Zara Parent Lifted by Weak Euro -- 2nd Update

By Christopher Bjork 

MADRID-- Industria de Diseño Textil SA said Wednesday that net profit surged 28% in the first quarter, as the fashion maker behind the Zara chain posted growth in stores on five continents, getting an additional uplift from a weakening euro.

The retailer, based in Arteixo, in northwest Spain, said net profit rose to EUR521 million ($577.97 million) between Feb. 1 and April. 30, from EUR406 million a year earlier. Sales grew 17% to EUR4.37 billion.

The results exceeded market expectations. Analysts polled by FactSet had expected net profit of EUR509 million and sales of EUR4.33 billion. "A cracking start to the year," said Sanford C. Bernstein analysts.

Marcos López, Inditex's capital markets director, said results reflected "a very strong operating performance with positive like-for-like sales growth in all geographies."

For the first time in two years, the world's largest fashion retailer by sales got a boost from a weakening of the euro against other currencies. That helped further propel sales and profit growth. Bernstein estimated that the impact of stronger currencies outside the eurozone added 3.7 percentage points to sales. By contrast, currency effects had subtracted 7% from sales in the quarter a year earlier.

Inditex said sales in stores and online in constant currencies grew 13.5% between Feb. 1 and June 7, compared with growth of 11% in 2014. Société Générale analyst Anne Critchlow said this implies that like-for-like sales were growing by 6.5% in the first six weeks of the second quarter.

Inditex opened 63 new stores during the quarter, 10 more than a year earlier. It had 6,746 stores in 88 countries as of April 30. Some 30% of new openings were Zara Home stores, the company's home furnishing brand. "We are very pleased with its performance," said Inditex Chief Executive Pablo Isla. "It is very well received in all our markets." He said the company is enlarging existing stores and opening new stores in the main shopping streets in Europe, Asia and the Americas.

The Spanish company has opened more than a store a day on average for the past decade, outpacing rivals such as Hennes & Mauritz AB of Sweden and Gap Inc. of San Francisco. Analysts say the company's ultra-responsive business model has helped it adapt faster to the ebb and flow of consumer demand.

At the heart of this model is a complex logistics system and heavy use of information technology to track data on consumer tastes gathered at each of its stores around the world. Half of what it sells world-wide is made close to headquarters and it delivers new garments in small batches to all of its stores by plane or truck twice a week.

Over the past year, Inditex made another logistics leap when it installed radio frequency technology at its Spanish Zara stores, a move that allows the retailer to keep much better track of its stock and replenish its clothing racks more quickly. This year, it is rolling the system out to Zara stores globally. "It's helping us in everything we do in stores," Mr. Isla said.

Inditex reiterated plans to open online stores in Taiwan, Hong Kong and Macao this year, taking its online presence to 30 countries.

Write to Christopher Bjork at [e-mail]

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