Inditex profit jumps as Zara owner lifts prices

MADRID, Spain – Zara owner Inditex posted a 24% increase in net profit for the first nine months of its fiscal year, as price rises helped offset weakening global demand for clothing.

The world’s biggest fashion retailer’s store and online sales rose 19% from a year ago, slightly faster than analysts had expected. Price rises of 5% or more across some ranges since the spring helped drive sales, analysts said.

The company, whose brands also include Massimo Dutti and Bershka, said its net profit rose to 3.1 billion euros ($3.3 billion) from 2.5 billion euros a year ago during the first nine months of the year.

Net profit for the quarter was up 6% to 1.3 billion euros, in line with market forecasts according to IBES data from Refinitiv.

Shares in Inditex were up 2.8% at 12:30 GMT.

The company has outperformed some rivals since Marta Ortega, the daughter of founder-owner Amancio Ortega, took the helm as non-executive chair in April.

“The sales outperformance may reflect the quality of the product design and offering as well as the more attractive price point compared to peers as price increases appear to be less than the wider market,” Deutsche Bank analyst Adam Cochrane said.

Inditex has recently been offering more “high fashion” Zara pieces designed for special occasions. The approach has allowed it to sell higher-priced items and attract shoppers from the luxury segment of the market, according to analysts.

Speaking to analysts on a conference call, Inditex chief executive Garcia Maceiras cited a strong performance in the United States and said the company was confident about its prospects in China in the medium and long term.

Sales increased 11% during the third quarter, a slower pace than in previous months, reflecting a weakening consumer environment. The company’s second-quarter sales had increased 16% from the same period a year ago.

The fashion giant said its sales between the start of November and December 8 increased 12% from a year ago. Sales were positive in all geographic areas, it added.

H&M, which has struggled to compete with its bigger rival Zara, will report results on Thursday, December 15.

Analysts expect Inditex to have to deal with more cost increases over the coming months, including pressure from workers for higher salaries.

About 1,000 shop assistants who work at Zara and its other fashion brands went on strike during Black Friday in La Coruna, the company’s hometown in northern Spain, to demand better salaries, while others protested in Madrid a day before.

Those workers are planning to strike again the day before Christmas and in early January after rejecting the wage increase offered by Inditex until 2024. Two major local unions agreed upon the new salary proposal.

H&M this month became the first big European retailer to start laying off staff in response to surging inflation and soaring costs related to the war in Ukraine.

Inditex said temporarily accelerated inventory inflows to avoid supply chain snags are 15% higher than a year ago.

It expects its online purchases to be 30% of its total sales by 2024.

The company will also extend a platform to repair, resale, and donate Zara clothes launched in UK in November to other core markets next year, Maceiras said. – Rappler.com