Inditex Shares Drop After Earnings Miss

Shares of Zara's parent company, Inditex (BME:ITX), fell over 5% on Wednesday following third-quarter earnings that fell short of analysts' expectations.

Despite having strong cash reserves and controlled inventory levels, the disappointing results were driven by lower-than-expected revenue and profit, raising investor concerns about the company's performance in challenging market conditions.

The Spanish fashion giant, known for brands like Zara and Massimo Dutti, posted quarterly revenue of €9.4 billion, just shy of analysts' projections of €9.5 billion.

The gross margin was reported at 61.5%, down 20 basis points year-on-year and lower than the anticipated 61.9%.

Profit before tax was €2.2 billion, reflecting a 6% shortfall from forecasts, while earnings per share stood at €0.54, a 5% decrease from expectations. Analysts noted that the company's forecasts had been marginally above market consensus.

Current trading figures covering the period from November 1 to December 9 showed year-on-year growth of 9%, slightly below the expected 10% growth. Analysts attributed this slowdown to a challenging comparative base from the previous year, which experienced a 14% increase in trading.

Inditex reported net cash of €11.8 billion and a 3% year-on-year reduction in inventory, indicating effective operational controls despite external pressures.

In a note, analysts at RBC Capital Markets mentioned, "After a very strong post-pandemic period, its sales base is now larger, and its operating margin has reverted to above its long-term average. ITX's growth is broad-based and global, and it has been showcasing the US in recent years, where its market share is still low."