Inditex Says Revenue May Accelerate After Four-Year Lull

(Bloomberg) -- Inditex SA forecast that sales growth may accelerate and profitability will improve as the Zara operator expands more online and makes stores even more efficient, a rare bit of positive news as European clothing retailers struggle.

The company’s unusually explicit second-half forecast implies revenue growth may have turned a corner after weakening to the slowest pace in four years. Inditex also said profitability is rebounding after reaching a decade low last year.

“Management’s guidance for the second half looks reassuring,” said Anne Critchlow, an analyst at Societe Generale.

European clothing retailers have been struggling as the hot summer led shoppers to focus on less-profitable lighter garments such as T-shirts and shorts. Budget chain Primark warned this week that it will report a rare drop in sales. Competition has also increased as H&M has slashed prices to clear its record inventory.

The shares rose 0.4 percent at 9 a.m. in Madrid.

The results come amid rising concern about whether the Spanish retailer has passed its prime. The stock has tumbled in the past two months as analysts scrutinized the retailer’s growing reliance on online sales, citing concerns about the costs of shipping and returns. Last week Chairman Pablo Isla said Inditex aims to have online sales all over the world by 2020.

The company expects like-for-like revenue growth of 4 percent to 6 percent and a 0.5 percentage point margin improvement in the second half. Sales growth slowed to 4 percent in the six months through July amid extremely hot weather, weak currencies and the rising pressure of online competition.

H&M had a 33 percent drop in its first-half operating profit as unsold products piled up.

©2018 Bloomberg L.P.