Spanish fashion giant Industria de Diseño Textil, known as Inditex, experienced an 8% decline in shares on Wednesday morning, marking a slower start to the new fiscal year after enjoying robust gains in the previous fiscal year, 2025. The company, which owns the popular brand Zara, revealed that adjusted sales across its physical and online stores grew by 4% year over year in constant currency between February 1 and March 10.
This figure is significantly slower compared to the 11% annual growth recorded in the previous year. Comments from analysts at Deutsche Bank highlighted concerns over the current trading results, noting that while recent trading from February 1 to March 10 showed a 4% increase in constant currency, it still fell short of investor expectations.
The last week did show a slight uptick in trading performance at +7% in constant currency, yet the overall results did not meet the benchmarks set by the market. This initial slowing follows an impressive conclusion to the previous fiscal year, ended January 31, during which Inditex reported a net income attributable to the controlling company that climbed to 5.87 billion euros, up from 5.38 billion euros the previous year.
This result aligns closely with FactSet's consensus estimate. Furthermore, net sales surged to 38.63 billion euros, surpassing last year's figures of 35.95 billion euros and narrowly edging past the consensus expectation of 38.57 billion euros. Store sales experienced a notable increase of 5.9%, buoyed by higher footfall and improved productivity, which can be attributed to Inditex's aggressive expansion strategy that entered 47 new markets in 2024.
To complement this, the company has been actively working on enhancing its store optimization strategy, which includes refurbishments, enlargements, and absorptions. Online sales also performed robustly, rising by 12% to 10.2 billion euros, a clear indication of high customer engagement according to Inditex. When broken down by brand performance, Zara emerged as the leader with sales reaching 27.78 billion euros, while its sister brands, Bershka and Stradivarius, generated sales of 2.93 billion euros and 2.66 billion euros, respectively.
However, it is important to highlight that operating expenses for the company increased by 6.5%, totaling 11.56 billion euros as Inditex continued to implement its fully integrated business model. In light of these strong financial results, Inditex's board proposed a dividend of 1.68 euros per share, an increase from the previous 1.54 euros per share, set to be distributed in two equal tranches.
Looking ahead, the company is optimistic about annual gross space growth of 5% projected for the years between 2025 and 2026, with ordinary capital expenditures estimated at around 1.8 billion euros in 2025. However, analysts at Bernstein have flagged concerns regarding the weaker exit rates. They caution that the consensus forecast for the first quarter of 2025 may face downward revisions.
They state, 'The consensus for Q1 is likely to decline as a result of these trends, and with market weaknesses, this could unsettle investor confidence regarding FY25 growth expectations of 8.9%..