Inditex Reports Margin Improvement Despite Strong Euro | News & Analysis

MADRID, Spain — Inditex, the world’s biggest clothing retailer and owner of fashion brand Zara, reported improved profitability on Wednesday for the first three months of its financial year despite negative currency effects.

The group also reported strong sales for the first six weeks of the second quarter, up 9 percent in local currencies, as shoppers snapped up items from summer collections including striped maxi skirts and linen dresses at Zara.

Although first-quarter sales reached a record €5.7 billion ($6.7 billion), negative currency effects meant the quarterly growth rate was 2 percent, lower than rates booked during the financial crisis.

First-quarter sales growth stripping out currency effects was 7 percent.

A strong euro has a negative effect on Inditex’s profitability as the owner of upmarket chain Massimo Dutti and underwear store Oysho generates more than half of its sales in non-euro currencies and then books those sales in euros when reporting results.

Inditex’s centralised sourcing and distribution model also means a large chunk of its costs are in euros.

However, the gross margin increased 68 basis points from the same period a year ago to 58.9 percent of sales despite the euro strengthening around 16 percent from the year-ago period.

First-quarter earnings before interest, tax, depreciation and amortisation were €1.13 billion, in line with analysts’ expectations.

The company opened new stores in 36 markets and launched online sales in Australia and New Zealand during the period. However, the number of net stores declined over the three months to 7,448 as the company closed smaller shops to focus on big destination-style stores that complement its online offering.

By Sonya Dowsett; editor: Biju Dwarakanath.


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