Spanish fast-fashion retailer Inditex comes roaring back with results beating forecast

By Barbara Kollmeyer

Co-founder Amancio Ortega was once the richest man in the world

A surge in shares of Industria de Diseño Textil, otherwise known in Inditex, will be good news for the coffers of co-founder Amancio Ortega, who has been slowly rebuilding his fortune over the past year.

Shares in one of the world's biggest apparel makers climbed 6% to EUR33.87 on Wednesday, marking the best session in a little over a year after the retailer reported sales and earnings for the first quarter that beat forecasts.

The Spanish company's quarterly sales grew to EUR7.61 billion ($8.14 billion) from EUR6.74 billion over the year, beating expectations of EUR7.56 billion, with all regions and sectors reporting positive results. Net profit rose to EUR1.17 billion from EUR766 million, quarterly gross margin rose 34 basis points to 60.5%.

A focus on costs and improving efficiencies in stores boosted underlying performance, said Peter Garnry, head of equity strategy at Saxo Bank. "Gross margin for the quarter rose to the highest level in a decade suggesting fashion retailers might have turned a corner after years of headwinds due to the pandemic," he said, in a note to clients.

Analysts Richard Chamberlain and Manjari Dhar at RBC said they now expect Inditex to achieve at least 10% reported sales growth this year and more than 20% net income growth. They boosted their price target to EUR34 to EUR37.

"We think this is a testament to the strength of ITX's product and customer offer, and fits with the 'strong getting stronger' or skew to a handful of winners that we are seeing in the sector. We now see potential for ITX to achieve double-digit top line growth for this year, even with a -2.5 percentage point negative currency translation guide on sales," said the RBC analysts.

Shares of Swedish rival Hennes & Mauritz climbed 2.7%, up 28% so far this year versus a 36% gain for Inditex, the owner of labels Zara, Bershka and Pull & Bear. AJ Bell investment director Russ Mould said Inditex's upbeat results are a testament to getting the prices right with penny-pinching consumers.

As for Ortega, he became the world's wealthiest man for a time in 2017, worth $78.7 billion at one point and besting Microsoft (MSFT) co-founder Bill Gates. Ortega owns 59% of Inditex, but his net worth is down to $69.1 billion and stands at spot 14 on the billionaire list.

LVMH Moet Henessey Louis Vuitton chairman and CEO Bernard Arnault, recently surrendered the No. 1 billionaire spot to Tesla (TSLA) co-founder and CEO Elon Musk, worth $205 billion, amid some tough times for luxury goods.

But most of Ortega's billionaire rivals are seeped in technology riches, a hot sector this year. In short, he may need to work his way back up to the $100 billion range before he gets a shot at the ranks of the top ten billionaires again. Wednesday's share rally might help, though.

-Barbara Kollmeyer

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06-07-23 1021ET

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