Cost Advantages Through the Turkish Lira

The period under review continued to be shaped by investments that Zara’s mother intends to use to fully interconnect online and brick-and-mortar retailers in the fight against online retailers such as Amazon & Co. At the same time, the strong euro made a negative impact, eating up most of the actual growth. Adjusted for currency effects, EBIT would have risen by 17 percent.

But also Inditex has to fight. The analysis house RBC has therefore lowered the price target for the textile retailer from 34 to 32 euros, but left the classification on “Outperform”. The Spanish company is expected to continue its strong operating performance, but foreign exchange effects are likely to be more noticeable than before, said analyst Richard Chamberlain recently in a study.

Later in the year, Inditex could benefit from cost benefits from the weakness of the Turkish lira. The company buys 15 percent of its products from Turkey.

In the first half of 2018/19, the Spanish clothing retailer Inditex successfully defied the heat wave and the trend towards online shopping.

Sales rose by three percent to a good twelve billion euros, more than ever before in a half-year. Adjusted for currency effects, growth would have been 8 percent. Operating earnings (EBIT) increased by two percent to just under € 1.8 billion, which was roughly in line with analyst forecasts.

The period under review continued to be shaped by investments that Zara’s mother intends to use to fully interconnect online and brick-and-mortar retailers in the fight against online retailers such as Amazon & Co. At the same time, the strong euro made a negative impact, eating up most of the actual growth. Adjusted for currency effects, EBIT would have risen by 17 percent.

Growth of four to six percent targeted

At Inditex, costs are mainly in euros, but most of its sales are generated in other currencies. The bottom line was a profit of 1.4 billion euros, three percent more than in the same period last year.

For the second half of the year, Inditex announced like-for-like growth of four to six percent, after four percent in the first six months. The investment offensive should go further: By 2020, Inditex is aiming, among other things, to sell all brands worldwide online.

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