Inditex Sales Growth Hits Two-Year High as More Stores Open

Updated on

Inditex SA, the world’s largest clothing retailer, reported accelerating revenue growth after an expansion of online sales and store openings helped drive a 5 percent profit increase last year.

Fourth-quarter sales at the Zara owner rose at the fastest pace in more than two years, according to Bloomberg Intelligence data. Growth continued into the new financial year, with revenue in the six weeks through March 14 up 13 percent excluding currency fluctuations, Inditex said Wednesday.

“This was a positive set of results, namely because of the strong sales momentum,” Filipe Rosa, an analyst at BESI Research, said in a note. Rosa has a neutral recommendation on the stock, which rose as much as 3.1 percent in Madrid.

By entering new markets and extending the reach of online sales, Inditex is keeping ahead of competitors including Hennes & Mauritz AB and Associated British Foods Plc’s Primark. The falling euro has also helped, as much of the retailer’s garment costs are in that currency.

The sales increase in the first six weeks of the new financial year implies like-for-like store sales growth of 6 percent, according to Anne Critchlow, an analyst at Societe Generale SA, better than a 5 percent increase last year.

Inditex rose 2.8 percent to 28.86 euros at 11:30 a.m. in Madrid, extending the stock’s advance this year to 22 percent.

After boosting its number of stores by about 5 percent to 6,683 through January, Inditex said it plans to open as many as 480 outlets this year, including three in New York. It also plans to start online sales in Hong Kong, Macau and Taiwan.

Euro Weakness

In January, the company acquired a 4,400 square-meter building in New York’s SoHo neighborhood, continuing a strategy of building large stores in the top shopping areas in some of the world’s biggest cities, such as Milan, where the retailer operates in the Corso Vittorio Emanuele shopping district.

Inditex generates more than one-third of its revenue from stores outside of Europe. The euro weakened 17 percent against the dollar in the company’s latest fiscal year. A weaker euro boosts Inditex’s profitability because the retailer sources 65 percent of its garments from Europe and surrounding areas, according to Sanford C. Bernstein.

The stock is a “way to play euro weakness,” Jamie Merriman, a Bernstein analyst, wrote before the results were released. “This is particularly attractive when most apparel retailers have net U.S. dollar cost exposure.”

Net income climbed to 2.5 billion euros ($2.7 billion) in the 12 months through January from 2.38 billion euros a year earlier, the company said. Analysts surveyed by Bloomberg had estimated profit of 2.49 billion euros.

The company proposed a 0.52 euro-per-share dividend payment, 7.5 percent more than the previous year. Inditex also unveiled a profit-sharing plan for about 70,000 employees that will distribute 10 percent of its annual earnings growth, as much as 2 percent of total profit.