June 13, 2018 / 5:36 AM / 7 days ago

Inditex Q1 gross margin improves despite strong euro

MADRID, June 13 (Reuters) - Inditex, the world’s biggest clothing retailer and owner of fashion brand Zara, on Wednesday reported improved profitability for the first three months of its financial year despite negative currency effects.

The group also reported strong sales for the first six weeks of the second quarter, up 9 percent in local currencies, as shoppers snapped up items from summer collections like striped maxi skirts and linen dresses at Zara.

First quarter sales were 5.7 billion euros ($6.7 billion), up 2 percent on year, and broadly in line with analysts’ expectations of 5.8 billion euros. Earnings before interest, tax, depreciation and amortisation was 1.13 billion euros, in line with analysts’ expectations.

Gross margin increased 68 basis points from the same period a year ago to 58.9 percent of sales despite the euro strengthening around 16 percent from the year-ago period.

A strong euro has a negative effect on Inditex’s profitability as the owner of Massimo Dutti and Oysho generates more than half of its sales in non-euro currencies and then books those sales in euros when reporting results.

Inditex’s centralised sourcing and distribution model also means a large chunk of its costs are in euros. ($1 = 0.8515 euros) (Reporting By Sonya Dowsett; Editing by Biju Dwarakanath)

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