Inditex, Zara Parent, Posts Q1 Profit Rise as Aggressive Expansion Continues

Inditex opens its first Massimo Dutti store in the United States on Fifth Avenue in New York this September.

La Coruna, Spain—While its home turf may be struggling with a debt crisis, Inditex SA, parent to Zara, reported Wednesday a strong first quarter that beat expectations.

Thanks to the fact Inditex has been expanding internationally especially in emerging nations, the company has been immune to the economic woes pervading Spain and much of Europe.

For the quarter ended April 30, Inditex posted net profit of 432 million euros (about $540 million), up from 332 million euros a year earlier. That was well ahead of analysts’ estimates for 379 million euros in profit.

Net sales increased 15% to 3.42 billion euros, helped by 464 new store openings and a gross margin that widened to 60.2% from 58.8%. And the start of its second quarter, Feb. 1 to June 10, sales were up 14%.

Analysts pointed out that Inditex opened more than an average of one store a day in recent years and plans to expand online in China this September. Consumers can now shop through www.zara.com in 16 European countries, United States and Japan.

The company has expanded rapidly across the fast-growing markets in Asia and Latin America and opened new stores in Ecuador, Bosnia and Georgia in April and May. In March, the company said it expects to have 425 stores across China by the end of the year, compared the 275 it had in January. The company ended the quarter with 5,618 stores.

Spain now accounts for about a quarter of its sales, a percentage that is decreasing daily.

Because of its global expansion drive–Inditex has opened more than a store a day, on average, in recent years and is set launch online sales in China in September–the company is becoming less reliant on sales in Spain, now accounting for around a quarter of the total.

Retail Analysts: Company Could Grow 13% Annually through 2016

It has expanded rapidly across the fast-growing markets of Asia and Latin America and opened new stores in Ecuador, Bosnia and Georgia in April and May. In March, the company said it expects to have 425 stores across China by the end of the year, compared with 275 in January.

Analysts’ consensus estimates that Inditex could grow as much as 13% annually through 2016.

Inditex’s success story? Retail analysts attribute it to its complex logistics system and heavy use of information technology to track data on consumer tastes. The company, whose other brands include Bershka, Pull & Bear and Massimo Dutti, also makes half of what it sells close to its headquarters, and delivers new merchandise in small batches to all of its stores by plane or truck twice a week.

While analysts say this set up makes production costlier, but the formula has been successful during the economic downturn because Inditex can adapt faster to fluctuations in demand than its rivals.

“With these results, a strong jump in Inditex’s shares is logical after they fell somewhat last week on rumors of possible weak results after the publication of poor Spanish retail sales data,” Banesto Bolsa, a Spanish brokerage firm, said in a research note.

Next week, Inditex’s chief rival, H&M, which plans to expand 10% to 15% a year, reports its second quarter earnings.

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