By Andrea Figueras
Inditex, the owner of popular clothing stores like Zara, has raised its outlook for profitability after a strong performance in the first nine months of the year. While sales growth has slowed in the most recent quarter, net profit for the nine months ended October 31 surged by 32.5% to €4.10 billion ($4.43 billion), compared to €3.1 billion in the same period last year.
Strong Performance Boosts Gross Margin Expectations
Inditex now expects its gross margin to increase by 75 basis points from last year, exceeding its previous forecast of a stable gross margin plus or minus 50 basis points.
Sales Growth and Concerns
Sales rose by 11% to reach €25.6 billion for the nine-month period, suggesting third-quarter sales of approximately €8.76 billion. Analysts had predicted quarterly sales of €8.88 billion, according to a consensus forecast from FactSet. However, it is worth noting that at constant currencies, sales growth was 15%, compared to 20% growth in the same period last year.
Factors Contributing to Slowdown
The slowdown in sales growth has raised concerns among analysts. While some attribute it to dampened consumer spending in recent weeks, Bernstein analysts believe that unfavorable weather during the quarter, which delayed sales of the autumn/winter season, has played a significant role.
Strong Earnings Beat Analyst Expectations
Inditex reported earnings before interest and taxes of €2.03 billion in the third quarter, surpassing analysts' expectations of €1.97 billion.
Negative Currency Impact on Sales
Inditex estimates that current exchange rates will have a negative 4% impact on sales, as opposed to its previous anticipation of a 3.5% negative impact.
The company's main competitor, Stockholm-based H&M Hennes & Mauritz, is scheduled to release its fourth-quarter sales report on Friday.