Inditex Half Year Profit Up at Lowest Rate in 4 Years

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Zara fall lookbook

Zara fall lookbook

Madrid—Inditex SA, parent to Zara and the world’s largest clothing retailer, today reported that its first half profit exceeded expectations thanks to increased sales and lower taxes.

For the six months ended July 31, Inditex posted a net income increase of 0.74% to 951 million euros (about $1.27 million) compared with 944 million euros a year earlier. That beat analysts’ average estimate for 926 million euros. But it was the company’s smallest profit increase since 2009 and weaker than its first quarter growth of 1.6%.

Net sales rose 6% to 7.655 billion euros (in local currencies sales increased 8%) Like for like sales, which account for about 80% of the company’s business, were up 2% on top of a 7% increase a year ago. Taxes were lower at 264 million euros compared to 320 million euros last year.

However, gross margin narrowed to 58.6% versus 59.6% the year before, due to June markdowns, higher raw material prices and currency effects especially the weaker yen.

Third Quarter Sales Off to Strong Start

The company said it expects gross margin to be mostly stable the rest of the year, about 50 basis points higher or lower than its “exceptional” margin in 2012.

Inditex’ expansion into other regions may help its future bottom line as well. Spain, which still accounts for 19.3% of total sales, once again reported a drop in sales—the 37th straight month in July.

However, the company said sales in Asia, Australia and Africa had overtaken Spain to account for 21.7% of the total, up from 20.2% a year earlier.

Inditex opened stores in 40 markets during the first half and operated 6,104 stores in 86 markets, including recently launched online sales for Zara in the Russian Federation.

While the retailer said space growth and store openings for the year are on track, management said it expects store openings to be at the low end of its targeted range of between 440 and 480 for this year, after the company had refurbished a total of 50 flagship stores. But since the new stores are on average larger than older ones, the retailer’s overall store space will keep growing at roughly the same pace.

Regarding the start of its second half, Inditex said store sales in local currencies have increased 10% from August 1 to Sept. 14.