Zara Owner Inditex's Sales Grow as It Holds Off on Major Price Hikes — 2nd Update

By Andrea Figueras

Zara parent Inditex said sales grew at a steady pace in the first half, when shoppers bought more clothes as the fashion group held off on significant price hikes in a bid to fend off competition from the likes of China's Shein.

The Spanish company--also home to brands such as Massimo Dutti, Pull & Bear or Bershka--said Wednesday that higher sales volumes across both physical and online stores drove growth in the six months through July 31, and that interest in its collections for the fall-winter season continued to support sales in recent weeks.

"There were no significant price increases, with the exception of those markets with high inflation," Chief Executive Oscar Garcia Maceiras told analysts in a call after the results.

Companies across the consumer spectrum--from luxury to consumer staples to cars--said in recent weeks that they were dealing with weakening demand as inflation-wary consumers reined in spending in many parts of the world. Sales at some fashion companies fell under pressure as well.

However, Inditex reported sales of 18.06 billion euros ($19.91 billion) for its first half, slightly ahead of analysts' forecasts of 17.98 billion euros, according to consensus estimates provided by Visible Alpha.

Sales grew around 10% compared with the same period last year on a constant-currency basis, slowing somewhat from the 11% rise the company logged in the first quarter, but picked up again at the start of the current quarter. The company posted an 11% increase between Aug. 1 and Sept. 8, which it credited to a positive reception of fall-winter collections.

Shares in Inditex rose 4% in morning trade in Europe, closing in on the all-time highs the stock reached in late August.

The company's performance in August and early September shows the group is back to normal after softer growth in June and July, Barclays analysts said in a research note.

Discussions of consumer slowdowns and weather impacts don't seem relevant against Inditex's numbers, Deutsche Bank analysts wrote in a note to clients.

Primark owner Associated British Foods last week reported a drop in sales at its fashion-retail chain for its most recent quarter, which it attributed lower demand for seasonal womenswear and footwear products due to unfavorable weather. Smaller online retailer Asos said sales would fall short of analysts' expectations, but that lower-than-expected costs would boost earnings.

Swedish rival H&M is due to report results on Sept. 26.

Inditex confirmed its guidance for the current fiscal year. It targets a stable gross margin in the current fiscal year plus or minus 50 basis points from the 57.8% it achieved in the fiscal year ending Jan. 31.

The company said it now expects a 3% negative currency impact on full-year sales, while it previously forecast a 2% negative impact.

Fast-fashion companies like Inditex and H&M are grappling with fierce competition from low-cost players such as Shein and Temu. While H&M has been struggling to revive its sales momentum after the pandemic, the Zara owner benefits from a local sourcing model that has allowed it to avoid the supply-chain issues caused by disruption in the Red Sea, another major headache for retailers.

Amid a highly competitive environment, Inditex said earlier this year that it would invest to expand its logistics capacity and optimize stores and online platforms.

"We expect increased sales productivity in our stores going forward," the company said, adding that growth of annual gross space in the period between 2024 and 2026 is expected to be around 5%.

Inditex also expects a strong evolution of online sales, while it continues to optimize its stores.

The group made net profit of 2.77 billion euros for the first half, matching analysts' expectations and rising from 2.51 billion euros in the year-earlier period.

Operating profit rose to 3.54 billion euros from 3.16 billion euros, with a margin that expanded to 19.6% from 18.8%.

Inditex also appointed Antonio Florez de la Fuente and Jordi Triquell Valls, directors of the group's brands Bershka and Stradivarius, respectively, to its management committee.

Write to Andrea Figueras at andrea.figueras@wsj.com

(END) Dow Jones Newswires

September 11, 2024 05:38 ET (09:38 GMT)

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