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Another record profit is not enough. This week, Spanish fashion giant Inditex once again showed how difficult it is to please a financial market that is increasingly demanding with the accounts of large companies. The textile company closed the first nine months of its fiscal year (February-October) with a record profit of nearly 4.5 billion euros, up 8.5% and also breaking sales records with revenues of just over 27.44 billion, up 7.1%.
However, these figures were not enough to compensate for the slowdown detected by investors in the company's growth rate, which in the last quarter (August-October) earned 1.68 billion euros. Despite being the best quarter in the group's history, this represents a growth of only 5.8% compared to the previous year, falling far short of the 10% anticipated by analysts.
The reaction was swift and Inditex's shares closed with a 6.5% fall on the stock market. "Third-quarter earnings fell short of expectations, which could indicate that the market has already discounted much of its positive performance, limiting the potential for further gains," explains Javier Molina, senior market analyst at eToro.
It should be noted, however, that this year Inditex is one of the best stocks on the Ibex-35 and was already trading at high multiples with an accumulated revaluation of 40% in the year. This performance has consolidated the business as the largest company on the market with a capitalisation of 170.48 billion euros, exceeding the stock market value of Iberdrola and Banco Santander combined.
The slowdown in the pace of growth could be partly justified by the fact that it comes at a time when the group is investing heavily to increase operating capacity and improve efficiencies, which may have had an impact on the slowdown in profit. Bear in mind that the group's ordinary investments made are estimated at around 1.8 billion euros for 2024.
It is also worth noting its logistics expansion plan for this year and 2025, with 900 million euros to increase its capacity in each year.
Despite possible doubts, analysts are confident that the stock market's kickback reaction will be a "healthy correction", pointing out that the company founded by Amancio Ortega will close the year exceeding the 5.38 billion euros it earned in 2023. This figure was 30% higher than the previous year. "The autumn/winter collections have been very well received by our customers. High street and online sales at constant exchange rates between 1 November and 9 December 2024 have grown by 9% compared to the same period in 2023," said Inditex in a statement.
Moreover, the group defends its growth potential as, despite being present in 214 markets, its market share is still low in each of them in a highly fragmented retail clothing sector. "The annual gross space growth in the period 2024-26 is estimated at around 5%," predicts Inditex. In this regard Inditex's CEO Óscar García Maceiras insisted to analysts that "we see growth opportunities in different segments and in all our markets."
Moreover, the profitability figures support the good performance of the company's business in a period marked by the absence of sales and promotions, which in other quarters does pose a challenge for the improvement of margins. Specifically, the Galician group's gross margin (the profitability obtained from each sale) stood at 61.45% of revenue, in line with the previous year, the same as the 59.4% for the whole of the year.
García Maceiras highlighted the "very strong" sales growth of 10.5% at constant exchange rates and the "good evolution" both in shop and online and in all formats in the first nine months of fiscal year 2024.
Marcos López, director of Capital Markets, explained that the impact of the currency was particularly negative in this period due to two factors: the strength of the euro and the depreciation of currencies such as the Brazilian real and the Mexican peso.
The company expects, however, that "the currency impact will be lower in the last quarter of the financial year" (from 1 November 2024 to 31 January 2025). At current exchange rates, Inditex reiterates its estimate of a currency impact of around -3% on sales in 2024.
Similarly, Inditex expects a positive contribution from their physical shopfloor space to annual sales in that period, in conjunction with strong progress in online sales. The process of shop optimisation is an ongoing task.
According to data provided by the firm, the number of stores stands at 5,659 compared to 5,722 in 2023. The flagship brand of the textile group Zara has closed 36 shops in the period, now at 1,791 shops, although Oysho is the brand with the biggest adjustment, going from 448 to 407. Only Pull&Bear presents growth at this point, going from 789 shops to 812, making 23 new store openings between October 2023 and October 2024.
Alongside sharing these results Maceiras also announced their 'El Apartamento' project, the space conceived as a boutique showroom showing the Zara and Zara Home collections, which "has been successfully tested in Paris Rue du Bac and in Compostela in A Coruña". It will also open next year in the Zara Serrano space in Madrid that has been vacated after the opening of Zara Man on Calle Hermosilla.
When asked about the impact on the business and logistics of the Dana flooding disaster in Valencia, the group has specified that "the impact has been very, very limited, with three shops affected", while expressing their condolences to all those affected. The group added that Inditex's response to the emergency situation has been articulated through direct support - both with financial and in-kind contributions - and donations from its own employees.
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