Store Openings Lift Inditex Profits in Qtr.

Inditex, the Spanish retailer that runs the Zara chain, on Wednesday reported better-than-expected third-quarter profits, but disappointing sales as...

PARIS — Inditex, the Spanish retailer that runs the Zara chain, on Wednesday reported better-than-expected third-quarter profits, but disappointing sales as business cooled in Spain.

This story first appeared in the December 13, 2007 issue of WWD.  Subscribe Today.

Net income in the three months through October advanced 27 percent to 432 million euros, or $601.2 million, as sales grew 15 percent to 2.59 billion euros, or $3.6 billion, led by store openings in Europe and Asia. Currency conversions were made at average exchange rates for the period.

Investors sent Inditex stock down 5.13 percent to 47.20 euros, or $69.19 at current exchange rates, in trading on the Madrid Stock Exchange on fears the company might be feeling the pinch of the Spanish economy, which has seen housing sales decline this year after a decade-long boom.

Pablo Isla, Inditex’s deputy chairman and chief executive officer, told a news conference the company hadn’t seen dramatic changes in trading in Spain. He said like-for-like sales in Spain were similar to like-for-like sales elsewhere. “We always say it’s better to look at things not on a quarterly basis but over a six-months basis,” said Isla.

He said sales in the first six weeks of the fourth quarter were in line with management’s expectations. But he underlined the quarter would hinge on sales over the next couple of weeks during the critical holiday shopping period.

European retailers in general have been hamstrung so far by tepid holiday sales as wary consumers wait for deep discounts before gift buying. But the Inditex numbers signaled the continued health of Europe’s main fast-fashion chains. Its rival Hennes & Mauritz of Sweden in September reported 25 percent growth in third-quarter profits on sales that advanced 12 percent.

Both firms’ stock has gained double digits over the year as investors applaud their aggressive expansion in Europe, the United States and Asia. Isla said Inditex, which besides its cash cow Zara chain runs the Kiddy’s Class, Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Zara Home chains, would continue to expand.

After opening its first stores in Mainland China, he said Zara units were scheduled to open in second-tier cities with a population of over five million people, including Shenyang, Nanjing, Shenzen, Tianjin, Harbin and Dalian.

Russia is another expansion market for Zara, which is targeting a host of second-tier cities with at least a million population for openings next year.

The emphasis on new markets (80 percent of Inditex stores opened so far this year were outside of Spain) is designed to reduce reliance on Spain, which accounts for about 40 percent of Inditex’s total revenue.

Through the first nine months of the year, Inditex opened 411 stores, bringing its total store count to 3,542.