PARIS — Europe’s largest clothing retailer, Inditex SA, said net profits rose 5 percent in the third quarter as it continued to expand its presence with physical stores and new online markets.

The owner of the Zara retail chain posted net profits of 759 million euros, or $984.6 million, in the three months ended Oct. 31, according to WWD calculations based on the company’s nine-month results. Net sales at the Arteixo, Spain-based fast-fashion giant rose 8.3 percent to 4.62 billion euros, or $6 billion, in the quarter.

All dollar rates are calculated at average exchange for the period concerned.

Store and online sales in constant currencies were up 14 percent between Nov. 1 and Dec. 8, an increase from the 10.5 percent rise recorded during the first nine months of the fiscal year, suggesting sales growth will accelerate in the fourth quarter.

“We are happy with the evolution of our sales. We have positive like-for-like in all the different geographies,” Pablo Isla, chief executive officer of Inditex, told analysts in a conference call. “We continue to see significant growth opportunities for Inditex globally.”

While he declined to provide a specific explanation for the third-quarter improvement, the executive noted that going forward, capital expenditure would grow at a slower pace than store space. He said space growth was on track and should remain in the range of 8 to 10 percent in the long term.

“The current base offers huge growth potential for the coming years,” Isla said.

Inditex — parent of brands including Massimo Dutti, Pull & Bear and Stradivarius — has invested heavily in expansion, refurbishments, logistics and information technology. In the first nine months of 2014, it opened 230 stores in 50 countries and expanded its online footprint, with launches in South Korea and Mexico during the past quarter.

In the third quarter, Massimo Dutti opened its first store in Austria, Stradivarius launched in the United Kingdom and Pull & Bear unveiled its first store in the Philippines.

Zara opened eight stores in China during the period, in addition to its official online store on China’s fast-growing Tmall marketplace. On Nov. 29, the brand unveiled one of its largest flagships worldwide on East Nanjing Road in Shanghai.

RELATED CONTENT: WWD Earnings Tracker >>

“Our approach to the business in China, we think, is very strong with this combination between store openings, online and the addition of Tmall, so we feel very happy about the evolution of our business in China and we see a strong growth potential,” Isla said.

He added that Zara’s New York flagship at 500 Fifth Avenue would reopen after refurbishment in March.
Inditex said its new distribution facility in Cabanillas, Spain, was running at full capacity. The company is also equipping its Zara stores with Radio Frequency Identification stock-management technology that makes it easier to reorder popular items.

Its gross margin, a key indicator of profitability, fell to 58.9 percent in the first nine months of the year versus 59.9 percent a year earlier. Isla said the retailer expects the margin to be “broadly stable” in the second half of 2014.

Bernstein Research estimated sales growth in the third quarter included like-for-like growth of 5.6 percent, a negative currency impact of 2.7 percent and a contribution of 6.4 percent from space growth.

The strong rise in like-for-like sales “reflects the strength of the business model and the speed with which Inditex can respond to adverse conditions like mild weather. In addition, we are encouraged by the current trading, which suggests that sales growth has accelerated into the fourth quarter,” Bernstein said.

Inditex shares closed up 4.2 percent to 23.30 euros, or $29.38, on the Madrid Stock Exchange.

Click Here for the WWD Global Stock Tracker >>

load comments
blog comments powered by Disqus