Inditex SA (IDEXY) shares traded lower in Madrid Wednesday after it posted stronger-than-expected earnings but reported only a modest increase in its gross margin, suggesting the world's biggest clothing retailer will struggle to grow profits even as sales increase.
Inditex, best-known for its Zara clothing brand, said net sales increased by 14% to €5.569 billion ($6.24 billion) in the three months ending April 30, helping boost its bottom line by 18% to €654 million. However, the group's gross margin only improved buy one basis point to 58.2% from the same period last year, according to its quarterly update, suggesting that even its rapid increase in online sales and its ongoing dominance over rivals such as H&M could be difficult to maintain.
Inditex shares were marked 1.24% lower at €35.42 each in the opening 30 minutes of trading in Madrid, trimming the year-to-date gain to 9.15%. That gain, however far outpaces both the Stoxx Europe 600 Retail index, which has risen just over 2% this year, and the 15% slump in shares of rival H&M Hennes & Mauritz AB (HNNMY) .
The company told investors on a conference call following the results that it doesn't expect to see a decrease in gross margins for the 2017 financial year and that it expects to see like-for-like sales growth in its domestic Spanish market.