The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
ARTEIXO, Spain — Inditex SA, the Spanish owner of the Zara clothing chain, reported its slowest profit growth in five years, as global currency fluctuations weighed on sales.
Net income rose less than 1 percent to 2.38 billion euros ($3.31 billion) in the 12 months through January, Europe’s biggest clothing retailer said in a statement today, the slowest annual profit growth in five years. Sales advanced 8 percent at constant rates of exchange and while comparable revenue rose 3 percent.
Inditex has been capturing growth by expanding its online operations and adding stores in countries like Brazil, China and Russia to help offset sluggish spending at home. Weakening emerging-market currencies have led companies including Adidas AG to warn that the fluctuations will hurt earnings this year.
“We expect FX headwinds to persist in the next fiscal year,” Jamie Merriman, an analyst at Sanford C. Bernstein, said in a note prior to the release. “But we expect Inditex to continue to deliver strong fundamental performance and believe that the recent underperformance of the shares could provide investors with a good entry point.”
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Inditex shares have dropped 14 percent this year, giving the Arteixo, Spain-based retailer a market value of about 64 billion euros. The purveyor of $49.90 skinny jeans and $39.90 printed sweatshirts gets almost a third of its revenue from Russia, China, the Mideast and other markets in Asia, according to Charles Allen, an analyst at Bloomberg Industries.
Facing Headwinds
The retailer, controlled by billionaire Amancio Ortega, introduced online sales for brands including Zara and Bershka in Russia during its third quarter, where it has more than 360 stores. Political tension in Ukraine has sent the ruble 10 percent lower against the U.S. dollar this year.
Inditex, which has increased profit every year since its 2001 initial public offering, has built its popularity on the ability to bring new products from design table to stores in as little as two weeks. That’s helped the company offset the economic crisis that gripped its home market for years. The company has almost a third of its 6,200 stores in its home market.
That agility has helped Inditex outpace Swedish rival Hennes & Mauritz AB, which reported an 11 percent increase in February sales this week.
Store sales this fiscal year have have increased by 12 percent in local currencies, Inditex said. The gross margin, a measure of profitability, shrank to 59.3 percent from 59.8 percent a year earlier. Sales rose 4.9 percent to 16.7 billion euros, in line with analysts’ estimates.
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