peers such as Hennes & Mauritz AB, whose August sales missed analysts’ estimates.

“In light of the difficulties being experienced among clothing peers, today’s results act as another reminder of the quality of the Inditex business model,” Exane BNP Paribas analyst Simon Bowler said in a note.

Digital Expansion

As part of its digital expansion, Arteixo, Spain-based Inditex in October is set to roll out online sales for all brands in Turkey. It’s also on track to open its first Zara store in Auckland that same month. Like-for-like sales, which exclude currency movements, increased 11 percent in the first half.

Inditex is not alone in betting on online fashion. Amazon.com Inc. has moved aggressively into the space, and sold $16.3 billion in apparel last year, more than the combined online sales of its five largest online clothing competitors -- Macy’s, Nordstrom, Kohl’s, Gap, and Victoria’s Secret parent L Brands, according to trade publication Internet Retailer.

Inditex is also benefiting from the steady pace of economic growth in Spain, where the retailer gets about a fifth of its sales. The local clothing market grew an average 3 percent in the three-month period through July, according to the Spanish statistics agency.

Currency fluctuations hurt Inditex on two fronts as the strong dollar raised costs for the 35 percent of garments the retailer sources from Asian countries, according to Kepler Cheuvreux analyst Natalia Bobo. Meanwhile, the weakness of the Russian ruble, British pound, Mexican peso and Turkish lira eroded sales growth, she said.

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