Inditex misses full-year earning expectations

Inditex, the world’s biggest clothing retailer, missed full-year earnings expectations, held back by flat margins and a stronger euro, which curbed sales growth at Zara and its other brands.

The Spanish group said sales rose 7 per cent in the first five weeks of the new financial year as shoppers bought items from the spring/summer collections like belted linen blazers and floral Aline dresses from Zara.

But with gross margins set to remain stable this year, investors worried that the group’s growth is now slowing ater it closed smaller stores at a much faster than expected pace last year to focus on bigger stores and online sales. Shares in Inditex tumbled more than 5 per cent ater the results and were down 3.7 per cent at 25.31 euros.

“Whilst most retailers would be very pleased to report 7 per cent sales growth (at constant currency rates last year), this is less than half the rate of growth reported by Inditex just a couple of years ago and we believe it is evidence that the group’s growth profile is slowing sharply,” Morgan Stanley said in a note.

Inditex’s shares trade at 23 times full-year earnings, compared to 18 times earnings for shares of Swedish rival H&M, whose profits have also disappointed in the face of tough competition.

Inditex says it does not discount out of season unlike rivals like H&M and Gap who marked down prices in the run-up to Christmas to clear inventory. However, this makes it harder for Inditex chains like Zara and Pull & Bear to compete in a depressed clothing sector where year-round discounts have become the norm.