Zara owner Inditex disappoints on profit margin despite strong sales

Investment Guru India

By Sonya Dowsett

MADRID- The world's biggest fashion retailer, Inditex, on Wednesday reported weaker-than-expected growth in profit margins in the first half of the year, knocking its shares lower.

The disappointing margin growth overshadowed strong growth in sales in the first half, buoyed by good summer weather in Europe. Shares of the company, which had risen 28% year-to-date, were trading 1.6% lower at 0747 GMT.

First-half gross margin, a measure of profitability, was up 12 basis points, prompting some analysts to estimate margins actually fell in the second quarter.

Inditex, owner of Zara, does not break out second quarter profit margins.

Inditex said the first-half gross margin was stable, in line with the company's forecasts.

"The season has been positive in terms of the gross margin evolution with this 12-basis-point gross margin increase ... in line with our guidance," Chairman Pablo Isla told a conference call.

The dampened margin growth could be due to foreign currency effects and a "less strong trend in full price sales", said RBC Capital Markets analyst Richard Chamberlain, who estimated a 22 basis point fall in gross margin in the second quarter.

A stronger euro can drag on profits as the group generates more than half of its sales in other currencies and then books those sales in euros when reporting results.

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