Zara-owner Inditex H1 gross margin eroded by strong euro

[MADRID] Inditex, the world's biggest clothing retailer and owner of the Zara brand, posted a 9 per cent rise in first-half profit but gross margin as a percentage of sales slipped from the year-ago period due to the stronger euro.

The Spanish company, which also owns teen brand Bershka and upmarket label Massimo Dutti, said net profit came in at 1.37 billion euros (S$2.213 billion), slightly missing forecasts, for its first half that ended on July 31.

Earnings before interest, tax, depreciation and amortisation (Ebitda) were 2.29 billion euros, up 9 per cent on the year-ago period.

Inditex's business model of responding to catwalk trends in small batches of apparel which are not replaced when they sell out has allowed it to consistently outperform rivals like Sweden's H&M.

Inditex's results are sensitive to fluctuations in the euro. It makes the bulk of its sourcing in Europe so it can respond quickly to trends and it generates more than half of its sales in non-euro currencies, booked in euros when reporting results.

Recent sales in the company's more than 7,000 stores worldwide performed well, figures showed, as the autumn/winter collections in Zara brought items such as reversible kimonos and sweaters embellished with faux pearls.

Sales at constant currency terms increased by 12 per cent in the first seven weeks of the second half, which retail analyst Anne Critchlow of Societe Generale said was better by consensus by one or two percentage points against a tough comparative.

REUTERS