Zara owner Inditex hit by FX swings and mild September
Zara owner Inditex missed sales and profit forecasts on Wednesday, hit by adverse currency moves and an unusually warm September, leading investors to wipe more than $5 billion off the fashion retailer’s market value at one stage.
The Spanish group, which also owns upmarket label Massimo Dutti and teen brand Bershka, is highly sensitive to fluctuations in the euro as it sells from China to Russia to India across its thousands-strong global portfolio of stores.
Controlled by founder Amancio Ortega, one of the world’s richest men, Inditex generates more than half of its sales in currencies other than the euro and then books those sales in euros when reporting results.
However, its centralized sourcing and distribution model means a large chunk of its costs are in euros.
Inditex, which did not give details on the currency moves that hit its results, reported ninemonth earnings before interest and tax ( EBIT) of €3.07 billion ($3.5 billion), up 3 percent on the year-ago period. The growth would have been 14 percent at constant exchange rates, it said.
The negative currency impact on sales in the third quarter was 3.2 percent, the company added.
Inditex shares were down 4.6 percent in early London trade. The stock has fallen more than 9 percent since January.
“We believe the global apparel retail market continues to face significant structural challenges and Inditex is no longer best positioned,” said Bank of America Merrill Lynch in a research note.
Inditex is known for whisking catwalk looks into stores in a matter of weeks and instead of updating its stock seasonally like traditional clothing retailers, it refreshes its whole collection every four to five weeks.
However, the Spanish company, which pioneered the fast-fashion concept in the 1980s, is facing competition from younger, onlineonly merchants such as Boohoo. com and Missguided.
Inditex, which launched online sales for Zara in 106 new markets last month, said it had not cut prices of clothing in an unusually warm September unlike rivals, resulting in gross margin growth of 108 basis points during the third quarter.
“We are able — with a significant negative currency impact — to maintain our margins,” Chairman and CEO Pablo Isla told analysts in a conference call. “We consider (this) is something that shows the healthy execution of our business model.”
British rival Superdry also blamed unusually warm weather for a profit warning on Wednesday.
Isla said Inditex would break out its online sales figures when the company reports full-year results in March. However, he said online sales were not hitting margins.
Online sales jumped 41 percent in 2017 to reach 10 percent of group net sales, although this left it behind some rivals such as Sweden’s H&M.
Inditex maintained sales growth guidance of 4 to 6 percent for the second half of its financial year, which runs from August to January.