Zara owner Inditex’s profit up 80 per cent as shoppers stock up
Zara owner Inditex has posted a bumper quarterly profit, while taking a hit of €216m after the temporary closure of its business in Ukraine and Russia.
The Madrid-listed firm, which is the largest fashion company in the world, saw net income profit hit €760m in the first quarter of the year.
It marked a decade-high gross margin of 60 per cent, with good results driven by what Inditex described as a “sharp recovery in store traffic” and a “good reception for all seven brands’ new season collections.”
Without the provision of €216m to cover costs relating to its operational closures in Ukraine and Russia, the group would have reported net profit of €940m.
The results were in line with analyst forecasts, with CityA.M. previously reporting that the fashion powerhouse was expected to benefit from higher prices while still holding strong market share.
However, there were warnings from analysts that the Bershka and Stradivarius owner would struggle to entice shoppers amid a cost of living crisis, when some consumers will look to trade downwards at more affordable brands.
UBS research found that in April the company’s starting prices increased by an average 18.5 per cent.
The results are evidence that, “consumers aren’t ready to give up on their looks just yet, despite household bills increasing across the board, Laura Hoy, equity analyst at Hargreaves Lansdown, said.
She added: “Despite the ever-present cost of living crisis, people continued to flock to Inditex stores. The group’s own costs rose at a slower pace than sales, which padded profits and set the group up nicely for the year ahead. Confident is the best descriptor of management’s tone in today’s update, with a special dividend now on the table.”
At the start of the second quarter, sales had risen some 17 per cent between 1 May and 5 June.
However, sales had increased 13 per cent during the last two weeks of the period.
The results were due to a “well-differentiated model that is delivering strongly,” Óscar García Maceiras, Inditex’s CEO, said.
He added: “The strength and adaptability of the business model and the excellent performance of our creative, sales and operating teams are driving that differentiation forward, underpinned by a strategic focus on innovation, digitalisation and sustainability.”
The company was keen to highlight its online performance, having retained almost all of its 67 per cent online growth in 2021. Group revenue from online sales declined slightly by six per cent year on year.
In a presentation to investors, the fashion firm said it hoped online sales would exceed 30 per cent of total sales by 2024.
A return of shopper footfall to stores was driven by consumers’ desire to return to normal lives after the pandemic, bosses told analysts.
There had also been no impact on sales after an extension of a charge for some online returns, now rolled out in 38 markets, the firm said.