What’s Going On Here?

Inditex (world’s biggest clothing retailer and owner of Zara) – reported a fancy quarterly performance.

What Does This Mean?

Inditex faced the same challenges as Ted Baker last quarter, whereby unusually cold weather hampered customer demand for its lighter spring wares.

• Inditex didn’t slash prices to boost sales (it’s got a reputation for rarely discounting).
• Instead, its industry-leading supply chain helped it quickly replace goods left on the rack with more desirable ones – and revenue grew 5%.
• Plus, a weak euro meant money earned abroad was worth more, helping profit grow 10%.

Why Should I Care?

The bigger picture: Retail’s brief postpone of punishment.

For the Spanish company: Investors might have been braced for the worst from Inditex – but the woes that shrank Ted Baker weren’t as apparent for it.

For British retailer Arcadia (Topshop parent), however, the worst may be yet to come.

• The company has fallen victim to the UK high street slump that’s hurt its rivals: on Wednesday, Arcadia asked its shopping mall landlords to accept 25-50% lower rent payments to help keep it afloat – a deal they accepted.
• Without this lifeline, Arcadia may have fallen into administration à la Debenhams.

Zooming out: Higher US prices seem unlikely.

• It doesn’t seem that many retailers are strategically raising prices to boost profits, especially in the US. Data showed that product prices (a.k.a. inflation) barely rose in May versus April, partly thanks to falling oil prices.
• Excluding energy, however, inflation was lower than expected – further increasing the likelihood of forthcoming economic support by way of lower interest rates.
• By contrast, Chinese inflation in May jumped by the most in over a year, largely driven by rising food prices and the pig crisis (having slaughtered its pork supply).

Content source: Finimize. (2019) Inditex Shows Its Knees. Available from: https://www.finimize.com/wp/news/inditex-shows-knees/ [Accessed 18 June 2019]