Inditex Profits Dip in Second Quarter

Fast-fashion giant cites tough business in Spain, rapid growth in Russia andChina.

PARIS — Inditex Group, the Spanish retailer that runs the Zara chain, on Wednesday reported a 3.1 percent decline in second-quarter profits as business in its key Spanish market toughened.

This story first appeared in the September 18, 2008 issue of WWD.  Subscribe Today.

The fast-fashion giant, which also runs the Pull and Bear, Massimo Dutti and Bershka stores, said net income in the three months through July reached 187 million euros, or $293.6 million, below most analysts’ estimates.

Sales in the quarter grew 12 percent to 2.34 billion euros, or $3.67 billion, boosted by strong business in emerging markets like Russia and China, where Inditex deputy chairman and chief executive officer Pablo Isla said business was booming.

In the half, Inditex said net profit grew 3 percent and would have grown 7 percent excluding a pretax gain in the same period last year.

New stores, especially in Russia, Ukraine, China and South Korea, lifted sales 13 percent in the half. On a like-for-like basis, sales overall grew 1 percent in what Isla called a “difficult” environment. Isla said like-for-like sales in Spain have been “slightly below average,” which meant they declined around 2 to 3 percent.

Spain, which accounted for 35 percent of the group’s total sales in the half, has been beset by weakening consumer confidence linked to a credit and real estate meltdown.

Inditex has been expanding aggressively in growth markets like China and Eastern Europe, where consumers have embraced the chain’s inexpensive but fashionable styles. Isla said there is “great long-term potential” in Asia and Eastern Europe and that the markets were a “strategic component” of Inditex’s expansion plan.

Isla said Zara’s first stores in South Korea also had been “highly satisfactory.”

The chain said it opened 249 stores in the half, including 15 Uterque stores, a new accessories concept.

Isla said Uterque had “exceeded expectations” and that another 15 units would open by the end of the year. Thirty more stores are earmarked for 2009, mostly in big cities, he said.

Zara, which contributes about 60 percent of Inditex’s total sales, saw revenues in local currencies improve 14 percent to 3.03 billion euros, or $4.75 billion, as the cheap-chic chain expanded in South Korea and Japan.

Sales at other Inditex chains — Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterque — grew 14 percent to 1.54 billion euros, or $2.42 billion.

Looking forward, Isla said sales in the first six weeks of the third quarter had shown “similar growth patterns to those of the first half” and that Inditex was gunning for higher growth in the second half than that achieved in the first.