By Christopher Bjork
MADRID--Zara store owner Industria de Diseño Textil SA on
Thursday reported better-than-expected profit and sales for the
first nine months of the year and said clothing sales growth had
accelerated in the run up to Christmas.
The Arteixo, northwestern Spain-based retailer said net profit
rose to EUR1.69 billion ($2.1 billion) between Feb. 1 and Oct 31,
compared with EUR1.67 billion a year earlier. Inditex's sales grew
7% to EUR12.71 billion. Both figures came in ahead of analysts'
expectations.
Sales in the first five weeks of the fourth quarter accelerated
compared with the rest of the year, with store and online sales in
local currencies jumping 14% between Nov. 1 and Dec. 8, compared
with a 10.5% growth rate in the first nine months.
Analysts welcomed the figures, with French bank Société Générale
described the current trading as "impressive" and brokerage
Bernstein labeling it a "great start" to the Christmas season. Both
firms said the stock likely would jump in response to the strong
results.
"There is no benefit from 'soft comparatives' in Inditex's
trading--this is genuine growth on growth," Société Générale
analyst Anne Critchlow wrote in a note to clients.
European retailers including the U.K.'s Marks and Spencer PLC
had reported slow sales of overcoats and other high-margin winter
garments in October, a month where temperatures were higher than
usual for the time of year. Bernstein analyst Jamie Merriman
pointed to the Spanish fashion retailer's ability to respond
quickly to adverse conditions such as mild weather as an
explanation to the surprise growth recorded by Inditex.
Inditex runs a sophisticated production chain that allows the
company to take new designs from the drawing board to the consumer
in as little as two weeks, the fastest in the industry. It keeps
lower inventories than rivals by gathering information on what
sells and what doesn't from stores world-wide, and produces to
match demand from factories located in countries close to its
headquarters. Such fast-fashion logistics are costly, but allows
Inditex brands such as Pull and Bear and Bershka to be more in tune
with the latest fashions than rivals who make production decisions
months ahead.
In recent quarter's the company's profit was squeezed by
weakening currencies in some of its largest markets outside Europe.
That effect is starting to wane, although currencies in some big
markets such as the Russia continued to fall against the euro in
the period.
Inditex's gross margi--a measure of operating profit--shrank to
58.9% in the period, compared with 59.9% a year earlier. In
addition to the currency impact, Inditex's gross margin was also
hit by some accounting changes related with its shoemaking unit
Tempe.
Inditex opened 230 stores in the first nine months, taking the
total count to 6,570 stores in 88 countries on five continents. The
company in the third quarter launched online stores for Zara in
Mexico and South Corea, taking Internet sales to 27 countries.
Write to Christopher Bjork at christopher.bjork@wsj.com
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