Inditex Shares Fall as Pricing Power Shows Sign of Slipping
Inditex First-Half Sales Accelerate as Zara Surpasses Rivals
(Bloomberg) --
Inditex SA shares fell the most in six months after pricing power slipped at the Zara clothing chain, showing that difficult retail conditions are afflicting even one of the best performers in apparel.
The drop in the Spanish company’s gross margin in the second quarter is a cause for concern because sales have accelerated, which usually gives momentum to improve profitability, according to Citigroup analysts Adam Cochrane and Matthew Garland. The weaker margin overshadowed a rebound in sales growth from the slowest pace in more than a decade.
“Expectations have been riding high though and this may not provide enough for the bulls,” the analysts wrote.
The 8% gain in Inditex shares over the past month has heaped pressure on the retailer to outperform rivals. European apparel retail has been a tough market lately, with Primark announcing a drop in like-for-like sales earlier this week.
Inditex said Wednesday that revenue rose 7% to 12.8 billion euros ($14.1 billion) in the six months through July, improving from last year’s 3% pace, the worst since its 2001 initial public offering. Operating profit rose to 2.07 billion euros, just short of expectations, though analysts have said accounting changes to leases make comparisons difficult.
The stock traded 1.5% lower at 9:45 a.m. in Madrid, having previously declined as much as 4.2%.
--With assistance from Lisa Pham.
To contact the reporter on this story: Rodrigo Orihuela in Madrid at rorihuela@bloomberg.net
To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier, Anne Pollak
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