Zara owner Inditex, the world’s largest fast-fashion retailer, reported third-quarter sales and profit below analyst expectations on Wednesday, despite a positive start to the holiday shopping season. The company attributed the results to currency fluctuations and flooding in Spain.
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Inditex shares fell approximately 5% following the announcement. Third-quarter sales reached 9.36 billion euros ($9.84 billion), falling short of the anticipated 9.51 billion euros. Nine-month net profit increased by 8.5% to 4.44 billion euros, also below the projected 4.52 billion euros.
Analysts noted that a strong dollar against a weaker euro negatively impacted Inditex’s results, as the majority of sales are conducted in euros. XTB analyst Javier Cabrera commented that while the figures are not overly negative, they indicate a more significant slowdown than anticipated, raising concerns about potential risks in the coming year, such as U.S. trade tariffs and inflation.
Currency Fluctuations and Flooding Impact Inditex’s Performance
Severe flooding in Spain in late October resulted in the temporary closure of three Inditex stores, but the overall impact on performance was described as “very limited” by capital markets director Marcos Lopez during an analyst call. However, the strength of the dollar against the euro had a more pronounced effect on the company’s financial results.
Despite the challenges, Xavier Brun, portfolio manager at Trea Asset Management, which holds Inditex shares, expressed confidence in the company’s continued growth trajectory. He acknowledged the impact of weather and exchange rates on the quarterly performance but remained optimistic about the long-term outlook.
Zara Invests in Growth Amidst Competition
Zara has been strategically investing in larger retail spaces, logistics centers, and marketing campaigns to maintain its competitive edge against rivals like H&M and Shein, known for their lower price points. Recent initiatives include a high-profile collaboration with supermodel Kate Moss.
Inditex reported a 9% increase in currency-adjusted revenues for the six weeks leading up to December 9th, encompassing the crucial Black Friday sales period. This growth, however, represents a slower pace compared to the 14% reported in the same period of the previous year.
Positive Outlook for Holiday Season
Despite the slower sales growth, Marcos Lopez conveyed optimism about the holiday season. He confirmed a strong start to the final quarter, acknowledging the challenging comparable period from 2023. He also anticipated a reduced impact from currency fluctuations in the fourth quarter.
Market confidence in Inditex remains strong, reflected in the company’s price-to-earnings ratio of approximately 26 times expected earnings for the next 12 months, surpassing H&M’s ratio of 19.3 times. Inditex shares have seen a 32% increase since the beginning of the year.
In conclusion, Inditex faced headwinds in Q3 due to external factors, but early holiday season indicators and long-term investments suggest continued growth potential for the fast-fashion giant.
