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Zara owner Inditex posts H1'19 earnings growth as sales continue to rise

Industria de Diseño Textil SA, owner of the Zara fashion chain, on Sept. 11 reported a year-over-year increase in fiscal first-half earnings as the company's efforts to roll out its integrated store and online platform continue to boost sales.

The Spanish retailer, known as Inditex, said it expects like-for-like sales to grow between 4% and 6% in the year ending Jan. 31, 2020, after its initial winter collections were well received. Sales from Aug. 1 to Sept. 8 rose 8% year over year. Like-for-like sales grew 5% in the fiscal first half.

For the six months ended July 31, Inditex said earnings per share grew to 49.8 euro cents from 45.2 cents in the same period a year ago. The figure was in line with the S&P Global Market Intelligence normalized EPS estimate of 50 cents, with two analysts reporting.

Net income attributable to the controlling company jumped 10% year over year to €1.55 billion from €1.41 billion. Operating income rose 14% year over year to €2.04 billion from €1.78 billion.

Income growth was attributed to a 7% year-over-year increase in sales to €12.82 billion from €12.03 billion as gross margin expanded to 56.8% from 56.7%. Store and online sales in local currencies gained 8%.

Sales grew across all of Inditex's brands including Zara, Pull&Bear, Massimo Dutti, Bershka and Stradivarius, and across all geographical areas.

"The investments we have made in the stores as well as in logistics and technology have been key elements in the development of our customer-focused integrated online and offline store platform," Inditex Executive Chairman Pablo Isla said.

The cost of sales during the period widened to €5.54 billion from €5.21 billion, while operating expenses narrowed to €3.82 billion from €4.46 billion.

The company operated 7,420 stores during the fiscal first half, compared to 7,422 a year earlier. Inditex closed one Zara Kids store, five Zara Home stores, 10 Massimo Dutti stores, eight Stradivarius sites and one Uterqüe store. It opened one Pull&Bear store and eight Bershka stores during the period.

Also during the fiscal first half, Inditex launched online sales for Zara in Brazil, Saudi Arabia, United Arab Emirates, Lebanon, Egypt, Morocco, Indonesia, Serbia, Israel, Bahrain, Oman, Kuwait, Qatar and Jordan. Zara online is also scheduled to roll out across South Africa, Colombia, the Philippines and Ukraine by October. The expansion is part of Inditex's digital transformation push.

Inditex forecasts approximately €1.4 billion in ordinary capital expenditure in fiscal year 2019, mainly driven by the addition of new space in prime locations. Ordinary capital expenditure is expected to grow below space growth in the coming years, it added.

The company declared a final ordinary and bonus dividend of 44 cents per share for fiscal year 2018, payable Nov. 4.

In mid-morning trading in Madrid, Inditex's stock traded down 79 cents, or 2.80%, at €27.82. The shares have gained 24.50% since the start of 2019.