Zara owner Inditex sees shares fall as sales growth slows

Inditex shares fell 5% to €46.7 after Q1 earnings revealed slowing sales growth and increased concerns over currency impacts. While EPS met expectations at €0.42, sales growth at constant currencies was 4.2%, below the 5.5% consensus forecast. The company noted the United States as a key growth driver, but analysts suggest Inditex faces a more subdued growth pace in 2025 amid reduced consumer spending and a slowing global economy, with currency headwinds now expected to negatively impact full-year results by 3%.

Analysis

Inditex experienced a 5% share price decline to €46.7 following its first-quarter earnings announcement, which highlighted a deceleration in sales growth and heightened concerns regarding adverse currency movements. While earnings per share met analyst expectations at €0.42, constant currency sales growth of 4.2% fell short of the 5.5% consensus forecast; even when adjusted for the leap year to 5.3%, this represented a slowdown from the 7% growth rate indicated by the company in March. Total sales increased by 1.5% to €8.3 billion, slightly below the anticipated €8.4 billion, with the United States identified as a significant contributor to this growth. Despite tightly controlled operating expenses, which rose by 2.3%, the outlook suggests continued headwinds: trading in the initial five weeks of the second quarter showed a 6% constant currency sales increase, a notable deceleration from the 12% growth observed in the comparable period last year, and Inditex revised its full-year guidance to incorporate a more substantial negative foreign exchange impact, now projected at 3%. Analysts acknowledge Inditex's effective navigation of a challenging retail environment, characterized by reduced consumer spending and a slowing global economy, supported by its agile supply chain, but concurrently point to a potentially more subdued growth trajectory for 2025, with currency fluctuations and broader macroeconomic uncertainty remaining potential obstacles.

Key Decisions for Investors

• Investors should closely monitor Inditex's sales momentum in subsequent quarters and the evolving impact of foreign exchange rates, particularly in light of the revised full-year guidance and the slower start to Q2 sales growth.
• It is advisable to assess whether the recent share price correction adequately incorporates the moderated growth outlook, increased currency headwinds, and the prevailing challenging macroeconomic conditions affecting consumer spending.
• While Inditex's operational strengths, such as its agile supply chain and trend-responsive collections, offer a degree of resilience, a cautious stance is warranted given the current uncertainties in the global retail landscape and the observed slowdown in growth.