Zara owner Inditex reported a slight slowdown in revenue growth at the start of this quarter, taking the lustre off an earnings report that came in just ahead of analysts’ estimates.
Sales gained 14 per cent excluding foreign-exchange movements in the first weeks of the third quarter, slowing down from the first half’s 17 per cent pace. The stock has had a strong run, gaining more than 40 per cent this year as the retailer outperforms rivals.
But shares in the Spanish fast fashion giant dropped as much as 2.1 per cent Wednesday even after Inditex reported operating profit growth of 30 per cent.
“The trading update was weaker than anticipated,” wrote Bestinver Securities analyst Patricia Cifuentes. The retailer also warned that currency shifts will reduce revenue by 3.5 per cent.
European fashion brands have reported mostly positive results for the second quarter. In August, Hugo Boss and Next raised their forecasts, and many rivals posted earnings that topped estimates.
Meanwhile, thousands of smaller retailers and mom-and-pop stores have struggled to keep up with high inflation, with at least 24 brands filing for bankruptcy or under restructuring since June last year, according to Bank of America analyst Geoffrey de Mendez.
As consumers visit shopping centres less often, Inditex has been revamping its physical store network. The retailer has reduced its store count by one quarter to focus on bigger locations that are more efficient. New additions include Paris’s Hotel de Ville and Rotterdam’s Coolsingel. Last year, Zara opened its largest boutique ever in Madrid.
Chief executive Oscar Garcia Maceiras has stepped up efforts to grow the company’s market share in the United States with a plan to open 10 new stores and refurbish, or enlarge, another 13. The US is Inditex’s second largest market by sales, largely due to ecommerce.
Though the plan is not expected to be completed until 2025, Barclays analyst Nicolas Champ has raised concerns around the consumer environment in the US, where retailers have reported disappointing performances and cautious outlooks recently.
The stock has gained 44 per cent this year, erasing a decline in the shares after Garcia Maceiras was unexpectedly named chief executive in late 2021.
The retailer said it has installed the equipment for its new security system in all Zara stores globally. The company missed its deadline to get the necessary hardware throughout the chain by July, people familiar with the situation have told Bloomberg News.
The retailer has been ironing out bugs in the technology as the original set-up made it easy for shoplifters to steal clothes, Bloomberg reported Tuesday, citing people close to the situation. – Bloomberg
