LONDON — Zara owner Inditex reported a strong start to summer trading on Wednesday as currency-adjusted sales grew 11.5 per cent in May, handily beating analyst expectations, even as Iran war inflation worries dent consumer confidence.
Inditex shares rose as much as 5 per cent as the healthy sales growth reassured investors the fast fashion giant can weather the global turmoil as the company adapts its supply chain to navigate disruptions caused by the conflict.
Analysts had expected sales growth of 8 per cent for May, the start of the company’s second quarter. Inditex posted sales of €8.75 billion ($10.17 billion) over its February-to-April first quarter, up 8.8 per cent in currency-adjusted terms.
“Zara is clearly still gaining share, it’s clearly the outperformer,” said Manjari Dhar, analyst at RBC, pointing to lower-price competitor Primark struggling with weaker sales.
Inditex likely also benefitted from its exposure to southern Europe, Dhar said, with better weather there than in northern Europe where rival H&M dominates. Inditex’s biggest market is Spain, where it is headquartered.
“This performance is even more noteworthy when considered against the backdrop of the wider macroeconomic and geopolitical challenges seen in recent months,” Gorka Garcia-Tapia Yturriaga, Inditex’s investor relations director, said on a call with analysts.
Sales in the Middle East, where Inditex has stores operated by franchise partners, have been impacted, he added, without giving a specific figure.
IMPACT OF HIGH FUEL, TRANSPORTATION COSTS LIMITED SO FAR
Chief Financial Officer Andres Sanchez said Inditex has rapidly adapted its supply chain to ensure uninterrupted product flow to its stores globally despite disruptions to air and sea freight caused by the war, which broke out in late February.
“There is a lag effect between the transportation of goods and the impact on cost of goods sold, which means that the impact of the higher transport cost and fuel prices in the first quarter has so far been limited,” he said.
Sanchez did, however, say the May sales figure should be taken with caution as it represented a four-week snapshot, shorter than the five-week period Inditex usually reports.
Inditex’s profitability improved in the first quarter, with gross margin hitting 61.2 per cent - up from 60.6 per cent a year ago - in a sign the retailer has successfully protected profits despite higher raw material and freight costs.
Operating expenses grew 6.2 per cent, a higher rate of cost increase compared to 2.3 per cent a year ago.
ZARA SEES FURTHER GROWTH IN U.S.
Zara has invested in bigger stores on key shopping streets to draw in new customers, and has opened more locations in the United States, its second-biggest market by sales after its home market of Spain.
Inditex’s sales have been growing in the U.S. and elsewhere broadly thanks to volume - the selling of more items - not through price increases, Garcia-Tapia Yturriaga said.
“We still see more opportunities for growth because we do have a low market share (in the U.S.) ... The growth in that sense is in our hands, and it’s not really dependent on the performance of the broader market,” he said.
Inditex’s optimism on the U.S. contrasts with weak forecasts issued by Gap GAP.N and American Eagle AEO.N last week that signaled pressure on U.S. shoppers’ spending, which has become increasingly polarized with luxury sales up and lower-income households pulling back.
Last month, Zara launched a new clothing collection with Puerto Rican pop and reggaeton superstar Bad Bunny, who wore custom Zara outfits during his NFL Super Bowl halftime show in February.
Inditex stuck to a full-year outlook issued in March of a stable gross margin, a 5 per cent increase in store space, and €2.3 billion in capital expenditure.
(Reporting by Helen Reid; Editing by David Latona, Joe Bavier and Louise Heavens)
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