Zara owner Inditex sees early autumn sales perk up after summer slowdown
By Corina Pons
MADRID (Reuters) -Zara owner Inditex (BME:ITX ) reported a jump in sales of its autumn/winter collection on Wednesday, boosting its share price as the world's largest listed fashion retailer recovered from a summer marred by poor weather.
Shares in Spain's Inditex were up 4.6% by 0855 GMT, outperforming the IBEX35 which was up 1.1%.
Inditex said its sales between Aug. 1 and Sept. 8 saw an 11% boost in constant currency compared with a year ago. In the first half, sales growth had slowed to 7.2% from 13.5% in the same period a year ago, partly due to a wet and cold June in its home market.
Analysts had anticipated a rebound in the third quarter after the poor weather in June dashed Zara's hopes for a bumper second quarter.
Sweden's H&M (ST:HMb ) said in June its sales for that month were likely to fall 6% in local currencies versus a year ago, partly due to the worse weather in many markets, while Primark said on September 5 the wet weather in Britain hit its summer sales.
Inditex reported a 10% rise in first-half profit to 2.8 billion euros ($3.09 billion) and sales of 18.1 billion euros to the end of July. Analysts polled by LSEG had expected a profit of 2.77 billion euros on 18 billion euros in sales.
"We have full confidence in our ability to grow this business, mainly because of the unique model," CEO Oscar Garcia Maceiras told an analyst call, adding that the company's strength in online sales owed much to the operational support of stores.
The retailer has fought to stay ahead of competitors such as H&M and fast-growing Chinese fashion rival Shein by investing in logistics and technology to deliver fashion faster and by keeping prices low on everyday items.
A new logistics centre in Zaragoza, Spain, is expected to open in May or June 2025, Maceiras said, and the retailer will renovate some of its Chinese and Spanish flagship stores while expanding its Massimo Dutti brand in the U.S. and Bershka in India.
Maceiras said Zara would expand its pre-owned app-based service to the United States in October of this year, which allows customers to sell, donate or repair items. It aims to cover all key markets by 2025.
Zara will also be engaging customers with live shopping broadcasts in key markets such as Spain, the U.S., France, Italy, Germany, Britain, Ireland, the Netherlands and Canada in the coming months, after success in China.
The company reported a gross margin of 58.3% for the period, 19 percentage points higher than in the same period last year.
"The first-half gross margin shows a lower-than-expected cost growth," said RBC analyst Richard Chamberlain in a note.
According to analysts and investors, Inditex is better protected from supply chain headwinds in Asia than rivals because half of its products are sourced close to Spain.
"A seasonal phenomenon such as the weather does not affect Inditex's business in the long run," said Xavier Brun, portfolio manager at Madrid-based Trea Asset Management, which holds Inditex shares. "We're looking at the long term and its U.S. strategy. We believe it can grow a lot in that market."
In the U.S., its second biggest market, Zara is raising prices more slowly than in the past and less than H&M in the second quarter, with prices for jeans up 2% on the year compared with an 8% rise at H&M, according to retail analytics firm EDITED.
"(On) a three-to-five year view, Inditex is the best fashion retailer in the whole brick-and-mortar space, as well as online," said fund manager Vera Diehl of Union Investment, who considers Inditex's gap with H&M and Shein has widened.
($1 = 0.9050 euros)
Source: Investing.com
