Despite Profit Decline, Inditex Still Beat Estimates

zaraMadrid—Inditex, parent to Zara, saw its first quarter profit fall 7.3%, the biggest decline since 2009, but the apparel retail giant still managed to beat estimates.

For the quarter ended April 30, the owner of Massimo Dutti and Stradivarius posted net income to 406 million euros (about $550 million) compared with 438 million euros a year earlier. The average estimate of analysts was for 391.2 million euros.

Net sales rose 11% to 3.75 billion euros, helped by relying more heavily on e-commerce for growth.

‘Best Business Model’

“Inditex continues to deliver strong operational performance,” said Bernstein analyst Jamie Merriman. “We continue to believe Inditex has the best business model in apparel retail, and that there is a significant opportunity for space opening for Inditex ahead.”

While its gross profit margin slipped to 58.9% from 59.6% a year ago, that still beat forecasts as operating expenses rose less quickly than expected. CEO Pablo Isla told a conference call for analysts that he expected a stable gross margin for 2014.

Inditex plans to launch online sales in South Korea and Mexico in September in addition to the 25 markets where it already has an e-commerce presence, and would start a store in China’s Tmall online marketplace in the fall.

Chief Financial Officer Ignacio Fernandez said he expected negative currency effects to lessen considerably towards the end of the year if foreign exchange rates continue at current levels. Over a third of Inditex’s sales are made outside Europe and currencies such as the Japanese yen, Turkish lira and Russian rouble have lost between 14% and 21% against the euro in the last year.

 

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Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com