Inditex has once again outperformed its rival H&M as its strategy of steady expansion and strong online buildup kept the Spanish fast-fashion retailer’s momentum going after a strong first quarter.
The parent of Zara said sales in constant currencies rose 15 percent between May 1 and June 13, after a 17 percent increase in the fiscal first quarter.
Hennes & Mauritz, meanwhile, reported an improvement in sales growth in May after a sharp drop in net profit in the first quarter. The Swedish retailer said revenues rose 9 percent in May in local currencies and including VAT, compared with a 5 percent uptick in April.
“In a market environment where most retailers are bemoaning the weather, Inditex’s results demonstrate the strength of the business model and its ability to deliver superior results,” Bernstein analysts Jamie Merriman and Jennifer Wong said in a research note.
Inditex posted sales of 4.88 billion euros, or $5.46 billion, in the period from Feb. 1 to April 30, up 12 percent versus the same period last year. This beat the consensus estimate of 4.84 billion euros from analysts polled by FactSet. All dollar rates are calculated at average exchange for the period concerned.
Net profit rose 6 percent to 554 million euros, or $620 million. The gross margin, a key indicator of profitability, fell to 58.1 percent in the fiscal first quarter from 59.4 percent a year, partly as a result of the strong dollar, which inflates purchasing costs.
However, the firm maintained its guidance for a stable gross margin in constant currency terms for the year as a whole, noting that the exchange rate impact should be neutralized in the second half of the year.
“With this superstrong sales growth, without the currency impact, the gross margin would be growing,” Pablo Isla, chairman and chief executive officer of Inditex, said in a conference call.
He noted that like-for-like sales in the first quarter grew in all geographical markets. “We continue to see significant growth opportunities for Inditex globally,” Isla added.
The executive credited the group’s strong performance to its responsive business model, with a large proportion of production headquartered in Spain, allowing the retailer to quickly produce and ship garments to its most important markets.
“It’s the global execution of the business model,” he said. “Proximity sourcing, ability to react during the season, this idea of having new collections constantly during the season — and then of course many other strategic initiatives that we have been developing during the last few years.”
The Arteixo, Spain-based group earlier this year revealed plans to slow down the growth in its physical store network to focus more on omnichannel efforts. It lowered guidance for retail space growth in 2016 to 6 percent to 8 percent, from 8 percent to 10 percent.
“Of course, it has to do with this fully integrated approach between stores and online, which is becoming stronger and stronger, and we believe very much in it,” Isla said Wednesday.
In the first quarter, Inditex expanded e-commerce platforms for its brands in the European Union, with the launch of online stores in Bulgaria, Croatia, Slovakia, Slovenia, Estonia, Finland, Hungary, Latvia, Lithuania, Malta and the Czech Republic.
The group now has an online sales presence in 39 markets worldwide and plans to complete the online launch of all its concepts — which also include Zara Home, Massimo Dutti, Pull & Bear, Bershka, Stradivarius, Oysho and Uterqüe — across Europe and Turkey this year.
Inditex opened 72 stores in 31 markets in the first quarter, including its first units in Aruba and Nicaragua, bringing its global network to 7,085 stores as of April 30. Since then, the group has established a presence in Paraguay, with plans to enter Vietnam and New Zealand in the second half.
The retailer is scheduled to hold its annual general meeting on July 19. Irene Miller, the only female member of the board of directors, is set to leave her post after 15 years following the end of her mandate. The board will propose Baroness Denise Kingsmill to succeed her.
Isla took advantage of the conference call to underline that he has signed a joint letter from members of the European Round Table of Industrialists calling for renewed confidence in the European Union as Great Britain prepares to vote on whether to leave the union.
“Investments and job creation benefit from a united Europe, and while respecting the decision of the people in the United Kingdom, we believe — that is what we are saying in that letter — that a Europe without the U.K. would be weaker, just as the United Kingdom itself would be weaker outside Europe,” he said.
Inditex shares closed up 5.5 percent at 29.52 euros, or $33.20, on the Madrid Stock Exchange.