Inditex shares fell around 3% on Wednesday after the Zara owner posted a second-quarter profit margin miss, even as currency-adjusted August sales rose 9%. The Spanish retailer blamed higher transport and input costs tied to disruptions in the Middle East, while its cheapest brand pushes into new markets.
Profit miss overshadows sales strength
Inditex reported weaker than expected second-quarter profit on Wednesday, driving its shares down around 3% despite a strong start to autumn trading. The company made €11 billion ($12.8 billion) in sales in its second quarter running May to July, a resilient performance given high energy prices and weak consumer sentiment during the Iran war.
But its second-quarter gross profit margin came in at 56.7%, slightly below analysts' expectations as the conflict pushed up costs. According to Reuters, Inditex chief financial officer Andres Sanchez Iglesias told analysts on a call that the conflict caused "higher transport costs and input costs during the first half of the year."
Shares near record despite the miss
Inditex shares have had a strong run recently and hit a record of €59.1 last month, helping its market value surpass that of luxury group Hermes. Meanwhile, Hong Kong IPO filings from ultra-cheap fashion platform Shein showed a sales slowdown, suggesting competitive pressure on European fast-fashion retailers may be easing.
The €176 billion Spanish company is expanding its cheapest brand Lefties into Britain and plans to open in Germany next year, as it seeks lower-income shoppers, some of whom have been put off by Zara's move upmarket.
Heatwaves fail to dent autumn demand
Inditex said its autumn/winter collections had been well received by customers, with sales from August 1 to September 7 up 9% from a year ago — an indication that heatwaves sweeping Europe did not deter shoppers. Analyst Anne Critchlow of Berenberg said current trading looks very good despite a toughening prior-year comparison, hot weather and a U.S. consumer slowdown reported by peers.
Retailers globally are adjusting their sourcing schedules as hot weather increasingly stretches into the back-to-school season, when stores usually start selling jackets and coats. Western Europe had its hottest June and July on record, according to European Union scientists, as climate change drives up temperatures and fuels wildfires.
Inditex also announced an additional €200 million of capital expenditure to upgrade its corporate offices, on top of €2.3 billion already earmarked for this year as it revamps stores and improves logistics. RBC analysts estimate its annual capital expenditure runs around three times that of Swedish rival H&M.
Source: Reuters via Investing.com
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