By Christopher Bjork
MADRID--Fast-fashion group Inditex SA has turned in
better-than-expected sales and profit for the first quarter though
unfavorable exchange rates helped drag the Spanish retailer's net
profit 7.3% lower than in the same period last year.
Inditex, best known for its Zara clothing chain, said net profit
fell to EUR408 million ($552 million) from EUR438 million a year
earlier on a 4.3% rise in revenue to EUR3.75 billion. Weaker
currencies outside the euro zone, where the owner of the Zara chain
sells more than half its clothes, squeezed sales growth and its
profit margins.
But the company, the largest fashion maker in the world by
sales, did better than analysts had expected as it controlled costs
and benefited from strong underlying growth at Zara. The clothier
also announced two new initiatives it hopes will help support its
growing online presence in China and in the U.S.
Stripping out the effect of currency depreciation, Inditex said
its sales in stores and online grew 11% in the first quarter, a
trend that it said continued during the first five weeks of the
second quarter.
Sales growth at Inditex's main European rival Hennes &
Mauritz AB underscored robust global demand for consumer goods. The
Swedish group said on Wednesday that its revenue grew 16% in the
three months to end-May from the same quarter a year ago.
Shares in the two companies were among Europe's top three
blue-chip gainers in early trading Wednesday, with H&M's shares
up 1.2% and Inditex's stock up 1.6%.
"We expect the market to react positively to today's earnings
announcement as Inditex continues to deliver strong operational
performance and as investors look ahead to a lower impact from
currencies in the quarters to come," said Jamie Merriman, an
analyst at Bernstein Research.
Inditex's revenue grew faster than H&M in the same period
last year, making the latest growth rates tricky to compare, said
Anne Critchlow, an analyst at Société Générale.
Large retailers selling everything from deodorant to sunglasses
are seeing big revenue swings due to exchange rate volatility in
emerging markets. Unilever PLC said in April it would raise prices
in emerging markets in an attempt to offset a decline in revenue
due to currency shifts. Luxottica Group SpA, maker of the Ray-Ban
and Oakley glasses, also blamed weaker currencies for a drop in
sales.
Inditex, which has more than 6,300 stores in 87 countries, has
proved to be no exception. In Russia, Inditex's third-largest
market outside the euro zone, the ruble is down more than 15% this
year against the euro, according to Bernstein Research. In Turkey,
another big market for the apparel maker, the lira has fallen more
than 20% against the euro.
Inditex is betting on further growth in online shopping and on
Wednesday announced two initiatives to support Zara's e-commerce
offering.
Zara is opening a so-called stockroom in Los Angeles which will
house the wares the company sells to online shoppers on the West
Coast. Up to now, it served the West Coast from a stockroom in
Boston. Chief Executive Pablo Isla said the move will allow the
company to offer 24-hour delivery and lower transport costs.
Zara will also open a virtual storefront at Alibaba Group
Holding Ltd's Tmall online shopping site, the first time the brand
is using a third-party site to sell its clothes.
Tmall, a fast-growing shopping site, has had success recently
signing up western brands keen to reach Chinese middle-and
upper-class consumers which are buying an increasing share of their
clothes online. U.K. luxury clothier Burberry PLC opened a store
there in April this year. Inditex already markets several of its
brands online in China though its own websites. It also has almost
500 physical stores in Asia's largest economy, making the country
its second-biggest market after Spain.
Inditex also said it would propose a share split to
shareholders, with each existing share exchanged for five new ones
to increase their liquidity on the Madrid stock exchange.
Write to Christopher Bjork at christopher.bjork@wsj.com
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