Inditex H1 Sales Gain 16.6% as Retailer Adds Bigger Stores
PARIS — As luxury grapples with consumer caution, fast-fashion continues its growth with Zara parent company Inditex reporting another step in its nonstop climb.
Sales were up 16.6 percent in constant currency in the first half to 16.9 billion euros as it added stores and despite nudging up prices incrementally over the last year. It puts Inditex ahead of its rival H&M, which reported “flattish” sales in the second quarter.
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The Spanish company’s gross profit topped 9.8 billion euros in the six months to July 31, growing 14.1 percent year-over-year, while net income increased 40.1 percent to 2.5 billion euros.
“The first-half results demonstrate that the talent of our teams continues to consolidate the improvements in the performance of our business model. The ongoing commitment to creativity, quality and customer experience, as well as the determined progress in sustainability, drives a strategy that is taking our business to the next level,” said chief executive officer Óscar García Maceiras.
Looking at the third quarter, sales were up 14 percent in constant currency between Aug. 1 and Sept. 11, compared to the same period in 2022. “Q3 trading so far is progressing well…despite the challenging August weather in Europe,” said Bernstein analyst Maria Meita.
The retail behemoth seems to be sidestepping any inflationary caution even as consumers tighten their pocketbooks. It’s about to open its largest store in Rotterdam, Netherlands, in November. The 96,875-square-foot space will include a Zara Home offering as the brand increasingly positions itself in the interiors category.
The company is also doubling the size of its Zara stores in Paris near the Hôtel de Ville and Miami’s Dadeland mall. It just opened new Zara stores in São Paulo’s Patio Higienopolis and in Joy City in Shenyang, China.
With bigger, glossier footprints, the upgraded stores are part of the brand’s upscaling strategy and high-tech design concept. They include dedicated accessories spaces with shoes and handbags, as well as beauty, lingerie, activewear, plus self-checkout and an app that can pinpoint items within a store.
Index operates in 213 markets, and openings of new stores have been carried out in 20 markets. The company now operates 5,745 stores across its brands, including Pull& Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Zara Home.
Berksha’s Milan Vittorio Emanuele and Stradivarius’ Barcelona Paseo de Gracia stores were enlarged, too.
“We have positive space contribution, small but positive of the first half,” Maceiras noted in a conference call to discuss the results. While it has closed some underperforming stores, the overall space grew 3 percent. The executive emphasized that even though its footprint is increasing, much of their sales growth is from conversions in existing stores and online with full-price sales playing a big part.
The company has also asserted better control of its supply chain, reducing inventory 6.9 percent. Maceiras noted that 2022’s inventory flows had been “unusual” due to a post-pandemic supply-chain hiccups, but now the level has been stabilized.
That has resulted in fewer markdowns and “very, very strong” sell-through, even as the company bumped up prices incrementally over the last year.
As its flagship brand Zara continues to up its fashion credentials under the direction of non-executive chair Marta Ortega, it will pursue its collaboration strategy.
“We are always seeking to work closely with the most cutting-edge talent in our industry,” he said, touting its most recent collaboration with photographer Steven Meisel that had a splashy debut party at New York Fashion Week. The company will hold a similar event during London Fashion Week, then roll out the collection worldwide.
The weak euro has had a “negative impact,” particularly on sourcing, but that will ease going into the second half, Maceiras said.
“The U.S. remains our second largest market. The business is working very well,” Maceiras said. “We continue to see very significant opportunities for our selective growth there.” That includes 30 projects, including expansion in New York, Louisiana and Florida.
The Americas region now accounts for roughly 20 percent of Inditex’s global sales, with Asia about 19 percent.
Inditex’s results slightly beat analyst forecasts, with sales ahead of estimates by about 1 percent.
“We view Inditex as a strong omnichannel fashion retailer, which historically has benefited from its speed to market and product department-driven manufacturing process,” said RBC analyst Richard Chamberlain in a research note. The company’s inventory reduction, as well as the roll out of new technology, including RFID tags and investment in omnichannel, has helped boost investors’ confidence, he added.
Those tags, which the company has touted as an alternative to hard plastic tags, are being tested in key markets and will roll out globally by the end of 2024, the company said.
“We believe shrink remains below the industry average, reflecting Inditex’s higher than average unit prices and relatively affluent customer demographic,” Chamberlain added about the RFID tags, which will also improve customer experience.
The company previously said it expects its online channel to account for more than 30 percent of sales by 2024, but Maceiras wouldn’t say where the company falls on that timeline.
“It’s impossible today to explain the online sales without the strength of the physical presence of our network of stores that provide key logistic capabilities for online, and at the same time, the strength of our online platforms reinforces our physical stores,” he said. Online sales boost in-store foot traffic, and vice versa, he maintained.
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