Zara owner Inditex posts slowing sales, warns of FX pain

Zara-owner Inditex SA reported a muted start to the second quarter and warned that foreign-exchange headwinds could have a greater impact on results this year than anticipated. Shares tumbled.

Revenue at the world’s largest listed clothing retailer, not including currency effects, rose 6% in the five weeks to June 9, the Arteixo, Spain-based retailer said on Wednesday. That was weaker than last year’s start to the summer season.

“The release fails to dispel concerns on slowing growth,” analysts at Barclays wrote in a note.

The company’s shares fell as much as 6.4% in early Madrid trading.

The latest numbers suggest that Inditex, like its peers, is falling prey to the global trade-war-led easing of demand. The company has fared better than many of its rivals by keeping tighter controls on inventory, enabling it to remain nimble in a fickle fashion industry, but its sales-growth rates have headed down sharply from the post-pandemic boom era. Swedish rival Hennes & Mauritz AB posted disappointing first-quarter results because of stockpiles of unsold clothing.

Foreign-exchange swings are likely to be a greater drag on revenue this year, Inditex warned. The company expects currency fluctuations to shave 3% off sales this year, up from 1% it had expected previously. The adjustment follows a notable depreciation in both the US dollar and the Mexican peso against the euro, shrinking international earnings when converted back to the company’s home currency.

In March, Inditex spooked the market by signaling a weaker start to its fiscal year, provoking the biggest single-day plunge in its shares in five years. In its first quarter ended April 30, operating profit was in line with analyst estimates, while revenue was below expectations. The retailer said costs grew 2.3% in the period, rising faster than the 1.5% increase in revenue, including currency swings.

Over the last few years, the company has invested in both expanding its network of stores and also on refurbishing existing outlets to ensure a better shopping experience for customers. Inditex is now under pressure to show those investments are paying off. The company plans to spend €1.8 billion ($2 billion) again this year on store improvements and technology, along with an additional €900 million to expand its logistics network.

Inditex said a new distribution center in Zaragoza will start operating this summer.

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