Zara owner Inditex reports profit miss despite strong August sales

LONDON, Sept 9 — Zara owner Inditex reported weaker than expected second-quarter profit on Wednesday due to higher costs, ​driving its shares down around 3% despite a strong start to autumn trading.

The fast-fashion group, whose shares last month hit a record high, reported currency-adjusted sales up 9% in ‌August, even as extreme heat across Europe reshaped shopping patterns in its biggest market.

Inditex made €11 billion ($12.8 billion) in sales in its ⁠second quarter running May to July, a resilient ​performance in the face of high energy ⁠prices and weak consumer sentiment during the Iran war.

But its second-quarter gross profit margin was 56.7%, ‌slightly below analysts' expectations as ‌the conflict increased costs.

"Disruptions in the Middle East resulted in higher transport costs and ⁠input costs during the first half of the year," ⁠Inditex chief financial officer Andres Sanchez Iglesias told analysts on a call.

Inditex shares have had a strong run recently and hit a record of €59.1 last month, helping its market value surpass that of luxury group Hermes. Meanwhile, Hong Kong IPO filings of ultra-cheap fashion platform Shein showed a sales slowdown, suggesting that competitive pressure on European fast-fashion retailers may be easing.

The €176 ‌billion Spanish company is expanding its cheapest brand Lefties into Britain ​and plans to open in Germany next year, as it seeks to attract lower-income shoppers, some of whom have been put off by Zara's move upmarket.

HOTTER, LONGER SUMMERS

Inditex said its autumn/winter collections had been "very well received" by customers, with sales from August 1 to September 7 up 9% from a year ago - an indication that heatwaves sweeping Europe did not deter shoppers.

"Current trading looks very good despite a toughening prior year comparison, hot weather and U.S. consumer ​slowdown reported by peers," said Anne Critchlow, analyst at Berenberg.

Retailers globally are adjusting their sourcing schedules as hot weather ‌increasingly stretches into ‌the back-to-school season, ⁠when stores usually start selling jackets and coats.

Western Europe had its hottest June and July on record, according to European Union scientists, as climate change drives up temperatures and fuels wildfires.

Inditex announced an additional €200 million of capital expenditure to upgrade its corporate offices, on top of €2.3 billion of spending already earmarked ‌for this year as it ​revamps stores and improves its logistics. RBC analysts estimate ‌its annual capital expenditure is ⁠around three times ​that of its Swedish rival H&M.

($1 = 0.8595 euros)

(Reporting by Helen Reid; Editing by David Latona and Thomas Derpinghaus ​and Louise Heavens)

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