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Strong euro takes toll on Zara owner Inditex

Reuters  |  LA CORUNA, Spain 

By Sonya Dowsett

LA CORUNA, (Reuters) - A stronger euro took its toll on Spanish retailer in its latest quarter, leading to lower profit margins at the owner of clothing chain Zara, while a cold snap dragged on sales of spring fashions at the start of its financial year.

But its shares bounced back from early losses on Wednesday, as investors cheered strong growth and said margins should hold up this year.

"Looking to the year ahead, we should not see a negative impact on margin at current exchange rates," Isla told a conference in the company's headquarters in

The shares closed up 4 percent at 25.24 euros.

Inditex, the world's biggest by market value, is more affected by the strengthening euro than many European rivals because it sources a higher proportion of garments closer to home - rather than from, for example, Asian markets - allowing it to respond quickly to new trends.

said aimed to offset currency moves by the timing of some of its spending.

"As we don't know the precise volumes and timing of purchases, we will have to take the company's view of the gross margin for the current year," she said.

Inditex's proportion of jumped 41 percent to reach 10 percent of net sales across the group in 2017, though that still lags some rivals. Sweden's H&M, for example, makes around 12 percent of

The Spanish company has invested in technology to merge online and store experiences. Radio-frequency identification tags on clothing keep a tight control on inventory, allowing mobile phone apps to notify customers if certain items are available at nearby stores.

The app constantly refreshes its magazine-like appearance with new designs photographed on models at the company's headquarters at a rate of 120 campaigns per season. Click and collect options also allow customers to bulk order, try on in the shop and return on the spot if desired.


Inditex, whose brands include upmarket label and Home, said gross margin dropped to 53.5 percent in the quarter to the end of January from 59.4 percent in the previous quarter and 54.8 percent a year earlier.

"We think this is mainly due to currency mix, a delay in the start of the spring collection to the first quarter and lower full price sales than expected in the second half of the fourth quarter," said of

reported net profit of 3.4 billion euros ($4.2 billion) for the year to Jan. 31, up 7 percent and in line with analysts' expectations. The cash-rich company proposed a 10.3 percent increase in the dividend to 0.75 euros per share.

Sales at constant exchange rates rose 10 percent to 23.5 billion euros in 2017.

On the same basis, sales grew 9 percent in the first five weeks of the new financial year as new spring collections hit shop floors with items like printed maxi dresses, linen separates and pastel blazers at

This was slower growth than expected by some analysts, but rivals are also likely to have suffered from cold weather in early March which brought snow to many European cities, analysts said. will report December to February sales on Thursday.

($1 = 0.8066 euros)

(Reporting by Sonya Dowsett; Editing by Keith Weir, Georgina Prodhan and Mark Potter)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, March 14 2018. 23:37 IST