© Reuters. FILE PHOTO: Shoppers walk past Zara clothing store, part of the Spanish group Inditex, in Las Palmas de Gran Canaria, Spain December 13, 2022. REUTERS/Borja Suarez
Written by Corinna Pons and Helen Reid
Madrid / London (Reuters) – Malik Zara Inditex (BME:) said on Wednesday that sales of its spring-summer collection jumped 16% over the past month, staying strong despite rising wage costs and the loss of its huge Russian business.
The world’s largest fast fashion company reported a better-than-expected 54% increase in net profit of 1.2 billion euros ($1.24 billion) for the first quarter ended in April, beating analysts’ average forecast of 980 million euros in a survey by Refinitiv.
Sales in stores and online rose 13% to €7.6 billion in the first quarter, in line with the 13.5% increase in the first six weeks of the financial year.
The results show that Inditex, whose market value topped 100 billion euros ($107 billion) for the first time last week, managed to stay competitive while raising prices, easing cost pressures, including a 20% increase in average wages for shop workers. in her homes. Spain market.
The company said it plans to invest 1.6 billion euros to increase total storage space in 2023 by about 3%.
“We expect to increase sales productivity in our stores going forward,” the company said in a statement.
Inditex, which also owns Pull & Bear and Massimo Dutti, has overtaken other retailers in 2022 as its main rival H&M struggles to compete for shoppers affected by the cost-of-living crisis.
“We are reminded from the global financial crisis that when consumers feel the pressure, as they currently do, it is the ‘newness’ in fashion that sells best, as people prioritize spending on ‘must have’ items that will make a big difference in their products,” she said. Anne Critchlow, analyst at Societe Generale (OTC:):
Inditex shares were up 5.5 percent at 0746 GMT, their highest since August 2017.
Part of Inditex’s strategy is to keep prices higher outside the eurozone. In countries like the United States, Mexico or Saudi Arabia, some clothes are up to 91% more expensive than in the local market.
Lower demand in the US due to the tougher macro environment offset lower weather-affected sales in Southern Europe.
Inditex closed more than 500 of its stores in Russia in March 2022 following Moscow’s invasion of Ukraine in February and subsequent Western sanctions. It agreed to sell the unit to Emirati group Daher in October.
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Inditex’s gross margin reached a record high of 60.5%, demonstrating its ability to pass higher prices on to shoppers while competitors saw their margins shrink. The company expects gross margin to remain stable in 2023.
The company said Inditex has started charging for online returns in more countries with no impact on sales.
It plans to open another 30 stores in the United States within two years. Analysts believe that only the most powerful fashion retailers will gain market share in an environment where consumers are becoming more aware.
“A quick look confirms my thinking that Inditex will be a market share winner in this still fragmented environment,” said Jelena Sokolova, Morningstar’s senior equity analyst.
Inditex is also investing in more self-scanning checkouts and replacing rigid anti-theft tags with chips sewn into clothing to avoid checkout queues.
With fast-fashion companies under increasing scrutiny for promoting a ready-to-wear culture, Inditex said Zara’s resale service, “Zara Pre-Owned,” which is currently only available in the UK, will launch in France, Germany and Spain in the second half.
($1 = 0.9359 euros)