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Zara’s margins expected to take a hit in Q3

Zara is seeing margins under pressure. It is on course for its worst year since 2008. Q3 results due soon are likely to prove the point. Like-for-like sales are set to show a marked deceleration in the second part of the period, as the mild European weather has delayed purchases of fall/winter garments. The stock is hurt by short term concerns over the impact on profitability of a strong euro and a slowdown in like-for-like performance. Same-store sales growth decelerated to six per cent in the six months to July 31, from its strongest in at least 14 years in fiscal 2017.

Yet, Inditex, owner of Zara, has a business model that’s unmatched in the industry. Renowned for revolutionizing the supply chain model for fashion retail, the Spain-based company has gained a devoted following in the investment community. Inditex’s ability to get products quickly from the catwalk into stores, along with its smaller batch sizes, appeals to a modern consumer who thrives on instant gratification. Zara shoppers are happily prepared to pay a higher price for more newness, for fashion which is really on trend.

The emergence of online fashion retailers has put pressure on traditional, store-based rivals around the world.