June 17, 2024

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Zara owner Inditex reports slowdown in sales growth

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Zara owner Inditex has reported a slowdown in sales growth, underscoring concerns about weakening consumer spending in the fashion sector.

The Spanish group said on Wednesday that sales increased by 6.6 per cent to €8.8bn in the three months to the end of October, slightly less than analysts had expected and a drop from growth of well over 10 per cent in the past two years.

In addition to shaky consumer sentiment, analysts expressed concern that Inditex sales would be hampered by warm weather in the key southern Europe region, meaning people were less likely to switch to winter purchases.

Inditex operates in more than 90 countries, but its biggest market is Spain — where the company started as a family-run workshop in the 1960s — where last year it had more than 1,200 Inditex stores and brought in 14 per cent of sales.

The company was more upbeat, however, about the most recent trends. In a trading update it said store and online sales between November 1 and December 11 2023 — a period including Black Friday — increased by 14 per cent from the same period in 2022.

Earnings remained stronger, with quarterly profit before tax up 17 per cent to just under €2bn, although it was also marginally short of market expectations.

The group, which also owns the brands Massimo Dutti and Pull & Bear, described sales for the first nine months of its financial year as “very satisfactory”, and said it expected its profit margin to gain 75 basis points in 2023.

Óscar García Maceiras, Inditex chief executive, said he saw “significant opportunities for selective growth” in the US, which became its second biggest market by sales after the retailer exited from Russia following the invasion of Ukraine.

Inditex has expanded its store in Dadeland, Miami, and opened new cites in Louisiana and Texas this year, even as consumer spending in the region stalled after a prolonged period of rising interest rates and high inflation.

Inditex shares were at €38.57 in early morning trade on Wednesday, having climbed just over 50 per cent since the start of the year.

The company is expected to “continue growing with robust returns while distributing an attractive dividend”, said Patricia Cifuentes, analyst at Bestinver. “However, the stock may take a breather after the recent outperformance”.

The report comes a day after Zara drew criticism for an advertising campaign featuring models alongside mannequins wrapped in white, which some viewers thought was insensitive for resembling images of dead bodies in Gaza.

The campaign, which Zara has pulled, triggered calls for a boycott and protests outside some of the chain’s stores.

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