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Analysts’ verdict: Inditex stays ahead of competition

By Angela Gonzalez-Rodriguez

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Business |ANALYSIS

Better-than-expected profits, sales growth across all markets and a sustained expansion both online and with traditional brick&mortar stores, the foundations of Inditex’s stellar quarter.

The world's biggest clothing retailer posted Wednesday a 6 percent rise in net profits to 554 million euro for the three months to April, 30. Once currency fluctuations were stripped out, sales rose 17 percent.

During the quarter, like-for-like sales grew in all its markets, with total sales hitting 4.9 billion euro thanks to its expanded global footprint and enhanced online stores network.

In this vein, the Spanish retail group added that, to date, sales were 15 percent higher on a constant-currency basis in the second quarter. This compares against Inditex’s direct rival’s – H&M- quarterly rise in sales of 5 percent.

Inditex has been “outperforming the industry”

In fact, “Inditex has been materially outperforming the industry,” said Anthony Guglielmo, an analyst at Raymond James. “We are convinced that Inditex is better positioned to capture growth in key segments.”

Anne Critchlow, an analyst at Societe Generale stressed that ‘‘Inditex has been running at an exceptionally high sales-growth rate for precisely one year now,” Critchlow wrote in a report to clients

Inditex said it added another 72 stores in 31 markets in its first quarter, taking its total to 7,085 stores in 91 markets. It is noteworthy that the group founded by Amancio Ortega opened its first stores in Aruba, Nicaragua and Paraguay.

Commenting the results, Chairman Pablo Isla stressed that Inditex's expansion has created more than 11,930 new jobs in the quarter, of which 2,385 were in its domestic Spanish market. "Thanks to the group's strong growth we are able to generate jobs in all our business markets, most notably, in Spain," said Isla in this regard.

Highlighting the factors that have contributed to Zara’s owner to stay ahead other fast-fashion groups, analysts at Liberum said Inditex's success comes from its "relentless focus on full price sales". "The company's continued delivery of the fashions that customers demand is underlined in today's sales update," they added in a research note.

Zara accounts for two-thirds of Inditex's sales. Chairman and CEO Pablo Isla on an analysts' call today said the sales increase was driven by strong same-store sales in all geographies.

Isla also attributed the retailer's success compared with competitors to the "strong execution" of its business model. Over the past couple of years, the company has been working to ensure that its physical and digital stores operate seamlessly together.

Image:Zara Website

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