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Zara owner Inditex defies eurozone crisis to post 30% profit rise Zara owner Inditex defies eurozone crisis to post 30% profit rise
(about 11 hours later)
Spain's Inditex, the world's largest clothes retailer, showed on Wednesday it can sell to both fashion-hungry shoppers in emerging Asia as well as cash-strapped consumers in Europe, posting a sharp rise in first-quarter earnings. Zara owner Inditex has reported a 30% jump in profits as shoppers around the world flock to its stores for high street versions of the latest catwalk trends.
The owner of Zara and a clutch of other brands including upmarket Massimo Dutti beat forecasts with a 30% rise in net profit to €432m (£347m) and sales of €3.4bn. A Reuters poll had found average forecasts for net profit of €383.4m and sales of €3.3bn. The retail giant, which this month overtook Telefonica and Banco Santander to became Spain's biggest company, can get a new design on the shop floor in just two weeks so is judged by the fashion pack to be bang up to date with the newest looks.
Expansion into new markets, which included Georgia, Bosnia and Ecuador, fuelled growth. That "fast fashion" formula is proving a hit at home and abroad, with strong growth in emerging markets such as China helping Inditex to post first-quarter profits of €432m (£350m), 30% more than in 2011. Sales were ahead 15% at €3.4bn in the three months to 30 April, sending the shares up more than 11%.
The firm said sales in constant currency rose 14% between 1 February and 10 June, the start of its second quarter. The Spanish retailer is faring better than European rivals Esprit and H&M, where sales are flagging with analysts estimating like-for-like sales rose 5-6%. "When you think of what is going on with the euro crisis, it's amazing," said Société Générale analyst Anne Critchlow. "It highlights the lack of Inditex's reliance on southern Europe."
Société Générale analyst Anne Critchlow estimated like-for-like sales – which strip out the boost from new store openings – climbed at least 6%. Inditex produces a third of its clothing in Spain and the domestic market, where retail sales fell 9.8% in April – the 22nd month in a row of falls – accounts for about a quarter of its sales. Critchlow said the company was becoming less reliant on Europe as sales in emerging markets accelerated.
"That has continued into the first six weeks of the second quarter, May and half of June, which when you think of what's going on with the euro crisis is amazing," she said. Under the watchful eye of founder Amancio Ortega, the company, which is based in La Coruña in Galicia, has expanded rapidly, establishing chains in 85 countries. Although Ortega, the world's fifth richest man, stepped down as head of Inditex last July he retains a 59% stake in the company, which is listed on the Spanish stock exchange and has a market value of nearly €47bn.
Eurozone finance ministers agreed on Saturday to lend Spain up to €100bn to shore up its teetering banks, but respite for Madrid and the eurozone could be brief and uncertainty about the outcome of the Greek elections is likely to further dampen spending and confidence. The quarterly update gave a snap shot of its global ambition with the company opening 91 stores in 26 different markets over the course of the three months including a flagship on New York's Fifth Avenue and its first outlets in Ecuador. The company, which owns eight retail brands including Massimo Dutti, Bershka and Pull & Bear, said it would launch a Zara website in China in September. It now has more than 5600 stores worldwide.
Inditex said it would start selling flagship Zara brands online in China in September. Inditex said it had "redoubled its commitment" to investing in the stricken domestic economy with almost €300m earmarked to nearly double the size of headquarters at Arteixo, on the outskirts of La Coruña, and a new logistics centre for its Massimo Dutti brand at Tordera in Catalonia. The two projects will create 900 jobs. The enlargement of Arteixo, adding the equivalent of 10 football pitches worth of space, will be used to house the creative and design teams of Zara and Zara Home.
The group runs more than half a dozen fashion labels and has 5,500 stores across more than 80 countries. The €100bn bailout of the Spanish banking system brokered at the weekend has failed calm nerves about the future of the Euro and Inditex chief executive Pablo Isla used the update to state he had "full confidence in the future of the Spanish economy": "I firmly believe that the effect of the reforms being adopted will start to become evident in the coming quarters."
While the blue-chip Ibex-35 index has shed about a quarter of its value this year, Inditex shares have risen by 6.6%.