Zara-owner Inditex Q1 profit beats forecasts as sale boon continues

The results came as the world’s biggest fast fashion company reported a better-than-expected 54% rise in first-quarter profit, as sales kept pace after a strong 2022, when it outperformed other retailers during the cost of living crisis.

Net profit came in at 1.2 billion euros ($1.24 billion) for the quarter that ended in April, exceeding analysts’ average expectations of 980 million euros in a Refinitiv poll.

The results suggest Inditex, whose market capitalization exceeded 100 billion euros ($107 billion) for the first time last week, has successfully navigated the challenges of keeping prices competitive despite cost pressures, including a 20% rise in average wages for shop workers in Spain.

Inditex reported solid sales, in line with analyst expectations of 7.56 billion euros, even after selling its profitable Russian division in 2022 and absorbing higher labour costs.

Rival H&M has struggled to compete for shoppers impacted by a cost of living crisis. H&M’s sales had also been hit by bad weather in its home market.

Inditex’s in-store and online sales rose 13% to 7.6 billion euros in the first quarter, inline with the 13.5% in the first six weeks of the 2023 financial year reported earlier in the year.

Part of Inditex’s strategy, which also owns Pull&Bear and Massimo Dutti, is to maintain higher prices outside the Eurozone. In countries such as the United States, Mexico or Saudi Arabia some clothes are up to 91% more expensive than in its home market.

Lower demand in the U.S. caused by a tougher macro environment has been offset by less weather-affected sales in southern Europe.

Steady margins

The gross margin reached a record 60.5%, showing it has been able to pass on higher prices to shoppers. The company sees its gross margin remaining stable in 2023.

Last year, the fashion company benefited from successfully passing on higher prices to shoppers despite a cost of living crisis squeezing margins at most retailers. Inditex also began to charge online returns in more countries with no impact on sales, the company said.

Inditex plans to open 30 more stores in the U.S. in two years. Analysts believe only the strongest global fashion retailers will gain market share in an environment where consumers are becoming more discerning.

Inditex also took the decision to invest more in the customer experience at stores with new self-scanning checkouts and replacing hard anti-theft tags with chips sewn into garments to avoid long queues.