Spanish clothing retailer Inditex (ITX:BME) fashioned a strong performance in 2024 as its affordable, quality clothing collections continued to resonate with shoppers, and the cash-rich Zara-to-Bershka brands owner also upped its annual dividend by 9% to €1.68 per share.

So why was the stock marked down 7% to €45.3 in early dealings in Madrid? The answer is softer-than-expected first-quarter trading, which analysts attributed to unfavourable weather and weakening consumer sentiment in the UK, Germany and US.

This weighed on shares in fashion retail rivals including Next (NXT), Marks & Spencer (MKS), ASOS (ASC) and JD Sports (JD.), as well as Primark-parent Associated British Foods (ABF), which all fell on the negative read-across.

SOFT START TO NEW CAMPAIGN

Between 1 February and 10 March 2025, sales rose by just 4% year-on-year at Inditex, tracking well below the 8.8% analysts were looking for the first quarter in its entirety.

It should be noted, however, that February is a seasonally less important month for the rag trade, and analysts at Jefferies noted an acceleration in sales growth to 7% in the last commercial week as the weather turned more seasonal, suggesting ‘meteorological conditions were especially difficult during a small part of Q1’.

Soft current trading took the shine off impressive results for the year to 31 January 2025 from the world’s biggest fashion retailer, whose other brands include Pull&Bear, Massimo Dutti and Stradivarius. Inditex delivered a 7.5% rise in sales to a record €38.6 billion and a 10.3% jump in pre-tax profit to €7.6 billion.

Chief executive Oscar García Maceiras insisted: ‘The excellent sales and profit figures show the solidity of the Inditex group’s profitable growth, based on the quality of the commercial offer of all our formats, the efficiency in all operations and the constant innovation with which our teams drive a business model that continues to show its ambition and strength 50 years after the opening of our first store.’

COMPOUNDING POWER

Sales for the fourth quarter to 31 January shot up by a better than expected 10.5%, while the company also delivered a 5% ‘beat’ to operating profit which came in at €1.88 billion helped by a tight grip on costs and expanding gross margins.

Jefferies said this beat ‘confirmed the compounding power of the group’s affordable quality fashion proposition’.

Russ Mould, investment director at AJ Bell, said the slowdown in Inditex’s sales growth gave cause for concern ‘as it implies consumers aren’t feeling as confident with opening their wallets. The uncertain backdrop is creating havoc for companies across multiple industries and retail is near the top of the list. With so much negativity in the news, it’s no wonder individuals are starting to wonder if they really need that new top or dress. They might feel it is better to hold on to that money just in case something nasty comes around the corner.’

Mould continued: ‘Whereas some companies would hide under a rock when times get tough, Inditex is ploughing ahead with investing in its technology, logistics capabilities and doing up physical stores. It is also continuing to open new shops. That’s a sign Inditex has its eye on the longer-term prize and can use its financial strength to get one up on the competition.

‘Some would say this approach is wise. However, investors remain fixated on the short-term and have focused on the slowdown, hence the negative share price reaction to the results.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.

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