The Spanish fashion group Inditex, parent company of Zara, expects a boost from the recent dollar strength that followed Donald Trump's election victory. This could help offset the disappointing third-quarter results, which triggered a share price drop of up to 6 percent on Wednesday – the biggest intraday loss of the year for the company.
In the third quarter, revenue rose by 6.8 percent to 9.4 billion euros but fell short of the 9 percent mark expected by analysts. Inditex blamed the strength of the euro against other currencies, particularly the Brazilian real and the Mexican peso, for the figures falling short of expectations.
We are now seeing a stabilization in currencies, particularly in the Brazilian Real, and the strengthening of the US dollar against the euro has a positive effect," said Marcos López, director of capital markets at Inditex. He expects the currency pressure to decrease in the fourth quarter.
In constant currency units, Inditex recorded a sales growth of 11.1 percent, which also fell short of analysts' expectations of 12.1 percent.
Trump's election victory on November 5 has significantly strengthened the US dollar against other currencies, including the euro. Investors are pricing in the potential impacts of his protectionist trade policies, while the European Central Bank may further lower interest rates to support Eurozone exporters.
The strength of the dollar could benefit Inditex, as the company generates a large part of its sales outside the Eurozone and these are converted into euros.
The net profit increased by 5.8 percent in the third quarter to 1.7 billion euros, but also fell short of expectations and the 10 percent growth of the previous quarter. Initial data for the fourth quarter show revenue growth of 9 percent in constant currencies.
Analysts remain cautious: "The momentum has further slowed down," commented Monique Pollard of Citibank. However, Inditex emphasizes its long-term strength, supported by robust sales in key markets such as Spain, the USA, and Mexico.
The Inditex share fell by 6 percent at times on Wednesday, but stabilized with a decline of 4.5 percent to 52.26 euros. However, over the past twelve months, the share remains significantly on the rise with an increase of over 33 percent, especially compared to competitors like H&M.
