Inditex sales growth accelerates as Zara owner adds stores

Customers browse goods for sale inside a Zara home store, operated by Inditex SA, in Barcelona, Spain

Inditex SA, the world’s largest clothing retailer, reported accelerating revenue growth after an expansion of online sales and new stores helped drive a 5 percent profit increase last year.
Sales increased 13 percent in the six weeks through March 14, the Arteixo, Spain-based owner of the Zara and Massimo Dutti chains said yesterday in a regulatory filing. That gain implies like-for-like store sales growth of 6 percent, better than the 5 percent increase in the year ended Jan. 31, according to Anne Critchlow, an analyst at Societe Generale SA.
The first-quarter sales performance “is a beat versus existing consensus forecasts at around 4 percent, suggesting good support to date for full-year estimates,” Critchlow said in a note to clients.
Inditex is battling fast-fashion competitors like Hennes & Mauritz AB and Associated British Foods Plc’s Primark by entering new markets and boosting online sales. The falling euro has also helped, as the retailer’s costs are highly euro-focused. Like-for-like sales rose 5 percent last year.
Inditex rose 2.4 percent to 28.84 euros at 9:04 a.m. yesterday in Madrid, extending the stock’s advance this year to 22 percent.
After boosting its number of stores by about 5 percent to 6,683 through January, Inditex said it plans to open as many as 480 outlets this year, including three in New York. It also plans to start online sales in Hong Kong, Macau and Taiwan.
In January, the company acquired a 4,400 square-meter building in New York’s SoHo neighborhood, continuing a strategy of building large stores in the top shopping areas in some of the world’s biggest cities, such as Milan, where the retailer operates in the Corso Vittorio Emanuele shopping district.
Inditex generates more than one-third of its revenue from stores outside of Europe. The euro weakened 17 percent against the dollar in the company’s latest fiscal year. A weaker euro boosts Inditex’s profitability because the retailer sources 65 percent of its garments from Europe and surrounding areas, according to Sanford C. Bernstein.
The stock is a “way to play euro weakness,” Jamie Merriman, a Bernstein analyst, wrote before the release. “This is particularly attractive when most apparel retailers have net U.S. dollar cost exposure.”
Net income climbed to 2.5 billion euros (USD2.7 billion) in the 12 months through January from 2.38 billion euros a year earlier, the company said. Analysts surveyed by Bloomberg had estimated profit of 2.49 billion euros. Rodrigo Orihuela, Bloomberg