Zara owner Inditex defies Iran war concerns with strong sales as shares surge
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The Spanish fashion giant behind Zara, Inditex, posted net income of €1.4 billion in the first quarter, up 5.4% year-on-year and ahead of market expectations.
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Sales rose 5.8% to €8.7bn, or 8.8% at constant exchange rates, ahead of the roughly 8% analysts had anticipated.
Gross profit rose 6.9% to €5.4bn, helped by an improvement in profit margins, meaning the company kept a larger share of revenue as profit. EBITDA, a measure of underlying earnings, increased 7.3% to €2.6bn.
Inditex shares rose more than 5% on Wednesday after the company reported a strong start to the second quarter, with sales increasing 11.5% between 1 May and 1 June, reassuring investors that the Zara owner remains resilient despite signs of weakening consumer spending.
“Inditex continued its strong momentum with its latest results beating first quarter expectations, and also seen a strong start to the second quarter too, as sales grew more or less in line with the rate the company exited with in the previous quarter,” said Mamta Valechha, consumer discretionary analyst at Quilter Cheviot.
The revenue jump from one of the world’s largest listed clothing retailers points to solid consumer appetite heading into the summer, despite concerns that a more uncertain economic and geopolitical backdrop could weigh on spending in the months ahead.
Navigating geopolitical risks
The results come as businesses around the world face growing uncertainty over the global economy and concerns that consumers may cut back on spending.
Inditex said its wide-ranging supply chain and flexible transport network had helped it keep products flowing to stores around the world despite recent disruptions.
“Ultimately, Inditex continues to have a resilient business model that can withstand significant economic pressures and currency headwinds,” said Mamta Valechha, consumer discretionary analyst at Quilter Cheviot.
Valechha said strong customer demand and the company’s ability to source products close to its key markets had helped it keep collections up to date while limiting the need for discounts. Productivity improvements had also helped protect profitability.
Inditex also said that the current “geopolitical challenges” had an impact on the sales in the Middle East, a region that Barclays estimates accounts for about 5% of its revenue.
The company also warned that ongoing instability in the region could affect its performance in the months ahead.
Inditex faces a number of other challenges, including higher shipping costs and rising prices for raw materials such as cotton and polyester. Currency movements are also expected to weigh on results this year.
Inditex ended the quarter with 5,456 stores and a net cash position of €10.8bn.
The board has proposed a dividend of €1.75 per share for the last fiscal year, comprising an ordinary component of €1.20 and a bonus of €0.55, payable in two instalments in May and November 2026.
Despite the strong start to the year, Inditex left its outlook unchanged. It said it expects sales growth to continue into the second quarter, supported by strong demand for its spring and summer collections and ongoing improvements to its stores and operations.
However, the company said currency fluctuations are likely to reduce sales growth by around 1% over the full year. It also expects to invest about €2.3bn in the business during the current financial year.
