Inditex Profit Beats Estimates on Online Expansion

Updated on
  • Operating income rises 6%, sales gain 17% excluding currencies
  • Bernstein analyst says revenue growth is likely to decelerate

Inditex SA, the maker of Zara and Massimo Dutti clothing, reported first-quarter profit that beat analysts’ expectations as fashionistas bought more garments such as $36 jeans and $69 pink safari jackets online.

Operating profit increased 6 percent to 705 million euros ($790 million) in the three months through April, the world’s largest clothing retailer said Wednesday in a regulatory filing. Analysts expected 696 million euros. Revenue rose 15 percent in the first weeks of the second quarter, excluding currency shifts, decelerating from growth of 17 percent in the prior period.

‘‘Inditex has been running at an exceptionally high sales-growth rate for
precisely one year now,” wrote Anne Critchlow, an analyst at Societe Generale, who estimates the like-for-like increase was 10 or 11 percent in the quarter. ‘‘We argue that this cannot last forever. As the prior year sales comparatives toughen from here, we would expect a normalization.”

Inditex, which has more than 7,000 stores in 90 countries, has been scaling back bricks-and-mortar store openings while pushing further into internet shopping. The company, founded by Amancio Ortega, the world’s second-richest man, aims to have all its brands online in every European market and Turkey by the end of the year. The web helps drive sales in shops as online purchasers often go to stores for product returns and end up buying extra items, Chief Executive Officer Pablo Isla has said.

‘In a market environment where most retailers are bemoaning the weather, Inditex’s results demonstrate the strength of the business model,” wrote Jamie Merriman, an analyst at Sanford C. Bernstein.

With headquarters and most of its manufacturing and logistics based in Spain, the company also faces the impact of wage inflation in its home country, according to a report by Barclays Plc. Spanish wages have been increasing for two years and are rising 5 percent now, which can significantly affect margins over the next three years, according to the bank.