Inditex Posts 27% Profit Gain on New Store, Online Increases

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Holiday looks at Zara

Arteixo, Spain—Inditex SA, which owns Zara, reported today that its net profit for the first nine month jumped 27% thanks to new stores in Asia and increased sales online.

For the nine months ended Oct. 31, Inditex, which bills itself as the world’s largest apparel retailer, posted net income of 1.66 billion euros (about $2.2 billion). Earnings before interest, tax, depreciation, and amortization, or EBITDA, a key earnings measure, improved 25% to 2.78 billion euros.

The profit was in line with analysts’ average estimate but was the first time in more than three years that Inditex didn’t beat analysts’ estimate.

Net revenue grew 17% to 11.36 billion euros as the company opened 360 stores during the nine months including doors in China as it reduced its dependence upon its home market of Spain which has been hit with a second recession in three years. As for its online business, Zara opened a Chinese site in September and Inditex said the brand will begin selling online in Canada next spring.

“The results for the first nine months of 2012 business year show that Inditex is continuing its global, multi-concept and multi-channel expansion,” Inditex said.

Gross margin widened to 60.5% from 59.6% in the same period 2011. Operating costs in rose 15% in the nine months, due to increased selling space “and the variable costs linked to the strong sales performance,” the company said.

To Open 480 to 520 Stores This Year

“We manage a diversified sales platform,” Pablo Isla, chief executive, told analysts on a conference call, adding that the company has a target to open 480 to 520 stores this year. “The current base offers huge growth potential for the coming years.”

Inditex has some 6,000 stores in 86 countries after opening its first stores in Armenia and Macedonia earlier this year as well as its first Massimo Dutti store in New York.

Inditex’ stock gained nearly 63% this year, making the company the most valuable in Spain at 64 billion euros.

Looking toward its fourth quarter, the company said it was off to a robust start, noting store sales in constant currency terms rose 15% between Aug. 1 and Dec. 9. That is in line with its first half growth, though slightly slower than the growth rate at the beginning of its third quarter.

Retail analysts had mixed reactions to the Inditex report.

“We are used to very good results, always beating estimates, and today’s earnings weren’t that great,” said Jose Rito, an analyst at Banco BPI in Portugal. “They were actually slightly negative, mainly because of operating costs.”

But Richard Perks, director of retail at Mintel, who called the results “stunning,” said,

“There was a 6.5% increase in store numbers, but even so there is a lot of underlying growth in there. I suppose it’s quite simply that the group is right at the top of its game. Even in tough times, people want to be fashionable and Inditex’s ability to read fashions and get them to the stores quickly is what it’s all about.”