Inditex, Owner of Zara, Reports Unexpected Revenue Shortfall
Inditex, the parent company of Zara, has reported revenue figures that fell short of market expectations, attributing the slowdown in sales growth to intensifying competition from budget clothing brands.
The Spanish fashion giant disclosed sales amounting to €9.36 billion for the quarter ending October 31, slightly below analyst predictions of €9.51 billion.
Following the announcement, Inditex’s shares plummeted by 6.1 percent in Madrid, erasing over €9 billion from the market capitalization of the world’s leading fast-fashion retailer.
The company indicated that its autumn-winter collections had received a “very warm reception” from consumers, with sales up 9 percent from November 1 to December 9 on a constant currency basis. However, this growth was on the lower side of expectations due to adverse weather conditions and a tough consumer environment.
Net profit for the third quarter climbed 5.8 percent to €1.7 billion, but still fell short of consensus estimates.
Mamta Valechha, a consumer discretionary analyst with Quilter Cheviot, described the quarterly results as a “slight miss” but noted that, within the wider context of the consumer discretionary market, Inditex’s results remained relatively strong.
Inditex faces mounting competition from online fast-fashion players such as Shein and Temu. In response, the company is boosting its logistics infrastructure by establishing new warehouses and investing heavily to expedite the delivery of new lines to stores. Inditex is committed to a two-year logistics enhancement plan, earmarking €900 million for capacity expansion in 2025 and 2026.
In a recent profit warning, Swedish competitor H&M noted that declining demand and rising promotional costs had negatively impacted its sales.
Zara, the flagship brand of Inditex, has launched new marketing strategies, increased its store sizes, and collaborated with famous model Kate Moss for a product line.
Inditex, which also encompasses other brands like Bershka and Massimo Dutti, pointed out that fluctuations in the dollar during the third quarter had an adverse impact on its sales, as a significant share of its revenue comes from outside the eurozone. The company benefits from a weaker euro when converting foreign sales back into euros for reporting purposes.
Marcos López, Inditex’s capital markets director, conveyed to analysts that, “We had a robust kickoff to the last quarter compared to a challenging comparable period in 2023.” He also mentioned that currency fluctuations are anticipated to have a minor impact on the business for the forthcoming quarter.
Inditex has its roots dating back to the 1960s when Amancio Ortega, now 88 and one of the world’s wealthiest individuals, established a factory in A Coruña, Spain. In 1975, he launched the first Zara store in the same town with his then-wife, Rosalía Mera. Headquartered in Galicia, northwest Spain, the company operates over 7,000 retail locations globally.
Ortega retains a 59.3 percent ownership stake in Inditex, while his daughter, Sandra Ortega Mera, is the second-largest shareholder, holding a 5.1 percent stake inherited from her mother upon her passing in 2013.
The company reported that flooding in Spain at the end of October had a “very limited” impact, leading to the temporary closure of only three stores due to extreme weather.
Despite not meeting quarterly projections, Inditex reaffirmed its annual outlook, expecting stable gross margins and estimating a 3 percent decrease in sales attributed to currency influences.
Inditex shares have appreciated over 30 percent since the start of the year, but fell by €3.32, or 6.1 percent, to €51.40 in Madrid following the latest results.
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