Sales in Asia, Spain Boost Inditex Net

Strong business in Asia and Spain drove up first-quarter profits 20 percent at Inditex, parent of the fast-growing chain Zara.

PARIS — Inditex, the Spanish retailer that runs the Zara fast-fashion chain, on Wednesday said strong business in Asia and Spain drove first-quarter profits up 20 percent.

Net income in the three months through April 30 reached 150 million euros, or $181.2 million, as gross margin rose 22 percent to 55.7 percent, in line with most analysts’ expectations. Currency conversions were made at average exchange rates for the period.

Sales advanced 20 percent to 1.72 billion euros, or $2.07 billion, boosted by the 114 new stores Inditex opened in the quarter. Those included a Zara store in Shanghai — the firm’s first foray into mainland China.

Pablo Isla, Inditex deputy chairman and chief executive officer, said the Shanghai store had performed beyond expectation and augured well for future expansion.

“Ninety percent of the shoppers are Chinese, not foreigners living in Shanghai,” commented Isla. “That is significant, and representative of the market’s potential.”

Unlike its main competitor — Sweden’s Hennes & Mauritz — Inditex has targeted Asia and China for growth, while H&M has concentrated on Europe and America.

Inditex plans to open a second Zara store in Shanghai later this year, as well as a location in Beijing.

A handful of stores are in the pipeline for Japan, and the first Zara store should open in Seoul by yearend.

Isla said sales in America, where Zara operates 19 stores, had been “quite good” and predicted continued smooth sailing. Zara opened in Miami during the quarter. It plans to add another unit there, and to inaugurate three stores in Los Angeles and one in San Francisco by yearend, Isla said.

The deputy chairman said sales in Spain had been robust and “showed no signs of deceleration.” But not all was good news. Isla underlined that Germany had been Inditex’s “most difficult market in Europe” with “no signs of improvement.”

He added that sales in the first six weeks of the second quarter were in line with expectations.

Overall, Isla said Inditex would spend 850 million to 950 million euros, or $1.03 billion to $1.15 billion, to open 410 to 490 stores this year.

This story first appeared in the June 15, 2006 issue of WWD.  Subscribe Today.

Besides Zara, which generates about 65 percent of Inditex’s revenues, the group runs the Bershka, Massimo Dutti, Pull and Bear and Stradivarius chains, among others.