Zara owner shares drop

Zara owner shares drop

The world’s biggest fashion retailer, Inditex has reported weaker-than-expected growth in profit margins in the first half of the year, knocking its shares lower.

The disappointing margin growth overshadowed strong growth in sales in the first half, buoyed by good summer weather in Europe. Shares of the firm, which had risen 28% in the year-to-date, were down nearly 4%.

First-half gross margin, a measure of profitability, was up 12 basis points, prompting some analysts to estimate margins actually fell in the second quarter. Inditex, owner of Zara, does not break out second quarter profit margins.

Inditex said the first-half gross margin was stable, in line with the company’s forecasts.

The dampened margin growth could be due to foreign currency effects and a “less strong trend in full price sales,” said RBC Capital Markets analyst Richard Chamberlain.

A stronger euro can drag on profits as the group generates more than half of its sales in other currencies and then books those sales in euros when reporting results.

Inditex has been one of the few bright spots in a struggling clothing market, with sales growth outpacing those of rivals such as Sweden’s H&M as it adapts to consumers’ changing shopping habits by combining large stores with online sales.

Sales in stores and online increased 8% in the first five weeks of the latest financial period. Inditex, which also owns brands Massimo Dutti and Bershka, reiterated its full-year sales growth forecast of 4% to 6%.

The Spanish retailer reported net profit of €1.55bn for the six months to the end of July, on sales up 7% at €12.82bn.

Reuters

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