Inditex shares plummet on weak profit growth data

news.ft.com By Leslie Crawford in Madrid Published: March 21 2003 18:37 | Last Updated: March 21 2003 18:37

Investors wiped a fifth of the market value from Inditex after the owner of the Zara fashion chain reported its weakest quarterly profit growth since its stock market listing in May 2001.

Analysts also expressed concern about the outlook for margins at Inditex, Europe's second-largest clothing retailer after Sweden's Hennes & Mauritz, which had hitherto been a darling of the Madrid stock exchange.

However, the company sought to shrug off a decline in fourth-quarter margins, and maintained its goal of achieving sales and profit growth of 20 per cent a year until 2006 and planned store opening schedule.

"That was what we told investors when we listed the company in 2001 and we have not modified our forecasts," an Inditex spokesman said on Friday. "We are still exceeding our forecasts, although the market may have been expecting more from us."

Traders said the company had become a victim of the high expectations generated by the runaway success of Zara fashion stores. Its just-in-time manufacturing and delivery model, which minimises inventory costs and cuts back on unsold merchandise, has been viewed as a revolution in the industry.

Net sales rose 22 per cent to €3.97bn ($4.18bn) in 2002 and net profit rose 29 per cent to €438m, but the results released after Thursday's market close failed to meet the expectations of investors accustomed to annualised growth rates of 30 per cent.

"There has been a lot of profit-taking, and perhaps some panic selling because of the war," said an analyst at Ahorro Corporación, a Spanish brokerage. "A lot of investment funds are selling today in the hope of picking up shares at a cheaper price next week."

Merrill Lynch and Goldman Sachs, the US investment banks, lowered their recommendations on the stock. The company's fourth-quarter earnings were affected by a general strike in Venezuela and lower-than-expected sales in Europe before Christmas.

More than 80 per cent of Inditex's sales are in Europe, where consumer confidence is at a six-year-low because of the war against Iraq and the region's economic slowdown.

Nevertheless, Inditex said it planned to open between 265 and 310 new stores this year. It opened 274 stores in 2002. At the start of the year, the Spanish fashion group operated 1,558 stores in 44 countries.

Inditex shares closed down 19.7 per cent at €22.90.