Inditex: Weakest profit in years boosts shares performance

ANALYSIS_ Zara-owner Inditex, the biggest fashion retailer in the world, has posted its weakest profit growth in four years. The slowdown sent shares to a historic hight in Madrid stock exchange, spiking optimism that the retailer will continue

reporting higher profit in the coming months.

Inditex saw its net income rose 1.6 percent in the first quarter, the weakest growth since the first quarter of fiscal 2010. Net sales went up by 5 percent to 3.6 billion euros for the first quarter compared with the same quarter last year.

Nevertheless, net profit between February and April was 1.4 percent higher than a year earlier, coming at 438 million euros. As other retailers, the largest fashion and apparel group has blamed the slowdown on wet weather. Along with the cold weather, Inditex blamed currency fluctuations for its weak profit growth.

Meanwhile, store sales rose 8 percent at constant exchange rates from May 1 to June 7, the first weeks of the second quarter, boosting group revenue by 5.2 percent to 3.59 billion euros in the first quarter.

In this vein, Pablo Isla, CEO of Inditex, highlighted gross margin - a measure of profitability, should remain “stable” the rest of the year. This indicator downed 0.6 percent to 59.6 percent in the first quarter.

Analysts estimate Inditex’s profit will rise 12 percent this fiscal year, according to data compiled by Bloomberg.

Inditex added stores in 30 markets during the first quarter, in line with its plans. Russia, Japan and China gained the highest number of new outlets with total store numbers reached 6,058 in 86 countries.

Inditex weak profit spikes stock performance

Despite the weak results or precisely because of them as some analysts pointed out on Wednesday, Inditex stock rose as much as 4.9 percent on optimism that the retailer will continue reporting higher profit as it deals with challenges including a 27 percent unemployment rate in Spain, as reported Bloomberg.

“It’s very surprising to see today’s stock reaction,” Ivan San Felix, an analyst at Renta 4, said in a telephone interview “Inditex managed to report solid quarterly earnings even if it only opened a few stores, so investors may think that sales growth could accelerate in coming quarters as the company speeds up openings.”

Inditex SA (MCE: ITX)‘s stock had its “buy” rating restated by research analysts at Grupo Santander in a report released on Wednesday, Analyst Ratings.Net reports. They currently have a 120 euros target price on the stock.