Zara Owner Inditex Sales Grow on Successful Spring/Summer Collections — 2nd Update

By Dominic Chopping

Zara owner Inditex made a positive start to its second quarter with sales growth buoyed by the continuing success of its spring/summer collections.

The Spanish group said Wednesday that sales in the period between May 1 and June 3 rose 12% on a constant currency basis. That is a slower pace of growth than the 16% it saw in the same period last year, but above the 8% that analysts at Jefferies had expected.

"This suggests some pent-up demand following a cool and rainy start to spring in southern Europe," RBC Capital Markets said in a note to clients.

Investors cheered the numbers. At 0813 GMT shares traded 4.9% higher at EUR46.12.

Despite fierce competition from new low-cost, fast-fashion online rival Shein as well as its more traditional rival H&M, Inditex managed to weather the logistical and inflationary difficulties experienced by other retailers. Its positioning in the slightly higher end of the market previously allowed it to lift prices to cover costs without putting off customers, while its local sourcing model not only facilitates the rapid delivery of new trends but also means it has avoided the supply-chain issues caused by disruption in the Red Sea.

"Clearly we have a very strong advantage there with our business model," Chief Executive Oscar Garcia Maceiras said at a press conference Wednesday. "Our proximity sourcing is a key element."

He said the current acceleration in sales is being achieved through volume growth rather than pricing, as the company's prices remain "very stable."

The company--home to other brands such as Pull & Bear, Massimo Dutti and Bershka--said operating costs continued to show a favorable development, rising at a slower pace than sales in its fiscal first quarter that runs to Apr. 30.

New store openings, store refurbishments and online sales are expected to further support sales growth going forward, the company said.

"Inditex continues to power ahead with strong top line sales, strong exit rates for spring/summer and profits accelerating faster than sales," Bernstein analysts noted.

The company is currently embarking on a multi-year logistics investment program that will see it spend 900 million euros ($979.3 million) both this year and next as it expands its logistical capacity in Spain and the Netherlands while spending EUR1.8 billion this year on growing store space by 5%, improving technology and boosting its online offering.

Analysts have sought reassurance that these plans won't dilute margins and the company said Wednesday that it still expects a stable gross margin in the current fiscal year plus or minus 50 basis points from the 57.8% it reported in the fiscal year ending Jan. 31.

The company said its fiscal first-quarter gross margin for the three months to Apr. 30 edged higher to 60.6% from 60.5% in the same period last year, while the operating margin rose to 20.1% from 19.5%.

Inditex reported a net profit of EUR1.29 billion in the period from EUR1.17 billion a year earlier, just shy of the EUR1.31 billion seen by analysts in a FactSet poll. Sales grew 7.1% to EUR8.15 billion.

It expects a 2% negative currency impact on full-year sales, slightly worse than the 1.5% impact it had previously guided for.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

June 05, 2024 04:57 ET (08:57 GMT)

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