Inditex shares fall as rising costs hit first-half margins

(Sharecast News) - Shares in Inditex fell in Madrid on Wednesday after the fashion conglomerate underwhelmed with its first-half results, with profits falling short of analysts' expectations and overshadowing a strong reported start to the third quarter.

The company, which owns eight companies including its flagship Zara brand, reported a pre-tax profit of $3.8bn for the six months to 31 July, up 6.8% over the year before.

However, while the gross margin improved 40 basis points to 58.7%, the second-quarter gross margin of 56.7% came in short below forecasts. During a call with analysts on Wednesday, management attributed the weaker result to higher transport and input costs due to the Middle East conflict.

The stock was down nearly 5% at �53.78 by 1306 BST.

Despite the disappointment, sales were solid in the first half, rising to �19.76bn, up 7.6% from 18.36bn the year before, with all brands contributing to growth. If currency movements are excluded, sales growth would have been 9.2%.

The company said the spring-summer collections were "very well received by our customers" while sales growth reflected a "satisfactory development both in stores and online".

"These excellent results highlight the extraordinary capabilities of our teams. In a highly complex global environment, they have succeeded in delivering every day to our customers all around the world the products and fashion experience that they demand," said chief executive �"scar García Maceiras.

Looking ahead, Inditex said autumn-winter collections also saw a positive response from the market, with constant-currency sales growth of 9% recorded since the half-year stage despite the extreme temperatures affecting footfall for many retailers across Europe.