Inditex Q1 hit by currency woes, but sales still a record, Q2 improves

By

Sandra Halliday

Published
Jun 13, 2018

The results announcements currently coming out of various (and hugely successful) European fashion retailers have given a clear indication of just how tough the first part of 2018 was. 

And retail giant Inditex underlined that fact on Wednesday with net sales climbing only 2% to reach €5.7 billion in the first three months of its financial year. But what its figures also highlighted is just what a global powerhouse the company is, as even the combined headwinds of currency issues and the period’s weather woes couldn't force it into the negative territory that so many of its retail peers have been occupying.

The group's products are still very much in demand. Without the impact of currency exchange effects, company sales would have grown 7% and we can't ignore the fact that its revenue reached a new Q1 record, despite the firm saying that those exchange rate issues were “significant”.

And it’s encouraging that the group's performance seems to have been improving in Q2 so far with sales in local currencies up by 9% between May 1 and June 11.

Back with Q1, gross profits and the gross margin were both up 3%, the first figure rising to €3.328 billion and the second to 58.9%. Meanwhile profit on an Ebitda basis rose 1% to reach €1.125 billion and net profit rose in line with the sales figure, up 2% at €668 million.

And further good news was that comparable sales growth was seen in all geographies and company chief Pablo Isla highlighted “the strength of the integrated store and online model, bolstered by continued innovation, [that] is driving solid growth and notable job creation.”

EXPANSION FOCUS

Inditex continues to expand having launched online sales in Australia and New Zealand during the first three months of the year, while continuing to “differentiate, optimise and upgrade” its store portfolio.

The pace at which the company continues to grow stores is impressive in a world where many fashion retailers are retreating from physical locations.

During the first three months of fiscal 2018, its brands opened new locations in 36 markets while also continuing to absorb smaller units and expand/refurbish others. It ended the quarter with 7,448 physical stores globally and those refurbished locations benefitted from major technology upgrades on the back of its push to integrate its store and online operations.

As well as setting foot in some cities for the first time, major Zara flagships were opened or expanded in San Francisco, Yokohama, Warsaw, Moscow, Bilbao and London, the latter store being its first with a dedicated online-to-in-store section.

Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe were also a big part of the push to open in more cities, to add flagships and to expand and upgrade existing locations with a technology and ecology focus.

And technology is particularly important to the company. During Q1, its ZaraAR initiative brought augmented reality technology to 130 flagships globally “in a world-first in the retail sector.”

But investment isn’t all about the customer-facing part of the business. It also finalised the expansion of its HQ in A Coruña, Spain, last month. The complex will continue to house Zara and Zara Home’s design, product, technology, distribution, logistics and sustainability teams as well as Inditex’s shared service teams and is a big part of its sustainability push with a focus on energy efficiency.

A giant new distribution centre, also in A Coruña, is due to start operating this summer and will complement the group’s existing logistics platforms in Spain. In parallel, work continues on the new logistics hub in Lelystad, the Netherlands. Investment in these new facilities is more than €150 million.