Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Zara owner Inditex keeps up with weather forecasts to boost sales growth

Published 14/12/2016, 11:05
Updated 14/12/2016, 11:05
© Reuters. Zara's logo is seen on a clothes hanger in a Zara store, an Inditex brand, in central Barcelona

© Reuters. Zara's logo is seen on a clothes hanger in a Zara store, an Inditex brand, in central Barcelona

By Angus Berwick

MADRID (Reuters) - Inditex (MC:ITX), the world's biggest clothing retailer and owner of Zara, used its "fast fashion" model to adapt to warmer than usual autumn weather, speeding up its sales growth in recent weeks and staying ahead of slower-moving rivals.

Unlike the Spanish firm, Abercrombie & Fitch (N:ANF) and Gap (N:GPS) posted dismal fourth-quarter sales last month.

Inditex reacts to changing fashion trends and weather by keeping its manufacturing bases close to its distribution centre in Galicia, northern Spain. Items are designed, made and shipped to stores often in less than a month, boosting profitability.

Net profit for the nine months to the end of October was up 9 percent from the year before at 2.2 billion euros (1.81 billion pound), in line with analysts' forecasts, as garments such as velvet dresses, military blazers and mini skirts helped push Inditex sales up by 14.5 percent in local currency terms.

With more than 7,200 stores in 93 markets, Inditex has shifted from multiple new store openings to setting up large flagship stores in key locations and tying in its online business instead.

Apart from Zara, which makes up two thirds of sales, its brands include younger fashion chain Pull&Bear and upmarket label Massimo Dutti.

Other retailers have been trying to speed up their supply chain to match Inditex but are held back by their sourcing from Asia, stretching lead times. They have also started investing in new higher-margin brands.

But Inditex has matched them and has scope to expand further. Analysts at Macquarie say it has only a 2 percent share of a "highly fragmented" global market and they expect it to grow quickly in emerging markets and the United States.

ACCELERATING SALES

Between November and mid-December, Inditex's sales growth accelerated to 16 percent from a year before, implying growth of 10.5 percent once the effect of new store openings is stripped out, Bernstein analysts said.

"The reason for our strong like-for-like sales growth ... has to do with the global execution of our business model, the fully integrated approach between stores and online," Chairman Pablo Isla told analysts.

The like-for-like sales growth compares with its next biggest rival H&M's (ST:HMb) reported 10 percent year-on-year increase in local-currency sales in October. H&M is due to publish November sales on Thursday.

Analysts expect H&M and others to have been hit by the warmer autumn weather as they failed to swap out collections of cold-weather items to attract shoppers.

Inditex shares were down 1.9 percent by 1010GMT, against a 0.5 percent fall on the European STOXX 600 index (STOXX). They have risen 2.5 percent over the past year, against a near 9 percent fall in H&M's shares.

Analysts contributed Inditex's share price dip to a slight miss of forecasts for their gross margin - the profit obtained after selling a product - and said they needed to improve earnings before interest and taxes (EBIT) to rise higher.

"Currency translation was very negative in the first half but in the second half it will have much less of an impact. That's why EBIT growth should continue to recover which should help the shares make progress," SocGen analyst Anne Critchlow said.

© Reuters. Zara's logo is seen on a clothes hanger in a Zara store, an Inditex brand, in central Barcelona

Critchlow said third-quarter EBIT was up 11 percent year-on-year to 1.2 billion euros, 0.4 percent below consensus. EBIT was in the single digits for the previous three quarters.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.