PARIS — While retailers were hit by unseasonably warm weather in early fall, Inditex continued to grow in line with analysts’ exceptions during the first nine months of its fiscal year.
The fast-fashion giant reported profits of 2.21 billion euros, or $2.35 billion, up 9 percent year-on-year in the February-to-October period. Gross profits advanced 15 percent, in keeping with analysts’ expectations. The world’s largest retailer and owner of Zara said growth had primarily been driven by strong same-store sales.
Inditex posted revenues of 16.4 billion euros, or $17.44 billion, representing an increase of 11 percent.
Dollar figures were converted at average exchange for the period to which they refer.
“While we have seen volume weakness from several consumer staple companies in Q3, Inditex appears to be seeing an accelerating volume trend reflecting its superior model and ability to take share in generally fragmented apparel markets,” wrote Richard Chamberlain, an analyst at RBC Capital Markets, in a note. “We think a likely continued very strong [like-for-like] performance justifies its high valuation.”
Inditex has opened 227 new stores since February — and 144 in the third quarter alone — for a total of 7,240 locations in 93 markets worldwide. Openings have included 49 new locations for the Zara brand, 41 for Zara Home, 41 for contemporary youth line Pull & Bear and 35 for the women’s wear collection Stradivarius.
With the launch of an online store in Turkey in the third quarter, Inditex now has an e-commerce presence in 41 countries.
Inditex said in an investor note that it is performing well so far in the holiday-spending season. Its sales increased 16 percent between Nov. 1 and Dec. 12, the start of its fourth quarter. That represents growth three percentage points higher than the 13 percent gains projected by RBC Capital Markets.
Inditex, through its primary Zara brand, is well-positioned to appeal to trend-conscious customers in the end-of-year season, according to Laurent Le Mouel, creative director of the NellyRodi trend agency in Paris. With an offer including velvet, asymmetric cuts, glittery and sequined backless dresses and silver puffy coats, he said that Zara has “the good products with the right style at the right time.”
Analysts say local sourcing — with as much as half of Inditex merchandise being produced in its key European market — and a rapid speed-to-market should continue to favor the company by reducing its risks related to weather, fashion and currency.
“Inditex says they go into a season only 40 percent committed, meaning the company sources less than half of the merchandise it expects to sell before a season begins,” Julian Easthope of Barclays Equity Research told WWD.
It’s a strategy that helps shield the company from overproduction and markdowns, particularly in comparison to competitor Hennes & Mauritz, which sources 80 percent of merchandise in Asia. “H&M goes into a season far more committed, which leaves them rather exposed in times of too hot or too cold,” said Easthope.
A faster speed-to-market as part of Inditex’s “fast-fashion” model also preserves its profits by giving stores greater flexibility to price up goods. “Inditex can get a new product to shelves in three to six weeks,” said Thomas Gadsby, a retail analyst at the investment banking and research firm Liberum. “They can price higher because they are selling items that they know people want to buy now.”