(Bloomberg) -- Inditex SA, the owner of the Zara retail chain, reported slower sales growth at the outset of the crucial holiday shopping season, sending shares tumbling.
The Arteixo, Spain-based retailer said revenue, excluding currency swings, grew 9% in the five weeks to Dec. 9, compared with 14% a year earlier. It was also slower than the sales growth in the nine months to October.
The shares, which hit a record high on Dec. 5, fell as much as 7.7% in early Madrid trading, the most since March 2022. Through Tuesday, the stock was up about 40% since the year began.
“The shares likely needed a better print to prevent some profit-taking today,” said Jefferies analysts led by James Grzinic in a note to clients.
The retailer had a stellar post-pandemic run, but the pace has slowed slightly since then. Operating income rose 5% to €2.13 billion ($2.24 billion) in the third quarter, just shy of analysts’ estimates. Gross margin, a measure of profitability, also came in below expectations in a period typically marked by bigger-ticket items like coats and jackets and few markdowns.
Inditex said that the strength of the euro versus most currencies, and depreciations in the Brazilian real and the Mexican peso, weighed on sales in the third quarter.
“These headwinds appear to be moderating in Q4,” Capital Markets Director Marcos López told Bloomberg by email. The retailer maintained its guidance that currency fluctuations would trim sales by 3% in 2024.
What Bloomberg Intelligence Says:
Inditex’s 6% 3Q Ebit miss vs. consensus leaves a full-year downgrade likely. Revenue would need to be 1.5% ahead of 4Q consensus to meet fiscal 2025 expectations, gross profit 2.5% and Ebit 6.2%, which is unlikely as it guided for 3% adverse annual currency impact and cost growth has risen to 7% so far this year. Inditex’s fashion stance is still resonating with consumers.
— Charles Allen, BI retail industry analyst
Inditex Set for Ebit Downgrade as Costs, Currency Weigh: React
Inditex has been a standout performer among Europe’s clothing retailers, as rivals struggled with unseasonably warm weather and weak demand in key markets. The company’s tightly managed supply chain allows it to get the latest and most popular products in and out of stores quickly, making it more agile on both fashion trends and potential headwinds.
--With assistance from Macarena Muñoz.
(Adds chart, detail on currency impact)
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