Zara-owner Inditex beats expectations in face of mounting competition from Shein

By Louis Goss

Zara-owner Inditex, the world's largest fast-fashion retailer, on Wednesday said it successfully boosted its sales and profits in the first quarter as it outlined plans to invest heavily in its business in the face of mounting competition from ultra-low-price rival Shein.

Inditex, posted a 7.1% increase in its first quarter sales, to EUR8.2 billion ($8.9 billion), and an 11.1% increase in its pre-tax profits, to EUR1.7 billion, that saw it perform in-line with consensus forecasts, a poll of 10 analysts by FactSet shows.

Shares in Inditex (ES:ITX), listed on Spain's stock exchange, increased 4% on Wednesday having gained 43% over the previous 12 months.

Inditex said it is now aiming to boost its sales by around 5% a year from 2024-26, by growing its share in the 214 global markets that it already operates in, while also increasing its online sales which accounted for 25% of firm-wide revenue in the full-year 2023.

The Zara-owner is currently facing mounting competition from Sino-Singaporean company Shein which has increasingly started to challenge the world's top fast-fashion retailers including Inditex and H&M (SE:HM.B) (HNNMY)of Sweden.

Shein, which was started by Chinese entrepreneur Chris Xu in 2008, has grown rapidly over the previous decade and is believed to have annual sales worth more than $30 billion, even though the actual figures remain shrouded in secrecy due to the nature of privately owned company.

In response to Shein's rise, Inditex has pushed to grow its low-price clothes brand Lefties, which sells sunglasses for as little as EUR3.99, in a bid to capture a larger share of the Gen Z market of which Shein has the lion's share.

Shein is now readying itself to launch on public markets and is reportedly considering listing on the London Stock Exchange in order to avoid being subject to heightened scrutiny in the U.S.

Inditex on Monday also announced it had struck a deal with Chinese giant JD.com (JD) to launch nearly 1,000 products from its Massimo Dutti premium clothes brand on the company's online platform in a move aimed at boosting its sales in China, the world's biggest e-commerce market.

The retailer also vowed to invest EUR1.8 billion in 2024 and 2025 into upgrading its logistics capabilities to fit the highest technology and ESG standards, with analysts having previously warned fast-fashion retailers could soon face growing backlash from customers over their environmental sustainability credentials.

Inditex noted it is investing in improving store security via a new system that is set to launch across its flagship Zara brand this year before being deployed across the Spanish firm's other brands in the years following.

Separately, low price retailer B&M European Value Retail (UK:BME) (BMRRY)reported a 14% uptick in its pre-tax profits to GBP498 million ($635.9 million) for the full-year ending in March, but fell short of analysts' expectations it would generate profits worth GBP532.5 million in the full-year.

Shares in B&M European Value Retail, listed on the London stock exchange, fell 6% on Wednesday having lost 9% of their value in the year-to-date.

The budget retailer, which opened its first shop in Lancashire in 1978, grew its revenue by 10.1% to GBP5.5 billion in the full-year 2024, on the back of "volume-led momentum" in its sales, but failed to give guidance and offered little insight into its current trading performance.

-Louis Goss

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06-05-24 0521ET

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