The world’s largest listed fast-fashion retailer, Inditex (BME:ITX), the parent company of Zara, reported a slightly underwhelming third-quarter performance on Wednesday, falling short of analyst expectations.
Despite this, the company showcased a promising start to the crucial holiday shopping season, offering a glimmer of optimism amidst challenging circumstances.
Currency fluctuations and unforeseen events cast a shadow
Shares of Inditex, which enjoyed a significant 30% rise earlier this year, experienced a 6% drop in early trading following the release of the results.
This downturn reflects investor reaction to the missed sales and profit targets, primarily attributed to currency fluctuations and the impact of severe flooding in Spain – Inditex’s largest market.
Third-quarter sales reached €9.36 billion ($9.84 billion), falling below the anticipated €9.51 billion.
Similarly, the nine-month net profit increase of 8.5% to €4.44 billion trailed the projected €4.52 billion.
Marcos Lopez, Inditex’s capital markets director, downplayed the impact of the late October floods in Spain during an analyst call, describing their effect as “very limited.”
However, analysts pointed to the strong dollar and weak euro as significant contributors to the weaker-than-expected results, given that Inditex generates most of its revenue in euros.
Maintaining momentum in a competitive landscape
Despite the quarterly setback, Inditex remains confident in its long-term growth trajectory.
Xavier Brun, portfolio manager at Madrid-based Trea Asset Management (an Inditex shareholder), told Reuters, “Despite the quarterly setback, affected by the weather and the exchange rate, I believe the company continues on its growth trajectory.”
This confidence is underpinned by the company’s strategic investments in expanding its physical presence, upgrading logistics infrastructure, and bolstering its marketing efforts.
Recent initiatives include a high-profile collaboration with supermodel Kate Moss and a focus on larger stores, aiming to retain a competitive edge against lower-priced rivals like H&M (ST:HMb) and Shein.
Holiday season brighter spot for Inditex
A key highlight emerged from the report: a strong start to the holiday shopping season.
Currency-adjusted sales surged 9% in the six weeks leading up to December 9th, encompassing the lucrative Black Friday sales period.
Although this growth rate is slower compared to the 14% increase reported in the same period last year, it nevertheless signals positive momentum heading into the crucial final quarter.
Lopez emphasized this positive trend, telling Reuters: “We had a strong start to the last quarter against a demanding comparable in the same period of 2023.”
He further highlighted the robust 10.5% currency-adjusted sales growth experienced in the first nine months of the fiscal year.
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