Zara Owner Inditex Reports Sales Growth Despite Profit Margin Miss
Continued investments in technology and the online business has helped seamlessly integrate Inditex Group’s e-commerce platform with an eco-efficient in-store experience, driving growth in sales in both offline and online. That’s resulted in new highs for both sales and profit growth for the company, although growth in profit margins appeared to be weaker than analysts expected.
In a Nutshell: In the first half of 2019, the Group’s Zara business introduced an online platform in Brazil, the United Arab Emirates, Lebanon, Egypt, Morocco, Indonesia, Serbia and Israel. In August, the Zara platform was launched in Qatar, Kuwait, Jordan, Bahrain and Oman. Next week, the company will launch Zara.com in South Africa, the Ukraine, Colombia and the Philippines.
Stores totaled 7,420 doors across 96 markets. And the company said the online stores of Zara, Zara Home, Massimo Dutti, Pull&Bear, Stradivarius, Oysho and Uterqüe were made available in an additional 106 markets.
Zara in the second quarter also launched TRFXJoin Life, a denim apparel collection in line with Inditex’s sustainability targets. TRFX is the fast-fashion brand’s first post-consumer denim collection. At the same time, all of Inditex’s stores continue to roll out their used clothing collection program, an initiative that incorporates containers in the stores so the brand can recover apparel and turn them into new items to lengthen their life cycle. Lines from the recycled denim collection include TRF Join Life and Denim From Denim.
Net Sales: For the first half ended July 31, net sales were up 6.6 percent to 12.82 billion euros ($14.18 billion) from 12.03 billion euros ($13.31 billion). The company said momentum in “like-for-like sales growth remained strong, at 5 percent, that’s underpinned by growth across all brands and regions, stores and online.”
Inditex noted its strong cash generation, noting that its net cash position rose by 13 percent to 6.73 billion ($7.44 billion).
The company said first-half gross margin was up 12 basis points, leading some analysts to extrapolate from the first-quarter report that second quarter gross margin might have fallen. The first-half report didn’t break out the profit margin for the second quarter. A report from Reuters cited a comment from RBC Capital Markets analyst Richard Chamberlain, who noted that the apparently slowing margin growth could be from foreign currency impact of a “less strong trend in full price sales.”
Earnings: Net profits were up 9.9 percent to 1.55 billion euros ($1.71 billion) from 1.41 billion euros ($1.56 billion).
For the start of the second half, Inditex said store and online sales in local currencies rose 8 percent between Aug. 1 and Sept. 8. “Management estimates like-for-like sales growth of 4 percent to 6 percent in Fiscal Year 2019,” the company said.
CEO’s Take: Pablo Isla, executive chairman, said, “The investments we have made in the stores as well as in logistics and technology have been key elements in the development of our customer focused integrated online and offline store platform.”