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Inditex fourth-quarter sales grow the fastest in two years

By Angela Gonzalez-Rodriguez

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Business |ANALYSIS

Inditex SA, the world’s largest clothing retailer, has just reported accelerating revenue growth after an expansion of online sales and store openings helped drive a 5 percent profit increase last year. The Spanish group also reported the fastest quarterly sales growth in two years.

The company's 2014 net profit rose 5 percent to 2.5 billion euros and like-for-like sales rose 5 percent, while overall sales rose 8 percent to 18.12 billion euros, meeting market expectations.

“Same-store sales growth was 5 percent; in the last five years growth in this key performance indicator stands at 23 percent”, summed up the company its stellar performance over the past year.

Fourth-quarter sales at the Zara owner rose at the fastest pace in more than two years, according to Bloomberg Intelligence data. Growth continued into the new financial year, with revenue in the six weeks through March, 14 up 13 percent excluding currency fluctuations, according to Inditex.

Market coins Inditex’s results as “positive”

“This was a positive set of results, namely because of the strong sales momentum,” Filipe Rosa, an analyst at BESI Research, said in a note. Rosa has a neutral recommendation on the stock, which rose as much as 3.1 percent in Madrid.

Likewise, the Spanish apparel group said sales in the six weeks to March 14 rose 13 percent in constant currencies in the 88 markets in which it currently operates. That compares with a better-than-expected 15 percent sales rise at rival fashion retailer H&M in February.

"This is a beat versus existing consensus forecasts at around 4 percent, suggesting good support to date for full-year estimates," said Societé Genèrale analyst Anne Critchlow, who estimated a 6 percent rise in like-for-like sales in the six week period.

On a related note, Anne Critchlow, an analyst at Societe Generale SA, points out that the sales increase in the first six weeks of the new financial year implies like-for-like store sales growth of 6 percent, this is, above the last year’s 5 percent increase.

Inditex to trim investments after two-digit sales growth

Recovery in its bigger European markets has encouraged Zara´s owner to trim investment in 2015, cutting its capital expenditure to fall from 1.396 billion euros last year to around 1.35 billion euros in 2015.

In this vein, Inditex’s chairman and CEO Pablo Isla told a conference call with analysts he expected capital expenditure to remain below the rate of space growth in 2015 and 2016. It’s noteworthy that over the past months, the largest apparel retailer has intensified its strategy of focusing the investment in logistics and online platforms and slowing its store openings.

"(This) is consistent with our expectation that the capital intensity of the business is declining, leading to a more cash generative business," said Bernstein analyst Jamie Merriman, who rates Inditex ‘market-perform’.

Inditex shares have gained almost 23 percent in the last three months, rising 2.9 percent by early morning trade in Madrid on the wake of the strong set of results and outperforming a 0.7 percent rise in the European retail index, highlights ‘money Market’.

Thus, Inditex now trades on 30 times forward. "We remain concerned around continued growth in competition, the rising cost of premium space and brand maturity," analysts at Credit Suisse said in a note to investors Wednesday.

Inditex
Zara