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Inditex, the parent company of Zara, continued to see high demand for its fast fashion in the first half of 2017, manifesting in strong growth in both sales and profits.
With eight brands, including Zara, Pull&Bear and Bershka, the Spanish firm Inditex has 7,385 stores in 94 markets around the world.
As one of the world's largest fashion retailers, the company had a net income of 1.4 billion euros (1.2 billion US dollars) in the first two quarters of this year, higher than the same period in 2016.
The rise in sales continued to pick up the pace in the first seven weeks of the fiscal third quarter, increasing 12 percent from only a month ago, more than analysts had expected. That suggests like-for-like sales growth of 6 percent during that the August to September time period, said Andreas Inderst, an analyst with Macquarie Group.
In the second quarter, like-for-like sales were up 5 percent from a year earlier at Inditex. That compares to around a 4 percent decline in like-for-like sales at Inditex competitor H&M Hennes & Mauritz AB of Sweden during its most recent quarter. The firm said it had opened new stores in 35 markets, taking its total store count to 7,405 by the end of the period.
However, Inditex's gross margin, a measure of profitability, fell to 54.8 percent in the second quarter, which is more than analysts had expected. "The weak gross margin in the second quarter will worry the market, particularly in terms of how it continues for the remainder of the year, with the market already well aware that the strong euro could continue to put pressure on sales" and other metrics, Societe Generale analyst Anne Critchlow told Market Watch.
A strengthening euro has driven the share price of Inditex down in the past several months, although shares have recovered in the past several days. The company generates more than half of its sales in more than fifty non-euro currencies, so the weakening of those currencies in comparison to the euro chips away at reported revenue in euros.
Inditex feels the effects from currency shifts more than many other retailers because a majority of its sales are in non-euro countries, but it has a high cost base in euros since its various brand headquarters and logistics facilities are in Spain.
In the first half of the year, Inditex opened 113 new stores, including a major Zara store in Mumbai, India, Madrid and in Astana, Kazakhstan. That brings the total number of stores to 7,405 versus 7,096 at the end of July 2016.
Inditex is also launching new online platforms, with Zara's online platform set to launch in India on October 4 this year.
(REUTERS)
