© Reuters. FILE PHOTO: Zara’s logo is displayed on a window, at one of the company’s largest stores in the world, in Madrid, Spain, April 7, 2022. REUTERS/Juan Medina/File Photo
By Corina Pons
MADRID (Reuters) -Zara-owner Inditex (BME:)’s shares rose to a record high after it reported positive early spring sales, boosted by upmarket fashions and continuing the strong momentum that saw its 2023 revenue growth top that of rival H&M.
Shares in the world’s biggest fashion retailer rose as much as 5.9% on Wednesday after it reported that sales at constant currencies for Feb. 1 to March 11 jumped 11%. Sales rose 10% to a record 36 billion euros ($39 billion) in the year to January 2024.
“The year got off to a positive start in a complex environment of inflationary pressures and an unstable geopolitical situation,” CEO Oscar Garcia said in a press conference.
The Spanish group is expanding in the U.S., its second-largest market after Spain, and plans Zara store openings in Los Angeles, Las Vegas and Cambridge, Massachusetts, as well as the first Massimo Dutti store in the country that will open in Miami.
The company behind Zara has widened its lead over Sweden’s H&M thanks to its ability to deliver trends faster from nearby suppliers and sell more clothes at higher prices. That has also helped it counter fast-growing Chinese rival Shein.
In January, H&M reported a 4% drop in December and January sales, a bad sign for the key Christmas shopping period. German online fashion retailer Zalando on Wednesday reported a full-year decline in sales.
SALES GROWTH SLOWS
The company’s results were in line with analysts’ expectations but its sales are growing more slowly than a year earlier, as the pace of price increases has moderated. In the first half of spring 2023, its sales rose 13.5%.
Inditex posted an annual net profit of 5.4 billion euros, up 30% on the year and in line with analysts’ expectations in an LSEG poll, as the company maintained a gross margin of 57.8%.
Inditex said it planned to invest 900 million euros per year through 2025 on logistics. Those plans include new logistics centres in Zaragoza in Spain and the Netherlands, Garcia said during an analysts call.
It will spend a total of 1.8 billion euros this year to expand its store space by 5%, and on technology and improving online platforms in 2024.
Inditex said it will start weekly livestreaming shopping services for its core brand Zara in the U.S. and UK this year, after offering the e-commerce experience in China since the end of 2023.
Livestreaming is a retail phenomenon that initially became popular in China, combining online shopping, video streaming and texts to sell millions of products, and companies including Durex-owner Reckitt have jumped on the trend.
Garcia said Inditex would expand its second-hand business to the U.S. after its launch in UK in 2022 and later in the rest of Europe last year.
DIVIDEND BOOST
The company had 5,692 stores worldwide in 2023, 123 fewer than a year earlier, and said its inventories in January were 7% lower year-on-year, in part due to the “normalisation in supply chain conditions”.
Inditex said it will increase its dividend payout by 28% to 1.54 euros per share, above analysts’ expectations.
Inditex’s core brand Zara began to raise prices earlier than H&M in response to surging inflation and as part of a shift to offer special, high-fashion pieces, while growing other brands in its budget range.
But over the last two years, Zara has increased average prices season-over-season at a slower pace than H&M and others, according to retail intelligence company EDITED.
Investors expect Inditex to continue to outperform H&M. The Spanish group has a higher valuation than peers H&M, Gap, and Next.
($1 = 0.9152 euros)
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