Global expansion bolsters profits at Zara owner Inditex

12 June 2019

(Sharecast News) - Spain's Inditex, the world's largest clothing retailer, has reiterated its focus on global and digital expansion after reporting a jump in first-quarter profits, despite adverse weather tempering sales growth.
Net sales came in at €5.93bn, a 5% improvement on the same period a year earlier, while net profit rose 10% to €734m.

Zara-owner Inditex said that profits had been boosted by "sales growth in all geographies and at every brand". So far this year, Inditex has launched integrated store and online platforms in nine countries, including Brazil, Israel and the United Arab Emirates.

The company added: "The first part of the year was particularly intense in terms of the group's digital transformation policy, with significant developments in the expansion of the integrated platform."

In-store and online sales across all brands, which include Pull&Bear and Massimo Dutti, were ahead 6.5% in local currencies between 1 February and 7 June. That was slightly weaker than analysts had been looking for, after wet and cold weather throughout most of Southern Europe towards the end of the first quarter slowed sales growth.

However, current trading saw in-store and online sales surge 9.5% between 1 May and 7 June. Inditex also reiterated its guidance for full-year life-for-like sales growth of between 4% and 6%.

Inditex is focusing on significantly ramping up its digital presence world-wide, in response to changing shopping habits and the dramatic growth of online-only retailers. Chief operating officer Carlos Crespo is taking over the chief executive role from current incumbent and chairman Pablo Isla as part of the company's refocus on its digital footprint.

Isla said the first quarter underscored the "strong momentum in the digital transformation of the integrated store and online sales platform and in sustainability as a key pillar of the company's strategy".

<em>RBC</em> said Inditex's first-quarter sales were softer than expected, but had rebounded strongly so far in the second quarter.

It added: "We continue to favour Inditex for its strong business model, as we expect underlying operating leverage to return in the 2020 full year and as free cashflow should improve as operating expenses and capital intensity reduces, which is enabling Inditex to deliver above-average cash returns."