Zara store

Europe’s largest clothing retailer, Inditex SA, continues to outperform its peers, with sales momentum remaining strong heading into the fourth quarter, despite warm weather across much of Europe.

The company, owner of the Zara retail chain, said sales from Nov. 1 to Dec. 3 rose 15 percent in local currencies.

The group posted net profits of 854 million euros, or $956 million, in the three months ended Oct. 31, up 12.5 percent versus the previous year, according to WWD calculations based on the company’s nine-month results.

Net sales at the Arteixo, Spain-based fast-fashion giant rose 15 percent to 5.32 billion euros, or $5.96 billion, in the quarter as the company continued to expand its presence with physical stores and new online markets. All dollar rates are calculated at average exchange rates for the period concerned.

“Operating performance in the period has been strong,” said Pablo Isla, chairman and chief executive officer of the Spanish retail giant, referring to the nine-month results.

He added that the figures, which came in slightly above analysts’ expectations, were due to a combination of factors.“I think it’s the execution of the business model – this is what summarizes everything,” Isla told a conference call on Thursday.

“Of course, it has to do with the collections. Of course, it has to do with this fully integrated approach between stores and online. Of course, it has to do with the way we operate the stores, with the refurbishments, the enlargements that we are developing,” he added.

Inditex – parent of brands including Massimo Dutti, Pull & Bear and Stradivarius – said it would distribute 10 percent of the year-on-year growth in profit to employees who have been with the company for at least two years.

In the first nine months of 2015, the group opened 230 stores in 48 countries, including 109 stores in Europe, 47 in the Americas, and 74 in Asia and the rest of the world. This brought its global store count up to 6,913.

Among its recent openings was a Zara flagship of more than 32,000 square feet in New York’s Financial District; the first Zara store in Hawaii; openings in Beijing, Harbin and Hong Kong, and several store enlargements, such as the Zara flagship in the Westfield London shopping center.

Inditex also expanded its online footprint, with Zara launching online sales in Taiwan, Hong Kong and Macao; Pull & Bear, Massimo Dutti, Stradivarius and Oysho launching online in China; Uterqüe in Sweden and Denmark, and Zara Home in Japan.

Isla said the group plans to launch online sales next year in all the European markets in which it is still not present.

He added that the retailer recorded a “very positive” performance in the Chinese market, which he characterized as having a “huge” appetite for fashion.

“We are growing, our brands are becoming better and better known, we are having access to more and more customers every season, every year, so we continue feeling very optimistic about the evolution of our business in China in the next five years,” he said.

As of Oct. 31, the group was present in 88 markets, with online operations in 28 of them. Nonetheless, Isla noted currency fluctuations had a limited impact on sales.

“Our like-for-like sales growth is volume-driven, as it is always the case, and regarding prices in the different markets, we always take a long-term approach. What we can say is that currently our price structure all across the world is flatter than ever, so the price harmonization is more than it has been ever,” he said.

Inditex expects a positive currency impact of around 0.5 percent on full-year sales, Isla added.

Its gross margin, a key indicator of profitability, eased marginally to 58.8 percent in the first nine months of the year versus 58.9 percent a year earlier. Isla maintained his forecast that gross margin would be broadly stable in 2015 versus the previous year.

He also reiterated that the retailer would open between 320 and 380 locations for the year. “We are very confident on the execution of the expansion plan,” he said.

The executive said Inditex plans to extend payment by mobile phone, currently available only in the United States, United Kingdom and Spain.

“Our idea is to roll out this technology in all the different markets. It’s not a big issue, it’s quite simple to introduce this possibility of payment by phone in all of our stores in the world,” he said.

Meanwhile, the Stradivarius brand aims to launch a men’s clothing line in 2017.

Shares in Inditex closed down 1.4 percent at 32.11 euros, or $35.32 on the Madrid Stock Exchange.

Barclays maintained its “equal weight” rating on the stock. “In the mid-term, a rise in European consumer confidence coupled with easy monetary policy should bode well for a benign consumer environment in Europe in 2016 which benefits Inditex […],” it said in a research note.

 

ENDS

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