Inditex, the Spanish fashion group that owns Zara, reported first-quarter net sales of €8.75 billion on Wednesday, up 8.8% in constant currency, while early summer trading came in well above expectations and sent Inditex stock up as much as 5%.
The 11.5% constant-currency gain in store and online sales for the May 1-to-June 1 window outpaced the same stretch from a year ago, the company reported. Expectations among analysts had centered on roughly 8% growth for that stretch, Reuters reported.
Net income for the first quarter came to €1.4 billion, a 5.4% improvement over the prior year. The gross margin ticked up to 61.2% from 60.6% twelve months earlier, and gross profit expanded 6.9% to €5.4 billion. Underlying earnings, as measured by EBITDA, grew 7.3% to reach €2.6 billion.
Inditex CFO Andres Sanchez Iglesias said the company had moved quickly to adapt its supply chain amid disruptions to air and sea freight caused by the war in the Middle East. "We have been able to rapidly adapt our supply chain to ensure uninterrupted product flow to our stores globally," he said, according to The Wall Street Journal. A delay between when goods are shipped and when those costs register on the income statement has cushioned the first-quarter figures from the full brunt of elevated freight and fuel expenses, he noted, Reuters reported.
He urged investors to interpret the May reading carefully, noting it reflected only four weeks of trading rather than the five-week span the company ordinarily uses for such updates, Reuters reported.
On the analyst call, investor relations director Gorka Garcia-Tapia Yturriaga acknowledged that the conflict had weighed on performance across the Middle East, a region where the group's stores are run by franchise partners, though he declined to quantify the drag, Reuters reported. The company noted in its results that ongoing geopolitical challenges could affect performance in the months ahead.
At the close of the quarter, the group's retail footprint stood at 5,456 locations spanning 215 markets, and it held a net cash position of €10.8 billion. Inventory at the end of April was 1% higher than a year earlier, which the company described as high quality.
For the full year, management kept its guidance intact: the gross margin is expected to hold roughly steady, selling space is targeted to expand by about 5%, and investment spending is planned at around €2.3 billion. Foreign-exchange headwinds are anticipated to shave approximately one percentage point off headline sales growth across the full financial year, the company said.