Zara Owner Inditex to Boost Investment After Sales Grow — 2nd Update

By Andrea Figueras

Zara owner Inditex plans to boost investments to meet strong demand that stretched into the start of its new fiscal year as the fashion giant seeks to fend off competition from rivals including China's Shein.

The Spanish group said Wednesday that it aims to increase investments in physical stores, online platforms, logistics and sustainability. The company said it is looking to expand its physical footprint and to make its stores more productive while continuing to grow online.

The company--home to other brands such as Pull & Bear, Massimo Dutti and Bershka--also outlined plans for additional spending on logistics in response to what it called strong growth opportunities.

Fast-fashion companies like Inditex and Sweden's H&M Hennes & Mauritz are under pressure from new low-cost competitors including Shein amid an uncertain consumer environment.

Inditex said it made a strong start to the year that began Feb. 1, with sales in store and online up 11% through to March 11 in local currency and adjusted for trading days. Spring and summer 2024 collections have been well received by customers, it said.

The increase builds on growth Inditex reported for the quarter ended Jan. 31, when sales were 10.34 billion euros ($11.30 billion) compared with EUR9.51 billion a year earlier. This came broadly in line with analysts' expectations of EUR10.35 billion, according to a poll of estimates compiled by FactSet.

At 1038 GMT shares in Inditex traded 5.7% higher at EUR43.41.

Inditex's top-line growth marks a contrast with the performance of peer H&M, which in late January said sales for the two months to Jan. 29--including the key holiday period--fell 4% at constant currency.

H&M has been facing several issues during the past years, but its postpandemic recovery has lagged that of Inditex. The Spanish company appears to have a resilient business model as the high-end positioning of its brands mainly targets customers that appear to be less affected by the cost-of-living crisis, Barclays analysts said in a research note.

Furthermore, the company has a local sourcing business model, which will enable it to improve its gross margin, while other peers are facing supply-chain issues due to disruptions in the Red Sea, Barclays analysts added.

"Sales were positive in all geographical areas and in all concepts," Inditex said, adding that the performance was satisfactory both in stores and online.

The company's performance in the final quarter confirmed just how much stronger than the rest of its peer group Inditex has become, Jefferies analysts said in a research note.

Inditex's full-year net profit jumped to EUR5.38 billion from EUR4.13 billion, slightly exceeding analysts' expectations of EUR5.34 billion, according to FactSet.

The gross margin rose to 57.8% from 57%, against guidance of an increase in its margin by 75 basis points. For the current fiscal year, the company expects a stable gross margin, plus or minus 50 basis points.

The company expects extraordinary investments in logistics of EUR1.8 billion for both the year ending January 2025 and the subsequent 12-month period, on top of ordinary investments of EUR1.8 billion in the current fiscal year alone to optimize its commercial space, technological integration and online platforms.

The logistics investments will fund new distribution centers in Spain, as well as increased capacity at a center in the Netherlands, the company said.

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

(END) Dow Jones Newswires

March 13, 2024 07:29 ET (11:29 GMT)

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