PARIS — Zara parent company Inditex recorded another historic high in 2022 as customers returned in droves to physical stores but also continued to increase their online spend.
Fourth-quarter sales were up 13 percent versus the same period last year to 9.5 billion euros as foot traffic continued to stabilize around the world.
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In 2022 as a whole, sales rose 17.5 percent year-over-year to 32.6 billion euros. In constant currencies, sales were up 18 percent, while net income rose 27 percent to 4.1 billion euros in the full year.
Inditex’s results were largely in line with consensus, but analysts were wary as the company revealed 1.6 billion euros of planned spending. Shares were down 4 percent in morning trading.
The results exceeded the company’s pre-pandemic numbers, and come even as the company raised prices throughout the year to keep pace with inflation. Inditex also owns upscale Massimo Dutti, young concepts Pull&Bear, Bershka and Stradivarius, as well as lingerie and loungewear brand Oysho.
“The strength of our model has been remarkable despite a challenging environment. We have had a very strong sales performance throughout 2022,” chief executive officer Oscar Garcia Macieras said in a call with analysts following the release. He touted the company’s trendy collections and sell-through across brands. “This is the main driver why sales, EBITDA and net income have reached historic highs.”
Inditex outpaced H&M, which also released preliminary first-quarter sales numbers on Wednesday. Revenues during the three-month period were up 3 percent year-on-year in constant currencies to $5.21 billion. Excluding Russia, Belarus and Ukraine, where it closed stores in 2022, the sales increase amounted to 7 percent in local currencies. H&M also owns the Arket, Cos, Monki and Weekday brands.
Though smaller on a global scale, Inditex’s Spanish rival Mango reported historical profit highs, up 20.9 percent year-over-year to 81.1 million euros, in results released March 9. The company plans to take on Zara in the U.S., opening 40 stores in the next two years.
The 1.6 billion euros of planned spend will to toward investing in facilities and store upgrades to create a fully-integrated omnichannel experience. “The bulk of our [investment] is focused on stores, but also on the logistics and very specifically in our automation and optimization of the distribution,” Macieras said.
Linking in-store and online sales “is crucial for us,” he said. “It’s impossible to explain the strength of our online sales without taking into consideration the support coming from the physical stores, and at the same time, the strength of our physical store sales without taking into consideration the support coming from online sales.”
The company will invest heavily in expanding and upgrading Zara in the U.S., which is now its second biggest market behind its home country of Spain, with 30 major projects on the horizon in the next two years. Ten new stores are planned including The Grove in Los Angeles, The Forum in Las Vegas and Columbus Circle in New York, and 20 revamp projects including Fifth Avenue in New York, with the company’s new cleaner concept.
It will also roll out the new design concept with revamps of Zara stores in the fashion capitals of London, Milan and Paris. The company will expand other brands as well, including the trendy Stradivarius, with its first store in Germany, and the comfort brand Oysho setting foot in the U.K. for the first time.
Another investment is security, moving to RFID technology and away from bulky hard tags, which the company says will improve the purchasing process for customers and “deepen the digitization of stores and integration with online platforms in the coming years.”
RBC Europe analyst Richard Chamberlain saw the morning’s stock price dip as a buying opportunity and framed the company’s outlook as “moving to a new sustainable growth phase,” he said in note.
He put the investment spend in a positive perspective, adding that the company is poised to take over a bigger piece of the global industry clothing pie if it moves strategically. “This looks achievable given Inditex still has only circa 2 percent of the 1.5 trillion global fashion sector and so should have ample opportunity to continue to take share from weaker specialists, independents and department stores,” said Chamberlain.
Jefferies analyst James Grzinick said that the investment “seems like a seminal moment” for Inditex to upscale its offering and reach as a group. “A step-up in tech-enablement should see the group build its competitive moat even further,” he wrote.
In 2022, Inditex benefited from shoppers returning to stores, with in-store sales up 23 percent due to increased footfall. The company noted this sales growth took place despite shuttering its 514 stores in Russia following its invasion of Ukraine, and the continued closure of its 82 stores in Ukraine.
That resulted in 10 percent fewer stores for the company globally, but per-store sales were up.
Online sales continued to grow, up 4 percent to 7.8 billion euros in 2022, which marks a two-fold increase over its 2019 numbers.
Broken down by brand, sales at Zara rose 21 percent, Pull&Bear 15 percent, Massimo Dutti 4 percent, Bershka 10 percent, Stradivarius 13 percent and Oysho 4 percent.
Regionally, Europe remained the strongest region, accounting for 47.5 percent of Inditex’s sales, while the Americas accounted for 20 percent, Asia and the rest of the world 18 percent and Spain 14.4 percent.
Macieras said the company “remains confident” in China despite a challenging 2022 for its Zara, Massimo Dutti and Oysho stores there. It closed its other labels — Bershka, Pull&Bear and Stradivarius — in 2021 after the concepts failed to gel with Chinese consumers.
“It will remain a core market for Inditex. We are fully confident in our capabilities,” he said of Chinese activities, without expanding on plans there.
The company reported a rosy outlook going into the first quarter of 2022, noting that store and online sales increased 13.5 percent year-over-year from Feb. 1 to March 13 in constant currencies. Adjusting for the closing of operations in Russia and Ukraine, which took place in the same period in 2022, sales were up 17.5 percent in constant currencies.
Inditex increased its inventory in 2022 in anticipation of supply chain bottlenecks, but sees that leveling off moving forward. “Due to robust sales over 2022 and the progressive normalization in supply chain conditions by the end of the year, inventory returned to regular levels and was just 5 percent higher as of January 2023,” the company said.
The company touted its sustainability credentials, noting that it achieved 100 percent renewable energy use at its Tier 1 facilities, and said it is rolling out the launch of its resale platform in France and Germany after a successful trial in the U.K.
Macieras said the company will announce new sustainability initiatives at its annual general meeting, expected to take place in July.
Following protests in Spain, the company came to an agreement with labor unions to raise salaries by an average of 20 percent in the coming year, and will keep pace with the inflation rate over the next three years. Macieras said the wage increases have been factored into the 2023 projections, and the company is “not expecting any material impact.”
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