Profits at Zara owner Inditex beat forecasts as sales surge bucks cost-of-living crisis

Zara owner Inditex said on Wednesday sales of its spring-summer collection jumped by 16 per cent over the past month, in a sign the fast fashion retailer can continue its strong run despite higher wage costs and the loss of its Russian business.

The results came as the world’s biggest fast fashion company reported a better-than-expected 54 per cent rise in first-quarter profit, as sales kept pace after a strong 2022, when it outperformed other retailers during the cost-of-living crisis.

Net profit came in at €1.2 billion for the quarter that ended in April, exceeding analysts’ average expectations of €980 million in a Refinitiv poll.

The results suggest Inditex, whose market capitalisation exceeded €100 billion for the first time last week, has successfully navigated the challenges of keeping prices competitive despite cost pressures, including a 20 per cent rise in average wages for shop workers in Spain.

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Inditex reported solid sales, in line with analyst expectations of €7.56 billion, even after selling its profitable Russian division in 2022 and absorbing higher labour costs.

Rival H&M has struggled to compete for shoppers impacted by the cost-of-living crisis. H&M’s sales had also been hit by bad weather in its home market.

Inditex’s in-store and online sales rose 13 per cent to €7.6 billion in the first quarter, in line with the 13.5 per cent in the first six weeks of the 2023 financial year reported earlier in the year.

Part of Inditex’s strategy, which also owns Pull&Bear and Massimo Dutti, is to maintain higher prices outside the euro zone. In countries such as the United States, Mexico or Saudi Arabia, some clothes are up to 91 per cent more expensive than in its home market.

Lower demand in the US caused by a tougher macro environment has been offset by less weather-affected sales in southern Europe.

The gross margin reached a record 60.5 per cent, showing it has been able to pass on higher prices to shoppers. The company sees its gross margin remaining stable in 2023.

[ Ireland sole European country where Zara cannot move goods by train, Oireachtas committee hears ]

Last year, the fashion company benefited from successfully passing on higher prices to shoppers despite a cost-of-living crisis squeezing margins at most retailers. Inditex also began to charge online returns in more countries with no impact on sales, the company said.

Inditex plans to open 30 more stores in the US in two years. Analysts believe only the strongest global fashion retailers will gain market share in an environment where consumers are becoming more discerning.

Inditex also took the decision to invest more in the customer experience at stores with new self-scanning checkouts and replacing hard anti-theft tags with chips sewn into garments to avoid long queues.

– Reuters

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