Inditex Profit Falls Short of Estimates | News & Analysis

MADRID, Spain — Zara owner Inditex reported third-quarter profit below analysts’ expectations on Wednesday due to currency effects, but the world’s largest clothing retailer, maintained sales and margin guidance for the rest of the year.

Inditex, which also owns upmarket label Massimo Dutti and teen brand Bershka, reported earnings before interest and tax (EBIT) of €3.07 billion ($3.5 billion), up 3 percent on the year-ago period. The growth would have been 14 percent at constant exchange rates, the company said.

Its shares slipped 4.5 percent in initial trading.

Inditex, with stores from China to Russia, is highly sensitive to exchange rates. Controlled by founder Amancio Ortega, the group generates more than half of its sales in currencies other than the euro and then books those sales in euros when reporting results.

However, its centralised sourcing and distribution model means a large chunk of its costs are in euros.

Inditex, which launched online sales for Zara in 106 new markets last month, said it had not had to cut clothing prices from September like rivals, resulting in gross margin growth of 108 basis points during the third quarter.

Analysts said however the group had missed profit estimates in the period. Third quarter EBIT of €1.29 billion was 4 percent less than consensus, said Anne Critchlow of Société Générale.

“FX was still a problem in the third quarter with a 3 percent hit to sales which explains why there is a 4 percent miss versus consensus sales and EBIT, despite the strong gross margin increase,” she said in an email.

Like-for-like sales in the second half of 2018 to the end of November grew 3 percent after a good start to the season and an extraordinarily warm September, said Capital Markets Director Marcos Lopez in a statement accompanying results.

Inditex is known for whisking catwalk looks into stores in a matter of weeks and instead of refreshing its stock seasonally like traditional clothing retailers, it regularly drops fresh looks into its physical and online stores.

The group said in September it expected like-for-like sales growth of 4 to 6 percent over the second half of its financial year.

By Sonya Dowsett; editors: Ingrid Melander and Keith Weir.


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