Rainy Season Damps Inditex Sales Growth Expectations business, fashion, fashion news

Despite exceeding initial expectations for its fiscal second quarter, global fashion retailer Inditex, owner of brands like Zara, Pull&Bear, and Massimo Dutti, is facing tempered sales growth forecasts due to unseasonable weather conditions in key markets.

Analysts anticipate a slowdown in Inditex’s sales momentum during the May-July quarter, primarily attributed to an unusually wet and cold June in Spain, its largest market. The Spanish state weather agency reported that June rainfall was 49% above average, significantly impacting consumer behavior and retail sales. This trend mirrors challenges faced by other clothing retailers such as H&M, which predicted a 6% decline in June sales due to unfavorable weather across several key markets. Even British retailer Primark experienced diminished summer sales due to persistent rain in the UK.

While analysts acknowledge the adverse impact of the weather on Inditex’s performance, they remain optimistic about the company’s resilience and ability to outperform its competitors. Patricia Cifuentes, an analyst at Bestinver Securities, anticipates quarterly sales growth of 9%, citing Inditex’s robust operational agility and strong brand portfolio.

«Inditex should continue outperforming but I assume a slowdown within the quarter due to adverse weather conditions,» Cifuentes stated.

Xavier Brun, portfolio manager at Trea Asset Management, which holds shares in Inditex, echoed this sentiment, emphasizing the company’s capacity to adapt to seasonal fluctuations. He noted that market conditions showed signs of improvement in July, suggesting a potential rebound in sales.

Analysts also point to Inditex’s pricing strategy as a key factor contributing to its relative strength. Despite rising inflation, Zara has implemented more measured price increases compared to rivals like H&M, particularly in the US, its second-largest market. Data from retail analytics firm Edited revealed that Zara’s womenswear prices fell by 6% year-on-year during the second quarter, while H&M raised its prices by an average of 1%.

Despite the June slowdown, analysts project Inditex to report a first-half profit of 2.8 billion euros ($3.1 billion) on Wednesday, representing a 10% increase compared to the same period in 2022. Furthermore, they anticipate a double-digit sales rebound for Zara during the initial five weeks of its third quarter, which began in August.

Cifuentes concluded by stating that despite the temporary setback caused by unfavorable weather conditions, the market is likely to maintain confidence in Inditex’s long-term growth potential.