Picture: BLOOMBERG/QILAI SHEN
Picture: BLOOMBERG/QILAI SHEN

Madrid — On Wednesday, the world’s biggest fashion retailer, Inditex, reported weaker-than-expected growth in profit margins in the first half of the year, knocking its shares lower.

The disappointing margin growth overshadowed strong growth in sales in the first half, buoyed by good summer weather in Europe. Shares of the company, which had risen 28% in the year to date, were trading 1.6% lower at 7.47am GMT.

First-half gross margin, a measure of profitability, was up 12 basis points, prompting some analysts to estimate margins actually fell in the second quarter. Inditex, the owner of Zara, does not break out second-quarter profit margins.

Inditex said the first-half gross margin was stable, in line with the company’s forecasts.

“The season has been positive in terms of the gross margin evolution with this 12-basis-point gross margin increase ... in line with our guidance,” chair Pablo Isla told a conference call.

“The dampened margin growth could be due to foreign currency effects and a less strong trend in full price sales”, said RBC Capital Markets analyst Richard Chamberlain, who estimated a 22-basis-point fall in gross margin in the second quarter.

A stronger euro can drag on profits as the group generates more than half its sales in other currencies then books those sales in euros when reporting results.

Inditex has been one of the few bright spots in a struggling clothing market, with sales growth outpacing those of rivals such as Sweden’s H&M as it adapts to consumers’ changing shopping habits by combining large stores with online sales.

Sales — in stores and online — increased 8% in the first five weeks of the latest financial period. Inditex, which also owns brands Massimo Dutti and Bershka, reiterated its full-year sales growth forecast of 4%-6%.

The Spanish retailer reported net profit of €1.55bn ($1.66bn) for the six months from February 1 to July 31, on sales up 7% at €12.82bn, broadly in line with analysts’ expectations.

Reuters