Zara owner Inditex defies consumer gloom with strong early summer sales

Zara owner Inditex reported a strong start to summer trading on Wednesday as currency-adjusted sales grew 11.5% in May, handily beating analyst expectations, even ‌as Iran war inflation worries dent consumer confidence.

Zara owner Inditex reported a strong start to summer trading on Wednesday as currency-adjusted sales grew 11.5% in May, handily beating analyst expectations, even ‌as Iran war inflation worries dent consumer confidence. Inditex shares gained 5% as the healthy sales growth reassured investors the fast fashion giant can weather the global turmoil and perhaps even benefit as some shoppers trade down from more expensive clothing brands.

Analysts had expected sales growth of 8% for May, ‌the start of the company's second quarter. Inditex posted sales of €8.75 billion ($10.17 billion) over its February-to-April first quarter, up 8.8% in currency-adjusted terms. "This performance ‌is even more noteworthy when considered against the backdrop of the wider macroeconomic and geopolitical challenges seen in recent months," Gorka Garcia-Tapia Yturriga, Inditex's investor relations director, said on a call with analysts.

Sales in the Middle East, where Inditex has stores operated by franchise partners, have been impacted, he added, without giving a specific figure. IMPACT OF HIGH FUEL, TRANSPORTATION ⁠COSTS LIMITED ​SO FAR

Chief Financial Officer Andres Sanchez ⁠said Inditex has rapidly adapted its supply chain to ensure uninterrupted product flow to its stores globally, despite disruptions to air and sea freight caused by the war, which ⁠broke out in late February. "There is a lag effect between the transportation of goods and the impact on cost of goods sold, which means that ​the impact of the higher transport cost and fuel prices in the first quarter has so far been limited," he said.

Inditex's profitability ⁠improved with the first-quarter gross margin hitting 61.2% - up from 60.6% a year ago - in a sign the retailer has successfully protected profits despite higher raw material and freight costs. The company, ⁠meanwhile, ​stuck to a full-year outlook issued in March of a stable gross margin, a 5% increase in store space, and €2.3 billion in capital expenditure.

Zara has invested in new, bigger stores and boosted marketing to draw in new customers while increasing prices. And in May it launched ⁠a new clothing collection with Puerto Rican pop and reggaeton superstar Bad Bunny, who wore custom Zara outfits during his NFL Super Bowl halftime ⁠show in February.

The first quarter is ⁠typically Inditex's smallest in terms of sales and profits. But it has been closely watched, given the war's impact on consumer confidence. And investors have been bracing for signs of strain at the $190 billion company, which also ‌owns smaller brands ‌including Massimo Dutti, Oysho, Bershka, and Lefties. ($1 = 0.8605 euros)