Inditex (ITX.MC), the parent company of fashion giant Zara, reported a promising uptick in sales from its Spring/Summer collections, boosting its shares nearly 5% to a one-month high. This rise comes as the world’s leading fashion retailer posted quarterly results in line with market expectations.
Between May 1 and June 3, Inditex’s sales increased by 12% compared to the same period last year. This strong performance helped lift its shares significantly, contrasting with a more modest 1.8% increase in rival H&M’s shares. The company’s first-quarter sales, ending April, rose by 7%, a slower pace than the previous year when sales surged due to a post-pandemic shopping boom.
Inditex, which owns other popular brands such as Pull&Bear and Massimo Dutti, is aggressively competing with fast-fashion rivals like H&M, Shein, and Temu. The company aims to stay ahead by rapidly adopting and delivering the latest fashion trends through significant investments in logistics and technology. Recent quarters have seen Inditex outperform its competitors, largely thanks to these strategic investments and innovations in store and online experiences, such as livestream shopping.
CEO Oscar Garcia Maceiras announced plans to expand the company’s successful livestream shopping services to new markets, including the United States and Britain. “We expect to launch this new service in the coming weeks,” Maceiras told analysts. He also revealed that Inditex would increase its store selling space by about 5% annually until 2026, following the enhancement or opening of stores in 28 markets recently. Currently, Inditex operates 5,698 shops worldwide.
Additionally, Inditex launched its premium brand, Massimo Dutti, on JD.com in China during the quarter, further expanding its digital footprint.
Financial Highlights and Market Performance
For the first three months of 2024, Inditex reported sales of 8.15 billion euros ($8.87 billion), slightly above analysts’ forecasts. This robust performance indicates some pent-up demand, especially after a cool and rainy start to spring in southern Europe. RBC analyst Richard Chamberlain projected a 20% increase in sales for the rest of the second quarter, highlighting the strength of Inditex’s market position.
Xavier Brun, portfolio manager at Trea Asset Management in Madrid, noted that Inditex is currently “competing against itself,” given last year’s strong performance. Inditex has managed to sell products at higher prices outside Spain, its home market. For instance, in the United States, its second-largest market by sales, the average price of new handbags increased by 54% year-on-year in the first quarter, while women’s blazers saw a 19% price hike, according to global retail analytics firm EDITED.
Despite strong competition, especially from fast-fashion newcomer Shein, analysts remain optimistic about Inditex’s prospects. Bestinver Securities analyst Patricia Cifuentes commented, “We still see upside potential for its (Inditex’s) 2024 sales and expect the stock to re-rate.”
Inditex’s first-quarter net profit rose 11% to 1.29 billion euros ($1.40 billion), aligning with analysts’ expectations. This follows a substantial 54% jump in net profit during the same quarter last year. The company plans to invest 900 million euros annually through 2025 to expand its logistics capacity, mainly in Europe. Notably, Inditex reported a 3% reduction in inventories at the end of April compared to the previous year, demonstrating improved efficiency in delivering fashion trends.
However, the company expects adverse currency movements to impact sales by 2% this year, an increase from the previous guidance of a 1.5% hit.
Overall, Inditex’s strategic initiatives and strong sales performance underline its resilience and adaptability in a highly competitive market, positioning it well for continued growth and success.