Key Takeaways:
Inditex reported Q1 revenue of €8.7 billion, up 5.8%, and said May sales accelerated 11.5% as spring collections drove demand despite geopolitical challenges in the Middle East.
"Inditex continued its strong momentum with its latest results beating first quarter expectations, and also seen a strong start to the second quarter too," Mamta Valechha, consumer discretionary analyst at Quilter Cheviot, said.
Net income rose 5.4% to €1.4 billion, ahead of market forecasts. Gross margin expanded 67 basis points to 61.2%, helped by a weaker US dollar and disciplined cost management. EBITDA increased 7.3% to €2.6 billion, while operating expenses grew 6.4%, broadly in line with sales.
The results show the Zara owner is navigating a turbulent macro environment better than many peers. Shares rose more than 5% on Wednesday. Management reiterated full-year gross margin guidance of ±50 basis points and confirmed ordinary capital expenditure of about €2.3 billion for 2026.
Sales in constant currency grew 8.8% in the first quarter, accelerating to 11.5% in the four weeks through June 1. The company cautioned that comparables get progressively stronger in the second half, particularly from the third quarter onward. Currency headwinds are expected to reduce reported sales by about 1% for the full year.
The company's supply chain flexibility proved a key advantage during the quarter. Inditex used a combination of air, sea, and land transport to ensure uninterrupted product flow to its 215 markets, CFO Andrés Sánchez said on the earnings call. Proximity sourcing and diversified procurement helped mitigate cost pressures, though higher fuel prices will have a lagged impact on cost of goods sold in coming quarters.
Geopolitical tensions in the Middle East weighed on the region's performance, where Inditex operates about 480 stores under a franchise model. The company did not quantify the impact but said the region is diverse, with different countries affected to varying degrees. The group's broad geographic diversification offset the weakness, with growth driven by volume rather than price increases.
Inventory stood 1% higher at the end of April, which management described as high quality. The board proposed a dividend of €1.75 per share, with the second installment of €0.875 payable Nov. 2. Annual gross space growth is expected at about 5% for 2026.
The strong start to the year signals that Inditex's integrated business model continues to deliver despite macro uncertainty. Investors will watch the first-half results in September for further evidence that margin expansion can be sustained as transportation costs rise and currency tailwinds fade.
This article is for informational purposes only and does not constitute investment advice.
