A stronger euro plays against Inditex over first half of 2017

The Spanish textile giant grew 11.5 percent in the first half of 2017, closing the first semester of its fiscal year with 11.671 million euros. The results of the as Zara or Massimo Dutti parent group have accused "the strong appreciation of the euro against most currencies".

Profit has also taken a hit, closing the period at 1,366 million euros, which includes an increase of 9 percent over a year earlier. Inditex has therefore presented a profit slightly below market forecasts for the period comprehended between February,1 to July, 31 July.

Comparable sales have been the biggest blow, growing 6 percent in the first six months of the year, almost half of the 11 percent growth recorded in the same period last year.

The euro’s appreciation weights Inditex’s H1 results

The company's profit rose 9 percent to 1,366 million euros. The currency effect has meant a considerable slowdown for the world’s largest fashion retailer’s profit growth, which came in at 18 percent more.

Thus, although Inditex's revenues in the semester improved by 11.5 percent over the same period in 2016, this rate reflected a decline from the 14 percent that increased in the first quarter. The reason? The rally of the European currency, which accumulates increases of 14 percent against the dollar so far this year and more than 4 percent against the pound.

Bankinter experts precisely call out the deceleration of comparable sales for the textile giant, saying that "Although the results of the first half of the year have been presented in line with the estimated, the slowdown in comparable sales (up 6 percent in the first semester compared to 10 percent in 2016 and 11 percent in the first half of 2016) and the narrowing of the gross margin (54.8 percent compared to 58.2 percent in the first quarter and 55.7 percent of the second quarter of 2016) are the most worrisome aspects.”

"The negative impact of the euro appreciation on sales was an expected effect but we preliminarily believe that the impact suffered is not only justified by this," they added.

Analysts at Morgan Stanley cut target price for Inditex from 38 to 30 euros

Meanwhile, Morgan Stanley’s analysts have cut their valuation on Inditex stock by 21 percent, recommending to pay 30 euros per share - previously held a target price of 38 euros per share.

Following the financial release and various analysts’ commentary, Inditex shares fell on Wednesday, closing down 0.84 percent to 32.41 euros. However, the company’s shares have kept a positive balance of 0.92 percent so far this year, according to the Spanish financial newspaper 'Expansion'. At the close of trading Wednesday, the market capitalisation of the textile giant is slightly above 101,000 million euros.

The graph shows Inditex financial performance in H1FY17 by revenue and net income. All in euros.

Image:Zara, Official Web