Inditex Shows Its Knees

Inditex's strong quarter

Image source: O.Bellini, doodko, Julian Rovagnati, Laborant - Shutterstock

What's going on?

Inditex – the world’s biggest clothing retailer and owner of Zara – reported a showy quarterly performance on Wednesday.

What does this mean?

Inditex faced the same challenges as Ted Baker last quarter, whereby unusually cold weather hampered customer demand for its lighter spring wares. But Inditex didn’t slash prices to boost sales – in fact, it’s got a reputation for rarely discounting. Instead, its industry-leading supply chain helped it quickly replace goods left on the rack with more desirable ones – and revenue grew 5% higher than a year ago. Plus, a weak euro meant that money earned abroad was worth more when brought home, helping profit grow 10%.

Why should I care?

The bigger picture: Retail’s brief reprieve.

Investors might have been braced for the worst from Inditex – but the woes that shrank Ted Baker weren’t as apparent for the Spanish company. For British retail conglomerate and Topshop parent Arcadia, however, the worst may be yet to come. The company has fallen victim to the UK high street slump that’s hurt its rivals: on Wednesday, Arcadia asked its shopping mall landlords to accept 25-50% lower rent payments to help keep it afloat – a deal they accepted (tweet this). Without this lifeline, Arcadia may have fallen into administration à la Debenhams.

Zooming out: Higher US prices seem unlikely.

It doesn’t seem that many retailers are strategically raising prices to boost profits, especially in the US. Data out on Wednesday showed that product prices (a.k.a. inflation) barely rose in May versus April, partly thanks to falling oil prices. Excluding energy, however, inflation was still lower than expected – further increasing the likelihood of forthcoming economic support by way of lower interest rates. By contrast, Chinese inflation in May jumped by the most in over a year, largely driven by rising food prices. The country’s pig crisis, which has slaughtered its pork supply, was responsible for the grunt of the increase.

Originally posted as part of the Finimize daily email.

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