Inditex sales slip because of strong euro

Inditex SA, the world’s largest clothing retailer, has suffered a drop in its first-half profit. Its second quarter gross margin declined to 56.5 percent from 58.9 percent in the previous quarter.

The company reported net income of €928 million for the first-half of the year, which is lower than the €951 million the company generated in the half year period a year ago. However, the 2.4% drop is smaller-than-expected, thanks to cost controls.

Chief Executive of Inditex SA, Pablo Isla, commented on the results, stating that the group managed to stick to its target to end the year with a stable margin, which is considered to be one that increases or decreases by no more than 50 basis points year on year.

Simon Irwin, an analyst at Credit Suisse, said:

“We can only assume that the competitive situation has again deteriorated in emerging markets, as was clear from ASOS yesterday.”

Other companies have been affected too

ASOS is an online fashion retailer based in the UK. It recently warned on profit stating that in order to recover sales it will have to cut costs and improve its service in international markets.

Over recent years Inditex has managed to achieve successful expansion in more than 80 markets across the world. However, like other European retailers, Inditex has been affected this year by the drop of currencies against the euro, in markets such as Russia and Japan.

A strong euro has created a dent in the retailer’s net sales by approximately 4 percent in the first half of the year.

Inditex makes around two thirds of its sales in Europe and nearly a fifth of its sales in Spain – its home market. However, the company has expressed intentions to aggressively enter new markets outside of Europe.