Zara owner Inditex sees slower growth after stellar Q2

Zara owner Inditex sees slower growth after stellar Q2

Madrid: Inditex , the world’s biggest fashion retailer, reported a slowdown in sales growth in the last few weeks, after a forecast-beating half-year, raising fears a deepening debt crisis in Europe is dampening consumer spending.

The Spanish group, best known for its Zara brand, said sales rose 9% at constant exchange rates in the period from 1 August to 17 September. down from a 13% increase over the previous six months.

Analysts said that suggested a slowdown in growth from stores open for at least a year to about 1-2% from around 8-9% in the second quarter which ended on 31 July.

“There is a question mark over what trading is going to be like in H2 (the second half) with the macro concerns," said Bryan, Garnier & Co analyst Peter Farren.

At 0810 GMT Inditex shares, which had climbed 11% over the last month in defiance of sliding equity markets, were down €1.2% at 62.3, underperforming a 0.9% decline in the STOXX Europe 600 retail sector index .

A string of European retailers have flagged worsening trading conditions in recent months as shoppers have seen their disposable incomes squeezed by higher prices, muted wages growth and government austerity measures.

Carrefour , Europe’s biggest retailer, issued a profit warning last month, while European-focused fashion retailer Esprit reported a 98% plunge in profits last week.

Inditex, the brainchild of Spain’s richest man Amancio Ortega, has fared better than most, thanks in part to its rapid expansion in faster-growing emerging markets.

The group, with over 5,200 stores across 78 countries, has also coped well with surging costs for clothing retailers from higher cotton prices and rising wage rates in key manufacturing centres like Asia, mainly because it sources more goods locally than rivals like Sweden’s Hennes & Mauritz.


Net profit jumped 14% to €717 million ($983 million) in the six months to 31 July, beating the average forecast of 672 million given in a Reuters poll of analysts.

Sales reached €6.2 billion, while the gross profit margin fell 100 basis points to 58.4%, less than most analysts’ anticipated.

“A big beat," said SG analyst Anne Critchlow, who was not overly concerned by the recent dip in sales growth, arguing monthly figures could be volatile.

Citi analysts predicted the full-year consensus pretax profit forecast was likely to rise 3-4% to €2.55-2.58 billion.

However, others were concerned by a 25% rise in inventories, which they said could lead to markdowns in the second half.

Inditex, which has reduced its exposure to its austerity-hit home market of Spain to 26% from over 40% a few years ago, said it would continue its expansion into faster-growing developing markets, entering South Africa, Taiwan, Georgia, Azerbaijan and Peru in the coming months.

The group has also launched all eight of its brands online, and said it would begin internet sales in Japan on 20 October.

Rapidly expanding Asian and south American markets like China and Brazil now account for 29% of sales, up from 27% in the first half of last year.