- Flat first-quarter profits
- Growth rate halves at start of Q2
- Competition remains fierce
Inditex (ITX:BME) shares slipped 5% lower to €46.77 in Madrid after the Spanish clothing colossus delivered softer-than-expected first-quarter sales and flagged a slower start to this year’s summer selling season.
Regarded as a consumer barometer given its 5,600-odd stores in 214 markets, the Zara brand owner’s recent slowdown reflects cooler weather in key markets such as Spain, which endured one of its wettest-ever springs, and the impact of Trump’s tariffs on shopper confidence in the US, Inditex’s second-biggest market.
SLOW START TO SUMMER
Sales at Inditex, which also owns the Bershka, Massimo Dutti, Pull & Bear and Stradivarius brands, grew by a pedestrian 1.5% to €8.3 billion (£7 billion) in the first quarter to 30 April 2025.
That was below the near €8.4 billion analysts were looking for, while pre-tax profits came in flat at €1.7 billion.
Investors were also disappointed by news of a slower start to summer trading, not helped by weather-related disruption in Spain.
A 6% increase in store and online sales between 1 May and 9 June 2025, the first five weeks of the second quarter, was shy of the 7.3% growth analysts were looking for and represented a slowdown from the 12% growth delivered a year ago.
Nevertheless, Inditex insisted its Spring/Summer collections continue to be ‘very well received’ by customers, while analysts noted the company should benefit from easier comparatives over the remainder of the quarter.
CASHED UP & CONFIDENT
Flush with €10.8 billion in net cash at the end of the first quarter, Inditex remains confident it can deliver growth into the future.
‘It has been 50 years since Zara opened its first store in A Coruna Juan Florez, a store that has remained open and was recently refurbished,’ said the company.
‘We see strong growth opportunities and our main priorities continue to be the improvement of our fashion proposition and the customer experience, the clear focus on sustainability and taking care of the talent and commitment of our people. Prioritising these areas will drive long-term growth.’
The Iberian retail behemoth continued: ‘The flexibility and responsiveness of our business in conjunction with in-season proximity sourcing allows a rapid reaction to fashion trends and reinforces our unique market position. This provides us with great potential for the future.’
While Inditex continues to face fierce competition from high street rivals ranging from H&M (HM-B:STO) and Next (NXT) to fast-fashion sites including Shein and Temu, the retailer does expect gross margins to remain stable.
Inditex’s recent growth deceleration will fuel further debate among investors. Bulls will highlight the retail titan’s strong track record and resilience in a tough market environment, while bears will question whether Inditex’s rich prospective price-to-earnings ratio of 25 times - a premium to H&M, Next and Marks & Spencer (MKS) - remains justified given the top-line growth slowdown.
MASTER OF EFFICIENCY
AJ Bell investment director Russ Mould explained that a lot of Inditex’s success has come from the way the business is run. ‘It is the master of efficiency and has fine-tuned operations so everything runs smoothly,’ said Mould. ‘It is able to get new designs onto the shop floor quickly so it can stay on top of latest fashion trends. It’s a great position to be in, except some things are out of its control.’
Mould observed: ‘If the consumer is worried about the economy and is watching every penny, retailers are going to struggle to shift goods unless they discount hard. Inditex is guiding for stable gross margins this year, which implies it is not expecting to slash prices to shift stock. It will no doubt take the view that it’s better to ride out the storm than make knee-jerk reactions at the first sign of trouble.
‘The same applies to unfavourable foreign exchange rates which add to near-term pressures. Currency issues typically come and go, so Inditex will probably sit tight and wait for them to pass.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
